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Japanese Economic Collapse Confirmed By PMI Plunge From 52.9 To 46.4, Largest Drop Ever

Tyler Durden's picture


In the first economic metric since the Japanese earthquake struck, Japanese manufacturing activity slumped to a two-year low in March and posted its steepest monthly decline on record, confirming all the worst fears about supply chain disruptions and production operations, according to the Japanese PMI released on Thursday. From Need to Know News: "The 6.5-point drop in March was the largest on record, surpassing the falls seen after the collapse of Lehman Brothers in September 2008 and the U.S. terror attacks in September 2001, MarkIt Economics said, adding that the March PMI index was the lowest since 41.4 marked in April 2009. Kohei Okazaki, economist at Nomura Securities, said March industrial output due out on Apr. 28 is expected to show a m/m fall of at least 10%. The PMI index is closely correlated to industrial output released by the Ministry of Economy, Trade and Industry. Markit, a UK-based research firm, conducted the latest survey between March 11 and March 25, and only 67% of those polled responded. It releases manufactures PMIs for 25 areas in the world every month." And in addition to all the collapse in all output metrics, adding insult to injury is the confirmation that inflation is now ravaging the land: the input price index increased to 65.2, the highest since September 2008, due to higher costs of raw materials such as crude oil and naphtha. It now appears that Japan is about to have the worst stagflationary episode in its history ever.

From Reuters:

The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 46.4 in March, the lowest since April 2009 and down from February's 52.9.   

The data provided one of the first quantitative assessments of the severe damage to production from the March 11 quake and tsunami in northeast Japan, which triggered a nuclear safety crisis and widespread power shortages.   

"The impact from the power outage, supply chain disruption and a halt of many factories' activity after the quake is large. There is a possibility that the PMI index will further weaken," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.     

"It is a major issue now how the nuclear crisis develops, and stock market players are also closely watching it. The
outlook for business activity depends on progress in reconstruction and recovery."   

Japan's government is struggling to contain the world's worst nuclear crisis in 25 years that triggered wide power outage, while carrying out a huge humanitarian relief effort following the March 11 quake and tsunami that devastated coastal areas of northeast Japan and left 27,500 people dead or missing.   

It is set to compile several extra budgets to cope with the disaster with the first likely due next month but it will initially focus on urgent steps such as construction of temporary housing, leaving markets few clues about when reconstruction demand will start to give a much needed lift to the economy.

In the survey, the headline index slipped below the 50 threshold that separates contraction from expansion for the first time in three months, while the extent of the drop from the previous month exceeded those seen after the attacks of Sept. 11, 2001, and the collapse of Lehman Brothers in 2008.   

"Suppliers' delivery times lengthened at a survey record pace amid widespread disruption in the supply chain resulting from the disaster," said Alex Hamilton, economist at Markit.   

"These delays could affect production in coming months and drive input price inflation even higher than the two-and-a-half year peak seen in March."   

The output component of the PMI index dropped to a two-year low of 37.7 in March from 53.9 in February, logging the fastest decline on record with a number of respondents saying rolling blackouts and logistical problems in their supply chains restricted production, the survey showed.   

The index for new orders also dropped to a two-year low of 39.6 from February's 54.3. Some manufacturers responded that customers had to cancel or postpone orders.   

The first phase of the Keynesian fanatics is now confirmed: the Japanese economy is devastated. And now we await to see whether they will be correct about the second phase, or that of the Phoenix rising from the radioactive ashes. Somehow we doubt there will be much if any recovery here for years.


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Thu, 03/31/2011 - 08:09 | 1120764 westboundnup
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It's over Johnny . . . IT'S OVER!

Thu, 03/31/2011 - 08:20 | 1120790 markmotive
markmotive's picture

Just another data point on the way to QE3.

Here's a (March 30) video with Marc Faber on QE3:

Thu, 03/31/2011 - 08:38 | 1120847 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

At least the Japanese people will have their good health to fall back on.

The multi nuke melt down has been reported to be 'no big deal'.

Thu, 03/31/2011 - 08:08 | 1120766 HelluvaEngineer
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Yeah, but the rebuilding initiative is scheduled for next week.  Just after the (next) meltdown.

Thu, 03/31/2011 - 11:20 | 1121460 camaro68ss
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Must be snowing there bad!

Thu, 03/31/2011 - 08:11 | 1120770 reader2010
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BTFD. Perpetual Boom, bitchez!

Thu, 03/31/2011 - 08:20 | 1120794 Cash_is_Trash
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Nominal Gainzzz

Thu, 03/31/2011 - 08:12 | 1120772 JohnnieWalker
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I guess this puts an end to the JIT inventory model for the Japanese?

