I'd like to dive into the technology stock sector for '08 this week, but let's first tee things up with the outlook from the folks who do most of the IT spending -- small business owners.

According to the numbers from the Discover Small Business Watch, released this morning, small business owners are wary about the economy and that their optimism about this year is less so than it was in early '07. At 92.7, the Discover Small Business Watch Index is down from 93.2 in November, a full 17 points lower than in January, 2007.

Says Sastry Rachakonda, director of Discover's business credit card. "The mood remains cautious as fewer small business owners feel like economic conditions for their businesses are getting better."

Let's be clear. Small business owners, who represent 70% of the nations' business economy, are bearish going into 2008. On the surface, that should negatively impact IT spending. According to Discover, only 28 percent of small business owners feel that economic conditions for their own business are getting better. The percentage has been steadily decreasing since September, 2007, when 40 percent of owners felt conditions were improving.

A significant majority -- 65 percent of small business owners -- feel that economic conditions in the U.S. are getting worse, slightly fewer than the 68 percent who felt that way in November. The number who believe it is getting better remained the same.
42 percent said they have experienced cash flow issues over the last 90 days, an increase from 38 percent in November but even with 42 percent from December 2006.

But there is a strange contradiction in the Discover survey numbers -- and possibly a silver lining for technology companies. The report adds that plans for spending on business development increased this month, with 32 percent of owners planning to increase spending, compared with 29 percent in November, but lower than 37 percent in December 2006.

Of course, that means 68 percent of small business owners will either hold spending at current levels or cut spending.

For technology companies, that kind of hesitation is understandably frustrating. It's a weird year -- there's a presidential election coming up, some economists are forecasting an economic slowdown, if not an outright recession, and bank and credit lending options are tightening. All those ingredients pulled together signal a yellow light in terms of IT spending.

Business owners want to spend, but they won't if they feel the economy is skidding downhill. It may not be until spring -- or at least until one more quarter of decent economic growth -- before they switch from a yellow light to a green one.