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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.
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