Thu, 03/31/2011 - 08:11 | 1120774 max2205
max2205's picture

That's bullish!

I don't see how they can report this data with any accuracy given the reporting infrastructure breakdown,,, but I guess they pulled this # out their ass and it probablly worse than reported.

Thu, 03/31/2011 - 08:23 | 1120798 Snidley Whipsnae
Snidley Whipsnae's picture

If you bothered to read the article you would see that only twenty five per cent of those polled responded. Since many plants are shuttered that sounds about right.

If all the shuttered plants would have respondes what would the results have been?

Thu, 03/31/2011 - 08:13 | 1120776 FunkyMonkeyBoy
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A report on the obvious. Markets don't care... because they are not free markets anymore.

Thu, 03/31/2011 - 08:20 | 1120791 Commander Cody
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Yes, the plethora of black swans running about is completely irrelevant to "free" markets.

Thu, 03/31/2011 - 08:34 | 1120828 Zina
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In your theory, the free markets should be "rational". So, if the market is not rational, then it's no longer free.

Very nice... If the market behaves the way you think it should behave, it is a free market. If the market doesn't behave the way you think it should behave, it's not a free market.

Very easy (and falacious) way to defend the "wonders" of unregulated free markets.

Accept the reality: unregulated free markets were never "rational". Remember tulipomania...

Thu, 03/31/2011 - 08:38 | 1120842 Commander Cody
Commander Cody's picture

I take it you believe that markets are free and unregulated?

Thu, 03/31/2011 - 08:57 | 1120921 Zina
Zina's picture

Yes, the markets could (and should) be much more regulated than they currently are. Capital flows are free, and tax heavens are used shamelessly.

Accept the fact: we are watching the irrationality of the unregulated free markets.

The conservative spin is hilarious: "no, it's not free market's fault, it's the government, excess regulation, and... the Earth is flat!"

Thu, 03/31/2011 - 09:07 | 1120963 dervish
dervish's picture

as long as the MONEY is not free and the world keeps using fiat toilet paper, there will be no free market! never ever. free market = free money, gold and silver and copper for the pennies. history will laugh at our time period as the period of "greed and stupidity"

Thu, 03/31/2011 - 10:35 | 1121272 MachoMan
MachoMan's picture

If the markets are unregulated, what do you call the mountains of laws on the books?  Do you mean selectively enforced?  Toothless?  As best I can tell, small businesses take it in the ass for all these regulations...

So is your premise that the free market leads to a cornered market hell bend on implementing barriers to entry and dead weights on nonfavored businesses?  That the normalization of profits expected when competition increases necessarily causes those established market participants to defend their positions and profits and counteract the normalization process?  If so, +1...  if not, you need to be a helluva lot more specific with your terms.

Thu, 03/31/2011 - 10:39 | 1121297 Founders Keeper
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[Very easy (and falacious) way to defend the "wonders" of unregulated free markets.]---Zina

Sell it to the socialists, Zina.


Thu, 03/31/2011 - 08:13 | 1120777 Alcoholic Nativ...
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Thu, 03/31/2011 - 08:18 | 1120792 Ricky Bobby
Ricky Bobby's picture


Thu, 03/31/2011 - 08:14 | 1120779 Mr. Mandelbrot
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The price of gold in Yen is now back above the last pre-tsunami close . . .

Thu, 03/31/2011 - 08:17 | 1120784 anvILL
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I am very suprised that the yen is so strong, if you put the amount of liquidity injected by the BoJ in consideration.

Thu, 03/31/2011 - 08:22 | 1120795 Mr. Mandelbrot
Mr. Mandelbrot's picture

That strength is obviously waning in terms of gold . . .

Thu, 03/31/2011 - 08:46 | 1120846 anvILL
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Lets put things into perspective. The BoJ injected cash that is close to QE2 in just a few days adjusted for U.S. GDP.
Yes, JPY is waning in terms of gold and I expect it to do so because I live in Japan and hold physical gold. But the amount of gold's rise against JPY is very low compared to the rise against USD after QE2.

Thu, 03/31/2011 - 08:17 | 1120782 BS_Merchant
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Any guess which way the Nikkei will move tomorrow?


(Answer: up)



Thu, 03/31/2011 - 08:18 | 1120787 bob_dabolina
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This is the type of thing that can cause Larry Kudlow diareah and insomnia.

Lets hope he is doing ok.

