Deutsche Bank Downgrades The Economy After It Finally Realizes That The Japan Earthquake Will Not Boost Growth

When we discussed yesterday's miss in April Industrial Production, and noted the plunge in the vehicle assembly rate, we merely said what anyone with half a brain would have seen as glaringly obvious ever since the Japan earthquake in March. "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 we read in Reuters precisely what was predicted less than 24 hours ago: "here are fears auto production, which added 1.4 percentage points to growth in U.S. gross domestic product in the first three months of the year, may now be a drag." And irony of ironies: "Some financial institutions, including Deutsche Bank, are already trimming their second quarter GDP estimates." But, but, wasn't it Deutsche Bank's very own Joe LaVorgna who first said that the disaster would actually be beneficial for world GDP, and subsequently that the world is "overreacting." Guess not: "Before Tuesday's industrial production data, Deutsche Bank had been expecting economic growth to accelerate to a 3.7 percent annual pace during this quarter after a sluggish 1.8 percent rate in the January-March period. "We lowered it by half-a-percentage point to 3.2 percent. We are going for a more conservative narrowing because other manufacturing activity is still expanding despite the supply disruptions in the auto sector."  And there you have that very dirty NC 17 three word phrase: "Wall Street Strategist."

More on why for the first time it will be Goldman chasing with an economic downgrade after Deutsche Bank instead of the other way around:

"This is slowing industrial production and is going to subtract anywhere from half-a-percentage point to three-quarters-of-a percentage from the current quarter estimate," said Carl Riccadonna, a senior U.S. economist at Deutsche Bank in New York.

The drop in auto production was the most tangible piece of evidence so far to suggest the impact of the devastating Japanese earthquake on the U.S. economy could be a bit larger than initially thought.

Federal Reserve Chairman Ben Bernanke last month saw a "moderate and temporary" effect on the economy. Economists believe the supply chain disruptions will continue through June, with the situation starting to ease at least by August.

The magnitude of the drop in vehicle production last month caught many by surprise, given the Institute for Supply Management's manufacturing survey for April had shown little evidence of supply chain disruptions.

And it gets even more ironic:

In addition, the government's employment report showed motor vehicle and parts payrolls increased 2,900 in April.

Auto plant shutdowns as companies scale back production to deal with the shortage of parts has been blamed for some of the recent spike in new claims for unemployment benefits.

And the supreme irony:

There is a risk that economists may be underestimating the impact of the Japanese earthquake on the economy.

"It's hard to get a firm read of what is happening here. The problem is we don't have a lot of similar periods to compare to, so have to go back to the Kobe earthquake in the mid-90s," said Deutsche Bank's Riccadonna.

Um, so we have one Deutsche Bank guy telling us the market is understimating the impact, back in March...

Following an earthquake and tsunami that has devastated Japan, fears of a nuclear crisis are now sending stocks lower. Economist Joe LaVorgna, however, thinks the markets are "overreacting."

At least they are consistently inconsistent - comparable to Goldman being both bullish and bearish on the EURUSD at the same time. But luckily we can all, even the Fed, certainly agree that whatever happens, it will all be the weather's fault.