Despite Grim Headlines, Economic Growth Is Intact

Fears of a recession loomed larger last week after the chairman of the President's Council of Economic Advisors, Kevin Hassett, doubled his estimate of the damage the U.S. economy will suffer from the partial shutdown of the federal government. He was widely quoted across the media as saying first-quarter growth of the economy could stall to zero. On Friday, the shutdown uncertainty was resolved, at least for now, and new data indicated the headlines were much more ominous than the current economic facts.

The newly released index of leading economic indicators indeed declined a tenth of 1% in December, following November's increase of two-tenths of 1%, and the outlook for slower growth in 2019 became more likely, according to the Conference Board economists responsible for tracking LEI's 10 sub-indexes, but their forecast for decelerating growth was nothing like the frightening scenario about the impact of the shutdown that was featured in breaking news headlines last week.

"The US LEI declined slightly in December and the recent moderation in the LEI suggests that the US economic growth rate may slow down this year," said Ataman Ozyildirim, Director of Economic Research at The Conference Board. "While the effects of the government shutdown are not yet reflected here, the LEI suggests that the economy could decelerate towards 2% growth by the end of 2019."

The 2% forecast for 2019 is slightly lower than the 2.3% average growth rate projected in early January by 60 economists in The Wall Street Journal, but slow-growth is not no-growth, and it does not mean a recession— back-to-back quarters of shrinking of GDP— is going to occur.

Stocks drifted lower in the holiday-shortened trading week but on Friday surged nearly 1% after a deal was reached to end the shutdown temporarily. The Standard & Poor's 500— a key growth component in a broadly diversified portfolio— closed on Friday at 2,664.76, compared with 2,670.71 a week earlier. The market suffered a 19.8% plunge from September 20th's all-time closing high to the Christmas Eve closing low of 2,351.10.

Please let us know if you would like a report summarizing the 4Q2018 financial and economic conditions.

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This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial or tax advice without consulting a professional about your personal situation. Tax laws are subject to change. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.

Four Smart Tools For College Savings

The cost of a college education isn't getting any cheaper. According to the College Board, average annual tuition and fees for a four-year public college for the 2016-17 school year was $24,930 for out-of-staters and a year at a private college cost $34,480. And those sobering price tags are increasing much faster than the overall cost of living.

To help you get ready for your child's expenses for higher education, consider these tax-favored techniques.

1. Section 529 plans. This has become far and away the most popular way for parents to save for college. These plans are operated by states and enable you to set aside almost unlimited funds for the future education of the beneficiaries you name—usually, your own kids. The money you contribute grows tax-deferred, and distributions you use to pay for tuition, fees, and other "qualified expenses" aren't taxed. If you opt for a plan from your own state, you might even be able to deduct your contributions on your state tax return. But some tax reform proponents have 529 plans in their sights, so you may want to lock in tax benefits now.

2. Custodial accounts. Before 529 plans, these were a standard way to save for college. You set up a custodial account under your state's Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), and a custodian—probably you—manages the funds for the child's benefit until he or she reaches legal age in your state and gets access to the money.

That's a chief drawback to this approach—that just when your children are old enough to go to college, they can tap the money you've saved for whatever they like. There's also the "kiddie tax." Most investment income above an annual threshold ($2,100 for 2017) that a dependent child under age 24 receives will be taxed at the top tax rate of the child's parents.

3. 2503(c) trusts. This type of trust, also called a minor's trust, is designed to provide funds for beneficiaries' college expenses. Like custodial accounts, 2503(c) trusts have been available for years but lately have taken a back seat to 529 plans.

With a 2503(c) trust, the income is taxed directly to the trust, so there's no kiddie tax problem, and assets aren't released to a beneficiary until age 21. However, because the trust tax brackets are narrow, you may still pay tax at a rate that's higher than the child's own tax rate.

4. CESAs. A Coverdell Education Savings Account (CESA) is like an IRA used for education instead of retirement. (It was originally called the "Education IRA.") Payouts for most college costs are tax-free. But the annual contribution limit is just $2,000—compared with much higher limits for 529 plans—and it hasn't budged in years.

But money in a CESA can be rolled over tax-free for the benefit of multiple beneficiaries. And unlike funds in a 529, which can be used only for higher education, money in a CESA may also go to pay tuition for private elementary and secondary schools.