Recovery without Hiring, United States Trade, Euro Zone Survival Risk and World Economic Slowdown
Carlos M. Pelaez
© Carlos M. Pelaez, 2010, 2011, 2012
Executive Summary
I Recovery without Hiring
IA Hiring Collapse
IB Labor Underutilization
II United States Trade
IIA Trade Account
IIB Import and Export Prices
III World Financial Turbulence
IIIA Financial Risks
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender of Last Resort
IIIE Appendix Euro Zone Survival Risk
IIIF Appendix on Sovereign Bond Valuation
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendix I The Great Inflation
V World Economic Slowdown. The JP Morgan Global Manufacturing & Services PMI™, produced by JP Morgan and Markit in association with ISM and IPFSM, rose to 53.0 in Dec from 52.0 in Nov, indicating expansion at a faster rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9032). This index is highly correlated with global GDP, indicating continued growth of the global economy for nearly two years and a half. The US economy drove growth in the global economy in Dec. The HSBC Brazil Services Business Activity Index of the HSBC Brazil Services PMI™, compiled by Markit, rose from 52.6 in Nov to 54.8 in Dec while the HSBC Brazil Composite Output Index rose to 53.2 in Dec (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8999
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9007). The table “World-Wide Factory Activity, by Country,” of Real Time Economics produced by WSJ Research and published in the Wall Street Journal on Jan 3 (http://blogs.wsj.com/economics/2012/01/03/world-wide-factory-activity-by-country-21/tab/interactive/) shows only nine countries with manufacturing indexes above 50 in Dec: Australia (50.2), Canada (54.0), India (54.2), Japan (50.2), Russia (51.6), Saudi Arabia (57.7), Switzerland (50.7), Turkey (52.9) and the US (53.9). Andre Loes, Chief Economist, Brazil, at HSBC, finds strength in private-sector services at 53.7 in IVQ2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8999
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9007). The HSBC Brazil Manufacturing PMI™, compiled by Markit, improved slightly from 48.7 in Nov to 49.1 in Dec, indicating the weakest deterioration in seven months of decline of manufacturing business (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8982
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8979). The rate of declining of new manufacturing orders was the weakest in seven months. Both internal demand and foreign orders fell in Dec. Andre Loes, Chief Economist, Brazil at HSBC, finds improvement at the margin because of three consecutive months of increases in the PMI, suggesting that the worst conditions have already occurred (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8982
http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8979).
VA United States. The Manufacturing ISM Report on Business® purchasing managers’ index jumped 1.2 percentage points from 53.9 in Nov to 52.7 in Dec, indicating continuing growth for 29 consecutive months at a faster rate of change (http://www.ism.ws/ISMReport/MfgROB.cfm). New orders, which are an indicator of future business, rose 0.9 percentage points, from 56.7 in Nov to 57.6 in Dec, indicating growth at a faster rate. The employment index gained 3.3 percentage points from 51.8 in Nov to 55.1 in Dec, indicating growth at a faster rate of change. Prices paid or costs of inputs rose 2.5 percentage points from 45.0 in Nov to 47.5 in Dec, which is the third reading below 50 since May, indicating decline at a slower rate. The Nonmanufacturing Purchasing Managers’ Index of the Institute for Supply Management increased 0.6 percentage points from 52.0 in Nov to 52.6 in Dec, indicating growth at a faster rate (http://www.ism.ws/ISMReport/NonMfgROB.cfm). The Business Activity/Production Index/ was 56.2 in Dec, unchanged from 56.2 in Nov, indicating growth at the same rate. Nonmanufacturing activity has been growing in the US during 29 consecutive months. The index of new orders increased 0.2 percentage points from 53.0 in Nov to 53.2 in Dec, signaling growth at a faster rate. The employment index rose 0.5 percentage points from 48.9 in Nov to 49.4 in Dec, indicating contraction at a slower rate. The prices paid index fell 1.3 percentage points from 62.5 in Nov to 61.2 in Dec, indicating growth at a slower rate. New export orders fell 4.5 percentage points from 55.5 in Nov to 51.0 in Dec while imports increased 5.5 percentage points from 48.5 in Nov to 54.0 in Dec.
Table USA, US Economic Indicators
| Consumer Price Index | Nov 12 months NSA ∆%: 3.4; ex food and energy ∆%: 2.2 |
| Producer Price Index | Nov 12 months NSA ∆%: 5.7; ex food and energy ∆% 2.9 |
| PCE Inflation | Nov 12 months NSA ∆%: headline 2.5; ex food and energy ∆% 1.7 |
| Employment Situation | Household Survey: Nov Unemployment Rate SA 8.6% |
| Nonfarm Hiring | Nonfarm Hiring fell from 64.9 million in 2006 to 47.2 million in 2010 or by 17.7 million |
| GDP Growth | BEA Revised National Income Accounts back to 2003 IIIQ2011 SAAR ∆%: 1.8 First three quarters AE ∆% 1.2 |
| Personal Income and Consumption | Nov month ∆% SA Real Disposable Personal Income (RDPI) 0.0 |
| Quarterly Services Report | IIIQ11/IIQII SA ∆%: |
| Employment Cost Index | IIIQ2011 SA ∆%: 0.3 |
| Industrial Production | NOV month SA ∆%: 0.2 |
| Productivity and Costs | Nonfarm Business Productivity IIIQ2011∆% SAAE 2.1; IIIQ2011/IIIQ2010 ∆% 0.9; Unit Labor Costs IIIQ2011 ∆% -2.5; IIIQ2011/IIIQ2010 ∆%: 0.4 Blog 12/04/11 |
| New York Fed Manufacturing Index | General Business Conditions From 0.61 Nov to Dec 9.53 |
| Philadelphia Fed Business Outlook Index | General Index from 3.6 Nov to 10.3 Dec |
| Manufacturing Shipments and Orders | Nov New Orders SA ∆%: minus 1.8; ex transport ∆%: 0.3 |
| Durable Goods | Nov New Orders SA ∆%: 3.8; ex transport ∆%: 0.3 |
| Sales of New Motor Vehicles | Jan-Nov 2011 11.532 million; Jan-Oct 2011 10.444 million; Jan-Nov 2010 12.28 million. Nov SAAR 13.62 million, Oct SAAR 13.25, Nov 2010 SAAR 12.28 million Blog 12/04/11 |
| Sales of Merchant Wholesalers | Jan-Nov 2011/2010 ∆%: Total 14.4; Durable Goods: 12.3; Nondurable |
| Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers | Oct 11/Oct 10 NSA ∆%: Sales Total Business 9.3; Manufacturers 9.7 |
| Sales for Retail and Food Services | Jan-Dec 2011/Jan-Dec 2010 ∆%: Retail and Food Services: 7.7; Retail ∆% 7.9 |
| Value of Construction Put in Place | Nov SAAR month SA ∆%: 1.2 Oct 12 months NSA: 0.5 |
| Case-Shiller Home Prices | Oct 2011/Oct 2010 ∆% NSA: 10 Cities minus 3.0; 20 Cities: minus 3.4 |
| FHFA House Price Index Purchases Only | Oct SA ∆% -0.2; |
| New House Sales | Nov month SAAR ∆%: |
| Housing Starts and Permits | Nov Starts month SA ∆%: 9.3; Permits ∆%: 5.7 |
| Trade Balance | Balance Nov SA -$47,752 million versus Oct -$43,271 million |
| Export and Import Prices | Dec 12 months NSA ∆%: Imports 8.5; Exports 3.6 |
| Consumer Credit | Nov ∆% annual rate: 9.9 |
| Net Foreign Purchases of Long-term Treasury Securities | Oct Net Foreign Purchases of Long-term Treasury Securities: $4.8 billion Oct versus Sep $68.3 billion |
| Treasury Budget | Fiscal Year 2012/2011 ∆%: Receipts 4.4; Outlays -2.6; Individual Income Taxes 5.6 Deficit Fiscal Year 2012 Oct-Dec $321,735 million |
| Flow of Funds | IIQ2011 ∆ since 2007 Assets -$6311B Real estate -$5111B Financial -$1490 Net Worth -$5802 Blog 09/18/11 |
| Current Account Balance of Payments | IIIQ2011 -131B %GDP 2.9 Blog 12/18/11 |
Links to blog comments in Table USA:
01/08/12 http://cmpassocregulationblog.blogspot.com/2012/01/thirty-million-unemployed-or_08.html
01/01/12 http://cmpassocregulationblog.blogspot.com/2012/01/financial-risk-aversion-and-collapse-of.html
12/27/11 http://cmpassocregulationblog.blogspot.com/2011/12/slow-growth-falling-real-disposable_27.html
12/18/2011 http://cmpassocregulationblog.blogspot.com/2011/12/recovery-without-hiring-world-inflation_1721.html
12/11/2011 II http://cmpassocregulationblog.blogspot.com/2011/12/euro-zone-survival-risk-world-financial_11.html
12/4/11 http://cmpassocregulationblog.blogspot.com/2011/12/twenty-nine-million-in-job-stress.html
10/30/11 http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html
09/18/11 http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html
Growth rates and levels of sales in billions of dollars of manufacturers, retailers and merchant wholesalers are provided in Table VA-1. Total business sales rose 0.3 percent in Nov after 0.6 percent in Oct and were up by 9.3 percent in Nov 2011 relative to Nov 2010. Sales of manufacturers were flat in Nov after increasing 0.5 percent in Oct and rose 9.7 percent in the 12 months to Nov. Retailers’ sales grew 0.4 percent in Nov, 0.6 percent in Oct and 7.0 percent in 12 months. Sales of merchant wholesalers rose 0.6 percent in Nov after 0.8 percent in Oct and grew 11.0 percent in 12 months. These data are not adjusted for price changes such that they reflect increases in both quantities and prices.
Table VA-1, US, Percentage Changes for Sales of Manufacturers, Retailers and Merchant Wholesalers
| Nov 2011 | Nov 11/ Oct 11 | Oct 11/ Sep 11 | Nov 11/ Nov 10 | |
| Total Business | 1,205.1 | 0.3 | 0.6 | 9.3 |
| Manufacturers | 441.5 | 0.0 | 0.5 | 9.7 |
| Retailers | 358.8 | 0.4 | 0.6 | 7.0 |
| Merchant Wholesalers | 404.8 | 0.6 | 0.8 | 11.0 |
Source: http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf
Businesses added to inventories to replenish stocks in an environment of strong sales. Retailers added 0.3 percent in Nov to inventories and 0.2 percent in Oct with growth of 3.8 percent in 12 months, as shown in Table VA-2. Total business increased inventories by 0.3 percent in Nov, 0.8 percent in Oct and 8.3 percent in 12 months. Inventories sales/ratios of total business continued at a level close to 1.27 under judicious management to avoid costs and risks. Inventory/sales ratios of manufacturers and retailers are higher than for merchant wholesalers. There is stability in inventory/sales ratios in individual months and relative to a year earlier.
Table VA-2, US, Percentage Changes for Inventories of Manufacturers, Retailers and Merchant Wholesalers and Inventory/Sales Ratios
| Inventory Change | Nov 11 | Nov 11/ Oct 11 ∆% SA | Oct 11/Sep 11 ∆% SA | Nov 11/ Nov 10 |
| Total Business | 1,583.4 | 0.3 | 0.8 | 8.3 |
| Manufacturers | 608.8 | 0.5 | 0.9 | 10.6 |
| Retailers | 503.1 | 0.3 | 0.2 | 3.8 |
| Merchant | 471.5 | 0.1 | 1.2 | 10.3 |
| Inventory/ | Nov 11 | Nov 2011 SA | Oct 2011 SA | Nov 2010 SA |
| Total Business | 1,583.4 | 1.27 | 1.27 | 1.28 |
| Manufacturers | 608.8 | 1.34 | 1.33 | 1.33 |
| Retailers | 503.1 | 1.32 | 1.32 | 1.36 |
| Merchant Wholesalers | 471.5 | 1.15 | 1.15 | 1.16 |
Source: http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf
Inventories follow business cycles. When recession hits sales inventories pile up, declining with expansion of the economy. In a fascinating classic opus, Lloyd Meltzer (1941, 129) concludes:
“The dynamic sequences (I) through (6) were intended to show what types of behavior are possible for a system containing a sales output lag. The following conclusions seem to be the most important:
(i) An economy in which business men attempt to recoup inventory losses will always undergo cyclical fluctuations when equilibrium is disturbed, provided the economy is stable.
This is the pure inventory cycle.
(2) The assumption of stability imposes severe limitations upon the possible size of the marginal propensity to consume, particularly if the coefficient of expectation is positive.
(3) The inventory accelerator is a more powerful de-stabilizer than the ordinary acceleration principle. The difference' in stability conditions is due to the fact that the former allows for replacement demand whereas the usual analytical formulation of the latter does not. Thus, for inventories, replacement demand acts as a de-stabilizer. Whether it does so for all types of capital goods is a moot question, but I believe cases may occur in which it does not.
(4) Investment for inventory purposes cannot alter the equilibrium of income, which depends only upon the propensity to consume and the amount of non-induced investment.
(5) The apparent instability of a system containing both an accelerator and a coefficient of expectation makes further investigation of possible stabilizers highly desirable.”
Chart VA-1 shows the increase in the inventory/sales ratios during the recessions of 2001 and 2007-2009. The inventory/sales ratio fell during the expansions. The inventory/sales ratio declined to a trough in 2011, climbed and then stabilized at current levels.
Chart VA-1, Total Business Inventories/Sales Ratios 2002 to 2011
Source: US Census Bureau
http://www2.census.gov/retail/releases/historical/mtis/img/mtisbrf.gif
Sales of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-3 for Jan-Nov 2011 and percentage changes from the prior month and from Jan-Nov 2010. These data are volatile aggregating diverse categories of durable and nondurable goods without adjustment for price changes. Total sales for the US rose 14.4 percent in the first eleven months of 2011 relative to the first eleven months of 2010 and 0.6 percent in Nov relative to Oct. The value of total sales is quite high exceeding four trillion dollars ($4354.9 billion). Value in the breakdown is useful in identifying relative importance of individual categories. Sales of durable goods in Jan-Nov 2011 reached $1945.9 billion, or $1.9 trillion, increasing 0.9 percent in Nov relative to Oct but increasing 12.3 percent in Jan-Nov 2011 relative to Jan-Nov 2010. Sales of automotive products reached $306.8 billion in the first eleven months of 2011, decreasing 1.5 percent in the month and increasing 12.5 percent relative to a year earlier. There is strong performance of 19.4 percent in machinery and 10.1 percent in electrical products. Sales of nondurable goods rose 16.2 percent. The influence of commodity prices is revealed in the increase of 33.3 percent in farm products and 34.1 percent in petroleum products. The final three columns in Table 6 provide the value of inventories and percentage changes from the prior month and from the same month a year earlier. US total inventories of wholesalers decreased 0.1 percent in Nov and increased 10.3 percent relative to a year earlier. Inventories of durable goods of $275.7 billion are 58.5 percent of total inventories of $471.5 billion and rose 10.3 percent relative to a year earlier. Automotive inventories jumped 14.5 percent relative to a year earlier. Machinery inventories of $70.1 billion rose 12.7 percent relative to a year earlier. Inventories of nondurable goods of $195.8 percent are 41.5 percent of the total and increased 9.5 percent relative to a year earlier. While inventories of farm products rose by 4.6 in Nov relative to Oct, they declined by 6.3 percent relative to a year earlier. Inventories of petroleum products increased 2.6 percent in Nov and 15.7 percent relative to a year earlier.
Table VA-3, US, Sales and Inventories of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, Month ∆%
| 2011 | Sales $ Billions Jan-Nov 2011 | Sales Oct ∆% SA | Sales∆% Jan/ Nov 2011 from 2010NSA | INV $ Billions Nov 2011 NSA | INV Nov ∆% | INV ∆% Nov 2011 from Oct 2010 NSA |
| US Total | 4,354.9 | 0.6 | 14.4 | 471.5 | -0.1 | 10.3 |
| Durable | 1,945.9 | 0.9 | 12.3 | 275.7 | -0.6 | 10.9 |
| Automotive | 306.8 | -1.5 | 12.5 | 44.9 | 1.2 | 14.5 |
| Prof. Equip. | 341.5 | 3.8 | 5.0 | 32.4 | -2.6 | 6.2 |
| Computer Equipment | 181.3 | 2.8 | 5.8 | 12.7 | -4.9 | 6.2 |
| Electrical | 367.2 | 0.6 | 10.1 | 41.8 | -1.4 | 11.3 |
| Machinery | 324.4 | 0.5 | 19.4 | 70.1 | 0.9 | 12.7 |
| Not Durable | 2,408.9 | 0.3 | 16.2 | 195.8 | 0.6 | 9.5 |
| Drugs | 377.6 | 0.0 | 8.6 | 32.1 | 1.2 | 5.2 |
| Apparel | 121.2 | -1.7 | 1.6 | 21.8 | -3.1 | 14.8 |
| Groceries | 531.0 | 1.2 | 10.8 | 34.4 | -0.8 | 16.9 |
| Farm Products | 237.3 | -1.9 | 33.3 | 25.8 | 4.6 | -6.3 |
| Petroleum | 654.5 | 0.0 | 34.1 | 23.5 | 2.6 | 15.7 |
Note: INV: inventories
Sources: http://www2.census.gov/wholesale/pdf/mwts/currentwhl.pdf
Inventory/sales ratios of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-4. The total for the US has remained almost unaltered at 1.15 in Nov and 1.15 in Oct relative to 1.16 in Nov 2010. Inventory/sales ratios are higher in durable goods industries but still remain relatively stable with 1.50 in Nov 2011 relative to 1.51 in Oct 2011 and 1.50 in Nov 2010. Computer equipment operates with low inventory/sales ratios of 0.73 in Nov 2011 relative to 0.71 in Oct 2010 because of the capacity to fill orders on demand. As expected because of perishable nature, nondurable inventory/sales ratios are quite low with 0.87 in Nov 2011, which is equal to 0.87 in Oct 2011 and almost equal to 0.88 in Nov 2010. There are exceptions such as 2.06 in Nov 2011 in apparel that is much higher than 1.77 in Nov 2010 perhaps because of the expectation of stronger holiday sales.
Table VA-4, Inventory/Sales Ratios of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, % SA
| Nov 2011 | Oct 2011 | Nov 2010 | |
| US Total | 1.15 | 1.15 | 1.16 |
| Durable | 1.50 | 1.51 | 1.50 |
| Automotive | 1.42 | 1.42 | 1.52 |
| Prof. Equip. | 0.99 | 1.04 | 0.99 |
| Comp. Equip. | 0.73 | 0.76 | 0.71 |
| Electrical | 1.21 | 1.21 | 1.16 |
| Machinery | 2.24 | 2.22 | 2.27 |
| Not Durable | 0.87 | 0.87 | 0.88 |
| Drugs | 0.91 | 0.90 | 0.94 |
| Apparel | 2.06 | 2.00 | 1.77 |
| Groceries | 0.66 | 0.67 | 0.64 |
| Farm Products | 1.06 | 1.05 | 1.14 |
| Petroleum | 0.41 | 0.41 | 0.43 |
Sources: http://www2.census.gov/wholesale/pdf/mwts/currentwhl.pdf
Chart VA-2 provides the chart of the US Census Bureau with inventories/sales ratios of merchant wholesalers from 2002 to 2011 seasonally adjusted. Inventory/sales ratios rise during contractions as merchants are caught with increasing inventories because of weak sales and fall during expansions as merchants attempt to fill sales with existing stocks.
Chart VA-2, US, Monthly Inventories/Sales Ratios of Merchant Wholesalers, SA, 2002-2011
Source: US Census Bureau
http://www2.census.gov/wholesale/img/mwtsbrf.jpg
Market participants were concerned after the announcement of growth of sales of retail and food services by 0.1 percent in Dec after increasing 0.4 percent in Nov and 7.7 percent in Jan-Dec 2011 relative to Jan-Dec 2010, as shown in Table VA-5. Market participants focused on the decline of 0.2 percent in retail sales excluding motor vehicles and parts. Sales of motor vehicles and parts rose 1.5 percent in Dec after 0.9 percent in Nov and 9.9 percent in Jan-Dec 2011 relative to Jan-Nov 2010. Sales ex motor vehicles and parts fell 0.2 per cent in Dec and grew 7.3 percent in Jan-Dec 2011 relative to Jan-Dec 2010. Gasoline station sales fell 1.6 percent in fluctuating prices of gasoline and rose 17.7 cumulatively in 2011 relative to 2010.
