Week of December 10, 2007

The Markets
 
Productivity grew strongly last quarter and that may bode well for our standard of living.

Last week, the Labor Department reported U.S. non-farm business sector productivity grew at a revised seasonally adjusted annual rate of 6.3% in the third quarter. That was the highest rate in four years. Although not likely, if that trend were to continue, our country’s standard of living would double in just 12 years. By contrast, between 1948 and 1970, productivity growth averaged about 2.7% annually, according to MarketWatch. It then slowed dramatically between 1971 and 1995, as growth averaged just 1.6%. Since 1995, the rate has accelerated and it’s averaged about 2.5% per year for the 11 years ending 2006.

Solid productivity growth is important to us because it allows us to raise our standard of living. As MarketWatch states in a December 5 article, “High productivity growth means the economy can grow rapidly without inflation, raising living standards and theoretically allowing workers to get big raises without hurting the boss’s profits.” And we all like big raises!
 
In addition to the productivity number, the Labor Department reported that unit labor costs, a key measure of inflationary pressures, actually declined at a 2.0% annual rate in the third quarter. While not sustainable over the long term, this gave bulls some comfort, at least temporarily, that inflation was under control. These two reports may have helped push the stock market, as measured by the Dow Jones Industrial Average, up a respectable 1.9% last week—and we all like that too!    

Sources: Yahoo! Finance, Barron's. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly. Three-, 5-, and 10-year returns are annualized.  Assumes dividends are not reinvested.

2007 HAS BEEN A YEAR FULL OF stock market volatility. However, a November 19, 2007 Pew study finds that these gyrations have a direct impact on only a limited number of Americans. Nearly half of adults nationwide (46%) say they don’t invest in the stock market. Among investors, 43% say they have long-term investments like retirement accounts, but don’t trade stocks regularly. Only 7% of Americans say they trade stocks and other funds regularly.

Just who are these active traders? Not surprisingly, the November 19, 2007 survey found household income is a major factor driving market participation. Thirty eight percent of regular traders report an annual, pre-tax, household income of $100,000 or more -- an income level reached by only 15% of the general public.

According to Pew survey, half (48%) of regular traders and four in ten long-term investors (42%) are college graduates and that men outnumber women as regular traders 56% to 44%.

THE INTERNAL REVENUE SERVICE IS LOOKING FOR 115,478 TAXPAYERS who are due refund checks worth about $110 million. The refund checks, averaging about $953, were returned as undeliverable as taxpayers moved without updating their address with either the U.S. Postal Service or the IRS.

If you are still waiting for a refund, you can use the “Where’s My Refund?” tool on www.IRS.gov if you know your Social Security number, filing status, and amount of refund for your 2006 return. Alternatively, you can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

Although the list of taxpayers due undeliverable refunds rose about 21% from last year, according to the IRS, undeliverable refunds account for less than 1/10 of 1% of all refunds, or about one in a thousand.

If you’re moving this year, you can ensure the IRS has YOUR correct address by filing Form 8822, Change of Address. It’s available for download at www.IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Weekly Focus – A Fun Gift

For the person who has everything….Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist by Tyler Cowen.  Published this summer, Publishers Weekly praises the pop-economics book as a “charming guide on how to get more of the good stuff in life.”  According to their review, “Cowen offers idiosyncratic strategies for appreciating museum art, for building family trust and cooperation, for writing a personal ad, for reading classic novels that seem boring on first inspection…and explains how, with planning and tactics, we can eat much better meals at home and in restaurants, here and abroad.”  Sounds like it offers something for everyone.

Best regards,

Fredrick J. Livingston, CLU, CFP

Securities offered through LPL Financial, Member NASD/SIPC

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. 

* The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

Brain Teaser Answer:  It contains the numbers one to nine, in alphabetical order.