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Wednesday, July 27, 2011

US, July Check

Update: Oh, suddenly someone noticed...
Plunging rates for chartering container vessels that carry sneakers, furniture and flat-screen TVs may signal a U.S. consumer slowdown and losses for shipping lines in what is traditionally their busiest time of the year.
Who'd 'a thunk? Snarky Mark! End update.

I have really been spending most of my time looking at the Asian economies this week, but as for the US:

Durable goods for June was less than sterling. What saved it was that orders for fabricated metal products were pretty decent, so that is an indicator of some Q3 remaining impetus. On the other hand, total new orders were down 2.1%. In April they had dropped 2.5%, and then in May they rebounded 1.9%. So this is a bit disappointing. Machinery new orders were down 2.3%. Capital goods and capital goods nondefense new orders were both down 4.1%. Most of that was in aircraft; nondefense capital goods new orders ex-aircraft were only down 0.4%. Total inventories this year YTD are up 12.3%; total shipments this year YTD are up 7.3%.

Motor vehicles shipments and new orders fell 5.1% in April. In May they rebounded slightly to the tune of +0.2% shipments and +0.3% new orders. Thus, June's -1.5% for shipments and -1.4% for new orders was a disappointment, although it is explained by generally weakening light vehicles sales.

I was debating whether to post what follows because it's so darned depressing, but I am seeing genuine degeneration in the WIET quick-check receipts. When I think the economy is at a turning point I often check the Daily Treasury receipts reports. A good check is to pick a comparable Monday at the end of the month and compare daily receipts.

July 26, 2010. July 25, 2011. WIET is 10,705 compared to last year's 10,692. That's flatter than a pancake even before any inflation adjustments! CIT MTD receipts continue down, with current at 7,904 and 2010 at 9,622. WIET = Withheld Income & Employment Taxes; CIT = Corporate Income Tax. FUT exactly equal (quarterly receipts).

Now, I just can't extract anything good or positive out of these numbers. The reason large corporations are cutting and tightening spending is because they are losing ground, which is apparent from declining CIT trends. And that is not surprising, because their costs are rising and final sales are flattening with a vengeance. Margin compression, if significant and continuing, always does cause recessions and lo! the economic law of gravity has not been repealed. How amazing.

It does point up the real difficulties for Congress with the debt limit. As I pointed out, the debt limit is not really the issue. The issue is total debt and future trajectory. Raising taxes very much in a recession is quite a dangerous tactic, and it is also hard to cut spending meaningfully on social programs, so Congress is up the creek without a paddle.

The US is going to face credit downgrades, and they will occur for the same reason Italy's seeing bond yields rise - declining growth projections, too much total debt, and continuing deficits. Will it do much to short-term bond yields? No, not right now. Because our current debt held by the public is what determines our ability to pay bond holders, and so far so good - we are still way below the 80% line. But if we keep racking up trillion dollar deficits each year, we have only a few years left, and very soon our ability to go out long on the bond issues will be impaired.

Is the trend our friend? No. June 28th, 2010. June 27th, 2011. WIET 2011: 11,623. WIET 2010: 11,540.
April 26th, 2010. April 25th, 2011. WIET 2011: 9,644. WIET 2010: 9,123. CIT 2011: 30,267. CIT 2010: 32,166.

So I don't want to read any more Leadman bleeping Sachs forecasts about second half growth. And I don't want to hear any more Fed Heads yammering about soft patches. This, guys, is not mud but quicksand. And I definitely don't want to read glorious forecasts about tax receipts, because it ain't in the cards.

Also - and this is where things really get painful - the ability of the US to grow exports is going to be impaired. The US dollar is going to drop, and normally that would buy us some economic impetus by increasing exports as countries like Japan and Germany become less competitive. However as far as I can see, India may already have crossed over its growth line. The picture for exports is really not that hot.

Granted, China's export outlook will be impaired by the US economy. I find this no consolation.

