Updated: Federal Withholding Tax Revenue
Matt Trivisonno no stranger to these pages. He has set up a new site to do “Real-Time Tracking of the US Economy Using Withholding Tax Revenue:” : The Daily Jobs Update.
Here’s Matt:
“I’m thinking that if payrolls stay flat, the annual growth rate can move up to zero. But to move above zero will require that some new net jobs get created. I hope we get that, but in 2002 we had a massive real-estate building spree going on and creating jobs for every body from copper miners to i-bankers. We don’t have anything like that today.
So, I do worry that we won’t be able to run up to +8% as fast as we did last time.”
And of course, Matt has some new charts for us:
This is the daily plot of the annual growth rate of the raw data. Matt observes we are making the same pattern that we did at the bottom of the last recession in 2002.
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Daily Federal Withholding Year over Year Percentage Change
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The next chart is also an annual, but plotted every 12 days to smooth the line. Its also adjusted to reflect when the April 2009 withholding tax credit went into effect. then, so I created a second data series to try and estimate what withholdings would have been without the credit. (Methodology here) With the adjustments, the curve has turned up decisively.
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Here are the Quarterly-Adjusted version (except for the last four quarters). Those four bars use the adjusted data.
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These charts are updated every day at: The Daily Jobs Update. If you want the most up-to-date, real time tax data, you can also become a paying subscriber to his site there.
De.li.cious
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March 10th, 2010 at 12:04 pm
I assume this is the data trimtabs for employment forecasts incl adj for Apr 09 credit?
March 10th, 2010 at 12:14 pm
rktbrkr,
Yes, it is the same Federal withholding tax data that TrimTabs uses, though I don’t have a hedge-fund book to talk.
Matt
March 10th, 2010 at 12:52 pm
[...] What the tick up in tax withholdings is saying about the health of the economy. (Big Picture) [...]
March 10th, 2010 at 1:02 pm
Neat chart! I overlaid an S&P chart comparing the 2001 bear market to now and it’s scary. The current bull rally is about 12 months ahead of itself. . .
March 10th, 2010 at 1:11 pm
TrimTabs, using (and abusing) this data, declared the recession over in April 2008
TrimTabs: Its a Recession, and Its Already Over (Wrong) (April 2nd, 2008)
http://www.ritholtz.com/blog/2008/04/trimtabs-its-a-recession-and-its-already-over-wrong/
March 10th, 2010 at 1:38 pm
Charts like these comparing growth percentages, i.e., the rate of change against a prior period, instead of just showing the absolute increase or decrease, are misleading–coming out of a period of decline, they make things look better than they really are as the growth is on a much smaller principal. Yes, the DOW is up over 60% from last year. But a buy and hold investor that bought in 2000 would just be treading water all these years. But I’m sure everyone is as smart as Cognos and bought at the bottom.
The bottom line: Economic activity and employment, and the withholding taxes generated thereby, have quite a ways to go to return to the level of their last peak, in roughly mid-2007.
March 10th, 2010 at 1:59 pm
The Curmudgeon,
Was it misleading in late 2002?
Matt
March 10th, 2010 at 1:59 pm
Kinda curious, the implied assumption that the recovery will take us back up to the previous peak-ish levels, when those levels were in the context of a rip-roaring housing market (vs the current year-plus inventory of unsold homes and a trillion dollars of ARM resets en route to our economy. Also, the notion that we are being pulled out by exports — true, but that tractor is limited by both the (relatively) strong USD, and an export market that is weak as a kitten, with ongoing debt issues.
Seems like instead of thinking of this as a secular recovery, we ought to be treating it as a bear market rally, a perturbation in the long-term slide lower to a smaller global economy (at least smaller in per capita terms).
I think we’ll be lucky if the upturn takes us as far as halfway to the previous peaks.
March 10th, 2010 at 2:09 pm
Matt:
Maybe “misleading” is too strong. Perhaps, it would be better said that I don’t particularly care for the way the information is presented–growth rates in employment/withholding taxes may tell the direction, but they fail to capture the magnitude of this dramatically downward, and possibly long-term, shift in employment and economic prospects. You’d think the leveling out the graphs indicate look promising, until you realize that its more a bottoming than a leveling, and portends much misery to come. I mean, is it really all that fantastic if the economy grows 5% year over year, if the base year was the worst since 1982? That still doesn’t get you a very healthy economy.
But I don’t deny that the first derivative as depicted gives an almost real-time perspective on economic growth/contraction relative to a prior period.
March 10th, 2010 at 2:22 pm
Yup! Things are back to normal!
I’ll check in when our badly damaged economic airplane slams into a mountain (we just scraped over the last one, and it’s not like the plane has been repaired).
