Federal withholding tax collections declined in September for the third straight month. Predicting the BLS jobs data is always a crapshoot, but after 3 months of real weakness in withholding taxes, this should be the month when reality catches up with the BLS.
But will the BLS report a decline, when the consensus is for a gain of 275,000 jobs? Not likely.
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But more importantly, declining revenue means more harsh reality for the Treasury market in the form of more supply than the TBAC had forecast that the Treasury would issue. We can’t project that indefinitely, but at least in the near term it means additional supply on top of already heavy forecast supply. Non-subscribers, click here for access.
And that has implications for the market, which I cover for you in these reports. Non-subscribers, click here for access.
9/3/22 But the fact is that if tax revenues are weakening, Treasury supply will only increase, regardless of what Wall Street says about the economy. Treasury supply will increase just as the Fed requires the Treasury to add $60 billion a month in new debt sales to the public to pay off the Fed. Non-subscribers, click here for access.
In addition to that extra supply from QT, and a weaker economy, the Fed is causing demand to weaken. Not only is the Fed no longer the primary buyer and financing agent in the market, but it is also choking demand by removing the cash from the banking system that would otherwise be available to fund Treasury purchases. Non-subscribers, click here for access.
The accompanying weaker economic data will be spun as bullish, while in fact it will not be. At least at first. The bottom line is that the weaker tax revenues are not bullish. It will only be bullish when the Fed finally reverses policy. All I can say is, “xxxx xxxx xxxx!” Non-subscribers, click here for access.
Here’s how to view the data, and what it means for investment strategy and tactics. Non-subscribers, click here for access.
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