Americans may not know all the details, but they do know that problems in Europe spell trouble here at homeâ€"and are likely to get worse before they get better.
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For the fourth month in a row, the Conference Board's consumer-confidence index dipped, the latest sign of a stall in the economy. The index now stands at 62, down from a 2012 peak of 71.6 in February. A reading below 50 typically indicates an economy that's contracting into recession.
Consumers feel okay about present conditions, probably because the price of gas, which has an outsized effect on people's psyches, has been falling. Respondents' assessment of current economic conditions actually drifted upward in June.
But Americans are becoming more dour about the rest of 2012, with expectations of future conditions dropping sharply since February. That's what pushed the overall index lower.
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The smoldering European debt crisis has mostly affected the U.S. economy by putting downward pressure on stock prices, which rose for the first three months of the year but have fallen by about seven percent since then. The constant buzz of ominous warnings about a meltdown of the euro zone or bank runs in Greece and Spain adds to the gloom. And a poor jobs report for May, trumpeted throughout the press, brought worries about the economy closer to home.
Economists generally don't think the U.S. economy is headed for another recession. But there are still plenty of dangers, including the "fiscal cliff" Washington may drive off at the end of the year if it doesn't forestall tax hikes and spending cuts that are scheduled to go into effect. If Congress doesn't intervene, such abrupt changes might be enough to trigger a recession.
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Many analysts expect politicians to work out a last-second deal to avert an economic disaster. But the game of chicken they're likely to play until well after the November electinos certainly won't add to confidence in the economy, and could very well undermine it further.
Weak consumer confidence could affect President Obama's reelection bid in one of two ways. If the economy picks up and confidence snaps back by the fall, voters may have a tangible sense that things are suddenly getting better, which would obviously help Obama. But the sense of unease that consumers feel now could also persist for months, especially if the European crisis drags on into 2013, as many economists expect. If the gloom continues, Obama could have a tough time convincing voters he'll make them better off.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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