The Fed Missed This Crucial Piece of Jobs Data
Recent weakness in withholding tax collections through the end of July accurately informed us that a negative surprise was coming in last Friday’s nonfarm payrolls report, which showed a slight decline in the number of new jobs.
The Fed apparently hasn’t gotten the news, or thinks it’s transitory. But Excise tax collections were also weak for the second straight month. Another month of weak excise tax collections in in August would suggest that the problem is not transitory.
Likewise, the slight decline in the number of new jobs reported in July seems not nearly enough to reconcile with the weakness in withholding taxes. The BLS continues to use statistical massage to keep the number positive. The fact is that the tax data doesn’t give credence to the notion of any job gains at all. That can’t continue indefinitely.
Sooner, rather than later, the facts as revealed by the tax data will begin to show up in the conventional economic data. That would call into question the consensus market narrative of a goldilocks economy. It would shake market confidence, but it would take months of weaker data to make the Fed consider reversing tight policy.