In this Expert’s Corner, Michael Keating, senior editor for Government Product News, explains how and why government spending continues to shore up the economy.

The United States economy is showing increased strength as we head into the second half of 2010. Tax collections are up in several states, after two years of declining revenues. Through May, payrolls increased in 41 states, led by California, Texas and New York. Construction spending, including public works construction, has rebounded strongly through this spring.

Money from the American Recovery and Reinvestment Act of 2009 (ARRA) has been a factor in revitalizing the economy, according to Michael Balsam, chief strategy officer at Onvia, a consulting firm that helps businesses find and win government contracts.

“News reports last year talked about all the stimulus dollars that were purportedly flowing into the economy, when, in fact, only 25 percent had been spent,” Balsam says. “Through the second half of 2010 and into 2011, we’ll be seeing those dollars start to hit the ground and local economies in a way that’s tangible for businesses. The money is starting to get closer to the lowest levels of government, where it actually stands to impact the economy.”

The Onvia executive says ARRA funds are still available, and manufacturers and other businesses should track down government agencies that have unallocated funds from the 2009 law. “It’s taken a while to get the dollars through the pipe, but there’s actual spending happening right now,” Balsam notes.

Van Ristau, chief technology officer of DLT Solutions, a value-added reseller of IT products and services, agrees that it’s taken a while for ARRA programs to get off the ground and for stimulus-funded contracts to reach businesses.

“For many of the more complex ARRA-funded projects, the normal project procurement process (design announcements — qualifications submittals — shortlist — final bids — design completion — announcement for construction — selection — award) has been lengthy to the point that many of the more interesting projects were only awarded late last year and into this year,” Ristau says.

Think “green,” Ristau adds. “The government’s focus on and funding for green building conversions in its massive portfolio of properties will create increasing demand this year for all manner of products that support the upgrades to more energy efficient buildings. This initiative includes building automation and control system products.”

Moreover, Ristau sees increased government spending for IT-related security products in the second half of 2010. “The need for enhanced cybersecurity to prevent loss or theft of data from information systems is driving demand.”

In the government market, demand for electronic security products and systems is projected to increase 7.5 percent per year through 2012, reaching $1.5 billion annually, according to business and market research firm The Freedonia Group.

“Federal spending has clearly aided the recovery,” Ken Tometsko, director of government industry solutions at Autodesk, Inc., a developer and seller of 2-D and 3-D design, engineering and entertainment software, says.

“There are at least two key dynamics that will help to maintain federal spending during the second half of 2010,” Tometsko explains. “First, many federal agencies still have stimulus funds that have not been utilized. We expect to see these funds being put to use in the second half of 2010. Second, many federal agencies put off software and hardware upgrades while riding out the recession.”

Tometsko adds that we are now entering an important upgrade cycle that will drive IT spending. “Sales of Autodesk’s building information modeling (BIM) solutions for the AEC [architects-engineers-construction] industry and digital prototyping solutions for the manufacturing industry will benefit from the uptick in IT spending. These solutions provide dramatic productivity benefits, and there are opportunities (for business) within the U.S. Army, U.S. Navy, U.S. Air Force, federal General Services Administration, Veterans Affairs and Department of Energy.”

For manufacturers and other businesses looking for more information on 2010 availability of stimulus funds, Tometsko suggests two Web sites:

1. Use Recovery.gov to track stimulus funds available through ARRA. “The site provides agency-specific data that is broken down by funds announced, funds available and funds paid out. The site also provides recipient-reported data that comes directly from the recipients that received the federal contract, grant or loan award. Within the opportunities section, the site provides links to jobs, grants, loans and contracts,” Tometsko says.
2. For individuals who would like to pursue government contracts, the Recovery.gov site links to the FedBizOpps.gov site, so contracts that are up for bid or already awarded can be evaluated. “The FedBizOpps.Gov site also provides a simple way to search for specific solicitations within target agencies,” Tometsko notes.

Meanwhile, Mark Amtower, a government marketing expert at Amtower & Co. and the author of the book Government Marketing Best Practices, offers this second-half 2010 view: “The federal government and Congress are under tremendous pressure to turn the economy around and get people back to work. The Stimulus program is the best near-term solution, and there are still plenty of funds available. This keeps the government market the main beacon in a bad economy.”

The Big Picture
Government purchases of goods and services will grow an average of roughly 1.5 percent in the remaining quarters of 2010 and into the first quarter of 2011, according to the latest analysis from Macroeconomic Advisers.

The consultancy expects total government purchases of goods and services in the U.S. (also called government consumption and gross investment) to reach $3.03 trillion in the fourth quarter of 2010. State and local governments will account for $1.8 trillion, while federal purchases will reach $1.2 trillion. In 2009, total government purchases exceeded $2.9 trillion.

Michael Keating is senior editor for Government Product News and a contributing editor for American City and County, both published by Penton Media Inc. His complete second-half 2010 government budget forecast is available at GovPro.com. Keating has written articles on the government market for more than 100 publications, including USA Today, Sanitary Maintenance, IndustryWeek and the Costco Connection. Mike can be reached through his Web site, MikeKeat.net.