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Much of the hope for the economic recovery picking up momentum again has been driven by expectations that the technology sector will lead the way; the key expectation being that it’s about time for the "computer replacement cycle" to kick in.

Supposedly, corporations and households have not been keeping up with the latest computer models, operating systems, and software from Dell (NASDAQ:DELL), HP (NYSE:HPQ), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT), etc., and should begin purchasing to catch up.

The first clue that those expectations may be problematic showed up this week in the report of Durable Goods Orders for July, which was not only much worse overall than expected, but which showed that orders for machinery and computers plummeted 15% in July, the largest monthly decline on record.

In the excitement of Friday’s rally, the market ignored further evidence of the problem, which was revealed by Intel (NASDAQ:INTC). Intel has a history of being a bellwether for the computer industry in particular, since its chips are used in 80% of all the PCs made globally, and for technology in general since its chips are used in so many other areas of technology.

Intel issued a warning Friday, lowering its previous guidance for the current quarter, saying that demand for PCs has been even weaker than expected. The timing of the warning suggests that PC makers cancelled or cut back orders during the quarter.

Intel’s warning came on the heels of similar warnings last week from both Dell and HP, of disappointing sales in what is historically a robust season for computer sales, the back to school and back to college season.

John Chambers, CEO of Cisco Systems (NASDAQ:CSCO), the largest maker of networking systems in the world, also considered a key bellwether of technology spending, shook the market in early August when he warned that Cisco was seeing signs of the global economic recovery slowing down.

At the very least, the reports will likely lead to heavy price-cutting that will cut into earnings going forward. But the reports also signal that the market needs to look elsewhere for potential economic leadership if the tech sector is slowing rather than accelerating.

Disclosure: No positions

Source: Warnings From Tech Sector: Bad News for Economy