Business
Supply hassles are here to stay.
For many raw materials ... fuel, steel, cement, lumber, and other building blocks of industry ... it will be years before buyers can count on always getting what they need when they need it, making growth difficult.
The reasons: Soaring demand abroad. Rapid industrial gains in China, India, and other emerging powerhouses pit U.S. companies against foreign rivals in bidding for a variety of raw materials, pushing buyers against the wall on costs.
Growing world trade. More imports and exports are straining transportation ... railroad, road, and ocean shipping ... on both global and domestic routes.
A reluctance to invest, despite obvious demand. Energy firms, shipping providers, steelmakers, and others are leery of plowing money into big, long-term projects, fearing that current growth won’t last. More oversight by lenders and credit agencies also makes firms gun-shy.
And regulatory and environmental barriers to building new plants for refining gasoline or for making steel, cement, and wood products.

What can you do? Stress the need for reliability as well as cost when lining up suppliers and haulers. Long-term contracts are a must, as is an ongoing search for alternative sources and backup routes.
Adjust your just-in-time systems to build in more flexibility.
Rethink inventories. It may be cheaper to store critical items than to risk running out of them. That’s good news for warehouses. Rents will firm up a bit in the coming year, after a decline in 2004.

For some small-scale buyers: Consider a purchasing collective to compete for limited supplies and shipping availability. Otherwise, larger outfits buying in volume may muscle you out of the market.
Small suppliers may be able to strike good long-term deals by agreeing to sell exclusively to one buyer that needs a secure conduit.

The ongoing supply woes will take a toll on economic growth. Inefficiencies will curb productivity. Higher costs will pare profits.
Businesses will hire fewer people to offset rising expenses. Next year, monthly job gains will average 150,000, well below the pace typically seen in the comparable phases of previous economic expansions.
But prices of finished goods won’t rise much. Fierce competition continues to limit most firms’ ability to charge more for what they make.
The resulting squeeze spells more consolidation in industries such as automotive parts, industrial equipment, tooling, and furniture.

The economy
The South and West will continue to lead the U.S. next year in economic and job growth, paced by a stronger tech sector, including biotech. Both regions also profit a lot from defense spending. Hurricane damage in the South will require much rebuilding work, which will offset blows from crop losses and a likely dip in tourism.
Growth in the Northeast may run a tad behind the leaders.
The Midwest will lag the rest of the nation, dogged by carmakers, which are in for a rough ride next year as sales of new cars sputter.

After the September 21 interest rate hike, the central bank will be less eager to tighten. Much as Greenspan & Co. want interest rates back near “neutral” ... acting as neither a stimulant nor a drag on economic expansion...they also want to make sure that job growth is solid before they act. The Fed isn’t so determined to raise rates that it would cut off growth.

Tech
Linux software is proving to be a boon for business customers. Its share of the market is now a modest but respectable 20% for servers that run networks and databases or route e-mail messages.
It’s helping to drive down software prices by fueling competition with giant Microsoft, which is now more willing to offer deals to buyers. A basic Linux desktop system without all of the bells and whistles of Microsoft’s Office is often included with a new Linux PC at no charge. And OpenOffice.org’s free desktop software bundle is a viable option, particularly for new networks, which wouldn’t have to switch over from MS products already in use. Novell and Red Hat bundle OpenOffice.org into Linux operating systems at a fraction of Microsoft’s costs.

NASA’s brainy technicians do more than organize space shots.
They also help small businesses that lack the resources for R&D to find ways to slash production costs or speed up product development. The Space Alliance Technology Outreach Program helped Silver Zebra Design to develop a low-cost manufacturing process for its line of towel racks. Tangidyne Corp. used NASA know-how to perfect its industrial sensors. And a Chicago inventor received help with making child car seats safer.
The service is free. For info, go to www.spacetechsolutions.com.

© 2004 The Kiplinger Washington Editors, Inc.