Table VA-5, US, Percentage Change in Monthly Sales for Retail and Food Services, ∆%
| Dec/Nov ∆% SA | Nov/Oct ∆% SA | Jan-Dec 2011 Billion Dollars | 12 Months Jan to Dec 2011 from Jan to Dec 2010 ∆% NSA | |
| Retail and Food Services | 0.1 | 0.4 | 4,691.3 | 7.7 |
| Excluding Motor Vehicles and Parts | -0.2 | 0.3 | 3,873.5 | 7.3 |
| Motor Vehicles & Parts | 1.5 | 0.9 | 817.9 | 9.9 |
| Retail | 0.0 | 0.4 | 4,197.2 | 7.9 |
| Building Materials | 1.6 | -1.0 | 300.2 | 5.7 |
| Food and Beverage | -0.2 | -0.1 | 615.5 | 5.5 |
| Grocery | -0.2 | -0.2 | 551.5 | 5.7 |
| Health & Personal Care Stores | 0.6 | -0.1 | 274.9 | 4.5 |
| Clothing & Clothing Accessories Stores | 0.7 | 0.4 | 226.5 | 5.9 |
| Gasoline Stations | -1.6 | 0.9 | 533.6 | 17.7 |
| General Merchandise Stores | -0.8 | 0.0 | 630.9 | 3.5 |
| Food Services & Drinking Places | 0.7 | 0.6 | 494.2 | 6.1 |
Source: http://www.census.gov/retail/marts/www/marts_current.pdf
Chart VA-6 of the US Bureau of the Census shows percentage change of retails and food services sales. Sep was strong in multiple categories but the strength did not continue in Oct, Nov and Dec.
Chart VA-3, US, Percentage Change of Retail and Food Services Sales
Source: US Census Bureau
http://www2.census.gov/retail/releases/historical/marts/img/martsbrf.gif
Twelve-month rates of growth of US sales of retail and food services in Dec from 2000 to 2011 are shown in Table VA-6. Nominal sales have been dynamic in 2011 and 2010 after decline of 9.6 percent in 2008 and increase of only 1.9 percent in 2007.
Table VA-6, US, Percentage Change in 12-Month Sales for Retail and Food Services, ∆% NSA
| Dec | 12 Months ∆% |
| 2011 | 6.2 |
| 2010 | 7.5 |
| 2009 | 4.5 |
| 2008 | -9.6 |
| 2007 | 1.9 |
| 2006 | 3.1 |
| 2005 | 4.8 |
| 2004 | 8.3 |
| 2003 | 6.2 |
| 2002 | 3.2 |
| 2001 | 2.0 |
| 2000 | 0.7 |
Source: http://www.census.gov/retail/
The report of consumer credit outstanding of the Board of Governors of the Federal Reserve System is provided in Table VA-7. The data are in seasonally-adjusted annual rates both percentage changes and billions of dollars. Consumer credit is divided into two categories. (1) Revolving consumer credit (REV in Table VA-7) consists mainly of unsecured credit cards. (2) Non-revolving consumer credit (NREV in Table VA-7) consists of consumer loans such as car loans. In Nov 2011, revolving credit was $798 billion, or 32.2 percent of total consumer credit of $2478 billion, and non-revolving credit was $1679 billion, or 67.8 percent of total consumer credit outstanding. Consumer credit grew at relatively high rates before the recession beginning in IVQ2007 and extending to IIQ2009 as dated by the National Bureau of Economic Research or NBER (http://www.nber.org/cycles/cyclesmain.html). Percentage changes of consumer credit outstanding fell already in 2008. Rates were still negative in 2010. Contraction was sharper in revolving credit that fell at the rates of 10.1 percent in IIIQ2010, 2.6 percent in IVQ2010, 3.7 percent in IQ2011 and 2.0 percent in IIIQ2011. There was a sharp jump in consumer credit outstanding in Nov 2011: 9.9 percent total, 8.5 percent revolving and 10.7 percent non-revolving.
Table VA-7, US, Consumer Credit Outstanding, SA, Annual Rate and Billions of Dollars
| Total ∆% | REV ∆% | NRV ∆% | Total $B | REV $B | NREV $B | |
| 2011 | ||||||
| Nov | 9.9 | 8.5 | 10.7 | 2478 | 798 | 1679 |
| Oct | 2.9 | 1.0 | 3.9 | 2457 | 793 | 1665 |
| Sep | 3.7 | 0.7 | 5.1 | 2451 | 792 | 1659 |
| IIIQ | 1.4 | -2.0 | 3.0 | 2451 | 792 | 1659 |
| IIQ | 3.5 | 1.5 | 4.5 | 2443 | 796 | 1647 |
| IQ | 2.2 | -3.7 | 5.1 | 2422 | 793 | 1629 |
| 2010 | ||||||
| IVQ | 2.5 | -2.6 | 5.0 | 2408 | 800 | 1608 |
| IIIQ | -2.1 | -10.1 | 2.1 | 2394 | 805 | 1588 |
| 2010 | -1.7 | -7.5 | 1.5 | 2408 | 800 | 1608 |
| 2009 | -4.4 | -9.6 | -1.2 | 2450 | 866 | 1585 |
| 2008 | 1.6 | 1.7 | 1.5 | 2562 | 958 | 1604 |
| 2007 | 5.8 | 8.1 | 4.4 | 2523 | 942 | 1581 |
| 2006 | 4.1 | 5.0 | 3.6 | 2385 | 871 | 1514 |
Note: REV: Revolving; NREV: Non-revolving; ∆%: simple annual rate from unrounded data; Total may not add exactly because of rounding
Source: http://www.federalreserve.gov/releases/g19/current/default.htm
Chart VA-4 of the Board of Governors of the Federal Reserve System provides percentage changes of total consumer credit outstanding in the US since 1944. The shaded bars are the cyclical contraction dates of the National Bureau of Economic Research. Consumer credit is cyclical, declining during contractions as shown by negative percentage changes during economic contractions.
Chart VA-4, US, Consumer Credit Outstanding Seasonally Adjusted Annual Percentage Rate
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g19/current/default.htm
The US Treasury budget for fiscal year 2012 in the first three months of Dec, Nov and Oct 2011 is shown in Table VA-8. Receipts increased 4.4 percent in the first three months of fiscal year 2012 relative to the same three months in fiscal year 2011 or Oct-Dec 2010. Individual income taxes have grown 5.6 percent relative to the same period a year earlier. Outlays were lower by 2.6 percent relative to a year earlier. The final two rows of Table VA-8 provide the deficit for fiscal year 2011 at $1.3 trillion not very different from that in fiscal year 2010.
Table VA-8, US, Treasury Budget in Fiscal Year to Date Million Dollars
| Fiscal Year 2012 | Oct-Dec 2011 | Oct-Dec 2010 | ∆% |
| Receipts | 555,437 | 531,797 | 4.4 |
| Outlays | 877,173 | 900,757 | -2.6 |
| Deficit | -321,735 | -368,960 | NA |
| Individual Income Taxes | 270,370 | 256,022 | 5.6 |
| Receipts | Outlays | Deficit (-), Surplus (+) | |
| Fiscal Year 2011 | 2,302,495 | 3,599,297 | -1,296,803 |
| Fiscal Year 2010 ($ Billions) | 2,163 | 3,456 | -1,294 |
Source: http://www.fms.treas.gov/mts/mts1211.pdf
VB Japan. The Markit/JMMA Purchasing Managers’ Index™ (PMI™) increased from 49.1 in Nov to 50.2 in Dec, which is above the contraction zone of 50 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8968). The index suggests only marginal growth. New export business fell in Dec with the contraction extending over ten months. There was marginal improvement in employment. Alex Hamilton, economist at Markit and author of the report finds better operating conditions in Japan’s manufacturing in Dec (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8968). The Markit Japan Services PMI™ Composite Output Index increased from 48.9 in Nov to expansion territory at 50.1 in Dec, suggesting marginal growth of the private sector in Japan (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8970). Alex Hamilton, economist at Markit and author of the report, finds that services companies are becoming more guardedly optimistic about future activity (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8970). The strong yen and weak world economic growth are beginning to affect manufacturing in Japan. There appear to be already some effects on exporting economies in Asia. The HSBC South Korea Manufacturing PMI®, compiled by Markit, fell from 47.1 in Nov to 46.4 in Dec, with the deterioration being the worst since Feb 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8996). Output and new orders fell at higher rates. Ronald Man, economist at HSBC in Asia, finds that employment contracted for the first time in about three years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8996). The HSBC Taiwan PMI™ rose from 43.9 in Nov to 47.1 in Dec, indicating continuing deterioration of manufacturing business in Taiwan but at a slower pace (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8995). Donna Kwok, Economist at HSBC in Asia, finds declining production and new business but slowing deterioration in the second consecutive month. Table JPY provides the country data
Table JPY, Japan, Economic Indicators
| Historical GDP and CPI | 1981-2010 Real GDP Growth and CPI Inflation 1981-2010 |
| Corporate Goods Prices | Nov ∆% 0.1 |
| Consumer Price Index | Nov NSA ∆% minus 0.6 |
| Real GDP Growth | IIIQ2011 ∆%: 1.4 on IIQ2011; IIIQ2011 SAAR 5.6% |
| Employment Report | Nov Unemployed 2.80 million Change in unemployed since last year: minus 380 thousand |
| All Industry Index | Oct month SA ∆% 0.8 Blog 12/27/11 |
| Industrial Production | Nov SA month ∆%: minus 2.6 |
| Machine Orders | Total Oct ∆% 3.2 Private ∆%: -9.2 |
| Tertiary Index | Oct month SA ∆% 0.6 |
| Wholesale and Retail Sales | Nov 12 months: |
| Family Income and Expenditure Survey | Nov 12 months ∆% total nominal consumption minus 3.8, real minus 3.2 Blog 01/01/12 |
| Trade Balance | Exports Nov 12 months ∆%: -4.5 Imports Nov 12 months ∆% 11.4 Blog 12/27/11 |
Links to blog comments in Table JPY:
01/01/12 http://cmpassocregulationblog.blogspot.com/2012/01/financial-risk-aversion-and-collapse-of.html
12/27/11 http://cmpassocregulationblog.blogspot.com/2011/12/slow-growth-falling-real-disposable_27.html
12/18/11 http://cmpassocregulationblog.blogspot.com/2011/12/recovery-without-hiring-world-inflation_1721.html
12/11/2011 http://cmpassocregulationblog.blogspot.com/2011/12/euro-zone-survival-risk-world-financial.html
12/0411 http://cmpassocregulationblog.blogspot.com/2011/12/twenty-nine-million-in-job-stress.html
07/31/11: http://cmpassocregulationblog.blogspot.com/2011/07/growth-recession-debt-financial-risk.html
VC China. The HSBC Purchasing Managers’ Index™ (PMI™), compiled by Markit, summarizing conditions in China’s manufacturing rose from 47.7 in Nov to 48.7 in Dec, indicating marginally deteriorating business (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8969). Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC finds weakness in external demand that is causing slowdown in the economy (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8969), supporting fiscal and monetary policies that can avoid hard landing. Owen Fletcher, writing on Jan 1, on “Signs of strength in Chinese economy,” published by the Wall Street Journal (http://professional.wsj.com/article/SB10001424052970203550304577133822170242612.html?mod=WSJ_hp_LEFTWhatsNewsCollection), informs that China’s official purchasing managers’ index increased from 49.0 in Nov to expansion territory at 50.3 in Dec (http://professional.wsj.com/article/SB10001424052970203550304577133822170242612.html?mod=WSJ_hp_LEFTWhatsNewsCollection). The HSBC Composite Output Index for China, compiled by Markit, registered a decline from 52.6 in Oct to 48.9 in Nov (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8898). The composite index combined activity in manufacturing and services rose from 48.9 in Nov to expansion territory at 50.8 in Dec (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8971). Growth of services compensated weakness of manufacturing. Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds that policy measures are required to steer the economy toward higher growth (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8971). Table CNY provides the country data table for China.
Table CNY, China, Economic Indicators
| Price Indexes for Industry | Dec 12 months ∆%: 1.7 Dec month ∆%: -0.3 |
| Consumer Price Index | Dec month ∆%: -0.3 Dec 12 month ∆%: 4.1 |
| Value Added of Industry | Nov 12 month ∆%: 12.4 Jan-Nov 2011/Jan-Oct 2010 ∆%: 14.0 |
| GDP Growth Rate | Year IIIQ2011 ∆%: 9.1 |
| Investment in Fixed Assets | Total Jan-Nov ∆%: 24.4 Jan-Nov ∆% real estate development: 29.9 |
| Retail Sales | Nov month ∆%: 1.3 Jan-Nov ∆%: 17.0 |
| Trade Balance | Dec balance $16.52 billion Cumulative Dec: $155.14 billion |
Links to blog comments in Table CNY: 12/18/11 http://cmpassocregulationblog.blogspot.com/2011/12/recovery-without-hiring-world-inflation_1721.html
12/11/11 http://cmpassocregulationblog.blogspot.com/2011/12/euro-zone-survival-risk-world-financial_11.html
10/23/11 http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html
China’s exports and imports and their 12 months rates of growth together with the trade balance in Oct are shown in Table VC-1. The 12-month rates of growth of exports fell from 24.5 percent in Aug to 17.1 percent in Sep, 15.9 percent in Oct, 13.8 percent in Nov and 13.4 percent in Dec. The 12-month rates of growth of imports fell from 30.2 percent in Aug to 20.9 percent in Sep, rebounding to 28.7 percent in Oct but falling to 22.1 percent in Nov and 11.8 percent in Dec. Growth is still extremely high and in comparison with trade data for other countries. The Dow Jones Newswires informs on Oct 15 that the premier of China Wen Jiabao announced that the Chinese renminbi yuan will not be further appreciated to prevent adverse effects on exports (http://professional.wsj.com/article/SB10001424052970203914304576632790881396896.html?mod=WSJ_hp_LEFTWhatsNewsCollection). This policy has not been aggressively implemented but there has been partial reversal of appreciation as discussed in VI Valuation of Risk Financial Assets. It is difficult to separate various possibilities from the Senate bill designed to curb imports from China in the US such as weakening international trade.
Table VC-1, China, Exports, Imports and Trade Balance USD Billion and ∆%
| Exports | ∆% Relative | Imports USD | ∆% Relative | Balance | |
| Dec 2011 | 174.72 | 13.4 | 158.20 | 11.8 | 16.52 |
| Nov | 174.46 | 13.8 | 159.94 | 22.1 | 14.53 |
| Oct | 157.49 | 15.9 | 140.46 | 28.7 | 17.03 |
| Sep | 169.67 | 17.1 | 155.16 | 20.9 | 14.51 |
| Aug | 173.32 | 24.5 | 155.56 | 30.2 | 17.76 |
| Jul | 175.13 | 20.4 | 143.64 | 22.9 | 31.48 |
| Jun | 161.98 | 17.9 | 139.71 | 19.3 | 22.27 |
| May | 157.16 | 19.4 | 144.11 | 28.4 | 13.05 |
| Apr | 155.69 | 29.9 | 144.26 | 21.8 | 11.42 |
| Mar | 152.20 | 35.8 | 152.06 | 27.3 | 0.14 |
| Feb | 96.74 | 2.4 | 104.04 | 19.4 | -7.31 |
| Jan | 150.73 | 37.7 | 144.27 | 51.0 | 6.46 |
| Dec 2010 | 154.15 | 17.9 | 141.07 | 25.6 | 13.08 |
Source: http://english.customs.gov.cn/publish/portal191/
http://english.mofcom.gov.cn/static/column/statistic/BriefStatistics.html/1
Table VC-2 provides China’s cumulative exports and imports and their yearly growth rates together with the trade balance. China is still enjoying strong trade growth but the trade balance of $155.14 is the weakest in three years and much lower than $183.10 billion for 2010. Exports grew at 31.3 percent in 2010 and imports at 38.7 percent with growth declining to 20.3 percent for exports and 24.9 percent for imports. It is quite difficult to separate price and quantity effects.
Table VC-2, China, Year to Date Exports, Imports and Trade Balance USD Billion and ∆%
| Exports | ∆% Relative | Imports USD | ∆% Relative | Balance | |
| Dec 2011 | 1,898.60 | 20.3 | 1,743.46 | 24.9 | 155.14 |
| Nov | 1,724.01 | 21.1 | 1585.61 | 26.4 | 138.40 |
| Oct | 1,549.71 | 22.0 | 1,425.68 | 26.9 | 124.03 |
| Sep | 1,392.27 | 22.7 | 1,285.17 | 26.7 | 107.10 |
| Aug | 1,222.63 | 23.6 | 1,129.90 | 27.5 | 92.73 |
| Jul | 1,049.38 | 23.4 | 973.17 | 26.9 | 76.21 |
| Jun | 874.3 | 24.0 | 829.37 | 27.6 | 44.93 |
| May | 712.37 | 25.5 | 689.41 | 29.4 | 22.96 |
| Apr | 555.30 | 27.4 | 545.02 | 29.6 | 10.28 |
| Mar | 399.64 | 26.5 | 400.66 | 32.6 | -1.02 |
| Feb | 247.47 | 21.3 | 248.36 | 36.0 | -0.89 |
| Jan | 150.7 | 37.7 | 144.27 | 51.0 | 6.46 |
| Dec 2010 | 1577.93 | 31.3 | 1394.83 | 38.7 | 183.10 |
Source: http://english.mofcom.gov.cn/static/column/statistic/BriefStatistics.html/1
VD Euro Area. The Markit Eurozone PMI® Composite Output Index rose from 47.0 in Nov to 48.3 in Dec, indicating contracting at a slower rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8975). Chris Williamson, Chief Economist at Markit, finds that the improvement in Dec does not eliminate the risk of recession in the euro zone (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8975). The index for IVQ2011 is the weakest since the spring of 2009 and continuing decline of orders may adversely affect output and employment in IQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8975). The Markit Eurozone Services Business Activity Index of the Markit Eurozone Services PMI® rose from 47.5 in Nov to 48.8 in Dec, indicating slower rate of contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8974). Chris Williamson, Chief Economist at Markit, finds that the index has contracted during four consecutive months with divergence of performance in the form of growth in Germany and France but weaker performance in Spain and Italy (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8974). The Markit Eurozone Manufacturing PMI® improved slightly to 46.9 in Dec from 46.4 in Nov, which was a low in 28 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8950). Chris Williamson, Chief Economist at Markit, finds that manufacturing output fell at a quarterly rate of 1.5 percent in the fourth quarter of 2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8950). Lower levels of manufacturing output were experienced in all members of the euro zone for the second consecutive month. Table EUR provides the regional country data table for the euro zone.
Table EUR, Euro Area Economic Indicators
| GDP | IIIQ2011 ∆% 0.2; IIIQ2011/IIIQ2010 ∆% 1.4 Blog 12/04/11 |
| Unemployment | Nov 2011: 10.3% unemployment rate Nov 2011: 16.372 million unemployed Blog 01/08/12 |
| HICP | Nov month ∆%: 0.1 12 months Nov ∆%: 3.0 |
| Producer Prices | Euro Zone industrial producer prices Nov ∆%: 0.2 |
| Industrial Production | Nov month ∆%: -0.1 |
| Industrial New Orders | Oct month ∆%: minus 1.8 Oct 12 months ∆%: 1.6 |
| Construction Output | Oct month ∆%: -1.4 |
| Retail Sales | Nov month ∆%: minus 0.8 |
| Confidence and Economic Sentiment Indicator | Sentiment 93.3 Dec 2011 down from 107 in Dec 2010 Confidence minus 21.1 Nov 2011 down from minus 11 in Dec 2010 Blog 01/08/12 |
| Trade | Jan-Nov 2011/2010 Exports ∆%: 13.1 |
| HICP, Rate of Unemployment and GDP | Historical from 1999 to 2011 Blog 12/04/11 9/04/11 |
Links to blog comments in Table EUR:
01/08/12 http://cmpassocregulationblog.blogspot.com/2012/01/thirty-million-unemployed-or.html
12/27/11 http://cmpassocregulationblog.blogspot.com/2011/12/recovery-without-hiring-world-inflation_1721.html
12/04/11 http://cmpassocregulationblog.blogspot.com/2011/12/twenty-nine-million-in-job-stress.html
09/04/11 http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html
The decline of industrial production by 2.1 percent in Sep interrupted growth of industrial production in the euro zone of 0.8 percent in Jul and 1.2 percent in Aug, as shown in Table VD-1. Production fell cumulatively 2.5 percent in the quarter Sep-Nov. Growth in Jan-Nov has been at the annual equivalent rate of minus 0.3 percent. Growth of energy of 0.5 percent was the only positive category. All segments of industrial production fell in Oct with exception of rebound of capital goods by 0.9 percent after sharp drop of 3.8 percent in Sep and growth of nondurable goods by 0.4 percent. Industrial production is highly volatile in larger economies in the euro zone.
