More on deteriorating withholding tax receipts and job reports

– by a New Deal Democrat

I have a new post up at Seeking Alphain which I lay out all the brief leading indicators and conclude that the conditions are already in place for a recession to begin at any point in the next 6 months.

There is a graphic that I intended to use but didn’t make it to the final published part. Here it is:

Typically, recessions have only begun when 8 of the 10 components of the Leading Indicators Index are down from their levels of 6 months ago. So I go through the list. . . .

In the article, I note that strong jobs reports are the biggest reason a recession has not yet occurred. But IFor the past few weeks, I’ve been pounding the table about the effects of the sharp slowdown in withholding tax revenue since mid-year. Here’s the year-over-year change in total withholding tax receipts since then:

July +7.8%*

August +10.2%

September +1.2%*

October +12.2%

November +3.7% (to date)*

*= less than year-on-year change in CPI

I will return to this diagram below.

Meanwhile, note that the monthly household report is drawn from a sample of 50,000. The monthly establishment report is drawn from a sample of 100,000+. But tax withholding is a full and complete record of what every US taxpayer/employer remits to the Treasury Department on a daily basis.

As a result, total withholding tax receipts should come fairly close to reflecting total payrolls, especially for non-supervisory workers, in the household jobs report. One important difference is that even bosses pay taxes withheld up to $147,000 of salary on Social Security and Medicare with no income limit. With that in mind, here’s a graph of the year-over-year change in total payrolls for both non-supervisory workers and all workers for the past year:

Note that in early April, the year-over-year trend begins to slow significantly.

Back in August, Investors Business Daily highlighted the chart below of the monthly 10-week year-over-year change in taxes withheld year-to-date:

Note that just like total wages, it peaked one month late and has been declining ever since.

IBD hasn’t been updated since then, but the values ​​are easy enough to calculate. As of the end of September, the 10-week year-over-year change was 4.2%. Since the last daily report last week, the increase is only 3.7%.

Note that starting in July in the IBD chart and the updated 10-week totals and July and September monthly totals in the monthly chart above, *all* of the year-over-year % increases in taxes withheld are more small than the inflation rate.

In other words, since July *even overall* non-supervisory workers are earning less, adjusted for inflation, than they were at the same time in 2021.

Also, according to my rule of thumb for non-seasonally adjusted year-over-year data, when the year-over-year % change drops by more than half, which in the IBD metric happened by September, the data probably peaked and started to decline in absolute values ​​(ie if we can adjust them seasonally).

Over the weekend, I looked at how withholding performed in the year leading up to and during the recessions of 2001, 2008, and 2020. In each case, I found that when withholding declined on an annualized basis to a level of 1% or less than the CPI, this coincided with a one-month variation in either weak jobs reports of fewer than 100,000 jobs, or even outright job losses, in both the household and business aspects of the report for workplace.

Here are the monthly gains/losses in the household and business jobs reports for the past 12 months:

What the withholding tax data strongly suggests is that the actual job losses in the June and October household reports were a signal, not noise, and that business numbers are likely to be revised down in the future as -full data is updated.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *