The Recession That Didn't Happen

Add the mortgage meltdown to the list of disasters that haven't stopped America's economic boom.

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As every day goes by, it's beginning to look more and more as though the economy is going to avoid an outright recession, despite the housing downturn and credit crunch. Some slowing to be sure, but no shrinkage.

My first economic indicator is always the stock market, and right now with the Dow hitting the 14,000 mark again, investors sure don't seem to be betting on a recession. Or look at yesterday's Institute for Supply Management manufacturing index report, which showed that the sector is still expanding at a pace consistent with overall gross domestic product growth of 3.4 percent, according to First Trust Advisors. (The firm's bullish econ team of Brian Wesbury and Bob Stein has been arguing for weeks that the economy is now revving its engines and will reaccelerate.)

Two other big takeaways from the report, according to economic consulting firm Global Insight: 1) Inventories are falling. There is no sign of an inventory pileup that would threaten to force sharp production declines ahead; 2) the employment index improved, meaning the big August drop in manufacturing payrolls may have been a fluke.

But some bulls are predicting that a mild slowdown could still boost the unemployment rate to 5 percent or so. More later on how that would affect the 2008 presidential race.