Stimulus: The big bang is over

By Tami Luhby, senior writer

NEW YORK ( -- The job market and economy need a serious jumpstart, but the stimulus program likely won't be able to do it.

This summer will be the peak of the $787 billion stimulus program in terms of creating jobs and pumping money into the economy. In fact, the Obama administration is calling it the Summer of Recovery because more than 30,000 miles of highways are being improved, more than 2,800 water projects have been started and 120,000 homes will be weatherized.

After that, it will be a downhill slide for stimulus even as the economy is expected to continue sputtering.

"It's very hard to discern any impact," said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

Shifting to stimulus projects

When it was passed in February 2009, the nation's largest stimulus program focused on sending aid to struggling state governments, providing tax relief and augmenting the safety net for the unemployed and low income.

Some 57% of tax benefits and 60% of entitlement money has already been paid out, according to federal data. But only 43% of the funding for contracts, loans and grants has gone out the door.

Now, however, the focus is shifting to infrastructure and other projects that will drive job growth, according to the administration. For instance, President Obama on Friday announced 66 new stimulus-funded broadband projects nationwide that officials say will create about 5,000 jobs immediately and spur long-term economic development.

The Recovery Act's greatest impact lies ahead, according to the administration.

"As the summer heats up, it is becoming clear that it could quite possibly be the most active season yet when it comes to recovering our economy," wrote Deputy Housing Secretary Ron Sims on a White House blog in June. "There are Recovery Act-funded projects breaking ground across the country that are creating quality jobs for Americans and economic growth for businesses, large and small. This summer is sure to be a Summer of Economic Recovery."

The White House credits the stimulus program with funding between 2.2 million and 2.8 million jobs so far. That figure is derived from a mathematical formula based on the money that's flowed out the door. Officials say at least 3.5 million jobs will be created or retained by year's end, which was the president's original goal.

But it's nearly impossible to know how many people actually owe their employment to stimulus. Recipients of Recovery Act contracts reported that 682,370 jobs were funded in by stimulus in the first quarter, but that figure isn't cumulative and covers only a portion of the total stimulus package.

Struggling economy

Bethune, however, says that the government's projections are overly optimistic. Though he agrees that the Recovery Act has juiced the economy, he feels it's closer to a 1 percentage point increase in the gross domestic product in the first quarter, rather than that 2.5 to 2.9 percentage point hike estimated by the White House's Council of Economic Advisers.

"Just look at the number of jobs we created over the past four quarters," he said. "There haven't been a lot."

Unemployment slid to 9.5% in June even as 125,000 jobs were lost. The vast majority of those losses, however, were temporary Census workers. Private sector employers added 83,000 positions.

There are several factors hampering the Recovery Act, experts said. A primary one is that states' budgets are in such bad shape that they continue to shed jobs and slash spending despite stimulus infusions.

Also, contractors have to jump through many government hoops to get stimulus funding, said John Slye, principal analyst at Input, a market research firm for government contractors. That's one reason why a relatively small percentage of project funding has been distributed.

"It's taking agencies so long to get this money out into the economy," he said.

Though stimulus funds were meant to bridge the gap until the private companies started hiring again, employers have been reluctant to add to their payrolls.

In the construction sector, for instance, spending fell 8% in May compared to a year ago, even though stimulus-funded work picked up. Private non-residential construction sagged 25%, according to an analysis of Census Bureau data by the Associated General Contractors of America.

The stimulus infrastructure funds will largely run out by the end of 2010, said Ken Simonson, the association's chief economist. He's very concerned that this will result in a long-term decrease in construction activity.

"There's no pretending that stimulus will drive the economy or replace the private sector," said Simonson. "I still think the economy will keep growing, but I have less confidence now than a few months ago." To top of page

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