Mixed, Incomplete Economic Results So Far on Obama’s Stimulus

The economy's contraction has slowed, the unemployment rate has dipped, and most economists are saying that the recession may be nearing its end. But does that mean the $787 billion fiscal stimulus package, seen as a crucial part of the president's economic policy, is working?

"Absolutely," White House economic adviser Christina Romer said in a speech yesterday. "It is providing a crucial lift to aggregate demand at a time when the economy needs it most." Many economists agree that the stimulus's fingerprints are visible in some economic indicators. But because the stimulus is just starting to kick in, they say, a number of questions remain.

Unemployment. Almost since the stimulus was passed in February, critics have pointed to mounting job losses as a sign it wasn't working. If its goal was to create jobs, then why was unemployment nearing 10 percent? Today's news, of course, gives the White House ammunition against that argument. The unemployment rate sank slightly in July, from 9.5 percent to 9.4 percent, the Labor Department reported. And the real question isn't why the rate was high even with the stimulus; it's what would have happened without it, an impossible question to answer with certainty.

For the most part, too few projects have been started and data are too scattered to indicate how many jobs the package has added. Only $73 billion of the act's $499 billion in direct spending measures had been dispensed by the end of July. One employment sector that the stimulus has seemed to directly affect, though, is state and local governments. The American Recovery and Reinvestment Act funneled cash-strapped states $144 billion, helping to minimize layoffs or program cuts. The Center on Budget and Policy Priorities estimates that's enough money to cover 30 to 40 percent of overall state budget shortfalls. According to today's unemployment report, it seems to have helped. State governments lost 5,000 jobs—not as bad as it could be, considering states face budget shortfalls of more than $160 billion—while local governments didn't see any change at all. "You don't see the declines in employment at the state and local levels that would be associated with a real disaster," says Gary Burtless, senior fellow of economic studies at the Brookings Institution. "Partly, I think, it's because states are confident that the federal government is making a lot of aid directly available to them."

While it doesn't show up in official job reports, another benefit of the stimulus, experts say, is that it's made life easier for the unemployed. The package extended unemployment benefits, increased the payments, and exempted the first $2,400 from federal taxes. The stimulus also covered 65 percent of the cost of COBRA for laid-off workers, making it easier for them to hang on to their employer's health insurance plan. And it gave states more money to fund Medicaid. Since the report showed that the number of long-term unemployed jumped by another 584,000 in July, to 5 million, those benefits are even more crucial.

GDP. While last week's report showed that the economy is continuing to contract, the good news was that the pace slowed dramatically; there was a decline of 1 percent in the second quarter, compared with 6.4 percent in the first. Some economists caution that it's unlikely the stimulus played much of a direct role, given that the stimulus put about $100 billion into the economy in total through June—a drop in the bucket for an economy totaling about $14 trillion.

A number of forecasters, though, have said that the stimulus added at least 1 percentage point to GDP growth. Moody's Economy.com estimates that it pumped it up by 3 percentage points. "Instead of contracting 4 percent at an annual rate, it only contracted 1 percent. That's a lot of bang for the buck," says Gus Faucher, director of macroeconomics for Moody's. "The stimulus package is going to be a big contributor to getting us out of recession."

Experts agree that the stimulus will have more of an impact in the third quarter as more spending gets out.

Consumer confidence. So far, the package's $288 billion in tax cuts and credits haven't seemed to significantly affect consumer spending. Spending on goods and services, ranging from TV sets to T-shirts, decreased by 1.2 percent in the second quarter. That's after they increased by 0.6 percent in the first. The Conference Board reported last week that its Consumer Confidence Index continued to decline in July for the second month in a row.