If, When, How: A Primer on Fiscal Stimulus

Source: The Brookings Institution

Recent economic data provide the clearest signs that the problems in the housing and financial markets are affecting the economy as a whole. In December 2007 payroll employment growth fell nearly to zero and the unemployment rate rose 0.3 percentage points to 5.0 percent. The last time the unemployment rate climbed this much in one month was in the 2001 recession. Delinquency and foreclosure rates are rising and risk spreads in financial markets remain much wider than last summer. On the other hand, there are some reassuring indicators: net exports have been trending up, and consumer spending rose at a brisk pace in October and November. However, most forecasters are predicting a marked slowdown in economic growth for several quarters, and many put the odds of recession in the neighborhood of 50 percent.

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