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By New_Deal_democrat May 17, 2014 8:35 am
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Weekly Indicators: the tax withholding anomaly edition
This monthly data for April included new post-recession highs for housing permits and starts, positive NY and Philly Fed manufacturing readings, and slightly positive retail sales.  On the other hand, both producer and consumer inflation ran hot, meaning real retail sales were negative (but March was revised higher), University of Michigan sentiment turned down, and both industrial production and capacity utilization turned down sharply (partly due to a steep decline in utility usage after the unusually severe winter).

My weekly report on the high frequency weekly indicators is meant to provide an up-to-this-week snapshot of the economy.  They will confirm a trend or indicate a switch in trend well before monthly reports.


Because there is a puzzling anomaly in the reports, let's start with employment again:


Employment metrics

 Initial jobless claims

  • 297,000 down -22,000
  • 4 week average 323,250 down -1,500

Initial claims declined this week, but the 4 week average rose again slightly.. Together these are a slight positive.


The American Staffing Association Index was unchanged at 96.It is up +3.14% YoY.


This Index made a new all-time high for this week. The YoY comparison faded in February but since then has stabilized and then rallied.


Tax Withholding 

  • $86.4 B for the first 11 days of May vs. $86.4 B last year, down -0.9 B or -1.0%
  • $146.7 B for the last 20 days ending Thursday vs. $148.9 B for 20 days ending Thursday 1 year ago, down -$2.2 B or -1.5%.


April was relatively poor, and has spilled over into May, sufficiently so that the 20 day moving average has turned negative for the first time in a long time.  It is a real anomaly.  I cannot think of any reason why this should be in the face of almost all other data being positive, but obviously this trend is not good and will have to be watched.


Consumer spending

Gallup's 14 day average of consumer spending averaged between $80 and $100 for most of 2013, with frequent YoY comparisons over $20, and few less than +$10.  In 2013 the YoY range for the ICSC declined to between +1.5% and +3.0%, while Johnson Redbook YoY was between from +2% to a high over +4%.  This week was the most positive week in months.


Steel production from the American Iron and Steel Institute 

  • +1.5% w/w
  • +0.5% YoY

Steel production over the last several years has generally been in a decelerating uptrend.  After a strongly positive move late in 2013, YoY comparisons turned negative again in January and have been mixed to negative since, especially since the beginning of April, but this week were positive.



 Railroad transport from the AAR 

  • +18,400 carloads up 5.6% YoY
  • +15,600 carloads up 9.2% ex-coal
  • +19,100 or +7.7% intermodal units
  • +35,900 or +6.6% YoY total loads

Shipping transport

Rail transport ended 2013 on a very positive note.  After a volatile winter, it has rebounded sharply in spring.  The Harpex index slowly rose, then stabilized, then slowly declined after July 2013, before recovering in the last few weeks. The Baltic Dry Index made a new 3 year high in December 2013, then fluctuated and declined, but has also increased slightly in the last few weeks.  Both the Baltic Dry Index and the Harpex Index were in a range near their bottom for about 2 years, but rose significantly above those ranges beginning in 2013.


Interest rates and credit spreads

  • 4.79% BAA corporate bonds down -0.02%
  • 2.62% 10 year treasury bonds down -0.04%
  • 2.17% credit spread between corporates and treasuries up +0.02%

Interest rates for corporate bonds made a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, but rose over 1.6% above that mark in late 2013.  Yields declined significantly since the beginning of January, and this week continued near the bottom of that range.  Spreads rose slightly from last week's new post-recession low.  Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

  • w/w purchase applications up +1%
  • YoY purchase applications down -12%
  • w/w refinance applications up +7%

Both refinance applications and purchase applications are still near their recent post-recession lows, but as expected have begun to have less poor YoY comparisons now.

Housing prices

  • YoY this week +10.8%

Housing prices bottomed in November 2011 on Housing Tracker, and YoY comparisons rose to just shy of +12% in late 2013. In early March the YoY reading has declined silightly since then.  The still sharp YoY increase in prices, which are now roughly halfway between their 2006 peak and 2012 trough, might actually be a negative, given higher mortgage rates. 

Real estate loans, from the FRB H8 report:

  • -0.4% w/w
  • +0.5% YoY
  • +4.0% from their bottom

Loans turned up at the end of 2011, but with higher interest rates, the comparisons rolled over and had been almost consistently negative since April 2013, although they have improved since March.

