That’s because developments in Europe, like never before, are influencing the judgments of key decision-makers in the U.S. economy: executives deciding whether to add workers or build a new plant, investors deciding where to place their money, even consumers deciding whether to take the plunge on a new house or car.
And today, when they look across the Atlantic, the world seems a lot less safe than it did yesterday.
The U.S. stock market was off sharply Friday, in part because of a discouraging report from Europe showing that German consumers had dramatically scaled back their spending because of fears about the debt crisis. The Standard & Poor’s 500-stock index, which fell 2.5 percent on the day, ended the third quarter with its steepest quarterly decline since 2008.
“The world is now a very small place,” said Lynn Elsenhans, chief executive of the giant energy company Sunoco. While a slumping European economy has little direct impact on her company, she said the extreme volatility in world financial markets caused by the European crisis is making Sunoco executives more cautious about investing and hiring.
American Eagle Outfitters, which operates 935 clothing stores in the United States and Canada, has been weighing expanding into Western Europe, according to chief executive James V. O’Donnell. But he said Europe’s situation “gives me real pause for concern. Normally we would be in a big hurry to get to the market, but we’re not in a great rush now.”
On a larger scale, the European crisis also has applied the brakes to the U.S. recovery.
In the spring of 2010, as the U.S. economy was finally starting to emerge from recession with several months of steady growth, concern erupted over Europe’s ability to deal with the debt crisis, which began in Greece and spread to other countries. Global stock prices plummeted. The U.S. economy slowed sharply in the subsequent three months.
Once again this spring, the U.S. economy had regained momentum, recording healthy job growth. But as the European troubles worsened, U.S. job growth again slowed drastically.
The link between economic growth in Europe and the United States is now tighter than in the past. Economists at Citigroup found that the relationship between GDP growth in Europe and the United States was three times closer in the 2000s than in the decade before.
There are several direct ways that developments in Europe can affect the U.S. economy, notably trade. U.S. exports to the continent, while small relative to the overall size of the U.S. economy, still added up to $240 billion last year. That commerce could be endangered if Europe dips back into recession. U.S. multinational corporations, in particular, do extensive business overseas and could suffer real damage.