iftttwall

Today, one of America’s best-known welfare programs with 47.6 million participants or 15% of the total population, the Supplemental Nutrition Assistance Program also known as “foodstamps” or EBT, is due for a substantial haircut: beginning Friday, there will be a phased in $5 billion reduction (6% of the program) for the 12 month period starting November 1st 2013. So what happens next? 

Nick Colas of Convergex explains.

The U.S. Supplemental Nutrition Assistance Program (a.k.a. Food Stamps) is the largest means-tested social support program in the country, with $6.3 billion in direct monthly cash transfers to individuals for the purchase of food.  Some 47.6 million people (15% of the total population) are in the SNAP program as of the most recent data (July 2013) and these individuals receive an average of $132 per month.  This support is set for a cut on Friday, with a $5 billion reduction (6% of the program) for the 12 month period starting November 1st 2013.  From a Wall Street perspective, these numbers may seem small at 0.0003% of GDP.  From the perspective of Main Street, however, is means a cut of $36/month for a family of four receiving full SNAP benefits.  Record levels for stocks, record level for SNAP participants…  An odd societal disconnect, to be sure. 

We’ve written about the U.S. Supplemental Assistance Program (SNAP, also known as food stamps) in these pages over the years even though the topic bears no direct relationship to corporate earnings, interest rates, the Federal Reserve, or any other recognized business topic.  The reason for this focus is threefold:

• It is a very large visible government program with monthly data updates.  There are, for example, 47,637,407 Americans in the SNAP program as of the most recent update (July 2013) from U.S. Department of Agriculture.  A total of 23,074,914 households receive an average monthly benefit of $272.51.  This amounts to $6.3 billion in monthly support.  As a percent of the population, this is 15% of all Americans and +20% of all households in the program. 
• It is a good measure of how deeply the economic recovery in the U.S. is reaching through the socioeconomic strata.  Qualifying for SNAP means you make no more than 130% of the poverty line and generally have limited assets.  Those 47.6 million people in the SNAP program are, for all intents and purposes, a record high for food stamp participation once you exclude months where the program includes disaster assistance. 
• It generates a large amount of hate email direct to my inbox and voicemail from both ends of the political spectrum.  From the right comes criticisms over certain parts of the US population using EBT cards (the debit cards used to distribute the program’s payments) to buy beer and potato chips.  This, yes, does occasionally happen.  From the left, we get missives that feel a lot like that guy who told the world to “Leave Britney alone!” Food stamps, these folks argue, are part of living in a just society, which doesn’t allow anyone to go hungry.  Half of all the people enrolled in SNAP are children, so it is pretty easy to see their point of view as well.

In the spirit of bringing our two warring readerships together, I would propose the following statement: “Something has changed about America since the Financial Crisis, and the still widespread popularity of the SNAP program is emblematic of that shift.”  Or, in the words of Bill Parcells, “You are what your record says you are.”  The American economic record, based on the Food Stamp data, is still pretty lousy:

• Before the Great Recession of 2009, enrollment in the SNAP program ebbed and flowed with the state of the U.S. economy.  There are links to the data after this note, with the high water marks in 1976, 1981, 1992-4 and cyclical lows in the late 1970s, 1980s, and 1990s. 
• From 2004 to the present day, SNAP enrollment has doubled from 23 million people to more than 46 million.  The cost of the program over that period has moved from $25 billion annually to $75 billion in 2012. 
• The notional economic “Recovery” which has helped domestic equities more than double from their March 2009 lows is entirely absent from the U.S. food stamp data.  As mentioned, enrollments are still essentially at record highs. 
• Sometimes big numbers are hard to visualize, so here’s a few ways to think about the size of the SNAP program.  For example, if every SNAP participant lived in one state, it would be 20% more populous than California.  If every person in the program linked hands, human chain style, they could circle the Earth (assuming a 3 foot reach per person). 

