Analysis - Stimulus Won't Jump-start Economy

Analysis: Stimulus Won't Jump-start Economy

By Jeannine Aversa, Associated Press

FEBRUARY 13, 2009

WASHINGTON -- No, the big stimulus plan won't "save or create 3.5 million jobs," as the president and congressional Democrats claim -- at least not this year.

The economy will remain feeble through 2009, analysts warn, and businesses will keep shedding jobs, though not as many as they would have without the $789 billion boost.

The stimulus agreement, heading for final votes in the next day or so, goes to the heart of President Barack Obama's strategy to revive the economy and will go far in shaping how Americans view his economic leadership.

What it won't do is quickly snap the country out of the painful recession, now in its second year.

It should provide some relief, economists say, though some argue it won't plow enough money into the economy to prop it up.

Tax cuts will spur at least some spending by consumers and businesses, and that should help save or create jobs. Aid flowing to cash-squeezed states will prevent some layoffs.

And money for big public works projects, such as bridge and road repairs, and longer-term ventures, such as networks for more high-speed Internet connections, eventually will generate jobs and stir economic activity.

But even with the stimulus, many economists predict a net loss of 2 million, 3 million or even more jobs this year. The recession already had cost 3.6 million jobs through January. The unemployment rate, now at 7.6 percent, the highest in more than 16 years, will probably hit at least 9 percent by next year.

"The stimulus package is not going to turn the economy around right now," said William Gale, director of economic studies at the Brookings Institution.

"The best-case scenario is that it mitigates the depth and the severity of the downturn. That's not a bad thing. It's just not the magic bullet that fixes everything."

Some analysts say the job market won't return to normal health -- with unemployment hovering around 5 percent -- until as late as 2013.

And the broader economy? No sudden revival there either.

The economy is expected to slide backward for all of 2009 -- a decline in gross domestic product of more than 1 percent. That may not sound like much, but it would be the first yearly decline since 1991.

"Congress put the minimum charge into the stimulus battery," said Brian Bethune, economist at IHS Global Insight. "We're taking this big chance, turning the key and praying there is enough juice to turn over the economy. We should have juiced it up so much that we are guaranteed that this engine will start" through a bigger package of tax reductions.

This recession has proved especially stubborn and dangerous. The root causes -- housing, credit and financial crises -- are the worst since the 1930s and don't lend themselves to quick fixes.

The package includes Obama's signature "Making Work Pay" tax credit for 95 percent of workers. But negotiators scaled it back from Obama's campaign promise: to $400 a year for individuals, instead of his $500, and $800 for couples, down from his $1,000.

That equals around an extra $13 a week in most paychecks, and it should show up very quickly after Obama signs the bill. The hope is Americans will then feel more inclined to go out and buy, which would help bolster the economy.

But will recession-shocked consumers, spooked by vanishing jobs, shattered nest eggs, tanking home values and surging foreclosures, actually spend money?

"Chances are people are going to save much or most of the tax cuts because of the climate of uncertainty and doom and gloom," Gale said.

Given the severity of the problems, economists said, the bigger the economic revival package the better. Some said it needed to be $1 trillion to make a noticeable difference this year.

Others argued that the package should have been front-loaded with a lot more money -- at least $500 billion -- in tax cuts, which tend to act more quickly to boost economic activity.

Mark Zandi, chief economist at Moody's Economy.com., estimates the bill will create just more than 2 million jobs by the end of 2010. The problem is, the recession will probably wipe out many more jobs than that. Zandi's prediction: 6.5 million jobs will disappear.

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