The approaching end of the government spending mandated in last year’s $787 billion stimulus package is bad news for the economy, says Goldman Sachs economist Alec Phillips.
"This adds almost a full percentage point to the drag on growth from the fourth quarter of 2010 to the fourth quarter of 2011 to what we had already estimated," Phillips wrote in a report obtained by CNBC.
Growth already has slowed to 2.7 percent in the first quarter, and many economists expect a number below 3 percent for the second quarter as well.
As for stimulus, "Congress looks increasingly unlikely to extend any more fiscal aid to state governments, despite ongoing shortfalls in state revenues, and they have already let several other items lapse," Phillips wrote.
While President Barack Obama has signed a six-month extension of emergency jobless benefits for the long-term unemployed, that is likely to be the last extension, Phillips says.
"The good news is that this will avoid further income disruption for those who had expected to receive benefits. ... The bad news is that this latest extension of fiscal stimulus may be the last."
Harvard historian Niall Ferguson favors tax cuts for fiscal stimulus, and spending cuts for deficit reduction.
“Somebody in Washington needs to come up with a credible plan to put the U.S. back on road to fiscal stability,” he told Yahoo’s TechTicker.
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