FTR Associates, a freight forecast company, expects that business investment in equipment and software will be a prime driver of the economy in 2006, but will brake from 2005’s active pace. Higher interest rates will translate into a slowdown in certain key sectors of the economy. This change will weaken some of the fundamentals that drive business investment.
Business investment in equipment and software will rise only 8% in 2006, compared to an 11+% increase in 2005. In addition, higher interest rates and still high energy costs will have a negative impact on the consumer sector. Consumer spending is projected to post only a 2.6% rise in 2006, down a full percentage point from 2005.
Despite a slowdown in certain sectors, the prospects for 2006 still look optimistic for both the macro-economy and the freight environment. Eric Starks, president of FTR Associates, explains the company’s optimism for 2006. “The combination of a healthy labor market, solid business investment and a broad based global economy, still translates into a positive outlook for 2006. There are, of course risks. The economy will become more vulnerable towards the end of the year, as housing and the consumer sector downshift and the economy has to fill the void left by these sectors to keep expanding. Also, energy prices will remain an ongoing economic threat. With no excess capacity to produce energy, any supply disruption, real or imagined, will send prices soaring. Still, the expansion’s fundamentals look solid and we expect to overcome any obstacles we run into in 2006.”