"We're starting to feel the infection now."

-- Michael Feroli, a J.P. Morgan economist, talking to The Wall Street Journal about the first monthly decline in Institute for Supply Management’s measure of U.S. manufacturing output since July 2009, including the sharpest drop in new orders since the plunge that followed Sept. 11, 2001.

The perversity of a continually crummy economy is that sometimes the best news for investors is bad news.

That’s the case with the surprisingly steep drop in manufacturing output in June. The measure slipped into negative territory for the first time since the American economy technically escaped recession three years ago.

It would seem logical that this would cause more anxiety in already roiled investment markets, but not so.

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The news was so bad that it caused new hope that the Federal Reserve would engage in a third round of “quantitative easing,” which is the polite way to say that the U.S. central bank would conjure hundreds of billions of dollars into being and then buy up the investment holdings of private banks in a bid to get those banks to make loans with their profits. The Fed then sits on the investments until such time as markets are deemed stable enough to withstand their sale.

There is much debate over the efficacy of this practice, favored by Federal Reserve Chairman Ben Bernanke, but investors love it whether it works or not. A predictable jolt for the economy is something that can be profited from in the short term, whatever happens in the long run. Good or bad, any predictable event is an opportunity for profit.

The current slowdown is blamed on a cyclical contraction in global markets. Europe is deathly ill and locked in a debt spiral and China is coming down hard off of a stimulus-driven high that allowed the fast-growing nation to miss most of the global downturn. The problems in those places weaken demand for U.S. exports and cause investors to pull back. Then as the U.S. slows, hopes fade in the other regions that America will again be able to provide the economic lift to push the rest of the planet forward.

It’s those things, to be sure, but it’s also that the moneymen haven’t a clue about what direction America is going to take this fall. The neck-and-neck U.S. election between two candidates diametrically opposed on how to revive the faltering economy has businessmen and businesswomen flummoxed. While there is big concern in the business world about Obama’s policies, there is also the worry about how high the stakes are in November.

Will President Obama’s 2010 health law stand or be repealed? Will taxes go up or go down? Will the federal government borrow more money to fund stimulus measures or will Washington see austerity measures? Will Obama’s regulatory scheme on global warming, labor laws and consumer protection swing into place or be undone?

So much uncertainty, combined with the grim global situation, provides a tremendous incentive for people with money to park it rather than risk it. Obama opted for audacity at the start of his term. All that now hangs in the balance. Even with Republicans running a moderate candidate, the gulf between the two visions of offer is enormous.

Obama has frequently complained of the “headwinds” previously described in order to explain to voters why they should not blame him for the sad state of things in the economy. It is understandable that he would focus on that rather than the domestic problems dragging down the economy. Blaming Europe and China is better for the incumbent than saying, “We’re kind of a mess.”

The Democratic line for the year remains what it was in 2010: Things are bad, but they would have been worse without the massive interventions conceived by the Obama Democrats. This is not a terrible line, but it is a tough sell. Moderate, independent voters are a fickle lot with whom the standing question is “what have you done for me lately.”

The hope on the blue team after their 2010 catastrophe was that the economy would have been enough revived by 2012 to make their argument more convincing. But that’s not going to happen.

Voters will go to the polls 18 weeks from today. And while Democrats had given up hope on a real recovery by then, they now have to face the strong possibility that there will be further contraction.

The third quarter of the year, which began Sunday, is the time in which attitudes about the economy will harden. Between now and the end of September Americans will pass a final judgment on Obama’s economic stewardship. Every indication seems to be that voters will have ample evidence that things are getting worse, or at best, continuing to stagnate.

If the economy surges back to stagnation, Obama’s re-election strategy of a base-versus-base election with disaffected moderates might still work. If there’s a swoon, there won’t be enough attack ads or campaign money in all the world to buy Obama a second term.

And Now, A Word From Charles

“Of course it will hurt [Mitt Romney].  This would be a case of the triumph of mendacity.  This is an outright lie.  Factcheck.org, here's the quote, ‘We found no evidence to support the claim that Romney while at Bain capital shipped American jobs overseas.’ If you accuse him of investing in companies overseas because his company invested in companies that have affiliates overseas and there is a growth in jobs overseas and at home it isn't a negative.  But it's being called a negative.  It's being called shipping jobs overseas.  This is simply not right.”

-- Charles Krauthammer on “Special Report with Bret Baier.”

Chris Stirewalt is digital politics editor for Fox News, and his POWER PLAY column appears Monday-Friday on FoxNews.com.

Chris Stirewalt joined Fox News Channel (FNC) in July of 2010 and serves as digital politics editor based in Washington, D.C.  Additionally, he authors the daily "Fox News First" political news note and hosts "Power Play," a feature video series, on FoxNews.com. Stirewalt makes frequent appearances on the network, including "The Kelly File," "Special Report with Bret Baier," and "Fox News Sunday with Chris Wallace."  He also provides expert political analysis for Fox News coverage of state, congressional and presidential elections.