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U.S. first-quarter GDP growth of 1.8 per cent - below estimates and significantly lower than 3.1 per cent in the fourth quarter of last year - was "encouraging," White House economic adviser Austan Goolsbee says.

To which wags may ask: How slow does it have to get before the growth number is "discouraging"?

To be fair to Mr. Goolsbee, he also acknowledged "faster growth is needed to replace the jobs lost in the downturn." And a number of economists are suggesting the first-quarter number is just a blip, pointing to poor first-quarter weather as an example.

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One of the more remarkable elements of the sluggish first-quarter growth, however, was the negative impact of government spending.

Federal government spending and investment decreased 7.9 per cent in the first quarter, compared with a drop of 0.3 per cent in the fourth. National defence spending fell 11.7 per cent, and non-defence spending increased just 0.1 percent.

State and local government spending and investment also declined, falling 3.3 per cent, compared with a decrease of 2.6 per cent in 2010's fourth quarter.

Overall, says economist Paul Ashworth of Capital Economics, the decline in all levels of government consumption subtracted 1.1 percentage points from overall GDP growth.

And while Mr. Ashworth agrees with Fed Chairman Ben Bernanke's comment Wednesday that the defence-spending decline is "transitory," he believes the cutbacks in state and local spending "reflect the ongoing budget problems that will continue to be a drag on the overall economy for some time yet."

"In a quarter when the economy began to benefit from additional monetary and fiscal stimulus, we had originally hoped for a lot more," Mr. Ashworth said. His firm has now cut its 2011 GDP growth forecast to 2.5 per cent from 3 per cent, and says "we still fear that the withdrawal of the current policy stimulus will cause growth to slow to only 2 per cent in 2012."

You can look at this a couple of ways: One, as most Republicans do, that the stimulus failed, or, even worse, harmed the economy.

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Or you can look at it in a more reasonable way: How much worse would the U.S. economy be without both the massive fiscal and monetary stimulus of the last two years?

And, looking forward, how much worse will it get if both parties focus on deficit reduction and actually cut government spending?

In the meantime, let's cut Mr. Goolsbee some more slack for calling 1.8 per cent growth "encouraging:" A Gallup survey found that more than half of Americans said the economy is in either a depression or recession, with just 27 per cent saying the economy is growing. (16 per cent selected "slowing down," which is not mutually exclusive with growing, one supposes.)

"Although economists announced that the recession ended in mid-2009, more than half of Americans still don't agree," Gallup said.

In that context, 1.8 per cent growth is encouraging indeed.

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About the Author
Business and investing reporter and columnist

A business journalist since 1994, David Milstead began writing for The Globe and Mail in 2009. During eight years at the Rocky Mountain News in Denver, Colo., he individually or jointly won nine national awards from SABEW, the Society of American Business Editors and Writers. He has also worked at the Wall Street Journal. More

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