Transfer Payments in Recovery and Recession

In our on-going series comparing a single variable across multiple recoveries and recessions, we now present Transfer Payments as % of Personal Income.

Let’s take about heading into recession:

Transfer payments as a fraction of income actually increase heading into a recession — sometimes as early as 2 years before.

What’s going on?  How is this possible?

I believe the answer lies in the automatic stablisers — counter-cyclical spending which occurs without additional lawmaking.  When cyclical forces begin to be a drain on the economy, the blow is softened.  This view seems to be confirmed by the coincident or even leading relationship between Initial Claims Per Population and Transfer Payments as % of Personal Income y/y:

Conversely, let’s examine what Transfer Payments as a % of Personal Income looks like coming out recessions:

The present recovery is rather average in this regard — and looks rather unlike a country headed into recession.

To further explore that thesis, we created an oscillator of Transfer Payments as a % of Income by subtracting its 10-month moving average.  We then applied blue recession bars:

These values are not supportive of any imminent recession, ether.  The only example which saw a recession from below the 0 level was the Fed engineered recession of 1981-1983.