Trimtabs Continues to Abuse Withholding Data

Yesterday’s Gartman Letter (TGL) featured a discussion about withholding tax data (via Trimtabs); I received several questions about it from various quarters. In short, the Trimtabs’ analysis was simply wrong. The data below reveals the how and why.

TGL quoted Charles Biderman of Trimtabs, who stated:

"The US economy is improving rather than deteriorating. The income and employment taxes withheld from the paychecks of all U.S. workers on payrolls rose 3.1% year-over-year in the past two weeks and one day (Friday, April 4 through Friday, April 18). Withholdings on the latest Friday this year were 13.2% higher than withholdings on the same Friday last year, and the growth rate will probably rise further once withholdings for Monday are available. The growth rates we have been measuring are definitely not indicative of an economy sliding into a deep recession. (emphasis added)

Trimtabs seems to have a fundamental misunderstanding about the withholding data series. Their conclusions are not merely unsubstantiated by the data — they are directly contradicted by it. To be blunt, this was one of the weakest, most poorly reasoned and mathematically challenged analyses I have read in two decades on Wall Street. A brief review of the charts of the withholding data shows what an absurdity the Trimtabs commentary is.

Let’s start at the 2001 recession. In the beginning of that contraction, withholding taxes fell slightly. Further into the recession, W/H actually rose. Then much deeper into the recession, W/H plummeted. This is consistent with what you would expect from an employment related data series, as employment is a lagging indicator 

Withholding Taxes, Quarter over Quarter Growth Rate

  Withholding Taxes, Yearly Growth Rate


(Data through April 21, 2008)
charts courtesy of Matt Trivisonno


Based on the above, one is forced to wonder how a conclusion could be reached that the recession — which has yet to produce negative year-over-year WH — is already over, and now in recovery. If anything, based on this one single metric, it is still in the very early stages when compared to the recession of 2001. And, if this recession turns out to "only" be as bad as the last, mild contraction, the W/H data still has a long away to go. If it is appreciably worse than ’01 (as I fear it might), then W/H data has yet to even begin to approach its worst levels.

Indeed, earlier this month — based on what appears to be a similarly erroneous misinterpretation of the W/H data — Trimtabs announced that "The recession was over" (see this Marketwatch article). 

Why? The 4.1% year-over-year W/H. That sounds like a good number — until you actually look at the full data series:>

Does this Weekly Chart look encouraging to you?


That chart is hardly impressive; once you put the year-over-year gains of 4.1% into historical context, it makes you wonder what the hell Trimtabs is looking at.

Lastly, note that the witholding data series is quite volatile, and fluctuates dramatically from day to day. Looking at the data as a series – rather than any single day or week — provides a much less random basis for drawing any conclusions about what the general trend in tax withholding is, and what it might mean.

I cannot reproduce Trimtabs 13.2% single day data. However, looking back over the past 12 months "one day at time " series, we are left with the conclusion that at best, a huge change in a single day’s data is most likely an enormous outlier to the rest of the W/H data series.   

Here is the most recent data through April 18, 2008 showing both the volatility and the overall trend:

Withholding Taxes — Y/Y Daily Growth


(Data through April 21, 2008)
charts courtesy of Matt Trivisonno


Under most circumstances, the normal state of W/H is for it to nominally increase. Except for the most severe slowdowns (i.e., recessions), it reflects both an increasing population and ordinary inflation. This natural expansion is not reflective of any fundamental improvements in the US economy.

This most recent analysis by Charles Biderman is more reflective of psychology: There is still too much bullish sentiment. We have not seen any of the deep despair that typically accompanies lasting bottoms. Instead, there seems to be a desperate attempt to grasp at bullish straws — regardless of the data. This is symptomatic of early, not latter stages of a bear market.



Changes in US Withholding Taxes (March 24, 2008)

TrimTabs: Its a Recession, and Its Already Over (Wrong) (April 02, 2008)

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  1. blin commented on Apr 23

    I and many others have bcome skeptical of the MSM, large corporations and government statistics. All have become untrustworthy.

    I attach a link to a fabulous article that gets into the guts of the potential credit default swaps crisis. At the very least, the article will convince you to stay away from banks or broker dealer stocks. The financials still have a long way to drop before a buyable bottom is reached.

    This article should be placed in your archives for rereading at a later date.

