The U.S. economy grew at a 4.6% annual rate in the second quarter, according to the latest report from the Commerce Department. But leaves are turning brown now and this morning’s report describes what happened from April to June. How has the overall economy performed since then?
Here’s some evidence the strength has continued.
One gauge of economic activity goes all the way through this week: payroll tax withholdings. Every day the U.S. Treasury reports the amount of revenue received from withholdings. This creates a handy, real-time gauge of the economy because the tax payment is typically collected from each paycheck. When people get raises, payroll-tax revenue rises the moment an increase goes into effect (and, of course, vice versa).
“If you can figure out a way to correctly interpret the data, it’s never going to get revised and it’s real because nobody pays this tax on income that wasn’t earned,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. Mr. LaVorgna takes the 60-day moving average of payroll tax receipts, averaging roughly a quarter’s worth of revenue, and compares it to the same period from a year earlier.
That method shows payroll taxes are bringing in about 5% more revenue than a year ago. Over time this data has often done a decent job of tracking nominal GDP, especially when not distorted by changes in the tax code. In the recession, withholdings fell faster than GDP, but they subsequently bounced upward more quickly.
The data tracks overall wages and salaries in the economy even more closely (though again, the fit is not perfect).
There are three factors, of course, that could be behind an increase in aggregate wages and salaries: an increasing number of jobs, increasing real wages, or increasing inflation. With inflation currently on the low side, the withholdings figures suggest a healthy mix of wage and job growth.Mr. LaVorgna cautions that the data, though a good guide to overall trends, are not precise enough to predict the Labor Department’s monthly jobs report. It does suggest that the strong economic growth in the second quarter could continue on into the third.
The average estimate from economists in the Wall Street Journal‘s latest survey expect the economy to grow 3% in the third quarter of 2014. For his part, Mr. LaVorgna is more optimistic, forecasting growth of 3.5%, with risks to the upside.