US Tech Economy Continues Unheralded Boom

The U.S. economy is continuing a five-year growth streak -- one largely unheralded until of late. The reason for the decided lack of enthusiasm may be, simply put, that this economic boom is a lot less widespread than the technology-based boom of the late 1990s.

Last month, the Department of Labor announced that the economy grew at a rate of 4.8 percent during the first quarter of this year. "Sustained economic growth has now exceeded the average of all previous economic expansions," said Sen. Majority Leader Bill Frist (R-Tenn.). More than five million jobs have been created during the last 72 months, Frist said. Yet, it seems as if people have barely noticed.

That may be about to change, though.

Stocks Soaring

On April 21, the Dow Jones Industrial Average closed at its highest level since January 2000. On April 26, the Dow average rose 71.24, or 0.6 percent, to 11,354.49, its highest in more than five years. The Dow got an added lift from General Motors (NYSE: GM) after Merrill Lynch (NYSE: MER) said the carmaker has enough cash to pay workers who accept buyout offers.

There's other good news too. First-quarter profit reports are surpassing expectations. About 72 percent of S&P 500 companies that have reported first-quarter profit have beaten analyst estimates. According to Thomson Financial, that exceeds the average earnings report over the last decade and a half. Thomson said that since 1992, an average of 57 percent of S&P 500 companies have beaten analysts' expectations.

"Earnings have been quite positive, and I think that's the number one reason to buy stocks and the number one reason why this market has held together," said Alfred Goldman, chief market strategist at A.G. Edwards.

The best news of all -- businesses are starting to spend money like it's the 1990s once again. A recent report indicated that spending on durables, like new computers and office technology, is up 6.1 percent for the quarter.

Turnaround Time

"This economy's on a very, very good path," Treasury Secretary John Snow told reporters last week.

Though the economy has been growing, overall, for five years, the technology sector has only been booming for three years. For 11 straight quarters now, businesses have continued to spend on computing and related technology -- like new wireless technologies.

The computer business is brutally competitive. Costs are constantly being driven down. Computers are becoming a commodity. Though this was thought of as a bad thing a few years ago -- computer makers complained about declining prices -- today the thinking is much different. IBM (NYSE: IBM) got out of the low-end ThinkPad production business -- selling its brand to China's leading technology company, Lenovo. The purchase was for US$1.25 billion, and Lenovo has now jumped to the number three position in computer manufacturing globally.

Price War Continues

Look for the global price war to continue, Citbank analyst Kirk Yang said. The market for PC sales grew five percent last quarter.

The average selling price of PCs will drop to $867 this year, down from $960 last year, and from $1,260 just four years ago, according to Gartner (NYSE: IT).

Computer makers -- from Dell (Nasdaq: DELL) to Hewlett-Packard (NYSE: HPQ) to Lenovo -- are controlling costs. Researchers at Merrill Lynch predict that Lenovo, for example, will cut operating costs from 11.4 percent of sales to 11 percent this year and to 10.8 percent in 2008. They, and others, are now really making money on lower-priced PCs. Businesses are buying up the lower-cost computers in ways that have not been seen in years, and, which in some ways, match the growth in spending in wireless and networking technologies.

We may be expected to continue to see this surge in spending, as smaller companies now purchase the cheaper computer products and attempt to compete with larger firms, with computer-based productivity gains. Contrary to what many technology gurus of the 1990s, including George Gilder, had predicted, turning computers into a commodity has boosted the technology business -- and sales of computers across the economy.