The economy
Another sign of optimism: Stepped-up demand for commercial loans. The brisk pace of growth...11% over 12 months ... should stretch into early 2006. It follows an 18% lending decline between 2001 and 2003. And it coincides with a huge buildup of cash in large corporations.
Most loans are for inventory building, reflecting bullish orders and business managers’ confidence that demand won’t fade in months ahead. Despite the increase, the inventory-to-sales ratio remains fairly low.
Banks are eager to lend. With the spread between what banks pay to get deposits and what they earn on long-term Treasuries narrowing, they need other ways to make a profit. Loan fees fill that bill.

Also a good omen: Strong second-quarter orders for computers, machinery, and communications equipment bode well for the rest of 2005.

Businesses are pressing for better economic info from Uncle Sam, claiming that government economic statistics haven’t kept up with changes in the economy. The big beef: Data on services are too broad to be useful, even though the service sector makes up 80% of U.S. production and jobs. And businesses want more-reliable productivity statistics. They fear that sketchy info could lead the Fed to a bad call on interest rates.
It’ll be a tough sell, though. The needed surveys will take money and federal workers at a time when Congress has cost-cutting on its mind.

The world
Chinese investors won’t let the flap over Unocal deter them.
They’re determined to get a global presence for their firms, preferably by snapping up well-known but distressed U.S. manufacturers. Appliance-maker Haier is sure to be back in the market after bowing out of the contest for Maytag. Kelon, another Chinese appliance manufacturer, is also likely to enter the hunt. Other industries to attract interest from Chinese firms include consumer electronics, computers, and auto parts.
The takeover of famous U.S. brand names rankles some politicians.
But it funnels billions of dollars back into the U.S. economy. China is sitting on over $711 billion in cash and securities. It’s better that the money be reinvested in U.S. factories, helping boost productivity and create jobs, than be sold off, causing the dollar value to fall.

Solid economic growth will bless most of South America next year, despite a growing list of political woes cutting across the continent.
In Brazil, a corruption scandal complicates the reelection bid of President Lula da Silva as well as his plans for more economic reforms. But Brazil’s mining and metals industries will thrive on soaring demand, largely from China. That’ll nudge growth up slightly to about 3.5%.
Venezuela is getting a lift from the high price of crude oil. But tight controls on prices and capital are discouraging investment. Growth will slow from about 6.5% this year to less than 4.5% next.
Argentina and Chile will also see the pace of growth ease, from between 6% and 7% to about 4.5% for Argentina and nearly 5% in Chile.
Colombia won’t see much change, with GDP growth at roughly 3.5%.

Getting an OK to sell nuclear technology to India won’t be easy. Bush’s plan to do so will require Congress to repeal half a dozen laws prohibiting such a trade, and the proposal is sure to be controversial.
It’s certainly going to complicate efforts to curb proliferation. It will muddy but probably not derail negotiations with North Korea and is likely to undercut efforts to dissuade Russia from selling to Iran.

Taxes
New corporate tax breaks on the way? Seems likely. This fall, Congress plans to repair glitches in legislation passed in 2004 to trim corporate income taxes for manufacturers. But the lobbyists are swarming, and odds are lawmakers will wind up making sure eligibility for the tax cuts applies to numerous industries that IRS rules left out.
Among those to benefit: The biomass energy industry, filmmakers, defense manufacturers, land developers, pharmaceutical firms, farm co-ops, and software manufacturers. Budget watchdogs will complain about the loss of tax revenues, but that won’t stop the politicians from barging ahead.

The IRS may soon start crashing Tupperware parties. Tax agents are going after direct sellers ... self-employeds who sell beauty supplies, kitchenware, and other items by hosting parties or going door to door. Agents are on the lookout for unreported income, including bonuses, gifts, or awards. Home office deductions will also come under the microscope.

© 2005 The Kiplinger Washington Editors, Inc.