Table VD-1, Euro Zone, Industrial Production Month ∆%
| 2011 | Total | INT | ENE | CG | DUR | NDUR |
| Nov | -0.1 | 0.0 | 0.5 | 0.0 | -0.8 | -0.8 |
| Oct | -0.3 | -1.0 | -0.7 | 0.9 | -1.3 | 0.4 |
| Sep | -2.1 | -2.2 | -1.7 | -3.8 | -3.5 | -1.4 |
| Aug | 1.2 | 1.4 | 1.0 | 2.2 | -0.4 | 1.7 |
| Jul | 0.8 | 0.5 | 0.2 | 2.8 | 3.5 | -0.7 |
| Jun | -0.7 | -0.8 | 1.1 | -1.5 | -2.6 | -0.7 |
| May | 0.1 | -0.2 | 0.2 | 1.1 | -0.6 | -0.1 |
| Apr | 0.3 | 0.0 | -3.7 | 0.7 | 1.0 | 0.4 |
| Mar | 0.0 | 0.0 | -0.3 | -0.6 | 0.0 | 0.4 |
| Feb | 0.5 | 0.5 | -1.3 | 2.2 | 0.9 | 0.9 |
| Jan | 0.1 | 2.3 | -4.7 | -1.8 | 1.1 | -0.1 |
| Jan-Nov AE ∆% | -0.3 |
Notes: INT: Intermediate; ENE: Energy; CG: Capital Goods; DUR: Durable Consumer Goods; NDUR: Nondurable Consumer Goods
Source: Eurostat
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-12012012-AP/EN/4-12012012-AP-EN.PDF
Table VD-2 provides 12 months percentage changes of industrial production and major industrial categories in the euro zone. Industrial production decreased 0.3 percent in the 12 months ending in Nov. There is only positive growth of 4.3 percent for capital goods.
Table VD-2, Euro Zone, Industrial Production 12 Months ∆%
| 2011 | Nov Month ∆% | Nov 12 Months ∆% |
| Total | -0.1 | -0.3 |
| Intermediate Goods | 0.0 | -1.1 |
| Energy | 0.5 | -5.8 |
| Capital Goods | 0.0 | 4.3 |
| Durable Consumer Goods | -0.8 | -4.0 |
| Nondurable Consumer Goods | -0.8 | -1.3 |
Source: Eurostat
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-12012012-AP/EN/4-12012012-AP-EN.PDF
There has been significant decline in percentage changes of industrial production and major categories in 12 months rates throughout 2011 as shown in Table VD-3. The 12-month rate of growth in Feb of 7.8 percent has fallen to minus 0.3 percent in Nov. Trend is difficult to identify because of significant volatility. Capital goods were growing at 15.1 percent in the 12 months ending in Feb and only at 4.3 percent in the 12 months ending in Nov.
Table VD-3, Euro Zone, Industrial Production 12-Month ∆%
| 2011 | Total | INT | ENE | CG | DUR | NDUR |
| Nov | -0.3 | -1.1 | -5.8 | 4.3 | -4.0 | -1.3 |
| Oct | 1.0 | 0.3 | -5.0 | 4.9 | -3.5 | 0.8 |
| Sep | 2.2 | 2.2 | -3.4 | 5.9 | -1.0 | 0.4 |
| Aug | 6.0 | 5.4 | -2.1 | 12.9 | 2.9 | 3.1 |
| Jul | 4.3 | 4.2 | -4.1 | 11.7 | 4.3 | -0.8 |
| Jun | 2.8 | 3.1 | -3.7 | 7.0 | -2.7 | 0.9 |
| May | 4.3 | 4.5 | -7.2 | 10.7 | 1.2 | 2.7 |
| Apr | 5.4 | 5.5 | -5.3 | 10.5 | 4.8 | 3.7 |
| Mar | 5.7 | 7.5 | -2.1 | 11.5 | 2.5 | 0.7 |
| Feb | 7.8 | 10.0 | -2.8 | 15.1 | 3.5 | 2.6 |
| Jan | 6.2 | 9.5 | -1.9 | 13.0 | 2.0 | 0.5 |
Notes: INT: Intermediate; ENE: Energy; CG: Capital Goods; DUR: Durable Consumer Goods; NDUR: Nondurable Consumer Goods
Source: Eurostat
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-12012012-AP/EN/4-12012012-AP-EN.PDF
Blanchard (2011WEOSep) analyzes the difficulty of fiscal consolidation efforts during periods of weak economic growth. Table VD-4 provides percentage changes of euro zone industrial production in the month of Nov and in the 12 months ending in Nov for members of the euro zone and the UK that is a member of the European Union but not of the common currency and central bank under the European Monetary Union (EMU). Industrial production in the 12 months ending in Nov is growing in the larger European economies: 3.2 percent in Germany and 0.3 percent in France. Industrial production is contracting in many of the GIIPS (Greece, Ireland, Italy, Portugal and Spain) countries that are attempting to improve expectations in their fiscal affairs—Greece -8.2 percent, Italy -4.1 percent and Spain -7.0 percent, Ireland -4.4 percent and Portugal -2.3 percent.
Table VD-4, Euro Zone, Industrial Production, Month and 12 Months ∆%
| Nov 2011 | Month ∆% | 12 Months ∆% |
| Euro Zone | -0.1 | -0.3 |
| Germany | -1.0 | 3.2 |
| France | 1.1 | 0.8 |
| Netherlands | NA | NA |
| Finland | 0.7 | -3.4 |
| Belgium | NA | NA |
| Portugal | -1.6 | -2.3 |
| Ireland | -9.4 | -4.4 |
| Italy | 0.3 | -4.1 |
| Greece | 1.1 | -8.2 |
| Spain | -1.0 | -7.0 |
| UK | -0.6 | -3.8 |
Source: Eurostat
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-12012012-AP/EN/4-12012012-AP-EN.PDF
Euro zone trade growth continues to be strong as shown in Table VD-5. Exports grew at 13.1 percent and imports also at 13.1 percent in the first eleven months of 2011 relative to 2010. The 12-month rates of growth of exports were 10.2 percent in Nov and 3.6 percent for imports, which are higher than 5.8 percent for exports but lower than 7.5 percent for imports. At the margin, rates of growth of trade are declining in part because of moderation of commodity prices.
Table VD-5, Euro Zone, Exports, Imports and Trade Balance, Billions of Euros and Percent, NSA
| Exports | Imports | |
| Jan-Nov 2011 | 1585.5 | 1600.6 |
| Jan-Nov 2010 | 1402.4 | 1415.4 |
| ∆% | 13.1 | 13.1 |
| Nov 2011 | 155.6 | 148.7 |
| Nov 2010 | 141.2 | 143.5 |
| ∆% | 10.2 | 3.6 |
| Oct 2011 | 147.9 | 146.9 |
| Oct 2010 | 139.8 | 136.7 |
| ∆% | 5.8 | 7.5 |
| Trade Balance | Jan-Nov 2011 | Jan-Nov 2010 |
| € Billions | -13.0 | -15.1 |
Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-13012012-AP/EN/6-13012012-AP-EN.PDF
The structure of trade of the euro zone in Jan-Oct is provided in Table VD-6. Data are still not available for trade structure for Nov. Manufactured exports grew 11.9 percent in Jan-Oct 2011 relative to Jan-Sep 2010 while imports grew 9.2 percent.
Table VD-6, Euro Zone, Structure of Exports, Imports and Trade Balance, € Billions, ∆%
| Primary | Manufactured | Other | Total | |
| Exports | ||||
| Jan-Oct 2011 € B | 215.5 | 1174.7 | 39.7 | 1429.9 |
| Jan-Oct 2010 € B | 175.2 | 1049.5 | 36.5 | 1261.2 |
| ∆% | 23.0 | 11.9 | 8.8 | 13.4 |
| Imports | ||||
| Jan-Oct 2011 € B | 509.0 | 918.6 | 24.2 | 1451.9 |
| Jan-Oct 2010 € B | 406.4 | 841.4 | 24.1 | 1271.8 |
| ∆% | 25.2 | 9.2 | 0.4 | 14.2 |
| Trade Balance € B | ||||
| Jan-Oct 2011 | -293.5 | 256.0 | 15.4 | -22.0 |
| Jan-Oct 2010 | -231.2 | 208.1 | 12.4 | -10.7 |
Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-13012012-AP/EN/6-13012012-AP-EN.PDF
VE Germany. The Markit Germany Services Business Activity Index of the Markit Germany Services PMI® rose from 50.3 in Nov to 52.4 in Dec, for a third consecutive month of expansion above 50, such that the Markit Germany Composite Output Index rose from 49.4 in Nov to 51.3 in Dec although manufacturing was weak (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8992). The Markit/BME Germany Purchasing Managers’ Index® (PMI®)) improved slightly from 47.9 in Nov to 48.4 in Dec but falling again below 50 indicates business and output decline at lower rates than in Nov (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8991). Tim Moore, Senior Economist at Markit and author of the report, finds that demand weakened in Europe during the summer, spreading subsequently to emerging markets. Table DE provides the country data table for Germany.
Table DE, Germany, Economic Indicators
| GDP | IIIQ2011 0.5 ∆%; III/Q2011/IIIQ2010 ∆% 2.5 2011/2010: 3.0% Blog 01/15/12 |
| Consumer Price Index | Dec month SA ∆%: 0.7 |
| Producer Price Index | Oct month ∆%: 0.1 |
| Industrial Production | Mfg Nov month SA ∆%: minus 1.0 |
| Machine Orders | Nov month ∆%: -4.8 |
| Retail Sales | Nov Month ∆% 0.8 12 Months ∆% -0.9 Blog 01/08/12 |
| Employment Report | Employment Accounts: |
| Trade Balance | Exports Nov 12 month NSA ∆%: 8.3 Blog 01/15/12 |
Links to blog comments in Table DE:
01/08/12 http://cmpassocregulationblog.blogspot.com/2012/01/thirty-million-unemployed-or.html
01/01/12 http://cmpassocregulationblog.blogspot.com/2012/01/financial-risk-aversion-and-collapse-of.html
12/27/11 http://cmpassocregulationblog.blogspot.com/2011/12/slow-growth-falling-real-disposable_27.html
12/11/11 http://cmpassocregulationblog.blogspot.com/2011/12/euro-zone-survival-risk-world-financial_11.html
12/04/11 http://cmpassocregulationblog.blogspot.com/2011/12/twenty-nine-million-in-job-stress.html
11/27/11 http://cmpassocregulationblog.blogspot.com/2011/11/us-growth-standstill-falling-real.html
The Federal Statistical Office of Germany, Statistiche Bundesamt Deutschland, provides in its publication Germany Economy 2011 (http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Publikationen/SpecializedPublications/Nationalaccounts/DeutscheWirtschaft,property=file.pdf), highly useful information. Table VE-1 provides average yearly growth rates of aggregate indicators of the economy of Germany using the publication of the Statistiche Bundesamt Deutschland. In the twenty years 1991-2011, Germany’s GDP grew at the rate of 2.6 percent per year, Gross National Income at 2.7 per cent per year and Net National Income at Factor Costs at 2.4 percent per year. GDP per inhabitant grew at 2.5 percent and GDP per person in employment at 2.3 per year. These were years of territorial unification, integration into the European Monetary Union (EMU) and restructuring the economy toward higher productivity and competitiveness in world markets.
Table VE-1, Germany, Economic Growth
| Average ∆% per Year 1991-2011 | |
| GDP | 2.6 |
| Gross National Income | 2.7 |
| Net National Income at Factor Costs | 2.4 |
| GDP per Inhabitant | 2.5 |
| GDP per Person in Employment | 2.3 |
Source:
Statistiche Bundesamt Deutschland, German Economy 2011
Table VE-2 provides yearly growth rates of the German economy from 1992 to 2011, price adjusted chain-linked and price and calendar-adjusted chain-linked. Germany’s GDP fell 5.1 percent in 2009 after growing below trend at 1.1 percent in 2008. Recovery has been robust in contrast with other advanced economy. The German economy grew at 3.7 percent in 2010 and at 3.0 percent in 2011. Growth slowed in 2011 from 1.3 percent in IQ2011, 0.2 percent in IIQ2011 and 0.5 percent in IIIQ2011 to preliminary decline of 0.25 percent in IVQ2011. The Federal Statistical Agency of Germany analyzes the fall and recovery of the German economy (http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/Aktuell,templateId=renderPrint.psml):
“The German economy again grew strongly in 2011. The price-adjusted gross domestic product (GDP) increased by 3.0% compared with the previous year. Accordingly, the catching-up process of the German economy continued during the second year after the economic crisis. In the course of 2011, the price-adjusted GDP again exceeded its pre-crisis level. The economic recovery occurred mainly in the first half of 2011. In 2009, Germany experienced the most serious post-war recession, when GDP suffered a historic decline of 5.1%. The year 2010 was characterised by a rapid economic recovery (+3.7%).”
Table VE-2, Germany, GDP Year ∆%
| Price Adjusted Chain-Linked | Price- and Calendar-Adjusted Chain Linked | |
| 2011 | 3.0 | 3.0 |
| 2010 | 3.7 | 3.6 |
| 2009 | -5.1 | -5.1 |
| 2008 | 1.1 | 0.8 |
| 2007 | 3.3 | 3.4 |
| 2006 | 3.7 | 3.9 |
| 2005 | 0.7 | 0.8 |
| 2004 | 1.2 | 0.7 |
| 2003 | -0.4 | -0.4 |
| 2002 | 0.0 | 0.0 |
| 2001 | 1.5 | 1.6 |
| 2000 | 3.1 | 3.3 |
| 1999 | 1.9 | 1.8 |
| 1998 | 1.9 | 1.7 |
| 1997 | 1.7 | 1.8 |
| 1996 | 0.8 | 0.8 |
| 1995 | 1.7 | 1.8 |
| 1994 | 2.5 | 2.5 |
| 1993 | -1.0 | -1.0 |
| 1992 | 1.9 | 1.5 |
Source: Statistiche Bundesamt Deutschland http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2012/01/PE12__010__811,templateId=renderPrint.psml
Table VE-3 provides GDP price adjusted chain-linked percentage change from a year earlier from 2008 to 2011. There is strength in all categories with growth of consumption of household and NPISH (Nonprofit Institutions Serving Households) at 1.5 percent relative to a year earlier. Gross Fixed Capital Formation (GFCF) grew at 6.5 percent in 2011 relative to 2010 with GFCF of machinery and equipment growing at 8.3 percent. Trade was also dynamic with growth of exports of 8.2 percent and imports of 7.2 percent. GDP per hour worked grew at 1.2 percent and GDP per person in employment at 1.6 percent.
Table VE-3, Germany, GDP Price Adjusted, Chain-linked ∆% on Prior Year
| 2008 | 2009 | 2010 | 2011 | |
| Household NPISH Consumption | 0.6 | -0.1 | 0.6 | 1.5 |
| Government Final Consumption | 3.1 | 3.3 | 1.7 | 1.2 |
| Gross Fixed Capital Formation GFCF | 1.7 | -11.4 | 5.5 | 6.5 |
| GFCF Machinery & Equipment | 3.6 | -22.8 | 10.5 | 8.3 |
| GFCF Construction | -0.7 | -3.0 | 2.2 | 5.4 |
| Domestic Uses | 1.3 | -2.6 | 2.4 | 2.2 |
| Exports | 2.7 | -13.6 | 13.7 | 8.2 |
| Imports | 3.3 | -9.2 | 11.7 | 7.2 |
| GDP | 1.1 | -5.1 | 3.7 | 3.0 |
| GDP per Hour Work | -0.1 | -2.5 | 1.4 | 1.2 |
| GDP per Person in Employment | -0.1 | -5.2 | 3.2 | 1.6 |
NPISH: Nonprofit Institutions Serving Households
Source: Statistiche Bundesamt Deutschland http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Content/Publikationen/Fachveroeffentlichungen/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/NationalAccountsQuarterlyResults6480120113225,templateId=renderPrint.psml
The Statistiche Bundesamt Deutschland analyzes performance as follows (http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/Aktuell,templateId=renderPrint.psml):
“The impetus for growth was mainly provided by domestic demand in 2011. In particular household final consumption expenditure was a pillar of economic development: in price-adjusted terms, it grew by 1.5%, a rate last reached five years ago. Besides, the year 2011 was again characterised by a strong upward momentum in capital formation: gross fixed capital formation in machinery and equipment (+8.3% in price-adjusted terms) and in construction (+5.4% in price-adjusted terms) was markedly higher than a year earlier.”
The strength of growth in Germany is revealed by Table VE-4 with contributions to growth of price-adjusted GDP in percentage points. Domestic uses contributed 2.1 percentage points. Household final consumption and NPISH contributed 0.9 percent and GFCF 1.1 percentage points. Net exports contributed 0.8 percentage points.
Table VE-4, Germany, Contributions to Growth of Price-Adjusted GDP, Percentage Points
| 2008 | 2009 | 2010 | 2011 | |
| Domestic Uses | 1.2 | -2.4 | 2.3 | 2.1 |
| Household Final Consumption & NPISH | 0.3 | 0.0 | 0.4 | 0.9 |
| Government Final Consumption | 0.5 | 0.6 | 0.3 | 0.2 |
| Gross Fixed Capital Formation GFCF | 0.3 | -2.1 | 1.0 | 1.1 |
| GFCF Machinery & Equipment | 0.3 | -1.9 | 0.7 | 0.6 |
| GFCF Construction | -0.1 | -0.3 | 0.2 | 0.5 |
| Changes in Inventories | 0.0 | -0.9 | 0.6 | -0.1 |
| Net Exports (Exports less Imports) | 0.0 | -2.6 | 1.5 | 0.8 |
NPISH: Nonprofit Institutions Serving Households
Source: Statistiche Bundesamt Deutschland http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Content/Publikationen/Fachveroeffentlichungen/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/NationalAccountsQuarterlyResults6480120113225,templateId=renderPrint.psml
Additional insight into the Germany economy is provided by Table VE-5. Germany has a high savings ratio that settled at 10.9 percent in 2011. The number of employed persons increased from 40.362 million in 2009 to 41.094 million in 2011 while the number unemployed fell from 3.228 million in 2009 to 2.500 million in 2011. The unemployment rate fell from 7.4 percent in 2009 to 5.7 percent in 2011. Labor productivity began to grow again at 1.4 percent in 2010 and 1.2 percent in 2011. Compensation of employees per hour rose 1.2 percent in 2011. Unit labor costs grew at 1.4 percent in 2011.
Table VE-5, Germany, Savings, Demography and Labor
| 2009 | 2010 | 2011 | |
| Savings Ratio (Savings as % of Disposable Household Income) | 11.1 | 11.3 | 10.9 |
| Total Population Millions | 81.875 | 81.757 | 81.778 |
| Employed Persons Millions | 40.362 | 40.553 | 41.094 |
| Unemployed Persons Millions | 3.228 | 2.946 | 2.500 |
| Unemployment Rate IOL (% of Economically Active Population) | 7.4 | 6.8 | 5.7 |
| Labor Productivity GDP per Hour Worked by Employed Persons % | -2.5 | 1.4 | 1.2 |
| Compensation of Employees per hour Worked by Employees % | 3.4 | -0.1 | 1.2 |
| Unit Labor Costs per hour | 6.0 | -1.5 | 1.4 |
Source: Statistiche Bundesamt Deutschland, German Economy 2011
Table VE-6 provides Germany’s GDP of €2,570 billion in 2011 and its uses. Private consumption is 57.4 percent of GDP and GFCF 17.9 percent with government consumption of 19.5 percent and net exports 5.2 percent.
Table VE-6, Germany, GDP and Uses, Euro Billions and %
| GDP Euro Billions 2011 | 2,570 |
| Percent Distribution of Uses | |
| Gross Fixed Capital Formation | 17.9 |
| Private Consumption | 57.4 |
| Balance of Exports and Imports | 5.2 |
| Government Consumption | 19.5 |
Source: Statistiche Bundesamt Deutschland, German Economy 2011
The production industries index of Germany in Table VE-7 shows decline of 0.6 percent in Nov and increase of 3.6 percent in the 12 months ending in Nov. Germany’s industry suffered decline of 7.3 percent in Dec 2008 relative to Dec 2007 and decline of 2.3 percent in 2009. Recovery was vigorous with 14.2 percent in the 12 months ending in Dec 2010. The first quarter of 2011 was quite strong when the German economy outperformed the other advanced economies. The performance of Germany’s industry from 2003 to 2006 was vigorous with average rate of 5.1 percent. Data for the production industries index of Germany fluctuate sharply from month to month and also in 12 months rates.
