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3/27/2003
09:42 AM
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IT Spending Weakness Mirrors Economic Slump

IT goods purchased by businesses declined in the fourth quarter as businesses make do with earlier investments.

The slowdown in the growth of the U.S. economy can be seen, in part, by weaker spending on IT goods by American businesses. The Commerce Department reported Thursday that the gross domestic product, the value of goods and services produced in the nation, increased at a paltry 1.4% annual rate in the fourth quarter. That's down sharply from the 4% clip the economy grew in the third quarter of 2002.

Overall, current-dollar GDP increased at an annual rate of 3.2%, propelled by a 6% increase in corporate investments for new buildings and equipment--and, despite a meager contribution from IT. In the fourth quarter, current-dollar GDP for information-processing equipment and software, a category that represents IT goods purchased by business, actually declined by an annualized 0.5%. Alone, the software component eked a 0.8% gain in the last quarter.

Why? Businesses, for the most part, are making do with their earlier IT investments. "There's no pressing sense of obsolescence," says economist David Levy, chairman of Jerome Levy Forecasting Center, adding that the herd mentality of the late 1990s to keep up with the latest technologies has all but vanished for most business leaders. "There's less peer pressure to make that kind of buying decision. Today, in the minds of investors and employees, there's less of a danger of falling behind in IT use."

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