Today's research from Wall Street behemoth Morgan Stanley offered some interesting tidbits. 

So far, the rest of the US economy has been relatively resilient in the face of this steep contraction in residential construction activity.  That’s especially the case for personal consumption – more than 70% of US GDP and the one sector of aggregate demand that has the tightest linkages to America’s trading partners.  During the final three quarters of 2006, when homebuilding activity hit the skids, annualized real consumption growth still averaged 3.2% — down only 0.2 percentage point from the growth pace of the preceding three years and fully 33% faster than overall GDP growth over the final three quarters of last year; moreover, in the first period of 2007, our latest tracking estimates suggest consumption growth held at this same impressive 3.2% pace.  Business capital spending has started to weaken a bit in recent months.  But the weakening has been concentrated in the equipment piece – only 7% of US GDP, or one-tenth the size of the personal consumption sector.  Needless to say, as long as the American consumer continues to hold its own as a source of relative resilience, the US economy can shrug off a capex hit – and the global economy will hardly be tested.

That's a pretty good one paragraph analysis! Then there is this:

Once again, we’ve marked down our forecast for growth, reflecting still-higher energy prices, a deeper housing recession, and additional weakness in capital spending.  Over the first three quarters of 2007, we now see growth at a 1.8% annual rate compared with 2.6% in our March update; that’s a full percentage point below our prognosis of two months ago.  With growth below trend and operating leverage fading, margins are flattening and earnings growth will be weaker.  And once again, reflecting higher prices for energy, food, imports, and medical care, we’ve marked up our outlook for headline and to some extent core inflation. 

Slower growth, no recession. Just what we noted was likely in our research pieces a few months ago!