What's Holding Back Info Tech?

It's a surprisingly small share of the economy. But consumers could fix that

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May 16, 2005 at 4:00 AM UTC

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This is an Information Economy, right? Everyone knows that information technology is at the heart of America's productivity revolution. The Internet is transforming industries from retailing to media to education. And those poor souls without cell phones are getting scarcer.

Yet for all the signs of the information revolution, a look at economic statistics offers some surprising news: Info tech's share of the economy is barely higher than it was in 1997, when the productivity momentum really got going. After a boom and bust cycle, business investment in info tech hardware and software now totals 4.1% of domestic demand, up just a bit from its 3.8% share in 1997. And the consumer side never even saw a boom: American households barely opened their wallets for information-related products and services, such as telephone, Internet, cable television, video and audio, home computers, and consumer electronics. In 1997, such consumer purchases accounted for only 2.8% of domestic demand. That share rose a tad, to 3.0%, in 2000, before falling to 2.7% today. Not even Apple Computer Inc.'s (AAPL ) almighty iPod has been able to shake loose enough of consumers' cash to make a difference.