Energy impact
In energy prices and economic growth: The risk factor is costing us plenty.

It’s adding $15/barrel to oil prices with little prospect of much change for at least the next year or so ... until 2006.
And paring half a point off GDP growth this year, as consumer dollars are diverted from stores and restaurants to the gas pump.
In 2005, it will ax a percentage point from the economic growth rate. If oil prices were averaging $30/barrel as in 2003, GDP gains of 4.5 percent would be likely this year and next.

Why such risk anxiety? There’s almost no production cushion. Since 2002, world demand has outstripped output, soaking up reserves and pushing production to near 100 percent of capacity. Now, with global demand for oil likely to increase 3 percent this year and nearly that much next year, there’s no room for quick gains. For most of the 1990s and early 2000s, total spare capacity worldwide was roughly 5 million barrels a day ... the Saudis alone could add 1.5 million simply by opening the spigot.
By year end, spare capacity will be a slim 500,000 barrels a day.

And potential shocks are plentiful: Civil unrest in Venezuela, even though the Aug. 15 referendum did not oust its controversial president.
Or in Nigeria. Together, they produce 5 million barrels a day.
A further Kremlin crackdown on Yukos, the Russian oil giant that pumps about 1.7 million barrels a day, over 2 percent of world supplies.
Even a relatively minor glitch in processing or port deliveries.
And of course, the ongoing threat of terrorism in the Mideast.

What’s worse, risks are stifling investment in new capacity.
In theory, world output could hit about 90 million barrels a day by 2007 or so, up from about 82 million now. New oil would come from Angola, Kazakhstan, Azerbaijan, and Russia as well as the Mideast.

But few are willing to venture the capital. The big oil companies are leery of plunging in, fearing that prices could easily plummet again and concerned about losing their investment to nationalization or outsized government taxes.
So production will reach only 85–86 million.
Meanwhile, demand will increase nearly as fast from now through 2007, with growth moderating after the swift pace of this year and next.

HR
Age discrimination lawsuits against employers are on the rise. More than half of the nation’s population is now over 40, which is the minimum age for coverage under the age discrimination law. In addition, more layoffs are hitting many experienced midlevel managers who are used to dealing with lawyers and fighting for their rights.
A Supreme Court decision may have an impact on age bias charges. At issue: Does the Age Discrimination in Employment Act prohibit changes in policy that have a disproportionately harmful effect on older workers, even if that wasn’t the intention? So far, appeals courts are split. The ruling could also affect proposed rule changes by the Equal Employment Opportunity Commission. The revisions would allow firms to reduce or eliminate health care coverage for retirees at age 65, when they become eligible for Medicare. Bush has put the changes on hold and will take his cue from the court decision. Kerry would scrap them.

Some firms may balk at contributing to Health Savings Accounts on behalf of their workers due to a new Internal Revenue Service ruling. Distributions from HSAs are tax free only if used for medical expenses. But the IRS says employers that fund HSAs for their workers have no say in making sure their contributions are paying for health care expenses. Big firms will try to get the ruling changed but likely won’t succeed.
Health reimbursement arrangements are another option for firms. Unlike HSAs, employers are allowed to restrict how the funds are used. But employee contributions are barred, so firms must foot the whole bill.

Health costs
State and local governments are getting exercised about fitness. More and more communities are trying to encourage their residents to walk and bike more to and from stores, schools and work, if possible.
Some provide additional amenities, including wider sidewalks, walkway overpasses, and bicycle paths with air-pump and water stations. Several states are now giving counties and cities fitness-related grants.
Public officials figure they’ll save money in the long run. Lack of physical activity costs the states billions of dollars a year in higher Medicaid bills to treat obesity, high blood pressure, etc.
Developers are getting into the act, too. Zoning officials are far more likely to approve developments that promote exercise.
For more information, go to www.activelivingleadership.org.

© 2004 The Kiplinger Washington Editors, Inc.