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E-COMMERCE GOES ON A ROLL

Posted on May 3, 2002

      Growth in e-commerce, spurred by travel sales and a general renewed confidence on the part of consumers, continues to be a bright spot in the Internet economy, despite a continued slump in IT spending by businesses.

      The Commerce Department said in its first-quarter report that the U.S. economy was running at the fastest pace in more than two years as consumers resumed spending and a year-long trend of sharp cutbacks in business inventories showed signs of tapering off.

      U.S. gross domestic product (GDP), measuring the amount of goods and services produced within U.S. borders, shot up at a 5.8 percent annual rate in the first three months of this year -- a full percentage point higher than the forecasts of private economists. And online purchasing by consumers clearly was a factor, as various other reports show e-commerce continues to accelerate.

      In fact, soaring consumer sales in the U.S. broke records left and right and topped $17 billion topped $17 billion in the first quarter of this year, thanks in part to the travel sector, according to a report from comScore Networks.

      And BizRate.com said it sees e-commerce as an industry that is accelerating, not maturing or decelerating, according to its first-quarter numbers.

      The quarter showed year-over-year online retail sales gains of about 41 percent to $11.60 billion versus $8.22 billion in the same period a year earlier. BizRate's figures exclude travel spending.

      Online orders grew by 33.9 percent this past quarter from 68.29 million purchases in the first quarter of 2001 to 91.47 million in the first quarter of this year. The average online this year was $127 per purchase, up 5.3 percent from $120 a year earlier, BizRate said.

      "There is a still a perception that online industries are faltering, but this is actually the reverse with online retail sales," said Chuck Davis, president and CEO of BizRate.com. "The trend shows that consumers love buying online and are shifting their purchases from off-line to online -- and at ever-increasing levels ...." For empirical evidence, one need look no further than some recent sales and earnings reports from companies like retail giant Amazon.com, and travel leader Expedia.com.

      The GDP report, meanwhile, said that consumer spending grew a healthy 3.5 percent, but below the 6.1 percent recorded in the fourth quarter of 2001.

      An 8 percent drop in spending on durable goods such as cars was offset by an 8.4 percent surge in purchases of nondurable items like clothes. The gain in nondurable goods was the biggest since an 8.9 percent jump in the second quarter of 1975. Clearly there was a lot of pent-up demand.

      "This economy is getting back on a good growth track, which down the road will mean good things for the restoration of jobs and companies' profits," Ken Mayland, president of ClearView Economic, told the Associated Press.

      However, other economists sounded a cautionary note, pointing out that a big factor in the economy's first-quarter expansion was a slowdown in inventory liquidation by businesses. That added 3.10 percentage points to the GDP, its largest contribution since the fourth quarter of 1987.

      And the bad news, particularly for B2B companies dependent on IT spending for their revenues, was that business investment on structures, equipment and software fell 5.7 percent in the first three months of this year after it plunged 13.8 percent in the fourth quarter, according to the Commerce Department.

      Investments in information technology fell 4.7 percent, despite a 20.3 percent rise in spending on computers. The slowdown in IT spending has been cited as among the reasons for difficulty in the e-commerce infrastructure/integrator industry.

      But for e-tail, the outlook is bright. BizRate.com is increasing its estimate for 2002 total online retail sales from 26 percent growth to 44 percent. Total online retail sales, which were an estimated $28.91 billion in 2000 and grew to $35.87 billion in 2001, are now forecast to be at $51.48 billion for all of this year.

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