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Business Trends • The Economy • Economic Policy

Business Trends:
Look at this wide range of portable tech capabilities coming soon.
The Economy:
As OPEC reasserts its control, gas prices will keep going up.
Economic Policy:
A formal Fed inflation target might calm investor jitters.

Business Trends
A tech revival is just around the corner as businesses prepare to replace aging computers and network systems. Many companies still operate with equipment they purchased during the Y2K scare. A new wave of cell phones that’ll rival computers and TV as media centers will also spark a buying spree by business and individual consumers.
Next year, growth of tech industry revenue will remain flat with this year ... about 6% ... largely because of the slowing economy.
But in 2008, revenue gains will approach low double digits and continue to hover around 10% through the end of the decade.

Helping to spur spending: Next year’s debut of Windows Vista, Microsoft’s new operating system, as well as its new Office software and products for servers. In coming years, customers will be drawn to Vista by a number of its features, including encrypted files, better protection against hackers, and strict controls on users. Vista also sports a simpler interface, eliminating a long start menu, plus transparent windows that allow users to see many programs at once.
More-robust cell phone technology will let people use phones as credit cards, global positioning systems, parking passes, bus and subway cards, TVs, and video cameras in addition to music players.

Wireless networks will be just about everywhere in a few years, courtesy of WiMax systems, which are doing for broadband Web access what cell phones have done for phone service. WiMax will allow firms to use the Internet without having to string wire through buildings. It will let laptop users log on to the Web regardless of where they are.
Companies will access more of their software from online sites instead of from disks or downloads to computers. Known as Web services, online products will be cheaper and more flexible for applications such as customer relations, inventory management, and human resources.

Many tech and telecom firms will benefit as spending picks up. Besides Microsoft and Google, software providers SAP and Oracle will prosper. Infrastructure advances are a boost for Cisco Systems, Alcatel-Lucent, and Juniper Networks. And after a rough decade so far, the Bell companies will thrive as their wireless phones gain currency.

Venture capitalists are flocking back to tech and telecom in a big way, and not only in the U.S. anymore. Just about all parts of the world, including scores of developing nations, are pushing hard to lure high tech with juicy tax incentives as well as other support.
Global investment will top $35 billion in 2007 vs. $32 billion this year, levels that haven’t been seen since the tech bust in 2000.
One key area of interest: Web 2.0 start-ups ... firms with products that allow collaboration by millions of users of online software.

The Economy
Expect a modest drop in auto sales next year to 16.2 million, down 200,000 from this year, as U.S. economic growth slows to 2%. Pickup trucks ... high-margin items for Detroit's ailing carmakers ... will take a bigger hit than other segments as the continued weakness in housing trims demand in a key market: Home builders and their workers. Pickup sales, at about 3 million this year, make up 18% of total sales. U.S. automakers will cut production by a combined 700,000 or so next year to 9.5 million, as General Motors, Ford, and DaimlerChrysler bear the brunt of the overall sales drop. GM will retain its top spot in sales rankings, but its market share will slip to 24% from 24.6%. Toyota is likely to gain one percentage point of market share to 16.2%, topping current No. 2 Ford, whose market share will slide to 15%.

Ford begins 2007 in precarious shape. It has about two years to start turning a profit so it can repay a whopping $18 billion in loans it just took out, using the company’s brands and plants as collateral. But Ford is particularly dependent on sales of pickups, and now GM will turn up the competitive heat with several redesigned models. Foreign brands are also cutting into Ford's share of the truck market.

OPEC's discipline on oil output will keep prices lofty next year. The cartel, which just added 12th member Angola, shows continued resolve to keep crude above $60 a barrel ... partly to make up for a weaker dollar. Saudi Arabia, the dominant swing producer, is fully behind this strategy.
Expect a barrel of oil to fetch $70 by March. It could reach $80 by early summer if supply glitches emerge in the Mideast or elsewhere.
Pump prices are headed for $2.80 a gallon by May, topping out next year at about $3.15 a gallon during the midsummer driving peak.

The gambling industry is on a hot streak despite some setbacks, notably a law that snuffed out online casinos’ access to the U.S. market. Revenue in the U.S. casino and gaming market will grow about 8% next year to $62.5 billion, with gains averaging 7% a year through decade's end.
One big growth area: "Racinos" ... racetracks that are renovated to include casinos and slot machines. States like them for tax receipts, and they give many of the older, faded horse tracks new leases on life. Pa. and Fla. recently joined the racino crowd. Md. could be next. Ark. just legalized the addition of electronic poker games at tracks.

Economic Policy
Fed Chairman Ben Bernanke still wants a formal inflation target to guide the Federal Reserve’s policy on interest rates. He has formed a special committee to figure out how to implement it.
His preference is to shoot for a 1%-2% range in a key index that gauges personal consumption spending, excluding food and energy.
Bernanke likes the predictability and transparency of a target. It would give investors a clearer idea of the Fed’s policy path, which could help reduce market volatility. Some Fed colleagues agree. As examples, proponents point to well-functioning inflation targets in Canada and the United Kingdom, both of which have low inflation.

But the Democrats’ electoral gains will thwart Bernanke’s goal. Though the Fed could act without congressional approval, on its own, Bernanke would certainly try to enlist the support of lawmakers. But Democrats are likely to insist that any target for inflation be twinned with one for the jobless rate, which Bernanke won’t do. They fret that an inflation target alone would give short shrift to the Fed’s other economic mission ... ensuring employment growth.
Note that the Fed would probably be raising interest rates now if the proposed 1%-2% target were in place, even though such a move might contribute to the weakening economy. Why? Because the index that measures personal consumption expenditures is currently at 2.4%. Instead, rates are likely to stay as-is through most of next year.