Monday, August 11, 2003 1:00 pm
The 53% (annualized) surge in computers and peripheral equipment sales included in the US government's second quarter 2003 GDP report was excellent news for the computer industry and appeared to herald the long-awaited return of corporate investment in information technology. Not only did the report show that the surge accounted for virtually all the growth in US business capital spending for the quarter, it also showed it accounting for a full 65% of the total increase in real GDP growth!  One would be tempted to conclude, as many apparently have, that the economy is now off to the races, with information technology taking its traditional place at the head of the pack driving most of the growth, as in the 1990's.

When viewed in current dollars (i.e. unadjusted for deflation and inflation), the story, while still positive, is not as impressive. The blame for the discrepancy falls once again on the "hedonic adjustments" discussed here earlier this year. According to the Commerce Department, a full 83% of the reported surge in computer and peripheral equipment spending in 2Q03 was a direct consequence of their hedonic adjustments, caused by a collapse of information technology equipment prices during the quarter. The Commerce Department's current-dollar (unadjusted) GDP numbers show the increase attributed to computers and peripheral equipment revenue accounting for only 7.1% of the GDP increase, rather than the 65% reported using the inflation and deflation adjusted numbers.

Even when viewed in current dollars, business capital spending on computer and peripherals showed a very healthy annualized growth of 35%, but not the 54% that was reported using the nominal (adjusted) numbers. This is still very good news for the industry. In terms of real cash transactions though, the computer industry was not actually playing the major role in GDP growth. What was? National defense, where consumption expenditures grew on an annualized basis 44% in the second quarter, accounting for 70% of the growth in the second quarter GDP all by itself.