The U.S. technology industry is growing again after two years of layoffs and low profits, according to a report on 2003 released Tuesday by the U.S. Department of Commerce's (DOC's) Economics and Statistics Administration.

The report, "Digital Economy 2003," estimates the U.S. IT industry grew by 6.4 percent in 2003, compared to 1.6 percent in 2002 and 0.9 percent in 2001. The IT industry's total output of goods and services was US$1.24 trillion in 2003, up from an estimated $1.17 trillion in 2002. The growth of the IT industry doubled the rate of growth in the total U.S. economy, which is an estimated 2.9 percent in 2003, according to the report.

"Technology is clearly on the comeback trail," said Phil Bond, undersecretary for technology in the DOC. "The real story is (the report) chronicles the comeback of the IT sector." Bond praised efforts by his boss, President Bush, to turn the U.S. economy around, including a package of tax cuts, as central to the IT industry turnaround.

The 110-page report, available online at http://www.esa.doc.gov/DigitalEconomy2003.cfm, does not deliver good news for IT workers, however. While IT spending among large companies seems to be picking up, that hasn't yet translated to increased IT hiring, said Kathleen Cooper, DOC undersecretary for economic affairs. But IT employment in the U.S. seems to be stabilizing, and she predicted that IT employment would soon begin an upswing.

"It is very recently that we've seen a turnaround in total employment," Cooper said. "It's encouraging to me, given that the overall economy has turned, that there has been a stabilization (in IT employment)."

Critics questioned whether the economic turnaround described by the DOC will mean more jobs for U.S. workers. The Institute of Electrical and Electronics Engineers-USA (IEEE-USA) has seen some evidence of more IT jobs being advertised, said Ron Hira, chairman of the IEEE-USA's research and development committee. "But the market is still pretty bad in terms of employment," he said. "There's a lot of insecurity among our members."

If IT spending picks up, U.S. jobs may not follow, because of a growing trend toward moving IT jobs overseas, Hira said. "It looks like companies will start spending," he said. "The question is what those jobs will be and where those jobs will be located."

The DOC is trying to work with private groups to get a good understanding of the offshore outsourcing trend, Cooper said. Analyst firms have been making predictions, but the agency wants to have accurate counts of current offshore outsourcing trends, as well as reasons for the outsourcing, she said. Better numbers on offshore outsourcing will help the agency decide policy directions, she said.

"We're all trying to understand exactly how many (jobs) have been lost," Cooper said. "Any loss is more than we'd like to see."

Offshore outsourcing and unemployment among IT workers are important issues to the agency and the Bush administration, Cooper said.

"That downward slope depicts a lot of pain," Bond said of IT employment.

The DOC report notes that the number of U.S. workers in IT occupations totaled 5.9 million in 2003, down 8 percent from 2000. Salaries for workers in IT-producing industries declined 1.3 percent from 2001 to 2002, while the average annual wage for all private workers increased 1 percent that same year.

Other statistics from the report:

-- Hardware output grew 26 percent in 2003, while the two categories communications services and software/services each grew less than 2 percent. Those statistics show an upturn in the telecommunications industry is not yet here, Bond said.

-- Research and development in the IT sector grew in 2000 and 2001 after dropping between 1998 and 1999. The report estimates IT companies spent $31.2 billion on R&D in 2001, up from $26 billion in 2000 and $22.6 billion in 1999. The report estimates U.S. companies spent a total of $181.6 billion on R&D in 2001, up from $133.6 billion in 1997.

-- The U.S. exported $110.3 billion worth of IT equipment in 2002, down from an export high of $162.5 billion in 2000. Total IT imports to the U.S. stood at $196.7 billion in 2002, but Cooper attributed much of the $86.7 billion trade deficit to U.S. companies importing parts or products from factories they owned outside the U.S.

The report didn't attempt to predict the growth in the IT industry in 2004, instead providing a "snapshot" of the industry at the moment, but Cooper said she hopes the upward trends that started in 2003 will continue. "The recent trends give us encouragement that 2004 will be better than 2003," she said. "We've weathered our first IT-era recession, and now the economy is looking strong."

IDG News Service

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