Joseph G. Carson

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
</head>

	 
 
 
 
 

In Q2, federal withheld income tax receipts declined a record 25% from the same period one year ago. That's twice the reported decline in Q2 household and payroll employment.

The sharper plunge in tax receipts is puzzling because the majority of reported job losses, according to the Bureau of Labor Statistics (BLS), are centered in lower-wage industries, such as recreation, leisure, and retail trade.

If job loss were heavily concentrated in the lower-wage industries, tax receipts should be off much less than twice the reported declines in household and payroll employment.

The estimated record drop in federal withheld income tax receipts are based on actual data for April and May and an estimate for June from the Congressional Budget Office (CBO). The actual June tax data will be released in a week or so.

CBO estimates that in June gross withheld income taxes fell only 1% from year-ago levels. But CBO correctly points out that June 2020 had two fewer workdays compared to June 2019. Adjusted for the number of workdays June tax receipts were off double-digits, but still much less than the declines recorded in April and May.

The record collapse in federal tax receipts raises questions over the accuracy of the household and payroll employment data. BLS has noted that the responses for the household survey and the collection rates for the payroll or establishment survey in Q2 were well below the averages of the past year. Potential errors could exist not only in the number of people working, but hours worked, and wages.

Congress will soon be debating whether it should provide a second round of stimulus checks while also extending additional unemployment compensation. The record drop in tax receipts indicates both measures are needed.


Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
</html>

In Q2, federal withheld income tax receipts declined a record 25% from the same period one year ago. That's twice the reported decline in Q2 household and payroll employment. The sharper plunge in tax receipts is puzzling because the [...]

Q2 Federal Withheld Income Tax Receipts Plunge A Record 25% From Year Ago Levels

Charles Steindel

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
</head>

	 
 
 
 
 

All states (as well as DC) saw real GDP decline in the first quarter. The rate of decline was heavily influenced by how rapidly the state responded to the onset of the pandemic, as well as its specific industry mix. New York and Nevada saw contractions at an 8.2 percent annual rate, while Hawaii's output fell at an 8.1 percent rate. New York was afflicted by a collapse in financial output, as well as the state's mandated cessation of construction, while obviously Nevada and Hawaii suffered from the sudden stop to leisure travel. Great Plains states experienced much smaller declines (Nebraska's -1.3 percent was the lowest in the nation), essentially because estimates of farm output were strong (in the first month of the year, farm output is truly an estimate—there is little hard information available to fine-tune it).

Texas was the best-performing of the very large states, with its GDP declining at a relatively modest 2.5 percent annual rate. A fairly strong showing in agriculture, as well as its sluggish response to the pandemic, staved off a larger initial decline.

Looking toward Q2, it would be somewhat surprising if any state were to see its real output dropping at a less than double-digit rate.

</html>

All states (as well as DC) saw real GDP decline in the first quarter. The rate of decline was heavily influenced by how rapidly the state responded to the onset of the pandemic, as well as its specific industry mix. New York and [...]

State GDP in 2020:Q1

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
</head>

	 
 
 
 
 

Both the employment report and the Institute of Supply Management (ISM) survey of manufacturers for June show a strong "bounce" in jobs and new orders from very depressed levels. The financial markets view the data as another sign of the economy slowly returning to pre-pandemic levels. But the continued high levels of jobless claims and fast rebound in COVID cases to record highs raises doubts on the sustainability while also placing a "lower" ceiling on the scale on the bounce.

In June, payroll employment rose 4.8 million, well above consensus estimates, following a gain of 2.7 million in May and a record loss of 20.7 million in April. The "bounce" in jobs was broad-based as 75% of private industries added people to their payrolls in June. That compares to a record low of 4% in April.

Sixty percent of the job gains in June were centered in retail trade and leisure and hospitality industries, the two sectors of the economy that were badly hurt by government restrictions on travel and social and recreational gatherings.

The civilian unemployment rate of 11.1% in June was off 2.2 percentage points from the level in May. The household employment survey showed 4.9 million people found employment in June. But questions over the accuracy of the household employment data, especially the reported unemployment rate, still linger.

According to the Bureau of Labor Statistics (BLS), the number of households who responded to the survey in June came in at 65%, lower than the 67% in May, and 70% in April. A "normal" response rate is around 83%. BLS maintains that they were "still able to obtain estimates that met our standards for accuracy and reliability". But the potential error in the data has to be larger when the sample size is dramatically less than normal.

The ISM manufacturing survey in June posted a strong bounce of roughly 10 percentage points to 52.6, the highest monthly reading since April 2019. A record 25 percentage point jump to 56.4 in the new orders index was largely responsible for strong "bounce" in the ISM composite index.

The ISM index is a diffusion index. One of the shortcomings of a diffusion index is that it does not distinguish between the scales of gains and declines. For example, in June 37% of the respondents reported higher new orders, 39% said orders were unchanged, and 23% reported lower orders. Given the depressed level of order bookings, it is surprising that more firms reported no improvement in orders versus those that reported gains.

Taken together, June reports on jobs and manufacturing do show a bounce in economic activity, but from very depressed levels. Hours worked for production and non-supervisory workers contracted a record 45% annualized in Q2. That points to a record fall in GDP, wage and salary income, and operating profits, the latter of which is being overlooked or ignored by equity investors.

Also, the path forward is still filled with potholes and downside risks. The 1.5 million in new jobless claims in the latest week indicates the rebound in jobs is a bounce and nothing more. Also, the number of new COVID cases rising to a new record of 50,000 for a single day raises the odds of more layoffs as states force businesses to pause or reverse course in their reopening plans.

