When Risk Outweighs Reward

In reviewing this week's announcement of the revised GDP numbers for the fourth quarter, the data pertaining to the decrease in investment in equipment and software was quite striking. The Wall Street Journal article "Economy in Worst Fall Since '82," outlines the details of the revised GDP numbers which were released by the Commerce Department on Friday. Overall the new data reflects a 6.2% fall in GDP rather than the earlier fourth quarter estimate of a decline of 3.8%. This increased decline in fourth quarter GDP indicates that the U.S. economy is in a much more turbulent situation then earlier estimated.

But the rapid decline in portion of GDP relating to investment in equipment and software seems to be the most striking. When a business ceases to purchase such items in spite of the fact that long term saving might result, it is clear that they are uncertain of the future business environment. Bradley Aldrich, the president of the engineering firm, Forcier Aldrich & Associates Inc. sums up his unwillingness to purchase software that would potentially enhance his firm in stating, "It makes sense to do it, but with the economy the way it is right now we're reluctant to make the investment." When the reward of a business investment appears to be fraught with risk, a falling GDP will continue follow.