U.S. Jobs Report, Surveillance Balloon, and IRS Audits

Tax Policy/News:

Feb 2: IRS more likely to audit Black taxpayers

The Internal Revenue Service audits Black taxpayers at 2.9 to 4.7 times the rate of non-Black taxpayers, mainly due to automated algorithms that flag discrepancies in claims for tax credits, according to a new academic study that looked at racial disparities in tax audits.

Among the policies that tend to increase the audit rate of Black taxpayers include the IRS programmers designing audit selection algorithms to minimize the "No-change rate;" targeting erroneously claimed refundable credits rather than total under-reporting; and limiting the share of more complex EITC returns that can be selected for audit.

However, the researchers do not attribute the disparity in audit rates to racial bias on the part of IRS auditors. "We have no reason to think that this is a result of intentional discrimination, as the IRS does not observe race, and the vast majority of these audits are conducted by mail," said Daniel Ho, a law professor and director of Stanford's Regulation, Evaluation, and Governance Lab, in an email.

The study bolsters earlier studies from Syracuse University's Transactional Records Access Clearinghouse finding that the IRS tends to audit more low-income taxpayers than upper-income families since it's easier to identify discrepancies in their tax filings when compared to information returns.

The new study noted that the task of selecting which taxpayers to audit is largely an exercise in predicting which taxpayers have underreported tax obligations that an audit would uncover.

"Such concerns are particularly acute for tax audits, which can exacerbate financial strain for the lowest income taxpayers - whose tax refunds are typically frozen while an audit is in place - and can dissuade individuals from participating in safety net programs for which they qualify," said the study.

To circumvent what the researchers call the "selective labels problem," they leveraged nearly 72,000 audits of randomly selected taxpayers to investigate the effects of the IRS's audit selection policies.

Economic News/Policy: 

Feb 5: Economy Week Ahead: U.S. Trade in Focus

Tuesday: The Commerce Department reports on U.S. exports and imports of goods and services in December. The trade deficit shrank by more than a fifth in November as exports and imports fell, adding to signs that global economic demand weakened late last year.

Federal Reserve Chairman Jerome Powell sits for an interview at the Economic Club of Washington, D.C., on the U.S. economy and the central bank’s actions to bring down inflation.

Wednesday: New York Fed President John Williams will be interviewed at The Wall Street Journal’s CFO Network summit.

Thursday: The Labor Department releases initial unemployment insurance claims for the week ended Feb. 4. Initial claims, a proxy for layoffs, declined slightly the week ended Jan. 28 to their lowest level since April 2022. 

China’s National Bureau of Statistics releases January figures on consumer inflation. Consumer prices in China rose 1.8% in December from a year earlier, a faster pace than the 1.6% annual pace in the prior month.

Friday: The U.K.’s Office for National Statistics releases the fourth-quarter gross domestic product. 

The University of Michigan releases its preliminary reading of U.S. consumer sentiment for February. Consumer sentiment improved in January for the second month in a row as short-term inflation expectations continued to ease.

Feb 4: What we learned about the US economy this past week

Friday's stunning jobs report, coupled with a surprising jump in job openings, has forced experts to recalibrate their expectations for an economy being slowed by the Federal Reserve's interest rate hikes. The U.S. added 517,000 jobs in January, blowing away analyst projections, while the unemployment rate dipped to 3.4 percent, the lowest in 54 years.

That's an indicator that the economy is still growing amid the highly publicized job reductions.

A survey from tech recruiting and staffing firm Andiamo found that 74 percent of tech workers who were laid off between September and November have already landed new jobs.

"Despite the large layoffs and firings in the tech sector over the past year, the data strongly implies that these workers with in-demand skills are quickly finding employment," Joe Brusuelas, chief economist at auditing firm RSM, said in a note.

The staggering January gain of 517,000 jobs might be a cause for concern for the Fed, even though wage growth continued to slow down. While Fed officials are optimistic they can quash inflation without derailing the job market, they could face pressure to keep cranking up rates.

