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Social Security – Good News, Bad News

Bruce Krasting's picture




 

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The Good News
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Social Security (SS) has released estimates for both payroll tax revenues and benefits paid for April. The results are adjusted for the 2% payroll tax reduction.  (The Treasury pays SS monthly for the shortfall.) The numbers tell an interesting story. Revenues from FICA and SECA taxes are up significantly in the first four months of 2012. A look at the actual income and the percentage change:

 

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I’m surprised by the extent of this improvement. These numbers appear to be too good. The Jan. – Apr. results suggest that total employment has now exceeded the levels that prevailed in 2008. But that is not the case based on other information.

According to the BLS data, the number of people who are employed rose from 139.6m to 142.1m from Feb. 2011 – Feb. 2012. The increase of 2.5m workers translates into $5B of additional revenues at SS for the Jan. – Apr. 2012 period. (This assumes average annual income of $50,000) The $19B YoY improvement at SS suggests that there are many more people now working then the reported BLS data. There are some reasons why this discrepancy is so large:

-Annual adjustments to SS’s reported income.

-Quarterly adjustments to SS’s reported income.

-Many workers received bonus payments in Jan. and Feb. 2012. Therefore they have already maxed out their annual SS contributions. (The max = $110,500 of income.)

-SS data covers all workers; BLS data only covers Non Farm workers. It’s possible that more people are finding employment outside of the areas that the BLS covers.

I think that taken together these factors can only account for half of the increase in payroll tax revenue. The other half is a function of more people working. The data suggests there are 1-2 million more people working than the BLS is reporting.

Is this possible? “Yes”, is the answer. The BLS puts the work force at 142m. Could its numbers be wrong by 1%? Sure they could. The BLS conducts its surveys by land-line phone. It does not attempt to contact households that exclusively use cell phones. In 2010, 27% of all households exclusively used cell phones. The exclusion of a quarter of all households makes the BLS numbers very suspect.

Note: The observation that there may be 1-2 million more people working (including part time) runs counter to other information that I look at, so I’m a bit confused by the result. The data can be found here. I’d be interested in any alternative theories as to why the numbers appear so strong.

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The Bad News
 

The double whammy of inflation and 10,000 new people a day getting SS checks is causing costs to soar at SS. The payout has been averaging $4B a month higher than a year ago:

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A basic metric for measuring SS is payroll tax income minus benefit payments. This chart looks at the results for the Jan. – Apr. periods:

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The first four months of the year is a period of high seasonal tax income for SS. Most of the months for the rest of the year will end with cash flow shortages. Based on Jan. - Apr. results for 2012, I forecast a full year cash deficit of $40B (vs. $45.5B of red ink in 2011.)

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Mon, 04/02/2012 - 23:38 | 2311901 mopickens
mopickens's picture

any numbers coming out of government cannot be trusted with this administration in the white house - this guy will do anything !

Mon, 04/02/2012 - 13:57 | 2310110 RobertBrusca
RobertBrusca's picture

The unexplained pop in revenues could be from higher paying jobs on average and new hires paying in more money on their higher incomes. also the factory work-week has been rising so some of the increase in payments could be from intra-marginal workers

Mon, 04/02/2012 - 13:28 | 2310031 eddiebe
eddiebe's picture

Geez guys, can we believe any figures the gov. puts out?

Mon, 04/02/2012 - 13:19 | 2309996 barliman
barliman's picture

 

Bruce,

The other side of "seasonal adjustments" is the reality of the weather we actually get - about 4 weeks of winter intermittently scattered from November through March. Normally, my wife and I don't debate turning on the air conditioning on March 7th. Normally, road crews see few actual work days in the period of January through March. Ditto the construction trades people that still have work, etc, etc, etc. Add in the part time people mentioned above - and there is a metric crap ton of part timers these days.

Voila! Better SS numbers.

Did you get a chance to take the road trip I suggested?

barliman

Mon, 04/02/2012 - 12:07 | 2309796 tom
tom's picture

According to the MTS, FOASI FICA was $47.14b in Jan 2011 and $36.84b in Feb 2011, vs $47.40b in Jan 2012 and $38.86b in Feb 2012. There's no adjustment necessary because both periods were subject to the same "temporary" payroll tax cut.

That's an 0.5% increase year-over-year in January, and a 5.5% increase in February, and a total 2.7% year-over-year gain for the Jan-Feb period. Changing numbers of workdays/month (including leapday) probably account for the smaller than expected gain in January and larger than expected gain in February.

