SNAP Cuts Will Create Drag on U.S. Consumer Spending

Cuts to food assistance programs won’t just affect individual families. (Spencer Platt/Getty Images)

Cuts to food assistance programs won’t just impact individual family budgets, they could create a long-term drag on total U.S. consumer spending.

Low-income households typically drive only a relatively small share of aggregate consumer spending in the U.S. But an analysis from Oxford Economics published Tuesday finds that the depth and breadth of the $187 billion in cuts to the Supplemental Nutrition Assistance Program (SNAP) will lower aggregate consumer spending by up to 0.5% in the long run.

“Past shocks to SNAP spending have moved the needle in the macroeconomic data, given the large economic multiplier associated with each dollar in SNAP benefits,” writes Bernard Yaros, Oxford’s lead U.S. economist.

That’s key because consumer spending accounts for roughly 70% of real gross domestic product growth, and Americans’ consumption has been on a slowing trend in recent years compared with the highs hit during the Covid-19 pandemic.

The so-called “One Big Beautiful Bill” enacted in July cut federal funding for SNAP by about 20% through 2034, according to the Congressional Budget Office. It was the largest cut to SNAP in history, and it’s likely to have wider economic effects given that about 12% of the U.S. population, or 41 million people, use these benefits annually.

The U.S. Department of Agriculture has estimated that every dollar of SNAP spending generates about $1.50 in economic activity, even during weaker economic times.

The legislation restructured the funding for SNAP, terminating some federal funding for the program and forcing 43 states to pay more in food benefits to backfill the cuts. If a state can’t make up the difference, they could trim benefits. Currently, the average SNAP benefit is about $188 a month, but CBO estimates that with the changes, 2.4 million fewer Americans could receive monthly benefits.

While some changes to SNAP have already gone into effect, including updated beneficiaries’ work requirements and program participation limits, the increase in states’ share of SNAP administrative costs is set to take effect in October 2026, according to the Center for American Progress.

Typically, every 1% decline in SNAP benefits is associated with a 0.03% drop in total household consumption nationwide, Yaros explains. And that is magnified by economic weakness. So the drag on consumer spending from SNAP cuts could be even larger than estimated due to cooling labor conditions.

Morgan Stanley economists also project that lower SNAP benefits, paired with cuts to Medicaid and student loans, will negatively affect low- and middle-income consumers, though tax cuts will likely offset some of the effects for middle-income households in the near-term.

The legislation could add 0.15% to nominal personal consumption next year, the Morgan Stanley team wrote in a brief published in late July. But starting in 2027 the impact is negative and the drag on spending becomes more extreme once the tax cuts expire in 2029.

Grocery spending is likely to be hit hardest, with Yaros projecting the cuts could lower consumption by 0.7% to 0.8%. “Not all food retailers are equally vulnerable,” Yaros said. Grocery retailers stand to see the biggest losses. Warehouse stores such as Costco and Sam’s Club, however, as well as supercenters like Walmart that offer more discounted goods could see increased foot traffic, even as the amount purchased per visit declines.

Spillover effects from SNAP cuts are also likely to hit clothing and personal care purchases, as well as dining out activity.

“Low-income consumers have higher marginal propensities to consume, so they are more likely to spend any incremental income quickly, which will then permeate through the economy,” Morgan Stanley’s team wrote.

Write to Megan Leonhardt at megan.leonhardt@barrons.com