Energy
The government wants to prime the pump for nuclear energy plants.
So it’ll pay half the tab for studies required to get approval for facilities planned for sites near existing plants in Virginia and Illinois. Regulators also plan to streamline approvals, halving the time needed.
Recent Energy Dept. moves are meant to end a financing logjam that’s blocking construction of new plants, including the two planned for the Virginia and Illinois sites. Lenders have balked at the 10-year lead time and the $50 million to $100 million needed to meet requirements imposed by DOE, EPA, and a variety of other federal, state, and local agencies.
By 2010, the two plants will come on line, launching a 50% hike in nuclear energy output expected by 2020 as even more plants are built. DOE doesn’t plan to continue picking up study costs for other facilities. It figures once streamlined regs are in place, financing will be easier.

Also by 2010, enough wind-powered electricity for a million homes is likely. A federal tax credit specifically for wind-generated power plus $300 million a year in state grants for all renewable energy sources are sparking rapid growth. That, plus new breakthroughs in turbine blades, conversion technology, software controls, and more, will increase output to nearly 13,000 megawatts, 4% of anticipated U.S. energy needs in 2010.
Chances are that federal energy legislation will speed progress. It will offer millions in grants for research on renewable energy sources of all sorts ... solar, biomass, fuel cells, etc., as well as wind power.

The economy
Look for a sharp slowdown in business spending growth come January, as companies lie low following a late-2004 buying spree. Firms are accelerating purchases of computers, software, vehicles, and various other equipment to make use of a tax break that expires Dec. 31. Look for Jan.-March spending to climb just 5%, after jumping 12% this quarter and 17% last.

Next spring ... a modest rebound. All told, we see business spending up 6%-7% next year.
A similar pattern in overall economic growth is likely, with GDP increasing by about 2% in the first quarter, then improving slightly.

Expect a pause in interest rate hikes as well following a quarter-point increase when the Fed meets next on Dec. 14.
But the Fed should resume increases by March. The monetary gurus remain determined to push interest rates to a less stimulating level. That means a federal funds rate around 3% by late 2005, from 2% now. Prime rates, which track fed funds rates, will be 6% by year-end 2005.

Global trade
An inter-Asian free-trade deal is a worry for U.S. businesses.
It’s a big boon for Chinese competitors in IT, autos, appliances, cell phones, etc., providing them tariff-free access to the 10 countries of ASEAN, the Association of Southeast Asian Nations. That gives China a huge captive market to achieve economies of scale and to test products in English-speaking markets other than the U.S. About 6% of U.S. exports head to ASEAN markets, nearly as many as to Japan and more than to China.
Strong Chinese firms will also be aggressive in the U.S. market. Expect more deals like the purchase of IBM’s PC unit by China’s Lenovo.

Japan’s GDP growth is poised to decelerate to about 1% in 2005 from 3% this year. The rise of the yen, dependence on costly oil, and the slowing U.S. economy will trim Japan’s exports and consumption.
U.S. sectors most likely to suffer from weaker economic growth in our third-largest export market: Electronic components, software, travel, and tourism (notably Hawaii and California). It’s tough on exporters of lifestyle goods ... housewares, home appliances, furniture, and carpets.

© 2004 The Kiplinger Washington Editors, Inc.