Technology spending soars in third quarter

By Jim Hopkins
USA Today

SAN FRANCISCO — Despite the tech downturn, U.S. companies are devoting more spending to technology than ever.

Businesses in the third quarter plowed 39 percent of capital investments into computers, software and other tech gear — more than the 35 percent at the tech boom's height in 2000, new data show.

That underscores tech's importance to the economy — and may comfort the tech sector. That's because tech spending climbed rapidly after every corporate spending trough in the past 50 years, a USA Today analysis of the data shows.

Such growth is already reflected in third-quarter Commerce Department data released last week. Corporate tech spending soared to an annualized $443 billion, an 18.3 percent jump from the second quarter — bigger than the 11.1 percent rise in overall spending. Tech spending contributed nearly 10 percent to the economy's third-quarter growth.

That shows tech's importance, says Sun Microsystems CEO Scott McNealy. Companies that don't make such investments will be "road kill pretty darn fast," he says.

More than ever, economists say, such spending has an impact on:

Productivity. U.S. worker productivity jumped by an annualized 7.2 percent in the second quarter from the first quarter, the most recent available. Companies boosted productivity, even after slashing tech spending in the 2001 recession, by leveraging earlier tech investments, the Federal Reserve says. That helped companies better compete against foreign competitors, especially in fast-growing China. "They're going 80 miles an hour, so we need to go 100 miles an hour," says Sung Won Sohn, chief economist at Wells Fargo.

Employment. Companies shed workers or kept employment flat partly because tech lets them do more. That somewhat explains the jobless recovery that's followed the recession's end two years ago. Since then, the U.S. economy has lost 1.04 million jobs.

Near Dallas, industrial distributor Techni-Tool is readying to spend almost $100,000 on software and a powerful computer to bolster its Web site. That will enable customers to check tool availability and place orders. The firm seeks more revenue without more employees.

Traditional industries. Just 12 percent of third-quarter corporate spending was for trucks and other vehicles — down from 17 percent four years ago — as companies focused less on adding transportation and industrial equipment.