Withheld Taxes Stablizes in March

Last week I discussed Withheld Taxes and Matt Trivisonno’s real time daily charts. Marketwatch has an article on TrimTabs, an investment research firm, and their analysis of Withheld Taxes.

Let's start with the bad news: Not only is the economy in a recession, according to TrimTabs, it has been in one for six months now. The only reason that this isn't more widely recognized is that it takes months, if not years, for the government to officially confirm that a recession has started.

Now the good economic news from TrimTabs: There is a distinct possibility that the economy has already emerged from the recession, or is about to. TrimTabs bases this relatively cheerful assessment on an analysis of daily income tax withholdings from the U.S. Treasury. According to Madeline Schnapp, director of macroeconomic research at TrimTabs, withholdings during March were 4.1% higher than one year ago.

Adjusted for inflation, 12 months taxes withheld through March 2008 was virtually unchanged declining 0.026% from February 2008; year over year 12 months taxes withheld is up 3.41% adjusted for inflation. After dropping sharply in January 2008, taxes withheld has stabilized in the last two months. However, there have been similar rebounds before when the overall trend was down during the last recession.

Although my chart for taxes withheld only goes back to 1999, it is possible to get an idea of what it looked like by looking at income taxes filed with the IRS. Income usually declines significantly during recessions (just like it did during the 2001 recession). The current decline has been very small so far.

This current possible recession is being led by the housing and credit crisis. All the housing indicators are still getting worse: mortgage delinquencies and foreclosures (are still accelerating), housing prices (going down at a faster pace), housing demand (sales are still dropping fast), credit crisis hasn’t been resolved (lending is tight and large writeoffs are ongoing). I believe it is premature to call the end of a recession. Furthermore, I think it is still premature to say one has definitively started.

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