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Japanese Earthquake Gets Lots of Blame for Slowdown

The Fed's beige book on economic conditions showed growth slowing, and when it came to the manufacturing sector, the Japanese earthquake got the most blame.

Alan Ruskin, global head of G-10 foreign exchange strategy at Deutsche Bank, said in a note that analysts looking to find anecdotes on how much Japan supply chain disruptions hurt the U.S. economy will find 25 references to Japan in the beige book, and 80 percent of those reference the auto sector.

Economists have been pointing to the disruptions as a reason why the economy is probably in a temporary soft patch, not a full blow slowdown. They have also blamed higher energy prices for the pull back by business and the consumer, and so did the Fed.

The Fed also pointed to elevated food prices and said that unfavorable weather in some parts the country impacted consumer spending.

The auto sector has been the most noticeably hit by the Japan effect as auto makers pulled back on production, and economists have admitted it's tougher to pinpoint the impact on other parts of the economy. The beige book references also include the tech sector, and there is one mention of the petro chemical industry.

Deutsche Bank economist Joseph LaVorgna has said that the auto sector impact could have contributed as much as a 1.5 percent decline to Q2 GDP.

"It is reasonable that Japan can be held accountable for a meaningful part of that deceleration, which is just one important reason why the Fed is not going to be trigger happy in leading the market to think it will expand its balance-sheet beyond QE2, without much firmer evidence of a sharper slowing that goes well beyond transitory distortions," Ruskin wrote.

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