Stimulus Credited for Lifting Economy, But Worries About Unemployment Persist

By Michael A. Fletcher and Neil Irwin
Washington Post Staff Writers
Friday, September 4, 2009

Half a year after Congress enacted the largest economic stimulus plan in the nation's history, the measure is contributing to what increasingly looks like a budding recovery, analysts say, but significant concern remains about rising unemployment and the initiative's contribution to the federal budget deficit.

With the Obama administration under fire for what critics call unrestrained spending and polls showing the American public ambivalent about the impact of the stimulus plan, officials are pushing back, seeking to highlight the role played by their polices in fueling a recovery.

Vice President Biden, making what the White House billed as a major speech Thursday, touted the role of the $787 billion stimulus program in lifting the economy.

"The Recovery Act has played a significant role in changing the trajectory of our economy and changing the conversation about the economy in this country," Biden said in a speech at the Brookings Institution, a Washington think tank. "Instead of talking about the beginning of a depression, we are talking about the end of a recession."

While some congressional Republicans and others are dubious about the success of the stimulus plan, economists generally agree that the package has played a significant part in stabilizing the economy. They are less certain about the size of the impact.

"It's starting to play a role, helping us to have slightly positive rather than slightly negative GDP growth," said Phillip Swagel, an assistant Treasury secretary in the Bush administration who is now a visiting professor at Georgetown's McDonough School of Business. "It's a gigantic amount of fiscal stimulus, and anyone who tells you it has had no impact, you should be skeptical of."

IHS Global Insight, an economic consulting firm, estimates that the stimulus has increased the 2009 gross domestic product by about 1 percent over what it otherwise would have been, with the benefit almost entirely in the second half of the year.

The firm also forecasts that the package will, in total, result in about 2 million more jobs than otherwise would have existed at the end of 2010. Moody's estimates that the initiative will increase employment by 2.5 million jobs. Both estimates are below the 3 million to 3.5 million jobs the Obama administration estimated the package would create or save because the firms assumed more modest ripple effects from the stimulus spending than administration economists did.

Still, Mark Zandi, chief economist of Moody's, said, "I don't think it's any accident that the economy has gone out of recession and into recovery at the same time stimulus is providing its maximum economic impact."

Yet even as the economy shows signs of improving, labor markets remain as weak as they have been in a generation, with unemployment at 9.4 percent. Just hours before Biden spoke, the Labor Department said that another 570,000 people filed new claims for unemployment insurance benefits last week, little changed from the previous week.

On Friday, the Labor Department is due to report monthly jobs numbers for August. Economists expect the unemployment rate to rise to 9.5 percent.

The administration was criticized this spring for the slow pace of stimulus spending. One hundred days after the plan was passed, officials said it was still too early to judge its success. Now, with Saturday marking another 100 days, the administration is making the case that the legislation helped move the country away from the edge of an economic abyss.

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