Energy
If you want lower energy bills ...
Conservation is your only real option.

High prices will be around for a while.
Oil’s recent downtrend won’t continue. It’s the result partly of a modest improvement in inventory levels before winter sets in, and partly of some traders taking profits on a rally that put prices over $55 a barrel.

The core factors haven’t changed much:
Demand is strong, fueled by fast growth in China, India, and other developing countries.
But supplies are still constrained. Output in Saudi Arabia has maxed out. Big gains in Russia and elsewhere won’t come soon.
And the risk of disruption is high in Nigeria, Venezuela, Russia, and the Mideast. That’s adding about $10 to a barrel of oil.

As a result, oil will average about $40 a barrel through 2005, only a tad less than this year. In fact, a return to the mid-$20s ... the norm for the mid-1980s to mid-2003 ... will remain a pipe dream.
For most fuels, refinery bottlenecks spell record-high prices (before accounting for inflation) in the months ahead: Heating oil, at an average of $1.95/gal. this winter, up 35% from last year. Gasoline and diesel, climbing to $2.25 and $2.50, respectively, by Memorial Day.
As for natural gas ... new nominal records each winter for years. This winter, figure on a national average price of $7 per million Btu.

Fortunately, there’s still lots most firms can do to trim use. And, because fuel prices will stay high, even costly moves can pay off. Existing technologies can improve energy efficiency by about 20%.
Among the most effective and economical options: Motion sensors. At about $25 each, they turn off lights, copiers, etc., in empty rooms.
High-efficiency fluorescent fixtures can trim lighting bills 50%.
Nighttime water chillers reduce air-cooling expenses up to 30%. Upgrading air-conditioning systems cuts $1/year per square foot of space.
Low-friction, adjustable-speed motors use 10% to 20% less power.
And turning to “green” building designs for new construction. Energy-efficient buildings are tremendous cost savers from Day One.

Not sure where to begin? Get an energy audit for expert advice ... free from the Energy Department for manufacturers with annual energy bills under $2 million. Others should contact their local utility companies.
If your firm uses trucks, try SmartWay Transport Partnership at the EPA for solid info on fuel-efficient technologies and practices.

The economy
Is the U.S. dollar headed for a crash? In just three months it has declined nearly 8% against the euro, about 6% against the yen, and 6% against an index of major currencies.
It is headed lower in coming weeks.
But an end is in sight. Before long, Japan and euro-zone countries will take steps to slow the slide. Look for them to respond as their currencies threaten to surpass levels that their governments consider excessive ... about $1.40 to the euro, 100 yen to the dollar.
No one can afford a dollar free fall that would batter U.S. stock values and wreak global financial havoc.

Meanwhile, though, the weakening dollar will have a broad impact.
Inflation will tick upward by a few tenths of a percentage point as the higher costs of imports work their way through the supply chain.
And interest rates will edge up to help stifle inflation pressure and keep foreign investment flowing in. Overseas investors are jittery about the twin U.S. deficits ... one in the federal government’s budget, the other in trade ... cooling enthusiasm for U.S. bonds and other assets. The sliding buck depresses the value of dollar-denominated investments.

The U.S. trade deficit will keep widening, hitting a record in dollar terms of over $600 billion next year. When it’s measured against annual economic output, it’ll still equal at least 5% of GDP.
The weaker dollar simply isn’t enough to turn things around. Even though exports should grow 8% next year and imports only about 6%, the trade gap will increase. Why? Because the absolute value of imports dwarfs that of exports. It would take export growth at twice the pace of import gains to allow the trade deficit even to begin to narrow.

In the short term, some firms selling abroad will get a boost.
Exporters to Canada stand to gain the most as the country’s GDP and the Canadian dollar both grow stronger. Canada is a prime market for U.S. building products, IT, aircraft parts, and oil field equipment.
But in Europe, sluggish growth will offset the dollar effect. We’ll sell fewer capital goods ... machinery, cooling equipment, etc.

The buck’s weakness is of no help with China, with which the U.S. has its fastest-growing trade gap. The yuan is pegged to the dollar.
In this case, Bush will work hard to allow the dollar to fall against the yuan by continuing to pressure Beijing to let the yuan float.
China is in no hurry to oblige ... maybe a small yuan rise by 2006. Beijing fears its financial system can’t handle a major currency move.

Housing
Home buyers’ preferences are shifting from quantity to quality. The average size of a new home has topped out at 2,300 square feet after rising steadily from 1,500 square feet in 1970 ... an increase of 53%.
More Americans are willing to sacrifice space for amenities ... crown molding, wood floors, granite countertops, and housing floor plans that reduce furnishing needs and heating and cooling requirements.
Expect more demand for skilled craftsmen ... interior woodworkers, carpenters, fireplace masons, and designers to bring it all together.

Manufactured housing’s upswing has legs. Sales of these homes, up 25% this year to about 175,000 units, will sustain double-digit gains in each of the next couple of years. The manufactured-housing industry was hit especially hard in the economic downturn ... more exposed to buyers with poor credit ratings, who account for most mortgage foreclosures.
The supply glut is absorbed. Manufactured homes’ affordability is even attracting more-affluent home buyers priced out of other options.

© 2004 The Kiplinger Washington Editors, Inc.