Wall Street Journal: U.S. Economy Gets Lift From Stimulus

[Mentor]

http://online.wsj.com/article/SB125185379218478087.html

U.S. Economy Gets Lift From Stimulus

By DEBORAH SOLOMON

WASHINGTON -- Government efforts to funnel hundreds of billions of
dollars into the U.S. economy appear to be helping the U.S. climb out
of the worst recession in decades.
[Clunker photo] European Pressphoto Agency

A load operator at Auto Parts Plus in Stafford, Va., crushes a car
last week that was traded in during the 'cash for clunkers' program.

But there's little agreement about which programs are having the
biggest impact. Some economists argue that efforts such as the Federal
Reserve's aggressive buying of Treasury debt and mortgage-backed
securities, as well as government efforts to shore up banks, are
providing a bigger boost than the administration's $787 billion
stimulus package.

The U.S. economy is beginning to show signs of improvement, with many
economists asserting the worst is past and data pointing to stronger-
than-expected growth. On Tuesday, data showed manufacturing grew in
August for the first time in more than a year. "There's a method to
the madness. We're getting out of this," said Brian Bethune, chief
U.S. financial economist at IHS Global Insight.

Much of the stimulus spending is just beginning to trickle through the
economy, with spending expected to peak sometime later this year or in
early 2010. The government has funneled about $60 billion of the $288
billion in promised tax cuts to U.S. households, while about $84
billion of the $499 billion in spending has been paid. About $200
billion has been promised to certain projects, such as infrastructure
and energy projects.
[Geithner photo] Bloomberg News

U.S. Treasury Secretary Timothy Geithner speaks last month at the
construction site of a new elementary school in Berea, Ohio.

Economists say the money out the door -- combined with the expectation
of additional funds flowing soon -- is fueling growth above where it
would have been without any government action.

Many forecasters say stimulus spending is adding two to three
percentage points to economic growth in the second and third quarters,
when measured at an annual rate. The impact in the second quarter,
calculated by analyzing how the extra funds flowing into the economy
boost consumption, investment and spending, helped slow the rate of
decline and will lay the groundwork for positive growth in the third
quarter -- something that seemed almost implausible just a few months
ago. Some economists say the 1% contraction in the second quarter
would have been far worse, possibly as much as 3.2%, if not for the
stimulus.

For the third quarter, economists at Goldman Sachs & Co. predict the
U.S. economy will grow by 3.3%. "Without that extra stimulus, we would
be somewhere around zero," said Jan Hatzius, chief U.S. economist for
Goldman.
Journal Community

* Discuss: Is the economy on the mend?

Dave Anderson, chief financial officer of Honeywell International
Inc., said the stimulus package actually froze business activity at
first as firms tried to figure out how they could benefit from the
government spending. The $787 billion package "created actually a
slowdown in order activity in terms of the flow that we would normally
have anticipated," Mr. Anderson said at a conference sponsored by
Morgan Stanley. "We anticipate that that's going to actually pick up
in the second half of the year. I think it's not unreasonable to see
several hundred million dollars of orders."
[Traders photo] Reuters

Traders at the New York Stock Exchange on Tuesday.

Opinion, however, remains split about which program has had the
biggest impact. "I don't think the stimulus was necessarily as
effective as people claimed it to be or claim it will be," said Joseph
LaVorgna, chief U.S. economist with Deutsche Bank Securities Inc. He
credits the government's "stress tests" of banks, which helped boost
confidence on Wall Street and allow banks to raise capital and resume
lending.

Economists say other programs are having an impact, including an
$8,000 tax credit for first-time home-buyers that has spurred home
sales. The cash-for-clunkers program, which provided financial
incentives for consumers to trade in older vehicles, did the same for
cars.

One big question: Will the boost evaporate once the programs end?

Stuart Hoffman, chief U.S. economist for PNC Financial Services Group,
said the stimulus package "caused this bit of a concentrated burst
[that] probably will exaggerate the pace of economic growth," since
some areas, such as auto sales, could fall back to low levels.