While many observers fear commercial real-estate issues and mortgage resets, my bigger concerns relate to small businesses and government policies.

I have cited commercial real estate as being one area that could throw cold water on my relatively optimistic forecast. Some of the most pessimistic prognosticators cite commercial real estate as the lynchpin for their dire predictions. There are many different ways commercial real estate can influence the economy, and economists need to be more explicit about what worries them. Some people are worried about continuing declines in construction employment and how that would exacerbate unemployment rates. Others worry about the companies that are involved in the real-estate market, and more explicitly, the publicly traded real-estate investment trusts.   More 

In today's employment report, we were looking for October job losses in the 160,000 to 170,000 range. We got 190,000 losses, and an unemployment rate of 10.2%. This looks very disappointing on the surface. But the report also reveals that the Bureau of Labor Statistics made very positive adjustments to the August and September job-loss numbers. The losses in total nonfarm payroll employment for August was revised from 201,000 to 154,000; the change for September was revised from 263,000 losses to 219,000. These are big adjustments. That's about 100,000 more jobs than we that we had, and they're across many different sectors. If you net the past three months together, we're better off today than we thought we were yesterday.   

Here's a quick recap of some notable data that has come out recently. None of it jeopardizes my forecast of 3% to 4% GDP growth in the fourth quarter. The Case-Shiller Home price indexes registered another month of improvement, durable goods orders registered a healthy 1% increase, and the University of Michigan consumer sentiment index declined considerably less than the initial midmonth estimate.

The Michigan Survey came in at a respectable 70.6 for the final October reading (the midmonth, preliminary estimate was in the mid-60s--yikes!), but still down from 73.5 the prior month. Confidence numbers in the low 70s are consistent with 3% year-over-year growth in consumer expenditures that we haven't seen, at least not yet.   More 

The GDP's third-quarter jump of 3.5%  isn't a fluke. I'm expecting this growth spurt to extend into the fourth quarter in the same 3% to 4% range, driven by continued increases in auto production, inventory restocking, stimulus spending, and higher exports. The naysayers' chorus has tempered its tune somewhat, but the recovery's chief skeptics aren't ready to throw in the towel just yet. Their new mantra is that the economy's seemingly effervescent third-quarter robustness is nothing more than a fleeting mirage, a shallow side-effect of government-induced smoke-and-mirrors therapy such as the Cash for Clunkers program. When those programs end, they preach, we will surely fall back into the abyss. I say not.   More 

Real estate announcements dominated recent macroeconomic reports with what appeared to be disappointing housing starts and soaring existing home sales. After several months of steady increases, housing prices showed a modest 0.3% decline during September.

While I'm not calling for the roof to cave in, I expect housing statistics to be a bit sluggish over the next several months, driven by normal seasonality and the potential expiration of the housing credit. With housing starts holding at 20% or so off the bottom, residential construction will no longer be a drag on employment or GDP. As I see it, retail spending over the next few months will carry considerably more weight than small undulations in the housing numbers--that is, unless the housing market goes into another free-fall, which isn't in my crystal ball.   More