The US Economy and Its Impact on the Technology Sector

For the most part, 2018 was a solid year for the American economy with its gears grinding on most of its cylinders. The spending of consumers increased and companies had more investments. But the year 2019 may offer a slowing down of this growth according to expert analysis of economists.

The Bureau of Economic Statistics recorded a growing pace of 3.5% for the US gross domestic product (GDP) of the US in the third quarter of 2018. This rose to 4.2% during the fourth quarter.

Yet these inspiring numbers may not be sustainable for 2019. Goldman released their prediction that the GDP may decline by 1.8% this coming third quarter of 2019 and may continue to plummet to 1.6% during the fourth quarter of 2019.

Experts believe the positive growth of 2018 was a direct result of tax cuts in 2017. For this fiscal year, Goldman expects a tightening of financial conditions.

However, the outlook is not entirely dim. There is just a balance of caution and optimism for 2019. The American economy may slow down but it will not yet enter recession this year. There is also an enduring belief that the technology industry will continue to play a pivotal role in keeping the economy afloat and alive.

The US Economy: Crunching the Numbers

Reuters conducted a survey of economists about the possibility of a recession in the US for 2019 and most responded that the probability is low at 35%. But the forecasts are not overly optimistic either. Several economic and political factors have been identified as challenges for the US economy.

These include the continuous rise of interest rates, difficulties in controlling borrowing costs for consumers, and more trade tariffs by virtue of President Donald Trump’s aggressive trade policies.

Moreover, the global economy is not as energetic too. The Organization for Economic Cooperation and Development provided a lower forecast for the economy of the entire world from 3.5% – down a few notches from its earlier forecast of 3.7%. The thinktank believes that the prospects of global expansion has reached its peak and may likely slowdown in the next two years.

In a separate assessment, Bank of America Merrill Lynch had a survey of fund managers. 44% of them expressed insights that global growth will slow down in 2019.

Some of the global events that have been contributing to this uninspired forecast include the continuing Brexit trade wars, the tension between Italy and the European Union, more US sanctions for Iran and shaky stock markets, to mention a few.

But there is still light at the end of the tunnel for the American economy.

The US has the world’s largest economy and it has strengthened further with the creation of more jobs. Most of these employment opportunities emerged from the dominance of its technology sector.

The Tech Titans of America: Heavy Lifters of the US Economy

The tech sector continues to be a bright spot for the American economy.

Even when the Trump Administration hasn’t delivered yet on some of its promises such as the deregulation of the financial sector and tax reforms, the stock market hasn’t come to a screeching halt.

Most experts give credit to the strong performance of tech giants such as Apple, Alphabet (the parent company of Google), Facebook, and Amazon.

They comprise 37% of the total market gains of America presently.

Wall Street experts fondly call these tech giants GAFA or Google, Amazon, Facebook and Apple. James Pethokoukis has this to say about GAFA in his opinion piece “Leave Silicon Valley Alone” from theweek.com:

“Google, Amazon, Facebook, and Apple — what Wall Street calls GAFA — are four of America’s most valuable and important companies, providing a massive benefit to consumers. Collectively they’re the Tony Stark of corporate America: They pay for everything, design everything, and make everyone look cooler. If the U.S. is going to remain the world’s technological leader against China’s challenge, GAFA will be pivotal.”

The Economist noted that ten years ago, the five largest spenders of America were bastions of traditional businesses such as AT&T, Chevron, ExxonMobil, General Electric and Verizon.

Now the top five are Alphabet, Amazon, Apple, Intel, and Microsoft – all tech giants.

They accounted for 80% of America’s advanced industries from 2015 to 2017

These tech companies have smartly reinvested 50% of their total gross cash-flow towards productive projects such as properties, plants, and equipment.

For example, Alphabet is redeveloping Chelsea Market in New York while also funding vital data centers.

Amazon is creating e-commerce fulfillment centers to remain in the lead as far as online market activity is concerned.

Semiconductor firms are expanding productions to help out sustainable technologies such as machine learning and autonomous (self-driving) cars.

Most tech giants are also improving access to cloud computing capacity. This has made it easier for other industries to be more efficient in their data handling and storage needs.

Cloud Computing and Data Management Solutions

Among the strongest suits of the digital sector is the emergence of technologies that focus on efficiency: cloud computing and data management systems.

Cloud computing remains one of the budding technologies with a strong grip in the market. This technology focuses on the collection and storage of big data and information security.

Data management systems have also become vital to ensure that data can be accessed uniformly, systematically and efficiently across various platforms.

