Does The US Economy Need More Stimulus?

I’m surprised by two things:

1) The upbeat tone of the news reports about the employment report.
2) The folks who are downbeat thinking that we need more fiscal stimulus.

First, let’s turn to the data.  The news reports say that April’s employment report suggests that we may be nearing the bottom.  Here are the data:

As a forecaster, I expect the economy to hit bottom soon.  However, as an observer of recent data, I do not find this report comforting.  The total number of employed people continues to decline.  A smaller decline is better than a larger decline, but it’s still a decline.  The hard data don’t tell us we’ve hit bottom until the job losses are over.  In terms of the chart, when the bars stop falling below the horizontal axis.

Regarding the second point, the need for more stimulus, the doom and gloom crowd (notably  Brad DeLong and Paul Krugman) want more stimulus.  So let’s look at how much stimulus we’ve actually had:

Wow, the big gain in federal spending came before the election.  We had a fast rise in spending, which should have been stimulative, but was not.  That kind of history is one reason I’m skeptical of the size and permanence of Keynesian fiscal policy.  The stimulus of President Obama is in the pipeline, it’s coming, but it cannot arrive instantly.  So calls for more stimulus seem naive in their ignorance that we haven’t actually implemented the new stimulus.  However, they might be more sophisticated in that they forecast inadequate stimulus.  They could be developing a forecast for the coming years that incorporates the current stimulus and finds that more stimulus would be better.  But the sort of offhand, “this is obvious” comment along the lines of the DeLong link above don’t sound sophisticated to me.

By the way, federal transfer payments are not included in the chart above; here they are:

Most of that the big gain was due to automatic increases in benefits as unemployment worsens rather than any program changes.

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