Tuesday, April 05, 2016
Comments, Possibly Ill-Advised.
What I am looking at as confirmation of this are the Treasury tax receipts:
Note that withheld income and employment taxes are saying that income from employment is down YOY for March. That generally doesn't even happen in a recession! But low inflation probably has something to do with it. These figures were reliably predicted by the FUTA (FUT, Federal Unemployment Tax) change in direction months earlier. As noted before, we started out this fiscal year (Octover, November, December) with a fine YoY increase on this indicator.
Corporation Income Taxes are improving a bit, although still negative YoY. But this must have been achieved by cutting costs.
The situation is not temporary, because FUT is predicting a FURTHER drop.
March's auto sales were disappointing, although auto production figures in Q1 were very good. The daily sales rate was in fact the lowest since last Feb 2015. But I presume the problems with some of the subprime auto loan ABS have something to do with the rather sudden March sales drop - lending needs to tighten from last year. Auto sales aren't going to help us that much YoY going further. I bet we'll end up the year a few percentage points down from 2015, mostly on subprime loans, which were holding up fine in summer of last year, but started to implode at the end of 2015. The oil patch is accounting for a lot of this so far, but on the other hand the sales share of subprime loans also reached an extreme high last year. You can only dig so far before hitting the sewer line. They found it. They will be getting out of that hole as quickly as possible.
Housing - eh. Purchase money apps are way up; sales are disappointing. There appears to be an affordability issue in many areas. It's not going as well as expected. Construction should still be decent through July/August, though. There are plenty of apartment buildings still in the works. But the YoY increase, currently up there in the 10 percent region, is going to fade out there as well.
The federal government is coming up with increasingly creative proposals to convince banks to lend to borrowers who really can't afford their home and borrowers to buy homes they really can't afford, but banks no longer trust the federal government at all. They know that when the tide goes out, no matter what they were told before, the politicians will all be screaming and pointing at their crotches screaming "Child molester, child molester!" So banks are not cooperating. In this rate environment, you cannot afford many bad loans.
I leave it to you all to figure out what those employment withheld tax figures imply for consumer spending a few months from now. Real retail has really been stalled for about six months at 188,XXX:
August 2015 was 188,XXX, and every other month was 188,XXX except the lowball of October. March, except for autos, should be better due to the early Easter. But then there were autos:
This is pretty much a classic US recession pattern that has been pulled like a piece of taffy.
There is a sharp, sharp discrepancy between the official employment numbers and the Treasury receipts. I'm betting on Treasury receipts, which are very, very hard number. The employment numbers are produced by sampling - Treasury receipts are the final vote count.
Rail does not provide any good news:
You can ignore the last week, because of an early Easter. But in March things really started to go bad.
Note that there were factors this year that should have been highly favorable for Q1 YoYs, including a port issue which suppressed freight in 2015, and generally, a much less oppressive winter that should have helped the whole economy, including freight and driving-around type activity. Construction activity should have been facilitated. Most of Boston could at least see the street signs, which probably made pizza delivery a lot easier.
In Q2, these factors will not be present, and the situation is going to become more obvious. But only mildly so - again, this is not the classic US tip-over, but instead the climbing down into the ditch style of European recessions. But they are LONG. Very long. They do a lot of damage.
I am in something of a quandary, because the employment reports are so off-kilter with other data that I no longer believe them. I am unwilling to publicly speculate as to what is happening with them, but they aren't right. They're not true. No. Not happening.
The Monthly Treasury Statements for February 2016 and February 2015 show a poor picture, but not as bad. It will be interesting to see the March versions.
February 2016: 49,202 (61,532) (You have to add FICA and DI, because FICA was redirected to DI)
February 2015: 50,848 (59,932)
We may be replacing higher-paid jobs with lower-paid jobs, but that's not what the Establishment report said was happening. We may be replacing one job with two jobs, but that's not what FUT or the Household Report says. So the employment surveys are telling us something that just isn't true.
Very highly paid employment is up over the year in comparison to low-paid employment. The weakness is in the lower end jobs. I know this because when I look at the February HI receipts YoY, they have increased more than the February FICA + DI receipts. As high end salaries run out their SS FICA cap, the discrepancy grows later in the year, although when there is a lot of job switching it is offset somewhat.
Balance of trade is quietly worsening. In fact all the lower-level data is rather consistent; economic activity is slowing YoY. And it simply must be showing up in employment, which is pretty much the NBER definition of a recession. Interestingly, JOLTS job openings come very close to the retail peak/sag in timing (peak July):
I don't see any epic crash forming, just a quiet inexorable sag. Manufacturing is not rebounding, and as things get tighter, there won't be much to rebound it. Inventories hadn't cleared as of January, and although there will be ups and downs, I don't think they can now:
If you look at the initiation of the last elevation, you'll notice it slots in well with the beginning of the retail stall and the JOLTS peak timing.
