Journalists spent an enormous amount of energy on Friday trying to explain what the latest Bureau of Labor Statistics’ (BLS) employment report tells us about the economy. What few people realize is that the January BLS report is the least reliable of the BLS’ employment estimates because of the difficulty accounting for more than 2 million temporary holiday workers who lose their jobs.
If you’re unfamiliar with how the BLS gets its numbers, it works like this: The BLS Establishment Survey queries about 140,000 employers every month to estimate the size of the workforce, the number of jobs gained/lost. To account for work that happens only at specific times of the year, BLS bases its monthly employment estimate on seasonally adjusted data — and in many months the adjustments are massive.
January was one of those months: The BLS walloped its Establishment Survey results with a seasonal adjustment of 2.1 million jobs to eke out a job gain of 157,000. See a problem here? The seasonal adjustment was more than 13 times the actual result. Worse still, when the BLS revises its employment estimates using actual payroll data a year later, January revisions can exceed 100%. A quick look at BLS seasonally adjusted employment results versus the non-seasonally adjusted results provides a visual look at the challenge the BLS faces in providing an accurate picture of January employment.
Source: Bureau of Labor Statistics – www.bls.gov
In our opinion, the best way to measure the health of the overall economy is to measure the amount of money in people’s pocketbooks. Simply stated, if that cash is growing, the economy will improve. If that cash is shrinking, the economy will slow.
What worries us about economic growth in 2013 is tax policy that transfers billions of dollars of income from taxpayers to government. We estimate the fiscal impact like this:
- Approximately $120 billion in income was pulled forward into the 2012 tax year to avoid the “fiscal cliff” 2013 tax hikes, much of which was likely spent in 2012.
- Approximately $128 billion will be yanked from all wage-earner paychecks as a result of the 2% payroll tax hike that went into effect January 1.
- An additional estimated $60 billion will come out of high-income wage earners’ paychecks and pocketbooks to account for the 3.8% Medicare surtax in accordance with the Affordable Care Act and the increase in the marginal tax rates.
While the focus last Friday was on the worst of the seasonally adjusted BLS employment reports, the bigger issue is how the economy will perform given the nearly $200 billion in new taxes and the estimated $120 billion in income shifted from 2013 into 2012.
The housing sector was the one economic bright spot in the economy in 2012, thanks to record-low mortgage interest rates, pent-up demand, employment growth and new construction activity. Will this activity be strong enough this year to overcome the headwinds of the higher tax hit? Only time will tell.
“Approximately $128 billion will be yanked from all wage-earner paychecks as a result of the 2% payroll tax hike that went into effect January 1.”
I always wonder at the effect of the words used in the description of this – “a 2% payroll tax hike.” While the fiscal impact is correct doesn’t you language make people think that the government enacted a 2% increase in taxes, when in fact was happened was the government allowed a temporary reduction in the payroll tax, enacted as part of the stimulus, simply to expire as scheduled? Don’t you risk people thinking “&%^$ government raised my taxes” as opposed to, “Well, my share of Social Security and Medicare taxes are back to the 6.2% it’s always been until it was temporarily reduced a couple of years ago.”
Regardless of whether or not the 2% payroll tax increase simply returns conditions to the way they were, all that matters in an economy is whether or not consumers are going to have less money to spend this year relative to last. Our economy is, after all, a consumer economy. When consumption is 70% of GDP, changes in the amount of money consumers have in their pocket books matters. In the case of the 2% payroll tax increase, we estimate that consumer’s are going to have $128 billion less to spend which is nearly 1% of the size of our economy in dollar terms.