The economy
The pace of job gains will slow a bit in coming months from an average of 211,000 per month so far this year. Exceptional early-year gains in construction and the leisure industry aren’t likely to continue at such heady paces. And manufacturing may become a bigger negative as U.S. automakers scale down production.
But overall...another year of solid job growth at 2.2 million.

Don’t rush to buy 30-year bonds when the government issues them later this year, a move needed to finance the big federal deficits. The long maturity will mean a larger risk for just a little more yield.
Their overall impact on long-term interest rates will be modest, with the added bond supply nudging rates up a few tenths of a point.
They’ll have even less effect on mortgages. Typical 30-year loans track the 10-year Treasury. Most folks don’t hold mortgages till the end.

The cost of key raw materials will stay high for years to come as strong demand in the U.S., China, and elsewhere continues unabated.
Expect aluminum to climb 15% or more, to $1/lb. by year end, hurting makers of autos, auto parts, airframes, gutters, and furniture.
Copper will hold at a high $1.50/lb., double last year’s cost. That hurts makers of wiring and circuitry for appliances, phones, and PCs.
No relief on nickel, either. At $8/lb., it’s also twice the price it was last year. That will keep stainless steel expensive, too.
Hot-rolled steel prices...rising to $650/ton after Labor Day.

Small business
Small firms will likely win more regulatory relief from Congress.
Look for bills easing workplace safety rules to pass this year. The 15-day deadline for answering citations will be eased. And more power will be given to the Occupational Safety and Health Review Commission. The panel will also be expanded so Bush can appoint more members, solidifying a pro-business majority. But smalls won’t win on every count. A measure letting them recoup legal costs if they challenge a citation and win will be sacrificed to ease the way for the other bills.
The potential roadblock to passage: These are the kinds of bills Senate Democrats won’t hesitate to block if Senate Republicans follow through with plans to bar filibusters of judicial nominations.

Taxes
It’s a done deal: Current federal tax breaks won’t disappear. Congress has given the nod to between $70 billion and $106 billion over 10 years to continue tax cuts approved during Bush’s first term.
Count on these provisions being included in the final package:
The 15% rate for capital gains and dividends. It will be extended until at least 2010. That’s two years beyond its current expiration date.
The itemized deduction for state and local sales taxes. Scheduled to expire this year, it’ll be around for another year or two.
And temporary changes in the alternative minimum tax.
Plus miscellaneous other breaks. Extensions of at least a year are likely for the work opportunity and welfare-to-work credits, the R&D credit and credits for producing energy from alternative sources.

There’ll be no backpedaling on rate reductions, either, though some tax hikes are likely, mainly targeting abusive tax shelters.
Expect heated rhetoric. The budget blueprint calls for real cuts in some domestic programs. Republicans will be accused of taking money from the poor in order to finance more tax cuts for the very wealthy.

© 2005 The Kiplinger Washington Editors, Inc.