be_ixf;ym_202104 d_10; ct_50

Select Page

August’s Jobs Data Hints at Pain to Come

August’s Jobs Data Hints at Pain to Come

On Friday, we’ll see the Department of Labor’s unemployment report for August.

Officially, the focus is on employment rather than unemployment. Unofficially, it’s the unemployment rate that generates the most interest.

It’s likely to be a big day for stocks. Typically, the S&P 500 is three times more volatile than average on report days. Because volatility is tradable, analysts put a lot of effort into forecasting the report.

Some analysts use the government’s own data to generate a forecast. They use data like we see in the chart below. The chart shows the year-over-year change in payroll tax receipts.

This includes money employers withhold from employees and then send to the government. If employment is increasing, tax receipts should be growing. The chart shows that’s not what’s happening.

If employment is increasing, tax receipts should be growing, But at the end of August, employers were making smaller payroll tax deposits.

(Source: MathInvestDecisions.com)

At the end of August, employers were making smaller payroll tax deposits. This means employment numbers are weak.

There are many reasons tax receipts dropped in August. It’s possible low-paid, younger employees replaced retiring older workers. Or employers might have cut hours of part-timers.

We know taxes didn’t fall because of robust employment growth.

The good news is the change is relatively small. There’s probably no significant change in the unemployment rate.

But the decline in revenue comes at a bad time for the government. It’s likely we’re looking at a larger-than-expected budget deficit for the fiscal year that ends in September.

Remember, government expenses will rise to cover the costs of recovering from Hurricane Harvey.

Harvey is also likely to reduce tax receipts even more. The storm forced businesses to close, and many will remain closed for some time. Payroll taxes will drop further as lost wages add to the suffering in the region.

This data means the Federal Reserve remains trapped. It can’t raise rates when the Treasury needs low rates to finance the deficit.

Harvey strained a fragile system that was already under stress. It’s important to watch the Fed for signs of how it’ll respond.

If the Fed stays with its plan to begin quantitative tightening this year, it will probably trigger a recession. If the Fed cuts rates, it might send the stock market into a panic.

Regards,

Michael Carr, CMT
Editor, Peak Velocity Trader

Newsletter Sign Up

Sponsored

MEET OUR EXPERTS

WHAT READERS ARE SAYING..

“Paul, your investment research has been a godsend. Our portfolio was just a tad over two million dollars. I paid my daughter's legal fees, my wife's medical expenses, helped my wife's stepmother with home repairs, loaned our son money for real estate. I also bought two used vehicles, one for our daughter and one for our eldest grandson. All told, these expenses added up to well over a quarter million dollars. I am happy to report that we have profits left over!”

- Taylor M.

"I went all in with $310,000 and a year later, my portfolio was at $425,000. This I would have never accomplished with mutual funds, I will be following your research for the rest of my life thank you Paul and the team."

- Karl A.

"You told me to ignore the noise on Wall Street. And thanks to you, I started towards the end of 2016 with $200,000 in my account and I recently put in an extra $100,000. [As of February 2019] My account is worth $500,788! I would’ve missed out if I followed conventional wisdom."

- Helen C.

Share This