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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

This communication is a publication of TrimTabs Asset Management. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Information presented does not involve the rendering of personalized investment advice. Content should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing performance returns. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Past performance may not be indicative of future results. Therefore, no investor should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions, may materially alter the performance of an investor’s portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers.  AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.

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