In a ‘normal’ recovery, one would expect tax collections at every level to increase. If folks are spending money, sales tax revenues should increase. If economic growth is really occurring, other tax revenues should be increasing - but that’s not what is happening.
To find evidence of declining tax revenues, one needs to look at a level of government lower than the federal level. State governments for example, need to operate in balance – spending only what is received in the form of tax revenues. While there are many examples of states whose budgets are in trouble, there are a couple of states that have recently made headlines – Illinois and California. Read more »
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Last week, the White House web site posted a news release that proposed new regulations on banks. (http://www.whitehouse.gov/the-press-office/president-obama-calls-new-restrictions-size-and-scope-financial-institutions-rein-e)
Here’s an excerpt:
The proposal would:
1. Limit the Scope - The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.
2. Limit the Size - The President also announced a new proposal to limit the consolidation of our financial sector. The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits. Read more »
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This from my recently published January ‘Moving Markets’ newsletter, and continued from January 18, click the link on this page for a complimentary subscription.
On December 31, 2009, an article written by John Lounsbury was published on seekingalpha.com. It was titled: “Surprise, People Don’t Trust Government Data”. In the article, Lounsbury points to the results of a survey conducted with citizens in the United States and several European countries by “The Financial Times”. The survey revealed anywhere between 85% and 91% of those surveyed believed government data was manipulated. The actual percentage varies depending on which country you look at. Faring worst was the UK, with only 6% of its surveyed citizens believing government statistics were honest.
Guess you’d have to count me among the majority – especially when it comes to calculating the actual unemployment rate.
Lounsbury takes a closer look at the business birth and death rate in his article. Here’s an excerpt:
Another data adjustment that appears to have weak justification is the “Birth-Death Adjustment” by the Dept. of Labor, attempting to account for the closing of small businesses and opening of new ones in real time, months before the state records are available to define the exact numbers. This has had a good history of estimates agreeing with the subsequent data up to 2008. It appears that it has gone astray in the recession, seen in the following graph.
The data adjustment error will be corrected when unemployment numbers for 2008 into early 2009 are adjusted after the fact by about 850,000. This correction will be applied in early 2010, but does nothing to help the misleading numbers that were “on the books” in real time and remained there until now.
On the chart, you will notice the Birth/Death adjustment rate tracked the GDP year over year fairly closely until the beginning of this recession. Now, judging from the chart above, Williams’ argument seems valid.
That brings me to the seasonal bias adjustment. The Bureau of Labor Statistics defines the seasonal bias adjustment as follows (Source: bls.gov):
Total employment and unemployment are higher in some parts of the year than in others. For example, unemployment is higher in January and February, when it is cold in many parts of the country and work in agriculture, construction, and other seasonal industries is curtailed. Also, both employment and unemployment rise every June, when students enter the labor force in search of summer jobs.
The seasonal fluctuations in the number of employed and unemployed persons reflect not only the normal seasonal weather patterns that tend to be repeated year after year, but also the hiring (and layoff) patterns that accompany regular events such as the winter holiday season and the summer vacation season. These variations make it difficult to tell whether month-to-month changes in employment and unemployment are due to normal seasonal patterns or to changing economic conditions. To deal with such problems, a statistical technique called seasonal adjustment is used. This technique uses the past history of the series to identify the seasonal movements and to calculate the size and direction of these movements. A seasonal adjustment factor is then developed and applied to the estimates to eliminate the effects of regular seasonal fluctuations on the data. When a statistical series has been seasonally adjusted, the normal seasonal fluctuations are smoothed out and data for any month can be more meaningfully compared with data from any other month or with an annual average. Many time series that are based on monthly data are seasonally adjusted.
According to John Williams’s recent report on unemployment calculations, the seasonally adjusted model, most heavily weighted toward recent years, was never designed to account for an ongoing downturn. With the economy and employment tumbling at the end of both 2007 and 2008, anything less severe at the end of 2009 can become an outright rebound when the seasonally adjusted numbers are calculated. According to Williams’ estimates, that’s what may have happened with the recently reported unemployment numbers.
As we’ve stated in past issues of “Moving Markets”, we expect the unemployment picture to remain at current levels perhaps even higher levels for the next several years. Should this occur, the consumer spending dependent US economy would continue to sputter.
Some government officials are talking about the need for another stimulus package as the first has yet to significantly improve the employment picture. When evaluating the need for additional stimulus funds, it’s helpful to retain perspective and remember Obama needed the stimulus package already passed at a cost of $787 billion in order to keep the official unemployment rate at no more than 8%. Obama got what he wanted and yet the official reported rate is already 10%. Now, some in congress want to pass another package even though, from many perspectives, the first one didn’t work.
Securities offered through USA Advanced Planners (Member FINRA/SIPC). Advisory services offered through USA Wealth Management. USA Advanced Planners and USA Wealth Management are affiliated companies. The opinions expressed herein are those of the writer and not necessarily that of the above noted affiliated companies. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. The information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.
This information is education in nature and, therefore, is not intended to constitute investment advice and should not be interpreted as a recommendation to purchase, sell or hold a particular security. Prior to making any investment decision, the services of an appropriate professional should be sought as investment related recommendations are dependent upon the personal situation of each individual investor. Investing in market related securities involves a risk of principal loss
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