IT spending in 2008 will increase by only low single digit percentages and may be closer to flat, according to research released this week by Computer Economics.

On the plus side, a solid majority – 66 percent – of organizations surveyed expect their IT budgets to increase in 2008, while only 12 percent expect cuts. Large organizations were a bit more cautious in spending plans with 60 percent saying they expect their IT budget to increase and 16 percent expecting budget cuts.

Last year, the forecast for spending in 2007 was a median average increase of five percent in the Computer Economics report; this time it's only 2.5 percent, the lowest level of IT spending increase the firm has seen since 2004.

Why the drop? To borrow a phrase from an old political campaign, "It's the economy stupid."

Based on comments left by survey participants, Computer Economics president Frank Scavo said widespread weakness in the housing and credit markets and warnings of slow growth from tech bell weathers like Cisco, are leading companies to be far more cautious in their spending commitments.

"We've also seen statistics from the U.S. Labor Department that temporary jobs are down from a year ago and that's a leading indicator of problems," Scavo told InternetNews.com.

The low budget increase forecast is especially surprising because Scavo said IT spending generally increases faster than overall economic growth. "It's a trend we've been seeing for fifteen years," he said. However, the forecast is not as bad as 2001 through 2003, the dotcom bust years, when Scavo said a majority of companies cut their IT spending.

If economic conditions worsen over the next several months Computer Economics expects median IT spending for 2008 to be flat compared to this year.

While Scavo thinks the health of the economy will be a major consideration in whether IT budgets rise or fall next year, one specific technology, virtualization, is also having an impact. Scavo said separate research over the past six to nine months by Computer Economics has revealed a definite pull back in new server purchases.

"Consolidation via virtualization is going to be a definite headwind against hardware manufacturers because virtualization is at an early stage, there's plenty of room for increase," he said.

CDW's Straw Poll – the impact of competing priorities

Last week, technology vendor CDW released a poll of 266 IT execs at the company's Partner Summit in Las Vegas. In the CDW poll, only 43 percent said they believed IT budgets will be higher in 2008, though an additional nine percent said they believed budgets would be "much higher."

The CDW poll also asked what the biggest obstacles were for customers trying to increase their IT budgets. Thirty four percent answered that competing priorities for resources reduced IT budget growth opportunities. The next two leading responses: 25 percent cited lack of executive vision in how to harness IT for business advantage, while 12 percent noted a lack of senior executive understanding and support.

Asked to name the biggest IT mistakes made by companies, 32 percent indicated a lack of a vision for applying technology to solve business problems. An additional 15 percent cited insufficient business cases for IT investment.

"The IT industry needs to engage business leaders directly and more clearly articulate how technology can grow the top line, bolster earnings and define strong competitive advantages," Matt Troka, vice president for product and partner management at CDW, said in a statement.