Table VE-7, Germany, Production Industries, Month and 12-Months ∆%
| 12-Month ∆% NSA | Month ∆% Calendar SA | |
| Nov 2011 | 3.6 | -0.6 |
| Oct | 0.4 | 0.8 |
| Sep | 5.4 | -2.8 |
| Aug | 11.3 | -0.4 |
| Jul | 6.5 | 3.2 |
| Jun | 0.2 | -0.8 |
| May | 19.0 | 0.7 |
| Apr | 6.0 | 0.1 |
| Mar | 10.2 | 1.3 |
| Feb | 16.4 | 1.4 |
| Jan | 16.0 | 1.8 |
| Dec 2010 | 14.2 | -0.9 |
| Dec 2009 | -2.3 | -0.8 |
| Dec 2008 | -7.3 | -4.1 |
| Dec 2007 | -0.1 | 0.4 |
| Dec 2006 | 2.5 | 0.4 |
| Dec 2005 | 4.9 | 0.0 |
| Dec 2004 | 5.3 | 0.0 |
| Dec 2003 | 5.1 | 0.1 |
| Dec 2002 | 2.0 | -2.2 |
Source: Statistiche Bundesamt Deutschland
Table VE-8 provides monthly percentage changes of the German production industries index by components from Apr to Nov 2011. The production industries index fell 0.6 percent in Nov with negative changes in all components. Manufacturing fell 1.0 percent in Nov, declining in four of the eight months from Apr to Nov. The investment goods segment also fell 1.0 percent in Nov. Jul was quite strong with monthly growth of 3.2 percent for the index, 3.5 percent for manufacturing, 5.0 percent for investment goods and 14.4 percent for durable goods. It is quite difficult to analyze trends in these data. There is generalized perception that growth in the euro area slowed after the European summer.
Table VE-8, Germany, Production Industries, Industry and Components, Month ∆%
| Nov | Oct | Sep | Aug | Jul | Jun | May | Apr | |
| Production | -0.6 | 0.8 | -2.8 | -0.4 | 3.2 | -0.8 | 0.7 | 0.1 |
| Industry | -1.0 | 0.6 | -2.8 | -0.4 | 3.4 | -0.9 | 1.2 | 0.6 |
| Mfg | -1.0 | 0.6 | -2.8 | -0.4 | 3.5 | -1.0 | 1.3 | 0.4 |
| Intermediate Goods | -1.4 | -0.2 | -2.7 | -0.3 | 2.3 | 0.7 | 0.7 | 1.1 |
| Investment | -1.0 | 1.7 | -4.6 | 1.1 | 5.0 | -2.1 | 2.3 | 0.0 |
| Durable Goods | -3.3 | 1.6 | 0.0 | -9.7 | 14.4 | -6.3 | 0.2 | 0.8 |
| Nondurable Goods | -0.2 | -0.4 | 1.7 | -3.1 | -0.3 | -0.3 | 0.0 | 0.6 |
| Energy | -0.4 | 3.8 | -4.2 | 1.2 | -0.8 | 3.2 | -4.8 | -4.3 |
Seasonally Calendar Adjusted
Source: Statistiche Bundesamt Deutschland http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/TimeSeries/Indicators/ShortTermIndicators__nk.psml
Table VE-9 provides 12-month unadjusted percentage changes of industry and components in Germany. Although there are sharp fluctuations in the data there is suggestion of deceleration that would be expected from much higher earlier rates. The deceleration is quite evident in single-digit percentage changes in the quarter Sep to Nov relative to high double-digit percentage changes in Jan-Mar. Growth rates in the recovery from the global recession from IVQ2007 to IIQ2009 were initially very vigorous in comparison with the growth rates before the contraction that are shown in the bottom part of Table 6.
Table VE-9, Germany, Industry and Components, 12 Months ∆% Unadjusted
| IND | MFG | INTG | INVG | DG | NDG | EN | |
| 2011 | |||||||
| Nov | 4.1 | 4.3 | 2.9 | 7.2 | 0.4 | -0.4 | -8,2 |
| Oct | 1.2 | 1.3 | 0.8 | 3.5 | -3.3 | -3.2 | -8.5 |
| Sep | 6.6 | 6.6 | 6.8 | 8.9 | 3.3 | 0.3 | -9.3 |
| Aug | 12.9 | 12.7 | 11.2 | 20.2 | 4.0 | 1.4 | -5.1 |
| Jul | 8.1 | 8.3 | 6.8 | 13.0 | 7.3 | -0.3 | -9.4 |
| Jun | 1.0 | 1.0 | 1.8 | 2.0 | -10.5 | -2.1 | -6.3 |
| May | 21.4 | 21.5 | 18.0 | 28.2 | 21.6 | 13.2 | -11.7 |
| Apr | 7.5 | 7.6 | 6.2 | 11.0 | 4.8 | 2.3 | -7.5 |
| Mar | 10.7 | 10.9 | 10.2 | 14.8 | 8.5 | 1.9 | -0.3 |
| Feb | 17.0 | 17.2 | 16.3 | 22.4 | 11.0 | 6.1 | -2.9 |
| Jan | 17.1 | 17.2 | 17.0 | 23.2 | 11.2 | 4.4 | -3.0 |
| 2010 | |||||||
| Dec | 17.5 | 17.6 | 14.5 | 26.3 | 9.1 | 2.9 | 4.8 |
| Nov | 13.8 | 13.8 | 13.1 | 19.0 | 7.9 | 3.6 | 2.9 |
| Oct | 9.9 | 10.1 | 10.1 | 13.9 | 6.5 | 0.9 | 0.2 |
| Sep | 9.5 | 9.3 | 12.1 | 10.0 | 7.9 | 1.7 | -2.4 |
| Aug | 17.2 | 17.2 | 19.0 | 20.3 | 19.5 | 6.9 | -2.1 |
| Jul | 9.1 | 8.8 | 12.7 | 8.7 | 7.2 | 0.9 | -0.2 |
| Jun | 16.2 | 16.1 | 20.5 | 16.0 | 20.5 | 5.3 | -2.5 |
| May | 13.3 | 13.3 | 20.2 | 11.6 | 10.7 | 1.7 | 12.8 |
| Apr | 14.9 | 14.8 | 21.8 | 15.3 | 8.5 | 0.0 | 9.9 |
| Mar | 14.2 | 14.5 | 20.4 | 11.7 | 11.8 | 6.4 | 7.2 |
| Feb | 7.1 | 7.5 | 10.8 | 7.0 | 7.4 | -1.2 | 5.4 |
| Jan | 0.6 | 0.9 | 6.7 | -3.4 | -0.4 | -3.9 | 3.3 |
| Dec 2010 | 17.5 | 17.6 | 14.5 | 26.3 | 9.1 | 2.9 | 4.8 |
| Dec 2009 | -3.3 | -3.2 | 3.3 | -9.9 | -0.1 | 1.1 | 3.8 |
| Dec 2008 | -7.6 | -7.4 | -14.4 | -5.5 | -11.2 | 3.7 | -9.0 |
| Dec 2007 | 0.1 | -0.3 | -0.6 | 2.5 | -10.0 | -2.6 | 1.7 |
| Dec 2006 | 3.1 | 3.1 | 5.2 | 2.3 | 8.7 | -1.0 | -5.4 |
| Dec 2005 | 5.8 | 5.8 | 3.5 | 8.9 | 3.2 | 2.2 | 0.6 |
| Dec 2004 | 5.2 | 5.6 | 7.6 | 3.4 | 0.9 | 5.7 | 9.6 |
| Dec 2003 | 5.5 | 5.3 | 5.6 | 6.3 | 1.6 | 4.6 | 0.3 |
| Dec 2002 | 3.7 | 3.4 | 5.3 | 3.4 | -5.9 | 2.2 | -2.6 |
Note: IND: Industry; MFG: Manufacturing; INTG: Intermediate Goods; INVG: Investment Goods; DG: Durable Goods; NDG: Nondurable Goods; EN: Energy
Source: Statistiche Bundesamt Deutschland http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/TimeSeries/Indicators/ShortTermIndicators__nk.psml
Broader perspective since 2002 is provided by Chart VE-1 of the Statistiche Bundesamt Deutschland, Federal Statistical Agency of Germany. The index rises by more than one third between 2003 and 2008 with sharp fluctuations and then collapses during the global recession during 2008. Recovery has been in a steep upward trajectory that has recovered at the more recent peaks the losses during the contraction.
Chart VE-1, Germany, Production Industries, Not Adjusted, 2005=100
Source: Statistiche Bundesamt Deutschland
More detail is provided by Chart VE-2 of the Statistiche Bundesamt Deutschland, or Federal Statistical Agency of Germany, with the unadjusted production industries index and trend from 2007 to 2011. There could be some flattening in recent months as depicted by trend.
Chart VE-2, Germany, Production Index, Not Adjusted Index and Trend, 2005=100
Source: Statistiche Bundesamt Deutschland
Table VE-10 provides the month and 12 months rates of growth of manufacturing in Germany in 2011. There are fluctuations in both the rates for a month and in the past 12 months. Deceleration appears in the annual equivalent rate of 12.7 percent for Jan-May but minus 2.4 percent in the annual equivalent Jun-Nov.
Table VE-10, Germany, Manufacturing Month and 12 Months ∆%
| 12 Months ∆% NSA | Month ∆% SA and Calendar Adjusted | |
| Nov 2011 | 4.3 | -1.0 |
| Oct | 1.3 | 0.6 |
| Sep | 6.6 | -2.8 |
| Aug | 12.7 | -0.4 |
| Jul | 8.3 | 3.5 |
| Jun | 1.0 | -1.0 |
| AE ∆% Jun-Nov | -2.4 | |
| May | 21.5 | 1.3 |
| Apr | 7.6 | 0.4 |
| Mar | 10.9 | 1.0 |
| Feb | 17.2 | 1.6 |
| Jan | 17.2 | 0.7 |
| AE ∆% Jan-May | 12.7 | |
| Dec | 17.6 | 0.3 |
AE: Annual Equivalent
Source:
Statistiche Bundesamt Deutschland
Chart VE-3 of the Statistiche Bundesamt Deutschland, or Federal Statistical Office of Germany, provides the manufacturing index of Germany from 2007 to 2011. Manufacturing was already flattening in 2007 and fell sharply in 2008 to the beginning of 2010. Manufacturing grew sharply in the initial phase of recovery but has flattened in recent months as revealed by the trend.
Chart VE-3, Germany, Manufacturing Index, Not Adjusted Index and Trend, 2005=100
Source: Statistiche Bundesamt Deutschland
Twelve-month rates of growth Germany’s exports and imports are shown in Table VE-11. There was sharp decline in the rates in Jun and Jul to single-digit levels especially for exports. In the 12 months ending in Aug, exports rose 14.6 percent and imports 13.2 percent. In Sep, exports grew 10.6 percent relative to a year earlier and imports grew 12.0 percent. Growth rates in 12 months ending in Oct fell significantly to 3.9 percent for exports and 8.9 percent for imports. Lower prices may explain part of the decline in nominal values. Exports grew 8.3 percent in Nov and imports 6.7 percent. Growth had been much stronger in the recovery during 2010 and 2011 from the fall from 2007 to 2009. Germany’s trade grew at high rates in 2006 and 2005.
Table VE-11, Germany, Exports and Imports NSA Euro Billions and 12 Months ∆%
| Exports EURO Billions | 12 Months | Imports | 12 Months | |
| Nov 2011 | 94.9 | 8.3 | 78.7 | 6.7 |
| Oct | 89.3 | 3.9 | 77.9 | 8.9 |
| Sep | 95.1 | 10.6 | 77.8 | 12.0 |
| Aug | 85.3 | 14.6 | 73.5 | 13.2 |
| Jul | 85.8 | 5.5 | 75.3 | 10.0 |
| Jun | 88.3 | 3.5 | 75.6 | 6.2 |
| May | 92.2 | 21.0 | 77.4 | 17.1 |
| Apr | 84.3 | 12.1 | 73.4 | 18.1 |
| Mar | 98.2 | 14.7 | 79.4 | 14.5 |
| Feb | 84.1 | 20.1 | 72.1 | 27.1 |
| Jan | 78.6 | 24.1 | 68.5 | 24.4 |
| Dec 2010 | 81.0 | 20.0 | 68.4 | 24.3 |
| Nov | 87.6 | 21.2 | 73.7 | 30.9 |
| Oct | 86.0 | 18.7 | 71.5 | 19.1 |
| Sep | 86.0 | 21.2 | 69.5 | 17.0 |
| Aug | 74.4 | 23.8 | 64.9 | 27.1 |
| Jul | 81.4 | 15.3 | 68.4 | 24.4 |
| Jun | 85.3 | 27.5 | 71.2 | 33.9 |
| May | 76.2 | 25.6 | 66.0 | 31.2 |
| Apr | 75.2 | 16.7 | 62.2 | 14.5 |
| Mar | 85.6 | 22.0 | 69.3 | 18.0 |
| Feb | 70.0 | 9.7 | 56.8 | 3.2 |
| Jan | 63.4 | -0.3 | 55.1 | -1.9 |
| Dec 2009 | 67.5 | 1.2 | 55.0 | -7.3 |
| Dec 2008 | 66.7 | -8.6 | 59.4 | -5.0 |
| Dec 2007 | 73.0 | -0.6 | 62.5 | -0.1 |
| Dec 2006 | 73.4 | 10.2 | 62.6 | 8.5 |
| Dec 2005 | 66.6 | 11.5 | 57.7 | 18.1 |
| Dec 2004 | 59.7 | 9.2 | 48.9 | 10.8 |
| Dec 2003 | 54.7 | 7.6 | 44.1 | 3.9 |
| Dec 2002 | 50.8 | 5.5 | ||
| Dec 2001 | 48.2 | -3.7 | ||
| Dec 2000 | 50.0 |
Table VE-12 provides monthly rates of growth of exports and imports of Germany. Exports surged in Aug after weak negative growth in Jul and Jun. Exports grew again 0.8 percent in Sep but fell 2.9 percent in Oct. Exports increased 2.5 percent in Nov. The trade account has benefitted from declines in imports of 0.9 percent in Sep and 0.4 percent in percent in Nov.
Table VE-12, Germany, Exports and Imports Month ∆% Calendar and Seasonally Adjusted
| Exports | Imports | |
| Nov 2011 | 2.5 | -0.4 |
| Oct | -2.9 | 0.1 |
| Sep | 0.8 | -0.9 |
| Aug | 3.2 | 0.0 |
| Jul | -1.0 | 0.5 |
| Jun | -0.5 | -0.2 |
| May | 3.1 | 3.0 |
| Apr | -4.0 | -1.8 |
| Mar | 5.5 | 2.6 |
| Feb | 2.5 | 3.1 |
| Jan | 0.3 | 4.3 |
| Dec 2010 | -1.1 | -3.4 |
Chart VE-4 of the Statistisches Bundesamt Deutschland shows exports and trend of German exports. Growth has been with fluctuations around a strong upward trend.
Chart VE-4, Germany, Exports Original Value and Trend 2007-2011
Source: Statistisches Bundesamt Deutschland
Chart VE-5 of the Statistisches Bundesamt Deutschland provides German imports and trend. Imports also fell sharply and have been recovering with fluctuations around a strong upward trend.
Chart VE-5, Germany, Imports Original Value and Trend 2007-2011
Source: Statistisches Bundesamt Deutschland
Chart VE-6 of the Statistisches Bundesamt Deutschland shows the trade balance of Germany since 2007. There was sharp decline during the global recession and fluctuations around a mild upward trend during the recovery with stabilization in recent months.
Chart VE-6, Germany, Trade Balance Original and Trend 2007-2011
Source:
Statistisches Bundesamt Deutschland
There is extremely important information in Table VE-13 for the current sovereign risk crisis in the euro zone. Table VE-13 provides the structure of regional and country relations of Germany’s exports and imports with newly available data for Nov. German exports to other European Union members are 59.0 percent of total exports in Nov and 59.5 percent in Jan-Oct. Exports to the euro area are 39.7 percent in Nov and 39.9 percent in Jan-Nov. Exports to third countries are only 40.9 percent of the total in Nov and 40.5 percent in Jan-Nov. There is similar distribution for imports. Economic performance in Germany is closely related to its high competitiveness in world markets. Weakness in the euro zone and the European Union in general could affect the German economy. This may be the major reason for choosing the “fiscal abuse” of the European Central Bank considered by Buiter (2011Oct31) over the breakdown of the euro zone. There is a tough analytical, empirical and forecasting doubt of growth and trade in the euro zone and the world with or without maintenance of the European Monetary Union (EMU) or euro zone.
Table VE-13, Germany, Structure of Exports and Imports by Region, € Billions and ∆%
| Nov 2011 | 12 Months | Jan-Nov | Jan-Nov 2011/ | |
| Total | 94.9 | 8.3 | 976.0 | 12.1 |
| A. EU | 56.0 % 59.0 | 8.4 | 580.9 % 59.5 | 11.1 |
| Euro Area | 37.7 % 39.7 | 7.7 | 389.7 % 39.9 | 9.9 |
| Non-euro Area | 18.3 % 19.3 | 9.8 | 191.2 % 19.6 | 13.7 |
| B. Third Countries | 38.9 % 40.9 | 8.2 | 395.1 % 40.5 | 13.5 |
| Total Imports | 78.7 | 6.7 | 829.6 | 13.9 |
| C. EU Members | 50.6 % 64.3 | 10.6 | 526.7 % 63.5 | 14.7 |
| Euro Area | 35.1 % 44.6 | 8.8 | 369.4 % 44.5 | 13.8 |
| Non-euro Area | 15.5 % 19.7 | 15.1 | 157.3 % 18.9 | 17.0 |
| D. Third Countries | 28.0 % 35.6 | 0.2 | 302.9 % 36.5 | 12.4 |
Notes: Total Exports = A+B; Total Imports = C+D
VF France. The Markit France Services Activity Index of the Markit France Services PMI® rose from 49.6 in Nov to 50.3 in Dec such that the Markit France Composite Output Index stabilized at 50 in Dec above 48.8 in Nov (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9012). The pace of deterioration of manufacturing business slowed with the Markit Purchasing Managers’ Index® (PMI®)) improving slightly from 47.3 in Nov to 48.9 in Dec (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8981). The improvement reflected less sharp reduction in new orders in part because of slower decline of new export orders. The index has been below 50 since Aug. Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI®, finds fragility in French manufacturing with uncertainty in consumers and business (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8981). Table FR provides France’s country data table.
Table FR, France, Economic Indicators
| CPI | Dec month ∆% 0.4 |
| PPI | Oct month ∆%: 0.4 Blog 12/27/11 |
| GDP Growth | IIIQ2011/IIQ2011 ∆%: 0.3 |
| Industrial Production | Nov/Oct SA ∆%: |
| Industrial New Orders | Mfg Oct/Sep ∆% 0.3 YOY ∆% 5.0 Blog 12/27/11 |
| Consumer Spending | Nov Manufactured Goods |
| Employment | IIIQ2011 Unemployed 2.631 million |
| Trade Balance | Oct Exports ∆%: month 0.5, 12 months 6.3 Oct Imports ∆%: month minus 0.3, 12 months 7.4 Blog 12/11/11 |
| Confidence Indicators | Historical averages 100 Dec: France 92 Mfg Business Climate 94 Retail Trade 93 Services 91 Building 99 Household 79 Blog 12/18/11 |
Links to blog comments in Table FR: 01/0812 http://cmpassocregulationblog.blogspot.com/2012/01/thirty-million-unemployed-or.html
12/27/11 http://cmpassocregulationblog.blogspot.com/2011/12/slow-growth-falling-real-disposable_27.html
12/18/11 http://cmpassocregulationblog.blogspot.com/2011/12/recovery-without-hiring-world-inflation_1721.html
12/11/11 http://cmpassocregulationblog.blogspot.com/2011/12/euro-zone-survival-risk-world-financial_11.html
12/04/11 http://cmpassocregulationblog.blogspot.com/2011/12/twenty-nine-million-in-job-stress.html
France’s industrial production by segments is provided in Table VF-1. Total industry increased a sharp 1.1 percent and manufacturing 1.3 percent while construction increased 0.8 percent and mining declined 0.7 percent. There were declines for all categories in the quarter. Industry rose 1.1 percent relative to the same quarter a year earlier and manufacturing grew 2.2 percent while mining fell 5.2 percent.
