- by New Deal democrat
Earlier today in my Weekly Indicator column I highlighted the anomaly of an outright YoY decline in tax withholding.
The Treasury Department's daily tax withholding report isn't an estimate like nonfarm payrolls or GDP that is subject to substantial revision. It is bedrock hard data. And just by virtue of nominal average wage increases YoY, it should be up about 2%. Instead, since April 1, the daily reports have been consistently negative, and now the 20 day average has turned negative as well.
Almost all of the other incoming weekly and monthly economic reports have been quite positive. For example, consumer spending has really picked up this spring. More particularly, April nonfarm payroll growth was nearly +300,000. So what's going on?
It could be that the jobs numbers for the last couple of months are going to be revised downward. Big time. But we've also just hit a post-recession low in layoffs, via initial jobless claims. Has hiring really screeched to a stop?
Here is my preliminary guess, and it is only a guess, but this story fits the data.
One way to get a decrease in withholding taxes in the face of increasing jobs, is if workers decide to take more deductions. In essence workers would be trading less of a refund next year for more cash in the pocket now.
And there are several excellent reasons why they might have done so in the last few months.
First of all, due to the government shutdown last October, the IRS had to delay processing of tax refunds. It started 10 days later than planned, on January 31. I suspect the delays continued. Most significantly, Walmart reported its 1st quarter profits were lower than expected:
The big discount retailer said its results were hurt by bad weather and a delay in tax refunds caused by last fall's government shutdown.
Not only were tax refunds delayed, but the prices for two basic need - food and shelter - increased significantly in the first quarter, especially for renters. Food prices are up 2.7% so far this year.
More importantly than that, with apartment vacancy rates just above 12 year lows in the first quarter, rents have skyrocketed. The first quarter's median asking rent nationwide is $766, up 2.7% in that quarter alone, and up 6.7% YoY. (I wrote a few weeks ago that rent wasn't in a bubble, based on statistics through the end of 2013, and while I still wouldn't call it a bubble, this first quarter jump has got to be putting a real squeeze on working class renters).
Faced with a big increase in rent, and significant increases in food prices, together with a delay in receiving tax refunds, have a significant number of working class families decided to trade next year's tax refund for the ability to pay for food and rent now, but decreasing the amount of money withheld in their paychecks?
It's only a guess, but it fits the data.