Estimates of ARRA’s Impact in the Third Quarter of 2011

November 22, 2011

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 was enacted in response to significant weakness in the economy at that time. In its latest report, issued this afternoon, CBO provides estimates of ARRA’s overall impact on employment and economic output in the third quarter of calendar year 2011, as well as over the entire period since February 2009.

Estimates of ARRA’s Impact in the Third Quarter of 2011

CBO develops estimates of ARRA’s effects on output and employment by looking at recorded
spending to date along with estimates of the other effects of ARRA on spending and revenues, by using evidence about the effects of previous similar policies, and by drawing on various
mathematical models that represent the workings of the economy. Using such analysis, CBO estimates that ARRA’s policies had the following effects in the third quarter of calendar year 2011 compared with what would have occurred otherwise:

  • They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.3 percent and 1.9 percent,
  • They lowered the unemployment rate by between 0.2 percentage points and 1.3 percentage points,
  • They increased the number of people employed by between 0.4 million and 2.4 million,and
  • They increased the number of full-time-equivalent (FTE) jobs by 0.5 million to 3.3 million.(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.)

Those ranges reflect the substantial uncertainty that surrounds the broad economic effects of such policies and a range of economists’ views about the magnitude of those effects.

In contrast, recipients of some ARRA funds reported that those sums supported about 400,000 FTE jobs during the third quarter of calendar year 2011. In CBO’s view, those reports do not
provide a comprehensive estimate of the law’s impact on U.S. employment for several reasons,
which are discussed in CBO’s report and in a previous
blog post
.

Projected Effects of ARRA in 2012

The effects of ARRA on output peaked in the first half of 2010 and have since diminished, CBO estimates. The effects on employment 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 have continued to do so throughout 2011.

In total, CBO estimates that the legislation will increase budget deficits by about $825 billion over the 2009–2019 period. By the end of September 2011, nearly 90 percent of ARRA’s
impact on federal spending and revenues had occurred.

Still, CBO estimates that, compared with what would have occurred otherwise, in 2012 ARRA
will:

  • Raise real GDP by between 0.1 percent and 0.8 percent, and
  • Increase the number of FTE jobs by between 0.2 million and 1.3 million.

CBO’s Current Estimates Differ from Its Previous Estimates

CBO’s current estimates differ in several regards from its previous estimates:

  • They indicate a wider range of possible effects of changes in federal taxes and spending on economic output; specifically, the low end of the ranges is less than in CBO’s previous estimates. That change is based on the agency’s continuing review of relevant research. (For a discussion of that research, see the appendix to the report.)
  • CBO slightly decreased its estimate of the effect of infrastructure spending on output.
  • The agency’s current estimates reflect small revisions to its previous projections of the timing of changes to federal spending under ARRA.

This report was prepared by Felix Reichling of CBO’s Macroeconomic Analysis Division.