kiplinger connection
Help Wanted • Mortgage Misery • Trade

Help Wanted: Prepare now for the coming acute labor shortage.
Mortgage Misery: Still, banks are holding their mortgage-backed assets.
Trade: Yuan to rise a bit more against dollar, strong euro slows EU growth.

Help Wanted
Within the next five to 10 years ...
Labor shortages will become acute.
Blame an aging population, education weaknesses and a lack of visas for workers from abroad.
The tightest markets: Health workers, from doctors to techs to therapists. Mechanical, electrical, and computer engineers. Physicists, chemists, accountants, and pilots. Database administrators and systems analysts. Skilled manufacturing workers, such as welders and machinists. Unskilled labor for farms, food plants, shipping depots, restaurants, etc.

Companies need to act now. The problem will only get worse, and solutions take time.
Small firms face the biggest challenge. It’s often hard for them to recruit new talent and to hold on to the good workers they have.
But several strategies can help smalls:
Cast the widest possible search net. Look in areas with high unemployment rates ... Detroit, New Orleans, etc. If you can’t visit, contact local unemployment offices. Post ads in newspapers and online.
Consider untapped groups: Stay-at-home parents ready to work. The disabled. Seniors who want to go back to work full time or part time.
Scout out young candidates. Attend job fairs at local schools. Become involved with summer job programs. Develop rewarding internships. The president of General & Automotive Machine Shop in Huntsville, Ala., which employs 20, regularly visits schools and encourages field trips to show kids that manufacturing doesn’t have to be dirty and boring.
Be proactive with job training. If you can’t handle it yourself, turn to a community college. Many create programs to meet firms’ needs. Bison Gear & Engineering in St. Charles, Ill., got a local school to teach blueprint reading.

Promote from within whenever possible. Whether mentoring a would-be junior manager or helping an unskilled employee move up, internal advancement is a way to build loyalty as well as to provide for smooth successions.
Keep up with technology to boost productivity. Expect some fast food restaurants, for example, to let customers place orders on touch screens and then pay by swiping credit or debit cards. Food will come on conveyor belts.

Employers want Washington’s help in alleviating worker shortages.
But aid won’t come anytime soon. Fresh funds for job training and education at all levels are hard to find in a tight federal budget. And easing restrictions on visas for high- and low-skilled foreigners is a political impossibility, at least before the 2008 elections.
Until long-term efforts kick in, try to keep good workers happy.
Cater to older staff. Almost half of those workers eligible to retire within 10 years say they’d work part time if allowed. They like flexible hours and opportunities to mentor future replacements.
Health care is crucial to determining when employees retire. Consider providing benefits to part-timers as a way of keeping them on. After pay, health benefits are the biggest draw for new recruits, too.

Mortgage Misery
Ignorance is trumping knowledge in the mortgage market crisis.
Investors are mainly reacting to an unknown ... specifically, how many risky mortgages held by homeowners will go into foreclosure in the next year or two. It’s a tough call, given that plenty of loans have variable rates that will adjust higher during 2008 and 2009. How can anyone know which borrowers will be able to bear added costs?
Up to one in five risky mortgages may well go into foreclosure. Subprime and other dicey loans account for 25% of all mortgage debt, meaning that these loan defaults would cover about 5% of the market. That doesn’t seem like a lot, but note that the value of the defaults would total $450 billion. Investors would lose about $225 billion, since they’d make back some cash by selling the foreclosed properties.

Banks are holding, not dumping, their mortgage-backed debt. There’s no fire sale going on. Banks are simply marking down the value that they expect to derive from such mortgages in the future. Vultures are circling, offering 50¢ or less on the dollar for the mortgages. But the lenders think they can get much more once the dust settles. After all, most of the loans will continue to generate income.
Meanwhile, a huge chunk of the mortgage market will stay shut as the subprime scare keeps any type of risky borrower off-limits.
Odds are lending practices won’t loosen up again before 2009.

Trade
Look for China to let the yuan rise faster against the dollar.
But not much faster ... probably 7% over the next year, vs. 5.2% in the past 12 months. Officials in Beijing are increasingly concerned about the undervalued currency fueling inflation and asset bubbles.
U.S. businesses will feel only a slight impact. The quicker climb of the yuan won’t substantially shift the competitiveness balance. China retains significant cost advantages in wages and regulations.
Follow-on currency gains in Asia should help U.S. firms more. Notably, South Korea, Taiwan, and Singapore will be more inclined to let their monies appreciate once chief competitor China has done so. All of these countries are important markets for a range of U.S. exports.

The strengthening euro is taking a bite out of Europe’s economy. The resulting pinch on exports, as well as faltering domestic demand, will slash euro zone economic growth next year by a half percentage point from this year’s 2.4%. High oil prices will also play a role.
This is bad news for economic reform plans in Germany and France, the dominant economies in the 13-country zone. These countries’ leaders need financially confident electorates to help support difficult reforms of rigid hiring and firing practices and wage negotiation policies.
A sluggish Europe will hurt U.S. exports, notably of auto parts, IT services and hardware, industrial chemicals, and farm machinery.

Government surcharges on ocean freight are coming in a year or so to help pay for upgrading port infrastructure. The levies on both exports and imports are likely to be based on the value of the merchandise.
The cost to businesses: Perhaps several thousand dollars a year for small ones shipping regularly, to tens of millions for multinationals.