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3/28/2003
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War Or No, Spending Is Down

Whether it's the war or the economy keeping IT spending down, a large increase isn't likely soon.

The Commerce Department last week reported that the gross national product during the fourth quarter rose at a measly 1.4% annual rate. A closer look at the numbers shows that although business investments in new buildings and equipment rose at a 6% yearly pace, the information-processing equipment and software component declined at an annual 0.5% rate. Why? Many businesses are making do with what they have. "There's no pressing sense of obsolescence," says David Levy, chairman of the Jerome Levy Forecasting Center.

The war will result in nearly one in five CIOs cutting back IT spending, according to a survey of 75 U.S. and 25 European technology executives by Merrill Lynch just before the U.S. invasion of Iraq. Only 10% say IT spending would accelerate if the war ended quickly. "There could be a catch-up of demand that was deferred," says Merrill Lynch first VP Steven Milunovich, "but the main point is that there are structural problems in the economy and technology aside from war."

Still, war poses the biggest threat to the economy, a survey of the National Association of Business Economists' 223 members reveals. A year ago, military operations and homeland security weren't even a blip on the economists' radar screen. Now 41% say they're the biggest threat to the economy.

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