Krugman: Blip (GDP growth fourth quarter)

[ProSense]

January 16, 2010

Blip

Calculated Risk beat me to this: the economists at Goldman Sachs are now predicting 5.8 percent growth in the fourth quarter. But they also say that the headline number will be highly misleading: two-thirds of the growth will be an inventory bounce, with final demand growing only 2 percent. In short, it will be a blip.

CR does miss one small trick, however: he asks when we last saw growth that high combined with rising unemployment, and says 1981. That’s true. However, the last time we saw an initial report of 5.8 percent growth combined with rising unemployment is much more recent: the first quarter of 2002. The quarter’s growth was later revised down, but at the time there was much unwarranted celebration (unemployment didn’t peak until summer 2003).

So here comes the blip. Curb your enthusiasm.

[dkf]

1. Ok what is with the unrecommends?

We need to be fact based. That is what separates us from republicans.

[sandnsea]

2. He's been saying that for a year

This is a blog after one in April where he talked about an inventory bounce.

http://krugman.blogs.nytimes.com/2009/07/18/beware-the-bounce/

No, demand has not picked back up and it won't pick back up until we have higher wages or more credit, preferably the wages. But that doesn't mean that this is a normal economic cycle that can be predicted, especially not in comparison to 1981. This is not 1981, there isn't pent up demand or a generation of boomers turning in their 30s and ready to buy homes and outfit their families. There is a whole different economy coming and I haven't seen any economist tap into what it will look like. It certainly isn't going to show up in traditional inventory.

[DrToast]

4. Exactly!

He's got an excuse for everything.

[sandnsea]

5. Excuse?

I don't know what you mean. The economy is crawling upwards, slow but sure. Every time there has been the slightest bit of good news, various economists have found some reason to disregard it. Krugman has been on this inventory bounce for nearly a year, yet the economy hasn't collapsed yet.

[DrToast]

6. What I mean is he's trying to explain away normal parts of a recovery

Because last year he was screaming about double dip recession and how the economy won't recover. He was and is wrong.

Inventory rebuilds are always a part of a recovery. Trying to explain away the associated GDP growth is sort of like saying, "Well, it's only light outside today because the sun came up. Without that, it'd be pitch black!"

Here's a challenge: Find me an article from the recession where he downplays the -6.4% GDP Growth in Q1 of 2009 because a big chunk of that was inventory liquidation.

Somehow these things only matter to Krugman when they're adding growth, not subtracting growth.

[sandnsea]

7. Then we agree, more or less

Krugman sure is a mixed bag.

Still, I don't think this recovery will appear in traditional inventories. I'm sure there were economists caught by surprise when television or computers took off and created new economies. I'm not sure what green products will be the base of the economy in 5 years, but I'm relatively sure they're only a fraction of a fraction of the economy today.

[depakid]

9. He was -and is- talking about the chances for a double dip recession

based (among other things) the failure of the half measure stimulus to come close to closing the output gap and the failure to include adequate federal aid to the states.

Wait'll you get a load of this year's budget battles and cutbacks, then you'll see what he means.

Best case scenario for the states is relatively flat growth and prolonged high unemployment... too bad, because it didn't have to be that way.

[ProSense]

8. You hit the nail on the head

"There is a whole different economy coming and I haven't seen any economist tap into what it will look like."

Yup!

[DrToast]

3. LOL @ Krugman trying to downplay things. Operation: Oops, I blew it.

Nice damage control, Krugman.