Thu, 03/31/2011 - 08:23 | 1120799 AccreditedEYE
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Someone wake up Larry Summers so he can tell us this is still good for Japan's GDP.

Thu, 03/31/2011 - 08:25 | 1120801 Spalding_Smailes
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Very low levels of radiation turned up in a sample of milk from Washington state, the Environmental Protection Agency and the Food and Drug Administration said Wednesday, but federal officials assured consumers not to worry.

The FDA said such findings were to be expected in the coming days because of the nuclear crisis in Japan, and that the levels were expected to drop relatively quickly.

Thu, 03/31/2011 - 08:52 | 1120893 jomama
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still goofing around with that google doodad thingy, i see.  

ain't that technology somethin'?!

Thu, 03/31/2011 - 08:23 | 1120803 Snidley Whipsnae
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Bullish for US Equities... Every news item is bullish for US Equities... Until it isn't

Thu, 03/31/2011 - 08:26 | 1120806 anvILL
anvILL's picture

I believe that the change in evacuation radius of the Fukushima plant will have a significant impact on the PMI. Currently suppliers for auto makers affected by the evacuation are stopping some major plants for Toyota,and from my back of the emvelope calculations, I expect companies affected by radiation to double if the radius gets expanded to 40km. Cars are made of around 30k parts, and without one of them, a car could easily fail and I don't expect auto makers will take the risk of future recalls in this environment.

Thu, 03/31/2011 - 08:26 | 1120807 jtmo3
jtmo3's picture

Number seems kind of high. With all that's going on and all that's closing down, that number should have been lower. More spin from the .gov?

Thu, 03/31/2011 - 08:27 | 1120814 A Dim View
A Dim View's picture

NOTHING is over, you just can't turn it off!

Thu, 03/31/2011 - 08:28 | 1120818 Silverhog
Silverhog's picture

I can imagine what a Misery Index for Japan would look like right now.

Thu, 03/31/2011 - 12:26 | 1121728 dark pools of soros
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no need.. Japan went virtual reality for their enjoyment decades ago..latest gadget sold out in a day



Thu, 03/31/2011 - 08:28 | 1120820 dcb
dcb's picture

Just what the bernek order end of deflation. Of course it will make the people suffer, but the banks do well, so all is good with the world.


I remain nsurprised other countries haven't sent hit squads after the man


Thu, 03/31/2011 - 08:46 | 1120866 jomama
jomama's picture

because he's just a puppet?

Thu, 03/31/2011 - 10:35 | 1121279 Terminus C
Terminus C's picture


Thu, 03/31/2011 - 08:54 | 1120904 99er
99er's picture

Nikkei Futures

Economic collapse? What economic collapse?

Thu, 03/31/2011 - 09:59 | 1121002 TruthInSunshine
TruthInSunshine's picture

This is just the start to what's going to be world wide contraction the likes of which we have not seen since...

...a long, long time.


Japan is the 3rd largest global economy and largest exporter in history. The risks to the global economy here can't be understated.

Japan is about to be printed into the twilight zone. Aggressive BOJ intervention will be required for an incredibly long time to keep the Nikkei from crashing.

BOJ has no other choice, truly; print or see everything crash.

Laugh if you must, agree if you will, but USD will buy 130 Yen again, soon.

The economic crisis has now started in Japan and will be felt first and foremost in China, as they are reliant on durable good production that utilizes many Japanese sourced (and proprietary) components.

Everything in the global economy, with a few notable exceptions, for the past two years was the result of monetary sugar from aggressive central bank monetary policy and stimulative governmental actions.

Both were developed to kick the can so as to allow some organic growth to eventually take off and take over from very expensive and inefficient monetary policy.

The organic growth never kicked in. And this Japan crisis just took all remaining air out of its chances to do so.

Thu, 03/31/2011 - 10:08 | 1121173 HedgeFundLIVE
Thu, 03/31/2011 - 10:38 | 1121287 flrzero
flrzero's picture

The mad dog Keynesians have always preached that inflation is what the Japanese economy needs.... as if everything is so damn cheap here. But actually with unlimited (so far) domestic demand for JGBs it appears that it is impossible to move the inflation spiral.

Thu, 03/31/2011 - 17:52 | 1123052 Buck Johnson
Buck Johnson's picture

There won't be a recovery not this year not next year and not even next decade.  Because I truly believe that 1/3 to 2/3 of Japan (possibly the whole land mass) will become to contaminated for people to not only live in but to even drink or eat any type of food from it's soil.  But there is hope, I believe that many of the Japanese will fight and go to Australia.  Australia will fight it, but after some arm twisting from the US and the UK they will allow Japanese in.

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