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Friday, October 02, 2009

Sept 09 Employment & Tax Data

Several interesting things about this report. First, the 9.8% official unemployment rate tells us little. The male unemployment rate rose to 10.3% and the female unemployment rate rose to 7.8% - both increased by 0.2%.

Second, the benchmark adjustment (scroll down to nearly the end of the link above) from March is in. This is the table:
Table B.  National Current Employment Statistics March 2009 preliminary
benchmark revisions by major industry sector
| |Percent benchmark
Industry |Benchmark revision| revision
| |
Total nonfarm ...................| -824,000 | -0.6
Total private ..................| -855,000 | -.8
Mining and logging............| -23,000 | -3.2
Construction .................| -152,000 | -2.5
Manufacturing ................| -67,000 | -.6
Trade, transportation, and | |
utilities...................| -282,000 | -1.1
Information ..................| -36,000 | -1.3
Financial activities .........| -9,000 | -.1
Professional and business | |
services ...................| -111,000 | -.7
Education and health services.| -57,000 | -.3
Leisure and hospitality.......| -76,000 | -.6
Other services ...............| -42,000 | -.8
Government .....................| 31,000 | .1
Pretty hefty downward adjustments there. This does not really affect the household survey numbers.

In the household survey, total employment fell by 785,000 on the month. The two-month drop is 1,177,000. Unemployment only increased by 214,000, because the civilian labor force fell by 571,000. I think we are starting to see retirements pick up, and one of the reasons for that would be COBRA. The subsidy is due to run out, jobs aren't around, and many older people who are eligible for early Social Security may be forced to take it to pay for their insurance premiums.

In the establishment survey, jobs in government are listed as declining 53,000 on the month. One would suspect that the government portion would be among the most reliable of these numbers. There was a note on the subject in the discussion:
Government employment was down by 53,000 in September, with the largest decline occurring in the non-education component of local government (-24,000).
This seems quite plausible. I would expect government workers to be retiring more quickly than otherwise due to concerns about imperiled pensions, and my belief is that many of these places will not be able to replace the workers even with increasing local taxation.

The U-6 unemployment rate increased to 17% seasonally adjusted.

Regarding the big fall in household employment, I kind of think it is accurate because of the big drop in WIET.

WIET (Withheld Income and Employment Tax):
09: 125,216; 08: 142,759 (-12.3%)
09: 126,389; 08: 136,464 (-7.4%)
09: 131,417; 08: 142,964 (-8.1%)
Note that the last remission day for 09 was the 29th, whereas for 08 it was the 31st. So some of the monthly change is due to some extra revenue in 08 being shifted to Sept from August. However the trajectory of the decline is clearly escalating.

WIET has two main components. The first is composed of Medicare plus SS taxes, and the second is withheld income tax. The rate of the first component is 2.9% Medicare, which is a flat rate on all wages, no matter how high, plus 12.4% Social Security tax, which is a one-step regressive (for about the last 9% of earners) . Income tax rates vary greatly, from negative (EIC) from 10-35%. Thus imputing wages from these taxes is a very interesting problem if you like numbers and relies heavily on the relative share of incomes, which of course is changing quite drastically in this economy. The IRS shares released for 2007 are going to be substantially different than the shares in 2009. It's complex enough that I should take it up in a separate post.

You can also try to extrapolate from US Census wage data, but you have to be aware that there is an upward bias in that data. People lie on the high side. We do have 2008 earnings data by male and female..

Regardless, it is difficult to look at WIET and not perceive that nominal wages are falling sharply. BEA wants me to believe that wage and salary disbursements increased 8.5 billion in August. I don't. BEA and I often disagree in the short term, but I usually win the argument a year or two later. I must be feeling better, because instead of getting steamed when I read yesterday's release, I burst out laughing. I wonder what September's numbers are going to look like!!!!

Anyone who thinks we know GDP levels within one percent really needs to develop some healthy cynicism. It's not that the government statisticians are engaged in a conspiracy. Instead they follow a very careful methodology designed to produce quite accurate data. But that methodology relies heavily on imputation, and when you impute, you use numbers from prior periods. And BEA appears to impute wages from BLS data, and BLS imputes from actual shares of employment from about 3/4 of a year ago, Things were very different then. Eventually, they'll all catch up and the data will be very good. In the meantime for those who need this data NOW, I would suggest spending some time with the Treasury statements and, er, adjusting your expectations accordingly. Monthly here, Daily here.

So in partial answer to Neil's question about raising the total tax burden, I'd have to say no - you can't on most of the population. The share of local and state taxes is destined to increase, and in many cases has increased already. Much of it is pretty regressive. If you increase federal taxation broadly, you shrink state shares of taxation quite substantially. The only way to raise taxes without wreaking too much havoc is to add marginal taxation on currently tax-sheltered income, and at a pretty low level.

