Committee for a Responsible Federal Budget

CBO Estimates the Effects of the Stimulus

May 27, 2010 | Budgets & Projections

CBO recently put out its quarterly estimate of the macroeconomic effects of the American Recovery and Reinvestment Act of 2009 (ARRA). They found that ARRA created about 680,000 full-time equivalent jobs in the first quarter. Since its passage in February 2009, ARRA has raised employment by anywhere from 1.2 million to 2.8 million, raised real GDP by anywhere from 1.7% to 4.2%, and lowered the unemployment rate by anywhere from 0.7% to 1.5%. 

However, it should be noted that the report only measured jobs that were directly created by ARRA funding. Thus, it excludes many parts of the stimulus, like the Making Work Pay tax credit and the one-time transfer payments to seniors. The amount that CBO actually measured only accounts for about 1/6 of the total stimulus spending in the first quarter. The indirect effects of the increase in aggregate demand resulting from the tax cuts, transfer payments, and wages spent by ARRA-funded workers could have also greatly increased the number of jobs.  On the flip side, some of the direct spending that CBO measured may have funded jobs that would have been created even without the stimulus in place. CBO does not say which effect is greater.

Finally, in the report, CBO shows the trends in ARRA's effect over the next year. Job creation and GDP growth will continue to increase as a result of ARRA, with its effects peaking in the third quarter of this year. By the fourth quarter, the effects of the stimulus will start winding down through 2011 until they are practically gone by 2012. The major weight to be pulled by the stimulus will come in the next few quarters; we'll see how it does. 

Remember you can track all the government's recession spending at So far, ARRA has spent about $395 billion, with about $232 billion in spending and $163 billion in tax cuts. Also, be sure to check out our paper on the effects of ARRA.