Weak U.S. growth tied to Japan
BOB MOON: We capped last week with the disappointing news that our economic growth in the U.S. has slipped back to anemic. Today, we have a better idea why, as the picture comes slowly into focus. Some leading financial analysts are putting a big share of the blame on the big March earthquake and tsunami in Japan.
We’ve got Rod Smyth on the line with us now. He’s chief investment strategist at Riverfront Investment Group. So our GDP comes out last week and I was scratching my head — why is the recovery slowing down again? And now there’s this pointing to the Japan ripple effect. Minus Japan, how strong is our recovery?
ROD SMYTH: Well even minus Japan you have, I think, the issue of the spike that we saw in gasoline prices which took the wind out of the consumers sails a little bit. But quite a lot of it I think is the global effect of both Japan and indeed China’s slowing.
MOON: And specifically, why are we still feeling these effects?
SMYTH: First of all, they obvious on that the major earthquake and tsunami shut down parts of Japan which were key to production, but very critically, the world in the last 20 years has moved to an incredibly tight supply chain management system. And so any little kink in the chain and very few people have enough inventory. And so you get bottlenecks in production building up.
MOON: And I hear a lot of it is about the micro chip — a shortage of these circuits that go in everything from cars to iPads?
SMYTH: Japan is one of the masters of making things smaller and smaller. And so, to the extent that Japan is unable to produce enough of them, yes it disrupts everybody. But the world will quickly figure out the issues of supply chain. Actually we have been buying and increasing our investment in Korea because Korea’s capable of making a lot of this stuff, and if Japan can’t bring this stuff back online you’ll find Korea will boost up pretty quickly.
MOON: Rod Smyth with Riverfront Investment Group. Thanks for joining us.
SMYTH: You’re very welcome.
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