October, 2006

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News Stories

• AMT relief reinstated
• Capital gains tax breaks extended
• Dividends break continues
• Kiddie tax to affect older children
• Income limitations eliminated for Roth IRA conversion
  10/11/06 Times Community Newspapers

Economists Surveyed on Interest Rates
While economists surveyed by Reuters expect interest rates to continue to rise in the world's wealthiest countries next year, the Federal Reserve is expected to reduce rates after the first quarter of 2007. Concerns of a U.S. recession persist while fear of inflation will cause the Bank of Japan, the Bank of England, and the European Central Bank to raise interest rates. The economists predicted growth in GNP for the U.S. will be 2.7% in 2007, UK growth 2.4%, European growth will slow to 1.8% while Japan and Canada are pegged at 2.2% and 2.6%.
10/17/06 InvestmentNews.com.

IRA Rollover Signed into Law
President Bush has signed into law a bill that contains a series of provisions designed to stimulate charitable giving and cut down on abuses of charity tax laws by donors and nonprofit organizations, The Chronicle of Philanthropy reported 8/17/06. The bill includes a limited-time provision for qualified charitable contributions from Individual Retirement Accounts to charity, sometimes referred to as "Charitable IRA Rollovers". Between now and December 31, 2007, donors have an opportunity within certain limitations. Some of the provisions may be summarized as follows:

• Individuals aged 70 ½ and older may transfer any amount up to $100,000 this year and next directly from an IRA to a public charity
• The charitable distribution counts toward Minimum Required Distribution requirements
• Charitable distributions may be made in addition to any other charitable giving you may have planned
• Please note that, since the funds in IRA accounts were deductible from taxable income at the time they were deposited, the distribution to charity can not generate an additional tax deduction. However, because the distribution from the IRA to charity avoids the taxation that would ordinarily occur, even taxpayers who don't itemize their deductions can benefit from making such a gift.
• Distributions to Charitable Remainder Trusts, Charitable Gift Annuities, Donor Advised Funds and Supporting Organizations are not covered. State tax treatments may differ.

• Talk it over first. No matter what your age or level of financial resources, consult a qualified financial/tax adviser first.
• Do your research. Any charity of quality should have detailed financial records available for potential donors to review.
• Figure out if you'll need income from your gift. It is possible to give and receive. There are ways you can draw income from a donated asset with tax advantages besides.
• Consider that charity is not all about money. A giving strategy can be about time and expertise, not just money. Charitable giving should involve an exploration of values first and how the giver - and possibly the giver's family - should be involved in the process over time.
  Bradenton Herald, Florida

New worry: A hard 'soft landing'
Everyone agrees the economy is slowing but recent reports have some analysts concerned about recession. Economists agree: It's time to shut off electronic devices, put up tray tables and return your seat to an upright position. And some say it might not be a bad idea to put your head down between your legs. The economy is coming in for a landing. Optimists say it will be the much sought after "soft landing" when the economy slows but doesn't skid into recession. But some economists now are forecasting a bumpy landing, or even worse. The risk of an outright recession is rising due to the sharp slowdown in the housing market and a downturn in auto sales - two key sectors that may already be in recession themselves. A recession is commonly defined as two straight quarters of shrinking economic output.
CNN Money 9/30/06

Raising Charitable Children
Carol Weisman is a speaker on philanthropy, volunteerism and fundraising. Back in the '80s when her sons were young, she found ways to instill in them a sense of philanthropy (on their birthdays, for example, they made a small donation to the charity of their choice; it became a family tradition). Her book, "Raising Charitable Children," does a good job of helping parents guide their children in the right direction.

• Introduce kids to charitable giving when they're 3 or 4; even that young, they understand the concepts of giving and caring.
• A donation doesn't have to be money. Show children how they can donate their time. (Weisman tells of a friend who made sandwiches and took them to a homeless shelter with her son.)
• If it is money, have your child contribute to the donation as well.
• Make sure that you and your children are a good fit with the organization you're helping. You can't expect a 7-year-old to stack cartons of groceries at a food pantry for three hours without a complaint.
• Choose a charity that appeals to your child.
  9/7/06 Chicago Tribune
  

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THE ECONOMY: SEVEN INDICATORS - From CNN Money (as of 11/1/06)

The Indicator	What It's Telling Us	Next Update
Consumer Confidence	Confidence posts surprise drop	Nov 28
Retail sales	Moderate growth	Nov 14
Leading Economic Indicators	Points to moderate growth	Nov 20
Manufacturing Activity (ISM)	Index eases - below expectations	Dec 6
Industrial Output	Unexpected decline	Nov 16
Job Growth	Slowed sharply in September	Nov 3
Inflation (CPI)	Core inflation edges higherk	Nov 16

Recent Economic News

U.S. Sept. construction spending falls 0.3% - 11/1/06 MarketWatch
Outlays on U.S. construction projects fell 0.3% in September, led by drops in spending on private residential construction and federal building projects, the government said Wednesday. Private residential construction spending fell 1.1% in September after declining by 1.6% in August, according to the Commerce Department. In a reflection of the ongoing housing slowdown, September marked the sixth consecutive month that spending on private residential construction fell. Over the past twelve months spending is down 6.9%.