So I would shift my call to official recession beginning in March 2016. God only knows when NBER will recognize this. I don't see them as being very political, but they are not exactly street savvy either. They wouldn't know a subprime loan if it bit one of them on the butt, and most of the NBER committee members probably believe that mortgage lending based on income from individuals not obligated on the mortgage is a GOOD idea that leads to increasing economic prosperity. You might say that they are blind to some of the seamier nuances.
It might be next year before they notice. But I would guess they'll say something in November, after the election.
"It might be next year before they notice. But I would guess they'll say something in November, after the election."
If a Democrat wins the election, they'll announce it in late November, so the new president can announce her plans to turn the economy around. If a Republican wins, they'll wait until after January 20, so we can all blame him for the recession.
Hey, the original name of the dismal science was "political economy", right?
That's your very, VER-R-R-Y dry humor there, right?
I can't say I understand all this with the "official numbers"; but what I *can* see is that little stores in the local strip malls are closing up and there don't seem to be NEW little stores replacing them.
And then I get so confused each succeeding month when Drudge announces that the US Treasury is reporting "New Record High Tax Receipts". Nothing makes sense anymore; sometimes I fear it's creeping senility. Then again, sometimes I think it's Fed.Gov trying to "gaslight" me.
By the way, the brand of cat kibble I buy just got re-packaged -- 13% less product in the large bags, for the same-dang-price. (The smaller size bags got re-sized, too; funny thing, the small-size NOW is the cheaper price-per-pound. Who woulda thunk it?)
As far as existing customers go, most are seeing business declines and are asking us for additional services to squeeze more savings. The only customers doing well are the food packaging guys - when food companies want to reduce the amount of product in a package, they always change their packaging.
U.S. FICA/Payroll/Withholding taxes are rolling over just like in 2002 and 2008
Jill, nice graphs, but look at the difference in slope. This incident is real, but it is moving along much more slowly. This is interesting, but in general the European style economies don't have as much revival power as the US economy traditionally has had. That worries me. The reason is that more consumer spending really comes from government transfers. Less signalling, poorer adjustment.
Charles, I think that's probably a pretty accurate picture of what is happening. Surveys seem consistent about weak business investment, because it is harder to get a return. It's not a collapse, but a sag, a hesitancy. At every step there's a lot of margin for denial, but sooner or later one looks up and discovers that one is knee deep in the ditch.
However, March did seem to show an inflection change. I guess I don't see anything that would generate enough power to drag us out of the mud. There's just going to continue to be a little more drag on the wheels of commerce every two months or so.
The central bank is only ever going to help the top one or two layers of Wall Street, hoping things will trickle down. But Congress and the Executive branch introduce laws and regulations that affect everyone. So before any central bank effects can trickle down, DC ensures that any step forward from a trickle effect is preceded by two steps backward.
We have European-style structural problems, and the vast majority wants absolutely nothing done about it, judging from the presidential campaign.
But employment tax receipts do NOT, and the underlying economic dysfunction suggests that perhaps we are redistributing hours of work rather than generating more employment, on net. That I could believe, especially with the work requirement for food stamps.
I don't know how to account for the discrepancy, but I simply insist that it exists, and that the employment reports cannot be considered accurate renditions of reality at the present time.
Understanding what is going on in the US, economically speaking, is not that simple. There tends to be a lot of year to year variation.
My takeaway: the employment surveys have the "old normal" baked into the results. Assumptions are made, assumptions that apparently no longer pertain to structure of the U.S. economy. Most likely, it is the Obama Administration's policies that have changed the structure, whether one agrees with those policies or not.
You know the one I like? Whole milk should be 4% milkfat. They are now selling whole milk with 3.25% milkfat. I can't buy canned cat food in anything but teeny tiny cans.
And I thought I'd see if I could find Stagflationary Mark. Sounds like the word stagflationary is back in fashion!
It's sad, in a way, because I know rents are high, but in a lot of areas people may end up underwater again.
Hey, last night the wife and I went to see "Bill" at a local movie house. It's a comedy set in the missing seven years of Shakespeare's life--the time when no one knows what he was up to, before he appeared as a writer. It was written and acted by a company of actors, with each actor multiple roles. It's funny and it's clean enough for the family. I'm not sure when it will be in general release, but it's worth the watch.
A) Does he have something he would like to do if he had some cash? You need bait, honey. Your honey needs to get some money/fun out of it.
B) Does it have to be cleaned out? Is there a lot of work involved? Are there memories involved?
C) If you talked to him and made a specific plan for the proceeds, it might be motivational.
D) I bet if you advertised on Craig's List you could get a few ex DIs to help you out, but that should be a last resort.
We've actually made a little progress in that he knows we do need to do this. (and we need to pay off an attorney who will help us get clear title--it was in his late wife's name, so needs to be probated.) I think, if we could start camping out at the other place, we'd really be able to get this place cleared out. There are areas I can't help with, like the garage, because of the bird dander. I would rather have one place to deal with and would like to be able to retire sometime.
Make the new place your digs.
I think it is rather grim for him to have to do this, and I think he shouldn't try to do it alone.
But, as gently as I can put this, the economic forecast isn't optimistic, this is only going to get harder, and the emotions won't change. You both will just get more tired.