US Economy Stalled

Real-time tax data indicates the U.S. economy stalled out last Autumn and has now gone negative. Income tax withholdings are down 0.2% year-over-year in real terms in the past four week. The trends indicate recession if they continue.

Via Email from TrimTabs …

“Real growth in income and employment taxes has been decelerating since last autumn, and it turned flat in recent weeks,” said David Santschi, CEO of TrimTabs. “If the trend persists, it would be consistent with a recession.”

While the latest Barron’s cover story assures us that the U.S. economy will avoid a recession and grow at a 3% pace this year (Gene Epstein, “This Storm Will Pass,” February 22, 2016), real-time tax data indicates the U.S. economy is already stalling out. Real growth in income tax withholdings decreased 0.2% year-over-year in the past four weeks, well below the real growth of 2.0% year-over-year in December and 3.0% year-over-year in January. We would not read too much into month-to-month variations at this time of year due to bonus-related factors, but growth this winter has been much lower than it was last autumn.

In addition, credit markets are flashing clear warning signs about future growth, growth in building permits and housing starts has pulled back, and manufacturing activity continues to contract.

Apparently seven years of virtually non-stop stimulus have been inadequate, which suggests the global financial system is more fragile than policymakers want to admit.

I spoke with TrimTabs CEO David Santschi on the phone and he added this pertinent comment:

“If the U.S. economy continues to weaken, we fully expect the Fed not only to start another round of quantitative easing but to adopt a negative interest rate policy that will likely be accompanied by restrictions on the use of physical currency.”

Barron’s Gene Epstein says What Recession? GDP Set to Grow 3%.

According to Epstein, “The gloomy stock market notwithstanding, economic growth in the U.S. could be the best in years.”

I am sticking with my call that a recession started in December.

Mike “Mish” Shedlock