Table VF-1, France, Industrial Production ∆%
| Nov/Oct | Oct/Sep | QOQ | YOY | |
| Industry | 1.1 | 0.1 | -1.0 | 1.1 |
| Manufacturing | 1.3 | 0.2 | -0.7 | 2.2 |
| Mining | -0.7 | -0.3 | -2.4 | -5.2 |
| Construction | 0.8 | -0.8 | -0.1 | 0.7 |
Note: QOQ: quarter on quarter; YOY:most recent quarter on the same quarter a year earlier
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20120110
Table VF-2 provides monthly and 12-month percentage changes of manufacturing in France. There is significant volatility in monthly percentage changes. Growth relative to a year earlier has fallen from 6.7 percent in Jan 2011 and 7.3 percent in Feb 2011 to 2.2 percent in Nov 2011. Manufacturing fell 12.7 percent in the 12 months ending in Dec 2008 and an additional 3.0 percent in the 12 months ending in Dec 2009 but recovered with growth of 5.1 percent in Dec 2010 relative to a year earlier. The year-end rates of growth before the global recession were not very high and French manufacturing struggled during the 2001 recession.
Table VF-2, France, Manufacturing, Month and 12-Month ∆%
| Month ∆% | 12-Month ∆% | |
| Nov 2011 | 1.3 | 2.2 |
| Oct | 0.2 | 2.6 |
| Sep | -2.1 | 1.8 |
| Aug | 0.5 | 4.9 |
| Jul | 1.5 | 3.8 |
| Jun | -2.0 | 3.3 |
| May | 1.3 | 4.2 |
| Apr | -0.3 | 3.5 |
| Mar | -1.1 | 4.5 |
| Feb | 0.8 | 7.3 |
| Jan | 2.0 | 6.7 |
| Dec 2010 | 0.2 | 5.1 |
| Dec 2009 | -3.0 | |
| Dec 2008 | -12.7 | |
| Dec 2007 | -0.1 | |
| Dec 2006 | 2.3 | |
| Dec 2005 | 0.0 | |
| Dec 2004 | 1.5 | |
| Dec 2003 | 0.4 | |
| Dec 2002 | -0.6 | |
| Dec 2001 | -4.8 | |
| Dec 2000 | 5.1 |
Source:
Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20120110
Chart VF-1 of France’s Institut National de la Statistique et des Études Économiques shows indices of manufacturing in France from 2007 to 2011. Manufacturing, which is CZ in Chart F1, fell deeply in 2008 and part of 2009. All curves of industrial indices tend to flatten recently with oscillations.
Chart VF-1, France, Industrial Production Indices 2007-2011
Legend : CZ : Manufacturing - (C1) : Manufacture of food products and beverages - (C3) : Electrical and electronic equipment; machine equipment - (C4) : Manufacture of transport equipment - (C5) : Other manufacturing
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20120110
VG Italy. The Markit/ADACI Business Activity Index of the Markit/ADACI Italy Services PMI® fell from 45.8 in Nov from 44.5 in Dec, indicating sharp contraction in services output in Italy (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8967). Italy’s Markit/ADACI Purchasing Managers’ Index® (PMI®)) improved slightly from 44.0 in Nov to 44.3 in Dec but still showing deterioration for Italian manufacturers (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8962). Deterioration of manufacturing business originates in decline of new orders with weakening internal and foreign demand. Phil Smith, economist at Markit and author of the Italian Manufacturing PMI®, finds that declining orders may challenge future output and employment. Table IT provides the data table for Italy.
Table IT, Italy, Economic Indicators
| Consumer Price Index | Dec month ∆%: 0.4 |
| Producer Price Index | Nov month ∆%: 0.2 Blog 01/01/12 |
| GDP Growth | IIIQ2011/IIIQ2010 SA ∆%: 0.2 |
| Labor Report | Nov 2011 Participation rate 62.2% Employment ratio 56.9% Unemployment rate 8.6% Blog 01/08/12 |
| Industrial Production | Nov month ∆%: 0.3 |
| Retail Sales | Oct month ∆%: -0.5 Oct 12 months ∆%: minus 1.5 Blog 12/27/11 |
| Business Confidence | Mfg Dec 92.5, Aug 98.5 Construction Dec 80.1, Aug 77.3 Blog 01/01/12 |
| Consumer Confidence | Consumer Confidence Dec 91.6, Nov 96.1 Economy Dec 77.2, Nov 83.1 Blog 12/27/11 |
| Trade Balance | Balance Oct SA -€ 1965 million versus Sep -€ 1332 |
Links to blog comments in Table IT:
01/08/12 http://cmpassocregulationblog.blogspot.com/2012/01/thirty-million-unemployed-or.html
01/01/12 http://cmpassocregulationblog.blogspot.com/2012/01/financial-risk-aversion-and-collapse-of.html
12/27/11 http://cmpassocregulationblog.blogspot.com/2011/12/slow-growth-falling-real-disposable_27.html
12/18/11 http://cmpassocregulationblog.blogspot.com/2011/12/recovery-without-hiring-world-inflation_1721.html
12/11/11 http://cmpassocregulationblog.blogspot.com/2011/12/euro-zone-survival-risk-world-financial_11.html
Italy’s industrial production increased 0.3 percent in Nov but is lower by 4.1 percent relative to a year earlier. Industrial production fell 0.9 percent in Oct and 4.2 percent in 12 months after declining 4.7 percent in Sep and 2.7 percent in 12 months, as shown in Table VG-1. Industry has accumulated decline of 3.6 percent in Jan-Nov. Industrial production fell 18.8 percent in 2009 after falling 3.2 percent in 2008.
Table VG-1, Italy, Industrial Production ∆%
| Month ∆% SA | 12 Months ∆% Calendar Adjusted | |
| Nov 2011 | 0.3 | -4.1 |
| Oct | -0.9 | -4.1 |
| Sep | -4.7 | -2.7 |
| Aug | 3.6 | 4.7 |
| Jul | -0.6 | -1.1 |
| Jun | -0.7 | 0.1 |
| May | -0.8 | 1.8 |
| Apr | 0.7 | 3.9 |
| Mar | 0.4 | 3.5 |
| Feb | 1.1 | 2.4 |
| Jan | -1.8 | 0.4 |
| Jan-Nov Cumulative ∆% | –3.6 | |
| Dec 2010 | -0.2 | 6.3 |
| Nov | 0.7 | 5.2 |
| Oct | 0.2 | 3.9 |
| Sep | 0.3 | 5.5 |
| Aug | -0.4 | 11.0 |
| Jul | 0.5 | 7.0 |
| Jun | 0.9 | 9.6 |
| May | 1.1 | 8.4 |
| Apr | 0.7 | 9.1 |
| Mar | -0.3 | 7.8 |
| Feb | -0.6 | 4.2 |
| Jan | 3.7 | 0.7 |
| Dec 2009 | -1.1 | -6.6 |
| Year | ||
| 2010 | 6.4 | |
| 2009 | -18.8 | |
| 2008 | -3.2 |
Source: Istituto Nazionale di Statistica
http://www.istat.it/it/archivio/50257
Chart VG-1 of the Istituto Nazionale di Statistica of Italy captures the fluctuations of industrial production in 12-month rates of growth. Year-on-year growth of industrial production in Italy has moved into negative territory.
Chart VG-1, Italy, Industrial Production
Source: Istituto Nazionale di Statistica
Month and 12-month rates of growth of Italy’s industrial production and major categories are provided in Table VG-2 for Nov 2011. The 12-month rates of change are all negative and relatively high. Total industrial production increased 0.3 percent in Nov but fell 4.1 percent relative to a year earlier. In the month of Nov, consumer goods increased 1.5 percent, durable goods 1.1 percent and nondurable goods 1.1 percent.
Table VG-2, Italy, Industrial Production Rate of Change ∆%
| Nov 2011 | Month ∆% | 12-Month ∆% |
| Total | 0.3 | -4.1 |
| Consumer Goods | 1.5 | -3.1 |
| Durable | 1.6 | -8.8 |
| Nondurable | 1.1 | -1.9 |
| Construction Goods | -0.3 | -4.5 |
| Intermediate Goods | -0.3 | -4.6 |
| Energy | 0.8 | -4.4 |
Source:
Istituto Nazionale di Statistica
http://www.istat.it/it/archivio/50257
VH United Kingdom. The Markit/CIPS UK Services PMI® finds a recurring pattern of weakness in manufacturing partly compensated by relatively stronger services. The Markit/CIPS Business Activity Index registered 54.0 in Dec, suggesting growth higher than 52.1 in Nov (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9031). The index has exceeded the no change zone of 50 in all the first ten months of 2011. Chris Williamson, Chief Economist at Markit, finds that the sharp drop of manufacturing combined with improvement in services suggests the UK economy did not fall into recession (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9031).The Markit/CIPS UK Manufacturing Purchasing Managers’ Index® (PMI®) increased from 47.7 in Nov to 49.6 in Dec, still in contraction territory (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8994). The average for IVQ2011 is the lowest since IIQ2009. There is stabilization after contraction. Table UK provides the data table for the United Kingdom.
Table UK, UK Economic Indicators
| CPI | Nov month ∆%: 0.2 |
| Output/Input Prices | Output Prices: |
| GDP Growth | IIIQ2011 prior quarter ∆% 0.6; year earlier same quarter ∆%: 0.5 |
| Industrial Production | Nov 2011/Nov 2010 NSA ∆%: Industrial Production minus 3.1; Manufacturing minus 0.6 |
| Retail Sales | Nov month SA ∆%: -0.4 |
| Labor Market | Aug-Oct Unemployment Rate: 8.3% |
| Trade Balance | Balance Nov minus ₤2566 million |
Links to blog comments in Table UK:
12/27/11
http://cmpassocregulationblog.blogspot.com/2011/12/slow-growth-falling-real-disposable_27.html
12/18/11 http://cmpassocregulationblog.blogspot.com/2011/12/recovery-without-hiring-world-inflation_1721.html
12/11/11 http://cmpassocregulationblog.blogspot.com/2011/12/euro-zone-survival-risk-world-financial_11.html
The UK Office for National Statistics provides the output of production industries with revisions. Table VH-1 incorporates the revisions released on Oct 11, 2011(http://www.ons.gov.uk/ons/rel/iop/index-of-production/august-2011/index.html) and the latest available data for Nov. Manufacturing accounts for 66.6 percent of the production industries of the UK and fell 0.6 percent in the 12 months ending in Oct, declining from the high revised rate of growth of 5.8 percent in the 12 months ending in Jan. Capital goods industries grew at 4.3 percent in the 12 months ending in Nov and have been growing at very high rates during the current cyclical recovery but falling from the unsustainable high of 10.9 percent in the 12 months ending in Jan. Mining and quarrying fell 14.2 percent in the 12 months ending in Nov mostly as a result of decline in gas and oil. The 12 months rates of growth of the entire index of production industries registered declines for all 12 months from Mar to Nov 2011. Energy and mining have been the factors of decline. The lower part of Table VH-1 provides rates of change of yearly values. Manufacturing output fell 9.6 percent in 2009 after falling 2.6 percent in 2008 but grew at 3.7 percent in the initial phase of the recovery in 2010.
Table VH-1, UK, Output of the Production Industries, Chain Volume Indices of Gross Value Added, 12-Month ∆%
| PROD | MNG | MFG | ENGY | CON | CON | CAP | |
| 2011 | |||||||
| Nov | -3.1 | -14.2 | -0.6 | -11.8 | 0.6 | -0.3 | 4.3 |
| Oct | -2.1 | -12.9 | 0.1 | -10.2 | -1.0 | -0.9 | 5.1 |
| Sep | -1.5 | -17.3 | 1.3 | -10.9 | -0.6 | 0.3 | 6.7 |
| Aug | -1.2 | -15.7 | 1.2 | -9.0 | -1.2 | 1.9 | 4.3 |
| Jul | -1.2 | -16.8 | 2.2 | -10.6 | 1.8 | 3.5 | 4.6 |
| Jun | -0.5 | -16.4 | 3.1 | -9.6 | 6.9 | 2.6 | 7.7 |
| May | -1.5 | -22.6 | 3.5 | -13.9 | 2.4 | 3.6 | 6.4 |
| Apr | -1.8 | -16.0 | 2.0 | -11.8 | 1.3 | 3.9 | 4.5 |
| Mar | -0.6 | -16.1 | 2.9 | -10.8 | 1.0 | 0.7 | 8.7 |
| Feb | 1.4 | -12.2 | 4.8 | -8.1 | 0.4 | 0.7 | 10.9 |
| Jan | 3.3 | -4.5 | 5.8 | -3.9 | 3.8 | -0.4 | 10.9 |
| 2010 | |||||||
| Dec | 3.3 | -4.8 | 4.3 | 0.8 | -4.6 | 3.1 | 8.0 |
| Nov | 2.7 | -6.2 | 5.1 | -3.1 | -9.4 | 1.2 | 9.5 |
| Oct | 2.7 | -6.2 | 5.3 | -3.1 | -9.5 | 4.2 | 7.3 |
| Sep | 3.7 | 2.9 | 5.2 | 1.2 | -9.0 | 2.1 | 9.7 |
| Aug | 3.8 | 0.3 | 6.2 | -1.1 | 0.2 | 3.5 | 12.7 |
| Jul | 1.6 | -8.9 | 5.0 | -7.1 | -1.4 | -0.9 | 12.7 |
| Jun | 1.2 | -9.5 | 3.9 | -6.6 | -6.2 | 0.5 | 9.6 |
| May | 2.5 | -1.0 | 3.5 | -1.4 | -2.6 | -3.3 | 12.2 |
| Apr | 0.9 | -5.9 | 2.1 | -3.6 | -3.7 | -6.3 | 10.1 |
| Mar | 2.2 | -1.4 | 3.2 | -0.9 | 0.2 | -1.7 | 9.2 |
| Feb | -0.6 | -8.4 | 1.0 | -5.9 | -1.5 | -2.7 | 7.4 |
| Jan | -1.6 | -8.7 | -0.4 | -5.1 | -3.5 | -1.4 | 4.9 |
| 2010/ | 1.9 | -4.9 | 3.7 | -3.1 | -4.3 | -0.2 | 9.4 |
| 2009/ 2008 | -9.0 | -9.0 | -9.6 | -6.2 | -7.5 | -0.8 | -10.7 |
| 2008/ 2007 | -2.8 | -6.5 | -2.6 | -2.9 | -5.6 | -1.9 | -3.0 |
| 2007/ | 0.5 | -2.5 | 0.8 | -1.2 | 1.0 | -1.7 | 2.5 |
| 2006/ 2005 | -- | -7.6 | 1.7 | -5.4 | 0.3 | 0.7 | 2.9 |
Notes: PROD IND: Production Industries; MNG: Mining; MFG: Manufacturing; ENGY: Energy; CON DUR: Consumer Durables; CONS NDUR: Consumer Nondurables; CAP: Capital Goods
Source: http://www.ons.gov.uk/ons/rel/iop/index-of-production/november-2011/index.html
Percentage changes in the production industries and major components in the latest month relative to the prior month are shown in Table VH-2. Manufacturing fell in all months from Jun to Nov with the exception of growth of 0.1 percent in Sep. Growth was stronger in the first five months to May with the exception of decline by 1.3 percent in Apr. Output of consumer durables has fallen sharply in Jul-Nov by cumulative 5.7 percent with growth only in Nov by 0.9 percent. Output of capital goods fell 0.8 percent in Jul and then another 0.1 percent in Aug but grew strongly by 2.0 percent in Sep but declined slightly by 1.1 percent in Oct, increasing 1.1 percent in Nov.
Table VH-2, UK, Output of the Production Industries, Chained Volume Indices of Gross Value Added, Latest Month on Previous Month ∆%
| PROD | MNG | MFG | ENGY | CON | CON | CAP | |
| 2011 | |||||||
| Nov | -0.6 | -2.2 | -0.2 | -1.9 | 0.9 | -0.1 | 1.1 |
| Oct | -1.0 | 0.2 | -0.9 | -1.7 | -0.4 | -0.4 | -1.0 |
| Sep | 0.0 | -0.7 | 0.1 | -0.8 | -2.4 | -2.0 | 2.0 |
| Aug | 0.3 | 2.6 | -0.4 | 1.9 | -1.8 | 0.3 | -0.1 |
| Jul | -0.4 | -0.4 | -0.2 | -1.2 | -2.1 | -0.2 | -0.8 |
| Jun | 0.2 | 1.2 | -0.2 | 1.3 | 0.3 | 0.6 | 0.0 |
| May | 0.8 | -5.8 | 1.7 | -1.4 | 0.9 | 0.7 | 2.9 |
| Apr | -1.7 | -1.2 | -1.3 | -2.2 | -0.7 | 0.2 | -3.4 |
| Mar | 0.1 | -0.7 | 0.3 | -0.5 | 0.7 | 1.5 | 0.6 |
| Feb | -1.2 | -8.1 | 0.1 | -5.6 | -1.3 | 0.3 | 1.5 |
| Jan | 0.2 | 2.9 | 0.9 | -2.5 | 2.8 | -1.0 | 2.2 |
| 2010 | |||||||
| Dec | 0.2 | -2.5 | -0.7 | 2.1 | 3.9 | 0.2 | -0.6 |
Notes: PROD IND: Production Industries; MNG: Mining; MFG: Manufacturing; ENGY: Electricity, Gas and Water Supply; CON DUR: Consumer Durables; CONS NDUR: Consumer Nondurables; CAP: Capital Goods
Source: http://www.ons.gov.uk/ons/rel/iop/index-of-production/november-2011/index.html
The weights of components of the production index and contributions by components to the monthly and 12-month percentage changes of volume are provided in Table VH-3. The 12-month rate of output of the production industries of minus 3.1 percent was driven by negative contribution of 2.07 percentage points of the general component of mining with the subcomponent of oil and gas contributing negative 2.05 percentage points. Manufacturing contributed minus 0.44 percentage points to growth of the production industries index. The contribution of manufacturing is anemic because of its share of 66.6 percent in the production index. The contributions do not add exactly because of rounding. Manufacturing fell 0.2 percent in Nov contributing minus 0.11 percentage points and electricity fell 2.2 percent in Nov, contributing minus 0.21 percentage points. Growth of mining by 2.1 percent contributed only 0.22 percentage points.
Table VH-3, UK, Weights of Components, Volume 12-Month and Month ∆% and Percentage Point Contributions of Production Industries by Components
| Weight | Volume 12 Months ∆% Ending in Nov 2011 | % Point | Volume | % Point | |
| PROD | 100.0 | -3.1 | -3.09 | -0.6 | -0.61 |
| MNG | 16.4 | -14.2 | -2.07 | -2.2 | -0.28 |
| MNG 06 | 14.1 | -16.7 | -2.05 | 2.1 | -0.22 |
| MFG | 66.6 | -0.6 | -0.44 | -0.2 | -0.11 |
| ELEC | 9.3 | -8.6 | -0.85 | -2.2 | -0.21 |
| WATER | 7.7 | 3.7 | 0.27 | -0.1 | -0.01 |
Notes: Contrib: Contribution; PROD IND: Index of Production; MNG: Mining and Quarrying (of which 14.4 percent of the total weight in oil and gas extraction); MNG 06: Subdivision of Mining including oil and gas extraction; MFG: Manufacturing; ELEC: Electricity, gas, steam and air conditioning; WATER & SEW: water supply, sewerage and waste management
Source: http://www.ons.gov.uk/ons/rel/iop/index-of-production/november-2011/index.html
Table VH-4 provides the breakdown of manufacturing 12-month and monthly growth and percentage contributions. Food products, beverage and tobacco (CA), chemical and chemical products (CE), computer, electronic and optical products (CI), machinery and equipment (CK), transport equipment (CL) and other manufacturing and repair (CM) provided the impulse to the 12-month rates of growth with all other segments subtracting with negative contributions. Manufacture of good products, beverage and tobacco (CA) contributed 0.18 percentage points to the monthly rate in Nov, basic pharmaceutical products and preparations (CF) contributed 0.03 percentage points, transport equipment (CL) contributed 0.23 percentage points and other manufacturing, computer, electronic and optical products (CI) contributed 0.03 percentage points and other manufacturing and repair (CM) contributed 0.06 percentage points.
