Will The US Technology Industry Function As The New Economic Driver?

Pew Research gives us some interesting clues in the changes of consumer habits or consumer preferences of Americans in today's crisis dominated environment.

Seen from the the investing dimension, if we are to bet on a new economic paradigm emerging from today's crisis, some of the "recent" trends may portend or serve as prologue to the future.

According to Pew Research (bold emphasis mine), ``In hard times, the Pew Research survey finds that many Americans are changing their minds about which everyday goods and services they consider essential and which ones they could live without. The survey also shows that "old-tech" household appliances have fared the worst in the public's reassessment of the line between luxury and necessity in their daily lives.

``Of 12 items tested1, six dropped significantly in the necessity rankings from 2006 to 2009, while the other six basically held their own. All of the "old-tech" household appliances on the list dropped in their necessity ratings. For example, the proportion of people who rate a clothes dryer as a necessity fell by 17 percentage points in the past three years. There are similar declines for the home air conditioner (16 points), the dishwasher (14 points) and the television set (12 points).

``A few of the "middle-aged" household appliances and services also declined. The microwave, a kitchen staple since the late 1980s, is currently viewed as a necessity by less than half the public, a 21-point drop in the past three years. The proportion who rate cable and satellite television service as a necessity fell 10 percentage points since 2006, nearly matching the declining value of a television set."

Adds Pew, ``In contrast, none of the newer information-era gadgets and services has fallen in Americans' assessment of what they absolutely need to have. Cell phones and home computers continue to be seen as a necessity by half of the public, unchanged from three years ago. High-speed Internet access is seen as a necessity by about three-in-ten adults, also unchanged from 2006. Two items that came onto the consumer scene in this decade -- iPods and flat-screen TVs -- are still seen as a necessity by a very small share of the public, but that share hasn't declined during the recession."

Why is this important?

First, it shows that the weight of consumer activities or consumer preferences appears to be shifting towards communications in the form of high end TV, iPod or the internet. Despite the recession, while other appliances are suffering from consumption retrenchment, positive growth is still seen on technology based devices or equipments.

This gives further validation to some studies alluding to the ongoing explosive growth in non traditional media as social networking, see our previous post, Wikinomics: The Exploding Growth In Social Networking Media

Next, note that today's crisis won't last forever which possibly means that some of the recent trend shifts may accelerate when economic growth will be restored.

Third is the issue of demographics.

The cellphone and landline usage depicts of the technology "generational gap" trends between youth and the elderly.

Again from Pew, ``The survey also finds that some consumer products, including some high-tech devices that have entered the marketplace relatively recently, appear so far to be "recession-proof." About half of respondents in the current survey (49%) and a similar proportion in 2006 consider a cellular telephone to be a necessity. That overall finding obscures a considerable generation gap: Currently 60% of adults under the age of 30 say a cell phone is a necessity, compared with 38% of those 65 years old or older. But this generation gap is not significantly larger today than it was three years ago; in fact, views on the need for a cell phone have not changed significantly among any age group since 2006.

``An equally dramatic generation gap opens when Americans are asked whether landline telephone service -- the familiar home phone -- is a luxury or a necessity. But this gap runs in the opposite direction. More than eight-in-ten (84%) adults ages 65 and above say a landline phone is a necessity, while only 49% of those younger than 30 agree. And younger adults are nearly four times as likely as older adults to say an in-home phone is a luxury (51% vs. 14%)."

Our point is that the younger generation appear to be more adaptive in utilizing applications from technological innovation, although even the elderly seems to be fast catching up.

And considering that in 2020, demographic trends as seen from the chart above by nationmaster.com indicates of the probable shift in the weightings of the population distribution in the US, where its bulk is expected to comprise the age levels of 25-39. This effectively extrapolates to today's biggest technology users as the core market for the technology industry.

In short, we may expect a huge surge in industry growth in terms of penetration level or in the diffusion of users.

Barring the risks of imposition of extreme regulations which may restrict and choke off innovations, my predisposition is for unexpected or underappreciated technology originated economic recovery for the US. Albeit I think any solid recovery may not be seen anytime soon as the US could be faced with growing risks of hyperinflation.

Nonetheless, the present outperformance of the technology rich bellwether the Nasdaq relative to the broadmarket as signified by the S&P 500 seems to provide some foundation for such thesis.

As Don Tapscott and Anthony Williams wrote in Wikinomics, ``The future, therefore, lies in collaboration across borders, cultures, companies, and disciplines. Countries that focus narrowly on "national goals" or turn inward will not succeed in the new era. Likewise, firms that fail to diversify their activities geographically and develop robust global innovation webs will find themselves unable to compete in a global world. Effectively it's globalize or die."