Kiplinger Connection
The Economy • Going Green • Travel

The Economy: Fed’s big bad wolf, inflation, rears ugly head.
Going Green: FTC to quash “greenwashing.” Hybrids go HSW.
Travel: An “upgrade” at the rent-a-car isn’t so upgrade anymore.

The Economy
Despite the upward revision in first quarter GDP ...
It’s clear that the economy is a long way from recovery. In fact, final sales, defined as GDP minus inventories and exports, shrank 0.1% in the first quarter ... the first negative showing since 1991.
Housing is a big drag, of course, while spending by consumers saw its smallest gain since the 2001 recession. Lower spending on housing trimmed one percentage point from GDP for the third quarter in a row. The rise in overall GDP was revised to 0.9% for the quarter vs. the 0.6% that was previously reported, mainly due to lower than estimated imports.

Foreclosures aren’t about to tail off anytime soon. The trend that began with subprime mortgage holders is spreading to homeowners who have lost jobs or who face other mounting financial pressures. It will linger through the end of the decade.
Among states facing the heaviest stress: Calif., Ariz., Nev., Mich., Ohio, Md., Ga., Mass., Ind., and Fla. But many others also feel the strain. Federal and state aid for homeowners will help to mitigate the fallout, but only marginally. The ranks of homeowners whose mortgages exceed the value of their homes will rise from 8 million now to 12 million by June 2009, though not all of them will go into foreclosure.

The Federal Reserve is shifting into park for the rest of 2008, barring another big quake in the credit markets. Central bankers want to gauge the effects of their seven interest rate cuts since September as well as the impact of tax rebate checks on consumer spending.
Some Fed officials now see rising prices as the biggest threat to the economy, arguing that rate cuts have let inflation rear its head.
With the Fed on hold, look for the prime rate to stay at 5% at year-end. Rates on three-month Treasury bills ... 2%. Inflation worries among bond investors will nudge the 10-year T-note to about 4.25% while the 30-year fixed-rate mortgage will be just above 6% by year-end.

Note that China is buying even larger chunks of U.S. debt. Ditto, other Asian nations. Their goal is to prop up the dollar and counter the weak greenback’s impact on firms that export to the U.S. Asian central banks are picking up the slack from private investors who turned their backs on the buck for higher interest rates in Europe.
Merger and acquisition activity is showing signs of life ...on a pace to total around $1 trillion by year-end. But the deal making will be shy of the $1.4 trillion in volume in each of the past two years. The record: $1.7 trillion in 2000. Foreign money is 20% of the market, down from 30% in 2007 but higher than this decade’s average of 18%.
Think natural gas is pricey now? Wait till autumn’s first chill. Prices will climb to $12 per million British thermal units from $11 now, and could hit $15/MMBtu if the winter is especially cold.
Average for the year: About $10.50/MMBtu ... 50% higher than 2007.
Next year will bring more bad news for folks who rely on the fuel to heat homes as well as for manufacturers, food processors, and others that use it to run industrial processes. Natural gas prices will average about $11/MMBtu in 2009 ... up to 25% more in winter months.

Going Green
The Federal Trade Comm. is poised to foil "greenwashing" ... the use of exaggerated, misleading, or outright false marketing suggesting that a product is more environmentally friendly than it is.
Expect state attorneys general to follow suit. Many states regularly adopt FTC standards into their own statutes. As the feds challenge companies about their overstated claims of recyclable content or greater energy efficiency, etc., states will pursue lawsuits. Calif., N.Y., Mass., and Fla. will lead, but others will soon go along.
Net: Higher compliance costs and more red tape for manufacturers. They’ll have to devote more resources to showing the scientific accuracy of claims that they make on behalf of a growing number of products.

What’s green, fast and so quiet that it’s a safety hazard?
A gas-electric hybrid car. The electric motor that powers it in stop-and-go local driving makes no sound, so people can’t hear it. That makes it a potential hazard to pedestrians with impaired vision who rely on audible cues when navigating streets or parking lots.
Automakers are scrambling to add a buzz, a beep or a hum for hybrid vehicles to emit, most likely starting with 2010 models.

Travel
A break for frequent international travelers: Global Entry, a registered traveler program allowing fast entry into the U.S., begins June 10 at three airports. After starting up at JFK in NYC, Dulles in metro Washington, and George Bush Intercontinental in Houston, the program is expected to expand quickly to other U.S. airports.
Citizens returning to the U.S. will be able to skip long lines at passport checkpoints and instead go to computerized kiosks that will ID them as having been previously vetted by U.S. officials. To fill out an application, go to www.kiplinger.com/letterlinks/entry.
Eventually, there’ll be reciprocal programs with other nations.

With most folks now opting for fuel efficient rental cars ...
Rental agencies don’t have enough to go around, which means you could be "upgraded" to big gas guzzlers that you really don’t want. Agencies are changing their fleet mixes, but that won’t happen overnight.
Moreover, rental rates are up significantly over last summer.