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Stone McCarthy Sees Severe Economic Deterioration In April, And Q2, As A Result Of Japanese Supply Chain Destruction

Tyler Durden's picture


Lately we have heard of occasional documented cases of ear canal bleeding exhibited by people who have been listening too long to morons on TV (and in print) saying that the Japanese economic slow down and supply chain collapse won't have an impact on the US Economy, and will, in fact, be beneficial (it's not pronounced Döuche Bengk). To our immense satisfaction we have confirmed this latest outbreak of bacillus idioticus is localized (to below Canal street), is so far not airborne, and is merely contained to the water supply on Wall Street. In a note just released by a far more credible source of analytic information than anything coming out from Wall Street in the past 3 years: Stone McCarthy, we discover just why the cut to Q1 GDP is about to be magnified for Q2 (and quite possibly for the rest of the year). From SMRA: "According to Automotive News, Japan's big seven automakers have lost more than half a million units of domestic production. The most affected automaker is Toyota, which lost 260,000 units since the March 11 earthquake. How about the U.S.? Will U.S. economic output be affected by the supply disruptions to the Japanese auto manufacturers? The answer is unequivocally yes and the economic impact will be quite severe in April and for Q2 as a whole." There, it wasn't that difficult to admit the truth now, was it.

More from Stone McCarthy:

For example, in April alone, Toyota is now scheduled to produce 84,700 units in North America versus the previous pre-quake production forecast of 117,500 units, a 28% loss. Honda is expected to do worse. It's now expected to produce 58,100 units in April, which is down nearly 50% from the pre-quake production forecast of 108,500 units. Looking out further, you can see the downward adjustments made for May and June as well.

On the other hand, the Big Three U.S. automakers have made little adjustments to their forecasts. For Ford, there is no change between the pre-quake and post-quake forecast. For GM, the difference is -1%.

The differences can be seen in the two tables below, April 2011 (post-quake) and March 2011 (pre-quake figures).

Pre-quake, the seasonally adjusted motor vehicle assembly rate was projected to rise by 5% to an annualized rate of 9.3 million units in April from a projected 8.9 million units in March. Now incorporating the revised data, April's motor vehicle assembly rate is seen falling by 7.3% to 8.2 million units annualized. This will surely have a negative impact on motor vehicle output in the Federal Reserve's Industrial Production (IP) report, probably down 5-6% in April. In the past, such a loss in motor vehicle output has usually been associated with a sharp contraction in IP for that particular month

For Q1 2011, real motor vehicle output is projected at $340 billion, contributing about 1/2 percent to real GDP growth. For Q2, due to the supply disruptions out of Japan, real motor vehicle output is projected to be unchanged at $340 billion, thereby making no contribution to real GDP growth in the present quarter.

Another economic barometer that will be impacted by the Japanese auto supply disruptions is U.S. durable goods orders. It's difficult to accept orders when a factory is operating at limited capacity. Durable goods orders will also be impacted negatively in Q2 2011.

Granted all of this is beyond intuitive. Which is why nobody on Wall Street dares to acknowledge it. Yet they will. We are absolutely confident that Jan Hatzius, who while distracting the people with his Completely Arbitrary Index (CAI) is hard working on his next regime model: one which see full year 2011 US GDP at 1.5%, and one which also sees about $2 trillion in monetary stimulus over the next 12 months (now that fiscal stimulus is a thing of the past for the next several years).


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Fri, 04/15/2011 - 14:48 | 1173484 FOC 1183
FOC 1183's picture

Ear canal bleeding has been renamed to "Birinyi's Syndrome"

Fri, 04/15/2011 - 17:40 | 1174302 spiral_eyes
spiral_eyes's picture

"as keynes so correctly showed, broken windows, destroyed nuclear power stations, and perforated eardrums are good for the economy because they circulate money and raise aggregate demand."


i guess this is what happens when you misperceive creative destruction as just pure fucken destruction.


Fri, 04/15/2011 - 14:48 | 1173485 Tense INDIAN
Tense INDIAN's picture

Apple breaks important line support :

Fri, 04/15/2011 - 15:04 | 1173549 Id fight Gandhi
Id fight Gandhi's picture

So did google. Blew threw it in one day. It's bullish buy the dip.

NASDAQ up on the news.

Fri, 04/15/2011 - 14:51 | 1173490 The Axe
The Axe's picture

Computers control world financial markets...move on.

