It’s tough being an optimist for the next few quarters when it comes to forecasting the U.S. economy. But let me give it a shot.

U.S. GDP growth 1st Q 2007 was .6% -- not a pretty number. Naturally everyone pointed to the housing sector. Yet a significant part of the slowdown was the result of unexpected inventory adjustments and slower consumer spending. However, the revised 2nd Q growth rate was a booming 4.0%. Consequently growth over the first half of 2007 turned out to be an annualized 2.3%.

The most recent Blue Chip consensus forecast in September for overall growth in 2007 is 2.0%. In other words, these 50 top forecasters in consensus are anticipating growth over the second half of 2007 to be an unremarkable 1.7%. I disagree for a variety of reasons.

Before I go into why, keep two points in mind. First, since the sharp downturn in the U.S. economy in 1982, for the past 25 years the U.S. has experienced only two minor recessions (1991 and 2001). Real GDP growth averaged 3.3% from 1982 to 2002, and a number of economists today (including Ben Bernanke) refer to the post-1982 era as the Great Moderation. The U.S. economy is remarkably more stable than at any time in its history and rebounds more quickly from shocks.

Second, since 1987 the world economy has not experienced a recession. Think about that! Over this 20-year period worldwide real GDP growth has averaged a strong 3.7%. This bodes well for the U.S. economy since free trade is sweeping the world.

Coming back to the present, over the past year the housing problems have subtracted 1.0% from U.S. growth, whereas previously housing was adding 1.0%. This explains why growth today is closer to 2.0% than 4.0%. So where has been the strength of the U.S. economy?

Let’s start with the consumer. Nearly 70% of GDP is consumer spending. After a five-year run up, it finally slowed down in the 4th quarter of last year and the first quarter of this year. Then it rebounded in the 2nd quarter. Those predicting slow growth or recession believe that consumer spending will be tepid the next several quarters for a number of reasons: houses can no longer be used as ATM machines to withdraw cash for a host of purchases, rising energy costs will eat into discretionary income, and labor markets are about to go into the tank. Maybe.

Another factor contributing to the U.S. growth has been the sharp increase in exports due to the weakened dollar. Estimates are that net export growth has contributed 1.4% to real GDP growth over the past year.

A third area of strength has been corporate earnings. They grew at double-digit levels from 2003 through 2006 and contributed to the commercial building boom the past three years and to the strong employment numbers. Remarkably, in August the Bureau of Labor Statistics originally reported a loss of 4000 non-agricultural jobs, then revised it upward to over 80,000 new jobs!.

Finally, remember that the Federal Reserve has stepped forward with a big rate cut in September and will likely cut the federal funds rate again when it meets October 30-31. It recognizes that raising rates at this time in order to fight inflation will have negative consequences right now.

So, is it a time to worry? Again, maybe. The housing numbers just seem to get worse every week. Corporate profits are projected by the Blue Chip crowd to increase only 3.4% this year. American consumers are hesitant. Jobless claims are on the rise and the stock market has just gone through a terrible week.

But take heart. Never underestimate the American consumer, especially baby boomers. We love to spend and will continue to do so until we drop. Yes, the overall employment numbers are down, but jobs are still being created and this serves as the backbone of consumer spending. Even with the decline in housing prices, household net wealth is near record highs.

Also, the world economy remains strong, and with the weak dollar, U.S. export growth will continue to flourish. Prices of U.S. imports are edging up, helping to shrink the trade deficit.

The Fed will continue to cut rates as a credit-led recession seems a reasonable possibility. Leading American banks are establishing a fund to trade mortgage backed securities, thereby giving greater transparency to this market and reducing the chances for a credit freeze throughout the economy. And I expect all kinds of government action to protect a host of people from losing their homes due to the fall out of the sub-prime mess.

All things considered, I would not be surprised if growth in the 3rd quarter comes in at 3.0% and much the same in the 4th quarter. If so, overall growth this year will be in the 2.5% range rather than 2.0%. After the stock market crash of 1987, the recession of 1991, the Asian contagion – Russian bond default -- Long Term Capital Management collapse of 1997-98, the dot-com crash of 2000, the recession of 2001 with 9-11 thrown in, many forecasters predicted major recessions yet they never materialized. It is not a time to be Pollyanna. But it is also not a time to worry yourself to death over an impending plunge in the U.S.