Housing starts should reach 1.98 million this year, down from 2.06 million in 2005, forecasts the National Association of Realtors. New home sales should fall 7.7% to 1.18 million from a record 1.28 million in 2005. Resales of U.S. homes likely will decline 5.7% to 6.67 million in 2006 from the record 7.08 million in 2005. Ever-optimistic, the real estate sales group says the projected sales levels still would be the third highest after 2005 and 2004.

An index of U.S. home builder sentiment fell in March to its lowest level in nearly three years in response to rising mortgage rates and softening demand. The National Association of Home Builders' housing market index slid to 55 from February's downwardly revised 56. The March reading is the lowest since April 2003.

The housing market slowdown won't undermine the economic expansion, insists St. Louis Federal Reserve Bank's president, William Poole. "Housing activity will stabilize and remain at a high level this year," Poole tells the St. Louis Regional Chamber and Growth Association. "The growth of real household income will recover nicely due to the waning influence of last year's spike in energy prices." He adds: "Continued healthy job growth also will help keep housing conditions at a high level."

Federal Reserve Board says economic activity has been steady, generating unspectacular growth, in the first months of 2006. Moderation remains the watchword of its latest Beige Book, a periodic report on regional economic conditions. Consumer and business spending continued to expand during January and February, bolstering the manufacturing sector. But housing construction has cooled. And, the potential adverse impact of high energy costs remains a concern.

Sustained increases in commodity energy prices have given confidence to energy and natural resources companies to start spending heavily on new capital projects for exploration and development. Business investment in physical facilities, spurred by investment in world energy infrastructure, is expected to grow 9% this year and nearly 10% in 2007, forecasts Lehman Brothers in New York. Problem: Despite efforts to increase oil supply globally, finding new oil fields is a major challenge, and getting them up and running involves a very long lead time.

Manufacturing growth trends for the second half are unclear. So, ECRI, the Economic Cycle Research Institute, has an eye out for futures prices of such commodities as industrial metals. "The correction in metals prices would be in line with earlier signals of a cyclical slowdown in the industrial sector, and might be the early stage of a cyclical downswing," says Lakshman Achuthan, the research firm's managing director.

The average hourly pay of U.S. workers was 3.5% higher in February than the previous month, which represents the biggest annualized increase since 2001, according to the Bureau of Labor Statistics. While that's good news for employees, some analysts worry it could be the start of a widespread upward inflationary spiral that may impact prices. Note: An increase in producer prices in February for all but food and fuel also raises concern that overall inflation may accelerate this year.

Chemical maker BASF is willing to spend $2.6 billion to buy Degussa's construction chemicals business in a deal aimed at expanding its share of a fast-growing (4-5% annual growth) market segment. Both firms are based in Germany with strong North American presence, but the future of construction chemicals appears to be the demand from Asia's booming building sector.

The current surge in world demand for energy is prompting producers to invest heavily in technology that can better convert existing energy sources like oil sands and coal into environmentally friendlier fuels, writes investment strategist Chip Dickson at Lehman Brothers in New York. There also are plans to make diesel from plastic waste. "We are seeing more governments around the world that are pushing laws that are more supportive of alternative energy sources," says Poppy Buxton, a fund manager at Merrill Lynch Investment Managers. "This will lead to strong growth in the sector"-but not until next decade.

Popular home electronics products such as the Xbox 360 console from Microsoft should lift factory utilization at microprocessor foundries to about 95% by the third quarter of this year, from the seasonally soft level of 91% in this first quarter, predicts Merrill Lynch analyst Daniel Heyler.

Sigma Stretch Film of Lyndhurst, N.J., is spending $30 million to boost stretch film capacity to 425 million lb/year at its various sites throughout North America by early autumn. The project includes both blow-film and cast-film lines to make handwrap and palletwrap products.