Tax Credits and Demand

Via Calculated Risk:

"The Cash for Clunkers program was effective on July 1, 2009, but didn't really start until near the end of July. The program was expanded in early August, and ended on August 24th.

The First Time Home Buyer tax credit was passed in February with an initial deadline to close on the home by November 30, 2009. The home buyer tax credit was extended and expanded at the end of October, and now buyers must sign a contract by April 30, 2010, and close by June 30, 2010."

Check out the graph below to see the corresponding effects
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You can see the bumps in home sales and vehicles due to the tax credits, and the strong declines after they expire. The housing credit has been less effective this time around because demand was pulled forward, but expect to see better existing home sales numbers around May or so. They'll likely be right at the expiration of the new tax credit, when those sales finally close.

And while on the subject of tax credits, a 6.5% tax credit to employers who hire passed the senate recently. You can expect to see similar effects, though probably not in quite the same manner, as early estimates have the new credit creating roughly 240,000 new jobs. It sounds like a nice number, but it's not going to get us anywhere near where we need to be with regards to reaching potential output.