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Tuesday, August 12, 2008

Treasury Receipts Show The Turn

Treasury Receipts
Type/Cat WIET Corp Inc Tax FUT
June MTD 07 138,804 67,882 74
June MTD 08 145,500 61,589 77
June YoY Chg 4.8% -9.3% 4.1%

July MTD 07 141,027 10,223 1,015
July MTD 08 142,964 12,374 984
July YoY Chg 1.4% 21.0% -3.1%

2 Month Sum 07 279,831 78,105 1,089
2 Month Sum 08 288,464 73,963 1,061
2 Month YoY Chg 3.1% -5.3% -2.6%

July YTD 07 1,454,771 302,458 7,423
July YTD 08 1,513,171 285,834 7,438
July YTD Chg 4.0% -5.5% 0.2%

Treasury receipt reports are available here.

In June small businesses filed their taxes, and in July the small business FUT quarterly receipts were due. Big businesses deposit their taxes more often. Small businesses are hurting on profits, big businesses are starting to recoup on price increases (and oil - some of July is oil), and the drop in employment is showing up in FUT. WIET is telling us that real personal income is dropping rapidly now, and that the rate of increase is well below effective inflation for most income brackets. The big relative summer drop is partially due to construction/real estate and partly due to retail/summer employment being suppressed. Mortgage broker and realtor commissions, for example, would have had a large relative contribution to last year's July receipts.

A while ago I wrote that I was sure that the US economy was taking a sharp downturn in the second half, but that I didn't have the figures to prove it. Well, here they are. Personal consumption in the US is going to contract sharply from here on out. Business spending will not be so impacted.

This is an odd split recession, with the trough for industrials coming well before the trough for consumer spending. Because of the rising industrial tide, the impact of the consumer contraction will be somewhat blunted.

The big question is whether the global recession, which is going to take hold about at the end of 2008, will cause a second contraction in industrial/manufacturing domestically in the US? It's more than possible. If so, the trough for the US overall economy won't occur in second quarter 2009, but will come considerably later. We might turn positive in mid 2009 and then take a second, worse header. The potential for a mid-70s to early 80s type of pattern with rolling recessions is very real.

At the end of all of this, the consumer portion of GDP will be reduced from the recent US pattern for at least a decade and probably about two decades. In part that is due to US demographics, and in part it is due to inexorable fiscal realities. We are looking at a balancing act that will reduce the US consumer contribution to GDP between 3-5% relatively. Needless to say, we have to boost industrial activity to compensate! That's why energy is so important. You have to have reliable, competitive domestic energy production both to cut imports and to support industry. We are also going to have to take a hard, long and painful look at our tax policies. We cannot afford to undercut US companies' competitiveness, and since many other countries have cut corporate income taxes over the last few years, we must follow suit.

If you are looking at this from an Asian point of view, the impact of a European recession coinciding with a US consumer recession is severe.

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