Gauging the future direction of the economy is similar to the football team captain who calls the coin toss. Economists have a 50/50 chance to get it right. On one side of the coin is a call for a strengthening economy, and on the other is a projection for recession. While economic forecasting is clearly a science, not a game of chance, there are so many variables on the playing field it's understandable that economists reserve the right to alter their forecasts as necessary. I vividly recall Lloyd Lynford, founder and president of real estate research firm Reis Inc., humorously remark at a real estate conference nearly a decade ago that if you are in the business of forecasting, do it often. In other words, the more frequently forecasts are updated, the more correct they're inclined to be.

The White House appears to have taken a page from that playbook. The Bush Administration announced a few days before the Thanksgiving holiday that it now expects Gross Domestic Product (GDP) to rise 3.1% this year, down from its June forecast of 3.6%. Based on its calculations, economic growth is expected to moderate to 2.9% in 2007, down from the previous estimate of 3.3%. The big culprit is a slumping housing market. Housing starts dropped 14.6% in October to a seasonally adjusted annual rate of 1.48 million (see chart). That's reportedly the lowest level in six years.

That begs the question: With the GDP moderating, what's the next catalyst for economic growth? “We've had two locomotives in the last 10 years,” says Edward Leamer, director of the UCLA Anderson Forecast in Los Angeles, which provides quarterly economic projections for the nation and the state of California. “During the Internet rush period of the late 1990s and into 2000, the locomotive was business spending on equipment and software,” Leamer adds.

“With that locomotive pulled off to the sidelines, Mr. Greenspan [former Fed chairman Alan Greenspan] got another locomotive going by giving us these incredibly low interest rates for so long.” The end result, says Leamer, was an incredible boom in the housing market that enjoyed a bull run for several years. Indeed, after the 2001 recession spending on housing as a percentage of GDP rose to levels not seen since the 1950s.

But now that those two economic drivers have run their course, our focus turns to the next, as yet unknown, catalyst. Will it be biotech, or U.S. exports, or new energy sources? Food for thought: A recent story in the online edition of Farm Press discusses the great demand for corn to meet higher demand for ethanol production. No, corn is not the panacea, but it's fascinating how our economic system continually reinvents itself. For its part, the commercial real estate industry is generally a follower of macro-economic change, not a leader. Whatever emerges as the next great locomotive, you can bet that real estate will be riding that train.