Author: Christina Romer

(This guest post originally appeared on the White House Council of Economic Advisers Blog)

As part of the unprecedented accountability and transparency provisions included in the American Recovery and Reinvestment Act of 2009 (ARRA), the Council of Economic Advisers (CEA) was charged with providing to Congress quarterly reports on the effects of the Recovery Act on overall economic activity, and on employment in particular. Today we released our third report (pdf), with an assessment of the effects of the Act through the first quarter of 2010.

The main macroeconomic findings include:

• The magnitude of the fiscal stimulus increased substantially in the first quarter of 2010 (from $83 billion in 2009:Q4 to $112 billion in 2010:Q1) largely because of a surge in tax refunds and lower final tax liabilities due to the Making Work Pay tax credit.
• Government investment outlays in areas such as infrastructure and clean energy, which increased $16 billion in 2010:Q1, are expected to rise further throughout 2010.
• The CEA estimates that as of the first quarter of 2010, the ARRA has raised employment relative to what it otherwise would have been by between 2.2 and 2.8 million. These estimates are broadly similar to those of other analysts. Our estimates incorporate the most recent information about actual Recovery Act spending and tax reductions, as well as current trends in employment and production.

A special section of the report focuses specifically on the impact of the tax relief and income support provisions of the Recovery Act:

• To date, there has been more than $200 billion of tax relief and income support provided to households by the ARRA. These funds have had a disproportionately large impact on the incomes of middle- and lower-income families.
• CEA estimates that without these provisions, household real disposable income would have fallen substantially in 2009. Figure 6 from the report (reproduced below) shows actual after-tax family income alongside income without the tax relief and income support provisions of the Recovery Act. Without the tax cuts and income support provisions of the ARRA, consumer spending would not have rebounded as it did and, indeed, would likely have continued to fall.
• As of 2010:Q1, the tax relief and income support provisions of the Recovery Act have saved or created between 1.1 and 1.4 million jobs, or roughly one-half of the total number of jobs saved or created by the Act.

Identifying the impact of policy actions is inherently difficult, and the estimates must be understood to be subject to large margins of error. For this reason the CEA has approached its task from a wide range of perspectives, all of which point to a key role for the ARRA in helping the economy recover from the worst recession since the Great Depression. The CEA will continue to monitor the effects of this important policy initiative over the coming months and years.

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(From The White House Blog)

Although the labor market remains severely distressed, today’s report on the employment situation is consistent with the pattern of stabilization and gradual labor market healing we have been seeing in recent months. 

The unemployment rate remained constant at 9.7 percent.  Many had expected that some of January’s 0.3 percentage point decline would prove to be a transitory drop.  That it was maintained for a second month makes it more likely that it was a genuine decline, not statistical noise.  The number of workers unemployed for more than 26 weeks fell by 180,000, the first decline in over a year.

Payroll employment declined by 36,000, slightly more than last month.  However, as many analysts have discussed in recent weeks, the large snowstorms in the Mid-Atlantic region in mid-February likely had a substantial negative impact on this number.  Someone who has a job but missed the entire pay period that included the 12th of the month because of the weather, and so did not receive a paycheck, is not counted as being on the payroll.  The Council of Economic Advisers estimates  that the impact of bad weather on the February employment number was likely substantially negative.  Importantly, negative weather effects this month would be expected to be counteracted next month, as workers who temporarily disappeared from payrolls because of the snow are once again counted.  In addition, according to the Bureau of Labor Statistics, temporary Census employment was an unusual factor adding about 15,000 to the payroll employment total in February.  Census employment is expected to rise substantially over the next few months, before declining again over the summer as the Census is completed.
 
Of course, an unemployment rate of 9.7 percent is unacceptably high and we need to achieve robust employment growth in order to recover from the terrible job losses that began over two years ago.  That is why it is essential that Congress pass additional responsible measures to promote job creation.  It is also vital that we continue to support those struggling with unemployment.

As always, it is important not to read too much into any individual data release, positive or negative.  Because of the disruptions from the weather, this is especially true of today’s employment data.  Although the overall trajectory of the economy has improved dramatically over the past year and appears to be continuing to improve, there will surely continue to be bumps in the road ahead.

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