Thursday, August 26, 2010

More Stimulus Needed?

Calculated Risk details that according to the CBO, stimulus (i.e. the American Recovery and Reinvestment Act "ARRA") raised GDP in Q2 by an estimated range of 1.7% to 4.5%. If the revision to Q2 GDP growth comes in at the expected 1.4% annualized rate for the quarter, this means that if the impact of stimulus is within range, GDP "would have" been negative in Q2.

The chart below shows actual GDP and a range for GDP ex-stimulus (simply actual GDP less the estimated impact of the stimulus at the low and high-end ranges as detailed by the CBO).

The concern on a going forward basis is that the impact of the stimulus has peaked and the economy still has numerous structural issues. Back to Calculated Risk:

Less stimulus spending in Q3 was one of the reason I expected a slowdown in growth in the 2nd half of 2010. There are other reasons that I've listed before: the end of the inventory correction, more household saving leading to slower growth in personal consumption expenditures, another downturn in housing (lower prices, less residential investment), slowdown in China and Europe and cutbacks at the state and local level.
Source: BEA