  2. bdg123 commented on Apr 23

    The suspect data isn’t just from TT it’s from Gartman. Dennis seems like a super nice and honest gentleman but I’ve heard words out of his mouth that I know to not be accurate. He’s caught up in this euphoria just like everyone else in the game. He’s a trend trader with no seeming understanding of why just like everyone else in this bubble. He’s negative when commodities become volatile and trendless then he reverts to being uber bullish when we see another exponential spurt upwards.

  3. VennData commented on Apr 23

    If you put on your perma-bull sunglasses it’s quite clear, Everything’s going fine.

    Keep the glasses on when you check your Q2 brokerage statement later this year and you’ll be able to see your homebuilder stocks and retailers had big, big gains.

  4. DownSouth commented on Apr 23

    “As the enemy drew nearer to Moscow, instead of the Muscovites’ view of their situation growing more serious, it became more frivolous, as is always the case with people who see a great danger approaching. At the threat of danger there are always two voices that speak with equal power in the human soul: one quite reasonably tells a man to consider the nature of the danger and the means of averting it; the other, still more reasonably, says that it is too depressing and painful to think of the danger, since it is not in man’s power to foresee everything and escape from the general march of events, and it is therefore better to disregard what is painful till it comes, and to think about what is pleasant.”–Leo Tolstoy, “War and Peace”

  5. ndallasj commented on Apr 23

    Yes, payroll taxes tend to be a lagging indicator, but the 2001-2003 data requires further scrutiny since that was also driven by tax rate cuts.

  6. VennData commented on Apr 23

    When I was in school people would tell me how a liberal arts education was better than a technical one. I heard it over and over. It taught you to think, they’d say. I even found some data to support their view (about to give away my age here.)

    “Look,” I’d show them, “The average salary from my degree is in the low twenties but the average salary of University of Virgina Rhetoric major the was $44K this year.”

    “See!” they’d intone smugly.

    Then I’d mention one of the graduates of the Cavaliers esteemed writing program was NBA-bound 7′ 4″ Ralph Sampson.


  7. Greg0658 commented on Apr 23

    Government employees pay into withholding taxes too.

    We had an incident at a gas station 2 days ago. On I-80 an out of state traveler with stolen plates on his car pulls into station with trooper in tail. A scuffle ensues with driver, passenger and the trooper, who fires shot into abdomen of passenger (listed as homeless).

    Station taped off. There were over 20 vehicles and over 30 people on the scene 4 hours after the shot. It went on for 6 hours total. A day in the sandbox for the investigators.

    If we all had socialist jobs would there be crime for survival? Nope, just power plays.

    I wonder how much that Incident # will cost the taxpayers (incident & incarceration), the station, the hospital, the stations insurance company?

    Sorry for the long story. Main point being government employees pay withholding taxes but can they sustain an economy?

  8. KennyGEE commented on Apr 23

    Trim Tabs is a joke, ignore everything they say. Gartman should know better than to trust anything they say.

  9. stuart commented on Apr 23

    RE: comments about Gartman. Fully agree. Very often, lazy and superficial in comments and analysis, he speaks with forked tongue for his own profit and purpose as he chases trends. Pro-actively aware of his public appearance and perception, one can lose alot of money on this false prophet, often manipulated and used as a tool of others. Turn Gartman they call, he’ll voice his concern change position, and voila, victory. Now this “free-marketeer” is calling for deliberate active government intervention in the commodity markets. Free markets my ass. Interventionist markets more like it.

  10. BG commented on Apr 23

    The few times I have seen Dennis Gartman on CNBC he seems very confident maybe a little bit condescending in his market views.

    On a side note, I read at Bloomberg this morning that buyers (including PIMCO) of B+ (and lower rated) Bonds used to finance LBOs are now looking at getting back no more than 10 cents on the dollar.

    To me…things aren’t getting better. They are getting worse and things are teetering on coming unclued. It really is like a train-wreck in slow motion. It’s orchestrated (step-by-step/day-by-day) wealth destruction. It ain’t good.

    What little oxygen is life in the US economy is being sucked out by the high price of oil as if we needed additional head wind.

  11. Unscripted Thoughts commented on Apr 23

    This story stirred two thoughts for me:

    1. Although mostly anecdotal, I have repeatedly heard workers complaining that their hours are being cut (Lowe’s was the last place). Might not that cause an even greater ‘distortion’ of the data? If so, it would also suggest that this indicator is probably not the best to predict future activity.

    2. Assuming your grasping at straws comment is correct (and I believe it is given the W/H analysis), the TrimTabs analysis indicates to me that there is still a huge reluctance by some sophisticated people to admit bad things are on the horizon. That suggests to me that this downturn is going to last longer than we all hope.

