The government’s Cash for Clunkers program has certainly succeeded if success is measured by how many people have gotten excited about $1 billion in federal spending (with $2 billion more possibly to come). How much will it propel the economy out of the recession? Apparently a lot for the current quarter. What happens after that could be more interesting.
Douglas Lee of the consulting firm Economics from Washington says the quick action by Congress and the Obama administration will turn the moderate recovery expected for the second half of 2009 into a W-shaped pattern: contraction in gross domestic product in the second quarter, positive growth in the third quarter, then a dip into negative territory again in the fourth quarter.
His math: Auto sales were running at 750,000 to 850,000 units per month, and the $3 billion program would fund an additional 200,000 to 250,000 per month for three months. (The calculation includes a small allowance for cars that would’ve been purchased anyway.) That sends the annual selling rate for one quarter from between 9 million and 10 million to around 11.5 million to 13 million. It would add an annualized $50 billion to third-quarter consumption, or more than two percentage points to consumer spending growth. (That may understate the impact, he notes, because even people who do not qualify are being drawn into auto showrooms and buying new cars anyway through other incentives.)>>>MORE
Tuesday, August 4, 2009
Does Cash-for-Clunkers set up the "W" Recovery?
WThe Journal's Real Time Economics blog has an interesting macro point hidden in plain sight, the second paragraph of their post, "Cash For Clunkers: Borrowing From Future Growth?":