Look around and it’s hard not to find good news about the
economy. The year-end numbers are still coming in but the
information we already have from 2003 is positive.
Look around and it’s hard not to find good news about the economy. The year-end numbers are still coming in but the information we already have from 2003 is positive.
Gross domestic product (GDP) hit a 20-year record pace in the third quarter. Job creation has been up. Unemployment is falling. Productivity reached an astounding 9.4 percent in the third quarter. Inflation was near zero.
The major stock indexes finished the year with outstanding gains. In particular, the Dow Jones Industrial Average crossed the psychologically important 10,000 mark. Corporate profits were up sharply in the third quarter, as well.
Looking forward, government and private economists are predicting 2004 GDP growth in a 3.8-percent to 4.3-percent range. Inflation is expected to remain mild, and unemployment will likely continue lower.
Americans have been waiting for this development. Even though the recession ended in November 2001, few people would describe the past two years as an economic expansion. In fact, an August 2003 Gallup poll found that 48 percent of investors still believed that the U.S. economy was in either a slowdown or a recession. Forty-five percent said the economy was in a recovery and 6 percent described it as in a sustained expansion.
How should you react? It depends on how you reacted to the recession. Individuals who sold off large portions of their equity and debt invest-ments and transferred remaining assets to money-market funds or CDs may react differently from someone who decided to ride out the bear market.
Now may be an appropriate time to review your personal financial situation with your Representative. Here are some strategies to help you gain perspective.
If you collect a paycheck, you may have already noticed that Uncle Sam is keeping less in taxes. And if you have children, you may have received a check refunding a portion of your child tax credit. These are provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003 that require no action on the part of taxpayers.
The 2003 tax law also contained some provisions that do require action before you can benefit. For example, corporate divi-dends are now taxed at a 15-percent rate for most people. To take advantage of the new lower rate, you may want to consider adding stocks that have a solid history of paying dividends. Likewise, if you own assets that you were reluctant to sell because of tax consequences, the new lower tax rate on capital gains — which is 15 percent for most people — may persuade you to reconsider. But these provisions are scheduled to expire in 2008, so it may be prudent to act soon. If you have access to a tax-deferred retirement plan, you may be able to lower your taxable income in 2004. Contribution limits to 401(k), 403(b) and 457 plans have increased to $13,000.
The economic conditions are all pointing in an encouraging direction. Now is the time to take advantage of the building momentum.
Dan Newquist is a Registered Representative with Linsco/Private Ledger (member SIPC). His office is in downtown Morgan Hill.