  12. BG commented on Apr 23

    Greg0658 wrote:

    “I wonder how much that Incident # will cost the taxpayers (incident & incarceration), the station, the hospital, the stations insurance company?”

    I wonder the same thing. The cost of keeping law and order in this Country has got to be astronomical…a tremendous cost on the economy and society as a whole.

    And that doesn’t even take into consideration the personal cost to the victims.

  13. Ross commented on Apr 23

    Tolstoy, nice. The Russians didn’t play fair. Nobody showed up to surrender and they burned Moscow. The Cossaks would capture French soldiers and sell them to villages where the people would torture and kill them in a most disagreeable fashion.

    As a small businessman who has met many a payroll, I can assure you that remitting witheld taxes can be a very lumpy process. Although the accountant will harangue you to pay on time, it is tempting to use the money for working capital during slow periods. During recessions, it is my guess that employers would prefer to pay the penalty.

    After a recession the tax authorities are busy for months prosecuting former scofflaws or just honest folks that tried to survive. But your point is well taken. Tax receipts lag and sometimes badly and then fall off a cliff.

  14. bluestatedon commented on Apr 23

    “there is still a huge reluctance by some sophisticated people to admit bad things are on the horizon.”

    and some not-so-sophisticated people:

    “…a reporter asked President Bush “how deep and how long will the economic recession be in the United States?” “First of all, we’re not in a recession,” Bush replied, adding, “We’re in a slowdown.” ”

    I feel better already.

  15. Albert commented on Apr 23

    ndallasj —

    Which tax cuts? The Cap gains tax cut? The dividend tax cut? The top bracket income tax cut?

    I doubt any of these had a very noticeable impact on withholding.

    The WH drop primarily reflected a recession.

  16. larster commented on Apr 23

    Everyone is in a race to call the bottom. I suspect that many of these experts will call the bottom several times, thus increasing their odds of being right.

    Re BG’s comments, how can we grow if we have 25% of the worlds incacerated people (NYT article today), the largest fuel consumption per capita, and a defense budget that is bigger than the rest of the world combined? This sounds like one hell of a dragf in today’s world.

  17. DonKei commented on Apr 23


    Love the Tolstoy quote. The Big Picture, both the blog and the idea, should be about understanding human nature. Tolstoy understood it, and his observations still hold relevance today.

    Never, ever, ever believe anyone that tells you that “things are different this time” like they did w/ tech stocks, then w/ housing prices never going down, now w/ oil and food. Human beings are always the same. Sadly, that includes their refusal to acknowledge pain until the very moment of its infliction.

  18. dblwyo commented on Apr 23

    Love the Tolstoy quote how apt. As for WH vs tax cuts remember tax revenues went up as the economy recovered. We are early days yet – last week the headlines of employment data showed a nationwide reduction in hours. This is all about patterns and lags which seem to be escaping everyone’s grasp who functions as a talking head. Sadly. And I happen to agree with Barry on the likely seriousness and length of the downturn. You know minor names like Feldstein, Summers, Krugman, Stiglitz, Soros, Bit players but interesting. If you want some charts and analysis to back that up try:
    For example real retail sales was down -2% which should have been a major headline thought Barry and CalcRisk did similar analysis and Floyd Norris had a great breakout which Barry posted.

  19. dblwyo commented on Apr 23

    P.S. – before I forget…Barry…thanks a careful, thorough and I’m sure expensive post. Much appreciated. Thanks.

  20. cinefoz commented on Apr 23

    While we are on the topic of experts and pundits … Is it my imagination or do the visiting talking heads on CNBC seem dumber than usual?

    They all come across as momentum traders without a shred of analysis. Are they just trolling for business from those who confuse presentation with knowledge? All seem to think that commodity windfall profits are a sure thing and dependable for those who get in NOW!

    I’m starting to feel smug about cashing out last week. I may have been a day early, but I have YTD gains and all of my capital. Why buy anything today for any reason? Just about all equities will be cheaper in a couple of weeks. The only unknown today is by how much and for how long? Commodity prices after the FOMC announcement will control this.

  21. KennyGEE commented on Apr 23


    You are 100% correct about Gartman, he is in love with seeing himself on CNBC, some traders (old guys) I know that knew him when he was “nobody” say he could not trade his way out of a paper bag…

    If he was so smart he would not be selling a newsletter, he would be trading his own money or have his own hedge fund…

  22. Barry Ritholtz commented on Apr 23

    My experience with Dennis is that he is a trading pro, who is usually objective about commodities, equities and economies.

