Has the European Slowdown Finally Hit the U.S.?

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Jacquelyn Martin / AP

Many Americans are using the July 4 holiday as an opportunity to get away for the week, and there’s no better time to hide from dour headlines blanketing the financial press. Unemployment has hit a new record high in Europe, and while some progress was made in last week’s euro-zone summit, the continent’s leaders still lack a credible and cohesive plan to stop the death spiral of economic contraction and ever higher debt loads.

But even as fears of recession plague Asia and Europe, America had been fortunate enough to show consistent, albeit slow, job and GDP growth. But new manufacturing data released yesterday has many economists and pundits worried that the European crisis has finally washed up on American shores. A survey from the Institute for Supply Management (ISM) showed that manufacturing activity contracted in June, with its measure of new orders showing a steep decline into contraction as well.

Manufacturing had been one of the lone bright spots in an otherwise weak recovery, and such a steep drop in activity in the sector is a bad omen for the broader economy. Steven Blitz of ITG Investment Research believes as much, telling the Wall Street Journal:

“Assuming the pace of decelerating activity continues, and we make that assumption, it is only a matter of time before the service sector mirrors the real goods slowdown and overall employment gains move from sluggish to worse. The markets can continue cheering each new policy initiative adding liquidity to the capital markets, especially in Europe, but today’s ISM data proves out the bigger issue — insufficient demand for credit rather than an insufficient supply.”

(MOREEuropean Stock Markets and the Flight from Reality)

But another competing report suggests that the dire results from ISM may have overstated the drop in manufacturing activity. The financial-information-services company Markit released its own report showing that while the sector’s growth slowed in June, it is not yet contracting. Conor Dougherty of the Wall Street Journal’s Real Time Economics blog posts that Markit’s numbers indicate that the ISM report contained some statistical noise. That said, both reports point to a troubling slowdown in manufacturing. Dougherty writes:

“None of this is to suggest all is well in manufacturing — both reports showed distinct slowdowns in factory activity, a worrying trend since manufacturing and exports have been stalwarts of the recovery.”

The stock market, at least, is taking a wait-and-see approach. Though stocks tumbled on the release of the report, they wandered higher throughout the day. But it is unclear how long the U.S. can withstand continued contraction in Europe and elsewhere. The blog Zero Hedge posted an analysis of global manufacturing numbers from Bank of America, showing that 17 of 24 countries are reporting a contraction in that sector. The news is not good and, according to the bank, “The ongoing sovereign-debt and banking crisis continues to weigh on the region’s economic activity and sentiment. The euro area slowdown is beginning to impact the rest of the world.”

MORE: How Dangerous Is America’s Debt?

19 comments
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Chhajuram Induscharwak
Chhajuram Induscharwak

Recovery of world economy and particularly developed economies bound to remain in doubt because real recovery is committed while cutting parasitic or unproductive expenditure and investing in productivity.The evolutionary present stage of capitalism can not bear parasitic or unproductive expenditure hence this lies speed up of globalization. 

sovring
sovring

We are still in a recession, and it is getting worse. Only Christmas and Tax returns gave a false recovery, and Govt stimulus. No improvement in fundamentals(jobs).

(and no signs of hope for the future)Low interest rates getting buyers for real estate, but no jobs no recovery. The European slowdown has yet to show, but it will any month now and compound what was already lurking - a very bad economy

with alot of broke people living week to week. 

Maureen Owen
Maureen Owen

How about "The American slowdown has finally hit Europe"?

DebbieSmith1956
DebbieSmith1956

Here is an article that shows how grim the economic growth prospects are for both the advanced and emerging economies of the world:

http://viableopposition.blogsp...

All of the actions by the world's central banks have not been able to prod the world's reluctant economy back to life over the long term and, despite that, Mr. Bernanke et al persist with their easing and Twisting.

puahia
puahia

What came first? The chicken or the egg? Was it not the US slowdown in 2008 that hit Europe first? Europe exports a lot o the US and that export slowed down. Now the US exports to Europe are slowing down.

mrmouth
mrmouth

 The US housing collapse simply highlighted the debt issues in Europe. There really isn't a direct correlation. The closest would be Iceland.There was at least a year when civilians in the more robust European economies were spending big in the US on clothes and shoes as the dollar struggled. And loving to rub our noses in it.

 For Europeans to blame us is silly. It is like blaming someone in the office for giving you the cold that sends you to the doc where they find out you have treatable cancer.

The US position of trying to get them to actually move on something more concrete is entirely logical. And we are seeing it now. Germany is currently swallowing the bitter pill. Finally. Isn't fair, but they entered into a monetary union. You live, you learn.

Raymond Chuang
Raymond Chuang

This is why a combination of streamlining government and making taxation WAY more business-friendly will be the thing that saves the US economy. With a vibrant US economy from government and taxation reform, that will eventually pull up other national  economies around the world.

Maureen Owen
Maureen Owen

Yes, that's right, notice how we were so much worse off back in the 1950s and 60s when the rich actually paid their share, and things only got better for the U.S. when GW Bush cut millionaires' taxes?  —No, I didn't notice that either.

Raymond Chuang
Raymond Chuang

 That was because during the 1950's, we just came out of the effects of the World War II (which tremendously boosted consumer spending after the war) and there was a tremendous expansion of the military sector due to the threat from the Soviet Union (defense plants were booming in the 1950's building up our nuclear arsenal). As such, the US economy stayed reasonably strong back then.

Mary Johanna
Mary Johanna

 Very interesting, how can you streamline a skeleton and how can you lessen the already to low taxation, unless of course we are talking about the 1% of us that is not paying the fair share.  How can you get the monies hidden behind foreign borders back to the US where it was earned by the labor of the American people?  Please enlighten me.  There is no room for vibrant reform, the only reform would be to start making heavy investments in infrastructure in America.  How about starting with a workable 21st century power grid system that does not consist of wires on poles that interrupt services during every little storm there is?  How about fixing our education system and letting our kids learn again?  Ah, that may be a dangerous undertaking...

RAdanneskjold
RAdanneskjold

The bottom 50% pays 2% of all federal income taxes I guess that is fair. The horrible top 10% who isn't paying their fair share according to you actually pays 71% of all federal taxes. We have the highest corporate taxes in the world which drives companies to other nations. We over regulate all actions which inhibits growth. You want a new power grid ? Good luck with that, the government limits the growth of new power plants and zoning restrictions, keep new powerlines out. Vibrant reform is getting bureaucrats  out of the way and let entrepreneurs lead! 

Raymond Chuang
Raymond Chuang

 The problem is between the complications and the cost of the current tax code, not to mention a HUGE amount of business-inhibiting regulations, no wonder American businesses have exported millions of jobs, thousands of factories and hundreds of corporate headquarters.

With real income tax reform and a streamlined government, the US economy will experience a boom we haven't seen since the 1980's! :-)

Maureen Owen
Maureen Owen

"The bottom 50% pays 2% of all federal income taxes I guess that is fair. The horrible top 10% who isn't paying their fair share according to you actually pays 71% of all federal taxes."

Oh, that's such Republican BS, based on numbers from stated tax rates vs. effective tax rates. How those deceptions were arrived at have been debunked repeatedly. P.S., and I *am* a Republican and I am a millionaire. That's how I know.

Garage Floor Mats
Garage Floor Mats

Definitely the European slowdown will hit the US forefront. It might be a small impact or a a large impact but the impact will be felt nonetheless.