Sharp Drop In Taxes Conflicts With ADP Report
The monthly ADP employment report for May showed a loss of 2.76 million, far below the expected decline of 8.75 million. The methodology ADP uses to estimate changes in the monthly payroll count is largely based on jobless claims.
Given the high level and variability in week-to-week jobless claims, there is reason to think that the error term (or the difference between the reported payroll figure and the ADP estimated number) is relatively large.
But there is a better reason to question the accuracy of the ADP estimate for May payroll employment. Federal withheld income tax receipts in May fell over 20% from year-ago levels.
Federal withheld income tax data comes from the Daily Treasury Statement. Federal withheld income taxes and employment taxes (i.e., social security) are lumped together in the daily report. The monthly Treasury statement, which is released a few weeks after the end of the month, will separate the tax data into the proper tax account so the actual monthly numbers could be off somewhat from the daily data.
Nonetheless, tax data from the daily Treasury statement offers an initial approximation of changes in income growth that come from gains and losses in employment and wages.
A 20% decline in withheld income tax collections would equate to a job loss in May two or three times larger than the ADP report. Additional support for a larger job loss comes from the monthly survey of manufacturers and service industries from the Institute of Supply Management. Both surveys showed employment index readings in the low 30s, indicating substantial and widespread job losses.