kiplinger connection
The economy • Housing • Legal issues

The economy: Foreign interest in U.S. investment is still high; hotel space is in demand.
Housing: Expect a sharp upturn to reestablish housing-market strength in 2008.
Legal issues: 80 percent of electronic evidence in court is e-mail—have a retention policy in place.

The economy
Hiring isn't about to drop off a cliff, despite Sept. numbers showing a gain of only 51,000 jobs, down from 188,000 in Aug. Continued growth in average wages shows labor demand remains healthy.
The slumping housing market will temper job growth somewhat as home builders, real estate agencies, and mortgage bankers shed workers. Total jobs added next year: About 1.3 million vs. 1.6 million this year.

Slower growth won’t dim the U.S.’s appeal to foreign investors. GDP gains here next year will still top most other developed economies’. And for firms eager to sell here, setting up shop stateside makes sense.
That’ll add jobs in manufacturing at facilities across the U.S. Among them: A Honda factory in the works in Indiana, a pasta-making plant in N.Y. for Italy’s Barilla Group, a Kia factory that’s coming to Georgia, and a bigger N.C. aircraft components plant for the U.K.’s Smiths Group.

Casual dining restaurants face a continued struggle for sales in the months ahead. Growth dropped off earlier this year as chains such as Applebee’s and Chili’s plus independents saw their consumer base slammed by higher gasoline prices. Despite easing prices at the pump, traffic isn’t picking up much. Too many consumers still feel pinched by rising interest rates and paychecks that aren’t growing by much more than inflation. Slower GDP gains next year mean modest improvement then.
Another record-profits year ahead for hotels, though. Demand is outstripping supply in every segment of the market, from budget motels to luxury resorts. At $28 billion next year, profits would be even higher if rising labor and energy costs weren’t taking the froth off the top.

Housing
The steep drop-off in housing starts should rebound sharply ... a V pattern rather than a U. 2007 starts will slip to 1.6 million, from 1.8 million this year. In 2008, they’ll recover all that lost ground.
Demographics will help. Home buying starts at a younger age than in past generations. Gen Xers ... now in their mid-20s to around 40 ... are buying at a higher rate than baby boomers did at that age. Similarly, the leading edge of the next generation in line ... echo boomers ... are more likely to buy a condo or starter home than Gen Xers were at such a tender age.

Baby-boomer demand will buoy turnover in coming years. Two-thirds of wealthy boomers say that as they retire, they intend to build or buy a home rather than stay where they are.
They’ll have sway over building trends.
What do they want? Single-story, detached homes with small lawns and minimal upkeep. Spacious kitchens and baths inconspicuously adapted to suit aging bodies: Shower grab bars, storage that’s reached easily without bending, high countertops, etc. And room for grandkids to visit.

One thing more new houses will be missing: Copper plumbing. Prices 125% higher than in 2004 are leading more builders of residences, as well as office and other commercial buildings, to substitute plastic. And they won’t be going back, even if copper prices drop down again. They are investing in equipment, tools, and training specific to plastic.
Also making an appearance: Less-pricey types of stainless steel.

Legal issues
If you use an agent to deposit payroll taxes, beware:
IRS doesn’t care if you’re swindled by an agent who fails to make the deposit. You’re still on the hook for the taxes, penalties, and interest. Such scams have stung thousands of small businesses across the country, and the courts are backing up the IRS on the issue.
Congress will likely step in to provide future protection. It’ll require payroll agents to register with IRS and either post a bond or undergo an annual outside audit. Meanwhile, one step you can take:
Check with IRS annually to ensure your agent is toeing the line.

New federal rules on electronic evidence go into effect on Dec. 1.
They give businesses a secure path through the legal minefields, spelling out their rights and responsibilities in producing e-mails and other electronic files that could become evidence in a court case.
A firm can’t be sanctioned for destroying data if it resulted from routine procedures under a sound management system. But the firm must be able to prove a system was in place and employees knew about it. Note that about 80% of all electronic evidence in court cases is e-mail.

Galled by high per-hour legal bills? As regulatory compliance drives up businesses’ need for lawyers’ services, more companies are seeking less-costly alternatives.
Check into these options:
Fixed fees, negotiated ahead, force law firms to work efficiently, but they also risk corner-cutting. They work best when the legal process is predictable ... for real estate deals, bank investigations, and so on.
Incentive-based plans reward law firms for positive results or finishing ahead of schedule and may penalize if a case runs too long.
A request-for-proposal model mimics government bidding systems using competition from multiple law firms to hold down prices of services.