Econintersect: A new Federal Reserve study determined that the Cash-for-Clunkers stimulus program provided no real benefit to GDP.
The key finding in our study is that despite the program’s positive impact on sales in the third quarter of 2009, automobile production showed a much smaller increase in the quarter as a whole, both because a large portion of the sales increase came out of inventories, and even the modest stepup in production in July and August was partly offset by retrenchment in and September. Further, in the fourth quarter of 2009 sales and production were below where they would have been absent the CARS program, so that by early 2010 the cumulative impact of the program was nil.
The study did not stop with Cash-for-Clunkers. The authors warned that there were issues with any stimulus program where inventories are involved.
These findings suggest an additional caveat regarding many stimulus programs designed to give a temporary boost to spending (the recent First Time Homebuyer Credit is another example): Spending is not the same thing as output when inventories are involved; even if the desired increase in expenditures occurs, inventory reductions may undercut the broader impact on GDP.