kiplinger connection
The Economy • Human Resources • Energy

The Economy: Growth in the West, but overall expect firms to spend less on buildings this year.
Human Resources: Health insurance and sick leave are undergoing close regulatory scrutiny.
Energy: Oil prices are down, but winter’s not over, and expect OPEC to play it tough.

The Economy
Look for long-term interest rates to move a bit higher this year. Why? Concerns about rising inflation as the economy improves around midyear will drive still historically low rates up. By year end, we see 10-year Treasuries going to 5% from 4.8%, 30-year fixed mortgages to 6.5% from 6.2%, and investment-grade corporate bonds to 6.5% from 6%. Rates on high-yield bonds will rise to 9.25% from about 8.3% now.

Job hunting? Consider the advice credited to Horace Greeley:
Go west. Employment gains in the Rocky Mountain states will outpace this year’s national average job growth of about 1%. Fueled by tourism, mining, defense, and IT, job gains will exceed 3% in Ariz., Nev., Utah, and Wyo. and around 2% in N.M., Idaho, and Mont.
Other parts of the nation are more mixed. A good year for farming spells above-average job growth in N.D., S.D., and Minn. ... 1.5% to 2%. High oil prices will bring similar gains in Texas, Okla., and La. Auto production by foreign firms will buoy growth in Ala., Miss., and S.C. But Detroit’s woes paint a different picture in Mich., Ohio, Ky., and Ind. Fla. will outdo the national average. Mass., N.Y., N.J., and Pa. won’t.
States adding the most jobs: Calif., Texas, and Fla.

Firms will spend less on buildings and equipment this year, slowing capital spending gains to 5.5% compared with 7.8% in 2006. Strong profits and cash-flow notwithstanding, execs are growing leery of overspending in the face of a weaker economy and fewer orders.
Hardest hit: A wide variety of industrial equipment. Telecommunications gear, including routers and switches. Diesel engines.
Among those bucking the trend: Aircraft parts. Energy services. Metals. Ethanol plants ... up to 75 new ones are under construction.

Human Resources
Clearer regs on wellness programs in the workplace are on tap. Their aim: Help employers design incentives for employees who join wellness programs without running afoul of discrimination laws. More and more businesses are adding such programs to reduce health costs.
Firms that offer rewards for meeting goals will need alternatives for folks who can’t meet the goal. For example, if an employee is unable to lower cholesterol due to health problems, a reasonable alternative could be to have them attend regular classes on keeping a healthy diet.
Moreover, rewards can’t top 20% of the average cost of coverage, and programs must give people a chance to qualify at least annually. Rewards can take a variety of forms: A discount or rebate of a premium. A waiver of deductibles, copays, or coinsurance. A gym membership.
The new rules will apply for plan years beginning July 1, 2007.

Laws mandating paid sick leave will pass in several states, including Mass. and Wis. Both are likely to take action this year. Wash., Maine, Mont., Vt., and Md. are the best bets to be next in line.
But forget about a federal law. Sen. Edward Kennedy (D-MA) will reintroduce his bill to require firms with 15 or more workers to provide each employee with at least seven paid sick days a year. Similar legislation will be introduced in the House. But Republicans are opposed, and the president will use his veto pen if he has to.

Energy
Oil prices are dipping, not crashing. Energy market traders are reacting to unseasonably warm weather in the U.S. and Europe, which caused surprisingly big gains in crude and heating oil inventories. Traders have sold crude futures contracts, figuring winter is now a wash.
Weather forecasts predict chillier conditions in coming weeks, and lasting through February, helping to put a floor under prices.
And oil markets remain fundamentally tight. Despite the drop in prices so far in 2007, crude oil costs just a tad less than it did a year ago. Oil inventories are only 1% above levels in early Jan. 2006.
We still see oil averaging about $60 a barrel this year, down about six dollars from the average of 2006. During the summer, when gasoline demand peaks, look for a barrel of oil to fetch up to $75. The nominal record of $78, hit in summer 2006, may be topped briefly.

Expect OPEC to play tough. The cartel is dead set on keeping oil around $60 a barrel.
It’s ready to make a big production cut by Feb. 1, axing at least 500,000 barrels a day from world supplies. That’ll come after a cut of 1.2 million barrels a day last month.

Meanwhile, supply risks are mounting:
In Venezuela, planned nationalization of electricity could lead to power shortages, causing interruptions in oil production.
In Nigeria, rebels may step up attacks on oil facilities ahead of April elections.
In Russia, President Vladimir Putin's increasingly brazen moves to use energy as a foreign policy tool threaten Europe's supplies.

So what’s ahead for average fuel prices this year? Our forecasts:
Gasoline. About $2.40 per gallon, down 20¢ compared with 2006. In the peak summer season, pump prices will bob around $2.75 per gallon.
Diesel. Roughly $2.60 per gallon, down a dime from 2006.
Heating oil. Expect $2.30 per gallon, 35¢ below last year.
Natural gas. $6.25 per million British thermal units, down 75¢.