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I get this real-time federal tax collection data every day from the U.S. Treasury's Daily Treasury Statement. It gives us up-to-the-minute information on withholding taxes, estimated individual and corporate income taxes, excise taxes, and others.
These tax collections tell us exactly what the U.S. economy is doing at any given point in time. There's no need to wait for the media to report what the manipulated government economic data did last month or the month before.
We have everything we need to know in real time.
Federal withholding tax collections were solid in August. They gained nearly 5% versus a year ago, before inflation. That's a good number, but if you think that's good news for stocks, I'm here to disabuse you of that notion.
I'll give you the details on this real-time data on the economy and show you why this good news is really bad news for the stock market and your portfolio.
Here's what you need to know and exactly what to do next, depending on your portfolio…
Real-Time Data Gives Us an Edge
Having access to the real-time collection data is important; it gives us a leg up in knowing what the Fed will do next. As Janet has told us over and over and over, the Fed's decision-making is "data" dependent. However, Fedheads only consider official economic data, which they receive only a day or so before its official release. That's hardly helpful when it applies to a period that occurred a month ago or more.
But we know what's happening now, baby! Since the Fed has already told us what its policy intentions are, we know whether the forthcoming data will keep the Fed on the current track or divert it to something else.
The data we have today tells us that the Fed will stay on course. We're not talking about interest rates here. As I have told you before, we're talking about shrinking the balance sheet – that is, actually siphoning money out of the pools of cash that support rising stock prices.
If wages are growing at 2%, the withholding tax data from August implies real growth of 3%. Surprise, surprise, that's the latest estimate of past Q2 GDP growth that was released last week… And, yes, that's for the second quarter, more than two months ago.
We already know that the economy remains on the same track and that the growth trend is stable. The growth rate trend has actually been rising for more than a year.
There are regular fluctuations in collections in economic activity (as reflected in tax collections) from day to day, week to week, and month to month. Economists and the media like to seasonally manipulate and smooth the data to look like the economy moves in a smooth trend. But that's not the real world. The economy breathes in and breathes out in the short run just like you and I do. It speeds up for a few weeks, then slows down, and then picks up again. The chart below is reality, folks. This is how the real world really works. Contrary to what the economic establishment would like to pretend, the U.S. economy does not move in a smooth curve.
However, when we examine that real-world chart, we can still clearly see the trend. It's up. The U.S. economy is still growing – despite what all the economic Cassandras are telling you – along the same track it has followed for the last 16 months. There's nothing new going on.
Without regard to Fed policy machinations, driven by ever advancing technology and demographics, the U.S. economy just keeps on growing at a modest pace – a little more this month, a little less next month.
The problem is that that is no longer bullish. The Fed has told us that enough is enough! This is an absolutely normal phenomenon in the cycle. The Fed starts to worry about inflation, in this case asset bubble inflation, and it pulls the punchbowl.
The fact that there is no sign of recession is bearish itself. It will encourage the Fed to stay on course in its determination to begin shrinking its balance sheet.
Here's Why the Market Will Top Out
About the Author
Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.