Thursday, February 25, 2016

Another great big clanging warning bell about the economy

David Stockman reports that federal tax revenues are plummeting.

Based on the common sense proposition that the nation’s 16 million employers send payroll tax withholding monies to the IRS based on actual labor hours utilized—-and without any regard for phantom jobs embedded in such BLS fantasies as birth/death adjustments and seasonal adjustments——my colleague Lee Adler reports that inflation-adjusted collections have dropped by 7-8% from prior year in the most recent four-week rolling average.

(Click to enlarge)

As Lee noted in his Wall Street Examiner:
The annual rate of change in withholding taxes for collections through Thursday, February 18, approached a level which signals not just recession but is within a couple of percent of indicating a full fledged economic depression. As of February 18, 2016, the annual rate of change was -5.6% in nominal terms versus the corresponding period a year ago. That’s down from -3.7% a week before, +0.6% a month before, +5.8% three months ago, and down from a peak of +8.7% in early February 2015…….Adjusted for the nominal growth rate of employee compensation, the implied annual real rate of change is now roughly –7.5 to -8% year over year.

There's more at the link.

Federal withholding tax revenues are a direct and immediate indicator of how many people are employed in jobs well-paid enough to deduct income tax at source.  If those revenues are declining, it means one or both of two things:

  1. Less people are employed;  AND/OR -
  2. The jobs available are less well paid, resulting in less tax being withheld.

My money's on both factors being correct.  We've spoken many times here about the unreliability of the government's unemployment figures;  and we know that many of the high-paying jobs that were lost during the 2008 recession were replaced by lower-paying service positions.  That's still the case.

Either way . . . that's a very bad sign.



Tonerboy said...

It will be really interesting to see this chart in another month.

drjim said...

Oh, boy......

Old NFO said...

I think it's both... and not getting any better next month!

HMS Defiant said...

And look for it ALL to be blamed on the new president who won't have a hope in hell of laying it at the feet of Obama and the democrats who ruined the economy with their policies.

Phssthpok said...

One more possible factor: Folks realizing that the only way can collect the Obamacare 'tax' is to withhold it from any refund due.

How does one ensure no refund is due? Simple...Reduce the amount held out of your paycheck to make sure you don't have a refund.

Anonymous said...

I sometimes think the libs want a Republican to win so when the stuff hits the fan and it will . They can lay the blame on the next President. See, see what happens when a Republican is President. It's either that or they have the election rigged. Massive voter fraud with illegals voting and people voting many times. Usually gun control is the third rail in Presidental election but not this go around.

genericviews said...

It doesn't matter. Obama has proved that the government can just create money out of thin air. Taxes are so last century. The only reason to tax anyone is to redistribute it more "fairly", not because the government needs it to pay its bills.

BigFire said...

In the Obama economy, the person formerly making $80k a year is now doing 2.5 jobs making $40k. The 2.5 jobs are counted as 3 jobs for the purpose of Labor Statistics. That plus the record number of people currently not looking for jobs (thus not counted in the unemployment statistics) leads us to the current unemployment rate.