Kiplinger Connection
The Economy • Solar Power • Air Travel

The Economy: Weak U.S. economy felt around the globe.
Solar Power: A new way to buy solar without buying the panels.
Air Travel: Airport improvement delays expected.

The Economy
The weak U.S. economy infects everyone. Yes, there’s some "decoupling," as China, India, and the European Union act as growth engines. But the U.S. still pulls the most weight, making up fully one-quarter of global GDP.

15% of the world’s exports end up here. And foreign firms sell many more goods to U.S. businesses operating overseas and through subsidiaries located in the U.S. Plus, the U.S. accounts for about one-sixth of existing foreign direct investment.

But don’t expect coordinated stimulus.
In Canada and Britain ... more rate cuts. Their problems are similar to those of the U.S.
For the euro zone, inflation worries weigh more heavily than economic weakness. In time, the central bank there will cut rates, following the U.S., though less aggressively.
Japan has no room to maneuver ... its interest rates are still near zero.
And China will ratchet up its rates, continuing to rein in its overheated economy.

As world growth slows, so will trade. The total value of exports will rise 12.4% in 2008 after topping 15% in each of the past two years.
Exports among NAFTA partners will be hit hardest, with lower sales of building materials and IT equipment to Canada, as well as autos, refrigerators, washing machines, and electronics to both Canada and Mexico.
Sales of IT, autos, and aerospace to the U.K. will also suffer, as will those of semiconductors to China, South Korea, and Taiwan.

U.S. exports will help ease our country’s economic pain, aided by the dollar’s continued softness. The greenback won’t bottom out until late this year, and then its recovery to old heights will be slow.
U.S. multinationals are apt to fare best. United Technologies, GE, Emerson Electric, Harley-Davidson, Caterpillar, and IBM, for example, are counting on strong emerging-market sales to offset weakness elsewhere. Russia and developing nations in the Persian Gulf, Latin America, and Asia will use wealth from booming commodities markets to build infrastructure—buying heavy machinery, telecom equipment, engineering services, and more.
The soft dollar will bring more students and tourists to the U.S.

But in the end, global growth alone can’t rescue the U.S. economy. Exports make up 12% of gross domestic product ... a significant share ... but domestic retail sales account for nearly three times as much.

The Federal Reserve is almost sure to cut interest rates again.
There’s little doubt after the dismal Jan. report on jobs ... a net loss of 17,000. There was some consolation in the Dec. revision, a bump-up from the previously reported gains of 18,000 to 82,000. The Dec. job number confirmed other signs of weakness in the economy, notably a meager 0.6% gain in gross domestic product in the last quarter.

The next drop in rates will come by March 18, when policymakers are set to meet again. The size of the cut will depend on newer data. By midyear, we see the federal funds rate at 2.5%, down from 3% today.
We now expect GDP to decline in the first quarter of this year.
The second quarter won’t be much better. But by the second half of 2008, the stimulus package Congress and Bush are expected to pass and rate reductions already enacted will kick in. That should boost GDP for the entire year to about 1.5%, with job growth of around 1 million.

Expect manufacturing to eke out minimal gains throughout 2008, with overall factory production rising 1.8%, about the same as last year. Seven manufacturing groups, which make up 25% of factory production, began this year already mired in recession. They include heavy trucks and wood products. Eight more, comprising 50% of output, are weak. Four other groups, including aerospace, medical equipment, information technology, and oil and gas equipment, are doing better, largely because of continued growth in exports.

Another 200,000 manufacturing jobs will be lost this year, about as many as disappeared in 2007. And they won’t come back when the economy does. More and better equipment, not more workers, will increase factory output when it’s needed.

Solar power
You don’t have to buy a set of solar panels to reap the benefits. Businesses in several states can now work with solar installers to cut energy costs, lock in electricity rates, and help the environment.
Here’s how it works: Some energy firms will install solar panels and keep them running, then sell you the electricity they produce. The installer provides all the equipment and maintains it at no cost. But firms have to sign a contract to buy the power at a set price for the life span of the panels, which is generally about 15-20 years.
The good news: The rate charged is less than you’d otherwise pay.

Air Travel
Expect several much-needed airport improvements to be delayed.
Promised funding for many projects is on hold as a result of an unrelated dispute involving a Federal Aviation Administration bill.
Most vulnerable are small airports that depend on federal money for up to 94% of project financing. They include airports in Erie, Pa.; Fort Wayne, Ind.; Dubuque, Iowa; Pueblo, Colo.; and Binghamton, N.Y.
The standoff could last awhile. At issue is how to find billions for a major upgrade of the nation’s air traffic control system.

Several states are rushing to adopt a passenger bill of rights now that N.Y.’s law passed a crucial first court test. In N.Y., airlines face a $1000 per traveler fine if they don’t offer food, water, fresh air, and working restrooms to fliers grounded on planes for over three hours.
Among states moving to adopt such laws: Ariz., Calif., Ind., Mich., N.J., Pa., R.I., and Wash. The Wash. bill requires that airlines refund 150% of the ticket price to passengers delayed more than 12 hours.
Carriers are fighting back through lobbying and in the courts.

Airlines are also battling proposed Bush administration rules.
The regs let airports raise landing fees for peak-hour flights as a way to reduce congestion. It would be up to the airport to decide. New York’s airports say they won’t hike fees, but San Francisco’s may.
Count on the carriers to pass along any added costs to customers.