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

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2 comments:

  1. Tom LindmarkAugust 26, 2010 at 8:17 PM

    Jake,
    Here's a different take on these numbers from Megan McArdle http://www.theatlantic.com/business/archive/2010/08/cbo-report-were-still-using-the-same-stimulus-model-and-it-still-says-the-same-thing/62057/. Hope that link works.

    Here's a bit of her view:

    The CBO has another report out on ARRA. Every few months, this comes out, and every few months, a bunch of commentators treat this as if this were an empirical analysis, rather than a case of the CBO sticking the numbers back into the same model, re-running them, and conclusively proving that . . . their model still generates the same results. Because I believe in gains from trade, I outsource the snark to the Official Asymmetrical Information Spouse:

    Personally I think that these numbers represent not much more than political rhetoric. Certainly, they don't capture the reality of what APRA did or did not accomplish. Realistically, the extent of its contribution is probably not calculable.

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  2. JakeAugust 27, 2010 at 4:36 AM

    also a question as to whether the stimulus just pulled demand forward. my opinion (and it really is just that) was that the stimulus was a needed short term kick the can solution that prevented the worst case scenario. the takeaway is that stimulus will not be there at the level it was in the past, so get ready for some ugliness...

    going forward... people need to accept tough decisions that hopefully (but unlikely) politicians will be ready to make regarding spending cuts and tax hikes to get things balanced back out.

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