Evidence of the sequester remains elusive. The warning signs that we track closely – initial jobless claims, Richmond Fed, personal income and payrolls – do not show any material deterioration that we can attribute to the sequester. One mystery is why personal income of government workers has not contracted, as fewer hours worked should equal less pay. The answer, BofAML notes, is simple - it's just beginning...



Close to a million federal employees have been told that they will be furloughed for several days this year, but the number that has actually started to take furlough days is quite low.

We expect aggregate government worker income to decline in May given that furloughs started in late May.

The first day of government wide furloughs was on May 24, when roughly 115,000 federal workers, or 5% of the total federal work force, stayed home without pay.

However, with the majority of the furloughs not kicking in until the beginning of July, including the Pentagon’s 680,000 furloughs beginning July 8, the real income shock will not show up until the July personal income and outlay report on August 30.

Source: BofAML