Posted on November 7, 2020
If you’re interested in some non-election information, I invite you to read on. According to data released yesterday by the U.S. Labor Department’s Bureau of Labor Statistics (BLS), economywide wages and salaries continued to improve in October, albeit slowly. Total private sector wages and salaries were down by 0.9 percent in October, compared to the amount in October 2019, which was an improvement from the 1.4 percent year-over-year decline in September (see chart below). At the worst point of the economic downturn in April, wages were 8.9 percent lower than year-ago amounts. Despite the improvement, the recovery in wages and salaries is looking much more like a swoosh than a classic V-shape.
Movements in our measure of economywide income and payroll tax withholding have largely tracked the recovery in wages and salaries. However, withholding improved more in October than did wages and salaries as measured in the BLS data. We had our measure of October withholding growth available about a week before BLS released its data on the labor market situation, and the withholding data suggested a bigger recovery in wages and salaries. Although the labor market performance in October was better than analysts’ expectations, it still lagged behind what we observed in tax withholding. We were suspicious of the very bullish withholding data for October (see previous post), but there remains plenty of measurement error in all measures of labor market activity including tax withholding. Despite our efforts to standardize the measure of tax withholding–adjusting it for differences in the number and makeup of business days across months and removing the estimated effects of tax law changes–it does not correlate perfectly with BLS’s measure of wages. But there is nothing saying that BLS has the perfect measure, as it is based on a sample and is subject to revision.