Troubling But Reliable Economic Statistics

Income tax collections are a truly reliable method of determining national economic activity and trends. Businesses and many individuals pay quarterly; corporations pay withholding monthly, even weekly in the case of the largest  businesses.  So trends are fairly easy to spot in real-time. The US Treasury tells us collections are down and are trending lower. This is a clear picture of President Asshat’s “strong economy”, the one that’s been turned around so effectively during the past 7 point 5 years.  A vote for Hillaroid is a vote for more of the same.

Sourced from David Stockman’s Contra Corner:

Recession Alert From The US Treasury—-Tax Collections Have Slumped Big Time
By David Stockman. Posted On Tuesday, October 18th, 2016

When it comes to reading the economic tea leaves there is no better data source than the US Treasury. Unlike the imputations, birth/death guesstimates and seasonal maladjustments of the BLS jobs data, the millions of US businesses which pay Federal taxes, including withholding from their employees, have a stubborn tendency to remit taxes only on work and production actually performed.

Accordingly, the Treasury revenue collections for the most recent quarter (July-September) are surely a flashing red warning sign. Receipts of $797.9 billion were actually down by 0.5% from the same quarter in 2015 when collections totaled $801.8 billion. Adjust that year-over-year drop for about 2% inflation and you have an economy sinking below the flat-line.

Nor was the final period of FY 2016 an aberration. For the entirety of FY 2016, Uncle Sam collected $3.267 trillion compared to $3.249 trillion in FY 2015.

Accordingly, you have to squint hard to see the difference. It actually amounted to a rounding error gain of just $18 billion or 0.6%, meaning that the year on year trend of Federal receipts suggests that the US economy has hit stall speed or less.

Our money is on the less. That’s because even within the fiscal year there has been a noticeable slowing in the most recent two quarters. Thus, during the October-March quarters Federal receipts of $1.476 trillion were up by $56 billion or 4% compared to the same months of FY 2015.

By contrast, during the April-September period, Uncle Sam’s collections totaled $1.790 trillion, but that figure was down by nearly $40 billion or 2.1% compared to prior year. And these are nominal figures. With inflation running about 2% the implied drop in real Federal receipts is upwards of 4% during the last six months.

There is further evidence for the imminent recession thesis in the internals. The inc0me tax accounts are more sensitive to cyclical shifts than are excise and payroll collections, and the trends for the former are even weaker than overall receipts.

Thus, corporate tax collections during FY 2016 of $300 billion were down by a whopping 15% from the $344 billion collected in 2015. While some of that drop represents tax policy changes, it mostly reflects the fact that the business economy has peaked and corporate profits are now drifting lower.

In fact, as my colleague Lee Adler has noted, corporate tax payments, which are mainly paid in the last month of the quarter were down every period during FY 2016, and have clearly reversed the previous expansionary trend.

Corporate Income Taxes

The same trend is evident in the individual income tax accounts where there were no material changes in policy between FY 2015 and FY 2016. Yet during the year just completed, individual income tax collections totaled $1.546 billion compared to $1.541 billion the prior year.

Needless to say, that tiny $5 billion year over year gain represents a 0.3% rounding error in the scheme of things. Stated differently, if the US economy was doing as well as Wall Street and the Fed claim, why is it that during the most recent 12 months it generated an income tax payment gain which was so tiny that it actually represented just 11.3 hours of Federal spending!

Nor is that the whole of it. Within the income tax category, the weekly withholding payments from approximately 160 million workers tend to lag the cycle slightly, while the “estimated” payments representing the upper income strata and bonus-earning high rollers is more acutely sensitive to changing macro conditions.

Not surprisingly, estimated payments were down sharply during FY 2016, even as withholding collections gained at a steady pace. But now, even withholding collections are slowing sharply. This indicates that actual hours worked in the US economy are slumping—-notwithstanding the BLS phony monthly reports.

In fact, for the 4.5 months of June through thru October 13th, withheld income and payroll taxes received by the US Treasury totaled $800.4 billion compared to $780.8 billion during the same four and one-half month period last year. That gain of 2.5% was actually smaller than the 2.6% increase in hourly wage rates over the same period.

