South By North Strategies, Ltd.

On January 29th, the U.S. Bureau of Economic Analysis will release its advance estimate of the Gross Domestic Product during the fourth quarter of 2009. The estimate, which will be subject to two revisions, will feature prominently in assessments of the national economy’s health and debates over the future direction of national policy. However for several reasons, the advance estimate may prove to be relatively high and paint a portrait of an economy that is stronger than it actually is.

Explains Calculated Risk:

In a research note released last night, Goldman Sachs raised their estimate of Q4 GDP from 4.0% to 5.8%. They cautioned that the ‘headline will be an eye-popper’, but that this growth is mostly due to inventory changes: ‘More than two-thirds of our estimated increase comes from a sudden stabilization in inventories’. They also noted ‘anything between 4½% and 7% is possible given the volatility of the inventory data’.
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The rest of the note cautions on 2010, and Goldman still sees sluggish growth of just under 2.0% with the unemployment rate peaking in early 2011.
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This is what we’ve been discussing – GDP boosted by inventory changes in the 2nd half of 2009, followed by sluggish growth in 2010.

Meanwhile, Paul Krugman of The New York Times places the potential “blip” in historical context:

[Calculated Risk] 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).