The Japanese stock market has closed down about 42% for the year. The US markets may do a little better than that, off by 38% or so. For people with money in the market, the distinction may not mean much.

A great deal of the economic trouble in Japan is that its exports are falling rapidly. Since they are such a critical part of the country’s economy, as the global economy gets worse Japan will continue to suffer.

Recent estimates of how bad things will be in Japan may have been greatly understated. According to Bloomberg, "Japan’s economy will probably shrink at an annual 12.1 percent pace this quarter, the sharpest drop since 1974, as exports collapse, Barclays Capital said." Previous estimates have been in the 4% to 5% range.

Japanese companies are closing or idling production facilities at a rapid pace. Even the leaders of the export economy such as Toyota (TM) and Sony (SNE) are in deepening trouble.

The situation in the US may not be terribly different from Japan’s, which means estimates of how much American GDP will fall are probably understated. According to the Commerce Department, exports as a percentage of the economy were more than 11% in 2006. That number was probably up in 2007 and this year. In 2002, the figure was only 9.6%.

The total value of US exports is being decimated due to the falling value of the dollar and the global recession. That sits on top of the already frightening drop in consumer spending inside American borders. The two add up to a number which is much worse than most economists are predicting.

The feckless Alan Greenspan recently said that he sees GDP dropping faster than some estimates based on economic numbers from October. He may be right for once.

The recession in the retail industry has turned into a depression. There are credible estimates that 25% of retailers in the US could file for bankruptcy in the next two years. Experts say 72,000 retail outlets could close in the first half of 2009. That could knock out more than a million jobs.

At this point it is assumed that some sectors of the economy will hold up. Tech belongs on that list. So does the defense industry. But, other large industries are posting results that are getting worse with each passing day. That would certainly include autos, hospitality, and media. Each employs millions of people. Each has revenue which is falling faster than what was forecast just a quarter ago.

Estimates for US Q4 GDP and projections for early next year are way to optimistic.

Douglas A. McIntyre

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