Weekly Indicators: Payroll Tax Withholding Falls Off A Cliff Edition

Steel production 

  • Down -0.6% w/w
  • Down -1.9% YoY

Steel production improved from negative to "less bad" to positive in 2016 and with the exception of early summer, remained generally positive in 2017. Except for one week, it has been negative for the last 7 weeks.

SUMMARY: 

Among the long leading indicators, spreads are positive, as are real M1, and the more leading Chicago Fed Financial Conditions Indexes. Purchase mortgage applications and corporate bonds are weakly positive. Growth in real estate loans is neutral. Treasuries, mortgage rates, refinance applications, and real M2 are all negative.

Among the short leading indicators, industrial metals, the regional Fed new orders indexes, spreads, financial leverage, the US$, jobless claims, and gas prices and usage all remain positive. Staffing has turned weakly positive, and stocks remain a positive. Oil prices and the ECRI commodity index are neutral.

Among the coincident indicators, positives included consumer spending, the TED spread, the Baltic Dry Index and Harpex. LIBOR remains negative.  Rail and steel have been mixed or negative since the beginning of the year with the exception of one week. Tax withholding has fallen off a cliff this month, and is a big negative. (These are payroll taxes and should not have been affected by the recent corporate tax cuts).

The short term forecast remains very positive. The long term forecast remains weakly positive, as higher interest rates have not spilled over into housing.

Because the mixed to negative numbers in several coincident indicators have persisted, and have spread to yet another one, I am downgrading the nowcast to neutral. But because the coincident tail does not wag the leading dog, I still expect this to resolve higher.

Update: the line in question from the Daily Treasury Statement reads "Withheld Income and Employment Taxes." If this is only, e.g., Social Security and Medicare, it should not be affected by the recent tax cut. If it includes standard and individual claimed deduction, it would be. I have a couple of feelers out, and hopefully will know by next week.

Have a nice weekend!

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This post is not an offer to buy or sell this security. It is also not specific investment advice for a recommendation for any specific person.

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Harry Goldstein 9 months ago Member's comment

Good stuff, anything more current by you?