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).