Strong July Withholding Taxes Suggest Huge Job Gains

The report is an excerpt from the Employment Charts permanent page, updated when new data is reported. Bookmark it for future reference.Originally posted July 27.

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.

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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.

Federal Withholding Taxes Daily

Federal Withholding Taxes Daily – Click to enlarge

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.

Real Federal Withholding Taxes - Click to enlarge

Real Federal Withholding Taxes – Click to enlarge

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 analyzed 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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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish, and was lead analyst for Sure Money Investor. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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