Hussman Weekly Market Comment: When "Positive Surprises" Are Surprisingly Meaningless

In recent weeks, investors have abandoned all material concern about the likelihood of oncoming recession, largely because U.S. economic reports - though very tepid on an absolute basis - have come in persistently "better than expectations." Objectively, the best showing has been in new claims for unemployment. The 4-week average has eased slightly below 400,000 in recent weeks, to a level that would no rmally be consistent with slightly positive payroll growth, though not enough to absorb normal labor force growth (the unemployment rate dropped last month partly because hundreds of thousands of people stopped looking for work). My concern here is in taking these labor numbers as predictive, in the face of an abrupt drop in federal withholding tax deposits.

As economist John Williams observes, "starting in October, a divergence developed: Whereas year-to-year change in BLS estimated payroll earnings continued at a more-or-less constant, positive level, tax receipts fell quite markedly. Where the Treasury numbers reflect full reporting, the BLS data are sampled, heavily modeled and usually heavily revised. The implication is that the BLS has overstated average earnings and payrolls meaningfully in recent months."