IT Investments Help Propel U.S. Economy

Investment in IT equates to nearly 20% of fourth-quarter 2004 GDP growth.



IT investments are resuming their role as a force in expanding the America's economy. Just look at the revised gross domestic product report for the fourth quarter of 2004 issued by the Commerce Department Wednesday. The economy in the final three months of last year grew at a seasonally adjusted annual rate of 3.8%, a moderately healthy increase, though 0.2 points below the third-quarter figure.

Investments in IT hardware and software at the end of 2004 equaled about 5% of GDP, or nearly $600 billion. Commerce pegged overall fourth-quarter GDP at nearly $11 billion. But last quarter's growth rate of information-processing equipment and software investments represented 18% of the entire GDP growth rate, or 0.68 points toward the 3.8% rate. By comparison, a year earlier, IT investments represented 14.5% of the annual GDP growth rate, and in fourth quarter 2001 and 2003, IT investments declined from the previous year.

The resurgence of IT spending as a boost to the economy couldn't come at a better time, countering rising interest rates, soaring oil prices, and the mounting foreign trade deficit that traditionally drags the economy, says Creighton University economics professor Ernest Goss.

Increasing IT investments harkens back to the mid- to late-1990s when companies purchased hardware and software to implement new enterprise systems, create uses to exploit the burgeoning Internet, and remediate year 2000 code problems. Much of today's IT investment involves the long-overdue replacement or upgrading of technologies as well as the implementation of new technologies such as wireless and radio-frequency identification tags.

Goss characterizes increased IT investments as a bellwether for an improving economy, reckoning that businesses buying technology will be more productive, creating a ripple effect as they produce more goods and services that will help expand the economy.

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