Britain's digital economy twice as big as government thought

Britain’s digital economy is significantly larger than official estimates, according to National Institute for Economic and Social Research (NIESR).

The report, commissioned by Google, tracked digital footprints left by companies online to determine if they were a digital or non-digital company.

It found at least 270,000 companies form the digital economy – well above the previous government estimate of 188,000.

The report claims the areas with the highest concentration of digital companies can be found outside London, in places like Aberdeen, Middlesbrough and Manchester.

But a report out last week found that 17 of the top 20 startup areas in the country are found in London, with the area around Silicon Roundabout far outstripping everywhere else with 15,000 new companies set up in the area in the last year.

The NIESR report also found that the revenue reported by digital companies is growing 25 per cent faster than that reported by non-digital companies. The research also found that digital employers hire three more people on average than non-digital companies.

The researchers argue that Britain is using an out-dated business classification system which means hundreds of thousands of digital companies are being incorrectly identified by government and financial services and missing out on vital support as a result.

The researchers said that Growth Intelligence, a London-based sales software company, allowed them to spot digital companies working in 'traditional' sectors, such as software companies in architecture, publishing and engineering.

Tom Gatten, chief executive of Growth Intelligence, said: “This research demonstrates the need for a new way of understanding the economy, both for government and for businesses. Rather than relying on outdated codes or static lists, our new technology and internet data reveals new opportunities and insights for growth.”

Gartner forecasts a return to IT investment as economy improves

Global IT spending is set to reach $3.7tn by 2014 as the economy improves, according to Gartner's Worldwide IT Spending Forecast.Spending on mobile devices is set to increase

by 6.5% in 2014 to $740bn, compared to $695bn in 2013.Speaking to Computer Weekly, Richard Gordon, research vice-president at Gartner, said: “We are seeing a lower growth in 2013 due to spending being deferred due to folks holding on to smartphones as new operating systems extend the life of handsets.”The data does not take into account whether devices are being bought by IT or by the consumer. Gordon added: “Enterprise IT spending on devices will decline but spending will be picked up by the consumer.”Depending on how companies account for purchases, Gordon did not expect IT budgets to change as a result. He said the IT budget was shifting.

"Businesses are outsourcing and using software as a service (SaaS), rather than investing in their own datacentres," he added.Enterprise software spending is on pace to grow 6.4% in 2013. Gartner's Worldwide IT Spending Forecast showed expanded spending on e-commerce, social and mobile as organisations boost customer relationship systems.According to Gartner, buyers in the customer relationship management (CRM) market are focusing on technologies that enable more targeted customer interactions in multichannel environments – including online channel and marketing campaign management – and technologies enabling customer loyalty management.“Across the board we expect organisations to make strategic investments in CRM. Companies want to invest in big data, social and multichannel marketing to improve CRM,” Gordon explained.The improving economic climate will boost services, according to Gordon.

“As the economy improves there will be an increase in consultancy spend with big programmes around social and mobile as companies make strategic investments in these areas.”Worldwide IT spending forecast (billions of US dollars)Source: Gartner (July 2013)He said Gartner was seeing a decline in the growth of client operating systems, reflecting the decline in the PC industry.The forecast also showed a gradual shift towards SaaS-type licensing over traditional software licensing.

U.S. economy looks weaker, as GDP data is revised

The U.S. economy grew at a mere 1.8% annual pace in the first quarter, according to revised data released by the Commerce Department on Wednesday.

Gross domestic product -- the broadest measure of economic activity -- rose at a mere 1.8% annual pace between January and March, marking a sharp downward revision from the 2.4% pace reported by the Commerce Department last month.

The government revises its GDP figures several times, but economists weren't expecting such a dramatic change from the third estimate.

"This was certainly unexpected and, I believe, rare," said Jennifer Lee, senior economist with BMO Capital Markets, referring to the revision.

The weaker figures came primarily from revisions to consumer spending, exports and commercial real estate.

Consumer spending, which alone accounts for roughly two-thirds of the GDP measure, rose at a 2.6% annualized pace in the first quarter, according to the revisions. That's down from the 3.4% pace the Commerce Department estimated in its prior report.

Meanwhile, spending on nonresidential buildings shrunk 8.3% in the first quarter, offsetting some of the economic boost from the ongoing housing recovery.

U.S. exports to other countries contracted, and government spending cuts continued to be the largest drag on economic growth.

Economists have already turned their attention to studying how the economy fared in the spring. Their estimates point to more of the same slow growth.

