Wednesday, July 29, 2009

Better news: GDP contraction expected to slow to negative 1.5%

GDP Preview: The parachute deploys as Recovery Act takes hold
By Josh Bivens
From Economic Policy Institute

A July 31 Commerce Department report is expected to show that the U.S. economy contracted at a 1.5% annualized rate in the second quarter of 2009, according to a consensus of Wall Street economists polled by Dow Jones Newswires. If their forecasts are accurate, it would be a substantial improvement over the previous six months, when the economy contracted four times as fast - at a 6% annual rate.

A substantial portion of the improvement registered in the second quarter can be attributed to the effects of the American Recovery and Reinvestment Act (ARRA). Both Goldman Sachs and Mark Zandi of Moody’s have estimated that ARRA added approximately three percentage points to growth in the second quarter. Both of these estimates are confirmed by the Economic Policy Institute’s own calculations.

A second quarter annualized GDP contraction of 1.5%, instead of the 4.5% contraction that would have occurred without the Recovery Act, translates into approximately 720,000 jobs that were created or preserved as a result of the ARRA. Given that actual job loss in April, May, and June of this year totaled 1.3 million, this means that job loss would have been more than 50% higher without the moderating influence of ARRA.