Further, for reasons I will explain later, I think the real incomes of most of the top portion of the population are falling quite quickly, and that the trend will be sustained, which raises some unfortunate contemplations about the utility of raising income taxes on any but the highest income earners, who are (gasp) by far the most mobile. Adding a VAT now would be like playing Russian roulette with a six chambered revolver loaded with six bullets.. Raising marginal tax rates on the top 30% of income will net much less than most suppose.

PS: I also strongly recommend CR's "ugly, ugly, ugly" post on employment. Not only are these numbers ugly, but they are really being helped by the wave of retirements and the safety valve that extends. But I have to tell you that default risks are pretty high for older workers forced to take unplanned early retirements as banks will be finding out.

Thanks for the data, MOM. And thanks for the opinion.

The only way to raise taxes without wreaking too much havoc is to add marginal taxation on currently tax-sheltered income, and at a pretty low level.

I agree--which is why I'm starting to think that our messy political process will, in the end, generate a nearly flat income tax (probably after trying everything else). They'll tax a bunch of stuff that's been sheltered, but in return it'll be more efficient, and they'll be able to sell it politically based on a less-intrusive IRS. There's some evidence that the efficiencies gained can allow for an increase in GDP growth trend, too. More revenue, less intrusive, higher growth--it'll be obvious once everybody's nose is rubbed in the revenue crisis.

Like I said, it's not my favorite option. We buy some nice things with our progressive-rate structure. But we're all going to have fewer nice things for a while.
Neil - the nicest thing any of us could possibly get would be a growing economy. I am afraid it will be a pricey acquisition.
MoM & Neil,

"The only way to raise taxes without wreaking too much havoc is to add marginal taxation on currently tax-sheltered income, and at a pretty low level."

The government grew weary of investors such as myself enjoying the tax-sheltered benefits that I-Bonds offered.

The latest I-Bond investors were basically "sucker" punched. They lowered the cap from $30k to $5k and lowered the real interest rate to just 0.1%.

After 30 years of patience, we will be rewarded with a 3% real gain (0.1% x 30 years). We can then use that gain (and more out of our own pockets) to pay the taxes on the inflationary part.

I doubt they can do much more to make that tax-sheltered investment any worse. It's pretty much as toxic as it can get.

Score yet another one for toilet paper hoarding. It's tax sheltered too and permanently so (unless the government someday enters my house and takes inventory). I'd bet a serious chunk of my savings that a roll of toilet paper hoarded today will outperform a 30 year I-Bond bought today and held to maturity, once taxes are factored in.

That's a problem. If our economy cannot support safe positive inflation adjusted returns after taxes then we are going to have a serious inflation problem at some point.

Few felt the need to hoard anything when real interest rates were 3 1/2% on TIPS during the dotcom bubble. I didn't. Now that interest rates on TIPS are closer to 1 1/2% more and more people think hoarding doesn't sound like such a bad plan.

For example, a 4.5% return in a 3% inflationary world will yield you roughly the same as a roll of toilet paper would once taxes are taken into consideration (in the 33% bracket anyway).
If one is looking for a reason to be upbeat today, I would not read the following.

As seen on Costco.com's entry web page...

$799 ($200 off) for a 1 year's supply of food.

"Due to overwhelming demand, any orders placed after 09/30/09 will not ship until 10/28/09"

Good grief. What does that say about our economy?
Mark - if the loss of over 1 million jobs over the last two months doesn't clue you in, what will?

I was going to post some more today about these numbers, but every time I brought up the tables I got an acute headache. Tension. Rare indeed for me.

"Mark - if the loss of over 1 million jobs over the last two months doesn't clue you in, what will?"

Nothing? Here's a video from 2006 that pretty much gave me a headache when I saw it today. No numbers needed.


WOW, so this is where Neil & Mark are hanging out these days. :-)

MoM, thanks for the MERS response over on CR. I don't claim to know nuthin' bout mortgage law, so I poke and prod those that do so that I may learn. Thanks again for playing teacher!
Oh wow, I didn't know MoM was still kibbitzing over at CR. The signal to noise swamped me long ago.

MoM, here's my question on the Kansas case, since their standing was so tenuous why litigate this to the Supreme Court? Since it was a second, I have to wonder whether the litigation costs could really have justified the expected recovery.

Was it lawyers giving self-serving advice?

MERS trying to pull a low-risk (ie no meaningful precedent if they lose) fast one hoping to create new special rule for themselves?

Or is my original premise wrong and in fact the foreclosure sale was large enough to be worth fighting over for the second holder?

d) None of the above... these are banks, don't try to ascribe rational logic to any of their actions.

TJ - no problem.

Allan - oh, this was a weird case. The first lien was something like 50K, and the second was around 90K. So there was money.

But MERS is fighting all these cases because it threatens their business model.

Personally I think this case showed bad judgment because they did not have a hope of winning, but at least MERS has publicized that in Kansas, even if their mortgage says to send notices to the lender, they really want the notices sent to MERS. Lenders do not intentionally screw other lenders.
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