The Old World's worries are not necessarily bad news for the New World's economy — at least in the short term.
While a total economic and financial meltdown in Europe would pose trouble for the U.S., right now Americans are getting a big lift as the European debt crisis relieves pressure on global oil prices and drives interest rates to record lows.
U.S. consumers are entering the peak season for driving this summer with pump prices uncharacteristically falling to $3.71 a gallon on average, well below the psychologically important $4 threshold nationally that they threatened to cross earlier this year.
With vacation season kicking into high gear, the savings at the pump are giving American consumers a second wind at the malls and resorts, and are boosting retail sales and consumer spending, which are the biggest engines of growth for the U.S. economy.
Meanwhile, a budding recovery in the housing market in recent weeks got an unexpected shot in the arm as investors seeking a safe haven from the turmoil in Europe rushed into U.S. Treasury securities, driving the yield on 10-year Treasury bonds to a record low of less than 1.7 percent last week.
That key Treasury rate determines the rate on 30-year mortgages, which last week fell in tandem to a record low of 3.93 percent, the Mortgage Bankers Association reported.
The extraordinarily low mortgage rates, combined with an average 35 percent drop in housing prices since the recession, have made buying a home more affordable than ever and is enticing more people back into the housing market, which has been the weakest sector of the economy.
Even as several European economies report collapsing growth rates, the Commerce Department reported Wednesday that new home sales increased 3.3 percent in April from March, with sales rising sharply in every region of the country but the South.
"Europe's troubles are not significantly damaging the U.S. economy," and in fact, the paces of economic growth and hiring appear to have picked up in recent weeks, said Aaron Smith, senior economist at Moody's Analytics.
U.S. businesses and consumers "do not appear spooked" by seemingly endless headlines on the European crisis or by worries about fallout for the U.S. economy since voters ousted the sitting governments of France and Greece this month, he said.
While global markets have been roiled by fear that the renewed crisis in Europe will produce a world-shaking event, such as a breakup of the 17-nation bloc that uses the euro, polls show U.S. consumers have been largely ignoring the news and do not view Europe's crisis as a threat to their own well-being.
That perception, along with the substantial boost coming from lower food and fuel prices and historically low interest rates, is underpinning the strength in the U.S. economy, analysts said.
"The U.S. consumer has fared much better than feared" in light of the global turmoil, said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, noting that retreating gas prices are benefiting consumer confidence and spending.
The drop in oil prices has picked up speed in recent days, with premium crude falling to about $90 a barrel in New York trading this week after trading in a range around $100 for much of the year.
Along with an apparent bottoming out of the housing market's ordeal and continuing strength in manufacturing and exports, the economy seems to be ginning up some momentum that is not fully appreciated in financial markets, Mr. Grohowski said.
Jeffrey Kleintop, chief market strategist at LPL Financial, noted that falling gas prices led to unexpectedly good sales for retailers this month.
At the same time, "housing is showing signs of improvement, as both new and existing home sales are rising at a 5 percent to 7 percent pace, and home prices are now on the rise," he said.
The gains in housing provide more good news for middle-class Americans, whose homes are their biggest sources of wealth. The improved outlook for consumers, housing and the U.S. economy, aided by the recent drop in commodity prices and interest rates, may help ease stressed-out financial markets this summer, Mr. Kleintop said.
Despite the recent market turmoil, U.S. stocks also have fared better than markets in Europe, which have lost 10 percent of their value since the political rebellion in Greece, France and other countries against the demand for austerity and deep structural reforms.
The U.S. is benefiting by comparison with Europe, where the most heavily debt-strapped countries, such as Spain and Greece, have fallen into deep recessions, said Nariman Behravesh, chief economist at IHS Global Insight.
"The U.S. economy continues to chug along" despite the troubles in Europe, he said. With interest rates falling to new lows first as a result of the recession and then as a byproduct of the European crisis, that has aided the "healing process" for overindebted U.S. consumers and the housing market, which is now well under way and gathering speed, he said.
"With each passing year, the U.S. economy progresses in its painful healing process," he said. "One more year of deleveraging, one more year of increasing pent-up demand, and one more year of housing adjustment" puts the U.S. that much closer to more normal economic conditions and healthier growth.
Michael Fratantoni, vice president at the Mortgage Bankers Association, said that as far as interest rates go, what's bad for Europe has been good for the United States.
The morass in Europe last week drove the rate on mortgages backed by Fannie Mae and Freddie Mac to a record low of 3.93 percent, while the rate on loans insured by the Federal Housing Administration fell to an all-time low of 3.73 percent, he said. That has spawned a surge in mortgage refinancings that promises to put even more spare change in consumers' pockets.
While the short-term effect of the European crisis has been positive for the U.S. economy, analysts caution that things could turn nasty if political deadlock leads to a total economic breakdown.
One much-discussed scenario is that Greek voters will abrogate their debt-bailout deal with the rest of Europe, forcing the country out of the European Monetary Union — the 17 countries that use the euro.
Many analysts fear that development — which could occur as soon as next month after a scheduled June 17 election — would set off a catastrophic chain of events, including bank runs and major bank failures in Europe and a crisis and severe recession on the Continent that reverberates through the world economy.
"Greece is very likely to be a starting point for a worldwide crisis: Europe spills to the U.S., U.S. spills to China," said economist Harry Dent.
"I've been surprised by how relatively well the U.S. has been doing in its recovery in recent weeks," he said. "But now the U.S. is next in line with a hit coming from Europe. It's downhill worldwide from here."
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