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Tech spending, a bit belated.


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August 15, 2006

Tech spending, a bit belated.

Michael Mandel

I apologize...I've only now gotten around to analyzing the tech spending numbers in the latest GDP report.

Here's the bottom line--in the second quarter, business and consumer spending on info tech and entertainment hardware and software accounted for 4.75% of GDP. That's the lowest level since 1995.

The lowest level since 1995. See the chart below. Astounding and depressing. No signs yet of a breakout on the upside.

(These numbers include business investment in information processing equipment and software, and consumer spending on video and audio goods, including computer goods)

12:01 PM

Tech

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What would the natural trendline be?

It is possible that even though dollars are not rising, the *utility* of tech is jumping.

Remember that a terabyte of storage used to cost $50,000 in 1999, but is only $600 now.

One Gigabyte of RAM used to be $2000 in 1999, vs. about $80 now.

A 42-inch Plasma TV was $14,000 in 2002, vs. $1700 now.

An 11 megabit Wi-Fi router ws $150 in 2002, vs. a 54 megabit version being $40 now.

An iPod has 5 GB in 2002 vs. 60 GB today, for the same price.

Cost efficiency gains may be reducing dollar spending even if utility (and hence productivity gains, downward revisions notwithstanding) are increasing.

Everyone does have a lot more gadgets than they did in 1999, that is for sure.

Posted by: Kartik at August 15, 2006 12:53 PM

Surely you don't expect another tech bubble - that is the only way we will see similar levels. That era is gone, never to return in our lifetimes.

Posted by: Lord at August 15, 2006 01:06 PM

I don't want similar levels to the boom. I just want to see even a hint of a rebound. Not even a dead cat bounce!

Posted by: Mike Mandel at August 15, 2006 01:57 PM

I think it has to do with continually being able to get more technology for fewer dollars, rather than a decline in usage.

This is also why inflation is much less than we would expect $75 oil to cause. Technology is diffusing an offseting deflation into the economy.

Posted by: GK at August 15, 2006 02:09 PM

Plus, I also think this is not including all types of information technology.

How would Google, Yahoo, and eBay's meteoric growth (even from 2002-06) be counted here? Or is it possible they are not counted?

Biotech companies like Amgen and Genentech have also become big companies over this period, and their businesses are also a form of information technology. I don't see that their massive growth has been captured here either.

Posted by: Kartik (GK) at August 15, 2006 03:51 PM

Sorry, one more idea :

Maybe market cap of the Nasdaq-100 relative to the GDP would be a better measure. Or maybe the earnings of the Nasdaq-100 relative to the GDP...

Posted by: Kartik at August 15, 2006 03:58 PM

Computer technology has become a commodity. Once you own a toaster that serves your purpose, you only need to replace a broken toaster with a toaster of equal capability. With prices dropping rapidly, as Kartik mentions, you can get a toaster that makes your toast a bit faster for the same price or likely even less than the original toaster. Until you see the technology in place to viably replace PC's with flash-memory (no hard drive) based network appliances that run applications off a central server, you won't see any uptick in spending. And by then, flash memory will probably be so cheap (thanks to Apple and MP3 players) that they will be even less expensive toasters.

Posted by: Brandon W at August 15, 2006 04:11 PM

I still see no alternatives to those areas that have been growing for future employment - education, finance, government, healthcare, and leisure. Turn a deaf ear to the tech industry when they say they can't find anyone; it's because no one wants to find and no one wants to be found.

Posted by: Lord at August 16, 2006 03:48 PM

I think that the buying craze for iPODs was carrying this trend, and now everyone who wanted an iPOD now has one (or two, or three, for reasons I don't understand).

Posted by: Mark at August 21, 2006 12:08 PM

Mike, read the article "The New Barbarians" in the latest issue of Forbes. It makes my point nicely about how IT has become a commidity, and shows you exactly why tech spending isn't what you want it to be.... and never will be again.

You might be able to access it at http://www.forbes.com/free_forbes/2006/0918/102.html

Posted by: Brandon W at September 6, 2006 10:06 PM


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