Table VH-4, UK, Growth Rates of Manufacturing and Percentage Point Contributions to the Index of Production, Nov 2011
| Sub-sector | % of production | Year on year growth (%) | Contribution to production (% points) | Month on month growth (%) | Contribution to production (% points) |
| CA | 11.2 | 1.3 | 0.16 | 1.4 | 0.18 |
| CB | 2.1 | -1.4 | -0.03 | -1.5 | -0.03 |
| CC | 5.9 | -2.9 | -0.16 | -2.5 | -0.14 |
| CD | 0.4 | -4.8 | -0.02 | 1.1 | 0.00 |
| CE | 5.5 | 0.7 | 0.03 | -2.7 | -0.14 |
| CF | 4.9 | -12.7 | -0.62 | 0.7 | 0.03 |
| CG | 5.0 | -2.0 | -0.09 | -0.8 | -0.04 |
| CH | 9.3 | -1.1 | -0.09 | -2.1 | -0.18 |
| CI | 4.9 | 1.1 | 0.05 | 0.08 | 0.04 |
| CJ | 2.2 | -6.7 | -0.14 | -0.2 | 0.00 |
| CK | 4.4 | 1.5 | 0.07 | -1.7 | -0.09 |
| CL | 5.8 | 5.7 | 0.42 | 2.9 | 0.23 |
| CM | 4.9 | 5.1 | 0.26 | 1.1 | 0.06 |
Notes:
CA Manufacture of food products, beverages and tobacco; CB Textiles, wearing apparel and leather products; CC Wood and paper products and printing; CD Coke and refined petroleum products; CE Chemicals and chemical products; CF Basic pharmaceutical products and preparations; CG Rubber and plastic products and nonmetallic mineral products; CH Basic metals and metal products; CI Computer, electronic and optical products; CJ Electrical equipment; CK Machinery and equipment not elsewhere classified; CL Transport equipment; CM Other manufacturing and repair.
Source: http://www.ons.gov.uk/ons/rel/iop/index-of-production/november-2011/index.html
The UK trade account is shown in Table VH-5. In Nov 2011, the UK ran a deficit in trade of goods and services (total trade) of ₤2566 million. The deficit in trade of goods was ₤8644 million and ₤7162 million in goods excluding oil. A surplus in services of ₤6078 million contributed to the smaller overall deficit in goods and services (-₤8644 million plus ₤6078 equal to -₤2566). Services have contributed to lower trade account deficits and also softened the impact of the global recession on the UK economy. Exports of goods and services fell 0.9 percent in Nov 2011 and rose 9.0 percent in the quarter Sep-Nov 2011 relative to the same quarter a year earlier with imports increasing 0.8 percent in Nov and rising 7.5 percent in Sep-Nov relative to the quarter a year earlier. Excluding oil, UK exports fell 1.5 percent in Nov and increased 11.0 percent in Sep-Nov relative to a year earlier while imports increased 1.1 percent and increased 9.4 percent in Sep-Nov relative to a year earlier. The great advantage of the UK similar to the US is the substantial surplus in services. Services exports increased 0.2 percent in Nov and rose 6.0 percent in Sep-Nov relative to a year earlier and imports fell 0.5 percent in Nov and increased 1.6 percent in Sep-Nov relative to a year earlier.
Table VH-5, Value of UK Trade in Goods and Services, Balance of Payments Basis, ₤ Million and ∆%
| ₤ Million SA Nov 2011 | Month ∆% | Sep to Nov 2011 ∆% Sep to Nov 2010 | |
| Total Trade | |||
| Exports | 41,681 | -0.9 | 9.0 |
| Imports | 44,247 | 0.8 | 7.5 |
| Balance | -2,566 | ||
| Trade in Goods | |||
| Exports | 25,739 | -1.5 | 11.0 |
| Imports | 34,383 | 1.1 | 9.4 |
| Balance | -8,644 | ||
| Trade in Goods Excluding Oil | |||
| Exports | 22,569 | -2.8 | 10.7 |
| Imports | 29,731 | 0.9 | 5.5 |
| Balance | -7,162 | ||
| Trade in Services | |||
| Exports | 15,942 | 0.2 | 6.0 |
| Imports | 9,864 | -0.5 | 1.6 |
| Balance | 6,078 |
Source: http://www.ons.gov.uk/ons/rel/uktrade/uk-trade/november-2011/index.html
VI Valuation of Risk Financial Assets. The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html
Table VI-1 shows the phenomenal impulse to valuations of risk financial assets originating in the initial shock of near zero interest rates in 2003-2004 with the fed funds rate at 1 percent, in fear of deflation that never materialized, and quantitative easing in the form of suspension of the auction of 30-year Treasury bonds to lower mortgage rates. World financial markets were dominated by monetary and housing policies in the US. Between 2002 and 2008, the DJ UBS Commodity Index rose 165.5 percent largely because of unconventional monetary policy encouraging carry trades from low US interest rates to long leveraged positions in commodities, exchange rates and other risk financial assets. The charts of risk financial assets show sharp increase in valuations leading to the financial crisis and then profound drops that are captured in Table V-1 by percentage changes of peaks and troughs. The first round of quantitative easing and near zero interest rates depreciated the dollar relative to the euro by 39.3 percent between 2003 and 2008, with revaluation of the dollar by 25.1 percent from 2008 to 2010 in the flight to dollar-denominated assets in fear of world financial risks and then devaluation of the dollar of 6.4 percent by Fri Jan 13, 2011. Dollar devaluation is a major vehicle of monetary policy in reducing the output gap that is implemented in the probably erroneous belief that devaluation will not accelerate inflation, misallocating resources toward less productive economic activities and disrupting financial markets. The last row of Table VI-1 shows CPI inflation in the US rising from 1.9 percent in 2003 to 4.1 percent in 2007 even as monetary policy increased the fed funds rate from 1 percent in Jun 2004 to 5.25 percent in Jun 2006.
Table VI-1, Volatility of Assets
| DJIA | 10/08/02-10/01/07 | 10/01/07-3/4/09 | 3/4/09- 4/6/10 | |
| ∆% | 87.8 | -51.2 | 60.3 | |
| NYSE Financial | 1/15/04- 6/13/07 | 6/13/07- 3/4/09 | 3/4/09- 4/16/07 | |
| ∆% | 42.3 | -75.9 | 121.1 | |
| Shanghai Composite | 6/10/05- 10/15/07 | 10/15/07- 10/30/08 | 10/30/08- 7/30/09 | |
| ∆% | 444.2 | -70.8 | 85.3 | |
| STOXX EUROPE 50 | 3/10/03- 7/25/07 | 7/25/07- 3/9/09 | 3/9/09- 4/21/10 | |
| ∆% | 93.5 | -57.9 | 64.3 | |
| UBS Com. | 1/23/02- 7/1/08 | 7/1/08- 2/23/09 | 2/23/09- 1/6/10 | |
| ∆% | 165.5 | -56.4 | 41.4 | |
| 10-Year Treasury | 6/10/03 | 6/12/07 | 12/31/08 | 4/5/10 |
| % | 3.112 | 5.297 | 2.247 | 3.986 |
| USD/EUR | 6/26/03 | 7/14/08 | 6/07/10 | 01/13 |
| Rate | 1.1423 | 1.5914 | 1.192 | 1.268 |
| CNY/USD | 01/03 | 07/21 | 7/15 | 01/13/ 2012 |
| Rate | 8.2798 | 8.2765 | 6.8211 | 6.3068 |
| New House | 1963 | 1977 | 2005 | 2009 |
| Sales 1000s | 560 | 819 | 1283 | 375 |
| New House | 2000 | 2007 | 2009 | 2010 |
| Median Price $1000 | 169 | 247 | 217 | 203 |
| 2003 | 2005 | 2007 | 2010 | |
| CPI | 1.9 | 3.4 | 4.1 | 1.5 |
Sources: http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata
http://www.census.gov/const/www/newressalesindex_excel.html
http://federalreserve.gov/releases/h10/Hist/dat00_eu.htm
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
http://federalreserve.gov/releases/h10/Hist/dat00_ch.htm
Table VI-2 extracts four rows of Table VI-I with the Dollar/Euro (USD/EUR) exchange rate and Chinese Yuan/Dollar (CNY/USD) exchange rate that reveal pursuit of exchange rate policies resulting from monetary policy in the US and capital control/exchange rate policy in China. The ultimate intentions are the same: promoting internal economic activity at the expense of the rest of the world. The easy money policy of the US was deliberately or not but effectively to devalue the dollar from USD 1.1423/EUR on Jun 26, 2003 to USD 1.5914/EUR on Jul 14, 2008, or by 39.3 percent. The flight into dollar assets after the global recession caused revaluation to USD 1.192/EUR on Jun 7, 2010, or by 25.1 percent. After the temporary interruption of the sovereign risk issues in Europe from Apr to Jul, 2010, shown in Table VI-4 below, the dollar has devalued again to USD 1.272/EUR or by 6.4 percent {[(1.268/1.192)-1]100}. Yellen (2011AS, 6) admits that Fed monetary policy results in dollar devaluation with the objective of increasing net exports, which was the policy that Joan Robinson (1947) labeled as “beggar-my-neighbor” remedies for unemployment. China fixed the CNY to the dollar for a long period at a highly undervalued level of around CNY 8.2765/USD subsequently revaluing to CNY 6.8211/USD until Jun 7, 2010, or by 17.6 percent and after fixing it again to the dollar, revalued to CNY 6.3068/USD on Fri Jan 13, 2012, or by an additional 7.5 percent, for cumulative revaluation of 23.8 percent. The Dow Jones Newswires informs on Oct 15 that the premier of China Wen Jiabao announced that the Chinese yuan will not be further appreciated to prevent adverse effects on exports (http://professional.wsj.com/article/SB10001424052970203914304576632790881396896.html?mod=WSJ_hp_LEFTWhatsNewsCollection). The policy appeared to be implemented because the rate of CNY 6.3838/USD on Oct 21, 2011, amounts to a small depreciation of 0.1 percent relative to the rate of CNY 6.379/USD a week earlier on Oct 14, 2011. Table VI-2 now includes three last rows with the CNY/USD weekly rate. The final row of Table VI-2 shows the percentage change from the prior week with positive signs for appreciation and negative signs for depreciation. In the week of Nov 11 there was no change but the CNY depreciated by 0.2 percent in the week of Nov 18 and by a further 0.4 percent in the week of Nov 25, for cumulative depreciation of 0.6 percent in the two weeks. In the week of Dec 2, revaluation returned with appreciation of 0.3 percent. In the week of Dec 9, there was minute depreciation of 0.1 percent. Revaluation continued with 0.3 percent in the week of Dec 16 and 0.2 percent in the week of Dec 23. Revaluation accelerated in the week of Dec 30 with appreciation of 0.7 percent. A new pause occurred in the week of Jan 6, 2012, with depreciation of 0.2 percent. China fixed the rate at CNY 6.3068/USD on Jan 13, 2012, which is virtually unchanged from the prior week. Meanwhile, the Senate of the US is proceeding with a bill on China’s trade that could create a confrontation but may not be approved by the entire Congress.
Table VI-2, Dollar/Euro (USD/EUR) Exchange Rate and Chinese Yuan/Dollar (CNY/USD) Exchange Rate
| USD/EUR | 12/26/03 | 7/14/08 | 6/07/10 | 01/13 |
| Rate | 1.1423 | 1.5914 | 1.192 | 1.268 |
| CNY/USD | 01/03 | 07/21 | 7/15 | 01/13 2012 |
| Rate | 8.2798 | 8.2765 | 6.8211 | 6.3068 |
| Weekly Rates | 12/23/2011 | 12/30/2011 | 01/06/2012 | 01/13/2012 |
| CNY/USD | 6.3372 | 6.294 | 6.3094 | 6.3068 |
| ∆% from Earlier Week* | 0.2 | 0.7 | -0.2 | 0.04 |
*Negative sign is depreciation, positive sign is appreciation
Source: Table VI-1 and same table in earlier blog posts.
Dollar devaluation did not eliminate the US current account deficit, which is projected by the International Monetary Fund (IMF) with the new database of Sep 2011 at 3.1 percent of GDP in 2011 and at 2.2 percent of GDP in 2015, as shown in Table VI-3. Revaluation of the CNY has not reduced the current account surplus of China, which is projected by the IMF to increase from 5.2 percent of GDP in 2011 to 7.0 percent of GDP in 2015.
Table VI-3, Fiscal Deficit, Current Account Deficit and Government Debt as % of GDP and 2011 Dollar GDP
| GDP 2011 | FD | CAD | Debt | FD%GDP | CAD%GDP | Debt | |
| US | 15065 | -7.9 | -3.1 | 72.6 | -3.1 | -2.2 | 86.7 |
| Japan | 5855 | -8.9 | 2.5 | 130.5 | -8.4 | 2.4 | 160.0 |
| UK | 2481 | -5.7 | -2.7 | 72.9 | 0.4 | -0.9 | 75.2 |
| Euro | 13355 | -1.5 | 0.1 | 68.6 | 1.5 | 0.5 | 69.3 |
| Ger | 3629 | 0.4 | 5.0 | 56.9 | 2.1 | 4.7 | 55.3 |
| France | 2808 | -3.4 | -2.7 | 80.9 | -2.5 | 0.6 | 83.9 |
| Italy | 2246 | 0.5 | -3.5 | 100.4 | 4.5 | -2.0 | 96.7 |
| Can | 1759 | -3.7 | -3.3 | 34.9 | 0.3 | -2.6 | 35.1 |
| China | 6988 | -1.6 | 5.2 | 22.2 | 0.1 | 7.0 | 12.9 |
| Brazil | 2518 | 3.2 | -2.3 | 38.6 | 2.9 | -3.2 | 34.1 |
Note: GER = Germany; Can = Canada; FD = fiscal deficit; CAD = current account deficit
FD is primary except total for China; Debt is net except gross for China
Source: http://www.imf.org/external/pubs/ft/weo/2011/02/weodata/index.aspx
There is a new carry trade that learned from the losses after the crisis of 2007 or learned from the crisis how to avoid losses. The sharp rise in valuations of risk financial assets shown in Table VI-1 above after the first policy round of near zero fed funds and quantitative easing by the equivalent of withdrawing supply with the suspension of the 30-year Treasury auction was on a smooth trend with relatively subdued fluctuations. The credit crisis and global recession have been followed by significant fluctuations originating in sovereign risk issues in Europe, doubts of continuing high growth and accelerating inflation in China, events such as in the Middle East and Japan and legislative restructuring, regulation, insufficient growth, falling real wages, depressed hiring and high job stress of unemployment and underemployment in the US now with realization of growth standstill recession. The “trend is your friend” motto of traders has been replaced with a “hit and realize profit” approach of managing positions to realize profits without sitting on positions. There is a trend of valuation of risk financial assets driven by the carry trade from zero interest rates with fluctuations provoked by events of risk aversion. Table VI-4, which is updated for every comment of this blog, shows the deep contraction of valuations of risk financial assets after the Apr 2010 sovereign risk issues in the fourth column “∆% to Trough.” There was sharp recovery after around Jul 2010 in the last column “∆% Trough to 01/13/12,” which has been recently stalling or reversing amidst profound risk aversion. “Let’s twist again” monetary policy during the week of Sep 23 caused deep worldwide risk aversion and selloff of risk financial assets (http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html). Monetary policy was designed to increase risk appetite but instead suffocated risk exposures. After the surge in the week of Dec 2, mixed performance of markets in the week of Dec 9, renewed risk aversion in the week of Dec 16, end-of-the-year relaxed risk aversion in thin markets in the weeks of Dec 23 and Dec 30 and mixed sentiment in the weeks of Jan 6 and Jan 13 2012, there are now only three financial values with negative change in valuation in column “∆% Trough to 01/13/12:” NYSE Financial minus 0.6 percent, Japan’s Nikkei Average minus 3.7 percent and Shanghai Composite minus 5.8 percent. Asia and financial entities are experiencing their own risk environments. The highest valuations are by US equities indexes: DJIA 28.2 percent and S&P 500 26.1 percent. Michael Mackenzie and Robin Wigglesworth, writing on Oct 21, 2011, on “Us earnings tell story of resilience,” published in the Financial Times (http://www.ft.com/intl/cms/s/0/c44187d4-fb1f-11e0-bebe-00144feab49a.html#axzz1bVlVmY6d), analyze the strong earnings performance of US companies that explains the recovery of the DJIA by 28.2 percent from the trough and of the S&P 500 by 26.1 percent. Mackenzie and Wigglesworth quote S&P Capital IQ that a blended average of actual and forecast earnings on IIIQ2011 relative to IIIQ2010 could show growth of 14.6 percent. The carry trade from zero interest rates to leveraged positions in risk financial assets had proved strongest for commodity exposures but US equities have regained leadership. Before the current round of risk aversion, all assets in the column “∆% Trough to 01/13/12” had double digit gains relative to the trough around Jul 2, 2010 but now most valuations show increases of less than 10 percent: Dow Global is 8.1 percent above the trough; Dow Asia Pacific is now higher by 4.4 percent; STOXX 50 Europe is 4.4 percent above the trough and Dax is 8.3 percent above the trough on May 25, 2010. DJ UBS Commodities is 13.3 percent above the trough. Japan’s Nikkei Average is 3.7 percent below the trough on Aug 31, 2010 and 25.4 percent below the peak on Apr 5, 2010. The Nikkei Average closed at 8500.02 on Fri Jan 13, 2012, which is 17.1 percent lower than 10,254.43 on Mar 11 on the date of the Great East Japan Earthquake/tsunami. Global risk aversion erased the earlier gains of the Nikkei. The dollar depreciated by 6.4 percent relative to the euro and even higher before the new bout of sovereign risk issues in Europe. The column “∆% week to 01/13/12” in Table VI-4 shows mixed performance of risk financial assets in the week of Jan 13, 2012. There are still high uncertainties on European sovereign risks, US and world growth recession and China’s growth and inflation tradeoff. Sovereign problems in the “periphery” of Europe and fears of slower growth in Asia and the US cause risk aversion with trading caution instead of more aggressive risk exposures. There is a fundamental change in Table VI-4 from the relatively upward trend with oscillations since the sovereign risk event of Apr-Jul 2010. Performance is best assessed in the column “∆% Peak to 01/13/12” that provides the percentage change from the peak in Apr 2010 before the sovereign risk event to Jan 6, 2012. Most risk financial assets had gained not only relative to the trough as shown in column “∆% Trough to 01/13/12” but also relative to the peak in column “∆% Peak to 01/13/12.” There are now only two US equity indexes above the peak in Table VI-4: DJIA 10.9 percent and S&P 500 5.9 percent. There are several indexes well below the peak: NYSE Financial Index (http://www.nyse.com/about/listed/nykid.shtml) by 20.8 percent, Nikkei Average by 25.4 percent, Shanghai Composite by 29.1 percent, STOXX 50 by 11.6 percent, Dow Global by 11.8 percent and Dow Asia Pacific by 8.6 percent. The factors of risk aversion have adversely affected the performance of risk financial assets. The performance relative to the peak in Apr 2010 is more important than the performance relative to the trough around early Jul because improvement could signal that conditions have returned to normal levels before European sovereign doubts in Apr 2010. The situation of risk financial assets has worsened.
Table VI-4, Stock Indexes, Commodities, Dollar and 10-Year Treasury
| Peak | Trough | ∆% to Trough | ∆% Peak to 01/13 /12 | ∆% Week 01/13/ 12 | ∆% Trough to 01/13 12 | |
| DJIA | 4/26/ | 7/2/10 | -13.6 | 10.9 | 0.5 | 28.2 |
| S&P 500 | 4/23/ | 7/20/ | -16.0 | 5.9 | 0.9 | 26.1 |
| NYSE Finance | 4/15/ | 7/2/10 | -20.3 | -20.8 | 2.7 | -0.6 |
| Dow Global | 4/15/ | 7/2/10 | -18.4 | -11.8 | 1.6 | 8.1 |
| Asia Pacific | 4/15/ | 7/2/10 | -12.5 | -8.6 | 2.3 | 4.4 |
| Japan Nikkei Aver. | 4/05/ | 8/31/ | -22.5 | -25.4 | 1.3 | -3.7 |
| China Shang. | 4/15/ | 7/02 | -24.7 | -29.1 | 3.8 | -5.8 |
| STOXX 50 | 4/15/10 | 7/2/10 | -15.3 | -11.6 | -0.1 | 4.4 |
| DAX | 4/26/ | 5/25/ | -10.5 | -2.9 | 1.4 | 8.3 |
| Dollar | 11/25 2009 | 6/7 | 21.2 | 16.2 | 0.3 | -6.4 |
| DJ UBS Comm. | 1/6/ | 7/2/10 | -14.5 | -3.1 | -1.4 | 13.3 |
| 10-Year T Note | 4/5/ | 4/6/10 | 3.986 | 1.869 |
T: trough; Dollar: positive sign appreciation relative to euro (less dollars paid per euro), negative sign depreciation relative to euro (more dollars paid per euro)
Source: http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata
Bernanke (2010WP) and Yellen (2011AS) reveal the emphasis of monetary policy on the impact of the rise of stock market valuations in stimulating consumption by wealth effects on household confidence. Table VI-5 shows a gain by Apr 29, 2011 in the DJIA of 14.3 percent and of the S&P 500 of 12.5 percent since Apr 26, 2010, around the time when sovereign risk issues in Europe began to be acknowledged in financial risk asset valuations. The last row of Table VI-5 for Jan 13, 2012, shows that the S&P 500 is now 6.4 percent above the Apr 26, 2010 level and the DJIA is 10.9 percent above the level on Apr 26, 2010. Multiple rounds of risk aversion eroded the earlier gains, showing that risk aversion can destroy market value even with zero interest rates. Much the same as zero interest rates and quantitative easing have not had any effects in recovering economic activity while distorting financial markets and resource allocation.