We’ll sidestep the inevitable political discussion for a moment longer, and point out that things are about to change in the food stamp program.  On November 1st, everyone in the SNAP program will see lower payments.  Here’s the hows and whys:

• Monthly payments increased because of the 2009 American Recovery and Reinvestment Act, but these increases expire on Friday.  The jumps were substantial – the average benefit per person increased to $125 in 2010 from $102 in 2009 and topped out at $133/person in 2010 – 2012. 
• The change cuts $5 billion out of the program for the November 2013 – 2014 period, on a base of $75 billion (based on the latest run rate of $6.3 billion/month).  The USDA estimates that this will be a $36/month reduction in benefits for a family of four. 
• The Center for Budget Policy Priorities, using USDA data, stated in a recent note that 80% of SNAP households live below the Federal poverty line ($19,500 for a family of three) and 40% live in households making less than half that amount.  The SNAP program helps feed 25% of all US children and over 9 million seniors.

Let’s see if we can dodge the political bullet for one more paragraph, with a few more fact-based points:

• The SNAP program is explicitly NOT designed to provide the only income available to economically distressed Americans for the purpose of purchasing food.  There’s been a raft of celebrity and CEO ‘Live on SNAP benefits’ challenges, where these economically fortunate individuals chose to live on $133/month in food purchases.  This ignores the fact that the program is intended to be “Assistance” rather than 100% support. 
• There are further cuts in the program coming in 2014 – 2016, to the tune of $11 billion over the period.  It is an odd quirk of the SNAP program that its funding is part of the annual Farm Bill in Congress.  That means these future cuts could be overturned as House and Senate consider this legislation. For right now, however, these proposed reductions would take the SNAP program down to $60 billion from the current $75 billion run rate.  Truth be told, the pressure within Congress is to cut these payments further, rather than to increase them. 
• If you are looking for a capital markets impact, retailers in southern and western states are one place to look.  There are 13 states with over 1 million SNAP participants: Arizona, California, Florida, Georgia, Illinois, Michigan, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, and Washington.  The economic “multiplier” on food stamp purchases is about 2:1, so the $5 billion reduction in 2013-2014 looks more like $10 billion in the real economy. 

To sum up (apolitically, of course)…  The amount of money 15
% of the U.S. population uses to purchase food is about to go down, and by enough so this group will notice its absence.  It may not matter to the economic data on which Wall Street hangs its fedora, but it is certainly enough to spark a political response.  How this plays out, I honestly have no idea.  We are in uncharted waters here, as the historical record clearly shows.  

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xsfc6risCqk/story01.htm Tyler Durden

Moments ago, General Motors reported its October domestic car deliveries number, which at 226,402, was 31K better, or 15.7% higher, than the 195,674 from a year earlier, better than the 7.9% increase expected. Unlike the ISM, GM was quick to point the counterfactual, namely that sales picked up because, you guessed it, confidence returned once the government reopened in the second half of the month. “Chevrolet, Cadillac and Buick-GMC all performed well in the month, and the sales tempo really picked up after the government shutdown ended,” said Kurt McNeil, vice president, U.S. sales operations. Apparently, like houses, Americans just can’t buy cars if the government isn’t around to hold their hand.

Joking aside, one thing that was not mentioned in the otherwise blemish-free GM sales report, is that the biggest reason for the surge in GM “deliveries” was because the car company once again resorted to that old faithful gimmick: dealer channel stuffing. At 728K units in dealer inventory at month end, or 87 days supply, this was the highest number since March 2013, but far more disturbing, the monthly rate of increase was the highest since GM’s emergency as a “new” company from bankruptcy. And just to complete the picture, combining the past two month channel stuffing, we get 99,168 GM cars parked at dealer lots: the biggest two month jump in the restructured company’s history.

The full sales breakdown:

Last but not least, it seems that the electric car dream may be alive for Tesla (if only until something cooler and more expensive appears), but is all but dead for GM after a 32% plunge in Chevy Volt deliveries. If only GM could somehow charge 50% more for the car and make it a little more spontaneously combustible, all would be well.

Source: GM

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/AheWft55S1g/story01.htm Tyler Durden

Moments ago, General Motors reported its October domestic car deliveries number, which at 226,402, was 31K better, or 15.7% higher, than the 195,674 from a year earlier, better than the 7.9% increase expected. Unlike the ISM, GM was quick to point the counterfactual, namely that sales picked up because, you guessed it, confidence returned once the government reopened in the second half of the month. “Chevrolet, Cadillac and Buick-GMC all performed well in the month, and the sales tempo really picked up after the government shutdown ended,” said Kurt McNeil, vice president, U.S. sales operations. Apparently, like houses, Americans just can’t buy cars if the government isn’t around to hold their hand.

