Is the U.S. headed for an economic slowdown? The Financial Times seems to be expecting one. But Fred Thompson isn’t worried, and AEI’s Kevin Hassett argues the housing bust is just a market correction that isn’t as likely to “spread into the general economy” as the headlines suggest:

The accompanying chart relates real investment in housing by U.S. households to real GDP from 1952 until this year. The chart reveals that housing investment has been volatile throughout the past half-century. By the standards of past booms and busts, the current episode looks tame. By this measure, the boom was not nearly as high as past indiscretions, and the bust has already reversed it.

Here’s the chart:

Since Mr. Hassett hasn’t responded to my email, let me repeat my question here:

Is declining residential investment a fairly reliable predictor of economic recession?

The only exception to that trend seems to be the period of 1966-1967, where there was a sharp decline in housing investment but no recession until the same level was hit a second time in the period of 1970-1971.

If this reading of the data is correct, it would seem to indicate that we are currently headed to a recession. Do I have it wrong?

I find further evidence for this prediction in the October 8 issue of National Review, on the topic of the housing slump and the Fed’s recent action easing monetary policy:

“[P]romoting long-term growth is not something the Fed can do, and therefore not something it should try to do. What it can do is fight inflation. As the editors of the Wall Street Journal have observed, the inflation picture does not justify looser money. Confirming their predictions, the dollar started to fall on the Fed move. If inflation gets out of control, the Fed will have to re-tighten — and at that point we might end up with the recession it is trying to avoid.”

It might be that the housing bust on its own wouldn’t have led to an economic downturn but that the Fed’s resulting action could. It would be pretty incredible if the Fed were responsible for both driving down the dollar and tipping us into a recession simultaneously. Especially if the whole thing would have resolved itself without any intervention.

The weak dollar is already here. Will a recession follow? We shall see.

MEANWHILE: 46% of Americans incorrectly think we’re already in a recession, even as the economy continues to churn along at a brisk 3.9% growth rate.

AND: Larry Kudlow says, “Message to all you worrywarts out there: The U.S. economy remains strong. There is no recession ahead.”