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Where Is the Economy Headed? NY Observer Oped

The headline measures belie the complexity of the economy's underlying growth drivers. In fact, each of the major domestic contributors to activity expanded in the second quarter. Personal consumption was relatively strong, slowing only slightly from the first to second quarters. It could have slowed more dramatically given mediocre income growth, constrained credit and the buffeting of job security by persistent unemployment. While consumer spending increased, a wide range of investment spending, in areas as varied as business equipment and housing, actually picked up over this period.

Across the country, economists are being invited back to cocktail parties and summer barbecues. Even the dullest and most pedantic of my kind are finding themselves at the center of conversation. The pressing question to which we owe our elevated social status: Will we double dip? Reinforcing the importance of this inquiry, major stock indices fell sharply last week, sliding back from their recent highs as macroeconomic data dominated corporate earnings.Investors of all stripes have cashed out recent gains in response to evidence that the economic recovery-in the United States and in the world's other major economies-is losing its initial momentum. Driving the market's swings, the unevenness of the recovery has required investors to internalize myriad conflicting signals from both data and from policy makers. In turn, this has fomented volatility in the prices of stocks, bonds, commodities and currencies, as well as in confidence that we will avoid falling back into recession...The retreat from risky assets is not limited to the world of high finance. It has a parallel in the bricks-and-mortar world of commercial real estate, even if market imperfections limit our ability to observe these behaviors in the moment or with the same transparency. Just as persistent concerns about the growth outlook have pushed investors into treasuries and other government-backed securities, capital earmarked for real property has flowed into the most liquid markets, driving stronger pricing trends in a handful of coastal cities.
By Sam Chandan, August 19, 2010 New York Observer

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