Rebounding from paltry growth of 0.6 percent in the first quarter, real gross domestic product grew at 4.0 percent in the second quarter, the Bureau of Economic Analysis (BEA) reported today.

GDP is the output of goods and services produced by labor and companies located in the U.S. Previous advance estimates from the BEA suggested GDP growth of 3.4 percent, but today's report shows an economy outperforming expectations. Today's data also is an estimate. BEA will release final data regarding the second quarter of 2007 on Sept. 27.

"The economy had significantly more momentum than was thought as we went into the credit crunch," says Wachovia senior economist Mark Vitner. "This should help downplay some of the fears of a possible recession. We think it's very unlikely."

Other economists disagree. Dave Seiders, chief economist for the National Association of Home Builders, said during a conference call on Tuesday that the chances of a recession were actually increasing.

The economy is growing in spite of housing, not because of it--as was the case for much of the first half of the decade. Residential fixed investment decreased 11.6 percent in the second quarter. The only good news there is that the same measure fell by 16.3 percent in the first quarter, so while residential construction is still on a down swing, the rate of decline slowed.

The economy was able to withstand such a slowdown in residential construction due to increases in exports, decreases in imports, as well as massive gains in nonresidential construction. Growth of nonresidential construction shot up from 6.4 percent in the first quarter to 27.7 in the second.

Still, the rosy GDP picture could be cause for concern for the housing industry, Vitner says.

"The one concern people may have is with the economy this strong, maybe the Fed won't cut interest rates in September," he says.

Global Insight's chief U.S. economist Nigel Gault sees GDP growth slowing in the third quarter, with growth between 2 percent and 3 percent. Gault believes GDP growth will decline to 1.5 percent to 2 percent in the fourth quarter and stay there through the first half of 2008, he says in a report released today.

Gault also believes the Federal Reserve Board, with economic growth slowing in the later stages of 2007, will cut its target rate in September to try and spur the economy forward. The Fed does not set the Fed Funds rate, but does set a target rate for it. The actual rate changes daily based on market forces.

Earlier this week, the U.S. Census Bureau released data on income growth in 2006. Real median household income grew 0.7 percent to $48,201 in 2006 from 2005. Yet not all the news was positive. While overall household income was increasing, the median income of the average worker actually fell 1.1 percent.

But growing income is not going to help improve housing affordability, says Vitner.

"Affordability is not going to be restored by income growth, it's going to be restored by price declines in some of the areas where home values rose by extraordinary levels and by a slower rate of home price appreciation in other areas," he says.