Privacy
A big push to stop ID theft is coming.
Congress will insist that firms do more to protect the personal data they collect.
Coming measures will cut a wide swath, affecting large and small businesses of all sorts, not just financial institutions.
And they’ll raise the financial stakes, forcing companies to ramp up security spending.

Good bets to be included in a new law:
Penalties for insufficient security. Firms will have to build leakproof walls not only around customers’ credit card info but also around client and employee records that have Social Security numbers and the like.
Notification requirements in the event of a security breach. If there is a reason to suspect any misuse of compromised data, firms must tell affected clients and vendors. That’ll bring hefty costs and might open the companies up to lawsuits.

An end to the current privacy law exemption for data brokerages, which collect and sell personal information to businesses. Data brokers will have to screen information seekers, making sure that only those with a legitimate right to information get it.
A safe haven for companies that use encryption to safeguard their data. They won’t be liable for breaches that occur, so encryption is likely to become the norm soon. The typical annual cost for a midsize firm: $35,000, give or take a bit.

In general, businesses WANT a new federal law.
One reason: It would preempt state statutes, including a California law that’s much tougher than any new federal law would be. With a dozen or more state legislatures headed that way, businesses don’t want a patchwork of state regs.
And businesses know that consumer confidence is paramount. That’s why Visa, MasterCard, and American Express are taking steps to safeguard security, imposing higher standards for all merchants and restaurants that conduct at least 20,000 transactions a year.

In the end, fear of theft won’t slow the e-commerce revolution. But it will make it more costly for companies to operate on the Internet and hurt individual companies that get caught in security breaches. Consumers can and will quickly switch their online banks or e-retailers when a vendor slips up and draws headlines for sloppy security practices.

The economy
The news from the manufacturing sector isn’t all bad, despite economic indicators that paint a pretty grim picture. Recent data reveal weakness in manufacturing jobs, output, and orders.
Factory orders and jobs should show upturns in the second half as business spending rebounds from a lull early in the year. Already, electronics, transportation equipment, and other key sectors are rising, offsetting continued job shrinkage in autos and food processing.
This year ... 200,000 more factory jobs, up from 37,000 last year.

Higher interest rates are coming, despite tame inflation numbers. April’s unchanged core Consumer Price Index, which excludes food and energy prices, hints at easing price pressures in coming months. But Federal Reserve officials still believe that danger lies ahead. Companies in more sectors are getting bolder about raising their prices.
At least three more rate hikes this year: A quarter-point each in June and Aug. and one or two more quarter-point increases before January
The CPI will rise about 3% this year. The core CPI, about 2.5%.

The dollar’s rally is likely to fizzle by midsummer.
The large U.S. trade deficit remains an underlying concern for currency traders. In fact, the anxiety is only heightened when the dollar rallies. A stronger greenback chills the trade outlook.
And the dollar is poised to decline against Asian currencies in the second half, when China will let the yuan rise versus the dollar.

Office rents will edge higher as vacancy rates keep falling through next year. Average office rents will climb 3.5% in 2006 after a 2.5% gain this year. The hottest markets: Southern Calif.; South Fla.; Washington, D.C.; Midtown Manhattan, and Charlotte.
Industrial rents are headed up, too, about 2% on average in 2006 after a scant increase this year. Demand for warehouses, factories, etc., is showing greatest strength in Miami, northern N.J., and Southern Calif.
Sweet deals are still available, but renters will have to hurry.

Defense cutbacks
Military base closings frequently have silver linings.
Communities losing bases often end up stronger by making them into office parks, housing, hospitals, or even nature preserves. In earlier rounds of base closings, 85% of the civilian jobs lost were eventually replaced by new employment in the private sector. Bergstrom Air Force Base near Austin, Tex., is a flourishing airport. California’s Long Beach Naval Complex is home to a technology office park and a cargo terminal. And Grissom Air Force Base in Indiana now boasts 40 tenants, including a state prison and a golf course.

Some sites won’t sit idle. Where real estate markets are hot and economies are diverse and thriving, base closings may be a boon, opening prime space for growth. The New London, Conn., submarine base and New Jersey’s Fort Monmouth Army base, for example, will be snapped up for housing and commerce. Ditto, a naval facility in Corona, Calif., and the General Mitchell Air Reserve Station near Milwaukee.
But for others, base losses will be a blow. When the military pulls out of quiet areas with small populations and little business ... Rapid City, S.D.; Pascagoula, Miss.; etc ... job losses will hurt. And it won’t be easy to come up with productive uses for the land.

There’ll be plenty of protests by state and local authorities and federal lawmakers for areas likely to be adversely affected.
But few changes in the Defense Department’s hit list are likely before the bipartisan base-closing panel gives its approval in September.

© 2005 The Kiplinger Washington Editors, Inc.