Orders For Computer Wares Rise 3.1%

The news is good, particularly when considering that overall new orders slipped 0.5% in January.
Dig deep into Thursday's factory-orders report, and you'll see that technology is helping define the economic recovery. Though overall new orders slipped 0.5% in January, requisitions by businesses for new computer wares rose 3.1% and orders for nondefense communications equipment rocketed 83.7%.

Nondefense communications equipment has lagged as other types of technology orders grew during the last year. But the near doubling of orders suggests that execs are more confident of the economy and need new communications gear to expand their businesses. The higher numbers suggest that they're replacing aging telecom equipment with wares that take advantage of new technologies such as voice over IP and wireless. As the economy grows, and businesses build new offices and factories here and abroad, they'll need to invest in communications equipment.

"Business leaders have confidence that demand is going to continue and they'll not fall off a cliff," says economist Lakshman Achuthan, managing director at the Economic Cycle Research Institute. "That confidence allows them to invest in their businesses."

Inventories for computers and nondefense communications equipment declined, too, a good sign since vendors are clearing their warehouses and making room for new products. Inventories fell 5.8% for computers and 4% for communications equipment. Another positive sign: Shipments of computers and communications equipment rose 16.3% and 2.4%, respectively.

Business leaders may be convinced that technology purchases have improved productivity, but technology can go only so far. Eventually, businesses will need to hire more workers if they want more revenue growth. The Labor Department, in a revised report Thursday, said nonfarm business productivity slowed to a seasonally adjusted yearly rate of 2.6% in the fourth quarter, down a percentage point from an earlier estimate made a month ago. That's the lowest rate in a year and way off the 9.5% rate posted just a quarter earlier.

With productivity slowing, Achuthan sees employers rehiring, but perhaps not at the same pace they did after the recession of the early 1990s because they're more aware of how technology can make each employee more productive. If during a similar stage of a recovery a business would add 10 employees, he says, they'll be more cautious this time.

"People think they can outsmart their emotions and be objective," he says. "Their memory is still clear enough that they'll be constrained. But as demand grows, they'll say, 'Maybe it's OK to hire six or seven,' and their hiring will edge up."

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