Council of Economic Advisers Blog

  • CEA Releases Fourth Quarterly Report on the Economic Impact of the Recovery Act

    As part of the unprecedented transparency and accountability provisions of the Act, the CEA provides a report to Congress about the Act each quarter.  In the Fourth Quarterly Report  released this morning, we not only find that the Act has had a substantial effect on output and employment, but that it is leveraging private capital and making important investments in the future productivity of the country.

    The Changing Composition of Recovery Act Stimulus.

    Congress designed the Recovery Act both to begin spending out quickly and to provide crucial support to the economy over a two-year period.  It has met and is continuing to meet these goals.  The state fiscal relief, payments to seniors, and the emergency unemployment insurance benefits went out almost immediately, and started aiding the economy in the spring and summer of 2009.  The tax cuts also went into effect immediately, but it has been during tax season (the first two quarters of this year) that many Americans have seen concrete signs in the form of reduced tax payments and increased tax refunds.  In previous CEA Recovery Act reports, we have highlighted the state fiscal relief  and the tax cuts and income support provisions  of the Act, and found evidence of their effectiveness.

    In today’s quarterly report, we highlight the public investment spending in the Recovery Act.  This is the project spending that not only creates jobs in the short run, but leaves us with an expanded and improved ability to create high-paying jobs in the future.  The Recovery Act includes $319 billion of public investment on everything from basic infrastructure such as roads and bridges to twenty-first century infrastructure such as a smarter electrical grid and universal broadband.  It invests in community health centers, health information technology, education, and job training to improve the health and skills of our citizens -- our human capital.  And, it makes unprecedented investments in basic scientific research to enhance innovation and so help retain our competitive edge.  All of these investments will help increase the long-run productivity of our economy and the standard of living of ordinary Americans.

    The public investment components of the Recovery Act were always expected to spend out more gradually, because they typically require planning and are often awarded through a rigorous competitive process.  But as of the end of June, roughly two-thirds of the public investment funds included in the Act had been obligated, and more than $86 billion had been outlayed.  Public investment outlays increased by more than 50 percent between the first and second quarters of this year, which explains why the Vice-President has named this summer the “Summer of Recovery.”  As the other stimulus in the Recovery Act gradually winds down over the next few quarters, the public investments will continue at a rapid pace, providing continued support to the economy. 

    CEA 071410 Figure 5

    Leverage Provisions of the Act. 

    An innovative feature of the Recovery Act is its focus on partnering public investment with private and other funds.  Much of the Recovery Act investment spending takes the form of matching grants, loan guarantees, interest subsidies, and tax incentives that support and encourage outside investment.  For example, the 48C Advanced Energy Manufacturing Credit gives private firms that pass the Department of Energy’s competitive process a 30 percent tax credit for their investments in factories to produce solar panels, wind turbines, and other clean energy products.  The Broadband Initiatives Program provides grants and loans to firms and regional authorities to bring internet access to rural communities.  And, the Build America Bond program subsidizes the interest cost of state and local government borrowing for schools, transportation, and other vital projects, so that these entities are encouraged to invest in local infrastructure.

    The CEA’s report collected information from 15 agencies on the nature and extent of these leverage provisions in the Recovery Act.  We find that roughly $100 billion of Recovery Act funds use leverage, and that these provisions are encouraging co-investment in a wide range of areas.  The greatest use of these innovative provisions are in the areas of clean energy, economic development, and building construction.  We estimate that the $100 billion of Recovery Act funds will partner with close to $300 billion of other funds, the majority of which are from the private sector.  That is, $1 of Recovery Act funds is matched by $3 of other funds.  All told, the $100 billion investment from the Recovery Act will support more than $380 billion of total investment spending.

    CEA 071410 Table 15

    Jobs Impact 

    In our report, we estimate the impact of the Recovery Act on job creation in two ways.  Our model-based approach uses multiplier estimates similar to those used by the Congressional Budget Office to estimate how the Recovery Act tax cuts and outlays to date likely translate into employment effects.  This approach indicates that the Recovery Act has raised employment relative to what it otherwise would have been by 2.5 million jobs as of the second quarter of 2010.  The projection approach uses statistical procedures to project the likely path of employment based on the information available through the end of the first quarter of 2009.  This yields a substantially larger number:  it suggests that employment as of the second quarter is 3.6 million higher than it otherwise would have been.  By this estimate, the Recovery Act has met the President’s goal of saving or creating 3.5 million jobs -- two quarters earlier than anticipated.