In short, the math of US Treasury withholding data suggests that actual hours employed during the period since June 1 have dropped by 0.1% compared to prior year. That is not an economy is robust recovery; it’s one slipping below the water line—–especially when it is recalled that jobs are a lagging indicator.

The implied flat-lining of hours in the withholding data since June is also in sharp contrast with the robust labor market conveyed in the BLS establishment survey and the monthly Wall Street celebrations on Jobs Friday. According to the BLS’ highly modeled and manipulated headline job counts, nonfarm employment averaged 144.5 million per month during the June-September period of this year versus a 142.0 million average during the same four months of 2015.

In short, Janet Yellen, the Wall Street punters and the Obama White House all claim jobs are up by 1.7% from last year, but the millions of businesses paying withholding taxes to the US Treasury are reporting no gains at all.

Moreover, in today’s central bank dominated world, even the C-suites have become enslaved to the stock market. That means they hoard labor until the stock market crashes, and then they throw it overboard with nearly reckless abandon.

Based on reading the tea leaves in the Treasury data, therefore, it would appear that the next chapter of the labor dumping syndrome may be just around the corner.

And that’s when the brown stuff will hit the fan in the Wall Street casinos. The gamblers and robo-machines which operate there have been trained to ignore virtually every sign of a wobbly, deteriorating economy and to blindly embrace a rotten monetary regime that cannot possibly be sustained.

But the one indicator that will spook the remaining herd in the casino is rising unemployment at a time when it is becoming increasingly apparent that the financial rescue brigades of the Imperial City are out of business.

Janet Yellen and her merry band of Keynesian fools have dithered on the zero bound for 94 months running now. They have no dry powder left—-and that includes the possibility of a massive new round of QE or even outright “helicopter money”.

The latter would take Congressional enactment, and that is not going to happen in a Republican House of Representatives on the warpath against the Clinton White House. The Donald may be toast, but the political revolt he catalyzed in Flyover America is just getting started; and the House GOP politicians are at least smart enough to see that engaging in “bipartisan cooperation” will be a political death sentence in the years ahead.

Likewise, a new round of standard QE with no fiscal component attached (i.e. helicopter money dispensed by Congress and financed dollar-for-dollar by the Fed) will provoke panic in the casino, not a revival of the bull market. That’s because it would be a naked confession that the $3.5 trillion of QE already enacted was an abysmal failure.

Finally, there was another signal in the FY 2016 budget data that should not be ignored. Even as total receipts were hitting the flat-line (up just 0.6%), total outlays of $3.854 trillion were up $166 billion or 4.5% from prior year.

This means, of course, that the budget deficit soared by $148 billion to $587 billion, but also that the underlying fiscal deterioration was far worse. In fact, owing to various fiscal accounting gimmicks—including upwards of $100 billion per year of student loan disbursements which are not counted in the deficit because they are an “investment”—–the actual borrowing requirements of the Treasury have substantially exceeded the official deficit numbers.

To wit, borrowing from the public increased by $1.051 trillion during FY 2016. While some of that huge difference from the official deficit of $587 billion represented changes in cash balances and other technical matters, the two-year comparison for FY 2015-2016 combined leaves no room for doubt.

The combined official deficit for those two years amounted to $1.026 trillion, but borrowing from the public rose by $1.389 trillion—-or $363 billion more.

Yet, from the gross public debt limit viewpoint, the story is even worse. Owing to unsustainable trust fund accounting, the debt subject to limit actually rose by $1.7 trillion during FY 2015-2016 or nearly $700 billion more than the official deficit.

In fact, during the next several years the built-in budget deficit and associated debt subject to limit will rise so rapidly that it will provoke endless bloody battles over debt ceiling increases in a bitterly divided and partisan Washington.

Accordingly, there is not a remote chance that the “stimulus” baton will be handed off to fiscal policy, as the clueless “guests” on bubble vision intone several times per day.

To the contrary, the debt ceiling conflagrations will make the showdown in August 2011 look like a Sunday School picnic.

That’s why at Contra Corner we cannot repeat often enough our variation on Jim Cramer’s clownish sound effects. To wit, hear the warning and Sell, Sell, Sell!

— SafeSpace

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