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Tax collections fell in June as the Trump tax cut continued to bite into federal revenues. The fall in tax collections, combined with the rise in spending stemming from the congressional budget-busting agreement signed by Trump, is causing an increase in the government's issuance of Treasury bills, notes, and bonds, month in and month out.
That increase in supply puts downward pressure on bond prices and increases in interest rates and bond yields. It isn't obvious in the bond market at the moment, since the 10-year yield has traded in a tight range around the 2.80s. But short-term T-bill rates are soaring, with the 13-week bill hitting 2% last week.
Meanwhile, increased debt-financed deficits have kept the U.S. economy running hot, but there are hints of slowing in current data. That's not supposed to happen. Tax cuts and deficit spending are supposed to stimulate spending.
Each month I review both the end-of-month Daily Treasury Statement and the Monthly Treasury Statement published on the eighth business day of the following month. Then around the 12th or 13th of the following month, it produces a monthly report with a little more detail that gives us additional clues about the state of the economy, unfiltered by statistical manipulation and Wall Street propaganda.
Fortunately, these statements provide the unvarnished, unmanipulated, real-time view of the state of the U.S. economy that follows...
The Monthly Treasury Statement Shows a Fly in the "Strong Economy" Ointment
The Monthly Treasury Statement provides an obvious warning sign of things ahead.
Social Security tax collections are running soft. The data suggests that there's something wrong with the Bureau of Labor Statistics jobs-manufacturing algorithm (that's right, not the "manufacturing jobs"). The Social Security tax collections suggest that a big negative surprise is headed our way in the jobs report over the next couple of months. They can't keep skewing the data higher indefinitely. Sooner or later, it will need to conform to the actual.
Changes in Social Security taxes were minimal under the new tax law. So this is a valid year-to-year comparison. Social Security tax collected in June rose 2.2% versus June 2017. The gain comes on the heels of a similar gain in May,and just a 1.7% gain in April. That means that Social Security tax collections have been consistently less than the rate of wage inflation, which ran 2.7% in each of the past three months.
Don't Miss Out: The Treasury is sitting on an $11.1 billion cash pile, and a loophole entitles Americans to a sizable portion. Some are collecting $1,795, $3,000, or $5,000 every month thanks to this powerful investment...
If wages rose 2.7% and Social Security tax collections rose just 2.2%, that would mean only one thing: There must have been fewer jobs. We know that the BLS doesn't see it that way. Maybe the wage inflation rate is overstated. And maybe there's an explanation I had not thought of. But this data at least raises questions about the reported strength of the jobs data.
Something is rotten, and it's not the tax data. In all the years I have been following this data, I have never seen a revision that's more than a rounding error. This is hard data. I also think that it's good data because economists, Wall Street pundits, and the Wall Street captured media all ignore it. When they ignore something, it just means that we'd better pay attention to it.
Under its balance sheet "normalization" program, that I liken to a medieval bloodletting, the Federal Reserve may be reducing the supply of money into a weakening economy. That supply of money, aka liquidity, is the money that fuels demand for stocks and supports stock prices. Less money must ultimately result in lower prices, the present margin-driven rally notwithstanding.
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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.