WASHINGTON — Rising tax receipts show household incomes are growing faster than currently estimated, and by enough to sustain consumer spending, according to economists like Joe LaVorgna.

Tax revenue from employee pay was up 4.8 percent in the third quarter from a year earlier after adjusting for changes in withholding rates over the past few years, said LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. By contrast, the Commerce Department’s figures show wages and salaries climbed 2.9 percent over the same period.

Taxes more accurately reflect the state of the job market because they are not subject to revision and workers don’t pay the Internal Revenue Service on “phantom” wages, LaVorgna said in a note to clients Tuesday. The revenue numbers also mean the latest readings on savings are too low, eliminating another obstacle to a pickup in household purchases, he said.

“People say consumer spending can’t be sustained because the savings rate is falling, but they have it wrong,” LaVorgna, a former economist at the Federal Reserve Bank of New York, said in an interview.

“Since we know income is understated, by default the savings rate is understated. The consumer is going to stay sustainably stronger than what I think the consensus believes.”

The savings rate was 3.5 percent in October compared with 5.3 percent a year earlier, according to figures from the Commerce Department. It sank to an almost four-year low of 3.3 percent in September.

His calculations show that as of the third quarter, the level of wages and salaries is understated by almost $125 billion, a “substantial” difference, LaVorgna wrote in the research note. Over an entire year, that is “worth nearly two percentage points on the saving rate,” he said.

“It’s clear that consumers have dug into their savings to finance consumption, but I don’t think they’ve dug as deep as the data suggest,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pa. “Typically, when the numbers get revised, the government finds more income than has been reported. Down the road, I think we’ll look back and find households had more income than we think they do now.”

Consumer spending grew at a 2.3 percent rate in the third quarter after increasing at a 0.7 percent pace in the prior period and 2.1 percent in the first three months of the year, according to data from the Commerce Department.


Only subscribers are eligible to post comments. Please subscribe or login first for digital access. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.