The March earthquake and tsunami in Japan disrupted U.S. production in the auto and a few other manufacturing industries, which reduced second-quarter growth but probably increased growth in the third quarter, as idled production started coming back on line and extra shifts were added to bring inventories back to normal levels. Meanwhile, conditions continue to fare moderately worse in the Twelfth Federal Reserve District than in the nation as a whole, with unemployment rates in many District states remaining well above the national unemployment rate. We expect continued sluggish growth for the next several quarters, gradually picking up to a more normal recovery pace in 2013 and beyond. We also see inflation moderating over coming quarters as the weak labor market keeps wages low and the decline in oil prices puts downward pressure on energy and transportation costs.