The Department of Labor’s release last week of the worse-than-expected job numbers for the month of September set off the now typical back and forth debate about whether the federal stimulus is working. Joe Biden, Larry Summers, and Christina Romer have commented that the economy is still moving in the right direction and the loss of 263,000 jobs last month could have been worse had there been no federal stimulus at all. Another army of usual suspects claims that the dismal jobs report is proof that the stimulus package has yet to produce economic recovery.   

In a way, both camps are right. 

 Several commentators have noted that temporary stimulus rebate programs--namely “Cash for Clunkers”--propped up the economy through July and August. Car dealers credited this effort for boosting their sales to the highest levels of the year.  The First-Time Homebuyer’s Credit is said to be having a similarly positive impact through the real estate and construction sectors.  So, in this sense, short-term federal stimulus has been working. 

Yet, because these temporary programs are short-lived, so too are the positive economic benefits they generate.  The abrupt end of “Cash for Clunkers” led to a rapid reversal of growth in the auto market with the Big Three automakers seeing their sales decline 33 to 37 percent from August levels.  And, the looming November 30^th expiration of First-time Homebuyer’s Credit has already sparked concern that without this federal support, the housing markets will just reverse on any recent improvements. Sustained economic recovery, it seems, will likely not result from this sort of short-term stimulus.