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Will economy keep rolling or blow a tire?

Traders at the Chicago Mercantile Exchange

TEXT OF STORY

KAI RYSSDAL: Let's take things in chronological order -- I figure it'll be easier that way...

First thing this morning in Washington, the Commerce Department let us in on its A-list economic indicator. Gross Domestic Product grew at an annual rate of 3.9 percent in the third quarter. Healthy in any event -- downright remarkable when you think about all that's happened in the past couple of months.

Then, a bit after 2 this afternoon, the Federal Reserve weighed in with its verdict on interest rates: a quarter of a percentage point cut to ward off what it sees as the risk of an economic slowdown.

So will the economy will keep growing, or is it going to blow a tire? Marketplace's Steve Tripoli has more.


Steve Tripoli: The Fed's not buying today's GDP number as any more than a backward-looking glance at the economy. Its statement about today's rate cut says expansion will likely slow as the housing correction intensifies.

Many economists agree -- Nigel Gault at Global Insight says the real test lies ahead.

Nigel Gault: The longer and the deeper the downturn in housing goes, the more likely we are to start to see more spillover, particularly to consumer spending -- which has been really fueled, over the past few years, by the housing boom.

Robert Brusca at Fact and Opinion Economics says consumers are already weakening. He has his own scary Halloween story as evidence:

Robert Brusca: You really have to be concerned about the fact that department stores are worried enough that they have ramped up advertising for Christmas really about a month ahead of time. I can't ever remember seeing Christmas decorations in the store before Halloween decorations. You know, that's frightening in and of itself.

Neither Brusca nor Gault see a recession ahead, but they do see growth slowing considerably the next few quarters. And Gault says there's no guarantee things won't get worse.

Gault: What might upset the apple cart would be if oil prices continue to press higher. If the rest of the world started to show some effects from the credit tightening that we have around the world. The U.S. is very much relying on foreign demand to help keep our growth going while our domestic demand slows.

For now, optimists are pointing at a strong stock market -- they say it reflects a positive long-term outlook. But Gault says don't put too much stock in stocks. He says the market can change its mind about the future every bit as fast as the headlines shift.

I'm Steve Tripoli for Marketplace.

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