Kiplinger Connection
The Economy • Going Mobile • Energy

The Economy: A soggy economy may inspire a quarter-point rate cut January 30.
Going Mobile: Web-enabled cell phones are the latest target of virus attacks.
Energy: LED, compact fluorescent, and pinpoint halogen spell end to incandescent.

The Economy
Dismal Dec. job figures leave no doubt about the economy’s state:
Fragile. The net gain of only 18,000 jobs and an increase in the unemployment rate to 5% show an economy flirting with recession. And ongoing contraction in manufacturing bodes ill for future job gains.
Soggy economic numbers usher in an interest rate cut on Jan. 30 by the Federal Reserve. We see a quarter percentage point reduction in the benchmark federal funds rate to 4%. Prime rates will fall to 7%, easing interest payments on some types of business and consumer credit. The Dec. job report will spark calls for a half percentage point easing, but inflation is just too big of a risk for the Fed to take that plunge.

Retail sales are likely to grow only about 2.5% this year, slowing from 3.5%-4% in 2007. The first half is going to be very weak as housing continues to sink. Among the hardest-hit retailers: Sellers of specialty apparel, furniture, jewelry, and home improvement items.
Even high-end stores will feel a pinch, despite the fact that their core affluent market is in relatively solid financial shape.
Luxury sales will average a 7% gain, decelerating from 9% last year.
Aspirational shoppers...those who sometimes spend beyond their means
to get a swanky item...are cutting back amid uncertain economic times.
Membership warehouse clubs are poised to cash in, though, as the bulk of shoppers grapple with higher gasoline and food costs. Figure high single-digit gains for Costco, Sam’s Club, BJ’s, and the like.

A booming retail category: Organic and natural personal care.
Sales will jump nearly 50% in five years as consumers of all stripes opt for shampoos, skin creams, soap, toothpaste, etc., viewed as good for health and the environment.
Big consumer products firms are on the prowl for niche organic care companies they can buy. A recent example of the shape of things to come: The acquisition of Burt’s Bees by Clorox.
Large companies will add distribution channels for organic and natural goods, many of which have been sold via direct marketing and the Web. Expect more such products to go on sale at CVS, Walgreens, Target, and other major chains.

Going Mobile
Mobile shopping is about to get a big leg up from services that help consumers locate products while they are out and about. One early arrival, Slifter, lets small retailers list up to 100 items for free on its system, which roving shoppers access via a GPS network. If, say, someone seeks a lawn mower, Slifter shows who sells it nearby.
Retailers are eager to tap into this largely impulse-buy market. Mobile purchases currently account for just a few million dollars a year, but the search systems will help boost the tally to $10 billion by 2012.

Web-enabled cell phones are the new frontier for viruses. They may freeze phones, change on-screen icons or divert the phone user to annoying ads. Some may also send unwanted text messages or pictures. Infections can come via Internet sites offering lures such as discounts on products. Phones can also pick up infections at Wi-Fi hotspots. Symbian, Windows Mobile, and Palm OS operating systems are most at risk.
Antivirus solutions are available from Symantec and McAfee.

Energy
Who are the big winners in the recently adopted energy law?
Suppliers of components for fuel-efficient cars. Automakers will scramble to meet a 40% increase in average fuel efficiency by 2020. They’ll snap up diesel engines from BorgWarner, Denso, and Delphi. Turbochargers from BorgWarner, IHI Corp., and Honeywell’s Garrett. Batteries for hybrids from Johnson Controls and Panasonic. Hitachi, TRW, and others will see more orders for electronic and mechanical components.
Lighting manufacturers. New efficiency regulations for lighting will effectively KO incandescent bulbs by the middle of the next decade. Lighting firms such as Osram Sylvania and Philips can expect huge demand for light emitting diodes, compact fluorescents, and pinpoint halogens. Among smaller firms likely to benefit: Element Labs, an LED expert. Orion Energy Systems, a cutting-edge player in efficient fluorescents.

And in the longer term ... R&D leaders in cellulosic ethanol and other cutting-edge biofuels. The new federal alt-fuel mandate, which will require blending some 21 billion gallons of cellulosic ethanol in auto fuel by 2022, will be a boon to the likes of Abengoa Bioenergy of St. Louis and Poet of Sioux Falls, S.D. Plus Novozymes and DuPont will be busy selling the enzymes to break down cellulosic materials.
Ethanol industry suppliers will hurt in the short term, however. Corn-based ethanol production is outstripping the pace at which blenders can mix ethanol into fuel. Meanwhile, ethanol makers are being squeezed by the sharp rise in corn prices. So times will be tough for a few years.