Stimulus Could Kick Start Economy by Year's End

Washington, DC, Feb. 13, 2009--The stimulus plan will take time to have an impact, and unemployment is likely to keep rising for months, some economists say.

However, there's reason to believe the package will start growth returning the U.S. by the end of the year.

Yale University economist Ray Fair told Bloomberg News that the first evidence that the plan is working should be visible in consumer spending and retail sales, which they expect will stop declining around mid-year. The next sign may come in business investment. The final signal of success would be a turnaround in a labor market that has lost 3.6 million jobs since the recession started in December 2007.

The tax cut package will provide an average of about $13 per week in additional funds to the average family. Many economists say that such a delivery method will be more effective at increasing demand because consumers will be less inclined to save the money or use it to pay debt.

“There is an argument from behavioral economics that people react differently to big lump sums versus these smaller increases in take-home pay they’ll get every paycheck,” Joel Slemrod, an economist at the University of Michigan in Ann Arbor and an expert on tax policy, told Bloomberg.

The package also includes money for states, most of which are facing budget deficits.

The stimulus bill contains about $54 billion to help states with expenses, which may keep layoffs from happening.

The legislation includes $29 billion for highway construction projects; $16 billion for investments in public transit; $7 billion to expand access to broadband; and $11 billion to renovate the nation’s electrical grid. The measure also would provide $5 billion to weatherize low-income homes and $4.5 billion to make federal buildings more energy efficient.

If the aid to states and consumers and the government spending all have the desired effect, there could be 3.5 million additional jobs in the U.S. economy by the fourth quarter of 2010, according to Fair’s model.