The economy
Geographic disparities in economic growth will widen next year.
The South and West will rack up more gains as key industries in those regions thrive. Fla., in particular, has a lot going for it. Higher defense spending, increased tourism, burgeoning Latin American trade, and the boom in construction will provide a 4% gain in jobs. In the West, Ariz., Colo., and Nev. will see jobs grow 3%-4%, due mainly to strength in defense, aerospace, technology, tourism, and gaming. Healthy technology and financial service sectors will lift Mid-Atlantic and New England states.

But the Midwest will lag further behind, hurt by auto woes and a manufacturing sector in the doldrums. And high energy prices are weighing on the central Farm Belt.

Cities will be freer to grab land for private development after the Supreme Court ruled that it doesn’t violate the Constitution. The Court’s definition of “public use” to include economic development is likely to encourage more plans to clear land for offices and stores.

Don’t expect a strike at General Motors. The company’s threat to cut health benefits this summer and labor’s steadfast rejection are no more than early jousting for talks that won’t begin until 2007.
Management will have the upper hand when bargaining gets serious because labor knows a hard line could push the company into bankruptcy. The union will have little choice but to agree to make major concessions.

Cement shortages are taking a toll. Big contractors now pay $82 a square yard, up from about $70 a year ago, while small firms pay $90 or more. Shortages are likely in 40 states by Nov., halting construction on some projects. That’ll end up hurting suppliers of steel, glass, etc.

Energy
By fall, Bush will finally get an energy bill he can sign. It will have $18 billion in incentives to promote conservation and alternative energy and to boost production of oil and natural gas. But it won’t include any real push to increase refinery capacity.
The Army is taking solar power a step further, developing fabrics that generate electricity. Canvas tents meshed with hair-thin solar cells will be able to power lights, computers, radios, and more during daylight.

Housing
There’ll be no letup in soaring demand for reverse mortgages, which allow older homeowners to gradually draw down home equity without having to sell. Demand will climb 50% this year, to 60,000, after an 85% jump in 2004. Their popularity will really leap after 2010, when more baby boomers retire and find their homes are a ready asset.
Mortgage delinquencies will drop from 4.3% now to 4% or less next year, even though more buyers are stretching their financial limits to match rising prices. Although higher interest rates will hurt some, a stable job market and a growing economy should let most homeowners stay on schedule. Delinquencies may climb in 2007, but only modestly.
Falling rents will help cool the housing market by mid-2006 as more people resist rising home prices. Low rents will thin the ranks of buyers of second homes, too. Over time, rents should recover a bit.

© 2005 The Kiplinger Washington Editors, Inc.