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The Economy • Small Business • Business Tech

The Economy: No Achilles heel for the rest of the year?
Small Business: Startups are sprouting up everywhere
Business Tech: Here comes Internet2

The Economy
Can anything trip up this expansion?
The prime candidates haven't succeeded: Multiple interest rate hikes, a housing slump, energy price run-ups ... all much-feared events that the economy has managed with great aplomb.

This year, no obvious Achilles' heel is emerging, aside from ongoing risks posed by terrorism and Middle East politics.
In fact, growth may get pretty steamy by the second half, as the drag from housing tails off and U.S. businesses ramp up spending.
An interest rate hike is possible ... though by no means certain ... later this year to help keep wage-led inflation under control. The Federal Reserve certainly won't cut rates.

Consumers are giving the economy legs. Folks don't seem ready to slow their shopping, despite dismal savings rates and rising debt. Growth is likely to be close to 3% this year, thanks mainly to the robust employment market and gains in stocks and other investments.

Plus business spending will perk up. Firms just want growth to chug along another quarter or two before they commit to new projects. Managers remember well the costs of excessive spending in the late 1990s.
IT spending will jump, now that Microsoft's Windows Vista is out. IT and software make up about one-third of all business investment.
We see total business outlays up 6% after a 7.4% jump in 2006.

Many industries will ride an export wave as global growth sizzles and the dollar stays relatively cheap. Big winners: Aircraft companies, which get half their orders from abroad. Also makers of energy equipment, chemical products, agricultural goods, and construction machinery. Look for exports to gain 8.5% this year, with imports rising only 4.5%.

Construction-related fields should lag the economy's pace as housing starts fall 13% and businesses limit spending on structures. Building material, appliance, and furniture companies face tepid sales.

Health care will lead the economy's service-sector juggernaut, which generates 80% of both GDP and jobs. Though health care is only 11% of private employment, it has spurred 30% of job growth since 2002. Hiring will continue at treatment centers and medical equipment firms.

Other service industries likely to thrive throughout this year: Financial, education, legal, plus hotel and other leisure services. Of course, housing's woes will take a bite from the mortgage industry.

Small Business
More Americans are rolling the dice and opening new businesses.
The number of start-ups will grow about 6% this year and next. Unlike the 1990s boom, which involved mostly West Coast high-tech firms, start-ups today are spread throughout the U.S. Most of them are consumer oriented: Health, food, recreation, construction, consulting, etc.
There are a lot of reasons for the boom: A strong economy, more outsourcing by big firms, easy financing, and cheaper home-office setups. Plus the traditional benefits of jobs ... pensions and health coverage ... are harder to find.

Baby boomers are leading the surge, tapping savings so they can put their experience to use for themselves. But they’re not alone. Everyone from working moms to new college grads seems to be catching the entrepreneurial bug.
And more of the start-ups are succeeding. The number of failures is holding steady, even as the number of new enterprises keeps soaring.

But if your company IS failing, consider going to a state court rather than a federal bankruptcy court. That’s what most small firms do.
State courts are cheaper, more flexible, and a lot less public, thanks in part to the bankruptcy overhaul law Congress passed in 2005. That law makes federal bankruptcies much harder and much more expensive.
If you’re doing business with a troubled firm, be careful.
You may get left out in the cold. Bankruptcy reorganizations have become so complicated and so expensive that many more businesses are just closing their doors, leaving some of their workers and suppliers with nothing. That’s just the opposite of what lawmakers intended.

The self-employed are still in the crosshairs of the IRS. The agency says they cheat the government out of $109 billion a year.
To collect more of what’s owed, the IRS is stepping up audits. Inspectors are zeroing in on those filing Schedule C, with the emphasis on deductions for meals, travel, auto use, and home-office expenses.
Stricter income-reporting rules are also likely. More companies that use smalls and the self-employed would have to file Form 1099, making it harder for firms and individuals to hide their income.

Business Tech
A new computer security risk for businesses to watch out for:
Wi-Fi scams at airports. Travelers hook laptops to a service advertised as free but that in reality turns out to be run by hackers who install spyware and steal user names, passwords, and whole identities. They can then raid bank accounts or make off with a company’s secrets.
To be safe, make sure you know the service provider you’re using.

Several major technical advances for business are on the way, thanks to Internet2, a superfast, high-capacity update of the public Web. More than 200 universities are using Internet2 for research on ideas that promise a wide range of benefits for commercial and personal use.
Among the possibilities: 3-D virtual meetings, video consults with your doctor, more-detailed imaging to improve weather forecasts, instantaneous downloads of movies, and faster searches of huge data files.
Other advances will help make the Web more secure and reliable.