The Recovery Act Blog

The Direct and Indirect Benefits of the Recovery Act

The National Association for Business Economics (NABE) has a new survey of 68 of its members out today that shows that the group, which is made up of private sector and industry trade association economists, is newly optimistic about hiring and job growth.  That’s good news – and right in-line with what many public and private forecasters have had to say about our economy recently.

But you may have also noticed an item in their survey that stands in pretty stark contrast to what leading economists have found.  According to NABE:

• The vast majority (73%) of respondents “reported the fiscal stimulus in February 2009 has had no impact on employment to date.”

Now we know that that the Recovery Act hasn’t just had an impact on employment so far – it’s had a BIG impact on employment.  From private forecasters like Moody’s Economy.com and IHS Global to public economists like the non-partisan Congressional Budget Office, economists across the board have gone on-the-record saying that the Recovery Act is already responsible for millions of jobs nationwide and contributing to the economic growth that is fueling our recovery.  Here are just a few of them:

• IHS Global Insight chief economist Nariman Behravesh: Without the stimulus, said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, 3 million more Americans would be out of work and the national unemployment rate, just below 10 percent, would be 12 percent - or higher. “There is no doubt that it had an impact,’’ Behravesh said. “When there is a shortfall in private sector demand, there is a role for government to step in and fill the gap.’’ [The Boston Globe, 3/7/2010]
• Stuart Hoffman, chief economist at PNC Bank: "The stimulus worked," said Stuart Hoffman, chief economist at PNC Bank. Without it, "the unemployment rate would probably be closer to 11 percent and the economy might not have grown at all last year.” [ABC News, 2/18/10]
• Economist Stephen Herzenberg: “Cut through all the numbers, though, and this is what you find: The American Recovery and Reinvestment Act saved us from plunging into a second Great Depression… The Recovery Act brought the economy back from the brink.  And these figures probably underestimate its impact, because they don't take market psychology into account. When the legislation passed, the economy was plunging at a pace similar to that of the 1930s. If Congress had sat on its hands, unemployment now could easily be 12 percent to 15 percent - and on its way to 20 percent.”  [Philadelphia Inquirer, 1/17/10]
• Mark Zandi of Moody’s Economy.com: “The catalyst for the transition from recession to recovery was the unprecedented monetary and fiscal stimulus provided by government policymakers...The Recovery Act’s expanded unemployment insurance benefits, financial aid to state governments, tax cuts for households and businesses, and tax credits for home purchases all contributed to the turn in the economy. The recovery has gained traction in recent months as the sources of GDP growth have broadened to include consumer spending, business investment and exports. The job market has also stabilized. After declining by some 8.4 million jobs between December 2007 and February 2010, payroll employment expanded by 162,000 in March.” [Testimony before Senate Finance Committee, 4/14/2010]

And economic experts at major trade associations say that the Recovery Act has had a substantial impact on employment in their industry:

• Associated General Contractors economist Ken Simonson: “’The stimulus is saving construction jobs, driving demand for new equipment and delivering better and more efficient infrastructure,’ said Ken Simonson, an economist with Associated General Contractors, which represents a large part of the construction industry.  Simonson calculated that roughly 15,000 jobs have been created or preserved for every $1 billion the government has spent on infrastructure projects, which is well above the Association’s year-ago estimate of 9,700 jobs. He said that stimulus-funded road construction projects alone have created 280,000 jobs over the past year, as well as an unknown number of ancillary jobs for subcontractors supplying equipment and raw materials.”  [San Diego Union Tribune, 2/17/10]
• Rhone Resch, President and CEO of the Solar Energy Industries Association: “One year ago today, President Obama visited a solar installation to sign the American Recovery and Reinvestment Act. The purpose of the bill was to stimulate immediate job growth with a strong emphasis on clean energy technologies like solar. And that is exactly what happened. In 2009, the Recovery Act helped the solar industry create 18,000 new American jobs. More than 50 new solar energy manufacturing plants are under construction now with the support of ARRA.” [Solar Energy Industries Association, 2/17/10]

So how exactly did this group of 68 NABE members get it so wrong?  Well, there is more than meets the eye here… 

If you take a closer look at the survey, you will find that they were asked about conditions at their company:

• The NABE April 2010 Industry Survey report presents the responses of 68 NABE members to a survey conducted between March 25, 2010, and April 10, 2010, on business conditions in their firm or industry and reflects first-quarter 2010 results and the near-term outlook.

