Is the Stimulus Working?
by Craig Jennings
Jul 31, 2009
This morning, the Bureau of Economic Analyses released the latest economic growth data. In the second quarter of this year, the gross domestic product (GDP) shrank at annul rate of 1.0 percent. While this represents a slowing of the free-fall rate of economic contraction we saw in Q1 (6.4 percent), the economy has quite a ways to go before job losses become gains and wages begin ticking upward. This improvement, though, does beg the question "Is the Recovery Act working?"
While there are certainly a number of reasons for the recent improvement in GDP (negative) growth, a look at the numbers behind the number, reveals that growth in both federal, state, and local government expenditures contributed 1.12 percentage points of growth. And as states and localities see falling revenue and increased consumption of public services, the Recovery Act aid going to these governments is no doubt mitigating cuts in vital services like health care, child care, education, and public safety.
And while personal consumption declined at annual rate of 0.88 percent, it could have been much worse. Center for Economic and Policy Research's Dean Baker:
The tax cuts and benefit increases in the stimulus, which began to kick in at the start of the quarter, almost certainly prevented consumption from falling more than it otherwise would have. Consumption fell at a 1.2 percent annual rate in the second quarter. As a result of the tax cuts and benefit increases, disposable personal income rose at a 4.6 percent annual rate in the quarter, even as wage income fell at more than a 5.0 percent annual rate.back to Blog