The Recovery Act in Action
MON, AUGUST 31, 4:58 PM EST
The Recovery Act in Action
Posted by Jared Bernstein
So
I’m driving along a Pennsylvania highway two weeks ago on my summer
vacation, radio blasting, and what do I see but one of those Recovery
Act signs, touting a highway project. Jeez, I thought. Can’t a guy
get away from that stuff for a couple of days!?
Don’t
worry. I quickly reverted to my economist self and applauded the
infrastructure improvement, lecturing my wife and kids on the
considerable multiplier effects of such spending (which led to them
turning the radio up even louder).
The fact
is, what I saw was a small dose of the medicine from the Recovery Act
making its way through one of the nation’s arteries. And that road
project in Pennsylvania is one of out 3,350 highway projects currently
underway across the country.
But what
about the larger patient, i.e., the macro-economy? What are economic
analysts saying about the impact of the Recovery Act thus far?
As I’ll
show you in a moment, they’re saying good things. The Act is having
its intended effect of offsetting some—by no means all—of the damage
caused by the deepest downturn since the Great Depression. And in
tandem with our other interventions in financial and housing markets,
it’s helped to pull us back from that very dangerous precipice.
As Mark
Zandi, a highly respected economist (and former advisor to the McCain
campaign) put it in a recent analysis, "The fiscal stimulus is
providing the fodder for better sales. Lower payroll tax withholding,
checks to Social Security recipients, and more financial help to
unemployed workers are buoying household incomes. The cash for clunkers
program has juiced up vehicle sales, and the housing tax credit has
boosted home sales. It is no coincidence that the recession is ending just when the stimulus is providing its maximum economic benefit." (Emphasis mine).
And
other economists agree about the positive effect that the Recovery Act
is already having. Moody’s Economy.com (where Zandi is Chief
Economist), IHS Global Insight, and the Economic Policy Institute all
estimate that the Recovery Act has created or saved from 500,000 to
750,000 jobs so far.
The
economists at Goldman Sachs think the package added 2.2 percentage
points to real GDP growth (annualized) in the second quarter of 2009
and will add 3.3 points in the current quarter. That implies even more
jobs saved or created during the current quarter compared to the last
one. It also means that were it not for the boost the Recovery Act is
giving to the economy right now, GDP would have contracted at a 3.2%
rate in the last quarter instead of a 1% rate.
Which
raises a really, really important point—and don’t even think about
turning up the radio. Suppose you were, oh, I don’t know … politically
motivated to argue that the Recovery Act wasn’t working. You’d
probably point to that 1% decline in GDP and say, "How can it be
working if the economy is still contracting" Or maybe you’d point to
the 247,000 jobs lost last month.
Now, the President has stressed consistently that as far as we’re concerned, any
degree of economic contraction is too much, and even more importantly,
any job losses are too many. But the independent findings cited above
make the critical point that if you’re only noticing that things are
still bad without noticing that they’re getting better, you’re looking
at the wrong benchmarks. The question is not, Are we still in hole?
Of course we are; it took years to dig in, and it’s going to take a
long time to dig out.
The
relevant question is, Are we digging out faster thanks to the Recovery
Act and our other economic policies? To that question, these
independent analysts, and many others, unequivocally answer, "Yes."
Just take a look at some "then and now" indicators:
Then vs. Now
|
Indicators
|
Then
|
Now
|
||
|
Real GDP (1)
|
-6.4%
|
-1.0%
|
||
|
Job Losses (2)
|
-741,000
|
-247,000
|
||
|
Industrial Production (3)
|
-2.2%
|
0.5%
|
||
|
Home Prices (4)
|
-2.1%
|
0.7%
|
||
|
New Home Sales (5)
|
-10.2%
|
9.6%
|
||
|
Consumer Confidence (6)
|
37.4
|
54.1
|
||
|
1: Real annual growth rates, 2009q1 and 2009q2 |
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2: Payroll employment declines from January 2009 and July 2009.
|
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3: Monthly percent change, Jan 09 and July 09
|
||||
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4: Case-Schiller, monthly percent change, Jan 09 and June 09
|
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5: Monthly percent change, Jan 09 and July 09
|
||||
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6: Conference Board Index, 1985=100, Jan 09 and Aug 09
|
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GDP was
tanking earlier this year; it fell much less quickly in the second
quarter and the consensus among private forecasters is for real GDP
growth to break into positive territory in the current quarter.
We’re
still losing far too many jobs, but the rate has significantly slowed.
The fact is, you don’t go from losing upwards of 700K jobs on net per
month to adding jobs without passing through a period just like this
one, where the loss rate slows.
Home
sales and prices are showing stabilizing signs. The sales data, by the
way, have gotten a nice boost from our First Time Home Buyers Credit.
And consumer confidence is solidly up, too.
Let me
be very clear about all this: We are not out of hole yet. It’s
important to be realistic about what the Recovery Act has and hasn’t
accomplished thus far. We’ve pulled the economy back from the brink,
provided critical relief to families, communities, and states, and are
now beginning to lay the foundation for a stronger, more broadly shared
expansion.
But we
are not there yet. There are more job losses to come. Key economic
indicators may have bottomed out, but they’ve done so at historically
low levels. The economy remains fragile.
But as we slowly climb out of the hole that greeted us when we got here on January 20th, let’s also be sure to take note of what’s working.
OK…NOW you can blast the radio.
Jared Bernstein is the Executive Director of the Middle Class Task Force and the Vice President's Chief Economist
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