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Stimulus created jobs, but no real optimism
A new government analysis says the stimulus act funded between 1 million and 2.1 million jobs as of December and kept the economy humming at a faster rate than it would otherwise, but consumer confidence has tumbled anyway - potentially hindering the continued recovery.
With the economy and the unemployment rate crowding out much of the rest of President Obama's agenda, both the jobs figures and consumer confidence will become key pieces of evidence as Republicans and Democrats argue over last year's stimulus and how much more spending is needed.
The Congressional Budget Office on Tuesday said the $862 billion American Recovery and Reinvestment Act, signed a little more than a year ago, was responsible for lowering the unemployment rate by between 0.5 percent and 1.1 percent in the final three months of 2009, and added 1.5 percent to 3.8 percent to the country's gross domestic product.
"The policies that were enacted in the stimulus bill are increasing GDP and employment relative to what they otherwise would be," said Douglas Elmendorf, director of the Congressional Budget Office.
Republicans, though, said the stimulus has been good for government but not for creating private-sector jobs.
"The fact is, if you are a government worker you probably got a pay raise from the stimulus; if you are a manufacturing or construction worker you got a pink slip," said Rep. Kevin Brady, Texas Republican.
Stimulus contractors say they've created about 600,000 jobs directly from spending, but CBO uses economic modeling to reach its conclusions. That accounts for the wide range of potential job creation.
Going forward, CBO said, the effects of the stimulus on GDP will peak next quarter, and its effects on job creation will peak over the next six months before diminishing.
At the same time, consumer confidence is already dipping, according to the Conference Board Consumer Research Center, a private group that surveys consumer confidence.
The board, in a survey released Tuesday, recorded a giant drop in confidence from January to February and said its "present situation" index, which measures confidence in the economy as it stands now, is at its lowest point in 27 years. The expectations index, which measures optimism about the future economy, also dropped after three months of improvement.
"Consumers also remain extremely pessimistic about their income prospects. This combination of earnings and job anxieties is likely to continue to curb spending," said Lynn Franco, director of the center.
A spending drop could start a dangerous spiral.
A survey of small businesses taken by M Booth & Associates for American Express OPEN found that those companies say the biggest hurdle to hiring more workers is lax customer demand.
While more than half of businesses said they'd take advantage of tax breaks, just 11 percent said high rates are keeping them from hiring more workers, and 42 percent said the lack of customers is holding them back.
Aware of the unease, Congress is pushing to pass something lawmakers can tout as pushing jobs creation.
The Senate is expected Wednesday to pass its pared-down, $15 billion version of a jobs bill, after five Republicans joined nearly all Democrats in heading off a filibuster Monday.
The broken filibuster left Democrats optimistic that they can attract Republican support for more of their agenda, including health care reform.
"I think this is a good example and a good lead-in to Thursday, and that is there's a willingness for members to put aside partisan games and to move ahead with what we know is important for the American people and for the growth and the stabilization of our economy," said White House press secretary Robert Gibbs.
The bill still will need to be squared with a much broader $155 billion version the House passed last year, though House Democratic leaders could pass the Senate bill as is and declare a quick victory.
Democrats in both the House and Senate say this initial bill will be followed by others designed to promote job creation.
In another show of bipartisan cooperation, Senate Majority Leader Harry Reid, Nevada Democrat, and Minority Leader Mitch McConnell, Kentucky Republican, were hammering out details Tuesday morning for another package of measures to extend tax breaks, unemployment benefit payments and government subsidies to help laid-off workers buy health insurance.
A Reid aide could be heard suggesting a one-year extension of unemployment insurance as a McConnell aide jotted down the proposal and Mr. Reid chimed in, pointing to the paper and offering explanations.
The CBO numbers provided a boost to Democrats, who have been on the defensive over the $862 billion Recovery Act.
But the numbers do underscore the administration's failure to predict the depth of the recession. The White House had predicted peak unemployment of 8 percent without the stimulus, and well less with the stimulus. CBO's numbers show that peak unemployment could have reached beyond 11 percent without the additional spending.
On Tuesday, House Majority Leader Steny H. Hoyer, Maryland Democrat, said making the 8 percent claim was a mistake.
"Probably shouldn't have made that claim," he told reporters. But he said the stimulus act and Congress' other moves have left the economy in much better shape than before.
He pointed to the Dow Jones Industrial Average, which has gained about 4,000 points since Mr. Obama took office, and said the housing market has stabilized and the number of jobs lost each month has fallen dramatically, though it's not in positive territory.
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