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Tech Index Shows Steady Growth

The tech industry looks nothing like the shell it was after the dot-com bubble burst. That's what a report released Monday thinks of the U.S. market.

According to a benchmark study by Forrester Research and the Information Technology Association of America (ITAA), the United States tech industry continues to rebound from the 2001-2003 recession.

The groups said the study is based on 11 measures of IT demand, supply and the strength of U.S.-based IT providers.

"Until now, no one has been able to definitively answer the question, 'How is the tech industry doing?'" Harris Miller, president of ITAA, said in a statement. "Although IT is one of the major drivers of the U.S. economy, no single comprehensive measure of the health of the sector existed in the same way that the U.S. Consumer Confidence report tracks consumer spending."

Miller said the Forrester/ITAA Index indicates a stable industry that should be "attractive to IT customers and career planners alike."

Forrester CEO George Colony said the first published data of the study indicates a "continuing saw-toothed pattern, which further supports Forrester's findings that the tech economy is not yet in a period of strong steady growth."

In the near term, Colony added, "Don't weep for the U.S. tech sector, but don't break out the champagne, either. Save it for 2008."

Colony predicted both moderate increases and declines over the coming year in IT.

While the third quarter of this year is the first published index, Forrester compiled historical data to provide a baseline and reveal trends occurring after the low point of the recession in 2002. All 11 indices are weighed evenly in the overall index score, using a 2002 quarterly average of 100 points as the baseline.

In Q3, the index rose 3.9 points above the second quarter to 121.6, which nearly matches a three-year high of 122.3 in the fourth quarter of 2004. Strong gains in CIO confidence about the health of their budgets and future spending prospects largely improved the overall index.

Demand forces including CIO spending outlooks, U.S. technology exports and U.S. revenues of 39 large IT vendors, recorded the biggest growth -- 8.5 points -- and were a primary driver of the third quarter's increase in the overall index.

Forrester's outlook for business investment in IT was the only measure in the index to fall, which Forrester said was due to expectations that IT spending in the fourth quarter will be less than what was reported in the third quarter.

Supply indices, including the health of venture-capital funding, IT employment and U.S. technology exports, dropped 0.6 points. Forrester said the decline was much smaller than those in recent memory, which may point to an overall strengthening in new technology funding.

Although VC investment was down, similar drops have occurred in each third quarter of the last three years.