So What’s the Big Deal with Japan Anyway?

Not much according to WWD.  Sufficed to say, when I opened my mailbox on Wednesday and saw the “Japan Unlikely to Dent Global Economy” headlining cover story, I was left wondering if Evan Clark and Alexandra Steigrad (the editors), live on another planet, or if the “un” was an unfortunate uncaught typo. Surely, it is undeniable that a nuclear disaster, the utter devastation of an area densely populated by manufacturing facilities will cause disruptions in the supply chains of many industries, the affects of which will be felt clear around the world (the Motor City for example). So, how is it possible that the global economy won’t be affected?  According to Evan and Alexandra, Japan has a very developed economy (unlike Haiti for example) and the massive rebuilding to come will surely lead to increased employment and economic stimulus on many levels.  But hey, in order to buy an argument, it has to be made by more than one person.  So, I went in search and found it from leading global investment management firm, Alliance Bernstein.

In its  US Pespectives newsletter published March 18, 2011, AB states that although “rising oil prices and disaster in Japan have added new risks to the global economy in 2011, we have not changed our forecast growth of 3.8% for this year.”.  Why?  Because apparently it is too soon to assess the global impact that Japan’s destruction will have on the U.S. market given we only export $5 billion a month, equivalent to 4.5% of total US exports to the Asian country.  The impact on Japan’s exports has also been brought up as a major concern. However, how quickly operations can be restored will be key in determining the long range economic impact on global industries with significant ties to Japan  (especially automotive).

So, bottom line: forget Japan- at least until we have more information. What we should be focusing on is the increasing cost of fuel it poses the most threat to the U.S. economy.   Having increased in price by approximately $.50 a gallon, the average driver is now paying $30.00 more per month to drive the same distance. While this amount may seem trivial, it actually represents 12% of monthly savings.  History shows that when energy prices spike, consumers do not change their behavior swiftly. Rather they carefully assess the environment and once savings accounts start to suffer, they pull back discretionary spending. What tends to be the first to go when non-essentials are cut out of the budget? A trip to the mall, that’s what.  Ugh. I guess we should put a hold on blaring “Happy Days are Here Again”, at least for a while.  What a shame, just as I was breaking out my shorter spring skirts so chic for dancing……

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