The U.S. economy is now in “recovery” in the eyes of most economists. Gross domestic product grew at a 2.8 percent pace in the third quarter of 2009—the first growth in five quarters—and is expected to grow again in the fourth quarter. But the challenge of sustained job creation remains ahead of us.
The economy is still shedding close to 200,000 jobs per month and we have yet to have a month with net job growth since the Great Recession began in December 2007. Indeed, there are increasing indications that even if the economy continues to grow it will not do so at a pace fast enough to absorb quickly the 16 million people now out of work and searching for a job. Slow job creation in and of itself could stall the nascent recovery. Consumer spending accounts for about 70 percent of U.S. GDP and unemployed workers are unable to be the customers that businesses need to see before they hire and invest. Dampened consumption from unemployment drags down economic growth.
Congress and the Obama administration understand this danger. Since January, they have taken significant steps—most notably the $787 billion American Recovery and Reinvestment Act—to get the economy back on track. In addition, the Federal Reserve eased credit conditions and continues to keep interest rates low to encourage investment. The actions of Congress, the administration, and the Fed are to be applauded. The fact that we are now emerging out of a Great Recession and not mired in a second Great Depression should not be taken for granted.
The ARRA economic recovery package provided a much-needed boost to economic growth in the third quarter and saved or created upwards of 1 million to 1.5 million jobs. Even though we haven’t seen net job growth, saving jobs is just as important as creating them amid a sharp economic downturn. For every worker not laid off, there are fewer unemployed adding to the historically high six unemployed workers vying for every job opening. Recovery dollars will continue to pump up demand and add jobs to the economy as the remaining $553 billion is spent in 2010.
The recovery package included a variety of mechanisms for getting the economy back on track, among them:
- Aid to the unemployed, which boasts the biggest bang for the buck in terms of spurring economic demand
- Aid to state and local governments to help them avoid layoffs and maintain services
- Tax cuts for most families, which help to boost spending
- Investments in infrastructure, which are still ramping up and coming on line, as these projects take longer to get up and running
- Investments in a green economy, which not only creates jobs but also paves the way for long-term economic sustainability.
The economic effects of ARRA dollars, however, will start to diminish beginning in the middle of 2010—well before we will be fully out of the woods. Economists now predict economic growth of only about two percent for 2010 given the policy efforts already in place. This is a clear indication that without additional action on the part of Congress and the Obama administration, the U.S. economy could easily slip into an extended jobless recovery—or see the recovery stall altogether.