    He was way early calling for a Bear market, and I suspect he will be way early calling for a recovery.

    His views on politics and global warming are somewhere to the right of mine. But I have never seen him willfully adjust his market views due to politics.

  23. Henderson commented on Apr 23

    Gartman is not so bad, he got out of gold this week and today it is down $20.

    If you want bad-watch Happy Hour on Fox..

  24. Steve Barry commented on Apr 23

    I have been posting last week or so about a data series I have found..for 23 straight trading days, the QQQQ has traded below its 100 day MA for volume and most days, it is not even close. This has coincided with QQQQ’s rise off the March lows. The pathetic volume tells me the rally is fundamentally weak. My look back 4 years shows no other similar streak even close to 23 straight. Barry, or others, what do you make of it? Who has the data to go back further to determine if this is really rare? You could use NDX as a proxy.

  25. Karl K commented on Apr 23

    Barry, nice critique.

    You should put on your tickler to review this 3 or 4 quarters down the road to see how the numbers actually pan out.

    While it’s certainly true you can’t, at this stage, point to WH numbers to signal no/end of recession, what may happen is that we do, in fact, don’t have that big of an economic decline. If that case occurs, TT can come back to this and trumpet it, even though your logic is unassailable.

    It would be like the instance of the player saying, “we win everytime I put my left shoe on first.”

    This, of course, is the hazard of illogic.

    In a way, for you argument to be ultimately proven true, the economy would have to tank. But your argument is true, even if it doesn’t.

  26. cinefoz commented on Apr 23

    Steve Barry,

    I think you analysis quantifies an optimism that is about 1/2 inch deep. People are smart. They’re not buying much, so how can profits rise? There is no light at the end of the tunnel, so there is no reason to expect higher earnings.

    I bet the visiting pundits are cash poor from last year’s and this year’s decline and they are just trolling for new victims to earn commissions from.

    On a positive note, I’m going to look at new furniture this weekend. Being the vulture that I am, a very nice store that specializes in solid cherry and high quality custom design and construction is having a sale this weekend … up to 70% off. For this store at this time of year, this is almost unheard of. They’re hurtin’.

  27. Alfred commented on Apr 23

    The battle of the bulge ensuing. Who is going to be right BR with the recession forecast or TT with “recession is already over”. We will know more when the next employment data will be released.

  28. Rosevillebill commented on Apr 23

    Could the reason the withholdings rise before the recession numbers appear be due to the taxes being collected on the severance pay on the newly laid off workers?

  29. DownSouth commented on Apr 23

    ☺☺”The Big Picture, both the blog and the idea, should be about understanding human nature.”
    Posted by: DonKei

    Somewhere along the road the study of economics took a wrong turn. A lot of emphasis has been toward the technical. I suppose the drive to make economics more science than liberal arts is only natural, given the way our society worships science and technology, almost with religious fervor.

    But in the quest for objectivism and instrumental rationality economics has lost a lot. It no longer attempts to address human purposes such as the great philosophical questions of how to live, what values to pursue, what meaning to give to life, how to acheive a just and free society, and how to be a fully realized and free human being. And as a result good judgment has been thrown to the wind.

    That’s why I admire Warren Buffet so much. He seems to have found it all–a love of information and knowlege, but not at the expense of good judgment and a great personal philosophy of life. He’s really very different from the financial Napoleans whose numbers seem to dominate Wall Street.

    There is a character from “War and Peace” who I believe is very much like Warren Buffet. General Kutuzov was the Russian commander who led the Russian military in its overthrow of Napoleon. To quote Tolstoy again:

    “It was taken for granted by all of these men, simply because they were incapable of understanding him, that it was useless to talk to the old man; that he would never comprehend the profundity of their plans, that he would answer with one of his expressions (which they considered mere words) about a ‘golden bridge,’ about the impossibility of crossing the frontier with a troop of ragamuffins, and so forth. They had heard all that before. And all he said–that it was necessary to wait for provisions, or that the men had no boots–was so simple, while everything they proposed was so complicated and clever, that it was obvious to them that he was old and stupid and that they were commanders of genius without the power to act.”

    Along these same lines, Naked Capatalism the other day posted a link to an article that treats this subject…

  30. Tontine Partners commented on Apr 23

    I know Gartman from his AG Becker days — great man , great trader ( institutional , not a retail hack). He’s in the market , not just a letter writer . For all the haters , you should do some homework on someone before you get the noose out— CHIMPS

  31. D. Park commented on Apr 23

    Thanks for this clarification on Trim Tabs data Barry. I was actually mulling it over in my head often the last couple of days, I knew it seemed off and meant to look into it further.

