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Federal Withholding Tax Data Says US Already In Recession
I linked to this article yesterday, but if you didn't see it then, here's the full article by Lee explaining why he thinks we're already in a recession. - Ilene
Federal Withholding Tax Data Says US Already In Recession
Courtesy of Lee Adler of Wall Street Examiner
I wanted to follow up with you on the June 17 report on Federal Withholding Tax collections, which I cover regularly in the Professional Edition Treasury Update (latest report here). I like tracking withholding taxes because they are one of the only economic barometers that we can follow virtually in real time on a daily basis. The charts below contain daily data through June 23. If you are a Professional Edition subscriber this is largely redundant data, but there are two new charts and one new critical fact which I think tell the story better and will show you more clearly just what's going on. I will include these charts in the regular weekly updates in the Professional Edition.
The first chart shows this year and last year superimposed on one another. The blue shaded line is this year. The brown shaded line is last year at the same time date. That this year has had gains versus last year most of the time as indicated by the spread between the two lines. However, that has begun to change in recent weeks, with this year no longer showing material gains versus last year.
I was wondering how much of the gain was due to inflation, so I calculated the year to year difference and then adjusted it by the government's employment cost index annual rate of change. That measure has been consistently running around 2%, which is lower than the CPI (surprise, surprise, surprise). The resulting chart is below.
There are some interesting points to be gleaned from this, once you get past the day to day volatility and just look at the cycles. First is the decline in the linear regression over the course of the year from the 4% area to around 3%. That still is not bad as a real rate of gain, but down is not as good as flat, or up, and there's been a great deal of variation. Before this, there have been good excuses for any negative periods, but not this time. Let's look at each swing.
In the summer of last year things looked good comparatively speaking because the comparisons versus an extremely weak 2009 were easy. But then in August there was a stall. With the growth rate suddenly going negative in early August as the stock market was beginning to peel off points, the Fed announced what I've been calling QL1.5 or Quantitative Leveling 1.5, the precursor to QE2. Tax collections then started to recover. Coincidence? I don't believe in coincidences when it comes to these things.
Then in mid November the Fed floored the accelerator with QE2. That worked for a while, with the growth rate averaging 5-8% until Christmas. The Administration and Congress then cut a deal to cut payroll taxes beginning in January. Collections plunged as a result, but it was due to the tax cut, not an economic decline, and the theory was that the cut would stimulate growth.
Beginning in March, the theory seemed to be working as withholding tax collections surged versus last year around the same dates, with a spike to a 50% gain for a couple of days in early May. But that was an illusion partly because of a plunge in collections last year when census workers got laid off. But even with that, the surge was sizable and it persisted until the middle of May.
Then things fell apart. The government was peeling off its stimulus programs, gas and food prices had skyrocketed, and suddenly on May 17 tax collections fell versus the same period last year. Since then, the difference between last year and this year has been near zero in real terms. That drop versus the strong gains in March and April suggests that the US may have entered recession a month ago.
I've reached that conclusion, rather than expecting another up cycle for several reasons. First, the Fed, recognizing that the disastrous unintended consequences of QE were far more damaging than any benefit from higher stock prices, had concluded by April that QE must end. It is likely to stay off the playing field until crisis conditions reach a crescendo. Furthermore, politicians, in their infinite wisdom, have now decided to cut the only thing creating the illusion of economic growth, which is massive borrowing to fund current spending. Any further reductions in the budget here will only enhance the downward momentum.
It's going to be an interesting summer.
I'll follow the story and tell the tale weekly in the Fed and Treasury reports in the Professional Edition. I hope that if you already have not done so, you will Click this link to try WSE’s Professional Edition risk free for 30 days!
Pic Credit: Jr. Deputy Accountant
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Question:
Does the above data include SS/FICA payroll taxes, and if so, is the data adjusted for the 2% reduction (from 6.2% to 4.2%) in FICA payroll taxes effective January 1, 2011?
It's Bush's fault!
Its everyone's fault:
1. Stupid Americans buying crap they cannot afford with credit, and believing the crap spewed by the media.
2. Washington politicians encouraging Americans to take on more debt "for the good of the nation"
3. Banks that played along, fully knowing that it was a sure disaster.
4. Wall St. Trying to sucker pension plans, retail investors to buy stocks and bonds in the phony economy.
There are alot of people to blame, however Prescott Bush would have to be up near the top.
Shocking. Already.......or still?
And dumbarse Obama wants to keep the payroll -2% ! That weakens Soc Sec more than anything ever done, it's not paid back the same way. This guy has to be DUMPED. The Treasury/Fed will need even bigger debt issuance than predicted, with no one to buy. Adler does a great job.
Not feeling all hopey changey today, eh?
The collapse will be televised...I'm wondering if we'll be banging pots in the streets like Argentina or if we'll be Somalia with cell phones.
Neither...as always, America will revolt in it's own fashion.
Watching the rocks being flung on the streets in Athens, I am reminded of how restrictive their gun laws have always been vs America's. We have by far the most heavily armed civilian population on the planet, and we seem to become ever more violent.
