The US economics team at financial firm Morgan Stanley (MS) says in their latest research report that recent gains in the nation’s economy point to a remote chance of a so-called double dip — where recent upticks in economic activity are only temporary — citing low mortgage rates as a key driver in drawing this conclusion. “The dip in conventional 30-year mortgage rates to about 4.8% has triggered a minor refinancing boom; reduced debt service will further add to discretionary spending power for many mortgage borrowers,” according to the report. “Taking these offsets into account, we expect net financial conditions to be roughly unchanged.” In their latest report, titled “Defying the Double Dip,” authors Richard Berner and David Greenlaw look at several macroeconomic factors in coming to this result.  Lower fuel costs and greater infrastructure spending, for example, are providing relief to the American economy at-large, something they don’t see changing anytime soon. “To be sure, the recent surge probably overstates the new upswing, but there remains ample unspent Federal funding,” the economists write, “and officials are unlikely to turn off the spigot in an election year when incumbents are threatened.” The report cites “powerful offsets” like the strong dollar, along with low mortgage rates, as potential hedges against the risk of a double dip. Indeed, they concede there are large market worries over growing sovereign debt levels, especially in Europe, where higher borrowing is expected to be favored over austerity measures in the short term. Paul Ashworth, a senior economist for Capital Economics, did not agree totally with the Morgan Stanley assessment in a note on US manufacturing levels today. “It is possible we will see a more marked decline in the coming months, as Europe’s woes start to affect global trade and domestic inventory rebuilding begins to slow,” he wrote. Ashworth adds that the recent appreciation in the dollar, particularly against the euro, and lower commodity prices mean that over the next 12 months the rise in import prices over the past year will be largely reversed. “This is another reason to suspect that both headline and core consumer price inflation is going to fall to 0.5% by year-end.” The Morgan Stanley economists recognize the concern that a stronger dollar in concert with the sovereign crisis may promote deflation, but aren’t on-board with the theory. “In contrast, we think the fundamentals for pricing power are gradually improving,” they conclude, again with the view of stability in the short term. “Climbing rents, accelerating prices at the early stages of the processing pipeline, and rising import prices all are starting to signal that inflation is bottoming.” Write to Jacob Gaffney. Disclosure: the author holds no relevant investments.