Despite claims, data continue to show small impact of stimulus

Debate about the impact of the $787 billion stimulus continued this week. “Thanks largely to the Recovery Act,” Larry Summers argued, “we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery.” Yet the latest data from the Department of Commerce continue to show that only an insubstantial part of this distance was due to the stimulus. The table shows the latest Department of Commerce estimates of the contributions of consumption, investment, net exports, and government spending to the improvement in GDP growth from the first to second quarter. Growth improved by 5.7 percent (from -6.4 percent to -0.7 percent). Private investment was by far the major source. Government spending contributed 1.9 percentage points, but more than half of that was defense spending which was not part of the stimulus. The table is an update of information reported in my Wall Street Journal article of last month with John Cogan and Volker Wieland. This one-page brief provides more details and also shows that direct spending from the stimulus contributed only 0.3 percent of 5.7 percent. We will learn more when the Department of Commerce releases data from the third quarter next week, but so far their data are very clear that the stimulus is having a negligible impact.