As INPUT gears up the forecasting machine in preparation for the April 24th MarketView conference, we're getting a lot of questions from members about anticipated growth in federal IT spending over the next five years. While the forecast model has a few dozen moving parts, one key indicator is to track the IT spending against the government's discretionary budget. Mapping the two growth rates over the past 20 years, in fact, shows a correlation between the two that can point us in the right direction.

Conventional wisdom suggests that IT spending is insulated from overall budget fluctuations, because IT is increasingly embedded in agency missions. While this is true to some extent -- IT growth has stayed positive over the last 20 years -- analysis shows that the IT spending 5-year growth rates (as opposed to actual dollars) generally parallel discretionary 5-year growth. So when we see a sharp drop in discretionary growth over a five-year period -- hold onto your hats in the IT space.

According to the most recent OMB numbers, discretionary spending will have a -0.64% CAGR through 2013, with a CAGR trough of -1.3% in 2011. The last time we saw sustained downturn in discretionary spending was the period 1992-1995. Sure enough, IT growth tracked this slow-down, going from more than 4.5% to only 3% by 1995.

Exhibit 1 Discretionary vs. IT spending CAGRs, 1993-2013

As the threat of economic recession looms, budgets are getting tightened, and administration priorities are about to reset, the real question for IT contractors may not be how much growth to expect. Now may be the time to hold onto our hats and look for opportunities that agencies will be sure to invest in, where they've identified the mission-value of IT, and where politics just won't matter. That's the real question to answer at Marketview, so stay tuned.