Economy

Are Tax Receipts Increasing Recession Risks?

Jon C. Ogg

Published: February 22, 2016 10:35 am

Last Updated: January 13, 2020 12:53 pm

TrimTabs is generally known for releasing data about employment payrolls each month. Now the research firm has a warning that U.S. Treasury tax receipts show the U.S. economy is stalling. TrimTabs’ real-time tax data indicates that the income tax withholdings was down by 0.2% year over year in real terms over the four weeks ended Thursday, February 18. This decline compares with growth of 2.0% year over year in December and 3.0% year-over-year in January.

What may really hurt is that TrimTabs noted that the year-over-year comparisons of these tax collection flows indicate that the U.S. economy has been decelerating since last fall. It further said that the flows turned flat-to-down in the past four weeks and could be headed for a recession if this trend continues.

TrimTabs uses the income and employment taxes withheld from the paychecks of 141 million U.S. workers as a proxy for wage and salary growth to compile this report. The U.S. Treasury also reports this data every business day on its website.

The TrimTabs report said:

Real growth in income and employment taxes has been decelerating since last autumn, and it turned flat in recent weeks. If the trend persists, it would be consistent with a recession. … Withholdings can be volatile from month to month at this time of year due to the timing of year-end bonus payments, but the decelerating trend is clear.

TrimTabs says that this is also not the only signal of weakness. Its Macroeconomic Index, which is a correlation weighted composite index of weekly leading indicators, recently hit a year-and-a-half low, and another weakness was seen via warnings in the credit markets, and wider metrics are pointing to a contraction in manufacturing.

Readers might want to consider that tax receipts can be volatile and may depend on myriad of factors. That being said, this is one more weak economic indicator.