:: ECONOMIC UPDATE

The economic landscape, which had been largely shrouded by sluggish economic fundamentals since the market collapse in 2000, continued to show significant signs of life and stability in the fourth quarter. Investor concerns over the U.S. presidential election and rising oil prices abated while strong corporate profits and solid economic growth further solidified investor confidence. Recent Gross Domestic Product (GDP) reports estimated the economy grew by 4% in the third quarter as industrial capacity utilization and business spending improved. While modest growth in personal income and improved employment reports helped sustain consumer spending, retailers face a challenging road ahead as growing consumer debt, continued high gas and heating prices, along with signs of a waning housing market, could put a damper on what has been the strongest segment of the economy. Improved business spending should help support economic expansion, filling whatever void is left by a decrease in consumer spending. In addition, the declining dollar should provide some stimulus for U.S. businesses as U.S. goods become more attractive to foreign consumers. The Federal Open Market Committee (FOMC) met twice during the quarter raising the key interest rate by 25 basis points in each session, to 2.25%. This marks the fifth consecutive meeting that the FOMC has raised rates by a quarter point which is also the expected trend going forward based upon Fed Fund futures. Despite the significant rise in commodity and energy prices in 2004, inflation has been largely kept at bay due to the Fed’s measured rate-hike policy.

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