So I would say there is nothing unexpected appearing yet in the actual reported FICA receipts. Only those advance estimates are reporting something unexpected.

Another reason not to use advance estimates, I say. Let's check back in a couple months.

Mon, 04/02/2012 - 11:33 | 2309693 847328_3527
847328_3527's picture

One problem is that the CPI last year for SS people (their COLA) was about 3% while inflation (the price of food, gas, the things old people need) was up 6-12%.

Add that to the 0.09% return on their savings and most seniors are in trouble.....not to mention how little many of them have saved or depleted their 401s to help their kids out or feed themselves.

It's a bigger problem then the $1 trillion student loan Bubble where the delinquency rate is near 32%.

The options are #1 deflation (with civil unrest)....or #2 printing (with moderate inflation). Ben and the ECB and Japan and China have all chosen #2......

Mon, 04/02/2012 - 11:04 | 2309624 ItsDanger
ItsDanger's picture

Bottom line, SS payouts will steadily increase for maybe 20 yrs while SS collections will have nominal at best increases.  The payouts will have increasingly less impact as the the real inflation continues above 5% while the reported # is just 1-2%.  Compounding problem that will just get worse.

Mon, 04/02/2012 - 10:23 | 2309497 holdingontomypants
holdingontomypants's picture

I am a small business owner and I am seeing new business pick up quite a bit ths year in construction which is something I haven't seen in a few years. This is refreshing to see and is helping grow my business back to pre-2009 levels. I hope it continues.

Mon, 04/02/2012 - 12:48 | 2309918 Spacemoose
Spacemoose's picture

i have no idea why anyone would down arrow you for a simple statement of a personal experience.  i also have seen my business pick up.  however, much of it i attribute to survivor bias.  IMO, this short term trend is clearly not sustainable.    

Mon, 04/02/2012 - 13:26 | 2310021 grey7beard
grey7beard's picture

>> i have no idea why anyone would down arrow you

 

This is doomer land.  You can't say anything positive, especially on Obama's watch.  Bad is good, good is bad.

Mon, 04/02/2012 - 10:11 | 2309452 Stuck on Zero
Stuck on Zero's picture

Probably a lot more non-citizens are putting in to Social Security to gain benefits. 

Mon, 04/02/2012 - 10:06 | 2309437 4shzl
4shzl's picture

Bruce,

You are the best, most consistent source of information and commentary on this crucial subject.  Many thanks for your efforts.

Mon, 04/02/2012 - 09:27 | 2309321 Bicycle Repairman
Bicycle Repairman's picture

Red ink was planned for in the early 1980s.  It arrived few years early, so the, also planned, political controversy arrived a few years early. You guys are like the guys looking at monthly housing figures hoping to call a rebound in the housing market.  Stop looking at monthly figures.  Come back in 20 years when something real changes.

Mon, 04/02/2012 - 09:23 | 2309312 hairball48
hairball48's picture

Don't fuck with my SSI!! :)

Mon, 04/02/2012 - 09:33 | 2309341 Hedgetard55
Hedgetard55's picture

Don't worry, in his Congressional testimony Greenscam once said the gov can guarantee you will get your payments, just not their purchasing power.  :~)

Mon, 04/02/2012 - 10:51 | 2309584 DeadFred
DeadFred's picture

With a fiat currency and a fiat government he would be right. He forgot that the US actually requires the consent of 300+ spoiled children to spend the bogus money. It is well within possibility that Congress will use this as a political football and put those payment at risk. In Bizzaro world five second sound bites are much more important than keeping promises.

Mon, 04/02/2012 - 09:21 | 2309307 monopoly
monopoly's picture

Well done Bruce, and the facade just continues on and on.

Mon, 04/02/2012 - 09:30 | 2309329 LawsofPhysics
LawsofPhysics's picture

Yes, as to the explanation regarding the jump in SS income. Even part-timers pay the SS taxes.  More burger flippers and a ton of new part-time nurses getting paychecks and learning the harder they work, the more will be taken from them.  Welcome to the "new normal".

Mon, 04/02/2012 - 10:03 | 2309430 darteaus
darteaus's picture

Correct. And the reason we have so many temp & low skill jobs showing up in the new hire stats:
A) The skill jobs aren't out there still, and
B) My 99 weeks of unemployment has run out, so I HAVE to do something.

