kiplinger connection
Insurance • Small Business• The Economy

Insurance: Terrorism reinsurance to remain
Small Business: More contacts to small firms
The Economy: Steady, if less brisk.

Insurance
Uncle Sam will continue to back terrorism insurance policies. The federal reinsurance program expires at the end of 2007. But business groups are already pressing Congress hard for an extension, and lawmakers will deliver, albeit after a lengthy debate over the issue. Odds are they’ll do a long-term fix, not another temporary lease on life.
That’ll be a relief for operators of high-profile work sites ... power plants, skyscrapers, stadiums ... viewed as potential targets. Developers in big-city centers will find it easier to pitch projects.

Rates on life policies are poised to drop an average 4% in 2007, continuing a trend that has been driven by longer life expectancies. Individuals, as well as firms carrying coverage for workers, can swap out of an existing policy into a new one to take advantage of lower rates.
Have you renovated property? Don’t forget to tell your insurer. Many property owners have neglected to do so during boom periods in housing and commercial property, which spawn lots of renovations.

Small business
Washington wants more government contracts to go to small firms. The Small Business Admin. plans to close regulatory loopholes used by large firms to circumvent set-asides for smaller competitors. Prompting the corrective action: The discovery of widespread abuses in the many rebuilding contracts that followed Hurricane Katrina.

The economy
As politicians grapple with multiple crises around the world The U.S. economy is bound for a steadier, but less brisk, ride than in the past few years. Of course, the uncertain global environment means that economic shocks ... energy or otherwise ... remain a big risk.
We expect growth to average 2% to 2.5% through about mid-2007, followed by a slight acceleration during the second half of next year.

Consumer spending can weather the housing slump but will suffer:
It’ll downshift to 2.3%, a significant drop from this year’s 3%. But this by no means equates to a total collapse of spending power.
Fears of a meltdown from adjustable rate mortgages are overblown. Around 82% of homeowners have fully paid-off loans or carry fixed rates. Of those with ARMs, only a quarter face potential financial squeezes when roughly $1 trillion of such loans are reset soon at market rates.
Fuel costs, though still high, won’t be a killer. In fact, the overall energy cost burden for Americans will actually lighten a tad, even though users of heating oil will probably pay more. Plentiful stocks of natural gas will keep most heating bills lower this winter than last, providing a psychological lift after three straight years of steep hikes.

By midyear, interest rate relief will give growth a modest kick. The Federal Reserve will launch a gradual easing trend in short rates with a quarter-point cut, lowering costs on business and consumer loans.

Employment gains will be strong enough to sustain income gains and help buoy spending in the absence of any new asset booms ahead. Average monthly job increases of around 100,000, though not spectacular, should hold the jobless rate to fairly low levels ... no higher than 5%. And that’ll continue to pressure employers to sweeten pay packages.
Workers can finally get ahead of inflation as the average raise clocks in at 3.7% next year and the rate of price growth eases to 3%.
Growth in business spending will be slightly weaker, about 6%. On the manufacturing side, though production will slow by half to 3%, plenty of companies still need to expand to keep up with rising demand.