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The Economy • Human Resources • The World

The Economy: 2007 corporate profit growth will be about 8%
Human Resources: Tighten up your travel costs
The World: Trade with Russia an uphill battle?

The Economy
Legacy airlines are hoping to regain some market share next year.
They’ll boost capacity by 4% or so, adding domestic flights in an effort to woo customers from low-cost upstarts, now that fuel prices
have eased. A 20% cut in capacity in recent years, combined with an uptick in demand, has meant packed planes and fares up one-fifth since mid-2005.
The move is risky: It could bring empty seats and lower fares.

Average corporate profit growth in 2007? About half this year’s...
roughly 8% for the S&P 500 compared with a nearly 15% gain likely in 2006. The biggest gainers: Information tech, health care, household products and food-processing firms. Bringing up the rear: Financial firms, as delinquent mortgages nick profits and mergers and acquisitions slow. Also furniture and appliance companies pinched by the housing slump. Energy company profits will be flat after this year’s big jump.

It’s happy days for oil wildcatters again. Strong oil prices...and a firm expectation that they’ll stay strong for several more years... spell renewed interest in marginal oil wells.
In 2007, an additional 20 million barrels a year will gush from wells that big oil companies deemed too depleted to be economically viable. That translates into 12,000 new jobs and millions—in new business for makers of drilling equipment, pumps, motors, sensors, pipelines, and so on.
Where are most stripper wells? Arkansas, Illinois, Indiana, Louisiana, Michigan, North Dakota, Ohio, and Pennsylvania...not the oil patch.

The construction equipment business is running into a buzz saw.
After two strong years...11% this year and a whopping 34% in 2005...
sales growth will slip to 4% next year. Why? The slowdown in housing.
Also the buying spree that followed the federal highway bill is drying up. Demand for cranes and other lifting equipment remains strong, however.

Come next year, Americans will be saving again. For about a year,
the aggregate U.S. personal savings rate has been in negative territory. But it’s creeping higher and should reach about 1% in 2007. Insecurities about home values are spurring some consumers to sock away more funds for retirement or to help weather a rainy day. But there’s little chance that they’ll save too much, trimming spending and halting economic growth.

Human Resources
Holiday help will cost more this year. Retailers and others will need about the same number of temporary workers as last year to handle the rush, despite expected ho-hum sales. A tight labor market spells higher wages for salesclerks, stockers, shippers, caterers, customer service and call center workers, and others. Plus employers must work much harder to get the word out to potential job seekers.

Travel costs sapping your profits? Don’t cut back, tighten up. With airfares expected to increase an additional 3% next year and rates
for hotel stays headed 12% higher in some cities, savvy businesses
will look for ways to get more for their buck. Some successful moves:
Require advance purchase of airline tickets and insist that employees
book only with suppliers with which your company has negotiated discounts. Clamp down on first-class and business-class fares. Limit entertaining to taking clients out, not colleagues. And set meal per diems on a city-by-city basis to ensure you don’t overpay in bargain locations.

Note the 4¢ hike in the IRS mileage allowance for business driving
next year, putting the rate at 48.5¢. For medical travel and moving...20¢.

The World
The White House will launch major new trade cases against China in coming months. It will slam Beijing for its lax enforcement of intellectual property rights plus its alleged illegal subsidization of exports through state bank loans and preferential tax treatment. Additional assaults are likely if China doesn’t get rid of policies
that are at odds with its commitments as a member of the World Trade Organization.

Look for a sharpshooter approach to winning relief. For example,
instead of tackling piracy as a whole, Bush will argue that China’s laws set too high a threshold for bringing a piracy case in a criminal court. That’s something Bush figures is well within Beijing’s power to change.

Meanwhile, despite China’s effort to temper its red-hot economy...
Economic growth there is poised to grow by 9.2% next year, following a 10.4% clip this year, the fastest growth rate since 1995. Slower growth in the U.S., Japan and the European Union means lower demand for China’s exports, but domestic spending will more than make up for it.

The graying of Japan presents new opportunities for investors. Tokyo will lower barriers to the sale of medical equipment and services from abroad, motivated by the growing need to reduce health care costs as the number of its elderly patients continues to increase. Opening up
to foreigners will face resistance, but some changes are inevitable.
A strong yen will bring more Japanese tourists to the U.S.next year as well as bullish Japanese purchases of U.S. IT and software.

On the surface, the U.S. and Russia appear to be cozying up:
The White House just blessed Russia's bid to join the World Trade Org.
But tensions over energy issues will make for a brief honeymoon.
Russia is quietly setting itself up to be the world’s next OPEC, marshaling central control over its vast oil and natural gas resources and selling them on its own terms. That's what is behind Kremlin efforts to cut ties with U.S. and other foreign energy firms drilling in Russia.
Moscow aims to use oil as muscle to further its political goals. It threatens to cut off energy supplies to other former Soviet republics that don’t heed its admonitions against getting too chummy with the West. Such a warning led Uzbekistan to give a U.S. air base a quick heave-ho.
The Kremlin is also working with OPEC to keep oil prices high.
All this won't sit well with a Democratic-controlled Congress, making Bush's attempts to boost trade ties with Russia an uphill battle.