Monday, April 23, 2012

SNAP and the State of the American Economy

Over the past few months, we have been getting conflicting economic data about the real "state of the Union".  One week, employment data looks to be improving and then next it appears to look like things are getting worse.  Housing data looks better one month and looks worse the next.  One statistic that is not widely reported is the data on the Supplemental Nutritional Assistance Program (SNAP), better known to most of us as food stamps.  Recently, the Congressional Budget Office (CBO) published its fiscal 2011 review of SNAP, data that provides us with a very succinct view of the American economy and where the CBO thinks it is headed.

The Supplemental Nutritional Assistance Program provides benefits for low income families to help them with their food purchases.  Households must meet certain eligibility standards to qualify for assistance; they cannot have more than $2000 in countable financial resources (i.e. bank accounts and other cash-type investments) or $3250 if one person is aged 60 or more or is disabled.  Homes and lots are not included as part of a households assets nor are pension plan payments.  

Here is a chart showing SNAP income qualification levels based on household size:

Deductions from total household income are allowed; these include a standard 20 percent deduction from earned income, a dependent care deduction, medical care expenses, child support payments and, in some states, a set amount of $143 is allowed for shelter costs for homeless Americans.

Here is a chart showing the maximum monthly SNAP allotment based on household size and and explanation showing how benefits are calculated:

Able-bodied adults between the ages of 16 and 60 must register for work, accept work and take part in employment and training programs when referred.  Failure to do so may result in disqualification from SNAP.

Despite the fact that the American economy is into its third year of a so-called "recovery", it's interesting to note that SNAP had a record-breaking year (and not in a good way) as shown on these graphs:

In fiscal 2011, the federal government spent a total of $78 billion on SNAP.  Participation in the program as a measure of total number of participants and the share of the U.S. population reached a record high with 45 million participants or one in seven Americans receiving SNAP benefits.   The number of beneficiaries rose by 50 percent in the five years between fiscal 2001 and 2005 and even faster in the five years between fiscal 2007 and 2011 when it rose by 70 percent.  About 65 percent of the growth in SNAP spending in the last five fiscal years was due to weakness in the economy as the Great Recession took hold. An additional 20 percent of the spending growth was due to the imposition of temporarily higher benefit amounts enacted as part of the American Recovery and Reinvestment Act.  The remaining 20 percent of spending growth was due to higher food prices and lower income among beneficiaries which also acts to boost the supplement as shown in the chart above.

The average American household that receives SNAP benefits consists of 2.2 people with about half of all households consisting of a single person.  Three quarters of all households receiving benefits included a child, a person over the age of 60 or a disabled person.  Most people receiving SNAP benefits live in households with very low income; in fiscal 2010, 85 percent of households receiving benefits had income below the national poverty guideline of $18,500 for a household consisting of three persons.  The average household income for beneficiaries in 2010 was $8800 per year or $731 per month with SNAP benefits averaging $287 per month or $4.30 per day as shown on this chart:

The number of SNAP beneficiaries varies with economic conditions.  As the U.S. economy heads into a recessional downturn, the number of SNAP recipients rises in tandem with rising unemployment rates.  As the economy improves, the number of beneficiaries gradually decreases but it can take several years for the number of beneficiaries to drop to pre-recession rates as shown on this graph:

Note that after the recession in the early 1990s, the number of SNAP participants rose for a full three years after the end of the official recession.  As well, the number of SNAP participants continued to climb after the end of the recession in 2001, reaching a peak in 2006, a lag time of nearly five years after the official end of the recession.  You will also note that the number of SNAP participants after the 2001 recession remained at an elevated level right up to the beginning of the Great Recession meaning that the program entered the 2008 recession with a higher number of participants than normal.

Here is a graph from the report showing past and future SNAP spending projections:

Spending on SNAP benefits rose by 140 percent in both nominal and inflation-corrected dollars between 2007 and 2011 from $30 billion to $72 billion with most of the growth related to an increase in the number of participants as I noted above.  Over that five year period, the number of participants grew by 70 percent while the spending on benefits grew by an even greater 135 percent.  As you can see on the graph above, spending on SNAP is projected to fall very slowly by the end of fiscal 2014, however, the number of people receiving benefits will still be high compared to historical numbers because of growth in the U.S. population.  Total federal spending on SNAP will peak at $82 billion in fiscal 2013 and will gradually fall thereafter.  Even with long-term improvements in the economy and no intervening recessions (an extremely unlikely scenario), the CBO projects that 34 million people or one in ten Americans will still be enrolled in SNAP in 2022, the same share of the population that was enrolled in 2008.

In my humble opinion, the statistics from this report are both illuminating and more than a bit frightening.  SNAP statistics from 2011 show that the so-called end of the last recession has not been experienced by one in seven Americans.  The official end of the Great Recession according to the Federal Reserve was June 2009; we are now 3 years into the "recovery" and the number of SNAP recipients and federal government expenditures on the program are not expected to fall until fiscal 2014 which starts in 18 months and even then, the drop in spending on SNAP is minimal.  That means that once again, the lag time between the end of the recession and the beginning of the drop in expenditures will be a rather lengthy five plus years.  By that time, if history is an indication of what the future holds, we could well be into the next recession meaning that we will starting from a much higher base level than was evident during past recessions just as I noted for the recovery after the 2001 recession.  Since the CBO does not appear to include another recession in their expenditure projections, this means that future federal expenditures on SNAP will likely be far higher than projected; just as Washington is looking in desperation for the ever-elusive concept of fiscal balance, record numbers of Americans will likely require a hand up.

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