These comments are an excerpt from the Liquidity Trader Report on current US Federal withholding tax collections. They tell us that the US economy is in recession.
Now, the BLS’s 187,000 new jobs in July is as good a guess as yours or mine. But it has nothing to do with reality.
The BLS nonfarm payrolls survey of employers is dated as of the 12th of the month. While it is supposed to represent conditions in July, the fact is that as of July 12, HR managers report conditions mostly based on end of June payrolls. At the end of June, withholding was up 1.8% year to year. At the end of May, they were down 0.4%. The implication is that the current jobs report would be strong because they would be more reflective of June.
Unfortunately, as we have noted month in and month out, the BLS survey methodology and adjustment process results in so much distortion and noise in the first release that there’s virtually no correlation between what the BLS reports and employment tax receipts.
Over time the BLS fits the data to Labor Department unemployment claims data via monthly revisions and annual benchmarking, when the biggest adjustments occur. When we look at the BLS data in retrospect, we are looking at data that has been refit to actual conditions. But the real time current release is fantasy.
Withholding tax collections seem to have settled into a sullen state of flatness. Adjusted for compensation inflation, that’s a negative number. A big negative number.
Interpreting the first monthly release and attempting to relate to stock prices and guesses about Fed policy is a fool’s errand. Obviously everybody on Wall Street wants to participate.
The jobs release only matters for a millisecond as the market reacts to it. Then the market returns to trend. The real significance of the withholding data is not what it tells us about the jobs report. It is what it reveals about current revenues and the trend of revenues. It is the variability of revenues that tells us what to expect about Treasury supply in the near term.
