CBO: Stimulus Increased Jobs and Lowered Unemployment

According to the Congressional Budget Office, the $825 billion stimulus law (ARRA) enacted in February 2009 has had a significant impact on the economy, including levels of employment. The CBO estimates that  ARRA’s policies had a number of effects in the second quarter of calendar year 2011, when compared with what would have occurred had the stimulus not passed, including an increase in GDP, a lower unemployment rate, an increase in the number of people employed and an increase in the number of jobs. 

CBO analysts looked at recorded spending to date and estimates of the other effects of ARRA on spending and revenues to estimate the law’s impact on employment and economic output. Drawing on various mathematical models that represent the workings of the economy, the CBO developed high and low estimates of the likely impact, aiming to “encompass most economists’ views about the effects of different policies.” Based on those calculations, the CBO estimates the following effects on the second quarter of 2011:

Source: Congressional Budget Office, Director's Blog: CBO’s Estimates of ARRA’s Impact on Employment and Economic Output for the Second Quarter of 2011

The economic impact of ARRA is now fading, as the effects of the law on output (GDP) peaked in the first half of 2010 and have been diminishing ever since. The CBO estimates that the effect of ARRA on employment and unemployment has lagged slightly behind the effects on output – the employment effects began to fade in late 2010 and continued falling throughout the second quarter of 2011.  

The CBO has made a few small revisions to its earlier projections of the timing and magnitude of changes to federal revenues and spending under ARRA.  It now estimates that ARRA will increase budget deficits over the 2009–2019 period by $825 billion, slightly less than what they estimated in May.  But, the CBO also estimates that almost half of that total impact has already happened – occurring in fiscal year 2010, and about 85% of ARRA’s budgetary impact was realized by the end of June 2011. That means ARRA will continue to have a budgetary impact of approximately $124 billion over the next 8 years.  

To put that figure in context, the Wall Street Journal reports that the CBO (in its mid-year review of the federal budget) projects that the deficit for the fiscal year that ends Sept. 30 will be $1.3 trillion, or 8.5% of GDP. That’s down from estimates made in January when the CBO forecast the year-end deficit would be $1.48 trillion.  For fiscal 2012, the CBO projects that the deficit will narrow to $973 billion, or 6.2% of GDP.