    Our review of a wide range of other estimates of the employment effects of the Act shows that our model-based estimate is similar to that of outside experts.  There is obviously a great deal of uncertainty around any jobs estimate.  But, our compendium of outside estimates shows that respected analysts across the ideological spectrum, as well as the non-partisan Congressional Budget Office, agree that the Act has had a significant beneficial effect on employment and output over the past year.

    CEA 071410 Table 9

    Christina Romer is the Chair of the Council of Economic Advisers

  • The Employment Situation in June

    Today’s employment report shows continued signs of gradual labor market recovery.  Private nonfarm payroll employment increased by 83,000 in June and the unemployment rate fell two-tenths of a percentage point to 9.5%.  June marks the sixth month in a row that private sector employment has increased.  These continued signs of healing are important, particularly given the recent volatility in world markets and the mixed behavior of other recent economic indicators.  However, much stronger job gains are needed to repair the damage caused by the financial crisis and put the millions of unemployed Americans back to work.

    Payroll Employment

    Total payroll employment fell 125,000 in June.  This decline had been widely anticipated because some of the temporary employment related to the Census began to wind down last month.  Temporary Census employment dropped 225,000 in June.  Non-Census employment rose 100,000, reflecting a rise in private employment of 83,000 and a rise in other types of Federal employment.  Private employment rose at an average monthly rate of 119,000 in the second quarter of 2010, up from 79,000 in the first quarter, and up dramatically from the average decline of 752,000 in the first quarter of 2009.  Private employment has increased 593,000 since its low point in December 2009.

    Employment gains were spread broadly across industries.  The biggest gains were in professional and business services (including an increase of 20,500 in temporary help services), leisure and hospitality, and education and health.  Manufacturing also added employment for the sixth month in a row.  Besides the decline in Federal employment related to the Census, the industries losing jobs were construction, finance, information, and state and local government.  Average weekly hours for all employees on private nonfarm payrolls also declined one-tenth of an hour in June.  Hours, however, are still up four-tenths from their low in October 2009.

    Unemployment

    The unemployment rate fell two-tenths of a percentage point for the second month in a row.  At 9.5%, the unemployment rate is now six-tenths of a percentage point below its high last year.  However, the drop in the unemployment rate was driven in large part by a substantial decline in the labor force, which we expect to be reversed as employment prospects continue to improve.  The household survey also found that the number of workers working part-time for economic reasons declined substantially for the second month in a row.  The number of such workers has fallen 525,000 over the past two months.

    While this report suggests a continuation of gradual labor market repair, it is important to emphasize the magnitude of the damage that remains from the recession.  Payroll employment is still down 7.5 million from its pre-recession peak and the unemployment rate is more than 5 percentage points above its pre-recession low.  It is essential that we focus on accelerating job growth.  That is why the President continues to work with the Congress to pass targeted jobs measures such as an extension of emergency unemployment insurance, a program for small business lending that will enable small firms to get the credit they need to expand and create jobs, and more aid for troubled state and local governments to prevent layoffs of teachers, firefighters, and police.  These are fiscally responsible measures that would have a substantial impact on the rate of job growth.

    As always, it is important not to read too much into any one monthly report, positive or negative. The monthly employment and unemployment numbers are volatile and subject to substantial revision. Emphasis should be placed on persistent trends rather than month-to-month fluctuations.

    CEA 7.2.10 Jobs Chart 1

    CEA 7.2.10 Jobs Chart 2

    Christina Romer is the Chair of the Council of Economic Advisers

     

  • The Employment Situation in May

    Today’s employment situation report shows continued signs of labor market recovery. Payroll employment rose for the fifth month in a row, and the unemployment rate fell two-tenths of a percentage point to 9.7 percent. While these are encouraging developments, we clearly have a very long way to go until the labor market is fully recovered. It is essential that we continue our efforts to move in the right direction and generate steady, strong job gains and continuing declines in unemployment.

    Payroll employment rose 431,000 in May. As expected, most of this increase was due to temporary hiring associated with the decennial Census. Total private employment increased by 41,000, somewhat lower than the rate of increase in previous months. Building on the steady gains in previous months, private employment is now nearly 1/2 million higher than in December 2009. Both manufacturing and service-providing industries showed job gains; employment in construction and state and local government, however, fell noticeably. Average weekly hours, which are another important indicator of labor market healing, rose by one-tenth of an hour in May and are up four-tenths of an hour since last December.

