Is Warren Buffett Right About The Economy?

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<> the Fortune Most Powerful Women summit at Mandarin Oriental Hotel on October 5, 2010 in Washington, DC.

Warren Buffett told Fortune magazine’s Most Powerful Women Summit Tuesday that he hasn’t thrown in the towel on the U.S. economy, arguing that the U.S. will avoid a double-dip recession despite rumors to the contrary. Though some pundits say that the Oracle of Omaha’s views have been colored by a devotion to President Obama that mystifies some of his many admirers, there is ample evidence suggesting that he’s right.

To be sure, the U.S. economy continues to lumber along like a three-toed sloth. (National Geographic notes that the sloth is so sedentary that algae grows on its fur.) The International Monetary Fund forecasts that real GDP — which excludes inflation — will rise 1.5% this year. That’s really slow, to be sure, but it is growth.

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Signs of a recovery are perhaps best thought of not as good news but as of less bad news. It’s a subtle but important distinction. Take unemployment. Though the rate remained at 9.1% in August nationally, it dropped in 12 states for the month and remained unchanged in another 12, according to the National Conference of State Legislatures. Big companies, such as Ford Motor C0, are continuing to hire. Many retailers, including Macy’s, are planning to add temporary workers for the holidays at or near the levels that they did last year.

Even the moribund real estate market is showing modest signs of life. Existing home sales rose 7.7 percent in August to a seasonally adjusted annual rate of 5.03 million versus an upwardly revised 4.67 million in July, according to the National Association of Realtors. That’s 18.6 % higher than the 4.24 million unit level in August 2010.

Rising tax revenue is starting to hit the coffers of some local and state governments, allaying fears raised by Wall Street analyst Meredith Whitney and others about massive numbers of municipal defaults, though as of the first quarter, revenues remained 9% below pre-Recession levels, according to the Center on Budget and Policy Priorities.

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The 81-year-old Buffett, who has seen plenty of bull and bear markets come and go during his illustrious career, offered some proprietary evidence for his optimism as well. Because of its diversity — its holding range from the Burlington Northern railroad to Geico insurance to Dairy Queen — Buffett’s massive Berkshire Hathaway conglomerate offers a good proxy for the economy. He told the summit’s audience Tuesday that his five largest businesses “will set records for earnings or just about set records for earnings this year.”

Buffett did acknowledge that the market turmoil concerned him. “I really thought in August or September, with all the turmoil in the markets, you’d see a falloff, particularly on higher priced items,” the Wall Street Journal quoted him as saying. “But it hasn’t happened yet.”