WASHINGTON, Dec 24: US business investment will pick up in 2006 as companies spend on buildings and inventories, helping propel economic growth and offsetting an expected slowdown in consumer spending, economists said on Friday.

Businesses have cash to invest as economic growth has strengthened, economists said.

The fundamentals suggest that despite the higher energy prices and somewhat higher interest rates, at least on the short end, that spending pace remains above trend, said Ford Motor Co. Chief Economist Ellen Hughes-Cromwick.

Economists played down a November drop in orders for US durable non-transportation goods, expensive products built to last three years or more, which they said reflects setbacks from the storms that battered the United States and disrupted energy supply in the early fall.

I’m not convinced the decline was all that great, because the hurricane effect may have been reported in November rather than October, said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, Inc.

The durable goods report also showed that unfilled orders in November rose by the highest level since mid-2000, suggesting higher factory output in store for months ahead.

Before the report came out, Richmond Federal Reserve Bank Chairman Jeffrey Lacker had forecast earlier this week that business spending growth would outpace output in 2006.

Business investment should expand substantially faster than overall output and residential investment should expand more slowly, perhaps even falling in real terms,” he said in Washington on Thursday.

Businesses were slow to resume making big investments after the 2001 recession, as uncertainty about corporate scandals and the Iraq war clouded the outlook. Meanwhile, free-spending consumers, buoyed by fast-rising home values, spurred much of the early stages of economic recovery.

But business investment grew by about 6.5 per cent in 2005 and should gain by between 7 per cent and 9 per cent in the coming year, based on hurricane recovery and income growth, said David Huether, chief economist for the National Association of Manufacturers.

Once people saw the recovery had legs, people started spending, he said.

Much of that growth is likely to come from investment in structures, with mining and utilities leading the way as the Gulf Coast rebuilds and as the high cost of energy makes it economical to pursue harder-to-reach oil and gas, Meckstroth said.

But as the economy grows, business inventories, which include the components of unfinished goods, and are another component of investment, will also expand, he said.

In addition, businesses are likely to have beef up technology or invest in new equipment to keep up with growth, Huether said. —Reuters