Joking aside, one thing that was not mentioned in the otherwise blemish-free GM sales report, is that the biggest reason for the surge in GM “deliveries” was because the car company once again resorted to that old faithful gimmick: dealer channel stuffing. At 728K units in dealer inventory at month end, or 87 days supply, this was the highest number since March 2013, but far more disturbing, the monthly rate of increase was the highest since GM’s emergency as a “new” company from bankruptcy. And just to complete the picture, combining the past two month channel stuffing, we get 99,168 GM cars parked at dealer lots: the biggest two month jump in the restructured company’s history.

The full sales breakdown:

Last but not least, it seems that the electric car dream may be alive for Tesla (if only until something cooler and more expensive appears), but is all but dead for GM after a 32% plunge in Chevy Volt deliveries. If only GM could somehow charge 50% more for the car and make it a little more spontaneously combustible, all would be well.

Source: GM

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/AheWft55S1g/story01.htm Tyler Durden

So much for the government shutdown – as one of the just released manufacturing ISM respondents so candidly put it, “The government shutdown has not had any impact on our business that I
can determine, nor has it impacted any supplier shipments.” And speaking of the ISM itself, it naturally rejected everything that the Markit PMI noted, and printed at 56.4, beating expectations of a 55.0 print, the 5th beat in a row, and the highest print since April 2011. Sadly, it was not 66.4 or 76.4 to at least partially “confirm” the Chicago ISM surge. So while virtually all ISM components rose, with exports spiking by 5 points to 57.0, it was the employment index that dipped yet again, from 55.4 to 53.2, the lowest since June, but in the New Normal who needs jobs when one has Schrodinger diffusion indices to confuse everyone on a daily basis. Either way, while stocks did not like yesterday’s exploding Chicago PMI and dipped on fears of a December taper, today’s 2 years ISM high is one of those good news is good news instances, and ES soars as usual.

In chart format:

The report breakdown:

From the report:

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The PMI™ registered 56.4 percent, an increase of 0.2 percentage point from September’s reading of 56.2 percent. The PMI™ has increased progressively each month since June, with October’s reading reflecting the highest PMI™ in 2013. The New Orders Index increased slightly in October by 0.1 percentage point to 60.6 percent, while the Production Index decreased by 1.8 percentage points to 60.8 percent. Both the New Orders and Production Indexes have registered above 60 percent for three consecutive months. The Employment Index registered 53.2 percent, a decrease of 2.2 percentage points compared to September’s reading of 55.4 percent. The panel’s comments are generally positive about the current business climate; however, there are mixed responses on whether the government shutdown and potential default have had any effect on October’s results.”

And the respondents:

• “New business is booming.” (Textile Mills)
• “The government shutting down and threatening to go into a default position is causing all kinds of concerns in our markets.” (Fabricated Metal Products)
• “The government shutdown has not had any impact on our business that I can determine, nor has it impacted any supplier shipments.” (Chemical Products)
• “Government spending continues to be slow in defense and military. The government shutdown and debt ceiling crisis did not affect business.” (Transportation Equipment)
• “Telecom market — wireless and VOIP — appear to be spiking. We are very busy; busier than we have ever been.” (Computer & Electronic Products)
• “Seasonal demand has not decreased at the typical pace. Market showing resiliency in the residential market.” (Primary Metals)
• “Business continues to improve every month for the past nine months.” (Furniture & Related Products)
• “Big Box Store discounting providing increased sales bump short term.” (Food, Beverage & Tobacco Products)
• “Our customers continue to be cautious and are closely managing their purchases. Business continues to be flat to slightly down.” (Machinery)
• “Outlook on general appliance market continues in a positive direction. Uncertainty, however, looms with unclear government direction pending.” (Electrical Equipment, Appliances & Components)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uaAtKgMQhUQ/story01.htm Tyler Durden