Fri, 04/15/2011 - 14:53 | 1173497 Robot Traders Mom
Robot Traders Mom's picture

Even with production dramatically dropping at Toyota, GM still can't flush their absurd inventories through dealer stuffing...

In an unrelated note on my son, Robot Tool, got out of the locker he was stuffed in, after school yesterday. He is smaller than the other kids so he gets picked on quite a bit. That and he looks like Michael Cera.


Fri, 04/15/2011 - 15:03 | 1173535 Id fight Gandhi
Id fight Gandhi's picture

Yeah trading in your old gas guzzler doesn't go well with $4 gas and selling it used don't get new buyers. No help with reasonably priced hybrids delayed from Japan and marked up.

Somehow this is all bullish. Tell me how.

Fri, 04/15/2011 - 15:38 | 1173683 SheepDog-One
SheepDog-One's picture

And dont forget, 'American' cars such as GM are full of Japanese parts too. Where does Apple expect to get all the parts for Chinese assembly? Japan trickles down to everything.

Fri, 04/15/2011 - 14:52 | 1173503 Cdad
Cdad's picture

Did Dianne Olick just say that Blight on America bank just layed off 1500 employees?  Did I hear that right?


Fri, 04/15/2011 - 15:10 | 1173543 Id fight Gandhi
Id fight Gandhi's picture

Yes it was news last night. It's bullish. Less demand for mortgages and they will focus on blah blah whatever. Buy BAC and profit.

Fri, 04/15/2011 - 15:42 | 1173719 SheepDog-One
SheepDog-One's picture

Less demand for mortgages means more demand for homeless jobless americans to purchase $9 burritos and $7 coffees, clean up with $75 BBY hand towels. 

Fri, 04/15/2011 - 14:56 | 1173507 bob_dabolina
bob_dabolina's picture

I could be wrong but I could see this being positive for someone, somewhere though haven't put any real weight  behind the thought.

For example, if the production/service for Toyota drops the demand might need to be picked up by Ford. Where is Ford going to get the parts for the cars with the supply disruption out of Japan? Well, that demand is going to need to be satisfied by supply from somewhere...maybe China, maybe Vietnam, who knows. But that could help those economies grow a little quicker.

There is going to be some kind of re balancing I would assume. I could be completely wrong who knows, it's just an idea.

Or some's Friday


Fri, 04/15/2011 - 15:03 | 1173532 TruthInSunshine
TruthInSunshine's picture

Japanese Honor System - if Japanese company is producing high value, highly proprietary component, they will only allow another Japanese firm to substitute in for them, under any conditions. It will not matter if no Japanese substitute supplier can be located or able to fill in.

Fri, 04/15/2011 - 15:06 | 1173550 cossack55
cossack55's picture


Counterfeit Morgans from China

Counterfeit Toyotas from VN

Fri, 04/15/2011 - 15:12 | 1173583 AG BCN
AG BCN's picture

maybe 30 years ago, but not now, it's possible a very small percentage of Ultra Nationalist CEO's could still be doing it.

Fri, 04/15/2011 - 15:08 | 1173556 AG BCN
AG BCN's picture

Could be good for the almost new Japanese car second hand market. I've worked in Automotive design for the past 14 years, the top level management is saying "get the parts from somewhere else" to which the engineers reply, "if only it was that easy"

Fri, 04/15/2011 - 16:21 | 1173920 citta vritti
citta vritti's picture

the advertising on my home team sports networks in NYC are all toyota, nissan, honda, etc., frequently sales (toyotathon!) to move inventory. If you can’t have the current year model, maybe it’ll help move those color tvs. 

Fri, 04/15/2011 - 16:23 | 1173948 Herman Strandsc...
Herman Strandschnecke's picture

Could be good for the almost new Japanese car second hand market. I've worked in Automotive design for the past 14 years, the top level management is saying "get the parts from somewhere else" to which the engineers reply, "if only it was that easy"

Its called cannibalism. Like when you come down in the morning and someone has stolen the head off your new BMW.

Fri, 04/15/2011 - 16:38 | 1174003 AG BCN
AG BCN's picture

10 years ago you could do that.

Fri, 04/15/2011 - 14:54 | 1173513 aint no fortuna...
aint no fortunate son's picture

I'm sure this weakness will just be transitory...

