CBO's Estimates of ARRA's Economic Impact

February 22, 2012

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. In its latest report, issued this afternoon, CBO provides estimates of ARRA’s impact on employment and economic output in the fourth quarter of calendar year 2011, as well as over the entire period since February 2009.

CBO’s current estimates of the economic effects of ARRA for 2009 through 2012 are unchanged from its estimates published in November 2011.

Estimates of ARRA’s Impact in the Fourth 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 fourth quarter of calendar year 2011 compared with what would have occurred otherwise:

  • They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.2 percent and 1.5 percent,
  • They lowered the unemployment rate by between 0.2 percentage points and 1.1 percentage points,
  • They increased the number of people employed by between 0.3 million and 2.0 million, and
  • They increased the number of full-time-equivalent (FTE) jobs by 0.4 million to 2.6 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 200,000 FTE jobs during the fourth 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 continued to do so throughout 2011.

In total, CBO estimates that the legislation will increase budget deficits by about $831 billion over the 2009–2019 period. By CBO’s estimate, close to half of that impact occurred in fiscal year 2010, and more than 90 percent of ARRA’s budgetary impact was realized by the end of December 2011.

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.

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