So I'm driving along a Pennsylvania highway two weeks ago on my summer vacation, radio blasting, and what do I see but one of those Recovery Act signs, touting a highway project. Jeez, I thought. Can't a guy get away from that stuff for a couple of days!?
Don't worry. I quickly reverted to my economist self and applauded the infrastructure improvement, lecturing my wife and kids on the considerable multiplier effects of such spending (which led to them turning the radio up even louder).
The fact is, what I saw was a small dose of the medicine from the Recovery Act making its way through one of the nation's arteries. And that road project in Pennsylvania is one of out 3,350 highway projects currently underway across the country.
But what about the larger patient, i.e., the macro-economy? What are economic analysts saying about the impact of the Recovery Act thus far?
As I'll show you in a moment, they're saying good things. The Act is having its intended effect of offsetting some--by no means all--of the damage caused by the deepest downturn since the Great Depression. And in tandem with our other interventions in financial and housing markets, it's helped to pull us back from that very dangerous precipice.
As Mark Zandi, a highly respected economist (and former advisor to the McCain campaign) put it in a recent analysis, "The fiscal stimulus is providing the fodder for better sales. Lower payroll tax withholding, checks to Social Security recipients, and more financial help to unemployed workers are buoying household incomes. The cash for clunkers program has juiced up vehicle sales, and the housing tax credit has boosted home sales. It is no coincidence that the recession is ending just when the stimulus is providing its maximum economic benefit." (Emphasis mine).
And other economists agree about the positive effect that the Recovery Act is already having. Moody's Economy.com (where Zandi is Chief Economist), IHS Global Insight, and the Economic Policy Institute all estimate that the Recovery Act has created or saved from 500,000 to 750,000 jobs so far.
The economists at Goldman Sachs think the package added 2.2 percentage points to real GDP growth (annualized) in the second quarter of 2009 and will add 3.3 points in the current quarter. That implies even more jobs saved or created during the current quarter compared to the last one. It also means that were it not for the boost the Recovery Act is giving to the economy right now, GDP would have contracted at a 3.2% rate in the last quarter instead of a 1% rate.
Which raises a really, really important point--and don't even think about turning up the radio. Suppose you were, oh, I don't know ... politically motivated to argue that the Recovery Act wasn't working. You'd probably point to that 1% decline in GDP and say, "How can it be working if the economy is still contracting" Or maybe you'd point to the 247,000 jobs lost last month.
Now, the President has stressed consistently that as far as we're concerned, any degree of economic contraction is too much, and even more importantly, any job losses are too many. But the independent findings cited above make the critical point that if you're only noticing that things are still bad without noticing that they're getting better, you're looking at the wrong benchmarks. The question is not: Are we still in hole? Of course we are; it took years to dig in, and it's going to take a long time to dig out.
The relevant question is: Are we digging out faster thanks to the Recovery Act and our other economic policies? To that question, these independent analysts, and many others, unequivocally answer, "Yes."
Just take a look at some "then and now" indicators:
GDP was tanking earlier this year; it fell much less quickly in the second quarter and the consensus among private forecasters is for real GDP growth to break into positive territory in the current quarter.
We're still losing far too many jobs, but the rate has significantly slowed. The fact is, you don't go from losing upwards of 700K jobs on net per month to adding jobs without passing through a period just like this one, where the loss rate slows.
Home sales and prices are showing stabilizing signs. The sales data, by the way, have gotten a nice boost from our First Time Home Buyers Credit. And consumer confidence is solidly up, too.
Let me be very clear about all this: We are not out of hole yet. It's important to be realistic about what the Recovery Act has and hasn't accomplished thus far. We've pulled the economy back from the brink, provided critical relief to families, communities, and states, and are now beginning to lay the foundation for a stronger, more broadly shared expansion.
But we are not there yet. There are more job losses to come. Key economic indicators may have bottomed out, but they've done so at historically low levels. The economy remains fragile.
But as we slowly climb out of the hole that greeted us when we got here on January 20th, let's also be sure to take note of what's working.