Employment costs up 1% in third quarter - 10/31/06 MarketWatch
The cost of keeping an employee on the payroll rose 1% in the third quarter, the biggest increase since early 2005 and a signal that the tight labor market could be fueling inflation, the Labor Department said Tuesday. In the past year, employment costs are up 3.3%, the fastest year-over-gain in five quarters. It's the first time compensation costs have risen faster than inflation in two years. Inflation measured 2.1% in the 12 months ending in September. A year ago, inflation-adjusted wages were down 2.3% year-over-year, but were up 1.1% in the past four quarters. The Federal Reserve has warned that high levels of resource utilization could feed inflation. With the unemployment rate falling to 4.6%, tight labor markets could force bosses to raise their prices to pay for the higher wages needed to keep qualified workers.

U.S. GDP slows to 1.6% pace in third quarter - 10/27/06 MarketWatch
The U.S. economy slowed in the third quarter, growing at a real 1.6% seasonally adjusted annual rate after a 2.6% pace in the second quarter, the Commerce Department estimated Friday. The downturn was sharper than expected. Economists surveyed by MarketWatch were expecting GDP to increase 2.0% in the third quarter. A weakening housing sector and a drop in business inventories pulled GDP down in the quarter. Real final sales increased 1.7% annualized, down from 2.1% in the second quarter. Meanwhile, core consumer prices increased at a 2.3% rate in the quarter, raising the year-over-year increase to 2.4% from 2.2% in the second quarter. The economy has grown 2.9% in the past four quarters.

U.S. new-home prices plunging at fastest pace in 36 years - 10/26/06 MarketWatch
The median sales price of a new home fell 9.7% in the 12 months ending in September, the fastest price decline in nearly 36 years, the government said Thursday. The government reported that sales of new homes unexpectedly rose 5.3% in September to a seasonally adjusted annual rate of 1.075 million, the most in three months and well above the 1.05 million expected by economists. New-home sales are down 14.2% in the past year. Inventories of unsold homes fell 1.9% to 557,000, representing a 6.4-month supply at the September sales pace. It's the second consecutive decline in inventories. The inventory peaked at 7.2 months in July. Inventories are up 14.4% in the past year.

Durables soar to six-year high on Boeing 10/26/06 MarketWatch
Demand for U.S.-made durable goods soared 7.8% in September, the biggest jump in six years, as orders for new aircraft nearly tripled, the government said Thursday. Outside transportation, however, new orders rose just 0.1%, marking the first increase in three months. The jump in last month's new orders for big-ticket items far exceeded the 2.9% gain expected by economists surveyed by MarketWatch. It's the first gain in three months. The increase came almost entirely from a jump in orders booked by Boeing Co, which recorded 175 orders in September compared with 30 in August, and from demand by the Pentagon for defense capital goods, the Commerce Department reported.

FOMC holds rates steady at 5.25%, keeps tightening bias - 10/26/06 NYTimes
Saying that the economy was likely to continue growing at a "moderate pace," the Federal Reserve held its benchmark interest rate steady yesterday and gave investors reason to think that the rate could remain at its current level of 5.25 percent for months to come. A statement accompanying the decision by the Federal Open Market Committee was nearly identical to the one the panel released after its policy meeting last month. Since then, new economic data has given Fed officials reason to hope that they have achieved a "soft landing," in which interest rate increases slow the economy and bring down inflation without falling into recession.

U.S. Sept. existing-home sales fall 1.9% to 6.18mln - 10/25/06 MarketWatch
Sales of U.S. existing homes fell for the sixth month in a row in September as median sales prices fell for the second straight month, the National Association of Realtors said Wednesday. Inventories of unsold homes fell for the second straight month, a sign that the market is correcting, said Laurence Yun, a senior economist for the realtors group. Sales fell 1.9% to a seasonally adjusted annual rate of 6.18 million in September, the lowest since January 2004. The decrease was slightly larger than the consensus expectation of a drop to 6.23 million, according to a survey conducted by MarketWatch.

Economic indicators up slightly - 10/20/06 MarketWatch
The Index of Leading Economic Indicators inched up 0.1% to 137.7 for September. The gain for followed losses for the index of 0.3% in July and 0.2% in August, respectively, according to a Conference Board report released yesterday. Analysts had predicted an increase of 0.3%. The index is designed to predict economic activity three to six months in the future. The index has lost 0.9% of the past half year and lost ground in five of the past eight months. Weaknesses in new orders of non-defense goods and housing permits accounted for the largest negatives in the index.