    The unemployment rate, which had risen in April, fell two-tenths of a percentage point to 9.7 percent. Both the labor force and the household measure of employment fell in May, following tremendous gains in the previous months. Consistent with the rise in average weekly hours, the number of full-time workers rose for the fourth month in a row and the number of people working part-time for economic reasons declined sharply.

    The fact that the unemployment rate fell and private employment rose are obviously encouraging signs that recovery continues. At the same time, the continued high level of unemployment and the slowdown in private sector job growth emphasize the need for continuing vigilance. The Administration strongly supports targeted actions to spur private sector job creation and prevent continued reductions in state and local government employment. Tax incentives for clean energy manufacturing and energy efficiency, extensions of unemployment insurance and other key income support programs, a fund to encourage small business lending, and fiscal relief for state and local governments are essential measures to ensure a more rapid, widespread recovery.

    As always, it is important not to read too much into any one monthly report, positive or negative. The monthly employment and unemployment numbers are volatile and subject to substantial revision. Emphasis should be placed on persistent trends rather than month-to-month fluctuations.

    CEA 60410 employment chart

    Christina Romer is the Chair of the Council of Economic Advisers

  • The Employment Situation in April

    Today’s employment report shows the strongest signs yet of healing in the labor market, as private nonfarm payrolls expanded substantially. At the same time, the rise in the unemployment rate reminds us of how far we still have to go before the economy is fully recovered.

    Payroll employment increased by 290,000 in April--the largest one month employment gain since March 2006. Of this total, 231,000 was in the private sector. Hiring related to the decennial Census contributed 66,000 to the total. The payroll employment numbers for February and March were also revised up substantially (by 53,000 and 68,000, respectively). The current numbers now show that employment has grown in each of the past four months.
     
    The job gains were spread widely across sectors. Construction, manufacturing, professional and business services, education and health, and hospitality and leisure all added jobs. Indeed, the rise in manufacturing employment of 44,000 was the largest since August 1998. One area of weakness was state and local government, which reduced employment by 6,000. Temporary help employment grew more slowly than in previous months (+26,000), suggesting that firms may be moving to more permanent hiring. The average workweek for all employees on nonfarm payrolls increased by 1/10 of an hour and is up 3/10 of an hour since December.

    In the household survey, the unemployment rate rose to 9.9 percent. This is obviously a very high rate, and reducing it must remain the fundamental focus of policy. Importantly, the rise in the unemployment rate in April was driven largely by a surge in the labor force. The labor force increased by 805,000, while employment as measured by the household survey increased by 550,000. Since December, the labor force has increased by 1.9 million.  Such a rise in the labor force often occurs in recoveries as workers who had dropped out of the labor force are drawn back in by improved employment opportunities.
     
    While today’s report clearly suggests that we are moving in the right direction, it also shows how much work remains to be done. The unemployment rate is painfully high, and payroll employment is still nearly 8 million below its level at the start of the recession. It will take many months of robust job growth to restore the labor market to genuine health. Further targeted actions to spur private sector job creation are critically needed to ensure a more rapid, widespread recovery.

    The monthly employment and unemployment numbers are volatile and subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, positive or negative. It is essential that we continue our efforts to move in the right direction and generate sustained, strong job gains.

    CEA 50710 Jobs Chart

     
    Christina Romer is the Chair of the Council of Economic Advisers
     

    This number is adjusted to remove the impact of revised population controls that the Bureau of Labor Statistics introduced in January 2010. Without this adjustment the labor force increased by 1.7 million.

  • Statement on the Advance Estimate of GDP for the First Quarter of 2010

    Today’s GDP report shows important signs of continued recovery.  Real GDP grew at a solid 3.2 percent annual rate in the first quarter of 2010.  This is the third consecutive quarter of positive growth.  To put the rate of growth into perspective, real GDP fell at a 6.4 percent rate in the first quarter of 2009.  There is no question that the economy has improved dramatically over the past year.

    Each additional quarter of GDP growth is a welcome sign that the economy is healing from a severe recession that cost over eight million jobs and wiped out trillions of dollars in household and family wealth. Given the severity and depth of the recession, it will take a number of quarters of robust growth and strong employment gains to return the economy to full health and full employment.

