According to a study released by the Congressional Budget Office (CBO) this week, the American Recovery and Reinvestment Act (ARRA – aka Stimulus) was 70% spent by the end of 2010.
This study is a quarterly report, and provides CBO’s estimates of ARRA’s overall impact on employment and economic output. It provides a look in real time what the CBO believes is happening.
The area on the above chart in pale blue is the range of GDP if the effects of the stimulus were subtracted from the published GDP figures. As there is a range of opinion on the stimulus effect, the CBO has provided high and low ranges.
Based on their analysis, the economy (based on the high estimate of its effect) would still be contracting. The CBO believes the stimulus is boosting the economy between 1.1% and 3.5% in 4Q2010. With the GDP for the fourth quarter revised downward this week to 2.8%, it may be likely the economy is still growing only because of stimulus support.
And another “fact” to keep in your mind, the CBO believes the stimulus effect is between 1.2% and 3.3% in 1Q2011.
As most know, I am not a fan of using GDP as a metric for the economy – but the stimulus was designed to effect GDP. Therefore the gauge of its effectiveness needs to be against GDP.
The CBO believes that the employment stimulus was geared towards the end and the effects will be strong throughout the year. The area on the above chart in pale blue is the range of unemployment the CBO believes could have been without the stimulus.
This study did include one interesting opinion concerning changes made to their forecast baseline:
CBO now projects that the Federal Reserve will begin to adjust interest rates in response to fiscal policy by the final quarter of 2011, rather than the first quarter of 2012. That change decreases the projected economic effects of ARRA [2009 Stimulus] by a small amount in the fourth quarter of 2011 and in 2012.
This is simply an exercise with numbers. It cannot be argued using this data what the economy would look like today had the 2009 stimulus not occurred. Economists will be arguing this for the next 100 years.
Regardless, we are on the downside of the effects of the 2009 Stimulus.
By the end of 2011, nearly all of the $787 billion 2009 Stimulus value will have been spent – almost the same amount as the Chinese spent on their new railroad lines. Economists can also argue for the next 100 years which was a better economic stimulus.
Economic News this Week:
Econintersect’s economic forecast for February 2011 points to a slightly improving economy with all segments of its non-monetary index positive. This week the Weekly Leading Index (WLI) from ECRI improved from a revised upward 4.9% to 6.1%. Although the overall level implies the business conditions six months from now will be approximately the same as today.
Initial unemployment claims in this week’s release fell significantly again following last week’s increase and the drop the week before. This has been a real data yo-yo, and it remains important to follow the four week moving average for analysis of unemployment to smooth out the reporting idiosyncrasies. Overall, the loss of jobs is improving.
The data released this week was positive and consistent with Econintersect’s January and February forecasts of slightly improving economic conditions overall. The economy, similar to this period last year at this time – is gaining strength.
Weekly Economic Scorecard:
|4Q2010 GDP 2nd Est
||Revised down from 3.2% to 2.8%
||Upward revision to imports & downward revision to state / local gov’t and PCE|
|January New Home Sales
||Now lower then most have seen in their lifetimes
|January Durable Goods
||Transport sector is up one month, down the next
||Three month moving average is up with backward revisions
||Americans have to understand that people in other countries are willing to work harder for less|
|January Existing Home Sales
||Sales Up 2.7%
||A good January performance – prices still falling
|December Case Shiller
||Prices Declined 3.9%
||Downward trend lines clearly in place
|January Conference Board Consumer Confidence
||at 3 year high
||Remains lower then most past recession levels
|Eurozone Fiscal Integration
||The question is when will Germany step away from further integration.
|USA Exporting Jobs
||USA has been living beyond its means to produce what it consumes.|
|Opinion: Debased Currency
||Dirk Ehnts argues monetary policy is being used to redistribute wealth
|Opinion: Oil Crisis
||GEAB argues a global oil crisis is forming and will manifest in late 2011
|Opinion: Mortgage Delinquencies
||Rick Davis argues that the damage from loan defaults have an unseen economic effect.
||Dirk Ehnts argues how the new Bundesbank head fits into the banks independence
|Investing: Discount Brokerages
||Depending on your investing style, every discount brokerage has advantages
||Jeff Miller reviews the investing good, the bad, and the ugly
Bankruptcies this Week: None