March 24, 2011

Japan factories shutdown starting to affect global production

According to Bloomberg, as of this moment there are 31 companies (see full list below) that have experienced temporary or permanent plant shut downs in earthquake-stricken Japan, resulting in the closure of 150 different facilities.
Aside from the obvious implication when it comes to japanese growth, this can have a serious butterfly effect all over the world as the latestest news from the USA are showing:


Here’s how it’s playing out: Japan still is a major supplier of parts to U.S.-based car factories. It isn’t just Japanese car brands, like Toyota and Honda, which both announced they would temporarily halt production at some plants in the U.S. General Motors has been impacted by the problem, notably furloughing workers in New York state and Louisiana.

It doesn’t take a supply disruption of many car parts to mean that a auto maker has to halt output for an entire plant, at least temporarily. You can’t, for instance, send new cars to the dealership without speedometers installed, even though the rest of the car maybe perfect.



There are two immediate knock-on effects of these production halts. First is that workers are laid off temporarily and have to rely on unemployment insurance instead of full pay. Second, suppliers of all the other parts you need to make a car (those not from Japan) find they have to slowdown production — laying off or furloughing workers.


In short, you get a cascading negative economic spiral. (In particular, look for rising new claims for unemployment insurance.) What happens after that and how long it will last is the bigger question.







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