Fri, 04/15/2011 - 14:54 | 1173514 Siggy
Siggy's picture

Just got a call this morning from one our suppliers of Sony optical disks for medical. Told me that Sony decided to just close down a plant that was badly damaged and is not going to rebuild it. Get them somewhere else if you can, he said.

Fri, 04/15/2011 - 15:11 | 1173572 magpie
magpie's picture

Germany's "Got Talent" is having problems with the lack of recording media from Japan.

Not a tragedy IMHO

Fri, 04/15/2011 - 16:37 | 1173996 redguard
redguard's picture

As dry as the desert, good +1

Fri, 04/15/2011 - 16:48 | 1174062 knukles
knukles's picture

That's what they get for throwing away all those old Victrola marching song cylinders.

Fri, 04/15/2011 - 17:00 | 1174099 redguard
redguard's picture

As dry as the desert, good +1

Fri, 04/15/2011 - 16:58 | 1174104 redguard
redguard's picture

As dry as the desert, good +1

Fri, 04/15/2011 - 19:53 | 1174740 Moe Howard
Moe Howard's picture

Recording media is yesterday. Straight to SSD beatchez.

Sat, 04/16/2011 - 04:46 | 1175481 Pondmaster
Pondmaster's picture

SSD and U.S. programmable chip foundries - bit-cheez

Fri, 04/15/2011 - 14:59 | 1173520 Id fight Gandhi
Id fight Gandhi's picture

Best we use safe havens like Netflix and chipole.

I heard it on cnbc so it must be true. 1500 s&p this year no matter what.

Gold and silver, those are just speculation.

Fri, 04/15/2011 - 14:57 | 1173522 TruthInSunshine
TruthInSunshine's picture

The plant and shop floor blue collar superintendent guys down in Indiana (Subaru/Toyota), Ohio (Honda), Kentucky (Toyota), Tennessee (Nissan) aren't looking forward to spreading the news of total lack of inventory of critical components to the good ole' boys.

I will not be surprised to see 500k to 800k units taken out of the production pipeline just in the U.S. (maybe 2 million globally?) by end of FY11 - and then, what then?

A crushing economic event at a time when we can least afford it. Major shock waves.

Fri, 04/15/2011 - 15:06 | 1173559 Long-John-Silver
Long-John-Silver's picture

Don't forget replacement parts. I have visions of small home shops gearing up to make or rebuild now unavailable replacement parts.

Fri, 04/15/2011 - 15:10 | 1173567 cossack55
cossack55's picture


We gave them all those great TIFs and other deferrals to open their "send them the parts and let the stupid slaves try to put them together" assembly plants in the midwest.  And...and... our mayors and governors and everybody was flying over there and spending two weeks with hookers and drugs to get more of these great "slave pretend work places" so we the people would not freakin' hang them from the light poles. Gee.

Fri, 04/15/2011 - 15:03 | 1173529 Hephasteus
Hephasteus's picture

Ya but we are missing the real tragedy here. In those maiden lane other assets the fed holds. It's a bunch of yellow cake uranium which is now about as valuable as a health and beauty product that melts your face, pisses off the citizens and turns community organizers into swat team assemblers.

I forget how many pounds of yellow cake uranium Lehman had on the books it's been scrubbed from web.

Fri, 04/15/2011 - 15:01 | 1173538 Pepe
Pepe's picture

Outstanding fact gathering job, as usual. The main problem is that obviously the market is dissociated from the facts, and the predictions can only be based in withcraft,voodoo,the language of thiefs and truhans, shysters, swindlers,crooks, jesters and bufoons. The likes of Bernanke,Geithner,Blankfein,Summers,old man Greenspan, paulson,etc. And of course whoever is the master puppeteer for whom I only wish he or she may gather from the universe what he or she has given.

Fri, 04/15/2011 - 15:09 | 1173563 Id fight Gandhi
Id fight Gandhi's picture

VIX at 2007 levels as Japanese nuclear holocaust, defaulting eurozone countries, Mena wars and riots and big earnings misses from BAC, AA, GOOG are embraced and people buy stocks.

Nothing will ever stop this bull market.

Fri, 04/15/2011 - 15:09 | 1173564 JailBank
JailBank's picture

How much will the FED need to print to boost GM stock prices once the parts come up short and vehicle production comes to a near hault?

Fri, 04/15/2011 - 15:14 | 1173581 cossack55
cossack55's picture

Rather than "parts come up short and vehicle", I think they have a larger problem with "parts come off vehicle while driving".

