Stimulus Spending And Job Growth
Barack Obama said that his stimulus package would create approximately 4 million jobs over two years...
In the campaign, Mr. Obama vowed to create one million jobs, and after winning election he put forth a plan to create up to three million. The report [from his economic advisers] now puts the figure at roughly 3.7 million, the midpoint of an estimated range of 3.3 million to 4.1 million jobs by the end of next year . --Obama Again Raises Estimate of Jobs His Stimulus Plan Will Create or Save, New York Times, 10 January 2009
I decided to give President Obama the benefit of the doubt, and was willing to give him 2 full years to create 4 million jobs. In order to create 4 million jobs in 24 months, the Obama administration would have to create approximately 166,667 jobs per month to reach this target -- assuming linear job growth. Of course, there is very little in the real world that is actually linear, but for the purposes of this exercise, let's assume linear job growth.
Considering that the stimulus package was not signed into law until February 17th, I decided to waive the second half of February, and start my analysis with the month of March. As you can see from the graph below, Obama's stimulus package apparently hasn't kicked in yet, because instead of job growth, nearly 1.6 million jobs have been lost since March 1st. This means that if Obama is to achieve his goal of 4 million jobs over 2 years, he now has to create 264,143 jobs per month to make up for the 1,574,000 jobs that were lost in the last 3 months.
Click to enlarge.
Of course, that is far from likely. If we consider the job loss trajectory that we are now on, it will be some time before job loss turns into job growth. As you can see in the graph, I have developed a curve for job loss/growth which follows the current trajectory, and which I have labelled as "Likely". It suggests that job losses will continue for at least another 5 months but at a declining pace. I have projected that job loss/growth will remain flat, or nearly so, for approximately 4 months before businesses decide that it is safe to start re-hiring. This is followed by gradually increasing job growth up to a rate of about 200,000 jobs per month.
If my scenario actually holds true, then it will mean that Obama's economic advisors not only completely missed the mark, but that after 2 years, stimulus spending will not have even brought us back to a point where we were before the stimulus was passed. Furthermore, considering the lack of "stimulus" in the stimulus package [huge amounts of money are allocated to health, education and pork barrel projects], there is no guarantee that any job growth we may enjoy will actually be a direct result of stimulus spending. Job loss/growth following my suggested trajectory could be the result of a "normal" economic recovery.
I should point out that I do not REALLY expect the job loss/growth curve to look exactly like the one I have projected here. For one thing, I could hardly expect it to be that smooth. More than likely, the job loss/growth numbers will jump somewhat erratically from month to month. And I have not considered here the expected GM and Chrysler plant closings. Job losses could actually be worse than I have shown. Job growth could also be somewhat higher in the later months if the stimulus spending does indeed "kick-in". In any event, I think Obama will have a hard time creating 4 million new jobs in 2 years.