These breakthroughs have become useful and integral to other non-tech companies. Other industries have been using these technologies such as health care, transportation, education, energy, entertainment, communications, finance, and professional services.

Tech titans keep finding ways to integrate itself as a need, in various sectors. Take for example Google’s efforts to focus on education by making it easier to transmit information, documents and other deliverables online with the help of Google platforms such as Gmail and Google Drive.

Mobile operating systems have basically become a two-way race between Apple and Alphabet.

Facebook and Google comprise three-quarters of the digital advertising industry in 2016.

The tech giants have become the centers of gravity for the American economy. Cloud computing and data management systems have created a lot of employment opportunities and earning potential in America. Even with the unpredictability of economic policies and even politics, IT-related companies have a sustainable path to revenues.

According to Cyberstates 2018, there is an expected rise of 13 percent in computer and IT-related jobs between 2016 to 2018. Among all other occupations in the US, this is the fastest rate so far.

The tech boom has also become a benefit for non-tech companies which provide a wide range of services and products.

Examples of these are FedEx and UPS which have been improving their e-commerce capabilities by purchasing airplanes and creating more depots.

The emergence of cloud storage and data management systems has also increased the demand for peripherals such as server racks, wall mounts, and cable managers for databases.

Politics and the Tech Sector

Remarkably, one of the biggest challenges of the tech industry has nothing to do with technological limitations. The point of contention so far is politics and policies.

The ongoing trade tension between Washington and Beijing has created frosty relationships and potential deadlocks when it comes to emerging technologies and supplies of spare parts.

Trump has recently put tariffs amounting to $250 Billion of Chinese products, including tech goods.

Washington has put out threats that they will enforce export controls on a wide range of digital breakthroughs developed by American tech titans.

Google, Facebook, Intel, Amazon, and NVIDIA have so far created significant milestones and strides when it comes to these new technologies:

• Machine learning and neural networks
• Computer vision
• Artificial intelligence
• Cloud services Dedicated chipsets
• Autonomous vehicles
• Augmented and virtual reality

The US government is citing national security grounds as reasons for these export controls. They believe that China is stealing intellectual property rights of American tech titans using predatory and unfair means.

The hope is by enforcing export controls, it will be difficult for China to have access to these breakthrough technologies.

But if these technologies are withheld or hidden, it doesn’t necessarily mean China will never have access. Most tech analysts believe that China has moved on from stealing and they are also competitive in their own innovations.

Moreover, these scientific breakthroughs are also available in academic circles. There is nothing that is stopping China from accessing these technologies using academic sources.

Analysts believe that other countries may develop the same technology that America will be hiding or withholding, and sell their own versions. It can potentially lead to significant revenue losses for US companies.

In the long run, it can compromise the considerable lead of American tech titans in the digital sector that they have worked hard to build.

Ed Black, chief executive of the Computer and Communications Industry Association has this to say:

“It does not seem to me like it is a well-thought-out game plan. The gap between . . . what [the administration] would like to do and what they can reasonably accomplish is potentially very large. That, I think, is an indication that they have yet to fully develop a strategic or tactical approach.”

As far as production of parts and peripherals is concerned, on the other hand, it can be an opportunity for American companies to rely more on internal capabilities and further improve the production of spare parts and other IT-related peripherals.

Rocky Relationship with the White House

It’s not only with China. President Donald Trump also doesn’t have the most ideal relationship with American tech companies – even though it has been well-established that the economic dominance of the US globally is largely powered by its tech titans.

Recently, Washington has imposed immigration limits for tech companies. This would severely hamper the performance of companies who rely on the H-1B visa program that allows them to hire highly skilled workers from overseas.

Trump’s ongoing trade war with China also has serious implications on gadget makers, especially small startups for hardware. The supply of spare parts abroad may experience difficulties. This may lead to the transfer of the burden to consumers through higher retail prices.

Upward Trajectory for the IT Sector

Despite the challenges they are facing in the economic and political climate, the outlook for tech companies is very optimistic this 2019.

Silicon Valley in the southern Bay Area of Northern California remains the iconic core of tech companies. Analysts hope tech companies will keep branching out further into the Heartland to gain more momentum for the industry and to provide more jobs.

Tech titans Amazon, Google, and Apple have started offering high-level posts away from the typical hubs of Seattle and the Bay Area.

Tech companies are putting a premium on finding talent in various parts of America.

The success of the tech boom is not limited to Silicon Valley. The outlook is trending upwards for the entire country. In 22 states, tech companies rank among the top five economic contributors.

