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Power of Stimulus Slow to Take Hold
Rising Joblessness Blunts President's Plan for Recovery

By Lori Montgomery
Washington Post Staff Writer
Wednesday, July 8, 2009

Five months after Congress approved a massive package of spending and tax cuts aimed at reviving an ailing economy, the jobless rate is still climbing and the White House is scrambling to reassure an anxious public that President Obama's prescription for economic recovery is on the right track.

Yesterday, Obama took time out of his first presidential trip to Moscow to defend the $787 billion stimulus package, arguing that the measure was the right medicine at the right time. "There's nothing that we would have done differently," he told ABC News.

Back in Washington, senior Democrats on Capitol Hill were nervously contemplating whether additional government stimulus spending may be needed to pull the nation out of the worst recession since the 1930s. Senior administration officials acknowledged that the effects of the stimulus package have been overshadowed by an unexpectedly sharp drop-off in employment since the measure passed in February. But they reported that only about $100 billion has so far been spent and that as increasingly large sums flow out of Washington, the program is on pace to save or create 600,000 jobs over the next 100 days.

"It is clear from the data that there needs to be more fiscal stimulus in the second half of the year than there was in the first half of the year," White House economic adviser Lawrence H. Summers said. "Fortunately, the stimulus program designed by the president and passed by Congress provides exactly that."

Leading economists agree that the most powerful effects of the stimulus package have yet to be felt. But even if the measure lives up to Obama's expectations, it would barely offset the 433,000 jobs the nation lost last month alone, and the resulting employment would represent a drop in the bucket compared with the 6.5 million jobs lost since the recession began in December 2007.

"Just 130 days out on the adoption of a very, very major effort to get the economy moving, certainly I don't think we can make a determination as to whether or not that's been successful," House Majority Leader Steny H. Hoyer (D-Md.) said yesterday. But, he said, "I think we need to be open to whether or not we need additional action."

Republicans, meanwhile, pounced on news that the unemployment rate increased to 9.5 percent in June and accused the Democrats of sinking the nation deeper into debt to finance an economic recovery package that has failed to save American jobs. Noting that the Obama administration predicted earlier this year that stimulus spending would keep the unemployment rate under 8 percent, Rep. Eric Cantor (R-Va.), the No. 2 Republican in the House, said, "I think any objective measure would indicate there's a failure when you have a commitment of nearly $800 billion in taxpayer funds and you have the type of job loss we're experiencing."

With many economists forecasting that the jobless rate will continue to climb -- and is likely to stay above 10 percent through much of next year -- Republicans vowed to make the 2010 midterm election a referendum on Obama's stewardship of the economy. "I think they're going to have some significant problems," said Sen. John Cornyn (R-Tex.), who leads the GOP campaign operation in the Senate, "and I view those as opportunities for us."

Despite the deepening pain of the recession, many Democrats in the White House and on Capitol Hill yesterday counseled patience. They said it would be extraordinarily difficult to win approval for more spending on the economy when Obama is pursuing a host of other expensive initiatives, including a $1 trillion expansion of the nation's health-care system. And they argued that the current stimulus package should be given a chance to work.

The stimulus was designed to deliver a gradually stronger push to the economy through the end of next year. It contains about $499 billion in new spending and about $288 billion in tax cuts for working families, businesses, college students and first-time home buyers.

When the measure passed, the nonpartisan Congressional Budget Office predicted that about a quarter of the money would be spent by year's end, and that about 75 percent would flow by the end of 2010. So far, economists said, spending appears to be on track.

According to administration estimates, about $158 billion in new spending had been committed to specific projects by the end of June, but just a fraction of that money -- about $56 billion -- had been delivered to struggling state governments, unemployed workers and other recipients. An additional $43 billion had been left in the pockets of individuals and businesses through uncollected taxes, much of it the result of Obama's signature Making Work Pay tax credit for working families.

Those figures track closely with estimates by Mark Zandi, chief economist for Moody's Economy.com, who calculates that the government made $242 billion in stimulus funds available for various purposes through the end of June and paid out about $110 billion. In a recent analysis, Zandi predicted that "the maximum contribution from the stimulus should occur in the second and third quarters of this year," when it will add more than three percentage points to overall economic growth.

"It's pretty much according to plan in terms of the payout and in terms of its economic impact. This is in the script," Zandi said. The problem, he said, is that "the economy has been measurably worse than anyone expected," with a surprisingly sharp "collapse in employment and surge in unemployment" that caught most economists off guard.

"That's why the administration's forecasts have been so wrong," he said.

The White House continues to predict that the stimulus package will save or create 3.5 million jobs by the end of next year. Zandi predicts it will fall short of that, producing about 2.5 million jobs -- still a significant impact.

Whatever the number, Democrats are hoping it will be enough to convince voters that Obama is leading them out of the economic wilderness.

"I think the president was very clear that things were going to take a long time to turn around," said Rep. Chris Van Hollen (D-Md.), who leads the Democratic Congressional Campaign Committee in charge of electing Democrats to the House. Republicans "are making the argument to the American people that doing nothing would have been the best policy. And I don't think people will buy that. . . .

"The measures we have taken have certainly prevented things from getting much worse."

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