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CBO Says Stimulus is Still Boosting the Economy

A new report from the Congressional Budget Office (CBO) shows that the American Recovery and Reinvestment Act (ARRA) or stimulus bill, has continued to boost the economy throughout 2011, and will continue to do so through 2012 and into 2013.

According to the report, the stimulus increased employment in the 4th quarter of 2011 by between 400,000 and 2.6 million jobs. Without the stimulus, the unemployment rate would have been between 0.2 and 1.1 points higher, and GDP would have been between 0.2% and 1.5% lower.
 
The stimulus proved to be effective during the worst of the recession, when the economy was at its weakest. The CBO report finds that the impact of the stimulus peaked in the 3rd quarter of 2010, when between 700,000 and 3.6 million jobs could be attributed to the stimulus’s economic impact. Without the stimulus, the unemployment rate could have peaked at 11.5%. Instead, the stimulus held the unemployment rate below 10%.
 
The following tables apply the findings from the CBO report to West Virginia. To estimate the figures for the state, I assumed the ratio between the state’s actual employment and unemployment numbers and the national numbers would have remained the same absent the stimulus. While the CBO report offered two estimates of the stimulus’s impact, one of high effectiveness and one of low effectiveness, I used the average of the two for the tables.
 
Employment in WV, Actual and Estimate without Stimulus
Sources: WVCBP analysis of CBO and BLS data
 
According to the analysis, the stimulus boosted employment in West Virginia by an estimated 5,800 jobs in the 4th quarter of 2011. The economic impact of the stimulus peaked in the 3rd quarter of 2010, when in increased employment in West Virginia by nearly 11,000 jobs. Using the high effectiveness estimate from the CBO report, the stimulus’s impact peaked at over 18,000 jobs in the 3rd quarter of 2010, and increased employment by more than 10,000 jobs at the end of 2011.
 
Unemployment Rate in WV, Actual and Estimate Without Stimulus
 
Sources: WVCBP analysis of CBO and BLS data
 
According to the analysis, the stimulus reduced West Virginia’s unemployment rate from 8.6% to 8.0% in the 4th quarter of 2011. At its peak, the economic impact from the stimulus lowered West Virginia’s unemployment rate from 10.4% to 9.2% during the 3rd quarter of 2010. Using the high effectiveness estimate from the CBO report, the state’s unemployment rate could have reached 11.5%. Instead, the state’s unemployment rate never went over 9.6%.
 
The CBO report also shows, that while fading, the stimulus will continue to have an effect throughout 2012 and 2013. The stimulus is expected to boost GDP by 0.8% in 2012 and 0.4% in 2013, lower the unemployment rate by 0.6 points in 2012 and 0.3 point in 2013, and increase employment by 1.1 million jobs in 2012 and 500,000 in 2013. The stimulus also increased the number of full time workers throughout the recession, and is expected to continue to do so through 2013.

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