Mon, 04/02/2012 - 09:17 | 2309298 sangell
sangell's picture

Another benefit of a warm winter?

Mon, 04/02/2012 - 09:05 | 2309267 BeetleBailey
BeetleBailey's picture

BLS data accuracy...miltary intelligence......government efficiency........polticial honesty......please.

Mon, 04/02/2012 - 13:16 | 2309990 Curt W
Curt W's picture

Todays word of the day is oxymoron, OK everybody say it with me oxymoron.

Mon, 04/02/2012 - 12:35 | 2309879 Problem Is
Problem Is's picture

 

 

"Health" care...

     Financial "reform"...

          Obama is smart...

               The Bernank is a genius...

                    Eric "Empty Suit" Holder is at work...

Mon, 04/02/2012 - 08:23 | 2309188 SwingForce
SwingForce's picture

April just started where I live, how do you have witholding figures already?

Mon, 04/02/2012 - 10:21 | 2309491 Bruce Krasting
Bruce Krasting's picture

The number was put out by SS on Friday. Yes, it is an estimate. I watch these numbers and see that the initial estimates end up close to the final numbers. 

Will the April numbers be revised? Yes, but the underlying trend of growing payroll revenue will still be there. Recent revisions to "Prior Quarters" have been higher of late. This is not unlike the BLS revising the last three months to show more jobs.

A link to SSA. From here go to Trust Fund data and from there to Employment Taxes, 2012.

http://www.ssa.gov/oact/ProgData/funds.html

Tue, 04/03/2012 - 13:56 | 2313735 SwingForce
SwingForce's picture

Well, then that is a HUGE increase, implying that employers are hiring big-time. What figures does Biderman watch when he says BLS is BS? Obviously not the same ones that you watch.  Thanks Bruce, I'll keep an eye on this.

Mon, 04/02/2012 - 11:16 | 2309654 mechawreck2
mechawreck2's picture

It appears (?) you neglected to adjust for the inexorable rise in the exposed income (it jacks up every single year on what is increasingly a bald welfare program).  Quick math I think that may cover all of the alleged revenue increase (assuming some ~10% of earners affected).

Mon, 04/02/2012 - 08:17 | 2309184 battle axe
battle axe's picture

Baby Boomers! Bring it on!!!!

Mon, 04/02/2012 - 08:02 | 2309163 jayman21
jayman21's picture

Bruce - I am a small business owner and did not adjust my estimated taxes.  I paid the 10% above the previous year.  I wonder how many other small businesses did the same thing and could this also help to explain your observations?  If this is true, we should see these numbers tank when I paid my year end taxes and roll the extra paid last year to this year's estimates.

Mon, 04/02/2012 - 08:15 | 2309175 mikla
mikla's picture

+1

April's numbers are anomalous, and will tank.

My guess is Bruce already guessed it:  Annual and quarterly "adjustments" provided this "spike".  They won't counter-the-trend, but rather, represent another "accounting gimmick" (or more likely, "accounting accident").

The red ink on SS will be absolutely astounding by the election.

Mon, 04/02/2012 - 07:55 | 2309156 disabledvet
disabledvet's picture

an economic recovery is underway. "it all goes to the 1%" as well. We'll see if the grenade POTUS threw at Florida results in an actual "conflaguration" (which is bullish in my view as well for the economy going forward. You Social Security benefits at work at the gun and amnmo shop!) a true "jobs recovery" is years away. still should industrial production turn into industrial CONSTRUCTION then i think we'll start seeing even labor pick up. My eyes will be on the transportation sector and the farm belt (not the least because i work in that space). If that area keeps pushing onward and upward i think some upward revisions could be in store for GDP. This will be especially true in transportation as it essentially collapsed in 2008. The Farm Belt never felt a recession actually....and those that don't break to begin with are always where the money continues to flow. Those that are broken on the the other hand...

Mon, 04/02/2012 - 07:49 | 2309147 becky quick and...
becky quick and her beautiful mouth's picture

to top it off, i read on friday that aarp said any talks regarding social security are "off the table" in regards to deficit/debt reduction. i'm sure that will end well.

Mon, 04/02/2012 - 12:25 | 2309841 GOSPLAN HERO
GOSPLAN HERO's picture

Becky,

Does Warren Buffett use Viagra or a rootbeer float/Viagra cocktail?

 

 

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