Kiplinger Connection
The Economy • Energy • Human Resources

The Economy: Apartment rental demand up, but supply is still high.
Energy: Biomass fuel technology will turn waste into profit stream.
Human Resources Look to 4H for technically savvy graduates now.

The Economy
Consumer spending growth will all but disappear by year-end ... a mere 0.5% in the fourth quarter, after slipping to about a 1% rate in July through Sept. Rising unemployment will continue to dampen incomes, and federal tax rebate checks are probably filling gas tanks, not other retailers’ coffers.

Gas prices are, in fact, the key to what’s ahead. Economy watchers peg consumer spending at everywhere from down about 4% in the fourth quarter to up 2%, depending on where they expect gasoline prices to be.
We continue to anticipate more moderation, with pump prices headed toward $3.75 a gallon this fall. That will allow consumers to put the $10 or so they save on a fill-up on a meal out or a new item of clothing, preventing the first consumer spending drop since 1991.

There’s some hope that tax rebates are being saved for back-to-school sales.
If so, the upward bump won’t come in late summer, as it usually does. The sales period will stretch into Sept. and even Oct., as shoppers put off purchases till after school starts, waiting to see what kids really need and what’s too hot to miss.
Figure on 1% growth at best for the back-to-school season ... total retail. Wal-Mart, Target, and their ilk will continue to benefit from consumer downscaling. Specialty apparel stores ... American Eagle, Aéropostale, etc ... won’t. They’ll struggle, with less foot traffic in malls and teen spending curbed by the lack of summer jobs.
The strongest sales performers: Electronics. The sector is proving resilient. Parents are loath to send kids off to high school and college with outdated equipment, and continued price declines for computers, etc., help them reconcile the expense.

Apartment construction will slip again next year, with starts of 250,000 or so, as banks continue to shun new loans that involve construction and housing. That’s a nearly 14% drop from this year, which will also be down, about 6% from 2007.
Rental demand is strengthening, but landlords won’t benefit much. A surfeit of empty homes ... foreclosures and unsold for-sales ... offers apartment hunters options. Strongest rent gains: Atlanta, Charlotte, N.C., Dallas ... cities with rising populations.
Less output, more job losses ahead for manufacturers as slowing growth in foreign economies takes some luster off exports. Only three industry sectors are showing any gains: Food and beverages, computers, and electrical equipment. The rest are in recession ... at least two quarters of declining output ... or near it. Even aerospace, fabricated metals, industrial machinery, and mining are weakening.
Factories will cut payrolls by an additional 260,000 jobs by year-end ... 500,000 total this year, a bit less than that next year. That’ll put manufacturing jobs at about 13 million, 4 million fewer than in 2000, before the last economic downturn. At some point, the U.S. economy as a whole will fully recover. Factory jobs won’t.

U.S. textile firms are scrambling to head off a flood of new Chinese imports next year, when voluntary limits negotiated by Beijing and Washington expire. Manufacturers want imports to be monitored by Uncle Sam, with antidumping suits triggered automatically if import prices drop too low or volumes climb too high.
Obama and McCain will come under pressure to extend current curbs. Electoral votes from two of the country’s biggest textile producing states…N.C. and Ga. ... aren’t solidly in the GOP camp for the first time in nearly two decades.
Meanwhile, apparel firms and retailers are seeking alternative suppliers, and not just because of potential suits against Chinese sources. Increasing wages, a stronger yuan, and rising shipping costs are hurting Chinese competitiveness. Central American free trade countries, particularly Honduras, will likely benefit.

Energy
The country will lose 5000 gas stations this year, more than twice as many as last year and the worst dropout rate since the 2001 recession. As motorists cut back, competition from big chains is driving out independents.
Discounts for cash are making a comeback. Wafer-thin profit margins are devoured by fees to credit card firms. Most motorists now buy fuel with plastic.

Getting a big push from industry: Synthetic gasoline and diesel ... liquid fuels that are made from biomass but, unlike ethanol and biodiesel, are chemically identical to petroleum-based products. That gives the biomass synfuels a big advantage: They can be shipped, stored and pumped using the same facilities and equipment as the real McCoys. Early leaders include Choren Industries, which is partnering with Royal Dutch Shell on a pilot plant in Germany and is mulling another in the U.S. And Amyris Biotechnologies, which has a pilot facility in the works in Brazil and plans one for the Southeast U.S. Also in the race: Gevo Inc. and LS9.

Demand for biomass will soar in coming years ... fueled by development of cellulosic ethanol and utilities that burn biomass directly, as well as by synfuels. For many businesses, crop and forestry waste, sawdust, orange peels, whey ... waste of all sorts, in fact ... will evolve from liabilities that must be disposed of to valuable commodities. Municipalities may even turn trash into income streams.
To facilitate market development, the Biomass Commodity Exchange is gearing up. With help from the Agriculture Dept., the BCEX will debut next year. At first, it will look more like Craigslist than the Chicago Board of Trade, though, with members using a Web site to list what they have to sell or want to buy.

Human Resources
Want to encourage more kids to study science and prep for tomorrow’s jobs?
Consider supporting the 4-H. It’s come a long way from its farming roots. These days, with funding from companies such as ExxonMobil, Rockwell Collins, Intel, and Toyota, the national youth organization is introducing youngsters to fields such as engineering, robotics, aviation, and computer science as well as hydroponics. The group’s goal: Preparing a million young people for careers in science by 2013.