Kiplinger Connection
U.S. Economy • Energy • Human Resources

The Economy: Consumer spending cuts creating a vicious cycle.
Energy: Oil supplies are building and demand is dwindling.
Human Resources: If you have to, bribe employees to get flu shots.

U.S. Economy
A vicious cycle is developing in the job market and in the economy: Consumers are slashing spending, forcing firms to lay off more employees. In turn, the contraction in jobs slows income growth and deprives consumers of cash to fuel spending, making firms more cautious and preventing growth from taking off.
There are a few pockets of job strength: Makers of electronics and PCs, health care, and mining. But net job losses are seen just about everywhere else. Keep in mind that although the 6.1% rate for August is the highest in five years, it’s still well below the peaks of 8%-10% posted in most previous downturns.
Come 2009, we expect the trend to reverse. The rate will decline again as the battered housing industry starts to revive and firms tied to it begin hiring.
Labor market slack will allow the Federal Reserve to leave rates alone. Policymakers will put inflation worries behind fears about the economy stalling out.

Energy
Clearly, the kettle is off the boil on oil prices. Once the threat of disruption by Gustav dissipated, prices tumbled, reflecting a growing recognition that supplies are building and demand ebbing in the face of slower world economies. Plus speculators who piled on as markets heated up are now fleeing as they cool.
At this point, there’s more downside potential than upside risk in prices. We expect crude oil to end the year just north of $100 a barrel, gasoline, at $3.35 or so per gallon, and diesel, around $4. Still, there’s no doubt that the supply cushion remains relatively thin, historically speaking, and prices will bounce around ... heading sharply, but temporarily, higher on any threat of a significant disruption.

Meanwhile, lawmakers will coax more production from small domestic wells.
New tax incentives, including a higher depletion allowance, are likely to get the nod from Congress sometime next year. The tax goodies will be limited to wells that pump no more than 15 barrels a day and should help boost total output from them to just over a million barrels a day by 2010. That’s about the same amount as the U.S. now imports from Mexico, Nigeria, or Venezuela. One other benefit:
Pumped up demand for industry suppliers ... makers of drilling equipment, pipeline, gas and fluid compressors, and more. And the new business will emanate not from oil patch states, but from Ill., Ind., Kan., Mich., N.D., Ohio, Pa., and others.

Fueling fleets with hydrogen is gaining a small foothold. A blend of hydrogen and natural gas, called Hythane and made on-site by breaking down the natural gas, powers municipal buses in Syracuse and Hempstead, N.Y., and airport shuttle buses in San Francisco. The L.A. airport will follow. Hythane advantages: Better mileage than natural gas alone, fewer greenhouse gases, and minimal tweaking of engines.
Burning pure hydrogen is still several years away, though a breakthrough by Ohio State Univ. engineers could speed the process. They’ve found another way to make the gas on-site, using water, aluminum, and gallium ... a far less costly method than the traditional means of using electricity to break apart the H2O molecules.

Is there a windmill in your future? For $3,000, you can install a small one with a capacity of one to two kilowatts ... enough to cut average power purchases of a typical small business or home by about 10%. $25,000-$30,000 buys a turbine that generates five kW, roughly half what a typical home or small business requires. They’re turnkey operations ... need only a yearly tune-up for a few hundred bucks.
And they’re not just for rural Kansas. Small windmills ... just 20 feet high ... can be placed at the edges of suburban parking lots and office parks and in backyards of exurban homes in many areas: Upstate N.Y., downstate Illinois, southern Virginia. Plenty of regions have enough wind to make an old-fashioned power play pay off.
Still, windmills aren’t for everyone. Be sure to get a clear picture of cost and likely energy output so you know how long it will take to recoup your investment. And check with local zoning officials ... in some areas, such structures are verboten.

Human Resources
Not enough of your employees taking advantage of company paid flu shots?
Bribe ’em. Firms whose employees get shots can reduce lost workdays by up to 45% and slash physician and hospital visits by a similar percentage. That yields enough savings to make incentives ... cash awards or giveaways of iPods and the like ... worthwhile. Vaccine supplies should be plentiful, but costs will go up.

If you want to make sure you can legally monitor employee e-mail ...
You may need to do more than establish a policy, enforcing it as well. A recent federal court decision suggests that an employee may sue for invasion of privacy if an employer unexpectedly audits electronic messages, despite a policy that says it can do so. An unofficial “look the other way” policy and general lack of enforcement may leave an employer open to a lawsuit. For now, the court ruling applies only to nine Western states, but it may well be duplicated elsewhere.