Did the Stimulus Work? It Depends On Who You Ask

By Lisa Smith | November 02, 2009 AAA

Conflicting reports about the effectiveness of the federal government's stimulus efforts raise questions and eyebrows. Did it work or did it fail? What seems like a straightforward area of inquiry has become a political football.

Pro-Stimulus Sentiments
The pro-stimulus crowd clearly believes the effort has been a success. They cite moderation in unemployment rate growth, housing market stabilization, consumer-led spending during the third quarter and two consecutive quarters of gross domestic product growth as proof of success. That growth likely marks the end of the worst recession since the 1930s, and a significant portion of it was driven by the government through the Cash for Clunkers program and an $8,000 credit for first-time home buyers. (Learn how to make money off soaring or falling housing costs; check out our article, Profit As Your Home's Price Changes.)

Anti-Stimulus Points
The anti-stimulus crowd cites continued unemployment growth, the weak dollar, depressed home prices, flagging consumer confidence and rising government debt as proof that the stimulus efforts have failed. The Conference Board Consumer Confidence Index®, which declined in both September and October, sits below the 50 mark, a traditional dividing line between positive and negative sentiment. The anti-stimulus crowd also notes that consumer spending increases were artificially inflated by the tax credit for housing and the Cash for Clunkers, both of which have expired. To further muddy the waters, a vocal camp of critics is claiming that Cash for Clunkers was a failure. The website Edmunds.com has claimed that of the 690,000 new vehicle sales generated over the summer, all but 125,000 would have been sold with or without the subsidy. (Consumer confidence is the key to any market economy. Learn the measures and how to analyze them in our article, Consumer Confidence: A Killer Statistic.)

How Many Jobs Created Or Saved?
The number of jobs saved is another politically contested item. The administration claims that 30,000 new jobs were created and that a total of 650,000 jobs were created or saved. Officials expect that number to grow to 3.5 million. Critics claim the numbers are inflated by a factor of 10. Even if they are accurate, the numbers are hardly a dent in the tally of more than 15 million unemployed. (The unemployment rate is a widely watched indicator of economic well-being that directly influences the market. Learn more in our article, What You Need To Know About The Employment Report.)

Recession Could Have Been Worse
So, what's an investor to think? Cutting through the partisan politics, most economists agree that the recession would have been worse without the stimulus efforts. How much worse is difficult to say. While all of us should be glad we didn't see the economy sink even further, the success or failure of the stimulus efforts are likely to be debated for a long time time to come.

The economy has a large impact on the market. To learn how to interpret the most important reports, be sure to read our Economic Indicators Overview.

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