This Employment Picture Looks Grim

The unemployment rate is probably the most widely watched economic indicator. In part, that’s because the Federal Reserve ties its policies to the rate.

That makes the unemployment rate important to the bond market. Interest rates affect the fair value of stocks. In the stock market, traders buy or sell immediately after the monthly update to the number.

Economists also watch the numbers. Many of them try to forecast changes in unemployment. One of the tools they use is data on the amount of money employers pay in taxes.

As you know, employers withhold money from your paycheck. They deposit these payroll taxes a few days after they pay employees. The Daily Treasury Statement offers real-time data on the amounts of deposits. This indicator shows unemployment could be rising.

This chart shows that there is serious weakness in the employment market. There are several possible causes for the decline…

The chart shows the change in deposits compared to a year ago. Data is seasonally adjusted to account for swings in hiring and firing. For example, the school year requires an adjustment. Otherwise, employment data falls off when classes end, and then jumps when students go back to school.

The trend in payroll taxes is down. This means employers are paying less to employees.

The chart shows that there is serious weakness in the employment market. There are several possible causes for the decline.

One possibility is that employers aren’t hiring as much as they were a year ago. Data shows the pace of hiring slowed over the past year.

It’s also likely employers are paying employees as little as possible. Federal Reserve data shows consumers are spending more on necessities and have less income for other items. This confirms wages are growing slowly, if at all.

This is something to watch for stock market investors. Bear markets begin after unemployment starts rising. We aren’t there yet, but we need to be watching for a change in the unemployment rate.


Michael Carr, CMT
Editor, Peak Velocity Trader

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Comments 13

  1. Dusten November 29, 2017

    Do you account for the cyclical nature of payroll taxes being higher in the 1st half of the year versus the latter because of thresholds being met? I would expect receipts to be lower especially at year end other than seasonal employees.

    I welcome your thoughts.


  2. Geoff Beal November 29, 2017

    It could also be people hit their max on their social security deductions and that will not restart until January 1, 2018.


  3. Stephen Rosenzweig November 29, 2017

    Could it be that many people are deferring income to 2018 in anticipation of a tax rate cut with the new Republican tax plan? I know I am.


  4. Jake Sysk November 29, 2017

    Remember 1986? The bull made the cover of Sports Illustrated, Shortly after the Bear was feeding on hamburger.
    Remember 1987? Comic strip Family circus, Little kid told his friend, Dow Jones is a guy down at daddy’s office who drinks too much, Poor Mr Dow took a bad fall. 2008, some houses sprouted wings, 2009 rapid decent ,crash landing.


  5. GeorgeEconomist November 29, 2017

    The fact the real wages may be declining does not surprise me. After decades of mobilizing the reserve army of the poor in third world countries and automation to continually drive down labor costs, the consequence is continual stagnant or declining household real income. Only transfusions of synthetic economic “blood’ from counterfeiting by the Federal Reserve has enabled debt financed output of tangible goods and productive services from the economy to limp along, Eight year loans for new cars are now the result, with the extraction of even more debt service from the declining future disposable incomes of the vast majority of our populace. The fact is that the majority of our population is “running out of money” and cannot continue to pay ever increasing debt service. The correct answer to the question “what caused the Great Depression” in my Econ101 class was “too much money became concentrated into too few hands”. With today’s maldistribution of incomes and wealth worse than it was in 1928, fatal economic “shock” is inevitable!


  6. john willis November 29, 2017

    They will likely lie like dogs and come up with a clever way of doing it so it will look like the truth, kind like the inflation figures.


  7. Chuck Burton November 29, 2017

    Glad someone is finally seeing the facts. The government is nursing the figures to hide the fact that there is no longer as much need for humans, due to automation and A/I. Amazon is the big example, using robots where possible and paying the people it needs, as little as they can for the grunt work they do in those “fulfillment” centers. Increasingly, those humans serve the robots. Jeff Bezos is now the richest man in the world, as a result. As the robots become “smarter”, they will replace the humans more and more, even in jobs requiring contact with humans, as in automated Mickey D’s. The number of non-working humans has and will increase even more, as a percentage of the population. Even many of those still working will suffer because of the relatively low pay they receive, compared with the wealthy. There is no longer enough work for all the people in this country. Automation is gradually replacing people with robots and A/I in all but fields which so far require human contact. This is the result of government policies moving more and more money into the hands of the few to keep power in the hands of the politicians. A subtle inflation, even as prices become lower relative to debt money supply (debt).


  8. Steve Klukas November 29, 2017

    The unemployment rate is an improper use of its name. Unemployment percent is the people out of work.

    What you and the government are calling unemployment is the percent of people on unemployment benefits at that point in time.

    Problem is once a person falls off the benefit payment and don’t have a job they disappear from that unemployment percent.

    We don’t ever hear what the real unemployed percent in our country is (17%?)

    What we have here is the percent of people drawing benefits on unemployment benefits for those months.

    Example: 90 percent of the people in the country go on let’s say 6 months of unemployment benefits. Let’s say to make it simple 10 percent just ended there 6 months and none of them found work then or during the next 6 months as well. Now its six months later and the 90 percent are off unemployment benefits and none of them have a job.

    So what is the amount of people and percent of people unemployed based on your reports here the governments way? ZERO 0

    What is it really? 100 percent. Scary we report this this way.. it means nothing.


  9. Warren November 29, 2017

    Little else validates an economic hypothesis like a comparison chart; too bad one wasn’t provided!


  10. Danno November 30, 2017

    I suspect the revenues are falling because many people are reaching the cap and have gone to paying a high rate of withholdings to zero. It would be interesting to see this chart over time and to compare month over prior year month changes as opposed to prior month. (Can’t tell what you did in the chart)


    • Danno November 30, 2017

      excuse the error. I see the note that this is YOY. Perhaps people are getting paid more and reaching the cap sooner?


  11. James November 30, 2017

    The kondratieff wave is a 45 to 60 year economic cycle of prosperity, recession, depression and improvements in the economic cycle. The Kuznets cycle is a war cycle of 15 to 20 years. Theirs a war going on in Syria. What’s the EU doing about that!!!! The jugular cycle is a 7 to 12 year cycle. In the jugular cycle we have an economic cycle of prosperity, recession, depression and improvements in the economic cycle. The kitchin cycle is a 40 month cycle of prosperity, recession, depression and improvements in the economic cycle. We might even be in a semiandrotof wave of boom, recession, depression, recovery and growth in the economy.


  12. Mark December 3, 2017

    This chart follows the hurricanes? How much would 4 major storms throw receipts off. Florida is advertising for people to visit the keys. Don’t know what long term effect is for Houston.