You Can Thank Transfer Payments For Boosting The U.S. GDP Recovery

Personal consumption expenditures were a significant contributor to GDP growth in the third quarter and have been a major supporting factor in GDP recovery from The Great Recession.

What is not generally recognised is that a great deal of the strength is derived from increases in personal transfer payments by the government. This can be seen in the following graph:


Photo: Global Economic Intersection

While transfer payments are not included in GDP, they are largely put in the hands of those who spend most of the money immediately. Therefore, transfer payments show up in GDP as increased personal consumption.

When the GDP numbers for the years 2008, 2009 and 2010 are adjusted to reflect what they would have been without the “excess” personal transfer payments, the resulting GDP changes can be compared to those actually reported with the payments:


Photo: Global Economic Intersection

The additional transfers (increased food stamps, low income tax credits, unemployment benefits, etc.) made the recession shallower than would have otherwise occurred and the recovery is ahead of where it is suggested it might otherwise have been.This was not a free lunch, however. The author estimates that the national debt was increased by over half a trillion dollars more than without the “excess.”

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.