The economy
A revived job market isn’t too far off, despite recent data showing sharp payroll cuts, notably in the struggling manufacturing sector.
By late fall . . . a positive growth trend as an accelerating economy forces firms to ramp up production to satisfy rising demand. Businesses have cut inventories to the bone. Productivity gains alone can’t ensure supplies.
By spring, employment will be humming, posting a net gain of about 100,000 a month . . . seen by economists as a sustainable recovery.

But in historical terms . . . still weak. In past expansions, average monthly increases of 200,000-plus jobs would have been the norm by now. Productivity growth this year and more reliance on imports are slowing job expansion.
Some industries will continue layoffs even as the economy gains. Steel, autos, apparel, furniture, and mortgage-related financial services still have little need for hiring. But food processors and packagers and makers of recreational vehicles, cleaning products, medical equipment, pharmaceuticals, and engineered lumbers are already searching for workers.

A jobs revival will bring sighs of relief at the White House, worried about defending Bush’s economic record in next year’s elections. Several traditionally critical voting states . . . Calif., Ohio, N.Y., Pa., Mich., Mo., and Ill. . . . have been among those hit hardest by job losses.
A stubborn jobless rate casts a cloud over any celebrations. Despite a payroll pickup, unemployment is going to drop only slightly, to 5.9% or so by fall 2004 from 6.2% this year. While that will weigh on voter psychology, it’s lower than after other recent recessions.
Bush will keep pushing pro-job measures aimed at increasing both the competitiveness and overall hiring capacity of manufacturers.
He’ll focus on the threat from imports, notably from China and other Asian countries. And he’ll prod the Commerce Dept. to act faster on dumping complaints and U.S. goods promotion.
Regulations will get the once-over . . . closer reviews of how regs affect the ability of manufacturers to build and operate their factories.

These steps won’t do much to help lift employment right now. But Bush hopes they will at least slow down manufacturing job losses.

Business costs
An accelerating economy will bring with it higher shipping rates. Tight truck and ship capacity sets the stage for price hikes . . . many firms have consolidated or slimmed down over the past three years.
Expect 5% to 7% increases in annual trucking contracts by Nov., up from the 4% rises of the past couple of years. Manufacturers, retailers, and wholesalers will have to absorb much of the added cost. Fierce competition makes it tough to pass on the pain to customers.
Smaller firms can seek out volume discounts by pooling shipments with other local businesses or using brokers who offer to consolidate.

Ocean cargo rates in Atlantic trade lanes will soar 15% by fall and 10% or so for annual shipping contracts up for renewal in 2004. With cargo volume now up 10% and strong demand continuing next year, steamship lines can almost name their price as renewals come around.
More-modest rate hikes in Asian-Pacific trade lanes . . . 5% to 8% starting in fall and into next year. Ocean carriers in Asia didn’t slash their fleets from 2001 on because container traffic fell off only a bit.
Nonvessel operators may get you lower prices. Fordpointer, Blue Anchor, BAX Global, and other NVOs rent ships from the majors and are more likely to take on smaller shipments and offer discounts.
Within about two years, ocean cargo rates should ease as orders for ships are fulfilled, swelling cargo capacity to record levels.

Cheaper airfares are on tap for travelers as Southwest, JetBlue, AirTran, and other low-cost carriers continue to gain market share. They have about 25% of the market now, growing to 40% in a few years. And surviving larger airlines must compete harder to stay in business. They’ll pare expenses by switching to smaller planes in some markets and making other changes that will enable them to cut their prices.

World economy
U.S. exports will surge as the global economy picks up next year. Exports will gain 9% on the strength of a 3% rise in world GDP, a welcome acceleration from this year’s 2% pace and 3% growth in exports.

Asia will be the most improved market, with China in the lead. The world’s most populous nation continues its blockbuster expansion, soaking up exports and flooding the globe with low-cost products. Next year, China’s economy will expand by 8%, a bit more than in 2003.
Japan will finally see noteworthy growth of about 2%, picking up after three extremely weak years. U.S. high-tech exporters will benefit, as will U.S. vacation spots eager for the return of Japanese tourists.
South Korea and India will also gain: India, increasing 6% or so, and South Korea, around 5%, barring a flare-up with North Korea.

A modest upturn in Europe’s 12-nation euro zone is in the offing. Total growth will be just under 2% . . . even less for Germany and France, the top players. Spain is a standout since liberalizing its labor laws.
Eastern Europe is expanding at a faster rate than Western Europe, but starting from a lower base. Growth of 3% will help U.S. exporters of Internet and computer technology, telecom services, and auto parts. Gains in Russia will slow to just under 5% due to oil industry problems.
The noneuro U.K. will sustain a good pace, with growth near 3%.

NAFTA partners Canada and Mexico will strengthen, with growth of about 3%, up a notch from 2003. Canada is overcoming several hits, including mad cow disease, forest fires, and a stronger Canadian dollar.
Ditto, Central and South American economies, led by Brazil. Faster growth in Brazil will help Argentina dig out of its depression.
Even Africa’s outlook is brighter, with many commodity prices likely to rise. But civil unrest on much of that continent will go on. Overall economic gain . . . a healthy 4%, albeit starting from a low base.

© 2003 The Kiplinger Washington Editors, Inc.