Economic update: Government income payments soar in Delaware

Transfer payments
Transfer payments

Courtesy of DECON First

Over the past 20 years transfer payments (e.g., Social Security, Medicare, Medicaid, unemployment) have jumped from 10% to 20% of Delaware’s personal income. This trend has been accelerated by the recent recession. Since 2008 Delaware personal income has increased 3% per year. Wages and proprietors’ earnings have risen just 2.2% each year, dividends, interest and rent by 1.3% and transfer payments have risen  by a whopping 7.6% a year.

Social Security accounts for more than one-third of Delaware transfer payments. This reflects the rapidly growing senior population in Delaware due to the aging baby-boomers and in-migrating seniors to southern Delaware.

Otherwise, the fastest growing segments of transfer payments include Medicaid and Supplemental Nutrition Assistance (food stamps). This parallels the drop in per capita income in Delaware to a figure  below the national average,  a rising poverty rate, and an increase in income inequality.

Finally, almost all transfer payments are indexed to inflation. This will constrain the future rate of growth of personal income in Delaware. It will also mean that decisions in Washington, D.C. play a larger role in Delaware’s economy.

The implications of this change in the composition of Delaware personal income on Delaware businesses varies by industry.

– For construction and real estate the disproportional increase in lower income households will drive demand for apartments and manufactured homes, and strain the limited stock of public and Section 8 housing.

– In financial services the growing population of lower income households will boost mortgage and consumer loan delinquency rates, overdue credit cards, and demand for payday loans. Financial literacy programs will be needed to encourage lower income households to use banks at all.

– The direct deposit of monthly Social Security payments will soar.

– The health care industry faces some of the greatest impacts. Medicare and Medicaid comprise almost half of all Delaware transfer payments.

This $4 billion equals households account for a disproportionate share of emergency room visits and unpaid health care bills.

The rising bifurcated income distribution means that retail demand for discount goods through big box stores (e.g., Walmart), including groceries, will not abate. Increasingly, retailers will be torn between the more affluent and less affluent consumer markets. The overall slow growth in wages will continue to fuel consumers’ search for the best prices using the Internet.

Finally, the surge in any nonprofit services tied to the needs of seniors, including homecare and transportation, will be accompanied by a surge in demand from lower income households for food banks and other types of basic living assistance.

While there have been gains in interest and dividend interest, DECON First projects slow growth in wages over the next two years, with continued pressure on transfer payments.

DECON First is dedicated to providing accurate, “no spin” economic information to improve the decision making of Delaware business owners and managers. The detailed analysis for the Indicators above is found in the DECON First monthly Delaware Economic Review ( DECON First also provides consulting to individual businesses to generate actionable advice given the economic outlook for Delaware, the businesses’ specific industry demand and supply conditions, and location.

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