US income growth supporting consumption
Simon Ward
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Amazingly, the US Treasury publishes daily figures on withheld income and employment taxes (similar to UK pay-as-you-earn taxes). In theory, these receipts should be an excellent real-time indicator of employee incomes, which account for about one-half of GDP. Even better, the information is ignored by most economists.
The daily figures are noisy and need to be smoothed and adjusted for seasonal variation. As the chart shows, the resulting series has been a good guide to the broad trend in the economy in recent years, signalling the 2001 recession, the slow recovery of 2002-03 and subsequent acceleration.
Withheld taxes softened during the first half of 2007 but have picked up more recently, with unsmoothed September receipts particularly strong. This was a good tip-off that September employment numbers would be respectable – non-farm payrolls rose by 110,000 while August’s change was revised from down 4,000 to up 89,000.
The full effects of the “credit crunch” have yet to be felt but favourable income trends should help to cushion economic weakness.
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