Money supply


  • +1.1% w/w
  • +1.8% m/m
  • +8.6% YoY Real M1


  • +0.2% w/w
  • +0.7% m/m
  • +4.4% YoY Real M2

In January 2012, YoY Real M1 made a high of about 20%, and YoY Real M2 made a high of about 10.5%.  Growth in both then decelerated.  Real M2 made a new 2 year low at the beginning of this year.  Both Real M1 and Real M2 improved substantially since and then stabilized. M2 has faded slightly in the last few weeks, but remains positive.


Oil prices and usage

  • Oil up +$2.03 to $102.02 w/w
  • Gas down -.01 to $3.67 w/w
  • Usage 4 week average YoY up +3.2%

The price of gas began its seasonal climb in February, and may have peaked three weeks ago.  It is slightly higher than it was exactly one year ago, but remains below 2 and 3 years ago.  The 4 week average for gas usage was again positive this week.  In the larger picture, it continues to look like in 2013 the Oil choke collar finally loosened its hold on the economy slightly.

Bank lending rates

LIBOR made yet another post-recession low this week. The TED spread has been trending slightly upward since November of last year, although it is still lower on a YoY basis.


JoC ECRI Commodity prices

  • Up +0.11 to 129.53 w/w
  • +3.77 YoY 

This was another good week, with only two outright negatives, one expected, one a complete anomaly.  Mortgage applications have been negative for a year, but that tax withholding has turned negative in the last month is a real head-scratcher.


As to the long leading indicators, treasury rates declined further below their December highs. Money supply continued positive.  Bank lending rates remain low.  Real estate loans maintained their recent positive bias. Only mortgage applications remained negative.  Both monthly long leading indicators reported this past week, housing permits and real retail sales (given the positive March revision), were also positives.


The short leading indicators were almost all positive.  Initial jobless claims were positive this week. Credit spreads made remained near their post-recession low. Temporary jobs are even with their seasonal all-time high.  Commodities were positive.  Gas prices decreased slightly although the oil choke collar slightly engaged.


The coincident reports were sharply mixed.  Consumer spending was uniformly and strongly positive.  Rail transport remains strongly positive. Shipping and steel production were both slightly positive. This contrasts with tax withholding, which has turned south.  Monthly industrial production and capacity utilization were also negative.


The Spring spring in positive data continues.  Economic activity for the rest of 2014 should continue, and the positive news in monthly long leading indicators for March and April suggests that the economic expansion will continue further into the first part of 2015.


Have a nice weekend!

Replies: Weekly Indicators: the tax withholding anomaly edition

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    TheUnknownOne's picture
    TheUnknownOne Posts: 2

    Here's another possibility for the withholding tax anamoly you might want to explore: The surge in last-minute Obamacare enrollment in March and April.

    It's well-known that a lot of people hold jobs just for the health insurance. It's possible that a lot of people quit their jobs in April and May after signing up for Obamacare, now that they no longer needed to have a job to have affordable health insurance. I also suspect this was a significant reason behind the big drop in the LFPR in April. That will probably go on for a few more months, at least, if I'm right..

    And if true, this would also explain why layoffs are so low at the same time withholding taxes are slumping: Many employers are seeing many of their staff quit and thus are reluctant to layoff their remaining staff.

    If I'm right, this should also show up in the JOLTS data for Apri through sometime in the summer, in the form of a surge in Quits.

    Not sure how this would be reflected in payroll data. It might be concentrated in self-employed people and small businesses - though those don't usually withold taxes from employees paychecks, to my knowledge, so I'm not sure why withholding taxes would suffer. We could see a few months of weak payroll data while the unemployment rate continues to plummet, or something like that.

      TheUnknownOne's picture
      TheUnknownOne Posts: 2

      A couple other things just occurred to me: The strength in the ASA index could also indicate a lot of companies hiring temps to take place of the people who quit their jobs for the reason I stated above.

      Another possibility is that a lot of people are taking out extra deductions from their paychecks to pay for the Obamacare insurance they're now forced to buy.

      Perhaps the real reason is a combination of all the factors I listed above. I subscribe to dailyjobsupdate.com and noticed the y-o-y growth in withholding taxes started to decline around the same time a surge in last-minute Obamacare enrollees began. That seems too coincidental to me.

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