So much for the government shutdown – as one of the just released manufacturing ISM respondents so candidly put it, “The government shutdown has not had any impact on our business that I
can determine, nor has it impacted any supplier shipments.” And speaking of the ISM itself, it naturally rejected everything that the Markit PMI noted, and printed at 56.4, beating expectations of a 55.0 print, the 5th beat in a row, and the highest print since April 2011. Sadly, it was not 66.4 or 76.4 to at least partially “confirm” the Chicago ISM surge. So while virtually all ISM components rose, with exports spiking by 5 points to 57.0, it was the employment index that dipped yet again, from 55.4 to 53.2, the lowest since June, but in the New Normal who needs jobs when one has Schrodinger diffusion indices to confuse everyone on a daily basis. Either way, while stocks did not like yesterday’s exploding Chicago PMI and dipped on fears of a December taper, today’s 2 years ISM high is one of those good news is good news instances, and ES soars as usual.

In chart format:

The report breakdown:

From the report:

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The PMI™ registered 56.4 percent, an increase of 0.2 percentage point from September’s reading of 56.2 percent. The PMI™ has increased progressively each month since June, with October’s reading reflecting the highest PMI™ in 2013. The New Orders Index increased slightly in October by 0.1 percentage point to 60.6 percent, while the Production Index decreased by 1.8 percentage points to 60.8 percent. Both the New Orders and Production Indexes have registered above 60 percent for three consecutive months. The Employment Index registered 53.2 percent, a decrease of 2.2 percentage points compared to September’s reading of 55.4 percent. The panel’s comments are generally positive about the current business climate; however, there are mixed responses on whether the government shutdown and potential default have had any effect on October’s results.”

And the respondents:

• “New business is booming.” (Textile Mills)
• “The government shutting down and threatening to go into a default position is causing all kinds of concerns in our markets.” (Fabricated Metal Products)
• “The government shutdown has not had any impact on our business that I can determine, nor has it impacted any supplier shipments.” (Chemical Products)
• “Government spending continues to be slow in defense and military. The government shutdown and debt ceiling crisis did not affect business.” (Transportation Equipment)
• “Telecom market — wireless and VOIP — appear to be spiking. We are very busy; busier than we have ever been.” (Computer & Electronic Products)
• “Seasonal demand has not decreased at the typical pace. Market showing resiliency in the residential market.” (Primary Metals)
• “Business continues to improve every month for the past nine months.” (Furniture & Related Products)
• “Big Box Store discounting providing increased sales bump short term.” (Food, Beverage & Tobacco Products)
• “Our customers continue to be cautious and are closely managing their purchases. Business continues to be flat to slightly down.” (Machinery)
• “Outlook on general appliance market continues in a positive direction. Uncertainty, however, looms with unclear government direction pending.” (Electrical Equipment, Appliances & Components)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uaAtKgMQhUQ/story01.htm Tyler Durden

Today’s “good Fed cop” award goes to St. Louis Fed president James Bullard who has some words of caution which neither he, nor anyone else at the FOMC, will pay attention to:

• BULLARD SAYS RISK OF ASSET PRICE BUBBLES ‘HUGE ISSUE’ FOR FOMC
• BULLARD: LOW RATES, NOT JUST QE, WOULD ACCOUNT FOR ANY BUBBLE
• BULLARD SAYS LABOR FORCE PARTICIPATION DECLINE BEGAN IN 2000

And the punchline:

• BULLARD: `THERE MAY BE SOME OTHER’ ASSET BUBBLE `GOING ON’

Yes: the bubble of Fed “assets”

As for his conclusion…

• BULLARD SEES U.S. ECONOMIC GROWTH ACCELERATING NEXT YEAR

… forgive us if this seems like a small case of deja vu.

• Bullard Says Fed Shouldn’t Rush to Ease as Economy Accelerates – December 2011
• Fed’s Bullard says U.S. growth may accelerate to 3% in 2012NAPMPMI Index – April 2012
• Bullard Says Economic Growth Will Probably Accelerate – February 2013

So, thanks, but we’ll pass on any “acceleration”

Full Bullard slideshow (lots of pretty charts but no kittens):

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/igDHfZ2IuNo/story01.htm Tyler Durden