Global| Sep 17 2020Retail Spending & Tax Data: Two Reasons Why The Administration Decided To Go Big On Another Stimulus
|in:Viewpoints
Summary
In a sudden reversal, the Trump Administration has given its blessing for a bigger stimulus plan. It was only a week or so ago when the White House National Economic Advisor stated the strong rebound in economic activity doesn't [...]
In a sudden reversal, the Trump Administration has given its blessing for a bigger stimulus plan. It was only a week or so ago when the White House National Economic Advisor stated the strong rebound in economic activity doesn't require another round of fiscal stimulus.
What changed? New information on retail sales and tax data that show a marked slowdown in consumer spending and weakness in tax receipts that point to a possible stall in the labor markets.
Retail Sales
In August, retail sales rose 0.6%, half of the consensus estimate, and that followed a downward revised gain to 0.9% from the initial estimate of 1.2% for July. Gains at furniture, hardware, electronics, and health care stores were accompanied by declines at grocery, general merchandise, and sporting establishments. E-commerce sales were flat in August and that followed a large downward revision in e-commerce sales for July.
Retail sales have benefitted from the federal support payments and by the shift in spending patterns. FedEx stated in their earnings call this week, “spending that normally would have gone into services has shifted to goods”.
That process is not over, but the abrupt drop in federal support payments greatly reduces the consumer ability to maintain the level of spending. From April to July, consumer cash flow was boosted by roughly $750 billion a month. That figure drops to zero by the end of September.
Tax Receipts
Another concern for the White House is the continued weakness in federal withheld income tax receipts. In August, gross federal withheld income tax receipts were off 15.4% from year-ago levels. That is essentially unchanged from July's performance of minus 15.6%.
The sharp decline in August tax receipts was a surprise. That's because the cumulative reported gains in payroll and household employment in recent months should result it more tax receipts, not less. Also, some of July withheld tax payments fell into the August bucket.
The last workday for July fell on Friday so the tax payments for people who are paid weekly, bi-weekly, or monthly appeared in the daily Treasury statement for August 3rd. Even with the benefit of that large tax payment, the full month tax receipts for August still showed a decline equal to that of July.
Weak tax receipts does raise questions over the accuracy of the reported job gains. Household employment gain of 3.7 million for August looks fluky. That's because over 1.1 million of the reported gain occurred in the age group 16 to 24. This age cohort accounts for about 10% of overall employment but accounted for nearly one-third of the job gains in August.
But before seasonal adjustment, the 16 to 24 age group showed a gain of only 70,000. So there appears to some problems with the seasonal adjustment process for household employment.
Tax receipts through the 15th of September, which capture the survey period for the employment report to be released on Friday, October 2, reveal a decline in receipts of 20%. That suggests job declines, not continued gains.
The combination of an over-stated gain in August and weakness in tax receipts raises the prospect of an ugly jobs report for September. No wonder why the White House has quickly reversed its stance on the need for a bigger federal stimulus package.
Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
Joseph G. Carson
AuthorMore in Author Profile »Joseph G. Carson, Former Director of Global Economic Research, Alliance Bernstein. Joseph G. Carson joined Alliance Bernstein in 2001. He oversaw the Economic Analysis team for Alliance Bernstein Fixed Income and has primary responsibility for the economic and interest-rate analysis of the US. Previously, Carson was chief economist of the Americas for UBS Warburg, where he was primarily responsible for forecasting the US economy and interest rates. From 1996 to 1999, he was chief US economist at Deutsche Bank. While there, Carson was named to the Institutional Investor All-Star Team for Fixed Income and ranked as one of Best Analysts and Economists by The Global Investor Fixed Income Survey. He began his professional career in 1977 as a staff economist for the chief economist’s office in the US Department of Commerce, where he was designated the department’s representative at the Council on Wage and Price Stability during President Carter’s voluntary wage and price guidelines program. In 1979, Carson joined General Motors as an analyst. He held a variety of roles at GM, including chief forecaster for North America and chief analyst in charge of production recommendations for the Truck Group. From 1981 to 1986, Carson served as vice president and senior economist for the Capital Markets Economics Group at Merrill Lynch. In 1986, he joined Chemical Bank; he later became its chief economist. From 1992 to 1996, Carson served as chief economist at Dean Witter, where he sat on the investment-policy and stock-selection committees. He received his BA and MA from Youngstown State University and did his PhD coursework at George Washington University. Honorary Doctorate Degree, Business Administration Youngstown State University 2016. Location: New York.