Fri, 04/15/2011 - 16:55 | 1174091 knukles
knukles's picture

Hold on, that's not fair.  It snowed in parts Arkansas last night so that suff about them Japanese don't count no more than my pappy's one tooth.

Fri, 04/15/2011 - 15:11 | 1173573 DoctoRx
DoctoRx's picture

Weak GDP bullish for gold

Fri, 04/15/2011 - 15:18 | 1173595 virgilcaine
virgilcaine's picture

ZH coverage of GOOG ?  crickets..chrp


-$ 45 or 8%

Fri, 04/15/2011 - 15:40 | 1173695 SheepDog-One
SheepDog-One's picture

Damn...well no problem, promptly swept under the rug.

Fri, 04/15/2011 - 19:57 | 1174754 Moe Howard
Moe Howard's picture

Speaking of chrp... GM closed at 30.24 - 14 cents over the all time low since this issue. I guess those randomly disconnecting steering wheels haven't caught the public fancy as much as Toyota's random acceleration feature.

Fri, 04/15/2011 - 15:20 | 1173605 tiger7905
tiger7905's picture

Thoughts on how the likely upcoming Belarus devaluation may be different than if/when something similar happens in North America.

Fri, 04/15/2011 - 22:40 | 1175153 whatsinaname
whatsinaname's picture

thats Belarus (and Ukraine) still paying for Chernobyl. Belarus still suffers 25 years later.

Fri, 04/15/2011 - 15:24 | 1173627 virgilcaine
virgilcaine's picture

I feel a red close coming on..

Fri, 04/15/2011 - 15:32 | 1173666 treemagnet
treemagnet's picture

According to the prophecy, red closes are not acceptable. 

Fri, 04/15/2011 - 15:40 | 1173703 SheepDog-One
SheepDog-One's picture

Maybe for fantasyland equities, certainly not for gold its up $16. Oil busting thru its recent top too.

Fri, 04/15/2011 - 15:22 | 1173629 mt paul
mt paul's picture


nutz and bolts...

honorable hedge bytches

Fri, 04/15/2011 - 15:31 | 1173659 Yardfarmer
Yardfarmer's picture

BOJ now an ATM for the Federal Reserve. trillions of yen paper transferred to FRNs. Japs now net sellers of T-bills. shadow global QE3 in place as they "end" QE2

Fri, 04/15/2011 - 15:51 | 1173758 Yen Cross
Yen Cross's picture

 I like that idea. If crude pulls back short term I'll add to (F) . Then again my core position starts @ 1.50.

Fri, 04/15/2011 - 16:06 | 1173832 Miles Kendig
Miles Kendig's picture

Durable goods orders and the CAI will be properly adjusted to incorporate the high volume of keyboard replacement as a result of excessive use of the F12 function at 33 Liberty and the Marriner-Eccles building  ...

Fri, 04/15/2011 - 16:05 | 1173852 cabernet
cabernet's picture

Not to worry, the Commerce Department will make the numbers look nice! Remember the main stream economists like to look at durable goods production x/ autos.


Fri, 04/15/2011 - 16:13 | 1173892 Dejean Splicer
Dejean Splicer's picture

Not to mention the ground in Japan is heaving. No your eyes are not playing a trick on you. It's liquefying before your own eyes.

Fri, 04/15/2011 - 23:01 | 1175194 tom a taxpayer
tom a taxpayer's picture

Thanks. Amazing stuff. In the 3rd video, the flapping asphalt slabs were like the sidewalk was talking.

Fri, 04/15/2011 - 16:20 | 1173908 samsara
samsara's picture

 This kinda confirms what Mike Ruppert was saying. 

He said that the bottom is gonna fall out because of this.

 We Have Until July at Latest, 

 Even a Caveman Can See It


Well this is cool btw.  Mike Ruppert putting a plug in for ZeroHedge.   9:30 into the talk he quotes ZeroHedge.  ("He's doing a great job btw)
Fri, 04/15/2011 - 16:36 | 1173993 Dejean Splicer
Dejean Splicer's picture

I wish I could afford to become a member on the collapse site. Pricey ordeal.

In the mean time I'll keep my eye on things from my catbird seat.

Don't leave home without it.

