Unconventional Wisdom - Remember 2009 :: Macquarie Research,

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Unconventional Wisdom
Remember 2009
Event
 Japanese manufacturing production is poised to return to normal a little earlier
than previously expected.
Impact
 An earlier than expected return by Japanese manufacturers would be a
crucial development for the global economy, especially for the motor vehicle
industry.
 Industry forecasts point to a large jump in US motor vehicle production in Q3.
To some extent this would be a repeat of Q3 2009 when the bounce in the US
auto sector played a key role in breaking the recession.
 Obviously this will be dependent on a recovery in the Japanese supply chain.
Provided this takes place then the bounce in motor vehicle production in the
US, together with recovery in Japan, has the potential to break the gloom
about manufacturing in both the US and around the world.
Analysis
 Several important Japanese manufacturers are now pointing to an early
resumption of full production. Rather than late 2009, some companies now
anticipate that normal production will be possible in Q3.This will be particularly
important for the motor vehicle industry and not just in Japan.
 US motor vehicle companies were planning a significant lift in production in
the current quarter. These plans were wrecked by the March earthquake in
Japan that hit Japanese manufacturers very hard and badly disrupted the
supply chain of vital parts into the US. As a result, motor vehicle production
decreased in Q2 rather than increased.
 So the planned increase in US motor vehicle production has been pushed into
Q3. Together with the catch up from the unexpected production losses in Q2
the increase in production could be extremely strong.
 In Q3 2009 there was a huge bounce in US motor vehicle production. The
positive gap between demand and production eventually became so large that
US auto companies had to respond with a production surge. The cash for
clunkers scheme also encouraged faster production. While motor vehicles
was not the only manufacturing sector that boosted production and broke the
recession, it certainly made a vital contribution.