The Economy
It’s not just U.S. manufacturing jobs that are being moved overseas these days.
More service jobs are heading abroad, driven by the push to cut costs and made possible by sophisticated technology as well as by increasing worker skills abroad.
By 2015, nearly 3 million service jobs will have been lost. That’s just a fraction of today’s 108 million U.S. jobs in services and a tinier share of 2015 employment. But ...

It will slow the engine of job growth in the U.S. Our economy has relied on services for most new employment over the past 50 years as net manufacturing employment has held flat.
Still, growth in new service jobs will more than outweigh losses.
But jobless rates will remain a bit higher in future expansions than they were in the past. Unemployment won’t dip below 5% this cycle. During economic upturns of the 1950s, 1960s, and 1990s, it slid below 4%.

A wide array of industries are susceptible to foreign migration. So far, it has hit mainly software work, call centers, and repetitive jobs such as insurance claims processing. But soon, more-sophisticated tasks will feel it: Investment and legal research. Architecture. Engineering. Product development. Income tax preparation. And even radiology analysis.
And a large number of business functions ... much of HR (pension, 401(k), and benefit operations, background checks, relocation services) plus credit card processing, billing services, travel, and help desks.
Small firms as well as bigs will do it, tapping outsourcers that can combine smaller orders and send them overseas to be fulfilled.
India and the Philippines are the giants. Both have large pools of English-proficient workers. Insurer AIG is moving data processing jobs to the Philippines. Oracle plans to double its staff in India to 6,000.

White-collar salaries here will be pressured as more accountants, actuaries, and others face competition from less-well-paid workers abroad. An architect in India may earn $50,000 less than one working in the U.S.
Entry-level jobs are most vulnerable. They tend toward rote tasks that typically require less judgment. That’ll make life harder for grads.

But most service jobs are secure ... high-customer-contact fields such as health care, trades (plumbing, electrical, etc.), cleaning, restaurant work, child care, education, shipping, and transportation.
Plus there are positives for the U.S. in the trend: Better jobs in other countries mean more income and greater demand for U.S. exports, both goods and services, such as health care, education, and tourism.

Real Estate
Home construction will keep builders hammering away next year, courtesy of a strengthening economy that will create more jobs and mortgage rates that remain historically low, despite a recent uptick.
Housing starts will dip only slightly to 1.68 million next year from 1.7 million in 2003. Builders and suppliers won’t skip a beat.
But commercial and public works projects will slip a bit more, although not as much as this year. Gains in new health-care facilities and essential water and sewer work will be offset by less spending on offices, hotels, factories, shopping centers, roads, and schools.
There’ll be some new spending for electricity upgrades, but not much.

A word of caution on REITs, real estate investment trusts. There are growing signs that they have peaked after hefty appreciation. They’re trading at 10% above the net asset value of their holdings ... a historical high. Rents aren’t increasing, office space is plentiful, and gains made from refinancing debt at low rates have run their course.

U.S. Security
Nearly two years after the 9/11 attacks, are we any safer?
In many ways, yes. Much has been achieved on the home front, with terrorist attacks abroad a grim reminder to keep our guard up. Our security is much tighter at power plants, offices and airports, and other public places. U.S. intelligence operations are better, allowing authorities to move more quickly to avert possible danger. And there’s more international cooperation among police agencies, making it much more difficult for terrorists to operate freely.

But big holes remain. We have no national cybersecurity plan. Coordination between Washington and local authorities is sketchy. U.S. borders are porous, making it easy for terrorists to sneak in. Passenger airplanes are vulnerable to cheap shoulder-fired missiles. And the new Homeland Security Dept. has many organizational gaps.

Much more needs to be done at the local level, where financing for the needs of police, fire, medical, and other responders is slim. Tight local budgets are keeping many public safety projects on hold.
Recognizing this, Congress will soon pass a new funding bill:
$30 billion for homeland security next year, with a good chunk earmarked for local authorities, who will use it to upgrade defenses. Future years will likely see similar amounts for security spending.
Private contractors will benefit by getting a lot of work soon as states and cities scramble to improve their communications systems, install sensors and monitors, and make other security enhancements.

The U.S. will remain a target for terrorists of many stripes.
It’d be hard to change that. But the past two years have shown how well and how fast Americans pull together against a common threat.

© 2003 The Kiplinger Washington Editors, Inc.