Japan: The Achilles' Heel of the U.S. Economy in Q2
But what impact did Japan’s twin disasters have on the U.S. economy?
I depicted Markit’s composite PMI for Japan against U.S. total imports from Japan, with the latter lagging by one month. It is evident that approximately USD4 billion in imports was shaved off in the first month after the disasters and a total of more than USD10 billion thus far.
Sources: FRED; Markit; Plexus Asset Management.
If I assume that the lower imports from Japan have not been replaced by other goods and services, the lower imports of USD10 billion plus amount to around 0.9% of total retail sales in the U.S. in the second quarter.
The impact of Japan’s disasters on U.S. retail sales is clearly evident in the following graph, in which the month-on-month retail sales are depicted against Japan’s manufacturing PMI.
Sources: FRED; Markit; Dismal Scientist; Plexus Asset Management.
My conclusion is therefore that the fallout of Japan’s twin disasters is responsible for most of the disappointing economic data of the second quarter, whether it be GDP growth, employment or retail sales.
A very interesting observation is that when the U.S.’s imports from Japan are compared to those of the same month a year ago, they track my calculated GDP-weighted ISM PMI (manufacturing and non-manufacturing combined). The PMI currently points to further weakness in U.S. imports in July compared to a year ago. No wonder Japan is so anxious to lower the external value of the yen!
Sources: ISM; FRED; Plexus Asset Management.
Now that the U.S. economy has got the Japan twin disasters behind it, with Japan recovering, it raises the question of whereto now. As you might have gathered from the graphs I have presented, the GDP-weighted ISM PMI employment index in July dropped while Japan’s PMIs headed higher. This is serious cause for concern. Was it as a result of the impasse on the U.S. debt issue or is the worsening situation in Europe catching up with the U.S.? Is that not what is behind the extreme volatilities in the markets? The U.S.’s economic statistics for July are likely to be awful but August’s manufacturing and non-manufacturing PMIs hold the key to further direction in financial markets.
What Are Weighted Graphs - News
As you might have gathered from the graphs I have presented, the GDP-weighted ISM PMI employment index in July dropped while Japan's PMIs headed higher. This is serious cause for concern. Was it as a result of the impasse on the US debt issue or is the
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