Stimulus is helping economy, U.S. budget experts say

WASHINGTON (Reuters) - The $787 billion stimulus package passed in February will fuel a recovery in the moribund U.S. economy this year, Congress' non-partisan budget watchdog said on Tuesday.

"Economic activity will begin to rebound in the second half of 2009, largely the result of fiscal stimulus," the Congressional Budget Office said in its assessment of the federal budget and U.S. economy.

The stimulus has become a political hot potato amid record budget deficits and public concern over federal spending.

Congressional Republicans, who voted overwhelmingly against the stimulus package, have portrayed it as a pork-laden boondoogle that has done little to counter the effects of the worst economic downturn since World War Two.

Senate Minority Leader Mitch McConnell said the stimulus money should be diverted to reduce the budget deficit, which the White House and the CBO estimate will reach a record $1.6 trillion for this fiscal year that ends on September 30.

Democrats, with an eye on next year's midterm congressional elections, have been eager to highlight the effects of the stimulus money as it makes its way to the public.

"The Recovery Act, even while it added to the short-term deficit, staved off catastrophe and is bringing this recession to an end," House Majority Leader Steny Hoyer said after the CBO released its report.

The government had paid out about $80.9 billion in stimulus funds as of August 14, according to the White House.

The stimulus act's impact on the economy will grow through the end of the year and peak in the first half of 2010, the CBO said, though estimates are difficult because there is no way to know for sure how the economy would have performed without it.

The stimulus will boost gross domestic product between 1.4 percent and 3.8 percent in the fourth quarter of 2009 and between 1.1 percent and 3.4 percent in the fourth quarter of 2010, the budget experts said. By the end of 2013 its effect will be minimal.

The package will cost the government a total of $185 billion this fiscal year when the cost of temporary tax cuts is added to the spending, CBO said.

Most of the spending so far has been in four areas, CBO said: Medicare health coverage for the poor; unemployment benefits; one-time $250 payments to retirees; and grants to states for education and other government expenses.

Spending on housing and transportation projects is going more slowly than anticipated, CBO said.

(Editing by Vicki Allen)