Table VI-5, Percentage Changes of DJIA and S&P 500 in Selected Dates
| 2010 | ∆% DJIA from prior date | ∆% DJIA from | ∆% S&P 500 from prior date | ∆% S&P 500 from |
| Apr 26 | ||||
| May 6 | -6.1 | -6.1 | -6.9 | -6.9 |
| May 26 | -5.2 | -10.9 | -5.4 | -11.9 |
| Jun 8 | -1.2 | -11.3 | 2.1 | -12.4 |
| Jul 2 | -2.6 | -13.6 | -3.8 | -15.7 |
| Aug 9 | 10.5 | -4.3 | 10.3 | -7.0 |
| Aug 31 | -6.4 | -10.6 | -6.9 | -13.4 |
| Nov 5 | 14.2 | 2.1 | 16.8 | 1.0 |
| Nov 30 | -3.8 | -3.8 | -3.7 | -2.6 |
| Dec 17 | 4.4 | 2.5 | 5.3 | 2.6 |
| Dec 23 | 0.7 | 3.3 | 1.0 | 3.7 |
| Dec 31 | 0.03 | 3.3 | 0.07 | 3.8 |
| Jan 7 | 0.8 | 4.2 | 1.1 | 4.9 |
| Jan 14 | 0.9 | 5.2 | 1.7 | 6.7 |
| Jan 21 | 0.7 | 5.9 | -0.8 | 5.9 |
| Jan 28 | -0.4 | 5.5 | -0.5 | 5.3 |
| Feb 4 | 2.3 | 7.9 | 2.7 | 8.1 |
| Feb 11 | 1.5 | 9.5 | 1.4 | 9.7 |
| Feb 18 | 0.9 | 10.6 | 1.0 | 10.8 |
| Feb 25 | -2.1 | 8.3 | -1.7 | 8.9 |
| Mar 4 | 0.3 | 8.6 | 0.1 | 9.0 |
| Mar 11 | -1.0 | 7.5 | -1.3 | 7.6 |
| Mar 18 | -1.5 | 5.8 | -1.9 | 5.5 |
| Mar 25 | 3.1 | 9.1 | 2.7 | 8.4 |
| Apr 1 | 1.3 | 10.5 | 1.4 | 9.9 |
| Apr 8 | 0.03 | 10.5 | -0.3 | 9.6 |
| Apr 15 | -0.3 | 10.1 | -0.6 | 8.9 |
| Apr 22 | 1.3 | 11.6 | 1.3 | 10.3 |
| Apr 29 | 2.4 | 14.3 | 1.9 | 12.5 |
| May 6 | -1.3 | 12.8 | -1.7 | 10.6 |
| May 13 | -0.3 | 12.4 | -0.2 | 10.4 |
| May 20 | -0.7 | 11.7 | -0.3 | 10.0 |
| May 27 | -0.6 | 11.0 | -0.2 | 9.8 |
| Jun 3 | -2.3 | 8.4 | -2.3 | 7.3 |
| Jun 10 | -1.6 | 6.7 | -2.2 | 4.9 |
| Jun 17 | 0.4 | 7.1 | 0.04 | 4.9 |
| Jun 24 | -0.6 | 6.5 | -0.2 | 4.6 |
| Jul 1 | 5.4 | 12.3 | 5.6 | 10.5 |
| Jul 8 | 0.6 | 12.9 | 0.3 | 10.9 |
| Jul 15 | -1.4 | 11.4 | -2.1 | 8.6 |
| Jul 22 | 1.6 | 13.2 | 2.2 | 10.9 |
| Jul 29 | -4.2 | 8.4 | -3.9 | 6.6 |
| Aug 05 | -5.8 | 2.1 | -7.2 | -1.0 |
| Aug 12 | -1.5 | 0.6 | -1.7 | -2.7 |
| Aug 19 | -4.0 | -3.5 | -4.7 | -7.3 |
| Aug 26 | 4.3 | 0.7 | 4.7 | -2.9 |
| Sep 02 | -0.4 | 0.3 | -0.2 | -3.1 |
| Sep 09 | -2.2 | -1.9 | -1.7 | -4.8 |
| Sep 16 | 4.7 | 2.7 | 5.4 | 0.3 |
| Sep 23 | -6.4 | -3.9 | -6.5 | -6.2 |
| Sep 30 | 1.3 | -2.6 | -0.4 | -6.7 |
| Oct 7 | 1.7 | -0.9 | 2.1 | -4.7 |
| Oct 14 | 4.9 | 3.9 | 5.9 | 1.0 |
| Oct 21 | 1.4 | 5.4 | 1.1 | 2.2 |
| Oct 28 | 3.6 | 9.2 | 3.8 | 6.0 |
| Nov 04 | -2.0 | 6.9 | -2.5 | 3.4 |
| Nov 11 | 1.4 | 8.5 | 0.8 | 4.3 |
| Nov 18 | -2.9 | 5.3 | -3.8 | 0.3 |
| Nov 25 | -4.8 | 0.2 | -4.7 | -4.4 |
| Dec 02 | 7.0 | 7.3 | 7.4 | 2.7 |
| Dec 09 | 1.4 | 8.7 | 0.9 | 3.6 |
| Dec 16 | -2.6 | 5.9 | -2.8 | 0.6 |
| Dec 23 | 3.6 | 9.7 | 3.7 | 4.4 |
| Dec 30 | -0.6 | 9.0 | -0.6 | 3.8 |
| Jan 6 2012 | 1.2 | 10.3 | 1.6 | 5.4 |
| Jan 13 | 0.5 | 10.9 | 0.9 | 6.4 |
Source: http://professional.wsj.com/mdc/public/page/mdc_us_stocks.html?mod=mdc_topnav_2_3014
Table VI-6, updated with every post, shows that exchange rate valuations affect a large variety of countries, in fact, almost the entire world, in magnitudes that cause major problems for domestic monetary policy and trade flows. Dollar devaluation is expected to continue because of zero fed funds rate, expectations of rising inflation, large budget deficit of the federal government (http://professional.wsj.com/article/SB10001424052748703907004576279321350926848.html?mod=WSJ_hp_LEFTWhatsNewsCollection) and now zero interest rates indefinitely but with interruptions caused by risk aversion events. Such an event actually occurred in the week of Sep 23 reversing the devaluation of the dollar in the form of sharp appreciation of the dollar relative to other currencies from all over the world including the offshore Chinese yuan market. Column “Peak” in Table VI-6 shows exchange rates during the crisis year of 2008. There was a flight to safety in dollar-denominated government assets as a result of the arguments in favor of TARP (Cochrane and Zingales 2009). This is evident in various exchange rates that depreciated sharply against the dollar such as the South African rand (ZAR) at the peak of depreciation of ZAR 11.578/USD on Oct 22, 2008, subsequently appreciating to the trough of ZAR 7.238/USD by Aug 15, 2010 but now depreciating by 12.3 percent to ZAR 8.126/USD on Jan 13, 2012, which is still 29.8 percent stronger than on Oct 22, 2008. An example from Asia is the Singapore Dollar (SGD) highly depreciated at the peak of SGD 1.553/USD on Mar 3, 2009 but subsequently appreciating by 13.2 percent to the trough of SGD 1.348/USD on Aug 9, 2010 but is now only 4.2 percent stronger at SGD 1.292/USD on Jan 6 relative to the trough of depreciation but still stronger by 16.8 percent relative to the peak of depreciation on Mar 3, 2009. Another example is the Brazilian real (BRL) that depreciated at the peak to BRL 2.43/USD on Dec 5, 2008 but appreciated 28.5 percent to the trough at BRL 1.737/USD on Apr 30, 2010, showing depreciation of 3.1 percent relative to the trough to BRL 1.7902/USD on Jan 13, 2012 but still stronger by 26.3 percent relative to the peak on Dec 5, 2008. At one point in 2011 the Brazilian real traded at BRL 1.55/USD and in the week of Sep 23 surpassed BRL 1.90/USD in intraday trading for depreciation of more than 20 percent. The Banco Central do Brasil, Brazil’s central bank, lowered its policy rate SELIC for the third consecutive meeting of its monetary policy committee, COPOM (http://www.bcb.gov.br/textonoticia.asp?codigo=3268&IDPAI=NEWS):
“Copom reduces the Selic rate to 11.00 percent
30/11/2011 7:47:00 PM
Brasília - Continuing the process of adjustment of monetary conditions, the Copom unanimously decided to reduce the Selic rate to 11.00 percent, without bias.
The Copom understands that, by promptly mitigating the effects stemming from a more restrictive global environment, a moderate adjustment in the basic rate level is consistent with the scenario of inflation convergence to the target in 2012.”
Unconventional monetary policy of zero interest rates and quantitative easing creates trends such as the depreciation of the dollar followed by Table VI-6 but with abrupt reversals during risk aversion. The main effects of unconventional monetary policy are on valuations of risk financial assets and not necessarily on consumption and investment or aggregate demand.
Table VI-6, Exchange Rates
| Peak | Trough | ∆% P/T | Jan 13, 2012 | ∆T Jan 13, 2012 | ∆P Jan 13 2012 | |
| EUR USD | 7/15 | 6/7 2010 | 01/13 2012 | |||
| Rate | 1.59 | 1.192 | 1.268 | |||
| ∆% | -33.4 | 5.9 | -25.4 | |||
| JPY USD | 8/18 | 9/15 | 01/13 2012 | |||
| Rate | 110.19 | 83.07 | 76.952 | |||
| ∆% | 24.6 | 7.4 | 30.2 | |||
| CHF USD | 11/21 2008 | 12/8 2009 | 01/13 2012 | |||
| Rate | 1.225 | 1.025 | 0.955 | |||
| ∆% | 16.3 | 6.8 | 22.0 | |||
| USD GBP | 7/15 | 1/2/ 2009 | 01/13 2012 | |||
| Rate | 2.006 | 1.388 | 1.5131 | |||
| ∆% | -44.5 | 8.3 | -32.6 | |||
| USD AUD | 7/15 2008 | 10/27 2008 | 01/13 | |||
| Rate | 1.0215 | 1.6639 | 1.032 | |||
| ∆% | -62.9 | 41.9 | 5.1 | |||
| ZAR USD | 10/22 2008 | 8/15 | 01/13 2012 | |||
| Rate | 11.578 | 7.238 | 8.126 | |||
| ∆% | 37.5 | -12.3 | 29.8 | |||
| SGD USD | 3/3 | 8/9 | 01/13 | |||
| Rate | 1.553 | 1.348 | 1.292 | |||
| ∆% | 13.2 | 4.2 | 16.8 | |||
| HKD USD | 8/15 2008 | 12/14 2009 | 01/13 | |||
| Rate | 7.813 | 7.752 | 7.765 | |||
| ∆% | 0.8 | -0.2 | 0.6 | |||
| BRL USD | 12/5 2008 | 4/30 2010 | 01/13 2012 | |||
| Rate | 2.43 | 1.737 | 1.7902 | |||
| ∆% | 28.5 | -3.1 | 26.3 | |||
| CZK USD | 2/13 2009 | 8/6 2010 | 01/13 | |||
| Rate | 22.19 | 18.693 | 20.179 | |||
| ∆% | 15.7 | -7.9 | 9.1 | |||
| SEK USD | 3/4 2009 | 8/9 2010 | 01/13 2012 | |||
| Rate | 9.313 | 7.108 | 6.988 | |||
| ∆% | 23.7 | 1.7 | 24.9 | |||
| CNY USD | 7/20 2005 | 7/15 | 01/13 | |||
| Rate | 8.2765 | 6.8211 | 6.3068 | |||
| ∆% | 17.6 | 7.5 | 23.8 |
Symbols: USD: US dollar; EUR: euro; JPY: Japanese yen; CHF: Swiss franc; GBP: UK pound; AUD: Australian dollar; ZAR: South African rand; SGD: Singapore dollar; HKD: Hong Kong dollar; BRL: Brazil real; CZK: Czech koruna; SEK: Swedish krona; CNY: Chinese yuan; P: peak; T: trough
Note: percentages calculated with currencies expressed in units of domestic currency per dollar; negative sign means devaluation and no sign appreciation
Source: http://professional.wsj.com/mdc/public/page/mdc_currencies.html?mod=mdc_topnav_2_3000
http://federalreserve.gov/releases/h10/Hist/dat00_ch.htm
Chart VI-1 of the Board of Governors of the Federal Reserve System provides indexes of the dollar from 2010 to 2011. The dollar depreciates during episodes of risk appetite but appreciate during risk aversion as funds seek dollar-denominated assets in avoiding financial risk.
Chart VI-1, Broad, Major Currency, and Other Important Trading Partners Indexes for the US Dollar
Source: Board of Governors of the Federal Reserve System
Table VI-7, updated with every blog comment, provides in the second column the yield at the close of market of the 10-year Treasury note on the date in the first column. The price in the third column is calculated with the coupon of 2.625 percent of the 10-year note current at the time of the second round of quantitative easing after Nov 3, 2010 and the final column “∆% 11/04/10” calculates the percentage change of the price on the date relative to that of 101.2573 at the close of market on Nov 4, 2010, one day after the decision on quantitative easing by the Fed on Nov 3, 2010. Prices with new coupons such as 2.0 percent in recent auctions (http://www.treasurydirect.gov/RI/OFAuctions?form=extended&cusip=912828RR3) are not comparable to prices in Table VI-7. The highest yield in the decade was 5.510 percent on May 1, 2001 that would result in a loss of principal of 22.9 percent relative to the price on Nov 4. Monetary policy has created a “duration trap” of bond prices. Duration is the percentage change in bond price resulting from a percentage change in yield or what economists call the yield elasticity of bond price. Duration is higher the lower the bond coupon and yield, all other things constant. This means that the price loss in a yield rise from low coupons and yields is much higher than with high coupons and yields. Intuitively, the higher coupon payments offset part of the price loss. Prices/yields of Treasury securities were affected by the combination of Fed purchases for its program of quantitative easing and also by the flight to dollar-denominated assets because of geopolitical risks in the Middle East, subsequently by the tragic Great East Japan Earthquake and Tsunami and now again by the sovereign risk doubts in Europe and the growth recession in the US and the world. The yield of 1.869 percent at the close of market on Fri Jan 13, 2012 would be equivalent to price of 106.8664 in a hypothetical bond maturing in 10 years with coupon of 2.625 percent for price gain of 5.5 percent relative to the price on Nov 4, 2010, one day after the decision on the second program of quantitative easing, as shown in the last row of Table VI-7. If inflation accelerates, yields of Treasury securities may rise sharply. Yields are not observed without special yield-lowering effects such as the flight into dollars caused by the events in the Middle East, continuing purchases of Treasury securities by the Fed, the tragic Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 affecting Japan, recurring fears on European sovereign credit issues and worldwide risk aversion in the week of Sep 30 caused by “let’s twist again” monetary policy. The realization of a growth standstill recession is also influencing yields. Important causes of the earlier rise in yields shown in Table V-7 are expectations of rising inflation and US government debt estimated to exceed 70 percent of GDP in 2012 (http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/02/policy-inflation-growth-unemployment.html http://cmpassocregulationblog.blogspot.com/2011/04/budget-quagmire-fed-commodities_10.html), rising from 40.8 percent of GDP in 2008, 53.5 percent in 2009 (Table 2 in http://cmpassocregulationblog.blogspot.com/2011/04/budget-quagmire-fed-commodities_10.html) and 69 percent in 2011. On Jan 4, 2012, the line “Reserve Bank credit” in the Fed balance sheet stood at $2882 billion, or $2.9 trillion, with portfolio of long-term securities of $2565 billion, or $2.6 trillion, consisting of $1554 billion Treasury nominal notes and bonds, $69 billion of notes and bonds inflation-indexed, $102 billion Federal agency debt securities and $840 billion mortgage-backed securities; reserve balances deposited with Federal Reserve Banks reached $1582 billion or $1.6 trillion (http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1). There is no simple exit of this trap created by the highest monetary policy accommodation in US history together with the highest deficits and debt in percent of GDP since World War II. Risk aversion from various sources, discussed in section III World Financial Turbulence, has been affecting financial markets for several months. The risk is that in a reversal of risk aversion that has been typical in this cyclical expansion of the economy yields of Treasury securities may back up sharply.