The equity market is priced for a "pandemic-free" economy. But pandemics are not solved by equity market recoveries but instead by medical science ability to find a cure. As such, equity investors should not expect the "good" news in the June data to continue as long as the pandemic remains unresolved.


Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
</html>

Both the employment report and the Institute of Supply Management (ISM) survey of manufacturers for June show a strong "bounce" in jobs and new orders from very depressed levels. The financial markets view the data as another sign of [...]

The Economic "Bounce" Is In: What's Next?

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Our global data offering is unparalleled in terms of coverage, quality, and organization. We offer 290+ databases from 2500 government and private sources, a wealth of key survey and forecast data covering the world’s economies, and a robust offering of archive databases that drive machine learning for big data applications.

Optimized for precision analytics, our data is seamlessly integrated with Microsoft Office and all leading statistical packages through our DLX® software and platform independent HaverView™ website. We further offer direct database feeds, client server or cloud-based delivery, and RESTful API.


Privacy Policy

Disclaimer

Contact us

A premier time series data platform for the global strategy, research, and quant communities. 

New York

London

Singapore

Tokyo

Economy in Brief

Viewpoints

Contact Us

Our Data

Our Products

What We Do

Our Authors

About Us

Data News

Resources

Release Calendars

Training Center

Webinars

Newsletters

Download Software

For Clients

Live Updates

Paul L. Kasriel

The CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act was signed into federal law on August 9, 2022. The CHIPS Act provides various subsidies for the production of semiconductors in the US. Semiconductors are an integral component in numerous kinds of equipment, including defense equipment. A major impetus for passing the CHIPS Act was national security.

The encouragement of domestic semiconductor production seems to be coming to fruition. In the advance estimate of Q1:2025 real GDP, released on April 30, 2025, the annualized change in the production of real information processing equipment skyrocketed to 69.3%, as shown in Chart 1.

250430X1.jpg

Those who are in the economic forecasting “profession” likely had penciled in a large increase in their forecast of Q1:2025 information processing equipment in that there was a large increase (29% annualized)  in the production of semiconductors in the Federal Reserve’s Q1:2025 industrial production report (see Chart 2). The Federal Reserve also provides monthly data on the production of semiconductors. The monthly annualized percent changes in semiconductors are plotted in Chart 3. As you can observe, in both Q1:2024 and Q1:2025, the surges in semiconductor production were “front loaded” in the sense that January increases were much larger than the subsequent February and March increases. (I’ll leave it to reader(s) as to why I am highlighting the January 2025 increase.)

250430X2.jpg

250430X3.jpg

So, we might say “mission accomplished” in terms of the CHIPS Act stimulating the domestic production of semiconductors. But the current presidential administration has indicated that it wants to scrap the CHIPS Act and replace it with tariffs on imported semiconductors. If it ain’t broke, why fix it? Subsidies or tariffs – which one would be better for aggregate economic welfare? Tariffs on semiconductors would penalize all of the consumers of the end products in which semiconductors are a component. Moreover, domestic producers of semiconductors would have an incentive to raise their prices under the umbrella of higher-priced imports subject to the tariff. Government subsidies to semiconductor producers are not free. Current or future taxpayers will bear the cost of the subsidies. But should not the cost of national security be “socialized”? My bet is the cost of the government subsidizing the semiconductor sector is less than the cost of imposing tariffs on imported semiconductors. Hmm, this might apply to other things deemed important for national security such as steel and aluminum.

Good Bye Mr. CHIPS?

The Federal Reserve Bank of Philadelphia’s state coincident indexes in March were a touch firmer than in February, but not robust. In the one-month changes, West Virginia was on top with a .77 percent gain, while South Dakota, Indiana, Montana, and South Carolina were also up more than .5 percent. Nine states were down, with Connecticut’s .23 percent drop being the largest. Over the three months ending in March, five states were down, with Massachusetts off .48 percent (Connecticut and Rhode Island also showed declines, obviously suggesting some softness in southern New England). West Virginia was up 2.06 percent, and South Carolina, Montana, Indiana, and South Dakota also rising more than 1 percent. Over the last twelve months, Iowa and Michigan were down, and twelve others saw increases of less than one percent. No state had an increase higher than four percent, and only four were at or higher than three percent. Utah’s index rose 3.33 percent, while Michigan was down 1.48 percent.

The independently estimated national estimates of growth over the last three and twelve months were, respectively, .61 and 2.44 percent. Both measures appear to be a bit weaker than the state numbers.

State Coincident Indexes in March 2025

March was another month of little change in state labor markets. The sum of payroll changes among the states was close to the national result, and revisions eliminated most of the gap initially seen for February. Six states saw statistically significant gains in jobs in March, with Pennsylvania increasing by 20,900 and Missouri up .5% (Texas reported a larger, not statistically significant, gain than Pennsylvania). A few states had insignificant declines.

Three states (Connecticut, Massachusetts, and Virginia) had statistically significant changes in their unemployment rates, with Connecticut’s .2 percentage point rise being the larges. Indiana reported a significant .2 percentage point drop. The highest unemployment rates were in Nevada (5.7%), DC (5.6%), Michigan (5.5%) California (5.3%), and Kentucky 5.2). Hawaii, Montana, Nebraska, North Dakota, South Dakota, and Vermont had unemployment rates under 3.0%, while South Dakota’s 1.8% was yet again the lowest in the nation.

Puerto Rico’s unemployment rate was unchanged at 5.3% and the island’s job count moved up by 800.

State Labor Markets in March 2025

Viewpoints: July 2020

Jump to:

Q2 Federal Withheld Income Tax Receipts Plunge A Record 25% From Year Ago Levels

State GDP in 2020:Q1

The Economic "Bounce" Is In: What's Next?