Joe Raedle
On days like these, it's tough being a Wall Street economist. There's no headline data in the U.S. Monday to write about. Yet you've got to provide your clients with something.
Some are better at digging deep than others. Give Brett Ryan, an economist at Deutsche Bank in New York, marks for coming up with an original take on the United States economy on a day when there's no low-hanging fruit.
Mr. Ryan used the daily note that Deutsche's economics research sends out each morning to focus on withheld income tax receipts, which the U.S. Treasury Department publishes in its Daily Treasury Statements.
Deutsche likes the data as a useful real-time guide to the strength of the consumer. However, the figures are volatile, so the Mr. Ryan and his colleagues prefer to smooth it by looking at a moving average. By Deutsche's measure, individual tax receipts are up 2.2 per cent on the year, consistent with a rising trend in U.S. personal income.
Receipts plunged in February, before recovering in March, causing some to worry that consumer spending may stall. Mr. Ryan reads the figures another way. He reckons the extension of the Bush-era tax cuts likely distorted the data. When the Bush administration originally lowered taxes between 2011 and 2003, withholding tax receipts fell on a year-over-year basis even as wages and salaries grew at a rate of 6 per cent.
Deutsche's U.S. economists are betting that this is what is going on now. Nominal wage and salaries were up 4.4 per cent on the year in March, the highest since a reading of 5 per cent in December 2007. Higher incomes will take some of the sting out of increased food and fuel prices, suggesting consumers will push through the surge in commodity prices.
"While sustained increases in energy costs would ultimately hamper growth, a temporary spike in energy such as what took place last quarter, could be more easily absorbed if consumers are buoyed by rising income gains," Mr. Ryan wrote.