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Monthly Features Recent Economic News Seven Economic Indicators Major Index Twelve Month Charts Mid Month and Recent Updates Best Way to Make a Gift to Charity Specter of Rate Uncertainty Haunts Investors Millions Joining Ranks of Wealthy - as far as the Tax Code Goes (AMT) Monthly Magazine White House Backs Continuation of Lower Tax Rates on Dividends and Capital Gains Economy Grew Briskly in 3rd Quarter When yield curve talks, Wall St economists listen Senate's Tax Bill Includes Incentives for Charitable Gifts Advisory Panel Report on Tax Reform News Sources Past Issue Archive

Recent Economic News

Confidence Back to Pre Katrina Levels - CNN Money 12/28/05
Consumer confidence surged in December to the highest level since August, before Hurricane Katrina hit the Gulf Coast, the Conference Board said Wednesday. The board's consumer confidence index rose to 103.6 for the month from a revised 98.3 in November. Economists had expected a rise to 102.5, according to Briefing.com. "Consumer confidence continues to bounce back and is now at its highest level since Hurricane Katrina struck the Gulf Coast," Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement.

Yield Curve Inverts - First Time in Five Years - Reuters 12/27/05
The yield on benchmark 10-year U.S. Treasuries fell below that of two-year notes on Tuesday, inverting the yield curve for the first time since December 2000. By 0801 GMT, 10-year notes were yielding 4.401 percent while two-year notes were yielding 4.411 percent . Previous inversions have typically signalled a slowing economy or recession and debate has raged over what an inverted curve means in the current environment of robust growth and relatively subdued inflation.
Fed Chairman Alan Greenspan has said the yield curve has lost its ability to signal pending changes in economic conditions because markets have become more complex. Many analysts argue the flat curve simply reflects foreign buying of Treasuries by central banks, particularly in Asia, and a financial system awash with liquidity.

New Home Sales Tumble 11% - CNN Money 12/23/05
November sales post biggest drop in more than a decade in latest sign the housing market is cooling. Sales of new homes tumbled 11%, the biggest drop in more than a decade. The decline, which was larger than forecasts from Wall Street economists, was from record sales in October. The drop was the biggest since a 24 percent decline in new home sales in January 1994.

Leading Economic Indicators Up in Nov. - BusinessWeek 12/22/05
A widely watched measure of future economic activity rose in November as fewer people filed for jobless benefits, suggesting the nation's economy may grow moderately into the spring, a private research group said Thursday. The Conference Board said its Index of Leading Economic Indicators, which tries to gauge future economic growth, rose 0.5 percent in November.
Much of last month's gains were tied to a drop in applicants seeking unemployment benefits. That number had spiked soon after Hurricane Katrina devastated U.S. Gulf States.

GDP revised down to 4.1% rate in third quarter - MarketWatch 12/21/05
Third quarter U.S. growth increased at a 4.1% rate, slightly lower than previous estimates of a 4.3% growth rate, the Commerce Department said. Despite the revision, growth in the third quarter remains the strongest since the first quarter of 2004. The downward revision was unexpected. Economists surveyed by MarketWatch had been forecasting third-quarter GDP to remain unrevised at a 4.3% rate.

U.S. spending, incomes up 0.3% - MarketWatch 12/20/05
U.S. consumer spending grew 0.3% in November, matching a 0.3% increase in personal income, the Commerce Department said Thursday. Meanwhile, headline inflation fell by a record amount and core inflation measures rose slightly last month. But spending, once adjusted for inflation, was flashing a caution signal about prospects for growth in the nation's economy. Economists had been expecting incomes to rise 0.4% in November, with spending up 0.3%, according to the consensus estimates derived from a MarketWatch survey. Core inflation is up 1.8% in the past 12 months, equating to the smallest gain since March 2004.

Tax Cuts Approved in Congress - NY Times 12/18/05
Meeting in a marathon weekend session, Congressional leaders reached agreement Sunday on a nearly $42 billion budget-cutting plan that Republicans hoped to force through before adjourning, along with a military spending measure that would open the Arctic National Wildlife Refuge to oil drilling. Congressional negotiators also put the finishing touches on a $29 billion hurricane recovery package for the Gulf Coast and a $3.8 billion proposal to prepare for a potential flu pandemic and added them to the Pentagon spending bill.

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THE ECONOMY: SEVEN INDICATORS - From CNN Money (as of 12/29/05)

The Indicator	What It's Telling Us	Next Update
Consumer Confidence	Economic strength leads to surge in December.	Jan 31
Retail sales	Soft in November.	Jan 13
Leading Economic Indicators	rose 0.5 percent, suggests moderate growth through Spring	Jan 23
Manufacturing Activity (ISM)	Edged down in November.	Jan 3
Industrial Production	Healthy growth	Jan 17
Job Growth	Hiring picks up with 215,000 gain	Jan 6
Inflation (CPI)	Big drop driven by decline in gas prices.	Jan 18

