Food Stamp Usage Continues To Set Records

Includes: DBC, DIA, JPM, KR, QQQ, SPY, SWY
by: The Financial Lexicon

The U.S. Department of Agriculture recently released the latest monthly data on "food stamp" usage. Yet again, the number of people taking part in the Supplemental Nutrition Assistance Program (SNAP) set a new record. Through December 2011 (the most recent data), 46,514,238 people were participating in the program. This means that 14.86% of the U.S. population is now on food stamps (total U.S. population according to the U.S. population clock on

In terms of households, there are 22,162,857 participating in SNAP. At roughly 18.86% of all households, the percentage of households enrolled in the program is actually higher than the percentage of individual participants in the program (total households according to The 2012 Statistical Abstract on

Below you will find two charts, one showing the number of individual participants in SNAP and one showing the number of households enrolled in SNAP. The data for both charts begin in October 2007 and go through December 2011.

As you can see from both charts, it's been a steady climb higher for SNAP participation since the S&P 500 (NYSEARCA:SPY), Dow Jones Industrial Average (NYSEARCA:DIA), and Nasdaq 100 (NASDAQ:QQQ) topped out in October 2007. In fact, food stamp usage has also been steadily climbing since the major indices bottomed in March 2009. As I mention in "Modern-Day Bread Lines Breaking Records," it is historically unusual for a bull market in stocks to be accompanied by rising food stamp usage. This began to change in the early 2000s, and since 2009, there was a pronounced shift with both stocks and food stamp usage soaring. Since March 2009, individual participation in SNAP is up a whopping 41.26%, while household participation has risen by 47.93%.

So how should investors view the seemingly ever-rising levels of people on food stamps? If recent history is any guide, this is, at a minimum, not bearish and perhaps even bullish for stocks. People might not like to hear that rising SNAP participation can be viewed as bullish, but here is one reason why:

Since 2009, unconventional monetary policy (money printing) has added fire power to the nominal value of "risk assets." In other words, excess liquidity has become an important component of rising equity prices. When it comes to data points that show that people are struggling (such as SNAP), these data simply become yet another reason for the Federal Reserve to forego raising interest rates and in some cases even add to its unconventional monetary policy.

Regarding the SNAP program's ever-rising number of participants, it's a win-win for equity investors. As equity ownership is largely concentrated among individuals with higher incomes and higher net worth (not SNAP participants), more people going on SNAP does not mean more people forced to sell investments in stocks. However, with 14.86% of the U.S. population on food stamps, it does put more pressure on the Fed to not tighten monetary policy. Can you imagine the uproar from a couple hundred members of Congress if the Fed ever raised interest rates with food stamp usage continuing to go up almost each and every month? I recognize that the Fed is supposed to arrive at its decisions without succumbing to political pressure. Perhaps someday the Fed's actions will convince me that it's actually happening.

Moreover, a strong argument could be made that the Fed's unconventional monetary policies are pushing commodity prices higher and thereby actually hurting the working poor (many SNAP participants). However, since that argument falls on deaf ears by those in power, we can also make the case that a rising number of food stamp participants is bullish for commodities (NYSEARCA:DBC). If you are of the opinion that the Fed's unconventional monetary policies are helping to push commodity prices higher, then you might agree that more participants on food stamps, among rising participation in other government aid programs, means looser monetary policy for longer periods of time and therefore stronger investment flows into commodities.

In terms of specific public companies affected by the rising number of food stamp participants, JP Morgan (NYSE:JPM), Safeway (NYSE:SWY), and Kroger (NYSE:KR) are three that immediately come to mind. JP Morgan is a major provider of the debit cards (called EBT cards) used by SNAP participants. The more people on food stamps, the more money JP Morgan makes from its relationship with SNAP. In terms of Safeway and Kroger, two grocers, each with a large presence in the United States, when the government is handing out more than $70 billion through SNAP (as it did in fiscal year 2011), it means more money coming their way than would likely otherwise be the case. As SNAP participation continues to grow, this should continue to be the case. However, one thing to keep in mind with respect to the grocers is that if food stamps participants become an ever-larger presence in grocery stores, and SNAP's monthly benefit doesn't increase enough to offset rising food prices, it could create some downward pricing pressure for companies like Safeway and Kroger, thereby hurting margins.

Disclosure: I am long SWY.

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