Now keep in mind that the Recovery Act was specifically designed to get the most employment bang for the taxpayer buck through a combination of targeted relief for hard-hit families and businesses and seed money to jump-start job-creating projects across a wide array of industries and communities.  Those targeted investments multiply down the supply chain and across industries to grow the economy as a whole.  What it wasn’t designed to be is a handout to every company across the country – so we wouldn’t expect that every company surveyed would have received Recovery Act funding.  But interestingly, if 73 percent of the companies surveyed saw no impact on employment to-date, that could mean more than 25 percent of them did see a direct employment benefit – which would be a pretty impressive sign that the Recovery Act has had a broad reach so far.

And keep in mind that the Recovery Act hasn’t just created jobs directly by paying salaries for workers.  Recent analysis from the Council of Economic Advisors found that about half of the jobs created by the Recovery Act so far were as a result of tax relief and income supports like unemployment benefits – money that doesn’t go to companies, but to consumers.  When consumers have more money in their pockets, they spend it purchasing from companies just like the ones surveyed by NABE.  So while the economic experts at these companies may not have seen the dollars themselves, they are no doubt seeing the impact of them as they, along with other companies nationwide, have helped create the roughly 2.5 million jobs supported by the Recovery Act so far.  

But don’t just take our word for it.  This is what NABE had to say as recently as last month about how the Recovery Act is helping grow the economy:

• "Eighty-three percent believe that GDP is currently higher than it would have been without the 2009 stimulus package (ARRA)."
• And more than half of the respondents to that survey “view[ed] the 2009 stimulus package as a positive factor for the economy over the longer term.”

Liz Oxhorn is Recovery Act Communications Director

Recovery Act in Action #4: A 48C Story

Editor's Note: In case you missed them, read Part 1, Part 2 and Part 3.

Today’s Recovery Act in Action episode takes place in Durham, NC at Cree, Inc., America’s foremost producer of LED lighting.  It’s a tale of many important economic advances coming together: cutting- edge energy-saving technology, export-led growth, and most importantly, good manufacturing jobs here in the US.   And at the center of the story is a Recovery Act tax credit that helped to pull a lot of this together.

Cree was chosen for a $39 million tax credit through this Recovery Act program, which is called the Advanced Energy Manufacturing Tax Credit, nicknamed 48C for its line in the tax code.   So far, the investments they’re using the credit to make, along with the private capital they’re putting into those investments, have led to 375 new factory jobs in the last year, and they’re planning to add 300 more next year.  

Vice President Joe Biden and Secretary of Energy Steven Chu tour Cree, with Cree CEO Charles Swoboda, Durham, North Carolina. March 18, 2010. (Official White House Photo by David Lienemann)

The 48C credit has a unique characteristic that makes it especially important in today’s economic landscape.  For years, we’ve used the tax code to subsidize the generation and use of clean, renewable energy.  That’s a good thing, and wholly consistent with President Obama’s environmental vision.

But another part of that vision calls for the growth of new, clean energy industries, providing American workers with the opportunities to build the equipment of the renewable revolution here in the US.  The 48C tax credit incentivizes exactly that: it’s a 30% credit going to domestic companies building domestic capacity to meet this new and growing source of demand.  And that means instead of importing these goods, we can build them here for our markets, and like Cree, sell them abroad into others’ markets (80% of Cree’s revenue comes from exports).

The Recovery Act included $2.3 billion for the 48C program, but we quickly got more applications than we had money for.  Given that a) we have a bunch of good applications we’d like to support, and b) we want to keep planting those seeds to grow new jobs today and new industries tomorrow, the President took the logical step of calling for a $5 billion expansion of the program.

Well, it’s one thing to hang around DC and try to make the case for the extension, but we thought we should also hit the road with the Vice President’s Middle-Class Taskforce and check this Cree story out for ourselves.
The factory was incredibly impressive.  They employ about 1,500 workers in their Durham headquarters, and a couple of the engineers were kind enough to show me and Ron Bloom (the Administration’s Senior Counselor for Manufacturing Policy) part of the production process, the part where they test the LED lights to make sure they’re flawless.

They’ve got multiple layers of quality control and when it’s all done, you end up with this strip of LED lights, ready to go into a huge variety on end-user products.   LEDs can light up your smart phone or your parking lot, and relative to conventional lights, they can reduce energy use by more than 60%.

We spoke to Cree’s CEO about the tax credit and he stressed two points.  One, it was instrumental in their decision to hire 375 new workers this year and their plans to add 300 more next year.  But it was also a critical motivator in bringing in private capital from the sidelines.  Once investors saw that the Federal government was serious about seeding investment in clean energy, they were ready to take the plunge themselves.  This public/private partnership is essential to bringing these investments, and the jobs they create, to scale.

Cree, the Recovery Act, and 48C are a true American success story.  We’re going to do all we can to keep that story going.

LED chips being made at Cree, where Vice President Joe Biden is touring, Durham, North Carolina March 18, 2010. (Official White House Photo by David Lienemann)

Jared Bernstein is Chief Economic Advisor to the Vice President