US Manufacturing
As the risk of a messy Greek exit from the euro and a general breakup of the euro zone spark global slowdown fears, panicked investors have fled the troubled euro to safe havens such as U.S. treasuries and, crucially, the dollar. REUTERS

The whirlpool created by the European financial crisis is finally dragging America down.

That’s the conclusion several economists arrived at Monday, after highly disappointing data released by the Institute for Supply Management showed a slight contraction in June.

“The U,S. resilience was surprising so far; it is not true anymore. The manufacturing sector, which benefited so far from great competitiveness gains, is now suffering from the weakening from external demand and fear of a slowdown at home,” Thibault Mercier, an economist at French bank BNP Paribas, wrote. “The question has shifted from ‘how long the U.S. manufacturing boom will last?’ to ‘how deep the correction will be?’.”

The comments came after the widely followed ISM manufacturing Index for June came in at 49.7, a slightly contractionary reading that was well below the 52.0 economists had expected.

Capital Economics's senior U.S. economist, Paul Dales, had a similar reaction, writing that “clearly this is the biggest sign yet that the U.S. is catching the slowdown that is well under way in Europe and China.”

More succinctly, Cooper Howes, an economist at Barclays Capital, wrote, “We believe the weakness in Europe is weighing on the manufacturing sector.”

Resilience in the U.S. manufacturing sector, driven by a booming automotive industry, had been generating a lot of the more positive economic headlines during the second half of 2011 and first quarter of 2012. Especially during 2011, economists talked about a ‘decoupling’ of the U.S. economy from the rest of the world.

Those assessments might be on review now, given the latest hard data.

Not that all economists agree.

The chairman of the ISM survey committee, for example, struck a more cautious tone. Instead of calling the low reading a result of contagion from the economic malaise in Europe, he explained that, in his view, manufacturers have “tapped on the brakes” in the face of uncertainty, but that more data was needed to assert a true slowdown in U.S. economic activity.

U.S. financial markets seemed to agree with that wait-and-see approach. After selling off sharply following the release of the ISM data, U.S. stocks were nearly unchanged for the day. During late-afternoon market action, the benchmark S&P 500 Index of U.S. equities stood at 1,362.83, basically unchanged from Friday.

China Barclays BNP Paribas China