Political  Calculations

We've long noted that there is a 2 to 3 week lag between events like this occurring to when it shows up in the new jobless claims data. That's because most employers are "locked in" to their current payroll cycle - any employee retention decisions they make will take effect with their next payroll cycle. In the United States, with most employers issuing paychecks on an either weekly or biweekly basis, it then takes 2 to 3 weeks for the impact of any layoff decisions to fully show up in the data.

We say that this effect will be short lived, because the extra economic activity that might be associated with this positive factor will disappear after people begin receiving their 2013 paychecks, in which they will see a 2% reduction in their take-home thanks to the expiration of President Obama's Social Security payroll tax cut from 2011.

For a typical American household, that additional money now going to the U.S. government would be the rough equivalent of a sudden $1.40 per gallon increase in the price of motor gasoline in the United States.

The impact of that change will be progressively felt as employers change the amount of their tax withholding on behalf of the U.S. government in 2013. All paychecks should reflect the higher payroll tax by 15 February 2013 and most should see it for paychecks issued in mid-January.

Then again, the sudden dip in new jobless claims could be another data reporting problem, much like California's episode of incompetence back on 6 October 2012. Either way, we'll know what was behind the dip in new jobless claims within the next several weeks.

Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

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