Goldman Sachs (GS, Fortune 500), Barclays (BCS), Nomura (NMR) and Macroeconomic Advisers economists estimate that the economy grew at a 1.5% to 1.9% annual pace between April and June.

The numbers could change again next month. The Commerce Department is planning a complete overhaul of its GDP data, going back to 1929. That process, which is known as the "comprehensive revision," only happens every four to six years.

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Stocks rebound as U.S. economy firms

The Dow Jones industrial average rose 101 points, or 0.7%. The S&P 500 gained 0.9% and the Nasdaq added 0.8%.

After suffering heavy losses in the past few days, investors were encouraged by a string of upbeat economic reports.

"The economic fundamentals continue to march forward at a moderate pace," said Doug Cote, chief market strategist at ING Investment Management. "That's all the market needs right now."

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Housing is hot, consumers are confident. The S&P/Case-Shiller home price index rose 12.1% in April, compared with a year earlier, for the 20 top real estate markets across the nation. It was the biggest annual jump in prices in seven years and the 2.5% increase from March was the biggest one-month rise in the 12-year history of the index.

In more good news for housing, homebuilder Lennar Corp. (LEN) reported sales and earnings that topped forecasts. CEO Stuart Miller said Lennar's results "point to a solid housing recovery." New orders rose 27% in the quarter. Lennar shares held gains, but were off earlier highs.

New home sales also topped estimates, rising 2% in May to a seasonally adjusted rate of 476,000 units, the Commerce Department said.

A report on durable goods also came in better than expected. Meanwhile, a measure of consumer confidence rose to its highest level since January 2008.

Consumers have been encouraged by improvement in the job market, said the Conference Board. But the index does not reflect the recent market turmoil, which could put a damper on consumers' moods in July, according to Capital Economics.

Investors still jittery. Stocks are rebounding from steep losses Monday that were driven by continued uncertainty about China's banking system and when the Federal Reserve will ease its stimulus.

Related: Stock sell-off is 'taper tantrum'

That double whammy has caused volatility to spike.

So far this month, the CBOE Market Volatility Index (VIX) has risen 25%. And CNNMoney's Fear & Greed Index is deep in extreme fear.

"Volatility is very pronounced," Carter Worth, chief market technician at Oppenheimer, told CNNMoney in an interview. Earlier he sent around an amusing note that simply said "We have no new thoughts. Sell."

"If this kind of volatility is taking place, there is a change in the wind. That doesn't mean we are going to see a bear market or a crash, but upside is limited and downside is unknown, but very real," he told CNNMoney.

Related: Bonds in the bargain bin

Comments attributed to a People's Bank of China official helped ease some jitters in China's stock markets Tuesday. The official reportedly said the bank will keep interest rates in check, and that seasonal forces that have driven them higher recently will fade.

Following his comments, the Shanghai Composite, which was down as much as 5.6%, recovered to close just 0.2% lower. (Check other world markets)

Mixed bag of earnings. Shares of Walgreen (WAG, Fortune 500) sank nearly 6% after the drugstore chain missed earnings and revenue forecasts.



Barnes & Noble (BKS, Fortune 500) shares plunged after the bookseller said it will stop making the Nook in-house and will partner with a third party to manufacture the eReading device. Sales in the Nook segment fell 34% in the quarter to $108 million.

Carnival (CCL) said earnings fell 55% to 9 cents per share in the second quarter. The beleaguered cruise ship operator warned in May that earnings would suffer this year due to price cuts following the Carnival Triumph mishap. But the drop in earnings was not as bad as some had feared, sending Carnival's stock higher.

After the market closed, Smith & Wesson (SWHC) reported record sales and profits for the fourth quarter. The gunmaker also boosted its outlook for the current quarter and year.

CEO James Debney said increased production and "continued robust consumer demand for firearms," helped lift sales of the company's M&P line, which includes assault rifles.

Why the economy can't save stocks from Bernanke

FORTUNE -- Following the two-day 550 point decline in the Dow Jones industrial average last week, a number of commentators recommended stock investors follow Churchill: Keep calm and carry on.

They argue that Ben Bernanke is pulling back the Federal Reserve's stimulus for a reason investors should like: The economy is improving. And a better economy is good for stocks. Right?

Maybe not. It certainly hasn't been the case lately that a rising stock market and a good economy have gone hand-in-hand. In fact, it's been nearly the opposite. The stock market is up 72% in the past four years, even with the recent drop. Have the past few years felt like we are in an economy 72% better than it was?

