Federal Tax Data Is Signaling A Big Jump In Jobs

As of July 25, Federal withholding tax collections for the prior 10 business days were 3.2% greater than last year. The 10 day total is extremely volatile however, so for that reason I also look at the 4 week moving average.

It is up by 6% year over year in nominal terms. This number must be adjusted for compensation inflation to derive a real rate of change.

This chart compares current withholding tax collections with last year on the same date. It shows this year running well ahead of last year in nominal terms. The gap has been widening all year from zero at the beginning of the year.

The April bulge was related to non compensation withholding such as mutual fund withholding for capital gains distributions.

Tax withholding

Photo: The Wall Street Examiner

In real terms, the year to year gain in withholding taxes has been between 2.25% and 3.75% over the past two weeks, as adjusted for the 2.2% increase in average weekly earnings reported in June by the BLS.

Withholdings change

Photo: The Wall Street Examiner

The BLS jobs data is based on payrolls for the week including the 12th day of the month. During that week, the real year to year increase in withholding taxes was 1.5%.  To estimate the July headline payrolls number, multiplying  July 2011 non farm payrolls of 131.407 million x 101.5% = 133.378 million. That would be an increase of 290,000  jobs versus the June number.

With everyone talking about how weak the economy is, that would be a big positive surprise.  Will the number actually come in that strong? Given the vagaries of the jobs surveys, including the fact that the rate of change in weekly average earnings could be substantially different from last month’s 2.2%,  it’s doubtful. I suspect a “beat” of some magnitude. The data will be released Friday, August 3.

These 2 charts are updated and analysed weekly in the Professional Edition Treasury update  in conjunction with their implications for employment, and in particular  the Federal deficit and Treasury supply. 


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