This Ain't Good

Despite relatively low jobless claims numbers, other more reliable indicators are pointing to a recession.

Specifically, income tax withholding receipts are declining significantly, and unlike the other metrics, this is an actual number, not a sampling extrapolated across the entire economy:

I have a new post up at Seeking Alpha, in which I lay out all of the short leading indicators, and conclude that the conditions have now been met for a recession to begin at any point in the next 6 months.

………

Typically recessions have only begun when 8 of the 10 components of the Index of Leading Indicators are down compared with their levels 6 months previously. And so, I go through the list . . . .

In the piece, I note that the strong jobs reports have been the biggest reason why no recession has occurred yet. But in the past several weeks I’ve been pounding the table about the implications of the steep deceleration in tax withholding receipts since mid-year. Here’s the YoY% change in total tax withholding receipts since then:

July +7.8%*
Aug +10.2%
Sep +1.2%*
Oct +12.2%
Nov +3.7% (to date)*

*= less than YoY% change in CPI

………

In the meantime, consider that the monthly household report is prepared from a sample of 50,000. The monthly establishment report is prepared from a sample over 100,000+. But tax withholding is a full and complete report of what every taxpayer/employer in the US remits daily to the Department of the Treasury.

As a result, total tax withholding receipts should come fairly close to mirroring aggregate payrolls, especially for non-supervisory workers, in the household jobs report. The one important difference is that even bosses pay withholding taxes, up to $147,000 of salary, on Social Security, and also on Medicare without any income limit. With that in mind, here is a graph of the YoY% change in aggregate payrolls for both non-supervisory workers and all workers for the past year:

………
What tax withholding data is strongly suggesting is that the actual job losses in the household reports in June and October were signal, not noise, and that there is a strong likelihood that the establishment numbers are going to be revised downward in the future as more complete data is updated.

The depressing bit is that this won't stop the Fed from continuing to raise rates.

All of their incentives favor creating a recession.