House Stimulus Package: Needs More Stimulus!

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Macroeconomics, Supply & Demand

ËœTwas a strange irony listening to the inauguration of our 44th president while reading the recently released House stimulus package from the House Appropriations Committee Chairman. This stimulus package, summary contained right here, offers a 15 page overview of the House’s idea of how to stimulate the ailing US economy. But let me save you the trouble of reading the plan and summarize here where and how your tax dollars will be spent.

First, we’ll cover the dollars and cents. The bill will include $275b of economic recovery tax cuts (e.g. these are the tax cuts going to 95% of American workers) and $550b in “thoughtful and carefully targeted priority investments with unprecedented accountability measures built in.” I won’t editorialize on that last sentence. Here is a graph we created (rather crudely I might add) of the percentages by category in that summary document:

This all may appear harmless at first blush. Who isn’t in favor of education? Who doesn’t want to help workers? I just can’t see how people who receive unemployment benefits will be buying appliances or new cars. The stimulus effect is minimal. So let’s apply our handy 80-20 rule to analyze exactly where the dollars will go, according to the bill (this is in billions of dollars):

The total bill is worth $825b. $275b will go to tax relief (our graphs and analysis do not include the tax relief because none of that relief goes directly to business investments). Instead, let’s look at the remaining $550b. $440b would represent the 80% of the “investment”. To simplify our analysis, we took the largest dollars of spend and came up with a 94% analysis of the total or $519b. As you can see, the business investment portion of that total (or the dollars that the private sector will see in the form of goods, services, materials etc) is about $204b or 40% of the total. Now how did I come up with that you may ask? Well, certainly there are no private dollars going to the categories of “Help workers” and “Save public jobs”. We believe the targeted investment in clean, efficient American energy will bring stimulus to business. In fact, this is one of two categories in which business will clearly benefit from the package as we believe all or nearly all dollars will be used by industry to build the smart grid, repair public housing, weatherize homes and make energy retrofits. We also believe the $15b allocated toward science and technology will also get spent via the private sector to build facilities and instrumentation. The broadband access portion of the package lies in this initiative too. Next we have modernization of roads, bridges, transit and waterways which would also be good for manufacturers, contractors, etc. Last, though many dollars have been allocated toward education, only a small portion of those dollars will actually create economic stimulus brought about by school modernization and repair programs.

This doesn’t sound half bad right? Well, not exactly. We estimate that the metals related industries only stand to gain a portion of those “business investment dollars” probably not much more than 8% (highways after all contain a whole lot more concrete than steel). We are talking about $17b on the “high side” and we have gone on record as saying about $15b could be comprised of steel (though that might be too high). Depending on whose numbers you look at, the steel industry is either a $800b industry or a $350b industry. Add the other metals related industries and one can see that not too many dollars will be allocated toward metals. In a follow-up post, we will provide more clarity around which types of companies and metals are best positioned for the stimulus package.

–Lisa Reisman

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