CBO Reports on ARRA's Continued Impact

Yesterday, CBO released an update on the American Recovery and Reinvestment Act’s (read our analysis of it here) impact on unemployment and job growth for the second quarter of 2010. It reported that ARRA funded almost 750,000 jobs in the U.S. this quarter, yet this positive report was accompanied by the cautionary note that the number of jobs created cannot alone paint a picture of the bill’s impact, primarily because some of those jobs might have existed regardless of the stimulus.

CBO’s analysis says that the economic stimulus package raised real GDP by between 1.7 and 4.5 percent in the second quarter of 2010, while lowering the unemployment rate by between 0.7 and 1.8 percentage points (the range illustrates the inherent uncertainty in estimating the effects of the stimulus). CBO reports that, from its implementation through the second quarter of 2010, the ARRA increased the number of people employed by between 1.4 million and 3.3 million, and increased the number of full-time-equivalent jobs by 2.0 million to 4.8 million compared with what would have otherwise occurred. The chart below compares CBO's most recent findings with those of CEA, published a month ago.

Measure 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4

CEA and CBO Estimates of ARRA's Economic Impact

CBO GDP Increase 0.8 - 1.3% 1.2 - 2.4% 1.4 - 3.3% 1.7 - 4.1% 1.7 - 4.5% 1.5 - 4.2% 1.1 - 3.6%
CBO Employment Increase (millions) 0.3 - 0.5 0.6 - 1.1 0.9-  1.9 1.2 - 2.7 1.4 - 3.3 1.4 - 3.6 1.3 - 3.5
CEA GDP Increase (multiplier model) 0.8% 1.7% 2.1% 2.5% 2.7% n/a  n/a
CEA Employment Increase (millions) 0.4 1.1 1.7 2.2 2.5 3.0* 3.5*

*For CEA Employment Increases (millions) in Q3 2010 and Q4 2010, the numbers were derived from the CEA Report by taking note that they project 3.5 millions jobs to be created/saved by Q4 2010, and then splitting the difference between Q3 and Q4 2010 columns.

However, CBO also warns that the ARRA’s effects on output will be gradually diminishing during the second half of 2010 and beyond, with its effects on unemployment lagging slightly behind, beginning a more noticeable decline in 2011.

Type of Activity Low Estimate Output Multiplier High Estimate Output Multiplier Total 10-year Budgetary Cost
Purchases of Goods and Services by the Federal Government 1.0 2.5 $95 billion
Transfer of Payments to State and Local Governments for Infrastructure 1.0 2.5 $139 billion
Transfer of Payments to State and Local Governments for Other Purposes 0.7 1.8 $215 billion
Transfer of Payments to Individuals 0.8 2.1 $100 billion
One-Time Payments to Retirees 0.3 1.0 $20 billion
Two-Year Tax Cuts for Low and Middle Income Earners 0.6 1.5 $168 billion
One-Year Tax Cut for High Income Earners  0.2 0.6 $70 billion
Extension of First Time Homebuyer Credit             0.3 0.8 $7 billion

The ARRA, signed into law in February 2009, included about $814 billion in spending and tax cuts over a ten year period (the latest number from CBO), among them a $400 per person "Making Work Pay" tax credit, a patch of the Alternative Minimum Tax, substantial infrastructure investment, an expansion of unemployment benefits, and significant state and local aid. Follow the bill's continued deficit impact at stimulus.org.