If our sheeple ever do reach the boiling point, it could quickly become very bloody and spin out of control.
This is where I channel Dr. Doom from in early 2008 on Bloomberg when asked whether or not we are going into a recession.
Recession!? Recession!? Recession!? Recession!?
To paraphrase..."The question is not whether we are going into a recession but rather HOW DEEP a recession OR whether it is a depression!"
Can we please be honest here? Add not just what Uncle Ben pissed into the toilet but also what China and Europe pissed into the toilet. (using TARP figures make you look like Debbie Waserman) Take THAT PISS out of the toilet and the level since late 2007 screams DEPRESSION.
Pardon me. Did you add in the unfunded liabilities too? What about the GSEs? The toilet bowl is full of chit with no water to flush it down and NO politician to scoop it clean.
Cue Taps.
Recession?
Try depression! And it's only just begun.
Welcome to "The Great Depression of the XXI Century."
http://www.globalresearch.ca/index.php?context=va&aid=25089
Already?..............we have NEVER been out of a MAJOR recession since '08.
Really ,to be honest, a Depression................
Who do they think believes those crap figures.
All a sane person has to do is LOOK at the unemployed.
I think it depends on how people are defining a "recession" - and Lee is saying with the arguably inaccurate definition of recession being applied now, he think we are going to be calling our economic situation a "recession" again soon.
Repression...recession, it's all da same thing, man.
Wait a minute, isn't this because of the tsunami? Or the weather? Or the wildfires? Or the snow? Or the floods? Or those damned holidays? Which is it, I'm having a hard time keeping track...
Or perhaps they'll change the way the numbers are collected or alter the equations they plug them in to figure out whether it's a recovery or recession.
Given the Fed knows QE2 failed, they have, it seems to me, two options:
1) Stop. Accept the deflationary collapse. Given inter-bank liabilities this will likely self-synchronize with the Eurozone collapse. It would virtually guarantee an Obama loss in 2012 and strengthen the dollar. With deflation the debt burden becomes unbearable quickly and balance sheets have to get real, writing off debt. Market interest rises, accepting the reality that loaning money to insolvent entities involves risk.
2) Continue in stealth mode, knowing now they'll get inflation, not growth. It papers over, literally, the deflationary collapse, possibly replacing it with hyper-inflation. It further weakens the dollar. Interest rates capped and balance sheets can continue to hide losses with no mark to market.
I vote 2, but not with conviction. All Fed behavior since Volcker would indicate 2, but they know now they are in the liquidity trap.
Number two for sure! Its consist with Fed policy to poop on value of the dollar. (ie #1 = urinate, #2 = poop)
Deflation isn't a option since tax revenues would get only worse, and interest rates would rise, forcing the gov't to default. The gov't will always choose the option to kick the can down the road.
Forgotten: Derivatives. Impossible to unwind these orderly "cold-turkey". Much % is interest rate based. Continued inflation would most likely mean continued derivatives. A bigger bust assured.
Latest Democratic plan for dealing with the debt ceiling: the law is unconstitutional and the President doesn't have to follow it.
How does that help? The President does not control the House or authorize speding.
Not to worry though, the Republicans will cave-in and bump the debt-ceiling themselves. They are consistent about lack of principle.
And now begins the race to the bottom
It's our fault. We throw extra withholding against this year's big tax man scare as to what would happen in the thousands of dollars. Instead we got it back and now quit one employer.
The other employers are part time temp and frankly don't withhold worth a damn.
It's already a foregone conclusion with our net income after standard deductions next year it's going to be zero. The revenue taxes on private property (House) and cars is paid each year anyhow to the local government. Thank god for the Homestead act.
The only taxes we pay is the sales tax for gasoline, food etc. The rest is sourced off the net for free.
IMF: U.S. growth won’t reach 3 percent before 2017
International Monetary Fund building, Washington, D.C.
We've seen several recent forecasts of U.S. economic growth lately, none of them very rosy. But a new one from the International Monetary Fund (IMF) is even gloomier.
In an annual report on the U.S. economy, the IMF predicted that growth won't reach 3 percent for the next five years.
Link to IMF PDF - http://www.treasury.gov/resource-center/international/int-monetary-fund/Documents/US%20Art%20IV%20CMS.pdf
Here are the exact figures:
2011: 2.5 percent
2012: 2.7 percent
2013: 2.7 percent
2014: 2.9 percent
2015: 2.9 percent
2016: 2.8 percent
That level of growth wouldn't be anywhere near strong enough to make a serious dent in the unemployment rate, currently at more than 9 percent. The report singled out the beleaguered housing sector as a key drag on the economy. "We think that housing difficulties merit more policy attention since they are central to the slow recovery and pose a critical risk," it said.
The Federal Reserve's forecast, which appeared this week, is more optimistic. The Fed said it expects growth to average about 3.4 percent between now and 2013. But even that higher rate of growth likely wouldn't be enough to get the jobless rate back to normal any time soon.