GDP likely dipped to 2% in quarter, economists say - 10/20/06 MarketWatch
The U.S. economy slowed further in the third quarter, dragged down by falling investment in homes and lower output of autos, economists said. The Commerce Department will provide its first estimate of gross domestic product in the June to September quarter on Friday at 8:30 a.m. Eastern. Economists said that real growth probably came in at an annualized rate of just 2% after the 2.6% rise in the second quarter, marking the weakest back-to-back quarters in more than three years.

Leading indicators rise 0.1%, suggesting slow growth - 10/19/06 MarketWatch
A gauge of future growth shows the U.S. economy should continue to expand at a slow pace, the Conference Board said Thursday. The index of leading economic indicators rose 0.1% in September after falling in July and August. The index has dropped in five of the past eight months, and is down 0.9% in the past six months. Economists expected the leading index to rise 0.3%, according to a survey conducted by MarketWatch. The coincident index was unchanged in September, with falling industrial production offsetting gains in income, sales and employment. The lagging index rose 0.2% in September.

Housing starts rebound in September - 10/18/06 MarketWatch
U.S. home builders broke ground on more new homes in September, but took out the fewest building permits in five years, the government said Wednesday. New construction of homes unexpectedly increased 5.9% in September to a seasonally adjusted annual rate of 1.772 million, the Commerce Department estimated. It's the first increase in housing starts since May and the highest level since June. Starts are down 18% in the past year. Building permits, meanwhile, fell 6.3% to a five-year low of 1.619 million annualized. Typically, permits are higher than starts. Permits have fallen eight months in a row and are off 28% in the past year. Permits are considered a leading indicator not only of housing but of the economy as a whole. Starts were much stronger than expected, but permits were much weaker.

Consumer prices dip, core inflation up - 10/18/06 AP
Consumer prices fell by the largest amount in 10 months in September, easing worries that inflation was about to get out of control. The Labor Department reported that the Consumer Price Index Consumer Price Index dipped by 0.5 percent last month, a better-than-expected performance that was led by a huge decline in gasoline and other energy products. Wall Street investors cheered the news, believing it will convince the Federal Reserve Federal Reserve that its goal of slowing the economy enough to cool inflation pressures is working and officials won't feel the need to boost rates further either at next week's meeting or for the rest of the year.

PPI falls 1.3% on record drop in gas prices - 10/17/06 MarketWatch
Wholesale prices plunged 1.3% in September as the price of energy goods tumbled at the fastest rate in 20 years, the government said Tuesday. It was the biggest decline in the seasonally adjusted producer price index in three years, the Labor Department reported. Meanwhile, the core producer price index, which excludes food and energy costs, rose a surprising 0.6%, the most since January 2005, as the price of motor vehicles jumped at the fastest rate in more than 15 years. Economists were taken by surprise. They expected a smaller 0.7% decline in the headline PPI, and also expected a smaller 0.2% gain in the core PPI.

Industrial output falls 0.6% in September - 10/17/06 MarketWatch
The U.S. industrial sector slowed sharply in September, capping the worst quarter in a year, the Federal Reserve said Tuesday. Industrial production from the nation's factories, mines and utilities dropped 0.6% in September, the biggest decline since the previous September, when Hurricane Katrina disrupted the economy. Manufacturing output fell 0.3% in September, utility output sank 4.4% and mining output rose 0.7%. The capacity utilization rate for the industrial sector fell to 81.9% from 82.5%, an indication of lessening inflationary pressures from potential bottlenecks. Economists were expecting industrial production to fall 0.1%. They expected capacity utilization to fall to 82.2%.

Retail sales fall unexpectedly - 10/13/06 Reuters
U.S. retail sales fell unexpectedly in September on a record drop in gasoline sales, but were up when gasoline sales were stripped out, a government report said on Friday. Retail sales fell 0.4 percent in the month, the Commerce Department said. Analysts polled by Reuters were expecting a 0.2 percent rise. However, a big drop in gasoline prices in September was reflected in a 9.3 percent tumble in sales at gasoline stations, the largest decline on record, the government said. Excluding gasoline sales, retail sales rose 0.6 percent.

US business inventories up 0.6 pct, tops forecast - 10/13/06 Reuters
U.S. business inventories rose a larger-than-expected 0.6 percent in August as sales of goods rose 0.8 percent, the government said on Friday. Total business inventories in August rose to a seasonally adjusted $1.36 trillion after an upwardly revised 0.7 percent gain in July, the Commerce Department said. The August rise was slightly above the 0.5 percent gain forecast by economists in a Reuters poll. July inventories were revised from the original reading of up 0.6 percent. Business inventories often rise in response to a slowing economy as companies are left with higher levels of stocks in warehouses as sales slow.