    The most encouraging news in the report was the strong growth of key types of private spending by consumers.  Personal consumption expenditures grew at an annual rate of 3.6 percent, suggesting renewed confidence among households.  This growth is also consistent with the rise in tax refunds in the first quarter due to the Recovery Act (see the CEA’s Third Quarterly Report on the Economic Impact of the American Recovery and Reinvestment Act of 2009 for more information on the surge in Recovery Act tax relief in the first quarter).  Business investment spending on equipment and software rose strongly as well, increasing at a 13.4 percent rate.  Businesses also increased their inventory investment substantially, suggesting they are more optimistic about future sales.

    While there is much to be encouraged by in the report, there were two areas of notable weakness.  First, both residential and non-residential structures investment declined, reflecting continuing slack in the housing and commercial real estate markets.  Second, state and local government purchases fell at a 3.8 percent rate, more than offsetting a small rise in Federal purchases.  This fall in state and local government spending was the largest since 1981, and is consistent with the continuing severe budget shortfalls in many states.

    The Administration continues to work with Congress to take responsible actions that will help the private sector create jobs and speed the recovery.

    CEA 43010 GDP Chart

     

    Christina Romer is the Chair of the Council of Economic Advisers

  • Strengthening the Rural Economy

    Rural areas are home to about 50 million Americans and are an essential part of the overall economy.  As the President embarks on the next stops on the White House to Main Street Tour in Illinois, Iowa, and Missouri, the CEA today released a report that surveys the current state of rural America and describes the Obama Administration’s policies for strengthening the rural economy.  The map below shows the distribution of rural counties across the county.
     
    Among the report’s key findings are that rural America has a diverse economy. Rural residents are employed in a range of industries including manufacturing, services, government, and wholesale and retail trade.  Agriculture, which has traditionally been a key base of the rural economy, continues to record strong productivity gains and is highly competitive in international markets.  However, while rural America offers many opportunities, it also faces a number of challenges. Its educational attainment lags behind that of urban areas.  Improvements in health status also have not kept pace, and access to doctors and health services has been a key challenge in rural areas.
     
    The newly-released CEA report outlines four categories of Administration’s policies to lay a foundation for 21st-century growth that will continue to strengthen and diversify the rural economy, support rural workers and businesses, and put rural America on a path toward a more prosperous future.  Many of these policies are already being implemented through the American Recovery and Reinvestment Act of 2009.  But further work remains to ensure the prosperity and vitality of Main Streets across America.
     
    The first category of Administration policies for strengthening rural America is focused on growing businesses and expanding employment opportunities.  These policies include increased support for small business lending through Recovery Act funds to the Small Business Administration.  They also include incentives to greatly expand biofuel production and renewable energy generation, which are often centered in rural areas.  For instance, with the Renewable Fuels Standard just put into place, it is expected that over 100 ethanol plants will be built over the next decade, while incentives for renewable energy generation in the Recovery Act are expected to double wind generation.  There are also important new opportunities for rural tourism and recreation.
     
    A second category of policies is aimed at strengthening rural infrastructure.  Without roads, bridges, water projects, and telecommunications, rural America cannot get its products to market efficiently or be fully integrated with the rest of the economy. For this reason, the Federal government has traditionally supported rural infrastructure projects.  The Obama Administration has continued that support in important and innovative ways, such as by supporting the expansion of broadband internet access to rural areas and upgrading and improving the efficiency of existing rural water infrastructure.
     
    A third category of policies focuses on strengthening the agricultural sector.  As part of the National Export Initiative, the Administration has proposed measures to further open international markets to U.S. agricultural products.  It has also proposed reforms to better target farm support programs, and urged a greater focus on local and regional food systems through initiatives such as Know Your Farmer, Know Your Food.
     
    The fourth category of policies is aimed at strengthening the labor force and improving the quality of life in rural America by investing in education and health care.  For instance, the President’s proposed American Graduation Initiative, together with infrastructure investments in rural broadband, will help make high-quality online courses available, especially benefiting rural areas.  The Administration is also investing in the health of rural America by taking actions to increase the affordability and quality of health care, while bolstering the medical workforce and infrastructure to address the unique challenges rural residents face in accessing doctors and hospitals.  Health insurance reform through the Patient Protection and Affordable Care Act also provides special support for the rural medical workforce by expanding graduate medical education positions in rural teaching hospitals and by supporting training for doctors and nurses in rural health care.

    The history of rural America is one of proud accomplishment, and the President is committed to ensuring that the future of rural America is as distinguished as its past.

    CEA 42610 Figure 1

     

    Christina Romer is the Chair of the Council of Economic Advisers

    Ann Wolverton is Senior Economist at the Council of Economic Advisers who focuses on Energy, Environment and Natural Resources