Nearly three weeks ago, on May 17, Zero Hedge, when analyzing the complete collapse in car and thus Industrial production made the following observations: "The immediate impact: the drop in the industrial production already seen, but the bulk of it due to delayed aftereffects will likely impact the May number, as the follow through from the Japanese supply chain halt starts ringing a loud alarm bell across Wall Street. Of course, this is another thing that all those calling for a 4% H2 GDP could have absolutely not foreseen (and in fact it was originally supposed to be positive for the economy, eh Deutsche Bank?). Expect to see drastic downward cuts to May Industrial Production and next, to Q2 GDP." Fast forward to today, when, in an example of poetic irony, none other than Deutsche Bank's grossly overpaid economists also known as Shaman witchdoctors in less than polite circles, have just come out with a note titled: "Quantifying the impact of autos on Q2 real GDP" in which they, gasp, discover that "a near 30% decline in motor vehicle production is consistent with roughly a two full percentage point drag on Q2 real GDP. In our forecast, we are assuming a decline of around 1.5% because we think that we might see a small bounce in June production that will push the quarterly decline in motor vehicle production to something closer to -20%." Well, better late and always cluelessly wrong, than never... and still cluelessly wrong.
From Deutsche Bank
Quantifying the impact of autos on Q2 real GDP
Commentary for Tuesday: Motor vehicle production will weigh significantly on output this quarter, and the risk is the impact could be even greater than what we have been assuming. As we went through the May employment report in more detail, we observed that motor vehicle hours worked, which have an 85% monthly positive correlation with motor vehicle production in the Fed’s data, were down 3.1%—this follows a -3.8% decline in April. A regression of motor vehicle hours worked, which combines motor vehicle employment and the length of the motor vehicle workweek, suggests motor vehicle production fell -4.0% last month. Following an -8.9% decline in April motor vehicle production, the level of production so far in the quarter appears to be down nearly -29% at an annualized rate relative to Q1. If sustained in June, this would be the largest drop on record, bigger than the -23% decline experienced in Q1 2009 during the height of the economic downturn. As shown on the chart below, a near 30% decline in motor vehicle production is consistent with roughly a two full percentage point drag on Q2 real GDP. In our forecast, we are assuming a decline of around 1.5% because we think that we might see a small bounce in June production that will push the quarterly decline in motor vehicle production to something closer to -20%. If there is any good news here, it is that the negative hit to production is due to Japanese-related supply disruptions—they turned out to be much more serious than what we had anticipated. Since this production cutback was due to a natural disaster, and not economic fundamentals, this quarter’s soft patch should prove temporary. If so, we should see the manufacturing data improve markedly over the next quarter, perhaps more than recouping the entire Q2 decline. Moreover, an expected snapback in production could temporarily distort jobless claims to the high side, because companies that normally retool their factories in July ahead of the model year changeover will do so in June instead. The seasonal factors on initial jobless claims will not anticipate this, so we could see some elevated readings over the course of this month. Conversely, when the seasonals anticipate the shutdown in mid-July, claims could print abnormally low.