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The U.S. tech sector has reversed the sharp growth declines that occurred in the 2000-01 “tech bust,” according to a new index developed by authors Bart Hobijn, Kevin J. Stiroh, and Alexis Antoniades. However, the sector has not resumed the rapid expansion that characterized it in the late-1990s boom period.
The importance of the tech sector to the overall economy makes it necessary to understand changes in tech activity on a timely basis. Yet the authors note that the sector has been hard to track in real time, mainly because it is broad and diffuse, with different economic indicators sending conflicting signals about the magnitude and direction of activity.
To provide a reliable gauge of tech activity, Hobijn, Stiroh, and Antoniades have created a “Tech-Pulse Index” that distills information from several economic indicators--investment, consumption, employment, industrial production, and shipments--into one measure. The authors extract the common movements that occur across the indicators as they relate to the tech sector and filter out those movements that occur randomly. This process enables the index to offer a real-time assessment of movements across the entire sector, complementing the more anecdotal evidence available from other sources.
The Tech-Pulse Index confirms that tech has been growing for more than a year. Since the index reached its trough in September 2001 (which was 18 percent lower than its peak in October 2000), it has grown 14 percent through March 2003.
Still, gains in the tech sector have occurred much more slowly over the past year than they did in the late 1990s.
Hobijn, Stiroh, and Antoniades also suggest that the Tech-Pulse Index might be used as a leading indicator of aggregate U.S. economic activity. They note that the index has provided an early signal of the last two downturns, and could potentially lead future downturns and recoveries.
Bart Hobijn is an economist in the Bank’s Research and Market Analysis Group; Kevin J. Stiroh, a research officer on leave from the Group, is an associate professor of economics at Wesleyan University; Alexis Antoniades is a graduate student in economics at Columbia University.