White House Economists: Stimulus Jobs Slowly Going Away

July 5, 2011 - 6:03 PM

Mayors, Obama, Biden

President Barack Obama and Vice President Joe Biden. (AP Photo/Charles Dharapak)

(CNSNews.com) – The jobs created or saved by the federal government’s economic stimulus spending are steadily going away, according to a report from the White House Council of Economic Advisors (CEA). As stimulus spending declines, so too does the support it provided to employment.

The report, released late on Friday, July 1, shows that stimulus spending is now supporting fewer jobs than it did in the previous two quarters – supporting approximately 2.4 million jobs in the first quarter of 2011.

According to the report, because stimulus spending is receding, the jobs estimated to have been supported by that spending are beginning to disappear as well. At the height of its effectiveness – the second and third quarters of 2010 – the CEA estimated that the stimulus was supporting 2.7 and 2.8 million jobs respectively.

When Obama signed the $787 billion stimulus spending into law -- the American Recovery and Reinvestment Act (ARRA) – on Feb. 17, 2009, he said, “Now, what makes this recovery plan so important is not just that it will create or save 3.5 million jobs over the next two years, including 60,000-plus here in Colorado.  It's that we're putting Americans to work doing the work that America needs done -- in critical areas that have been neglected for too long; work that will bring real and lasting change for generations to come.”

The CEA said the federal spending had caused employment to be higher than what it would normally have been without the stimulus, arguing that the jobs’ figures it presented reflected the number of jobs created or saved by the federal spending.

“In terms of direct impact on employment and GDP, the ARRA was intended to stop the economic slide and to be temporary stimulus to fill part of the substantial hole in aggregate demand left by the crisis,” the report said.

However, the CEA also noted that as stimulus spending declined, so too would its impact on jobs, meaning that the stimulus would support fewer and fewer jobs.

“The Act was designed to have a peak cumulative impact in the second half of 2010,” reads the report.  “Because the ARRA was not designed to be permanent, these outlays and tax reductions will decline over time and thus the impact on GDP and employment are phasing down.”

In other words, because stimulus spending was always designed to be temporary, so too were the jobs it supported, meaning there will be fewer and fewer jobs supported by government spending in the future.

stimulus sign

A sign erected by the federal government to advertise the $787 billion stimulus bill: the American Recovery and Reinvestment Act

In all, the stimulus is supporting 288,000 fewer jobs than it did at its peak, indicating that the program intended to cushion the effects of the recession may be contributing to it instead. According to the report, the economy added only 165,000 jobs in 2011 Q1 and 141,000 in 2010 Q4 – a total of 306,000 new jobs in the past six months.

The CEA admits that job creation is barely positive, saying that, on average, the economy only created 117,000 jobs per month from March 2010 to March 2011 – the end of 2011 Q1. The CEA also admitted that the economy is not growing at a normal post-recession rate.

“Real GDP is below its normal path and, despite recent declines, the unemployment rate remains elevated,” says the report. “Monthly job growth averaged 117,000 for the twelve months ending March 2011, and while more robust growth is needed, this is movement in the right direction.”

All of the jobs estimates produced by the CEA do not reflect actual jobs created by the stimulus. Instead, they reflect the CEA’s estimate of the effect of government spending on the economy generally.

The only figure the government has that comes close to counting the number of jobs created or saved by the stimulus is the self-reporting done by stimulus recipients. The CEA rejects these reports because it believes they do not fully account for the secondary effects of stimulus spending on the economy.

In other words, the CEA argues that employer-provided jobs data do no reflect the secondary jobs created or saved by stimulus money with employers who sell to or service stimulus grant recipients.

Still, those figures also show the stimulus supporting fewer jobs. Those figures show that the stimulus peaked in the second quarter of 2010, accounting for 750,045 jobs created – the administration stopped asking employers to count saved jobs in 2009 because it was too difficult to count accurately.

unemployment, jobs

In this Sept. 29, 2010 photograph, Brian Holbrook reads the Employment Guide while attending a Global Recruiting Solutions job fair in Livonia, Mich. (AP Photo/Paul Sancya, file)

By 2011 Q1, employer-provided data showed that the stimulus was only supporting 560,992 jobs, a difference of 189,053 jobs.

Further, the CEA report shows that employment recovered slower during the latter half of 2010 – when the stimulus was supposed to be at full effect – than it did during 2009, suggesting that while the stimulus may have cushioned the pain of the recession for some, it did not contribute significantly to job growth.

Instead, the stimulus may have only delayed, rather than prevented, layoffs from occurring, especially in state and local government, where recent layoffs have been sharpest. State and local government were among the earliest recipients of stimulus money while stimulus spending on private-sector “investments” has taken longer.