As required by law, CBO prepares regular reports on its estimate of the number of jobs created by the American Recovery and Reinvestment Act of 2009 (ARRA), which is often referred to as the economic stimulus package. In its latest report, issued this afternoon, CBO provides estimates of ARRA’s overall impact on employment and economic output in the second quarter of calendar year 2011.
The current estimates of the impact on output in the second quarter are slightly smaller than those presented in our May 2011 report. Although CBO modestly increased its estimate of ARRA’s impact on federal spending in 2011 (mostly reflecting slightly higher estimates of outlays this year for energy efficiency and education programs), the agency also shifted estimated federal spending by small amounts between quarters of the year.
The current estimates of the impact of ARRA on output and employment in 2012 are larger than those presented in May 2011. Although CBO slightly lowered its estimate of ARRA’s impact on federal spending in 2012, the agency also changed its assumptions about future actions by the Federal Reserve. CBO now anticipates that the Federal Reserve will keep the federal funds rate close to zero through the fourth quarter of 2013, whereas previously, CBO had expected the Federal Reserve to begin raising the federal funds rate at the end of 2011. Under the prior assumption, the direct boost to the demand for goods and services provided by ARRA in 2012 would have been partly offset by slightly faster increases in interest rates; under the current assumption, that dampening effect does not occur.
CBO’s Estimates of ARRA’s Impact on Employment and Economic Output
Looking at recorded spending to date along with estimates of the other effects of ARRA on spending and revenues, CBO has estimated the law’s impact on employment and economic output using evidence about the effects of previous similar policies and drawing on various mathematical models that represent the workings of the economy. Because those sources indicate a wide range of possible effects, CBO provides high and low estimates of the likely impact, aiming to encompass most economists’ views about the effects of different policies. On that basis, CBO estimates that ARRA’s policies had the following effects in the second quarter of calendar year 2011 compared with what would have occurred otherwise:
- They raised real (inflation-adjusted) gross domestic product by between 0.8 percent and 2.5 percent,
- Lowered the unemployment rate by between 0.5 percentage points and 1.6 percentage points,
- Increased the number of people employed by between 1.0 million and 2.9 million, and
- Increased the number of full-time-equivalent (FTE) jobs by 1.4 million to 4.0 million compared with what would have occurred otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers).
The effects of ARRA on output peaked in the first half of 2010 and have since diminished, CBO estimates. The effect of ARRA on employment and unemployment are estimated to lag slightly behind the effects on output; CBO estimates that the employment effects began to wane at the end of 2010 and continued to do so in the second quarter of 2011. Still, CBO estimates that, compared with what would have occurred otherwise, ARRA will raise real GDP in 2012 by between 0.3 percent and 0.8 percent and will increase the number of people employed in 2012 by between 0.4 million and 1.1 million.
CBO’s current estimates reflect small revisions to its earlier projections of the timing and magnitude of changes to federal revenues and spending under ARRA. CBO now estimates that ARRA will increase budget deficits over the 2009–2019 period by $825 billion, slightly less than what we estimated in our May report. By CBO’s estimate, close to half of that total impact occurred in fiscal year 2010, and about 85 percent of ARRA’s budgetary impact was realized by the end of June 2011.
Comparison With Recipients’ Estimates
CBO’s estimates differ substantially from the reports filed by recipients of ARRA funding. During the second quarter of 2011, according to recipients’ reports, ARRA funded more than 550,000 FTE jobs. Those reports, however, do not provide a comprehensive estimate of the law’s impact on U.S. employment, which could be higher or lower than the number of FTE jobs reported for several reasons that were discussed in a previous blog post.
This report was prepared by Felix Reichling and Benjamin Page of CBO’s Macroeconomic Analysis Division.