Sat, 04/16/2011 - 05:21 | 1175489 squexx
squexx's picture

$100/year is PRICEY?!? What do you do, work at McDonald's?!?

Fri, 04/15/2011 - 16:59 | 1174096 knukles
knukles's picture

Best way to hedge any disruptions from Japan is to be long of potassium iodide that they're gonna be lookin' for from all over hell and high water.

Got pills?

Fri, 04/15/2011 - 19:20 | 1174661 Kickaha
Kickaha's picture

Why not form a company and manufacture them?

Seems like nobody wants to do anything but speculate with capital these days.

Fri, 04/15/2011 - 17:21 | 1174206 russwinter
russwinter's picture

From my Actionable site yesterday;


The big story impacting  US economic activity  that originally came after the Japanese earthquake seems to have been completely forgotten by the video console market playas and Riskloves.  US and global vehicle output is collapsing.    Not is about to collapse in the subjunctive tense, but is collapsing in the present tense.   As a refresher IHS Automotives was quoted back on March 24:  “If parts plants affected by the quake don’t return to operation within six weeks, global auto output may drop as much as 100,000 vehicles a day.  The industry produces 280,000 to 300,000 vehicles daily  The third week of April could mark the start of more severe production slowdowns.” IHS said.   The industry may lose 1.2 million to 1.8 million vehicles by then and almost 3 million units within eight weeks, with about half of the losses coming from assembly plants outside of Japan.

Well guess what video gamers, it is now mid-April and parts supply is so disrupted that production will be lost well into the third quarter.  On Monday IHS updated their previous view and now forecasts that five million fewer vehicles could be produced globally this year. Per the WSJ, Toyota will idle American plants for five of the next seven work days starting April 15.  Honda suggests they face similar disruptions and so far has been at half production.

Only a Kool Aid drinking moron would assume that the production problems will be limited to Japanese manufacturers.  Ford warns in an SEC filing made yesterday that “we now expect that beginning in the last week of April and continuing into May, certain of our operations in the Asia-Pacific region (including certain of our joint venture operations) will be affected by shortages of components and vehicle kits as a result of the events in Japan.”  



Sat, 04/16/2011 - 00:44 | 1175358 TruthInSunshine
TruthInSunshine's picture

+ 1

Outstanding analysis.

Fri, 04/15/2011 - 19:22 | 1174667 Pepe
Pepe's picture

"The VIX fell as much as 8.3% to 14.92 shortly after the market opened, its lowest intraday reading in two months. Low levels tend to be associated with calmer markets. The measure ended the week with three straight declines"

The market is like a placid lake.But Godzilla is lurking in the depths....

Fri, 04/15/2011 - 20:02 | 1174755 Mentaliusanything
Mentaliusanything's picture

This thing is a creaping Death - Ford Australia on slowdwn and Toyota in Altona in denial

Its the Fuel injection parts that are missing stupid. No part = no rotation of the crankshaft.

Wonder how ya pay a mortgage on half a days pay.

Fucking big mother of a black swan this one

Fri, 04/15/2011 - 20:38 | 1174823 virgilcaine
virgilcaine's picture

Once we get past the bowing, & formailities they will clean this up in no time.

Fri, 04/15/2011 - 20:47 | 1174850 The Heart
The Heart's picture

Well...not if this is an indication of where this is all going.

Japan Plant Fuel Melted Partway Through Reactors: Report:

Fri, 04/15/2011 - 22:47 | 1175173 Wakanda
Wakanda's picture

If "...this latest outbreak of bacillus idioticus is localized (to below Canal street)...", then my favorite Chinese bakery will be affected.  I better give up on those too sweet pastries with the weird egg in the center.

Sat, 04/16/2011 - 02:08 | 1175413 Youri Carma
Youri Carma's picture

- Japan shakes semiconductor industry - Wafers, batteries, some chemicals in short supply

- Reuters Poll Indicates Up To 60% Of Japanese Companies Impacted By Production, Supply Chain Disruptions

- Japan turmoil disrupting U.S., Fed survey finds

- Japan power shortages to weigh on growth - One analyst predicts as much as 1% could fall off GDP from cuts

- Michael Ruppert: We Have Until July at Latest Even a Caveman Can See It COLLAPSENET

Sat, 04/16/2011 - 13:37 | 1176062 PulauHantu29
PulauHantu29's picture

Please! ...don't confuse me with the Facts!

Do NOT follow this link or you will be banned from the site!