Recovery Act Fourth Quarterly Report - Conclusion
This report continues the Council of Economic Advisers’ assessment of the economic impact of the American Recovery and Reinvestment Act of 2009. It reflects our attempt to monitor the progress of the Act and the response of the economy as of the second quarter of 2010.
Our analysis indicates that the Recovery Act has played a key role in the turnaround of the economy that has been occurring over the past year. Real GDP reached its low point in the second quarter of 2009 and has been growing solidly since then, in large part because of the tax cuts and spending increases included in the Act. Employment, after falling dramatically, has begun to grow again. Indeed, payroll employment (neglecting temporary Census workers) has risen for six consecutive months. As of the second quarter of 2010, we estimate that the Recovery Act has raised employment by 2.5 to 3.6 million relative to what it otherwise would have been.
We also find that the public investment programs in the Recovery Act are funding critical investments in a wide range of areas. The employment effects of these programs increased substantially in the second quarter of 2010 as many projects moved from planning to implementation; we estimate that the programs now account for almost one-third of the employment effects of the Act. This pattern fits the Vice-President’s description of the summer of 2010 as the “Summer of Recovery.”
One innovative feature of the Recovery Act is its leveraging of outside funds to make Federal dollars go further and to strengthen incentives for the effective use of those funds. The Act uses about $100 billion of matching grants, tax credits, and various types of lending assistance to partner with almost three times that amount of non-Federal funds, and to thereby support over $380 billion of economic activity. The leverage involves activities from advanced energy manufacturing, where 48C tax credits are partnering public and private funds, to essential infrastructure investments, where Build America Bonds are making new sources of funding available to state and local governments.
As we have emphasized, measuring what a policy action has contributed to growth and employment is inherently difficult because we do not observe what would have occurred without the policy. Therefore, it must be understood that our estimates are subject to substantial margins of error. The results, however, are strong enough and clear enough that we are confident that the basic conclusions are solid. That a wide range of private and government analysts concur with our estimates adds a reassuring check on our analysis.