MORE: Don't believe Alan Greenspan's bullish case for stocks

In all, the Dow Jones industrial average (INDU)  has more than doubled, up 132% since it bottomed out in March 2009. The unemployment rate, however, is less than halfway back to where it was before the recession.

Earlier this year, a number of commentators howled about how the Dow Jones industrials hitting an all-time high made no sense given the continued poor state of the economy. And yet, now everyone expects the relationship between stocks and the economy to somehow become coherent in the next year.

Going back a little further, the link between the economy and the market has held up a little better, but it's still far from perfect. The best year for the U.S. economy in the past four decades was 1984. Gross domestic product rose 7.2%. But that year was a bummer for stocks. The S&P 500 (SPX) rose a mere 1.4%. The recent recession produced the worst year for the economy in the past four decades -- 2009. How did the stock market do that year? It soared -- up nearly 25%, a great year for investors.

Overall, since 1975, the stock market has risen 11.2% in years in which the GDP has risen more than 3%. That compares to a 7.9% rise in years when the economy grew less than that. But remove one year, 2008, and the stock market return of the less-than-stellar economic years rises to 10.6%. That suggests the strength of the economy makes very little difference to the direction of the market, or at least much less than we suspect.

MORE: Obama should have fired Bernanke a lot time ago

And there is reason to believe the economy matters even less to the stock market these days than usual. Part of the problem is always about timing. And the market and economic metronome seem more off this time around than usual.

What does seem to matter to stocks is corporate profits and interest rates. Neither is going the market's way. Earnings of the companies in the S&P 500 rose just 3.3% in the first quarter of 2013. Analysts expect that to have slowed to 1.3% in the second three months of the year. And with profit margins at an all-time high, even a slightly higher GDP might not be able to improve bottom lines that much. Then there are interest rates, which seem headed up faster than most people expected, another drag for the market.

So by all means, carry on. The economy is improving. But don't expect the stock market to stay calm.

 

2014: When the economy finally takes off

Economists think 2014 will be the year America finally shakes off the lingering effects of the Great Recession.

Things have been grim since the recession officially ended in June 2009. Job creation is barely outpacing population growth, and our GDP growth is sluggish.

But next year, economists foresee a convergence of several factors that could finally kick this recovery into high gear.

First on the list is the federal budget. After epic fights this year over the "fiscal cliff," the "sequester," and a bunch of other wonky stuff, lawmakers have finally managed to cobble together enough tax hikes and spending cuts to at least stabilize the country's credit rating.

Rising home prices are helping, too. Fewer Americans are trapped in underwater mortgages that leave them owing more on their home than the house is worth. Rising prices also boost the net worth of homeowners, adding to consumer confidence.

Related: Recession ended 4 years ago: How far have we come?

Businesses have been complaining for years about "uncertainty" in the public policy area. Next year, some of those unknowns will finally be resolved.

Companies have held off on hiring because they're waiting to see how they'll be affected by health care and finance reform laws, according to John Silvia, chief economist at Wells Fargo (WFC, Fortune 500). The implementation details of both of those laws will become clearer over the next year.

"Dodd-Frank and Obamacare need to be worked out, then employment takes off," Silvia said. He believes 2014 "could be a very good year."



Just how good? Steve Blitz, chief economist at ITG Investment Research, thinks GDP growth in the 3.5% to 4% range is possible for 2014, if the global economy doesn't deteriorate. Monthly job growth could peak in the 300,000 range, he believes.

Blitz anticipates a large numbers of Millennials entering the car-and-home-buying stage of life, giving an added boost to the economy. Plus, the drop in defense spending associated with the draw-down of troops from Iraq and Afghanistan should be largely behind us.

"All of these should add up to a better economy in 2014," Blitz said.

At Merrill Lynch, the economists' projections aren't quite as high -- the bank sees America's economic growth next year at 2.7%. But Merrill Lynch thinks the Federal Reserve will hike interest rates at the end of 2014, versus the 2015 timeframe it projected earlier this year. For that to happen, the bank believes, unemployment needs to fall to 6.5% from its current 7.6% rate -- a feat that would require job growth to accelerate to 300,000 new positions per month.

That's a number that looks more like a real recovery.

The Federal Reserve recently acknowledged that target was possible, when it lowered its unemployment forecast and said it believes the rate may hit 6.5% in 2014.

Stocks and bonds had a fire sale on the news, with investors fixated on the possibility that the Fed may stop pumping money into the economy.

Lost in the panic was the promising idea that 2014 may be the year when we finally put the Great Recession squarely behind us.