Revision of Second Quarter GDP Provides Outlook for an Improving Economy 9/26/14

 

  • Second Quarter GDP revised upward helped by improving business spending and new homes sales
  • Fed maintains current interest rate stance until confident in sustainability of health of economy
  • Social Security to start mailing statements again

Revised GDP Figures:

Second quarter GDP figures were revised this morning from 4.2 percent to 4.6 percent.  The pace of growth was the highest level in over two years and was aided by business spending, improving exports, and new home sales.  The figures were in line with revised Wall Street expectations and provides support that growth is on track for modest gains for remainder of the year.

Consumer sentiment was reported at its highest level in over a year as positive prospects for the domestic economy and household income expectations provide optimism for individuals.  This should be a catalyst for consumer spending to accelerate over the coming year.

The U.S. Housing Market bounces back:

Sales of new homes rose in August and hit their highest level in over six years, offering confirmation that the housing recovery remains on course.  Sales jumped 18 percent marking the highest level since May 2008 and logging the second straight month of gains.   Homebuilder sentiment hit its highest level in nearly nine years in September, with builders reporting an increase in buyer volume.

Unemployment Claims:

Applications for unemployment benefits increased less than expected last week as an improving economy prompted employers to retain staff.  The number of firings are near decade lows and companies are hiring in anticipation of a sustained pickup in household spending and holiday season.   Larger employee wage gains would help shift the economic expansion into higher gear.

The Federal Reserve not likely to raise rates until the economy is clearly in growth mode:

Chicago Fed President Charles Evans said he favors patience as the central bank determines when to raise interest rates.  Evans believes it is crucial to maintain the current federal funds target rate until the Fed is confident in state of the economy and is certain a reversal in their decision to raise rates would not occur.

Social Security to mail benefit statements again:

The Social Security Administration (SSA) announced that they will once again start sending benefit statements via mail.  Benefits have not been mailed for several years in what was deemed a cost cutting measure in 2011.  However only 6 percent of workers signed up to review their benefits online prompting the Administration to provide paper statements.  Anyone who has not signed up for an account on the SSA website will receive statements about three months after their birthdates every five years – at the ages of 25, 30, 35, 40, 45, 50, 55 and 60.    After age 60 the statements will be mailed annually.

Year-End Planning Ideas:

As we enter the Fall season now is a good time to consider year-end planning items.  A few items to focus on are:

  1. Harvesting capital losses – capital losses can be used to offset current year realized capital gains and any remaining losses can then offset up to $3,000 of ordinary income.  Any unused portion of these losses can be carried forward to future years.
  2. Utilize investment vehicles such as 401(K)’s and IRA’s – these retirement savings plans may help reduce your current year gross income.  If a company provides a matching portion to the retirement plan it is advisable to contribute at least the minimum amount necessary to earn that match.   If contributing or considering contributing to a Roth IRA please recall that contributions are phased out for individuals with income between $114,000- $129,000 and married couples filing jointly with income between $181,000 – $191,000.
  3. Education savings – for those with children, grandchildren, or other family members who will likely have college expenses consider contributing to a 529 plan.  These type of plans are a good savings vehicle for college expenses.  Funds are still 100% owned by you and there is flexibility on who you can designate and change as beneficiary, so long as the beneficiaries are family members.  Most states provide a state tax deduction (up to certain limits) for contributions.
  4. Charitable contributions – if you own stock with long term unrealized gains that may be sold before the end of the year, consider using the appreciated stock as a charitable contribution.  This provides a double benefit as you avoid owing the capital gains tax from the sale and also receive the deduction for the fair market value of the shares.
  5. Flex spending account balances – majority of these types of plans are “use it or lose it” types so be sure to use the funds available before your respective deadline.

 

This publication is provided as a service to our clients and associates of PFA solely for their own use and information.  The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified.  The content in this publication is for general information only and not intended to serve as individual investment advice.  You should seek independent advice from a professional based on your individual circumstances.