Kiplinger Connection
The Economy • Energy • Human Resources

The Economy: The slump will linger till the end of the year.
Energy: “Gold rush” for solar energy sites.
Human Resources: California’s same-sex marriage law can affect businesses everywhere.

The Economy
Pervasive pessimism plagues the economy ... a sense that the situation will continue to worsen, based largely on a belief that oil prices will stay high.
We’re not quite as gloomy as many others and expect oil prices to decline by the end of the year. That will help disperse the dark cloud that threatens to accelerate the downward spiral of job losses and reduced spending that is depressing growth.
We do expect the slump to linger, though.

GDP growth won’t climb above 2% next year and may well be as close to 1% as to 2%. And the gain for this year is likely to be no more than a puny 1%.
Though positive, that will feel pretty lousy, particularly with inflation at 4%, Dec. ’08 over Dec. ’07 and likely to hit a 5% annual rate in some months. Tax rebate checks should make the third quarter the strongest, but the lift will be barely perceptible. Gasoline and food prices have already risen enough to eat up virtually all of the $120 billion in rebates.
Meager job growth won’t help much, either. Total employment will rise by only 10,000 this year. That’s not nearly enough even to keep abreast of growth in the labor force. So unemployment will keep climbing, from 5.5% now to about 6.3% next year. Unemployment typically continues to rise for a year or more after a recession ends.
That means consumers, who are also laden with debt, will add very little to economic growth. Figure consumer spending will rise just 1.5% this year and next.
As for business investment ... about a 3% increase this year, flat next year. That’s a little worse than expected earlier, dampened by continued high energy costs and Wall Street volatility. Planning is especially tricky ... execs will exercise caution.

Exports will hold up fine. Any drag from a strengthening dollar won’t start to play a role for at least a year. We anticipate exports up about 7% this year, followed by a jump just a tad less robust next year.
There are some glimmers of light in housing as well.
Realtors say pending home sales rose in April, though figures are still way below year earlier numbers.
Bargain hunters are beginning to enter the markets ... especially in the West and Midwest ... the first sign of a turnaround that should have housing sales start to pick up as prices bottom out next year.
And the Federal Reserve’s seven rate cuts should pay off over the next six months or so ... another economic buoy.

Energy
Saudi Arabia’s glee over sky-high oil prices is turning into anxiety.
Its leaders fear a massive backlash, gutting demand and spurring the U.S. and other countries to pour big sums into the development of oil alternatives.
Look for the oil giant to boost its exports by a million barrels a day within a few months ... enough to take a significant whack at current prices. Saudi Arabia is expected to show its cards at a June 22 meeting that it is hosting, bringing together both oil consuming and oil producing nations to discuss prices.

In the works: A string of power plants using waste coal ... mounds of fuel surrounding played-out mines in Pa., Ky., Tenn., Va., W.Va., and other states. Although green groups are howling about increased air pollution from waste coal, demand for power and the potential for states to clean up an environmental mess at no cost give such proposals a definite edge. Waste coal mounds leach acid into soil, groundwater, and watersheds. One plant, in the works in Rainelle, W.Va., also intends to make use of coal ash to produce cement and insulating bricks.

Solar power firms are fighting over the desert in a modern-day gold rush for sites to harness the sun’s energy. The Bureau of Land Management was swamped with 125 applications for a million acres in Ariz., Calif., Colo., Nev., N.M., and Utah.
The government will take some time to study the environmental impact. Many conservationists oppose disrupting the land with roads and solar machinery, even for cleaner energy. Tax breaks and clean fuel rules are spurring the stampede.

Human Resources
Think Calif.’s same-sex marriage law has nothing to do with your business?
Think again. No matter where your business is located, you need to heed it because the Golden State has no residency requirement for folks who marry there. Employees may go to Calif. to tie the knot, then look for spousal benefits back home.
Take care handling benefit requests. A wrong move risks losing workers. About 20% of employers voluntarily offer such benefits. Their take: It helps them to keep valued workers at little cost ... fewer than 1% of workers opt for the coverage.
Missteps can also lead to a legal swamp. In the 44 states that bar marriage of same-sex couples, providing benefits to same-sex spouses isn’t a requirement. But in the other states, not doing so may earn you a lawsuit. Check benefit plans to see if you need to add clarifying language about spouses, and get good legal advice.

Rewarding workers who join wellness plans can up participation to 70%. The resulting lower health-care costs more than offset an increased employer share of insurance premiums, leading to lower deductibles and other financial incentives.
Tailor programs to your workers’ needs. Focusing on healthy pregnancies, for example, pays off for financial firms, which have a high rate of premature births.
Employers are waking up to the cost of depression in workers: $44 billion a year. A pilot program in Minn. rewards physicians able to get results in patients.

Uncle Sam is cracking down on privacy violations. The Centers for Medicare & Medicaid Services will soon have outside contractors conducting compliance audits of health-care insurers and employer sponsors of plans. Penalties for not complying with Health Insurance Portability and Accountability Act (HIPAA) rules will run from $100 for a minor screwup to $250,000 and 10 years in jail for selling the info. Facing scrutiny first: Big employers and insurers and those with pending complaints.