Kiplinger Connection
The Economy • Money Matters • Selling

The Economy: We’re in a “growth recession.”
Money Matters: Maybe a way to FDIC-insure up to $50 million.
Selling: New-facility opportunities are cropping up.

The Economy
The economy is mired in a “growth recession,” technically still expanding, as measured by GDP, but losing jobs and weighing on consumer confidence.
And it’ll remain there through much of 2009, with GDP again rising at a subpar rate of 1.5% or so.

The biggest upward pushes: From exports ... headed for a gain of about 7% this year, a bit less next.
And federal spending, which will climb again next year as lawmakers fret about rising deficits but defer cutbacks while the economy is still weak.

The downturn in housing should level off, following the biggest decline in single-family starts in 70 years. At least it won’t subtract from growth ... though housing will still be a drag on GDP until 2010.

As for consumer spending growth next year ... Even more wan than this year, dragged down by higher unemployment. With a measly net gain of 20,000 jobs next year ... following this year’s loss of half a million ... consumer spending will rise just 1%. More moderate gasoline prices ... about $3.40 a gallon on average ... will only partly offset the downward pull.
Don’t count on business spending for any oomph, either. It’ll flatten out.

An outright recession can’t be ruled out. Housing is in one already. Ditto, much of manufacturing. Businesses have been cutting back employees’ hours or turning employees involuntarily into part-timers. A tepid outlook for new orders will hurt goods makers most, but the impact will spill over into services as well.
What’s most likely is a zigzag pattern of growth, forming a W shape: GDP growth slowed in late ’07. It will be up for the first three quarters this year, then go down at the end of this year and into next. It’ll head upward later in ’09.

The big risk now is the collapse of another major bank or investment firm. Worries about adding federal debt to finance bailouts are nudging up interest rates.
Additional rescues would fan inflation fears and further harm credit markets.
Otherwise, inflationary pressures aren’t a huge concern. Crude oil prices are already down $30 a barrel from July’s peak and are expected to continue sliding. And with growth slowing not only in the U.S., but also in Europe and other nations, commodities demand should ease. Moreover, there’s no upward pressure from wages.
The Federal Reserve will talk tough but won’t act aggressively for now. Once the economy does start to revive, count on the Fed to hike interest rates quickly.

Anxiety will fuel debate on another stimulus before the election ... more breaks for business, additional aid to states, more food stamps, maybe a payroll tax holiday.
But both time and funds are short, making for long odds on such a course.

Money Matters
Facing a reset on a variable rate mortgage? Good payers can cut deals. Banks are eager to keep their best customers from going to competitors, and some are willing to waive a scheduled increase. It’s worth asking your lender.

If you are sitting on a lot of cash ... or your firm, nonprofit, or agency is ...
Note this CD product touting federal insurance coverage up to $50 million: CDARS, or Certificate of Deposit Account Registry Service. Members in a network of more than 2,000 banks take a slice of your deposit ... no more than $100,000 each. You deal with a single bank, and all members pay the same rate you negotiate with it. Promontory Interfinancial Network [http://www.promnetwork.com/] charges banks a fee to join and on transactions.
The Federal Deposit Insurance Corp. says deposits are likely covered. But the program, which began in 2003, hasn’t yet been tested by a bank failure.

Selling
Franchises are expanding at a fast clip, despite the sluggish economy.
Senior care services are among the hottest new concepts, not surprisingly, given the large number of baby boomers who are heading into their golden years. These include Visiting Angels, The Senior’s Choice, and Homewatch CareGivers, all of which are growing rapidly by caring for seniors who want to live independently.
Also popular: Fitness centers and spas catering in large part to boomers who want to keep fit and look as young as possible well into their 60s and 70s. Among the most profitable franchises this year are Snap Fitness and Massage Envy.
New franchisors are popping up everywhere ... about 900 since 2005. Nearly half have more than 50 franchisees apiece ... one-third of them exceed 100. Enjoying steady growth are coffee and tea shops, pizza parlors, frozen dessert, and ethnic food stores plus tutors, tax preparers, and child care providers.