by Calculated Risk on 1/16/2010 06:21:00 PM

As a followup to my previous post, Professor Krugman points out that Q1 2002 GDP growth¹ was originally reported as 5.8% with rising unemployment. Good point.

Although Q1 2002 GDP growth was later revised down to 3.5%, it is another good example of a "GDP blip" driven by changes in inventory (inventory changes added 2.63% to the final 3.5%), with weak underlying demand (PCE was 1% in Q1 2002 - and stayed weak into 2003).

Krugman notes "at the time there was much unwarranted celebration (unemployment didn’t peak until summer 2003)."

I expect some unwarranted celebration this time too - and the unemployment rate to continue to increase.

Note: I don't have a crystal ball, but I'm not just being bearish - I called the 2nd half recovery in GDP pretty early and I've been consistently concerned about 2010.

¹GDP growth refers to the headline BEA number. That is the seasonally adjusted annualized real rate of GDP growth.