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Posted by on Aug 12, 2013 in AdvisorShares, Market Insight, TrimTabs

Float Research: Real-Time Tax Data Indicates U.S. Economy Rapidly Losing Steam

Float Research: Real-Time Tax Data Indicates U.S. Economy Rapidly Losing Steam

By: Minyi Chen, CFA, Chief Operating Officer of TrimTabs Investment Research and Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (NYSE Arca: TTFS)

The U.S. economy real growth is slowing even more now than in July as signs indicate an even weaker economy than we think. Read this investor insight by TrimTabs Asset Management to learn what tax withholdings and recent fund flows may be foretelling.

Real-Time Tax Data Indicates U.S. Economy Rapidly Losing Steam.  Income Tax Withholdings Drop 2.3% year-over-year in Real Terms in Past Three Weeks and Three Days Adjusting for Tax Changes.

The U.S. economy is much weaker than most Wall Street economists realize.  How do we know?  We track the income and employment taxes withheld from the paychecks of the 136 million salaried U.S. workers each day, which the U.S. Treasury reports on its Web site.  We are surprised at how much growth in withholdings decelerated in the past several weeks.

Adjusting for tax changes, income tax withholdings fell 0.5% y-o-y in nominal terms and 2.3% y-o-y in real terms in the past three weeks and three days (Friday, July 12 through Tuesday, August 6).  This period includes the first four business days of August, and we are not aware of any calendar quirks that would be distorting the data.  We spoke Wednesday with our favorite official Washington economist, who tracks this data as carefully as we do, and he is aware of no special factors that would be skewing the data.

tax data 8.12.13 - chart 1

Source: U.S. Treasury and Bureau of Labor Statistics.  All periods end Tuesday, August 6.  Inflation is calculated based on the non-seasonally adjusted consumer price index.

Real growth is far worse now than even the scant 0.4% y-o-y growth in July.  No wonder the Federal Open Market Committee downgraded its assessment of the economy’s performance last week.  If growth persists at anywhere near current levels, the Federal Reserve’s “tapering” may happen later and be more modest an adjustment than most investors expect.

tax data 8.12.13 - chart 2

Source: U.S. Treasury and Bureau of Labor Statistics.  Inflation is calculated based on the non-seasonally adjusted consumer price index.

Investors Continue to Favor Stocks over Bonds in August.  Equity MFs and ETFs Get $10.8 Billion on First Four Days of Month, while Bond MFs and ETFs Lose $4.3 Billion.

Fund investors are continuing to favor equities over bonds in August, just as they did in July.  U.S. equity MFs and ETFs received $5.6 billion on the first four trading days of August, while global equity MFs and ETFs took in $5.2 billion.

Bond MFs and ETFs have redeemed $4.3 billion this month, with a $4.0 billion outflow from bond ETFs reversing nearly all of the inflow of $4.1 billion in July.  Perhaps prices in some areas of the bond market rose enough for institutional players and financial advisors to take profits.  In the past week alone, Treasury bond ETFs redeemed $3.3 billion (2.1% of assets), while Corporate bond ETFs redeemed $403 million (0.3% of assets).

tax data 8.12.13 - chart 3

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