Comments:
Great post MOM. It would appear we're heading into a new stage of the crisis; one that may last until 2015 or so. I really can't see any way out at this point unfortunately. The slow motion train wreck is going to pick up speed from here on out, exascerbated by QE3 and beyond.
 
The time to have taken action has long past.
To many parties with a vestd interest in
keeping tax and trade policies unchanged
have doomed us to what will become a
more radical response to current tax and
trade policies.
Sporkfed
 
What does "WIET" stand for?

Why is nothing in the post explained?
 
"What does "WIET" stand for?"

Straight from the article you presumably just read:

WIET = Withheld Income & Employment Taxes


"Why is nothing in the post explained?"

Because you haven't specified what else you need explained yet? (And there's always google... we all have to take some responsibility for our own continuing education rather than expecting someone to spork-feed us every bit of information.)
 
Anon - the post would have been very long indeed with the explanation, which in fact have been posted earlier, although it may have been years earlier. Here it is:

WIET as specified is Withheld Income and Employment Taxes. That includes SS, Medicare and personal income tax.

Now, the reason why I am looking at this is because it is going to serve as a quick check on trends both for GDP (released on Friday, and Employment (released next week).

So I will refer back to this post then. I try to show my methods in this blog and sources of data because I am very frustrated with bad economic forecasting. I think the average person could do better on his or her own.

The reason why I am compiling a short series of the YoYs:

In January of this year 2% of the FICA tax was eliminated. Therefore the WIET taxes YoY are not directly comparable. But, a declining trend in this figure month after month compared to the previous year IS indicative of worsening employment/wage trends.

I also post HI (hospital insurance) YoY (year over year) data each month from the Monthly Treasury Statement, but that won't be available for several weeks.

HI is the 2.9% Medicare tax. That is charged on all wages, unlike SS which is capped out.

Starting next month I will be posting trend comparisons between HI and the new FICA receipts so that we can all track where the biggest real income losses are popping up in the real economy. This will be very boring.

The reason I choose a Monday late each month as a quick check is because on Monday you get a larger receipts, so it's a better comparison. These figures are from the Daily Treasury Statements which are released each day.

It is very hard to compare DTS (Daily Treasury Statement) month-to-date data directly because you have to adjust for calendar and transmittal changes.

Chiefly, what I am looking at here is the trend moving into the middle of Q3.

Because the chief driver of the current US economic down trend appears to be declining real incomes among at least the bottom 70% of households by income, and because that trend appears to have produced a sales slowdown at many small service businesses, and because that sales slowdown is no showing up in durable orders, and because freight and oil consumption data seem to show that we are entering the second rung down of the economic contraction spiral, I am trying to do a quick vector analysis to get a possible upper and lower bound for the second half.
 
Does foo assume that I made the anonymous comment ?
If he did he is wrong and a little impatient with the poster.
Sporkfed
 
"Does foo assume that I made the anonymous comment?"

Why does Sporkfed ask others what I assume? Are others in my mind? If so, GET OUT! :-)

Hey Sporkfed -- no, I didn't think it was you. When I went to type "spoon-feed" I just couldn't resist the play on words.


"a little impatient with the poster."

Perhaps. My patience is frequently overdrawn these days, leaving little in the way of "politeness buffer" at times. That and I found the poster's last question annoying. It claims that nothing was explained, but that's not true -- all kinds of things were explained. What the poster really wanted was for the gap between what they know and what the post said to be bridged. But they offer no information about the size/location of that gap, so they offer no help to anyone who might be willing to help them bridge that gap. When people expect help from others but can't be bothered to expend any of their own effort, well, that's annoying. The apparent lack of effort on the poster's part was only reinforced by their first question where they asked something that was already answered.
 
Thanks for the plug.

I'm a bit late to the party. I've been busy over the last week.

My word verification is sympromi.

I'm thinking it is the tune that will be played in the 11th hour debt ceiling negotiations.

Sym-phony promises! ;)
 
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