    As for Gartman, on a personal note I would like to add that he is one of the most friendly, down-to-earth guys I have met on the speaker’s tour.

    It is true that he is a trader, he readily admits that. Traders and newsletter writers I have found are more apt to turn their opinions day to day and week to week as they operate on shorter timeframes and perhaps trying to maintain the short attention spans of their readership.

  32. Philippe commented on Apr 23

    Fine it seems today is Russian literature day!
    May these few verses of Pushkin inspire your thoughts

    Graze placid peoples!
    What good to herds the gift of freedoms?
    They must be slaughtered or be shorn.
    Theur inheritance from generation to generation
    Is the yoke with bells and the whip

    I am not sure he was addressing these verses to the bulls only

  33. ndallasj commented on Apr 23


    I looked up the 2001 tax changes. The biggest impact was the introduction of the 10% bracket for the first $6/12K of everyone’s earnings. The cuts in the marginal rates for higher brackets were phased in over several years.
    Since at least 6K of earnings was taxed at 10% rather than 15%, that would be a reduction of taxes (and presumably withholding) of $300 per head, or $6 per week. Multiply that by over 100,000,000 in the workforce and that alone would drop withholding by $600,000,000 per week.
    So it looks like 2002 withholding was hit with a triple whammy of rate reductions, recession, and hiring lag when conditions improved.
    (Sorry for all the numbers, DownSouth–I enjoyed your thoughtful post.)

  34. MaxedOutMama commented on Apr 23

    I spend a lot of time looking at the Treasury receipts data. I am waiting for the entire April report before drawing any even tentative conclusions. Because of the odd filing deadlines last year it is extremely hard to compare day by day receipts this year. I agree that it is always an inappropriate procedure, but it would be even more inappropriate this year than normally.

    FUT proceeds should be correlated with WIET proceeds before taking WIET rises as a sign of better things to come. For example, during periods with high layoffs WIET can suddenly pop up because of withholding on severance checks. Naturally, a rise in WIET produced in this manner is not a favorable economic indicator!!!

    A sudden diversion from monthly trend in WIET that is not well correlated with FUT might be a sign of high layoffs on Wall Street.

    However the first quarter data showed pretty good FUT increases, so one cannot say yet that this is the largest component of the April WIET increases.

  35. Dan North commented on Apr 23

    Business Bankruptcies Rose 43% in 2007

    The final figures recently released by the U.S. bankruptcy courts show that 28,322 businesses sought bankruptcy protection in 2007, a 43% increase compared to a total of 19,695 in 2006, according to research from insurer Euler Hermes.

    “The escalation in bankruptcies is a direct result of the deterioration in the U.S. economy, which is now in recession,” said Euler Hermes ACI chief economist Dan North. “Businesses are now facing a serious combination of factors which will almost certainly continue the trend of increased bankruptcies, including skyrocketing energy and commodities prices, plummeting house prices, job loss, a slowing consumer, record foreclosures and delinquencies, and tightening credit conditions. Bankruptcies are likely to continue rising for the next year as the economy struggles through the recession.”

  36. Hernan commented on Apr 23

    Great site first post here

    question, could it be that W/H are becoming higher in part due to increased early cashing out of 401k IRA or similar retirement funds??? I know in the public agency where I work a trend has developed in the past year or so and is becoming worse, people just can’t make ends meet and are early withdrawing funds to pay for mortgages (in spite of the penalties), my CFO shared this with me a couple weeks ago, is there any place from where you could see W/H by type of income source? I’m sure this is not an isolated phenomena.

    Great job Barry, very insightful, I use it as one of my sources for the financial news radio program I have in a small Hispanic network in CA, thanks!

  37. Ross commented on Apr 23

    A goethe poem a few days ago and now Tolstoi’s ‘War And Peace’? I’m going to order some watercress sandwiches and air out my smoking jacket.

    Kutuzov was a very bad General yet the Russian people love him. I lived on Kutuzovski Prospect in Moscow off and on from 99 to 04. Great city.

    Napoleon was playing Western Chess. “I captured your capital so you must surrender’. WRONG. If no one surrenders, you didn’t/can’t lose! Russia cannot be conquered.

  38. me commented on Apr 24

    Withholding Taxes — Y/Y Daily Growth

    I don’t know if anyone else picked up on this, but two of the significant swings – the swing down in the fall and the swing up in the spring – correlate to the beginning and ending of the writers strike in Hollywood.

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