Kiplinger Connection
The Economy • Going Green • World Business

The Economy: Credit crunch extends to commercial real estate.
Going Green: Corporate world learning that greening increases sales.
World Business: China’s growth slowing; foreign investment in U.S. growing.

The Economy
The lending climate for business borrowers is getting tougher in light of the weakening economy. The dismal outlook is seen easily in credit markets where the issuance of junk bonds is shrinking dramatically compared with volume just a year ago.
Rates on junk bonds are up to about 10.5% from 8% over the past year. Defaults remain low at 1%, but will likely reach 4% this year. And investors are concerned that defaults could go as high as 11% if the economy goes into recession.

Expect banks to tighten up even further, especially for less-creditworthy borrowers. Banks struggling with defaults on mortgage debt are setting aside more capital as a cushion against losses, which are sure to grow. Even lenders not hit by the housing downturn will lend more conservatively, particularly in commercial real estate.

One bright spot: 30-year fixed-rate mortgages. At 5.6% on average, they’re down from 6.3% a year ago ... good news for borrowers who qualify for refinancing or are in the market to buy a home.
Look for mortgage rates to remain below 6% through the year.

The job market for college grads should be decent this spring, even with the faltering economy. Employers will exercise caution and continually reevaluate hiring plans but won’t shut doors altogether.
Starting salaries will be up about 4% on average from 2007. Graduates in computer science, engineering, and accounting will do best in the money chase, but sales and management trainees are also in demand.
Bigger signing bonuses this year, too: $4000 on average vs. $3000 last year. But employers will be more selective about who gets them.

Most retailers face a grim year, as sales growth slows to 2% or so versus a 4% pace in 2007. Even high-end stores will feel the pinch as upper-incomers curb their purchasing along with everybody else.
Bucking the trend: Discounters and repair shops, not surprisingly, as folks dial down spending and opt to fix, not replace, broken items.

Going Green
Making your business greener can increase sales. For example, consumers will spend more time in stores with natural lighting that makes shopping more pleasant. Environmentally friendly workplaces are also welcomed by employees, helping to increase productivity.

Old wood burning stoves and fireplaces are headed for oblivion. State officials are under the gun to put them out of service to meet ever tightening EPA enforcement of emissions regulations.
Some states offer grants to help pay for replacement units ... new stoves that burn wood more efficiently, cutting heating bills, as well as fireplace inserts that turn hearths into heating units. Typically, such grants cover 25% to 30% of installation costs.
Within two years, look for Uncle Sam to lend a hand with a $500 rebate for the replacement of a wood burning heater.

World Business
China will experience its slowest growth since 2002 this year, largely because the global economic slump will crimp its exports. With overseas sales accounting for 30% to 35% of Chinese GDP growth, a huge percentage for an economy of its size, the impact will be harsh.
But a hard landing isn’t in the cards. Far from it, in fact. Domestic consumption remains strong, and Beijing will accelerate upgrades to its rail and road networks, generating many new construction jobs. All told, China’s GDP will still come in well above 9% for 2008.

U.S. truck makers will benefit mightily from roadwork in China. By 2010 or so, demand for tractor-trailers in China will hit 500,000 a year and climb to 600,000 or so annually in subsequent years as China adds the equivalent of several interstate highways each year. The U.S. truck market averages 350,000 tractor-trailers most years.
Manufacturers are mulling joint ventures with Chinese companies. They’ll have their pick. There are scores of Chinese truck makers, all of whom currently produce small trucks and vans. These vehicles haul most of the nation’s manufactured and farm goods over narrow roads.
Among U.S. firms eyeing the market: Navistar International; Mack Trucks, a division of Volvo Group; and Cummins, an engine builder.

Foreign investors will keep pouring money into the U.S. in 2008, despite slow economic growth. They’ll take advantage of the weak dollar to pick up American firms at fire-sale prices. One top target: Motorola, which put out the word that it may spin off its cell phone business. Sectors drawing interest from investors also include autos, electronics, financial and professional services, plus information technology.