March 10th, 2010 at 2:25 pm
It’s a good chart, just a little tricky to read. You have to think about what it is saying to understand how a recovery would graph out. Simply holding tax receipts constant for a year would raise the line to -0-. Without a big jump past -0- soon, the implication is retail sales and all discretionary purchases will be impeded. Purchasing power is going away. People are hunkering down big time. A lower standard of living will be upon many and no cash to pump the markets will be forthcoming unless QE2 and another Fed pump appears.
Finally, a real chart and not a magical one.
March 10th, 2010 at 3:22 pm
Nice graphs. Hard for me to cheer about the second graph: The new low is 50% further than 2003, we’ve only covered about half _that_ deficit, and the very end of the “decisive” upturn looks like it is leveling off.
March 10th, 2010 at 4:05 pm
let’s cut tax rates and get this party started, come one
March 10th, 2010 at 4:44 pm
mgnagy,
The most recent data is, in fact, strengthening. If you compare Friday, Monday, and Tuesday, to the corresponding three days from last year, you will see that withholdings are up $1.144 billion. That’s the raw data. The actually data is likely stronger since there is a withholding tax credit in effect now.
I don’t see any miracles happening, but the cycle shows distinctive signs of turning upward.
Matt
March 10th, 2010 at 6:40 pm
Is the massive tax cuts taken into account…..you know, the ones that have the mystical powers of raising revenues while lowering revenues? I say this since the massive drop-off in revenues can be attributed to Bush’s cuts (passed by reconciliation) and that the near recovery to pre-2001 can be attributed to the housing/derivative bubbles.
Another question: If a bubble created the increase in withholding revenues, did the last decade actually have any positive outcomes?? It appears we’re moving into a period of growth, but is it real or memorex?
March 10th, 2010 at 7:18 pm
BDW,
These are withholding taxes, and are not effected by things like capital-gains tax cuts, etc. I think it’s pretty obvious that the two plunges on the chart in 2001 and 2008 were the result of millions of jobs being lost.
Matt
March 10th, 2010 at 8:00 pm
Matt, we’ve heard stories of California, and perhaps other states, accelerating withholding for state taxes at some point in the recent past. Is it possible that employers in California or some other such place are beginning to accelerate withholding for federal taxes too?
My guess it that you’ve either considered this or that it wouldn’t have much impact, but just thought I’d throw it out there.
March 10th, 2010 at 8:11 pm
Oh Man…that Chart by either “Invictus” or “BR” needs to go VIRAL on the NET.
What an eyeview!
March 10th, 2010 at 9:02 pm
Josh,
I’m guessing that, legally, it wouldn’t be a good idea for an employer to withhold more federal tax than is specified in the IRS’s tax tables. However, Congress did tinker with the tax tables this year such that more poor people are having tax withheld. The Treasury Department has not mentioned how much this might increase withholdings. The Congressional Budget Office hasn’t mentioned it either, so I’m assuming that it isn’t a large amount.
The Obama Administration is also cracking down on contractors who don’t have taxes withheld. This also does not seem to big enough to provide a noticeable jolt to the data. The New York Times has an article about it here:
http://www.nytimes.com/2010/02/18/business/18workers.html?em=&pagewanted=all
Matt
March 11th, 2010 at 1:38 am
census jobs spike?
March 11th, 2010 at 6:57 am
Yessir, the second derivative looks pretty sweet to me! Before long we’ll ALL be working at building inventory and building stuff purchased with cap ex spending. Jobs, jobs, jobs! Once the tax receipt snowball starts rolling downhill, picking up speed and mass, the recovery will be in full bloom to match that crafty, prescient stock market.
Oh wait. You mean getting back to 6% unemployment requires spending at 2006 levels? Well, no worries. We’ll just mandate that every business must hire people so that we’ll all have money to spend to grow the economy. While we’re at it, let’s raise the minimum wage so we can save AND spend. That way we can restock the country’s depleted capital stores, too.
Everything’s gonna be alright. But whatever you do, don’t look down.
March 11th, 2010 at 2:13 pm
sherm,
The Census Bureau won’t start hiring in large quantities until they know how many door-knockers they need. And they won’t know that until they see how many people fill out the forms and send them in. If everybody sends in the form, then they don’t need to hire hardly anybody. But that won’t happen. There will be a lot of hiring. The forms are supposed to arrive in our mailboxes sometime this month. The door-knockers probably won’t hit the streets in size for a couple more months.
Matt
March 16th, 2010 at 7:19 pm
[...] week, Barry Ritholtz published some charts from my DailyJobsUpdate.com website. Here is a traffic graph (click to [...]