Wednesday, February 10, 2010

Recessionary Transfer Payment Expansion

Personal current transfer receipts represent the total of all benefits received by persons for which no current services are performed and include all payments that are made by the government and businesses to individuals and nonprofit institutions.

These payments include everything from old age and disability benefits to workers’ compensation to Medicare, public assistance, food stamps, the earned income tax credit and unemployment insurance as well as a whole host of other benefit and transfer receipts.

Not surprisingly, annual increases in the rate of personal current transfer receipts correlates well with recessions and their associated unemployment spikes.

Currently, transfer receipts are increasing at an annual rate of 13.65% and stand at just over $2.175 trillion.

Looking at the chart below (click for dynamic full screen version) that plots the annual percent change to personal current transfer receipts against the annual percent change of the civilian unemployment rate you can see that not only did the 2000s see a weak jobs “recovery” (one of the slowest post-recession declines of the unemployment rate) but the annual rate of increase of transfer payments has been, more or less, trending up since hitting a low of 3.82% in early 2003.

Also note that transfer payments have virtually never declined… they tend to trend up during expansions and absolutely explode larger during recessions.