The pessimists seem to be backing off a bit

It wasn't so long ago that forecasters and analysts were warning about sluggish growth and rising unemployment well into 2010. The consensus was that the economy wouldn't begin to add jobs until May or June. Now even the pessimists acknowledge that strong growth is likely for the fourth quarter of 2009 and that the December jobs report could show an increase in employment for the first time in two years, but concern has shifted to the second half of 2010.

Here's Paul Krugman:

The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.

As you read the economic news, it will be important to remember, first of all, that blips — occasional good numbers, signifying nothing — are common even when the economy is, in fact, mired in a prolonged slump...

Such blips are often, in part, statistical illusions. But even more important, they’re usually caused by an “inventory bounce.” When the economy slumps, companies typically find themselves with large stocks of unsold goods. To work off their excess inventories, they slash production; once the excess has been disposed of, they raise production again, which shows up as a burst of growth in G.D.P. Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up...

Will the Fed realize, before it’s too late, that the job of fighting the slump isn’t finished? Will Congress do the same? If they don’t, 2010 will be a year that began in false economic hope and ended in grief.

It's nice to see that Krugman is acknowledging that one shouldn't overreact to temporary blips in the data - his tendency to do that for pessimistic economic reports is one reason he was so slow to see the strength of the recovery in recent months. I think he exaggerates the temporary nature of the inventory bounce: inventory investment requires production, which creates employment and income, which increases sales, which requires further inventory adjustment, etc. But he's right on the larger point: it is too soon for the government to start reversing the stimulus it has been providing the economy. Even under optimistic scenarios, the unemployment rate will be close to 9 percent in the summer - that's no time to start reducing the budget deficit and raising interest rates.