U.S. economy gives mixed signals on tech, as enterprises accelerate AI projects while cutting total SaaS spend

Quick recap: After months of tightening budgets, SaaS companies are eyeing the latest signs of economic strength—rising consumer spending, positive job reports, and record stock market highs—with cautious optimism.

• The U.S. economy added 254,000 jobs in September, with the unemployment rate remaining steady at 4.1%.
• Meanwhile, consumer spending is seeing a period of "normalization" as consumers are on "solid footing," according to JPMorgan Chase.

Why it matters: As enterprises have funneled resources into AI projects, they have been forced to cut back on other software tools, stalling growth for both SaaS giants and startups alike. Salesforce, for instance, is projecting single-digit growth next year for the first time in its history.

• Revenue growth at newly public U.S. VC-backed SaaS companies fell sharply in 2022 and has remained low, according to PitchBook data. Sales at the top-performing companies have plummeted from over 73% year-over-year growth in Q1 2022 to just 32% in Q1 2024.

Industry insights: Now, with the economic outlook improving, SaaS providers hope businesses will ease the brakes on broader tech investments and reinvigorate software adoption. Yet, even as the broader SaaS market has cooled, AI-focused companies are thriving.

• Gartner analysts believe that AI gains will more than compensate for slowdowns in other SaaS segments. The research firm is forecasting a 20% rise in 2024, pushing total SaaS spend to $247 billion by end of this year, and $295 billion in 2025, as more businesses adopt AI solutions integrated into SaaS platforms.

Global outlook: The United States Federal Reserve’s ongoing uncertainty about the direction of interest rates - whether to continue tightening or pause to stabilize inflation, further complicates the economic landscape. Compounding these financial pressures are escalating geopolitical tensions, and a volatile and imminent presidential election.

• Historically, elections introduce market volatility as investors brace for potential shifts in policy, especially around corporate taxes, regulations, and economic stimulus.
• For SaaS companies, it creates a delicate environment in which to pursue growth, and every dollar spent is carefully monitored and eyed for immediate ROI.