kiplinger connection
The Economy • Jobs and Workers • World Business

The Economy: Loans for smalls ok; for the Fed, timing will be tricky.
Jobs and Workers: Immigration rules will drive up construction cost.
World Business: U.S. oil dependence shifting from Mideast to Africa.

The Economy
The economy is at a fork in the road.
Credit and housing woes are deepening. About a third of the U.S. mortgage market is effectively shut down, drying up home sales. Builders are slashing output even further, fearful that even buyers with good credit won’t be able to get the loans they need. Banks, loath to take mortgage-backed securities as collateral, won't lend money to each other.
The Federal Reserve's move will help. Cutting the rate for short-term loans to banks and extending the repayment period will ease bottlenecks and keep funds flowing.
But the risk of recession remains.
To avoid a self-fulfilling prophecy ...
Positive news on housing is essential.

The economy still has forward momentum. Indeed, the national mortgage and housing woes are overshadowing some bullish indicators:
Strong exports and a smaller trade gap.
Healthy industrial production in July.
And decent consumer spending growth, despite some weariness.
Plus businesses can still get credit from banks and other sources. There's very little evidence that the credit contagion is moving from lenders’ mortgage desks to the business borrowing side of the office.
In fact, banks are eager to lend to businesses, especially smalls with good credit records, to help offset their dwindling mortgage income.

Even so, business confidence is eroding quickly amid concern that housing and stock market ills may choke off consumer spending. Though this doesn’t appear to be happening, the worry itself is damaging.
We see signs of a pullback in investment in recent weeks, notably by larger companies. Some expansion projects are being postponed, potentially fraying the economy's essential lifeline: Job growth.

Will Washington policymakers do more to lend support?
The Fed and politicians have many more tools at their disposal: The central bank could cut its benchmark federal funds lending rate, triggering lower interest rates for homeowners and other borrowers. Meanwhile, the White House and Congress could expand Fannie Mae's role in the secondary mortgage market to further prop up lending activity.
But they are walking a tightrope between averting a recession and not wanting to bail out investors who took careless risks. They'll step in if absolutely necessary, but the timing will be tricky.

Jobs and Workers
Firms looking at new immigration rules say the sky is falling.
And for some, that may well be the case. The regs take effect in early Sept., and no one, especially the government, is really ready. Firms face big fines if they don’t act in 90 days on "no match" letters citing disparities between names and Social Security numbers on file.
Hardest hit: Roofers, restaurants, hotels ... any service provider with a lot of foreign-born employees who lack legitimate work papers.
The rules will push millions of illegal workers underground without providing a way to replace them. That’s why firms fought hard for comprehensive immigration legislation with a guest worker program.

Tons of errors are inevitable ... caused by computer snafus, typos. and name changes due to marriage, divorce, etc., that weren’t reported. A 10-year-old government pilot program has had a 7% error rate.
Many workers will disappear as soon as questions are raised.
In other cases, firms are likely to play it safe and fire workers if disputes can’t be resolved quickly, unfairly hurting some employees.
Ultimately, wages and prices will go up in the service sector.

World Business
Good news on energy: The U.S. is less dependent on Mideast oil.
The bad news: The U.S. will be more dependent on oil from Africa, where corruption and unrest keep costs and the risk of disruption high. Though 60% of U.S. oil still comes from imports, Nigeria, Angola, and Algeria are overtaking Iraq, Saudi Arabia, and Kuwait as the top suppliers. Africa provides 20% of imports, and its lead will likely grow over the next decade or so. Canada supplies about 18%, with Mexico at 15%.

The reliance on Africa provides opportunities for companies such as ExxonMobil, Chevron, Shell, and BP. They’re all drilling for crude in Africa and exporting it to the U.S. The big competitor: China’s state-owned oil production companies.

More pressure is in store for firms that deal with Iran or Sudan.
Congress will pass a bill giving legal cover to U.S. states, many of which are pulling pension fund investments out of companies that have business ties with the two nations, which sponsor terrorism.
The measure will block investor suits against money managers that sell shares in firms identified by the Treasury Dept. as having ties to Iran or Sudan. The White House is hinting at a veto ... on the grounds that neither Congress nor the states should mess in foreign policy ... but there are more than enough votes in Congress to override one.