In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Tuesday, May 25, 2010

CBO: Stimulus raised GDP 1.7% to 4.2% in Q1

by Calculated Risk on 5/25/2010 06:30:00 PM

From the Congressional Budget Office: Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2010 Through March 2010

CBO estimates that in the first quarter of calendar year
2010, ARRA’s policies:

  • Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,

  • Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,

  • Increased the number of people employed by between 1.2 million and 2.8 million, and

  • Increased the number of full-time-equivalent jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise.

    The effects of ARRA on output and employment are expected to increase further during calendar year 2010 but then diminish in 2011 and fade away by the end of 2012.
  • Here is the CBO's estimate of the impact on GDP by quarter:

    Change Attributable to ARRA, GDP change (percent)
     Low EstimateHigh Estimate

    Note: the impact on GDP growth (the headline number reported each quarter by the BEA), is the change in spending from one quarter to the next. The ARRA impact on GDP peaks in Q2 2010 and is lower in Q3 2010 by both estimates. This change will show up as a drag on GDP growth in Q3.

    This is part of the reason I expect a slowdown in growth in the 2nd half of 2010. Other factors include: the inventory correction appears over, I expect households to save more (a drag on consumption growth), and I expect further weakness in housing.