Transfer payments are government payments to individuals and include everything from Social Security to unemployment benefits. In a stark illustration of just how dependent disposal income has become on such payments, take a look at the chart below. As it shows, thanks to generous growth in transfer payments in the past 50 years, the payments now account for 20% of disposable income.


But in a worrying sign for the economy, transfer payments have been slowing in recent months as fiscal stimulus from the federal government wanes. In August, US transfer payments fell month over month for a second month in a row.

This is a huge risk for the US consumer and the broader economy. Disposable income is important for economic growth because roughly 70% of US gross domestic product comes from consumption. If we see a further pullback or even just a deceleration in transfer payments, the risks of a double-dip recession rise significantly.