news & noteworthy July 1, 2004

Alerts, Updates and Other Tax and Accounting Tidbits for Business and Home

Presented electronically by Norman, Johnson & Co., PA Certified Public Accountants

Interest rates take a hike – So what is the general effect to the average consumer? For the first time in four years the Fed has raised interest rates. Previously, it has cut rates 13 times since June of 2000 to the lowest rate in 45 years, 1%. The new hike of ¼% raises the rate to 1.25%, still historically very low, but it is expected to continue to rise with the economy in the upcoming quarters.

Here is how the rate hike is likely to affect you:

Credit cards – If your card has a variable rate then you will likely see the ¼ point increase over the next quarter; if you have a fixed rate it will likely take longer for the rates to head up.

Car loans – Car loans are generally fixed rate loans and are not likely to change for existing loans. If you are shopping for a new car, expect higher rates by the ¼ point.

Loans tied to the prime rate – The prime rate will like jump simultaneously with the Fed increase. Your loan rate will likely adjust in the following month.

Mortgages – Mortgages are not directly tied to the Fed funds rate. They generally track movements in the yields of various US Treasuries and other indexes that typically anticipate the rate movements. Most mortgage rates have already started moving up prior to the Fed hike.

Home equity lines of credit – Home equity lines are generally tied to the prime rate and will likely adjust up by the quarter point in the following month or quarter. Some equity line rates have fallen down to a minimum floor and won’t be impacted at all if they are based on a floor greater than the current prime rate.

Lots of People, Few Computers – The USA has a population of 293 million using 198 million personal computers or 2 computers for every 3 people. China has a population of 1.3 billion using 29 million personal computers or 2 computers for every 90 people.

Worthy Quote: "I have wondered at times what the Ten Commandments would have looked like if Moses had run them through the U.S. Congress." –Ronald Wilson Reagan, 1911-2004

Actuarially Speaking – Retirement planning should be a joint endeavor for couples, but ladies should take an interest to protect their likely survival in older age. According to the Women’s Institute for a Secure Retirement in Washington, 80% of men die married, while 80% of women die single. Similarly, the Department of Labor projects that 90% of women will be solely responsible for their finances at some point in their lives. For ladies, learning about finances is not only an empowering but wise thing to do. Give Jim a call if you would like to discuss financial planning.

Watching the Calendar – July brings Independence Day on the 4^th, extended Partnership returns are due on the 15^th, and Christmas is just a mere 177 days away.

GDP Stat – The nation’s growth in our gross domestic product (GDP) for the 1^st quarter 2004 was released recently at +3.9%, a slight downward revision from the initial reading of +4.2%. The GDP grew by +3.1% in 2003. Our total economy is slightly more than $11 trillion dollars in value.

Cost of Drugs – The most common drugs used by seniors rose in price by +22% over the past 3 calendar years (2001 – 03); inflation over the same period rose +6%.

Got a friend or associate that needs help with accounting, taxes, or financial planning? We appreciate your referrals. Invite your referral to call for a complimentary conference to review their situation.

Enjoy a safe and fun filled 4^th!

Jim Norman and Gary Johnson

Norman, Johnson & Co., PA is a Spartanburg, SC based CPA firm which was founded in 1990. The firm offers a wide range of audit, accounting, tax, business consulting, and financial planning services for individuals, businesses, governmental entities, and not-for-profit clients.

This newsletter is published monthly on the first of each month and alerts and special topics as they are deemed informative. Information contained in this newsletter is derived from sources believed to be accurate. You should discuss any legal, tax, or financial matters with the appropriate professional before applying them to your specific situation.

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