TechWeb

IT's Contribution To GDP Hits Bump

Oct 29, 2004 (10:10 AM EDT)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=51201581


IT's contribution to economic growth has been relatively stable over the past few years, hitting a few bumps along the way. Last quarter, IT hit one of those bumps.

The gross domestic product in the third quarter increased at an annual rate of 3.72%, the Commerce Department reported Friday. IT investments by business contributed 0.18 of a point to that 3.72% figure. In other words, IT investments accounted for 4.8% of economic growth in the past quarter.

That's the lowest contribution rate in six quarters. Since first quarter 2003, when IT contributed 31.1% to GDP growth, the contribution rate has hovered between 12.4% in the second quarter 2003 and 16.7% in the second quarter of 2004.

Business investments, including those made for IT, tend to be more volatile than other contributors to economic growth, such as consumer spending, which represents about 70% of GDP, says Creighton University economics professor Ernest Goss. He cautions against reading too much into one quarter's numbers.

IT spending by business--technically "fixed investments for information processing equipment and software by nonresidential entities"--reached a seasonally adjusted $571.5 billion in the third quarter. That represents 5.3% of the U.S. GDP, which the government pegged at $10.88 trillion. Both figures are annualized and chained to the value of the dollar in 2000.

A closer examination of the GDP numbers shows that IT represents nearly half of all business fixed investments. Of the $1.01 trillion of private-sector, nonresidential investments in the third quarter, 46% was earmarked for IT.