Software & Technology

Federal stimulus package helping to ease recession

The Obama Administration acted quite aggressively in pushing its spending proposals to spur economic growth of the country. The federal government announced a $188 billion stimulus package in 2008 and a massive $787 billion package in February 2009. The second stimulus package contained a mix of unemployment benefits ($83 billion), healthcare ($148 billion), tax cuts for individuals ($237 billion) and businesses ($51 billion), as well as spending on building roads ($45 billion) and energy infrastructure ($45 billion). The stimulus package was slightly more than 5% of U.S. GDP.

The stimulus package announced by the Obama Administration significantly helped companies in various industries survive the recession. This has improved the balance sheet of financial institutions, especially troubled firms. The announcement of the stimulus package, along with a historically low benchmark interest rate maintained by the Federal Reserve helped restart lending by financial institutions to businesses and individual customers at a slow pace, as financial institutions remained cautious in lending. The tax relief announced in the stimulus package helped U.S. firms reduce their losses, and has also increased the disposable income for individuals. Easing lending conditions has led to easier access to funds for investment by corporate entities.

The stimulus package has significantly helped revive economic growth in the U.S., with an improvement in industrial production and business sentiment. Although U.S. GDP contracted by 1% in Q2 2009, it was much better than a contraction of 6.4% and 5.4% in the previous two quarters, respectively. With an improvement in the overall economy, business and consumer expenditure is expected to improve in the last two quarters this year.

IT spending is expected to track the growth in the economy and show improvement by Q4 2009, as the recessionary trend in the U.S. economy has moderated in Q2 2009 and the situation is expected to improve further.

With signs of recovery in the U.S. and some major European economies such as France and Germany, the U.S. dollar is showing signs of depreciation. The depreciating U.S. dollar would help U.S. software vendors to realize more revenues from their global operations.

The Obama Administration’s announcement of a $787 billion stimulus package in February 2009 is expected to bring more liquidity in the market and recover the U.S. economy.

With availability of funds in the market and a soft federal interest rate, the gap in the interest rate for financial products such as corporate bonds (Baa and Aaa) declined significantly during the period (June 2009 to August 2009), leading to easier access to funds for investment by the corporate entities.