NEW YORK (CNNMoney.com) -- The economy appears thriving away from home, or more precisely, away from homes.

There's little question that the housing market is now in a recession if not a full-fledged depression. Which is not so surprising after the national housing boom that started in the late 1990s - the good times had to end at some point.

The housing market slowdown has taken a bite out of economic growth, but hasn't been as big a problem as some had feared.

But there are plenty of signs of economic strength away from the housing sector, even though Friday's gross domestic product reading showed the economy grew at the weakest pace in more than three years in the third quarter.

Even that report has not dissuaded some economists from believing that the underlying economy is stronger than many had thought it would be with a sharp drop in housing.

"GDP is about yesterday and it will be revised," said economist Robert Brusca of FAO Economics. "What does this GDP report say about growth ahead? I think - coupled with recent monthly indicators - it is upbeat."

There aren't many upbeat indicators coming out of housing, though. This week brought news that prices for existing homes posted the biggest year-over-year decline on record in September while new home prices sank almost 10 percent, the biggest drop in nearly 36 years.

Leading home builders such as Pulte Home (Charts) and Centex (Charts) both reported sharply lower earnings and cut their forecasts this week. The other major builders - D.R. Horton (Charts), Toll Brothers (Charts), Lennar (Charts) and K.B. Home (Charts) - are also seeing sales and profits tumble.

Investment in housing, which tumbled at an 11 percent annual pace in the second quarter, according to the GDP report, plunged at a 17 percent rate in the most recent quarter. The Federal Reserve has cited the cooling housing market in its last three statements as it left interest rates unchanged following a series of 17 straight rate hikes.

But many economists now believe the economy is set to bounce back after this year's mid-year slowdown, especially with the recent decline in energy prices. The Fed's statement Wednesday added the line, "Going forward, the economy seems likely to expand at a moderate pace."

"Lower energy prices have helped to lift consumer confidence, and October confidence is one of the best indicators for holiday sales," said Anthony Chan, chief economist for JPMorgan Private Client Services. "There is a certain amount of exuberance. Everyone loves to spend in the fourth quarter."

Many economists had worried that a drop in home values, and rising mortgage rates, would have hurt spending by consumers, many of whom have used rising home values and home loans to fuel purchases in recent years.

But even amid reports of declining home prices, spending has stayed strong. September retail sales rose 0.6 percent when spending at gas stations, which were hurt by falling pump prices, is excluded. And big retail chains generally reported sizzling September sales, although No. 1 retailer Wal-Mart Stores reported a sluggish gain at stores open at least a year.

Lower energy prices are only part of the reason the consumer - and the economy - have weathered the housing slowdown so well. Much of the weakness in home prices seems to be coming from a glut of new homes built during the record housing boom of 2005, when many of those homes were being snapped up by speculators who are now looking to sell.

Most past housing slowdowns have been associated with high unemployment or high mortgage rates. That's not the case this time. The unemployment rate stands at 4.6 percent, near its lowest level in five years.

And mortgage rates, while up more than a half a percentage point from a year ago, are still low by historical standards, with the average 30-year fixed rate mortgage standing at 6.36 percent in the most recent reading from Freddie Mac.

Chan said it's wrong to assume that housing has not had an impact on the economy. "It was a body blow, but there was a trampoline under the body," he said. "You're getting support from these other areas."

Some economists even argue that the threat of a housing slowdown was exaggerated by some of their colleagues.

"It's a bee sting, maybe a couple of bee stings," said Brusca of FAO Economics. "Yeah it hurts, but there hasn't been the allergic reaction many feared would cause worse problems."

While Chan expects the Fed will cut interest rates early next year to prevent a further slowdown in the economy, others say the central bank will need to actually raise rates after the current pause due to an expected pickup in economic growth and inflation.

"The arguments that the economy is cooling due to the housing downturn are overblown," said Rich Yamarone, director of economic research at Argus Research. "Are you really not going to get your kids the present they want for Christmas because you home might be worth 2 percent less than it was a year ago?"

Of course, consumer spending is just one sign of the economy's health, albeit an important one - spending by consumers fuels more than two-thirds of GDP.

The Dow Jones industrial average has been hitting record highs in October, normally a tough month for stocks ahead of the mid-term elections. They've been helped by strong corporate earnings - and when profits are strong the job market usually holds up pretty well.

Earnings tracker First Call says the 56 percent of the S&P 500 companies that have reported so far have seen a 20.1 percent increase in earnings, year-over-year, as companies beating forecasts have outpaced those that disappointed by nearly six-to-one.

And First Call forecasts fourth quarter earnings growth should be up 10.7 percent, which would mark the 14th straight quarter of double-digit growth.

"It's astounding how well U.S. companies have been growing earnings," said David Dropsey, research analyst with First Call. "We keep expecting it to slow, and it keeps going gangbusters."

He said even if First Call is correct that first-quarter earnings growth is only 8.5 percent, that would still be better than the typical growth of about 7.5 percent.

Economy weakest in three years

Beware: More Fed rate hikes may be coming

Greenspan: Housing slump spares economy

Supply side, deficits and politics