“If the central bank thinks that the low unemployment rate will necessarily push up wage growth and inflation moving forward, this strong report may darken the economic outlook. But if instead, Chair Powell and colleagues are heartened by tempering wage growth, then the odds that the economy can avoid a recession increase,” wrote Nick Bunker, head of economic research at Indeed Hiring Lab, in a Friday analysis.

Feb 3: 5 takeaways on a surprisingly strong jobs report

The monthly jobs gain of 517,000 tops the average monthly gain of 401,000 for 2022, a year that already had strong job growth as the economy continued its recovery from the coronavirus pandemic.

Here are the top takeaways from Friday's surprising jobs report.

Nobody was expecting this: "Today's report is an echo of 2022's surprisingly resilient job market, beating back recession fears. The Fed has a New Year's Resolution to cool down the labor market, and so far, the labor market is pushing back," Daniel Zhao, an analyst with employment company Glassdoor, wrote in an analysis.

The positive statistics on jobs are being reflected in the personal stories of many workers and job seekers who are expressing an increased freedom to change their working situations.

The report puts the spotlight on inflation: The red-hot jobs report is putting the spotlight on inflation, which has been falling since the middle of last year despite a persistently tight labor market.

Wage growth is slowing even as jobs are booming: Friday's job report showed that over the past 12 months, average hourly earnings have increased by 4.4 percent, down from 4.6 percent as measured last month.

The Fed has a tough call to make: Record-high employment paired with tapering wage growth and labor costs is a double-edged sword for the Fed, which has been raising interest rates since last March in response to rising inflation.

The report is a win for Biden ahead of the State of the Union: President Biden took an early victory lap on the jobs report on Friday, telling reporters that his economic agenda "Is working."

ICYMI: 

Feb 6: White House wants to ‘exploit’ what it can recover from China balloon

White House national security officials on Monday said the Biden administration is working to recover the suspected Chinese surveillance balloon shot down over the Atlantic Ocean on Saturday.

National security adviser Jake Sullivan said recovering the balloon will take time but be beneficial "So that we can then exploit what we recover and learn even more than we have learned."

Sullivan said the U.S. has been able to learn a good amount already because officials monitored the balloon when it traversed the U.S. before it was shot down.

He also said he would not discuss assessments of whether Chinese President Xi Jinping was aware of the balloon before it was revealed by the U.S. "As you know, we are still in recovery mode on the balloon remnants itself both on the surface and under the sea. And we expect we'll learn more through that recovery effort," he said.

The U.S. military shot down the balloon on Saturday off the coast of South Carolina, days after it was first detected floating through U.S. airspace.

Biden faced a rash of criticism over the weekend, mostly from Republicans, who said he acted too slowly to shoot down the balloon. He defended taking time to shoot down the balloon, saying the White House was waiting until it was over water to prevent any injuries or destruction of property.

For Fun: 

Feb 6: Jupiter Overtakes Saturn as The Planet With The Most Known Moons

The battle for the most known moons in the Solar System is raging on.

After losing its lead to Saturn in 2019, Jupiter has once again surged ahead. Astronomers have counted 12 previously unknown moons in orbit around our Solar System's biggest planet, bringing the known total to 92, and leaving Saturn, with its measly count of 83, in the dust.

The observations were led by astronomer Scott Sheppard of the Carnegie Institution for Science, who has spearheaded the discoveries after accidentally discovering a plethora of previously unknown Jovian moons during a hunt for the mysterious hypothetical Planet Nine in the outer Solar System.

When looking for evidence of Planet Nine, however, the researchers used a more powerful telescope than ever before, zooming in at higher resolutions, across a wider field of view than other observations in the past. This allowed them to spot small moons that might have escaped previous detection. According to Sky & Telescope, nine of the newly discovered moons are quite distant from Jupiter, orbiting in a retrograde motion, the opposite direction to Jupiter's rotation.

This is not weird; most of Jupiter's moons are retrograde. This motion means they were probably passing rocks that were snared by Jupiter's gravity and remained in orbit.

The other three moons are closer to the planet and orbiting in the same direction as Jupiter's rotation. These smaller, prograde moons are harder to see because Jupiter outshines them, but they probably formed in Jovian orbit.

It's extremely likely that there are a lot more moons around both Jupiter and Saturn that we are yet to find.