The Most Important Data Point

The single most important indicator of both current U.S. economic performance and potential performance in the near future is the report on payroll tax receipts. These data are reported daily by the U.S. Treasury as a part of the Daily Treasury Statement in Table IV, Federal Tax Deposits, under the heading Withheld Income and Employment Taxes.

If you can follow only one economic indicator, this should be it. Every financial professional should start his or her day by reading the statement, acclimating to the data and tracking the various components of it.

It should be discussed daily by financial commentators of all kinds and in all venues. It should, in my opinion, be a part of the Federal Open Market Committee's statement every six weeks and discussed regularly by every Federal Reserve Board member and Fed bank president.

It should be ubiquitous to the point that every citizen, whether interested in finance and the economy or not, is aware of it without having to exert a lot of energy to understand it.

And yet, when financial pundits, bankers and fiscal and monetary authorities discuss the economy, this indicator is almost totally absent. This lack of attention to something so important cannot be an oversight. It is purposeful, and that purpose cannot be anything other than nefarious.

The public and private powers-that-be do not want you to understand the actual state of the economy or how to determine it. They want you to be beholden to their interpretations of the data included in the Treasury Statement and the other economic data points and series that are indicated by it, in the same way that the Catholic Church used to instruct parishioners that the Bible was to be read by priests, who would interpret its contents for them.

This obtuseness on the part of the financial media and the public and private leaders of the economy and financial markets comes from the desire by each and all of them to construct an interpretation of this data that comports with their desired conclusions, ideological preferences or simply personal financial gain.

I discussed this idea this past weekend in the column "Globalization, Technology and Politics (Part 2)."

I last discussed the payroll tax receipts data in August of last year, when the money that was actually sent by employers to the Treasury and held at the Federal Reserve was decelerating rapidly.

By October of last year, the deceleration in the growth of payroll tax receipts had actually gone negative, as I discussed in the column "A Structural Problem."

As of today, payroll tax receipts are contracting at a rate of about 0.5% annually. This is empirical evidence that not only is there no real job growth, there has been a reduction in consumer buying power, evidenced by contracting payroll tax receipts, and that means shrinking employee incomes. This has been the case since last October.

There can't be an economic resurgence if incomes and cash buying power are shrinking along with access to credit, because, by definition, the ability to consume is reduced.  

This is also indicative of the failure of monetary stimulus in the current form of quantitative easing targeted at mortgages and long-term Treasuries, as I discussed yesterday..

More troubling, though, is that these data would normally be considered evidence of the need for more monetary stimulus. And that raises the question, why is the Fed withdrawing the QE?

The Fed, through all of its QE operations going back to the 2008 financial crisis, has been successful at causing stock prices to increase and letting stock prices fall during the interim periods when the QE was removed.

Throughout the past five years, though, the Fed has been unsuccessful at causing the increase in the value of financial assets to drive an increase in consumption and production which would drive job creation and a virtuous cycle of economic activity and growth.

The sole result of QE has been to increase wealth concentration to the owners of capital and assets, and to exacerbate income inequality. In other words, QE has accomplished the opposite of its intention.

The withdrawal of QE in the tapering process appears to be more about reducing the damage it has already done while buying time for the Fed board members and bank presidents to figure out what they are going to do next.

Even more troubling is that all of this may be empirical evidence of the end limit of monetary policy, the pushing-on-a-string scenario, and that the Fed, being aware of this, has simply decided to attempt to normalize interest rates, regardless of the impact on financial assets or the economy.