Wednesday, February 17, 2010

Impact of Stimulus Spending This Year

On August 31, I wrote an article titled the Fits and Starts Expansion. In that article, I noted the effect of the stimulus package:

So, between actual spending and tax reductions, 2010 should see the direct impact of roughly $350 billion ($225 in spending and $131 in tax reduction). The real issue here is the multiplier effect -- how much of a larger effect will the spending have. Frankly, we won't know until the money is spent. But next year we'll see the ripple effect of the combination of tax cuts and spending. This will help growth.

Today the WSJ has an article on the effect of stimulus spending:

Proponents of the stimulus program focused attention on infrastructure projects during the fight to win approval for it last year. But the bulk of the money proposed for projects like new rail lines and water projects—about $180 billion in all—is likely to be spent this year at the earliest. During year one of the stimulus, only about $20 billion of money was handed out for infrastructure projects.

"I think we'll see a lot more stimulus money get into actual contracts and actual hiring in 2010 than we did in 2009," said Kenneth Simonson, chief economist of the Associated General Contractors of America.

The ramped-up stimulus spending in 2010 will contribute 1.4 percentage points to gross domestic product growth this year, said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

I have no idea as to the actual numerical effect on GDP. However, we're going to see some growth from it.