IT Spending Recovery On Track

Gross domestic product, adjusted for inflation, increased at an annual rate of 4 percent in the fourth quarter. While down from its 8.3 percent pace in the third quarter, it was still the second-best growth rate in nearly two years.

Overall business investment spending surged ahead at 12.4 percent on an annual basis, down only slightly from the third quarter, which had marked the biggest increase since the peak of the stock market bubble in early 2002.

Spending on information processing equipment and software did even better, rising at a solid 15 percent annual rate. The increase was fueled by PC hardware and peripherals, although software spending showed a sizable year-over-year gain as well. This marks the fourth straight quarter of broad-based increases and indicates that the nascent recovery in business technology spending should have staying power.

In the longer term, a sustained slowdown in consumer spending would be a problem, given that this sector accounts for two-thirds of the economy. Lack of growth in consumer spending could also undermine business confidence in the economic recovery and slow the pace of investment and new hiring.

But last year's tax cuts are likely to increase income tax refunds this year by as much as $30 billion, according to research firm Wrightston ICAP. When lower dividend and capital gains tax rates are added in, consumers could see an additional $100 billion in their pockets over the next few months.

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