Companies aren't going to be scurrying to buy new technology equipment anytime soon. Not after they loaded up the gunwales on the stuff during the tech investment bubble -- a buying spree that left many of them with balance sheets ill-prepared to deal with the economic downturn.

Well, at least that's what you might think. But economists sifting through Wednesday's gross domestic product report were surprised to see that companies spent more on technology in the fourth quarter than in the third. This outcome raises the possibility that maybe companies are going to resume laying out big bucks for new tech equipment earlier than anyone is forecasting. And perhaps even that investors will want to take a fresh look at some technology companies.

"I expected to see a lower rate of decline, but not an increase," says Morgan Stanley chief U.S. economist Richard Berner.

Tone Loc

Business spending on information processing equipment and software grew at around a 0.6% annualized pace in the fourth quarter, the first time it increased since the fourth quarter of 2000. While some of that may be related to increased telecom equipment spending in downtown New York following Sept. 11, says Berner, "there's no mistaking the fact that the tone has got better."

Recent reports have suggested this was coming, however. Orders and shipment data for tech equipment did well in the fourth quarter, notes Salomon Smith Barney economist Chris Wiegand. Meanwhile, the S&P's computer subindex -- which Wiegand says corresponds surprsingly well on computer spending -- gained 35%.

But while Wiegand expects capital spending on tech to continue to improve he also thinks a major subcategory of tech spending, communications equipment, simply isn't going to get much better until next year. "It's got lots of very large hurdles for any kind of growth in 2002," he says.

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Getting Better?
Quarterly growth in tech spending, annualized

Source: Commerce Dept.

For one thing, the overinvestment in communications equipment was so much deeper than in any other area of tech. Beyond now-defunct dot-coms shelling out big bucks, you also had outfits such as

Global Crossing

, the once-highflying undersea optical network builder, which this week filed for bankruptcy. And which, one reckons, is going to be selling a lot of telecom equipment cheaply.

Moreover, as flashy as the new telecom equipment may seem, the old stuff has a pretty good shelf life. It has to -- you can't reasonably expect that companies will have to replace entire networks every couple of years. Computing equipment, though much of it has turned increasingly into a commodity good, gets stale more quickly.

"By our calculations the overinvestment in computing equipment is almost worked off," says Wiegand. "You can tell a pretty convincing story that spending on computers is going to grow in double digits

annualized every quarter this year."