Is the US economy growing or not. That is the question. Or at least it’s a question that pre-occupies some investors. For us it’s more about the liquidity. But the Fed supplies liquidity, and it watches the economy to make its willy nilly, ad hoc policy changes.
Of course that may be less important than Dear Leader Don’s middle of the night phone calls to Fed Chairman Pow!
Liquidity moves markets!Follow the money. Find the profits!
3 AM, phone rings at the Pow residence. The familiar voice of the dear leader is on the line. “Hey, Jerry Jay. Ever heard of that guy Khashoggi?” Click.
But seriously folks, Chairman Pow and his Fed minions all say the Fed is data dependent, and who are we to disbelieve. The era of willy nilly ad hoc responses to every squiggle of the economic data is upon us.
And we have an advantage in knowing whether the US economy is growing or not. Because we follow not the lagging, official economic data. We follow the real time Federal tax collection data, along with a few other real time indicators. The mainstream economic seers and their media handmaidens pay little attention to these indicators. It’s just too darn much work.
But I’ve been tracking them for years, so it’s easy. So here, forthwith is a tiny sliver of what I just reported in my monthly Federal Budget data update.
There’s a wealth of great, real time, unmassaged tax data in these reports, which I post twice a month. This post comes from the second of those reports, issued a day or two after the US Treasury posts its Monthly Treasury Statement. First time subscribers can follow those reports risk free for 90 days.
In those reports I reported that the data showed that we’re headed for an inflation shock. Lo and behold, March headline CPI came in at a surprise increase of 0.4%. That’s a monthly rate that would blow out the Fed’s 2% annual inflation rate target and lead to all kinds of problems in the bond market at least.
I post the other report within the first few days of the month, just after the end of month Daily Treasury Statement is posted. It doesn’t get any more real time than that. The most recent of those is Beware of Surprises as Withholding Taxes Stay Strong In March. In that one I warned of an upside surprise in jobs.
Now, here are a couple of snips of the data I report in the current report, that should interest you. In fact, you personally are almost certainly a contributor to this data. You’ve done your part!
Excise Taxes Can Reveal Whether the US Economy is Growing
The US collects excise taxes on a broad cross section of goods and services. They are based on unit volume of sales, not dollar value of sales. They have therefore been an excellent means of seeing the trend of the economy without the need to make haphazard inflation adjustments. That is, until the tax law changed. Some excise taxes were cut, but new ones were added on excess executive compensation for tax exempt organizations.
Here’s a chart and tables showing the data and trends of the last couple of months.
The chart is derived from the Daily Treasury Statement data. There are minor discrepancies between its data and the monthly statement data due to refunds or timing issues. But overall, the picture is consistent.
The chart data shows a small year to year decline in March, while the monthly statement data shows a slight increase. That pattern was the reverse in February. The monthly statement data shows that for the 2 months, collections were essentially flat year to year.
That’s a little surprising. The stock market was strong over the February-March period. And withholding taxes grew very strongly. So the indicated caution in consumer spending suggests that something is amiss. But is it just a blip or a symptom of something more important. The mid April collections could give us a better idea. They’ll be available early in the week. I’ll have a look and report if there’s anything significant.
Gasoline Demand Is Another Real Time View of the Economy
The US EIA reports gasoline demand weekly with a lag of less than a week. This is another source of near real-time data that is useful as an indicator whether the US economy is growing right now. But mostly only energy futures traders pay any attention to it. Whether out of cluelessness or willful ignorance, the Wall Street captive media ignores it.
The chart reflects weekly data through early April. I don’t want to read too much into the April surge because it encompasses just the first couple of days of the month. The 3 month average growth rate is now running near 3% although that’s weighted toward January, which was very strong year to year. It has been a little slower since, but there’s no sign of a severe slowdown.
Nor is there any sign of strong growth. Based on gasoline demand, the economy seems to be just muddling along in slow growth mode.
This growth in demand has been associated with crude oil prices increasing from around $44 per barrel in December to near $65 now. Correspondingly, the price of regular gas has risen from $2.13 per gallon in the week ended January 7 to $2.65 per gallon the week ended April 8.
On March 26, I wrote in the Liquidity Trader Federal Budget update: Bottom line, there should be an inflation shock coming in the CPI release for March, coming on April 10. How will the Fed and the market react to that? Not well, I think. It would upset the current narrative of a softer economy and low inflation.
Headline seasonally adjusted month to month CPI came in at 0.4% for April, versus expectations of 0.3%. With gas prices continuing to rise, it’s likely that this is only the beginning of the inflation shock that I expect.
So far, the stock market doesn’t mind. But the bond market sure did. The 10 year Treasury yield has risen 20 basis points in the past couple of weeks, much of that on the heels of the CPI release. And T-bill rates have been stuck near the highs, despite talk of Fed easing, and massive T-bill paydowns in recent weeks.
If energy price increases are sticky, that will begin to put upward pressure on core CPI also. The bond market won’t like it. Eventually, neither will stocks. The timing on that is a question for technical analysis.