Wednesday, May 25, 2011

USA Economy Damaged More Than Expected by Japan Earthquake

Japan earthquake, tsunami, & nuclear crisis pushed Japan into a recession as of quarter ending March 31, 2011

The Japanese earthquake and tsunami in March appears to have damaged the US economy much more than expected and could set back hopes for a robust recovery.

A series of analysts have recently cut their second-quarter gross domestic product projections, based in large part on impact that the Japan disaster is having on the automotive industry.

Factory shutdowns and ensuing problems with getting parts have slowed vehicle production, a move likely to drive up prices, increase unemployment and slow consumer spending, according to recent projections from economists at Goldman Sachs and Deutsche Bank.

Japan is having an impact across a swath of the economy, but is being felt most acutely on vulnerable Detroit automakers, whose business was just beginning to recover when the disaster hit March 11.

"As expected, the hardest-hit sector of the economy appears to be motor vehicle production," Goldman Sachs economist Andrew Tilton wrote in a research note for clients. "Shortages in supply of the key components—notably auto microcontrollers—have led to production shutdowns at US facilities, particularly those owned by Japanese manufacturers."

Consequently, Goldman has cut its second-quarter GDP estimates to 3.0 percent - growth for sure, but below trend and off hopes that the consensus had as the year progressed.

Steve Liesman of CNBC takes a look at what's behind the slowdown of industrial production