For some reason the USDA was a little over a week late reporting the August food stamp data (Released this past Friday night). The most current food stamp measurements do not paint a pretty picture. The August numbers show food stamp usage at a record high of 47,102,780. Of this record-setting number, 420,947 participants were added between July and August. This month-to-month increase was the largest jump seen within one year.
In terms of economic indicators, a lot of attention is paid to changes in the unemployment rate . Between assumptions added into the unemployment calculation, such as seasonal adjustments and the fact that those who quit looking for work fall off the count of the unemployed, the unemployment rate is a murky statistic at best. The number of people receiving food stamps is a pretty straight forward measurement.
What is the rate of people on food stamps telling us? It’s demonstrating that an increasing number of people in the U.S. are claiming they are financially unable to provide a basic standard of living. Should you bet on a vibrant economic recovery knowing such information?
The U.S. currently has a population of 314 million people. Of the 314 million, roughly 239 million are adults (approx 76% of the population is over 18). If we divide the number of people on food stamps by the approximate adult population, we get that nearly 20% of the adult U.S. population is receiving food stamps.
As an indicator of future economic health, the count of those receiving food stamps does have some weakness. The number that should have been released at the very end of October or the first of November provided a measurement for August. That means not only is the information historical, it’s 2 months old. In terms of investing, it’s best to have information that is as fresh as possible and forward-looking.
In a sense, the increase/decrease of those receiving food stamps between months does provide a forward-looking gauge. You would expect that those signing up for food stamps would be in a situation where they’re experiencing a personal economic contraction. Assuming a miraculous financial turnaround does not happen in the person’s life, the contraction probably will last a number of months. Therefore, it is reasonable to extrapolate that increases in food stamp rolls will lead to an economic contraction in spending.
Consumer spending accounts for about 70% of U.S. GDP. If the number of people receiving food stamps continues to increase, we will continue to find ourselves in a cycle where a smaller portion of our population has the financial means to aid in the growth of consumer spending. At the same time, the federal government will be increasingly burdened with the need to allocate more funds to support food stamp recipients. More tax dollars will ultimately be needed to support the additional recipients, which results in an additional drag on the prospect of economic growth. This is a vicious cycle.
With the looming uncertainty of the ‘fiscal cliff’ and the news received regarding food stamp recipients, I would recommend proceeding with caution when considering new investment positions.