It now appears the US slowdown is not only here for some time to come but that its impact may have been underestimated by many European policy-makers and particularly those in the Euro Tower in Frankfurt.

At the beginning of this year, most commentators were expecting the US economy would begin to pick up by now, having hit the bottom before or during the summer. That has gradually been revised to hitting bottom this autumn before picking up, but now the worries are that the pick-up will not kick in until well into 2002.

Of course, there are no guarantees of that, as this week's survey from the US purchasing mangers showed. The manufacturing sector may still be contracting but confidence has picked up markedly. Of course, the usual warnings about relying too much on one set of data need hardly be repeated.

The key to the US recovery is the American consumer. It is only thanks to the continuing high spending of consumers that the US economy has hung on to any semblance of growth. But it now appears that consumers are getting more cautious. This is hardly surprising. It is hard to feel optimistic if you feel your job may be under threat.

As one investment adviser noted: "The consumer is the last finger hanging on the edge of the cliff. If we lose him, the economy may slip into recession."

It is this kind of thinking that is dominating the Federal Reserve at the moment and led to the latest rate cut just weeks ago. The Fed has now cut three percentage points off interest rates since the downturn began and more may yet be in the pipeline.

Some observers report that Fed officials are confident the economic slowdown is bottoming out. The problem is that such sentiment is borne out more by economic models than by any tangible evidence.

The hope is, of course, that with lower interest rates and a tax cut hitting the economy it will start to turn. The problem is that someone with a $600 (€676) tax rebate is more likely to save than spend it if they feel their job is under any threat.

In the latest survey, two-thirds of those surveyed by the Conference Board this month said that jobs were no longer plentiful or were downright hard to get.

Indeed wage demands have eased off considerably as employees lose their pricing power and unemployment increases. About one million lay-offs have been announced this year and unemployment benefit claims are at a nine-year high. The unemployment rate has risen to 4.5 per cent, from 3.9 per cent last year and is expected to rise further.

Housing, which has held up remarkably well is now finally showing signs of deterioration as would-be home-buyers become increasingly nervous. The market is now starting to slide, despite the seven consecutive interest rate cuts

No one knows for sure how this will play out but there is now little talk of a V-shaped recovery. Optimists talk about saucers where growth after the pick up would bump along at about 2 per cent, but many more are now worried about the so-called L-shaped curve, where the economy bumps along the bottom. This would have serious repercussions for manufacturing and investment, and hence on economic prospects on this side of the Atlantic.

That would undermine further the employment outlook in the multinational sector in the Republic, further hitting income and corporation tax levels, which have decelerated markedly in recent months.

In turn, that will reduce the scope of Minister for Finance Mr McCreevy in shaping his pre-election Budget at the end of the year.

According to these analysts, the least likely is a U-shaped recovery, which would see a solid bottom now with consumers little affected.

It could conceivably be worse, according to New York-based analysts, if consumers simply disappeared from the malls. If that happens, there would be further retrenchment as business faced pressure from both sides.

That would move the economy firmly into recession. And, as the adage goes, if America sneezes, Europe catches a cold. The United States in recession would certainly have very severe repercussions here and in the rest of Europe, as well as Japan.

The last two recessions in the late 1980s and the early 1990s were not actually in step across the world. But increased globalisation now means there is little chance of avoiding contamination. Even the European Central Bank has been surprised by the speed of transmission as Germany's Bundesbank chief Mr Ernest Welteke admitted in Dublin this week.

Economists at the International Monetary Fund (IMF) have warned that there is "significant danger" of a global recession along the lines of the early 1980s and early 1990s. Quoting a leaked draft version of the IMF's World Economic Outlook, the Financial Times said the focus of the IMF's concern is the outlook for the US.

It said that, although the IMF forecasters have not changed the prediction, they argue that the impact of a US recession on the world economy would be made more severe by the weakness of the economies of Japan and Europe.

Some analysts are even warning that this summer is looking very similar to those following the crashes of 1873 and 1929 before markets headed down again. What eventually transpires will be determined by the US consumer and whether or not they give up their mall habit. The answer is anyone's guess.