Millions Joining Ranks of Wealthy - as far as the Tax Code Goes (AMT)
You may not feel rich, but you are likely going to be taxed as a high-income earner next year. The alternative minimum tax will affect some 20 million taxpayers in 2006, up from four - yes, four-- million this year. The AMT is designed as a check on the wealthy, blocking certain deductions and attaching a levy on things about which few lower income earners worry: a large gain on the sale of art, for example. Because the tax hasn't been linked to inflation since it was devised in 1969, it's affecting the way in which individuals earning more than $40,250 or couples making $58,000 file their tax returns. Next year, the AMT calls for individuals earning $33,750 and couples earning $45,000 to be exposed. Hence, the huge bump in numbers affected.
Congress was set to revise the AMT code this year to provide relief, but the year has gone by without any compromise or legislation. Next year, the issue is set for review and people on Capitol Hill say any reform will likely include a clause making changes retroactive to the beginning of the year. But what limits will be agreed upon is still anyone's guess. The trick is the AMT may account for more tax revenue in a few years than the traditional tax system we have in place today.
Meanwhile that wealthy constituency will find other ways to skirt paying taxes ... and average earners will keep getting stuck with the tab.
Thomas Kostigen, MarketWatch 12/28/05

Specter of rates uncertainty haunts 2006 investor
Pity the poor investor, entering 2006 pretty much knowing what will happen, but not knowing when. The men and women who steer trillions of dollars around financial markets appear to be in fair agreement that next year will be a similar, if somewhat muted, version of this one. That would see equities outperforming bonds, and regional stock markets such as Japan and the euro zone outshining the United States.
"The overall environment is not going to be all that dissimilar to 2005 and 2004," said Andreas Utermann, chief investment officer of RCM, part of Allianz Global Investors' stable of investment companies. But haunting the background is the specter of change in interest rate policy that may divide the year sharply for investors. They just do not know when it will arrive.
The U.S. Federal Reserve is expected to stop raising interest rates sometime in the year while Europe -- and possibly Japan -- are leaning toward tightening. Those moves threaten to change prospects for many assets.

"This is the big debate in markets: how far will U.S. rates go up?" said Ewen Cameron Watt, head of investment strategy and research at Merrill Lynch Investment Managers.
Jeremy Gaunt, European Investment Correspondent LONDON (Reuters)12/16/05

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Best Way to Make a Gift to Charity
The best way to make a gift to your favorite charity is to transfer appreciated stock or mutual fund units. You get a charitable tax deduction as well as avoid paying capital gain tax. But, you need to move quickly to get it done before year-end. Making a gift of an appreciated stock or mutual fund to your favorite charity can reap the benefit of the charitable deduction as well as the avoidance of tax on the capital gain. However, the transfer takes time. Most brokerage houses will require notification of the transfer early in December to assure the transfer is completed by year-end. But, how do you make this gift? Just follow these five steps:
Step 1: First, review your investment portfolio and determine the mutual fund or stock with the lowest cost basis.
Step 2: Contact the charity and request the charity's brokerage account number and any transfer instructions.
Step 3: Provide instructions to your investment manager, brokerage account executive, or directly to the discount brokerage firm where your securities are held. If you hold your stock in certificate form, contact your charity for instructions.
Step 4: Send a letter to the charity and identify yourself as the donor and describe the stock shares or mutual fund units that are being transferred. Provide the amount and the approximate date of transfer. This is the only way the charity will be able to attribute the gift of securities to you.
Step 5: Deduct the value of your gift on Schedule A of your tax return.
Elaine E. Bedel, President Bedel Financial Consulting (taken from Inside Indiana Business)

White House Backs Continuation of Lower Tax Rates on Dividends and Capital Gains
White House Press Secretary Scott McClellan has expressed support for the proposed extension of capital gains and dividend tax cuts in a final budget reconciliation bill. McClellan, at a press briefing on November 30, asserted that permanent tax relief helps individuals and businesses plan better because they are not facing uncertainty about changes in the tax code. Although these provisions do not expire until 2008, McClellan maintained that Congress should approve these capital gains and dividend extensions now. "It's important to move forward on those, because you provide people with great certainty so that they can plan, and so that businesses can grow and hire people," the White House spokesman said.
cchgroup.com news 12/1/05

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Economy Grew Briskly in 3rd Quarter
The U.S. economy expanded rapidly in the summer and early fall, despite the devastation and disruption of the Gulf Coast hurricanes, the government reported yesterday, significantly boosting its earlier growth estimate. Rising consumer and business spending helped spur economic growth at a robust 4.3 percent annual rate in the third quarter, the best pace in more than a year and a big acceleration from the 3.3 percent pace of the spring, the Commerce Department said. Its earlier estimate, based on incomplete data, was 3.8 percent annual growth in the third quarter.
The economy heated up in July and August, as consumers snapped up discounted cars, businesses loaded up on new equipment and software, and builders invested more heavily in a hot housing market. But many analysts had worried about the possibility of a sharp slowdown after Hurricane Katrina hit the Gulf Coast Aug. 29, wiping out hundreds of thousands of jobs and damaging oil rigs, gasoline refineries, pipelines, chemical plants, roads, bridges, ports and railroad tracks. Energy prices skyrocketed and stayed high when Hurricane Rita hit in late September.
Yet the economy performed "amazingly well," said Stuart G. Hoffman, chief economist at PNC Financial Services Group. Since September, he said, other reports showing healthy retail spending, factory orders and home sales suggest that "the economy's growth is on a pretty solid track."
Washington Post 12/01/05