U.S. trade gap widens to $69.9 billion - 10/12/06 NY Times
The nation's trade gap widened in August to a surprisingly large $69.9 billion, setting a new record for the ever-growing disparity between what Americans import and export. Nearly a third of that deficit, $22 billion, represented the imbalance in trade between the United States and China. The numbers, released by the Commerce Department this morning, defied expectations. Economists who were surveyed before the numbers came out predicted the deficit would fall in August, but it rose $1.9 billion from July.

Manufacturers see slowest growth since mid-2003 - 10/12/06 MarketWatch
U.S. manufacturers are expecting slower growth in the months ahead, as pullbacks in the housing and auto sectors weigh on new orders, shipments and investment plans, said the Manufacturers Alliance/MAPI on Thursday. In its quarterly survey, the trade group said its composite index of future business activity fell 7 points from the June survey to 64, the lowest reading since June 2003 but still topping the boom-bust mark of 50.

Deficit falls to owest level in 4 years - 10/11/06 MarketWatch
A surge in tax receipts outpaced growth in spending, trimming the size of the federal deficit to $247.7 billion in fiscal 2006 -- the smallest gap in four years, the Treasury Department announced Wednesday. President Bush and congressional Republicans trumpeted the figures as a triumph for the White House's economic policies.

U.S. Sept. nonfarm payrolls up 51,000, lowest since Katrina - 10/6/06 MarketWatch
Job growth decelerated to its slowest pace since the hurricanes struck the Gulf Coast last year, the Labor Department said Friday. Nonfarm payrolls expanded by 51,000 in September lower than the 123,000 expected by economists surveyed by MarketWatch. But the separate household survey showed more strength. The unemployment rate ticked down to 4.6% in September from 4.7% in the previous month. Economists forecast the unemployment rate to hold steady at 4.7%. In addition, there were 62,000 more jobs created in July and August that previously estimated. Average hourly earnings increased 4cents, or 0.2% to $16.84. Economists had been expecting a 0.3% gain. Earnings are up 4.0% in the past year. The average workweek held steady at 33.8 hours, in line with expectations.

U.S. Sept. ISM services index slows to 52.9% - 10/4/06 MarketWatch
Nonmanufacturing sectors of the U.S. economy expanded at a slower pace during September, the Institute for Supply Management reported Wednesday. The ISM nonmanufacturing index fell to 52.9% from 57.0% in August. The drop was sharper than expected. Economists were looking the index to slip to 56.2%. The headline index is not a weighted average of the survey's other key components. New orders rose to 57.2% from 52.1%. The employment index rose to 53.6% from 51.4%. Inflation pressures eased sharply. The price index plunged to 56.7% from 72.4% in the previous month.

Manufacturing index shows slower growth - 10/2/06 CNN Money
Growth in manufacturing slowed more than expected in September, according to a closely watched survey of executives in the sector. The Institute of Supply Management's manufacturing index came in with a reading of 52.9 for September, down from the 54.5 reading in August. Economists surveyed by Briefing.com had forecast the index would slip to 53.5. Any reading above 50 indicates continued growth in the sector. The September result marked the 40th straight month the index has pointed to U.S. manufacturing growth. The report suggested manufacturers are pulling back on hiring. The employment portion of the index fell to 49.4 from 54.0. Only 12 percent expected to increase employment, down from 19 percent who were looking to add staff a month ago. That could lower expectations for gains in the September employment report due from the Labor Department Friday. The report was very encouraging, however, for those worried about inflation risks in the economy.

U.S. construction spending rises 0.3% in August - 10/2/06 MarketWatch
U.S. construction spending gained an unexpected 0.3 percent in August as commercial and public building offset more declines in home building, a government report said Monday. The August increase confounded market expectations of a 0.3 percent drop, according to a Reuters survey of economists.

Pending-home sales rise 4.3% in August - 10/2/06 MarketWatch
Pending sales of U.S. existing homes rose by 4.3% in August, indicating the housing market may be stabilizing, the National Association of Realtors said Monday. Pending-home sales are down 14.1% in the past year, the real estate industry group said. "Our sense is that home sales may have reached a low in August," said David Lereah, chief economist for the NAR in a statement. "With fewer new listings coming on the market, we should be able to draw down the inventory supply early next year to the point where home prices will rise, but at a slower pace than historic norms," Lereah said. The pending-sales index rose 9.2% in the West, 4% in the South and 3.6% in the Northeast. The index was flat in the Midwest. Sales are recorded as "pending" when a sales contract is signed; they are recorded as "sold" when the sale closes, usually one or two months later.

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