Data from Brookings from 2015 to 2017 show that there have been massive IT growth in areas outside of Silicon Valley. Consider the following:

Wichita, Kansas: 552 jobs, 18.9% change
Lakeland-Winter Haven, Florida: 196 jobs, 15.4% change
Chattanooga, Tennessee-Georgia: 285 jobs, 11.6% change
Boise City, Idaho: 785 jobs, 11.6% change

The established IT hubs have also strengthened their base. Most new tech jobs are still offered in markets that are already focused on technology:

Tech Titans and the Cloud

The leading IT companies have put an emphasis on cloud computing, data management systems and other emerging technologies. This has opened highways of revenue potential for tech and non-tech companies that are providing related products and services.

With the tech titans in the lead, the economic outlook for the entire IT sector is sustainable and encouraging.

Google has a good stake in the cloud industry sweepstakes. With their free platforms, they have created a higher demand for data storage, higher resolutions for images and larger sizes for files. Google is in a good position to respond to more data demand in the future.

Alphabet, the parent company of Google, has also invested in Waymo, a unit for autonomous transportation that focuses on robo-taxi services. Going into the future, it has a valuation of $175 billion and can increase further as data management for this technology continues to progress.

Apple, on the other hand, had a relatively lost year for 2018. While it received a year-high 25% growth in 2018, investors eventually felt the momentum slowed down along with the decline of iPhone sales in the last months of 2018.

Daniel Ives, an analyst from Wedbush Securities, mention two critical factors in the down year of Apple: the slowdown in iPhone sales and the lack of transparency for investors.

But thankfully like other tech titans, Apple is not a one trick pony. 5G technology is set to arrive in late 2019 and Apple is in a good position to capitalize on it. With this, investors may expect positive growth for Apple’s stock in the latter months of 2019.

Another technology that Apple can bank on is the possibility of releasing a video service that will go head to head with Netflix and Amazon Prime Video. The anticipated increase in Apple’s needs for data management can only bode well for the future of the IT sector.

As for the software industry, there is a growing dependence on big data management and cloud storage. It is also encouraging to note that the sector has created 10.5 million jobs in America across all 50 states – a strong indication that the sector is here to stay.

Because of this impact, the software industry accounts for $1.14 trillion of the US Gross Domestic Product (GDP). Software companies also find ways to keep this sustainable and thus they have devoted $63.1 billion for research and development.

Enduring Economic Challenges for a Stable and Sustainable 2019

Despite challenges, tech companies will keep on grinding like clockwork and producing outputs at a high clip.

The key to all of this is innovation. The tech titans of America continue to have access to breakthrough technologies that change the way the world does its business.

And while there will be hiccups along the way, technology and innovation are like freight trains that are hard to stop, especially when the world embraces their ways and means.

This is what happened when Google became a household name as an online search engine. Or how Facebook evolved from a college project to the primary energy behind social media. Or Apple’s prototypes that projected smartphones as a need and not as a luxury.

The tech sector will continue to blaze trails not only for America but also the entire world. It will open several gateways to more productivity and jobs.

Currently, most private sector jobs are provided by companies that have been created less than five years old. These are companies that are powered by innovation and technology, currently employing over 6.7 million people and bringing back more work in the US.

It significantly decreases the need to outsource jobs.

The automation of several non-tech industries has also increased the productivity and efficiency of the US economy. These have caused lower prices and higher demands, which in turn causes more employment opportunities for Americans.

The future is still bright for the tech titans of America. It is already unstoppable now, and it can only gain more momentum in the future. If there is a force that can make America great again, look no further than Silicon Valley to take the lead. Innovation is at the heart of it all.

There was a time when technology was just an exciting possibility: a door that can open multiple gateways, a prospect that can lead to diversionary fun and games.

But times have changed. Technology is now the game. Technology is now.

Digital breakthroughs can change the landscape of the world with the touch of a fingertip. There is barely any time to catch up on the latest trends.

But idly wink, and it can lead to significant financial losses or a plunge to irrelevance if a company doesn’t pay attention. It’s keep up or pay the price.

Cradled in Silicon Valley, the leading technological titans of America have wasted no time sprinting ahead of the competition in their respective industries. The world has followed their leads.

Even with the unpredictability of government interventions and market forces, the tech titans of America are safe. They ensure the stability of the entire IT sector for 2019 and beyond.

A thriving innovation ecosystem, in turn, will provide smarter opportunities for growing our economy, protecting the environment, boosting education, and improving public safety.” – Chris Hopfensperger, executive director of Software.org.

Source:RackSolution