US auto sales in the wake of Fukushima Itlooks like pent-up demand for Japanese cars has MoM change in SAAR auto sales, millions of units caught up, SAAR million units 1.0 10 05 8 . § : 00 U.S. and other T -0.5 6 se a 0 B Japan a Japan a? aa BUS+Other 4 -1.5 Jdan-11 Apr-11 Jul-11 Oct-11 Jan-12 4 2000 2010 2011 2012 Source: BEAW ards, DB, J.P. Morgan Private Bank. Box indicates impact Source: DB, J.P. Morgan Private Bank. Shadings indicate Cash for of Japanese earthquake, Clunkersand Japanese earthquake, respectively So where does that leave the US payroll and growth picture? The weakness in the payroll report was almost entirely concentrated in retailing. Net of distortions and seasonal adjustments, it looks like payroll growth is running at 150-175k per month, and GDP growth is running at a 2.25% trend pace, both below prior recoveries. While 2.25% is a barn-burner compared to Europe, it only corresponds to a modest improvement in employment. That’s why 2013 US fiscal policy is so important: this is not a recovery that can withstand much tighter fiscal conditions. So, how tight is US fiscal policy supposed to get next year? Very, if you look at what is supposed to happen according to current law. In the chart, we show the annual change in the budget deficit over the last 25 years. The impact of all provisions scheduled to expire and kick in during 2013 would be very large. But if Congress and the President elect to extend current tax rates, retain lower payroll tax rates and extended jobless benefits, etc, the adjustment would not be as big, and only reflect expiration of Recovery Act provisions, the recently passed Budget Control Act, and some other smaller provisions. There are of course plenty of permutations in between. Wide range of outcomes for 2013 austerity Policies set to expire or take | Fiscal Drag (% Change in cyclically-adjusted federal deficit, % of potential GDP effect under current law of 2013 PGDP) : Fiscal stimulus Sepierier Quemaie on 0.4% 47 (Di