Recovery Act Third Quarterly Report - Executive Summary
THE ECONOMIC IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009
THIRD QUARTERLY REPORT
As part of the unprecedented accountability and transparency provisions included in the American Recovery and Reinvestment Act of 2009 (ARRA), the Council of Economic Advisers (CEA) was charged with providing to Congress quarterly reports on the effects of the Recovery Act on overall economic activity, and on employment in particular. In this third report, we provide an assessment of the effects of the Act through the first quarter of 2010.
Evaluating the impact of countercyclical macroeconomic policy is inherently difficult because we do not observe what would have happened to the economy in the absence of policy. Because of the challenges in the analysis, we approach the task of estimating the impact of the Recovery Act from a number of different directions, and supplement our estimates with those of numerous outside analysts.
One section of the report looks at trends in the size and composition of Recovery Act spending and tax reductions. We find that:
- The magnitude of the fiscal stimulus increased substantially in the first quarter of 2010 (from $83 billion in 2009:Q4 to $112 billion in 2010:Q1) largely because of a surge in tax refunds and lower final tax liabilities due to the Making Work Pay tax credit.
- Government investment outlays in areas such as infrastructure and clean energy, which increased $16 billion in 2010:Q1, are expected to rise further throughout 2010.
Another section evaluates the economic impact of the Recovery Act from a number of different perspectives. The key findings are:
- Following implementation of the ARRA, the trajectory of the economy changed materially toward moderating output decline and job loss. Real GDP began rising in the third quarter of 2009 and payroll employment began to grow in the first quarter of 2010.
- The two CEA methods of estimating the impact of the fiscal stimulus suggest that the ARRA has raised the level of GDP as of the first quarter of 2010, relative to what it otherwise would have been, by between 2.5 and 2.9 percent. These estimates are very similar to those of a wide range of other analysts.
- The CEA estimates that as of the first quarter of 2010, the ARRA has raised employment relative to what it otherwise would have been by between 2.2 and 2.8 million. These estimates are similar to those of other analysts, and are broadly consistent with the direct recipient reporting data available for 2009:Q4.
A special section of the report focuses specifically on the impact of the tax relief and income support provisions of the Recovery Act. This analysis shows that:
- To date, there has been more than $200 billion of tax relief and income support provided to households by the ARRA. These funds have had a disproportionately large impact on the incomes of middle- and lower-income families. There has been greater spending in states with larger populations and, for those programs aimed at families in need, in states with more economic distress.
- CEA estimates that without these provisions, household real disposable income would have fallen substantially in 2009 and consumer spending would not have rebounded as it did. Indeed, consumer spending would likely have continued to fall.
- As of 2010:Q1, the tax relief and income support provisions of the Recovery Act have saved or created between 1.1 and 1.4 million jobs, or roughly one-half of the total number of jobs saved or created by the Act.