Recovery Act Fourth Quarterly Report - Executive Summary

THE ECONOMIC IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009
FOURTH QUARTERLY REPORT

EXECUTIVE SUMMARY

As part of the unprecedented accountability and transparency provisions included in the American Recovery and Reinvestment Act of 2009 (ARRA), the Council of Economic Advisers (CEA) is charged with providing to Congress quarterly reports on the effects of the Recovery Act on overall economic activity, and on employment in particular. In this fourth report, we provide an assessment of the effects of the Act through the second quarter of 2010.

Evaluating the impact of countercyclical macroeconomic policy is inherently difficult because we do not observe what would have happened to the economy in the absence of policy.  Because of the challenges in the analysis, we approach the task of estimating the impact of the Recovery Act from a number of different directions, and supplement our estimates with those of numerous outside analysts.

One section of the report looks at trends in the size and composition of Recovery Act spending and tax reductions. We find that:

• The magnitude of the fiscal stimulus increased substantially in the first quarter of 2010 and has increased further in the second quarter (from $80 billion in 2009:Q4 to $108 billion in 2010:Q1 to $116 billion in 2010:Q2).
• Government investment outlays in areas such as infrastructure, clean energy, and communications technology increased by roughly 50 percent between the first and second quarters of 2010.

Another section evaluates the economic impact of the Recovery Act from a number of different perspectives. The key findings are:

• Following implementation of the ARRA, the trajectory of the economy changed dramatically. Real GDP began to grow steadily starting in the third quarter of 2009 and private payroll employment has increased by nearly 600,000 since its low point in December 2009.
• The two CEA methods of estimating the impact of the fiscal stimulus suggest that the ARRA has raised the level of GDP as of the second quarter of 2010, relative to what it otherwise would have been, by between 2.7 and 3.2 percent. These estimates are very similar to those of a wide range of other analysts, including the Congressional Budget Office.
• The CEA estimates that as of the second quarter of 2010, the ARRA has raised employment relative to what it otherwise would have been by between 2.5 and 3.6 million. These estimates are broadly consistent with the direct recipient reporting data available for 2010:Q1.

A special section of the report focuses on the public investment provisions of the Recovery Act. This analysis shows that:

• The Recovery Act includes appropriations for $319 billion of public investment spending on projects ranging from roads and bridges to community health centers to a smarter electrical grid. To date, two-thirds of these appropriated funds have been obligated and more than one-quarter have been outlayed.
• CEA estimates this public investment spending has already saved or created more than 800,000 jobs as of the second quarter of 2010, an increase of 30 percent over the first quarter.
• A case study of the transportation infrastructure provisions of the Act shows that nearly 14,000 projects have been awarded in areas ranging from highway improvements to new airport runways and public transit. Recovery Act transportation expenditures by state are positively correlated with private employment growth in heavy construction. 

A related special section analyzes the many direct Recovery Act programs that are designed to leverage private, non-profit, and state and local government spending:

• Some examples of Recovery Act programs that leverage other investment funds are tax credits for advanced energy manufacturing, loan guarantees for small businesses, and interest subsidies for state and local borrowing to finance essential infrastructure projects.
• CEA’s analysis shows that roughly $100 billion of Recovery Act funds have leverage provisions, and these funds will ultimately support more than $380 billion of total investment spending. This implies that every $1 of Recovery Act funds invested in these programs is partnered with about $3 of outside investment spending.
• The majority of the leveraged funds come from the private sector.
• A case study of the Production Tax Credit and other incentive programs for wind energy suggests that the leverage provisions have an important impact on private sector investment spending and hence on job creation.

CONTENTS

  
I. INTRODUCTION
     
II. THE PROGRESS OF SPENDING AND TAX REDUCTIONS UNDER THE RECOVERY ACT     

III. EVIDENCE OF THE ECONOMIC IMPACT OF THE RECOVERY ACT  

IV. THE PUBLIC INVESTMENT PROVISIONS OF THE RECOVERY ACT 

V.PROVISIONS OF THE RECOVERY ACT THAT LEVERAGE OTHER SPENDING 

VI.CONCLUSION

APPENDIX: ESTIMATED EMPLOYMENT EFFECTS BY STATE

REFERENCES