We're the ones who track monthly withholding and sales tax receipts in the 25 largest states, and are known by traders around the world for the accurate forecasts of the BLS’s Employment Report (the “non-farm payroll,” or NFP), and the Census’s Advance Retail Sales print that we build on the results of these surveys.Our Withholding Diffusion Index (WDI), the share of states at or above forecasted collections, has a .74 correlation with the monthly changes in national employment:
and our Sales Diffusion Index (SDI) a .75 correlation with the Advance Retail Sales print:
This is just the raw data. Of course we fine tune our forecasts based on the comments we hear from our tax contacts, and other economic intelligence we have collected. The markets work on shocks to expectations: when our tax contacts are shocked, we know a successful trader can put that information to good use.
Back in 2001 we were the first to warn of a corporate profit squeeze in a report that received widespread attention, and throughout 2002 we argued that hidden weakness in the labor market was bound to show up soon. And show up it did: against widespread speculation that the 2003 non-farm benchmarks would be positive and huge, we cautioned, based, as always, on the conversations with our tax contacts and the details in the data, that there was no evidence for this, in fact the risk was quite the opposite. The benchmark? Negative. This is the kind of work that has earned us the reputation of being the best in the business on national employment trends.
In spring 2006, our report, Edgy Debtors and a History Book, highlighted research showing that the current housing boom was an anomaly in US history, and that housing prices have indeed fallen in real terms, preparing our subscribers for what was to come. More recently we have raised a number of red flags: a steep decline in truck sales that was definitely not the result of the then-popular “environmental regulation” explanation; a sudden reversal of remittances to Mexico that we believed told the real story of construction employment; and ample evidence that recent spikes in federal withholding receipts had little to do with actual employment levels and were likely to reverse, as they always do, as calendar factors fall back into balance.
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