With 2007 barreling to a tumultuous close, many investors are struggling to assess the state of the commercial real estate industry, which from a capital markets perspective is in chaos. Is the credit crunch and economic soft patch a mere blip, the start of a swift and shallow downturn, or something deeper and more protracted?

Those are common questions during periods of volatility, but today a heightened level of noise in the marketplace is complicating matters. Important economic indicators such as weekly jobless claims or monthly retail sales can get blown out of proportion, if we attach too much meaning to them or misinterpret the metrics completely. For example, The U.S. Department of Labor initially reported a loss of 4,000 jobs in August based on its non-farm payroll survey. That figure was later revised sharply upward to a net 89,000 jobs. Wall Street and the media trumpeted the new figures as a sign that the economy was stronger than previously believed.

But was the euphoria justified? Had the Goldilocks economy — not too hot and not too cool — indeed returned? Economist Rajeev Dhawan of Georgia State University in Atlanta concludes otherwise. “Ninety percent of the revision was coming from one sector: state and local government jobs — education jobs. They just forgot to count the teachers in August.” Dhawan's remarks came during a recent forecast session at GSU. “If a revision like that were coming from professional and business services — that means corporate jobs — then I would say that this is a rip-roaring Goldilocks economy.”

That's not the only example of market noise. On Black Friday, the day after Thanksgiving, the Dow Jones Industrial Average soared 181 points on media reports that shoppers were visiting malls in greater numbers and filling their shopping bags more than had been expected. Never mind that we really won't know the final tally of holiday retail sales until after the new year.

Despite his concerns about job growth, Dhawan predicts that the economy will avoid a recession with GDP growth of 1.6% in the fourth quarter of 2007 and 1.5% in the first quarter of 2008. As the credit storm continues, he expects more CEO firings as further write-downs and profit warnings are announced. He also expects the Fed to reduce interest rates another quarter point.

Only recently have we realized that the subprime mortgage crisis doesn't fester in a vacuum. Residential mortgages outstanding in this country total $10.7 trillion. Even though the subprime market amounts to a mere fraction of that grand sum, its force has walloped financial markets.

Some issuers of bonds backed by residential mortgages mixed investment-grade with non-investment grade loans and sold them to unsuspecting investors globally. “They sprinkled the fairy dust,” Dhawan says. Unfortunately, the pixie-dust theory is not going to have a happy, magical ending. And the noise isn't likely to hush anytime soon.