Slowing Economy Could Be Much Worse

"White House warns of slowdown ahead"–that's the headline that CNN.com gave to this afternoon's news that the Bush administration (specifically the Council of Economic Advisers, the Treasury Department, and the Office of Management and Budget) had lowered its economic growth forecast for this year and 2007.

Technically, the headline is correct. The White House now predicts that the economy will grow 3.1 percent this year, down from the 3.6 percent rate predicted in June, and 2.9 percent next year, down from an original 3.3 percent forecast. So yes, growth is slowing. But I have to be honest: If some all-powerful economic wizard had approached me a year ago and offered me–Let's Make a Deal-style–a choice of these growth numbers vs. the option of just taking my chances with the economy over the next 12 months, I would have jumped at these "slowdown" numbers. (FYI: They are about where the Federal Reserve places the economy's sweet spot.)

Between the energy-price shock kicked off by Hurricane Katrina, a housing slowdown, and continuing Fed rate hikes, you wouldn't have needed to be a pessimist to have contemplated the possibility of an outright recession taking place. In fact, it looked a lot like a "perfect storm" scenario. Instead, the economy has stiff-armed these challenges and continued chugging along. And just look at some of the stocks that are economic bellwethers. Last year at this time, Federal Express was trading at 98; today it's at 114. Last year, the Chicago Board of Trade was trading at 112; today it's at 162. The Dow itself has risen to 12,337 from 10,766. Seems like a lot to be thankful for.