The weather has helped produce some pretty weak readings of economic activity — that much even Federal Reserve Chair Janet Yellen has admitted. Federal tax receipts, however, are showing a picture of stronger growth.
Income and payroll tax collection data — reported daily by the U.S. Treasury — can be used to help track the pace of income growth, derived mainly from the number of jobs, wages and hours worked. If weather had negatively impacted businesses, it would have caused a reduction in output and sales as well as a decline in the number of people working, which would have shown up in tax receipts.
After smoothing out the data using a 20-day moving average, federal withheld taxes are trending at close to 8 percent above year-ago levels, according to Joseph Carson, director of global economic research at AllianceBernstein LP in New York. That’s even after a tough comparison from last year, when receipts rose 6 percent.
“If the tax-data view proves to be correct, then other past economic data will likely be revised up and upcoming data may prove to be stronger than what many expect,” Carson said in a note today to clients.
Economic data took a turn for the worse over the past couple months, which many economists partially blamed on the harsh winter that’s gripped much of the country. The severe cold and multiple rounds of snow storms restrained retail sales in January and also weighed on the housing market, as frozen ground kept builders from starting work and buyers from shopping properties.
The Fed is trying to parse how much of the recent soft economic data is due to weather, as they work to scale back their unprecedented stimulus program.
“What we need to do and will be doing in the weeks ahead is to try to get firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook,” Yellen said yesterday in testimony to the Senate Banking Committee. “So if there’s a significant change in the outlook, certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions here.”