Table VI-7, Yield, Price and Percentage Change to November 4, 2010 of Ten-Year Treasury Note
| Date | Yield | Price | ∆% 11/04/10 |
| 05/01/01 | 5.510 | 78.0582 | -22.9 |
| 06/10/03 | 3.112 | 95.8452 | -5.3 |
| 06/12/07 | 5.297 | 79.4747 | -21.5 |
| 12/19/08 | 2.213 | 104.4981 | 3.2 |
| 12/31/08 | 2.240 | 103.4295 | 2.1 |
| 03/19/09 | 2.605 | 100.1748 | -1.1 |
| 06/09/09 | 3.862 | 89.8257 | -11.3 |
| 10/07/09 | 3.182 | 95.2643 | -5.9 |
| 11/27/09 | 3.197 | 95.1403 | -6.0 |
| 12/31/09 | 3.835 | 90.0347 | -11.1 |
| 02/09/10 | 3.646 | 91.5239 | -9.6 |
| 03/04/10 | 3.605 | 91.8384 | -9.3 |
| 04/05/10 | 3.986 | 88.8726 | -12.2 |
| 08/31/10 | 2.473 | 101.3338 | 0.08 |
| 10/07/10 | 2.385 | 102.1224 | 0.8 |
| 10/28/10 | 2.658 | 99.7119 | -1.5 |
| 11/04/10 | 2.481 | 101.2573 | - |
| 11/15/10 | 2.964 | 97.0867 | -4.1 |
| 11/26/10 | 2.869 | 97.8932 | -3.3 |
| 12/03/10 | 3.007 | 96.7241 | -4.5 |
| 12/10/10 | 3.324 | 94.0982 | -7.1 |
| 12/15/10 | 3.517 | 92.5427 | -8.6 |
| 12/17/10 | 3.338 | 93.9842 | -7.2 |
| 12/23/10 | 3.397 | 93.5051 | -7.7 |
| 12/31/10 | 3.228 | 94.3923 | -6.7 |
| 01/07/11 | 3.322 | 94.1146 | -7.1 |
| 01/14/11 | 3.323 | 94.1064 | -7.1 |
| 01/21/11 | 3.414 | 93.4687 | -7.7 |
| 01/28/11 | 3.323 | 94.1064 | -7.1 |
| 02/04/11 | 3.640 | 91.750 | -9.4 |
| 02/11/11 | 3.643 | 91.5319 | -9.6 |
| 02/18/11 | 3.582 | 92.0157 | -9.1 |
| 02/25/11 | 3.414 | 93.3676 | -7.8 |
| 03/04/11 | 3.494 | 92.7235 | -8.4 |
| 03/11/11 | 3.401 | 93.4727 | -7.7 |
| 03/18/11 | 3.273 | 94.5115 | -6.7 |
| 03/25/11 | 3.435 | 93.1935 | -7.9 |
| 04/01/11 | 3.445 | 93.1129 | -8.0 |
| 04/08/11 | 3.576 | 92.0635 | -9.1 |
| 04/15/11 | 3.411 | 93.3874 | -7.8 |
| 04/22/11 | 3.402 | 93.4646 | -7.7 |
| 04/29/11 | 3.290 | 94.3759 | -6.8 |
| 05/06/11 | 3.147 | 95.5542 | -5.6 |
| 05/13/11 | 3.173 | 95.3387 | -5.8 |
| 05/20/11 | 3.146 | 95.5625 | -5.6 |
| 05/27/11 | 3.068 | 96.2089 | -4.9 |
| 06/03/11 | 2.990 | 96.8672 | -4.3 |
| 06/10/11 | 2.973 | 97.0106 | -4.2 |
| 06/17/11 | 2.937 | 97.3134 | -3.9 |
| 06/24/11 | 2.872 | 97.8662 | -3.3 |
| 07/01/11 | 3.186 | 95.2281 | -5.9 |
| 07/08/11 | 3.022 | 96.5957 | -4.6 |
| 07/15/11 | 2.905 | 97.5851 | -3.6 |
| 07/22/11 | 2.964 | 97.0847 | -4.1 |
| 07/29/11 | 2.795 | 98.5258 | -2.7 |
| 08/05/11 | 2.566 | 100.5175 | -0.7 |
| 08/12/11 | 2.249 | 103.3504 | 2.1 |
| 08/19/11 | 2.066 | 105.270 | 3.7 |
| 08/26/11 | 2.202 | 103.7781 | 2.5 |
| 09/02/11 | 1.992 | 105.7137 | 4.4 |
| 09/09/11 | 1.918 | 106.4055 | 5.1 |
| 09/16/11 | 2.053 | 101.5434 | 0.3 |
| 09/23/11 | 1.826 | 107.2727 | 5.9 |
| 09/30/11 | 1.912 | 106.4602 | 5.1 |
| 10/07/11 | 2.078 | 104.9161 | 3.6 |
| 10/14/11 | 2.251 | 103.3323 | 2.0 |
| 10/21/11 | 2.220 | 103.6141 | 2.3 |
| 10/28/11 | 2.326 | 102.6540 | 1.4 |
| 11/04/11 | 2.066 | 105.0270 | 3.7 |
| 11/11/11 | 2.057 | 105.1103 | 3.8 |
| 11/18/11 | 2.003 | 105.6113 | 4.3 |
| 11/25/11 | 1.964 | 105.9749 | 4.7 |
| 12/02/11 | 2.042 | 105.2492 | 3.9 |
| 12/09/11 | 2.065 | 105.0363 | 3.7 |
| 12/16/11 | 1.847 | 107.0741 | 5.7 |
| 12/23/11 | 2.027 | 105.3883 | 4.1 |
| 12/30/11 | 1.871 | 106.8476 | 5.5 |
| 01/06/12 | 1.957 | 106.0403 | 4.7 |
| 01/13/12 | 1.869 | 106.8664 | 5.5 |
Note: price is calculated for an artificial 10-year note paying semi-annual coupon and maturing in ten years using the actual yields traded on the dates and the coupon of 2.625% on 11/04/10
Source:
http://professional.wsj.com/mdc/public/page/mdc_bonds.html?mod=mdc_topnav_2_3000
VII Economic Indicators. Crude oil input in refineries increased 0.5 percent to 14,721 thousand barrels per day on average in the four weeks ending on Jan 6, 2012, from 14,651 thousand barrels per day in the four weeks ending on Dec 30, 2011, as shown in Table VII-1. The rate of capacity utilization in refineries continues at a relatively high level of 84.9 percent on Jan 6, 2012, which is slightly lower than 87.5 percent on Jan 7, 2011, and slightly higher than 84.8 percent on Dec 30, 2011. Imports of crude oil increased 4.7 percent from 8,443 thousand barrels per day on average in the four weeks ending on Dec 30 to 8,840 thousand barrels per day in the week Jan 6. The Energy Information Administration (EIA) finds that “US crude oil imports averaged 9.9 million barrels per days last week [Jan 6], up by 883 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged about 8.9 million barrels per day, 152 thousand barrels per day above the same four-week period last year (http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf 1). Slight increase in utilization in refineries by 0.5 percent but with imports increasing at the margin in the past week of Jan 6 resulted in increase of commercial crude oil stocks by 4.9 million barrels from 329.7 million barrels on Dec 30 to 334.6 million barrels on Dec 30. Motor gasoline production decreased 2.2 percent from 9,318 thousand barrels per day in the week of Dec 30 to 9,117 thousand barrels per day on average in the week of Jan 6. Gasoline stocks increased 2.5 million barrels and stocks of fuel oil increased 3.2 million barrels. Supply of gasoline fell from 9,071 thousand barrels per day on Jan 7, 2011, to 8,634 thousand barrels per day on Jan 6, 2012, or by 4.8 percent, while fuel oil supply fell 2.2 percent. Part of the fall in consumption of gasoline is due to higher prices and part to the growth recession. Table VII-1 also shows increase in the WTI price of crude oil by 8.2 percent from Dec 31, 2010 to Dec 30, 2011. Gasoline prices rose 15.3 percent from Jan 7, 2011 to Jan 6, 2012. Increases in prices of crude oil and gasoline relative to a year earlier are moderating because year earlier prices are already reflecting the commodity price surge and commodity prices have been declining recently during worldwide risk aversion.
Table VII-1, US, Energy Information Administration Weekly Petroleum Status Report
| Four Weeks Ending Thousand Barrels/Day | 01/06/12 | 12/30/11 | 01/07/11 |
| Crude Oil Refineries Input | 14,721 Week ∆%: +0.5 | 14,651 | 14,893 |
| Refinery Capacity Utilization % | 84.9 | 84.8 | 87.5 |
| Motor Gasoline Production | 9,117 Week ∆%: -2.2 | 9,318 | 9,096 |
| Distillate Fuel Oil Production | 4,870 Week ∆%: -1.1 | 4,925 | 4,594 |
| Crude Oil Imports | 8,840 Week ∆%: +4.7 | 8,443 | 8,691 |
| Motor Gasoline Supplied | 8,634 ∆% 2011/2010= -4.8% | 8,756 | 9,071 |
| Distillate Fuel Oil Supplied | 3,753 ∆% 2011/2010 = -2.2% | 3,921 | 3,836 |
| 01/06/12 | 12/30/11 | 01/07/11 | |
| Crude Oil Stocks | 334.6 | 329.7 | 333.1 |
| Motor Gasoline Million B | 223.8 ∆= 3.6 MB | 220.2 | 223.2 |
| Distillate Fuel Oil Million B | 147.6 | 143.6 | 164.8 |
| WTI Crude Oil Price $/B | 101.56 ∆% 2011/2010 +15.3 | 98.83 | 88.07 |
| 01/09/12 | 01/02/12 | 01/10/11 | |
| Regular Motor Gasoline $/G | 3.382 ∆% 2011/2010 | 3.299 | 3.089 |
B: barrels; G: gallon
Chart VII-1 of the US Energy Information Administration shows the commercial stocks of crude oil of the US. There have been fluctuations around an upward trend since 2005. Crude oil stocks trended downwardly during a few weeks but with fluctuations.
Chart VII-1, US, Weekly Crude Oil Ending Stocks
Source: US Energy Information Administration
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCESTUS1&f=W
Chart VII-2 of the US Energy Information Administration provides closer view of US crude oil stocks since Jun 2010. Crude oil stocks rose in a clear trend in 2011 but began to drop on a downward trend after May 2011. There is less need to stock oil after May with declining prices if it is anticipated that prices in future months may be lower. The final part of the chart shows the increase in oil stocks in the weeks of Nov 25 and Dec 2 and the declines in the weeks of Dec 9 and Dec 16 with increases in the weeks of Dec 23, Dec 30 and Jan 6, 2012.
Chart VII-2, US, Crude Oil Stocks
Source: US Energy Information Administration
Chart VII-3 of the US Energy Information Administration shows the price of WTI crude oil since the 1980s. Chart VII-3 captures commodity price shocks during the past decade. The costly mirage of deflation was caused by the decline in oil prices resulting from the recession of 2001. The upward trend after 2003 was promoted by the carry trade from near zero interest rates. The jump above $140/barrel during the global recession in 2008 can only be explained by the carry trade promoted by monetary policy of zero fed funds rate. After moderation of risk aversion, the carry trade returned with resulting sharp upward trend of crude prices.
Chart VII-3, US, Crude Oil Futures Contract
Source: US Energy Information Administration
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RCLC1&f=D
There is significant difference between initial claims for unemployment insurance adjusted and not adjusted for seasonality provided in Table VII-2. Seasonally adjusted claims increased 24,000 from upwardly revised 375,000 on Dec 31 to 399,000 on Jan 7. Claims not adjusted for seasonality increased 102,314 from 540,067 on Dec 31 to 642,381 on Jan. Strong seasonality is preventing clear analysis of labor markets.
Table VII-2, US, Initial Claims for Unemployment Insurance
| 2012 | SA | NSA | 4-week MA SA |
| Jan 7 | 399,000 | 642,381 | 381,750 |
| Dec 31, 2011 | 375,000 | 540,067 | 374,000 |
| Change | +24,000 | +102,314 | +7,750 |
| Dec 24, 2011 | 387,000 | 497,689 | 376,500 |
| Prior Year | 437,000 | 773,499 | 420,500 |
Note: SA: seasonally adjusted; NSA: not seasonally adjusted; MA: moving average
Source: http://www.dol.gov/opa/media/press/eta/ui/current.htm
Table VII-3 provides seasonally and not seasonally adjusted claims in the comparable week for the years from 2001 to 2012. Seasonally adjusted claims typically exceed claims not adjusted for seasonality. Claims not seasonally adjusted have declined from 825,891 on Jan 9, 2010 to 773,499 on Jan 8, 2011, and now to 642,381 on Jan 7, 2012. There is strong indication of significant decline in the level of layoffs in the US. Hiring has not recovered.
Table VII-3, US, Unemployment Insurance Weekly Claims
| Not Seasonally Adjusted Claims | Seasonally Adjusted Claims | |
| Jan 6, 2001 | 558,768 | 337,000 |
| Jan 5, 2002 | 637,343 | 397,000 |
| Jan 4, 2003 | 620,004 | 393,000 |
| Jan 3, 2004 | 552,815 | 356,000 |
| Jan 8, 2005 | 693,776 | 369,000 |
| Jan 7, 2007 | 555,114 | 326,000 |
| Jan 6, 2007 | 506,059 | 332,000 |
| Jan 1, 2008 | 522,700 | 350,000 |
| Jan 3, 2009 | 731,958 | 507,000 |
| Jan 9, 2010 | 825,891 | 468,000 |
| Jan 8, 2011 | 773,499 | 437,000 |
| Jan 7, 2012 | 642,381 | 399,000 |
Source: http://www.workforcesecurity.doleta.gov/unemploy/claims.asp
VIII Interest Rates. It is quite difficult to measure inflationary expectations because they tend to break abruptly from past inflation. There could still be an influence of past and current inflation in the calculation of future inflation by economic agents. Table VIII-1 provides inflation of the CPI. In Jul-Nov 2011, CPI inflation for all items seasonally adjusted was 2.7 percent in annual equivalent, that is, compounding inflation in Jul-Nov and assuming it would be repeated for a full year. In the 12 months ending in Nov, CPI inflation of all items not seasonally adjusted was 3.4 percent. The second row provides the same measurements for the CPI of all items excluding food and energy: 2.2 percent in 12 months and 1.9 percent in annual equivalent. Bloomberg provides the yield curve of US Treasury securities (http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/). The lowest yield is 0.02 percent for three months, 0.05 percent for six months, 0.10 percent for 12 months, 0.22 percent for two years, 0.34 percent for three years, 0.79 percent for five years, 1.30 percent for seven years, 1.86 percent for ten years and 2.91 percent for 30 years. The Irving Fisher definition of real interest rates is approximately the difference between nominal interest rates, which are those estimated by Bloomberg, and the rate of inflation expected in the term of the security, which could behave as in Table VIII-1. Real interest rates in the US have been negative during substantial periods in the past decade while monetary policy pursues a policy of attaining its “dual mandate” of (http://www.federalreserve.gov/aboutthefed/mission.htm):
“Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates”
Negative real rates of interest distort calculations of risk and returns from capital budgeting by firms, through lending by financial intermediaries to decisions on savings, housing and purchases of households. Inflation on near zero interest rates misallocates resources away from their most productive uses and creates uncertainty of the future path of adjustment to higher interest rates that inhibit sound decisions.
Table VIII-1, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%
| ∆% 12 Months Nov 2011/Nov | ∆% Annual Equivalent Jul-Nov 2011 SA | |
| CPI All Items | 3.4 | 2.7 |
| CPI ex Food and Energy | 2.2 | 1.9 |
Source: http://www.bls.gov/news.release/pdf/cpi.pdf
VII Conclusion. The US economy is in growth standstill at an annual equivalent rate in the first three quarters of 1.1 percent primarily driven by drawing on savings. Real disposable income is falling. There are around 29 million people in the US unemployed or underemployed. Real wages are falling. There is no exit from unemployment, underemployment and falling real wages because of the collapse of hiring. The euro is fighting for survival. Inflation has occurred in three waves in 2011 with higher inflation induced by carry trades from zero interest rates to commodity futures when there is subdued risk aversion. Inflation declined in the middle of the year because of unwinding carry trades as a result of financial risk aversion originating in the sovereign debt crisis of Europe. Unconventional monetary policy of zero interest rates and large-scale purchases of assets using the central bank’s balance sheet is designed to increase aggregate demand by stimulating consumption and investment. In practice, there is no control of how cheap money will be used. An alternative allocation of cheap money is through the carry trade from zero interest rates and short dollar positions to exposures in risk financial assets such as equities, commodities and so on. After a decade of unconventional monetary policy it may be prudent to return to normalcy so as to avoid adverse side effects of financial turbulence and inflation waves. Normal monetary policy would also encourage financial intermediation required for financing sound long-term projects that can stimulate economic growth and full utilization of resources. (Go to http://cmpassocregulationblog.blogspot.com/ http://sites.google.com/site/economicregulation/carlos-m-pelaez)
http://www.amazon.com/Carlos-Manuel-Pel%C3%A1ez/e/B001HCUT10).
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© Carlos M. Pelaez, 2010, 2011, 2012
Appendix I. The Great Inflation
Inflation and unemployment in the period 1966 to 1985 is analyzed by Cochrane (2011Jan, 23) by means of a Phillips circuit joining points of inflation and unemployment. Chart I1 for Brazil in Pelaez (1986, 94-5) was reprinted in The Economist in the issue of Jan 17-23, 1987 as updated by the author. Cochrane (2011Jan, 23) argues that the Phillips circuit shows the weakness in Phillips curve correlation. The explanation is by a shift in aggregate supply, rise in inflation expectations or loss of anchoring. The case of Brazil in Chart I1 cannot be explained without taking into account the increase in the fed funds rate that reached 22.36 percent on Jul 22, 1981 (http://www.federalreserve.gov/releases/h15/data.htm) in the Volcker Fed that precipitated the stress on a foreign debt bloated by financing balance of payments deficits with bank loans in the 1970s; the loans were used in projects, many of state-owned enterprises with low present value in long gestation. The combination of the insolvency of the country because of debt higher than its ability of repayment and the huge government deficit with declining revenue as the economy contracted caused adverse expectations on inflation and the economy. This interpretation is consistent with the case of the 24 emerging market economies analyzed by Reinhart and Rogoff (2010GTD, 4), concluding that “higher debt levels are associated with significantly higher levels of inflation in emerging markets. Median inflation more than doubles (from less than seven percent to 16 percent) as debt rises from the low (0 to 30 percent) range to above 90 percent. Fiscal dominance is a plausible interpretation of this pattern.”
The reading of the Phillips circuits of the 1970s by Cochrane (2011Jan, 25) is doubtful about the output gap and inflation expectations:
“So, inflation is caused by ‘tightness’ and deflation by ‘slack’ in the economy. This is not just a cause and forecasting variable, it is the cause, because given ‘slack’ we apparently do not have to worry about inflation from other sources, notwithstanding the weak correlation of [Phillips circuits]. These statements [by the Fed] do mention ‘stable inflation expectations. How does the Fed know expectations are ‘stable’ and would not come unglued once people look at deficit numbers? As I read Fed statements, almost all confidence in ‘stable’ or ‘anchored’ expectations comes from the fact that we have experienced a long period of low inflation (adaptive expectations). All these analyses ignore the stagflation experience in the 1970s, in which inflation was high even with ‘slack’ markets and little ‘demand, and ‘expectations’ moved quickly. They ignore the experience of hyperinflations and currency collapses, which happen in economies well below potential.”
Chart I1, Brazil, Phillips Circuit 1963-1987
©Carlos Manuel Pelaez, O cruzado e o austral. São Paulo: Editora Atlas, 1986, pages 94-5. Reprinted in: Brazil. Tomorrow’s Italy, The Economist, 17-23 January 1987, page 25.
DeLong (1997, 247-8) shows that the 1970s were the only peacetime period of inflation in the US without parallel in the prior century. The price level in the US drifted upward since 1896 with jumps resulting from the two world wars: “on this scale, the inflation of the 1970s was as large an increase in the price level relative to drift as either of this century’s major wars” (DeLong, 1997, 248). Monetary policy focused on accommodating higher inflation, with emphasis solely on the mandate of promoting employment, has been blamed as deliberate or because of model error or imperfect measurement for creating the Great Inflation (http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html). As DeLong (1997) shows, the Great Inflation began in the mid 1960s, well before the oil shocks of the 1970s (see also the comment to DeLong 1997 by Taylor 1997, 276-7). TableI1 provides the change in GDP, CPI and the rate of unemployment from 1960 to 1990. There are three waves of inflation (1) in the second half of the 1960s; (2) from 1973 to 1975; and (3) from 1978 to 1981. In one of his multiple important contributions to understanding the Great Inflation, Meltzer (2005) distinguishes between one-time price jumps, such as by oil shocks, and a “maintained” inflation rate. Meltzer (2005) uses a dummy variable to extract the one-time oil price changes, resulting in a maintained inflation rate that was never higher than 8 to 10 percent in the 1970s. There is revealing analysis of the Great Inflation and its reversal by Meltzer (2005, 2010a, 2010b).
Table I1, US Annual Rate of Growth of GDP and CPI and Unemployment Rate 1960-1982
| ∆% GDP | ∆% CPI | UNE | |
| 1960 | 2.5 | 1.4 | 6.6 |
| 1961 | 2.3 | 0.7 | 6.0 |
| 1962 | 6.1 | 1.3 | 5.5 |
| 1963 | 4.4 | 1.6 | 5.5 |
| 1964 | 5.8 | 1.0 | 5.0 |
| 1965 | 6.4 | 1.9 | 4.0 |
| 1966 | 6.5 | 3.5 | 3.8 |
| 1967 | 2.5 | 3.0 | 3.8 |
| 1968 | 4.8 | 4.7 | 3.4 |
| 1969 | 3.1 | 6.2 | 3.5 |
| 1970 | 0.2 | 5.6 | 6.1 |
| 1971 | 3.4 | 3.3 | 6.0 |
| 1972 | 5.3 | 3.4 | 5.2 |
| 1973 | 5.8 | 8.7 | 4.9 |
| 1974 | -0.6 | 12.3 | 7.2 |
| 1975 | -0.2 | 6.9 | 8.2 |
| 1976 | 5.4 | 4.9 | 7.8 |
| 1977 | 4.6 | 6.7 | 6.4 |
| 1978 | 5.6 | 9.0 | 6.0 |
| 1979 | 3.1 | 13.3 | 6.0 |
| 1980 | -0.3 | 12.5 | 7.2 |
| 1981 | 2.5 | 8.9 | 8.5 |
| 1982 | -1.9 | 3.8 | 10.8 |
| 1983 | 4.5 | 3.8 | 8.3 |
| 1984 | 7.2 | 3.9 | 7.3 |
| 1985 | 4.1 | 3.8 | 7.0 |
| 1986 | 3.5 | 1.1 | 6.6 |
| 1987 | 3.2 | 4.4 | 5.7 |
| 1988 | 4.1 | 4.4 | 5,3 |
| 1989 | 3.6 | 4.6 | 5.4 |
| 1990 | 1.9 | 6.1 | 6.3 |
Note: GDP: Gross Domestic Product; CPI: consumer price index; UNE: rate of unemployment; CPI and UNE are at year end instead of average to obtain a complete series
Source: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
http://www.bls.gov/web/empsit/cpseea01.htm
http://data.bls.gov/pdq/SurveyOutputServlet
There is a false impression of the existence of a monetary policy “science,” measurements and forecasting with which to steer the economy into “prosperity without inflation.” Market participants are remembering the Great Bond Crash of 1994 shown in Table I2 when monetary policy pursued nonexistent inflation, causing trillions of dollars of losses in fixed income worldwide while increasing the fed funds rate from 3 percent in Jan 1994 to 6 percent in Dec. The exercise in Table I2 shows a drop of the price of the 30-year bond by 18.1 percent and of the 10-year bond by 14.1 percent. CPI inflation remained almost the same and there is no valid counterfactual that inflation would have been higher without monetary policy tightening because of the long lag in effect of monetary policy on inflation (see Culbertson 1960, 1961, Friedman 1961, Batini and Nelson 2002, Romer and Romer 2004). The pursuit of nonexistent deflation during the past ten years has resulted in the largest monetary policy accommodation in history that created the 2007 financial market crash and global recession and is currently preventing smoother recovery while creating another financial crash in the future. The issue is not whether there should be a central bank and monetary policy but rather whether policy accommodation in doses from zero interest rates to trillions of dollars in the fed balance sheet endangers economic stability.
Table I2, Fed Funds Rates, Thirty and Ten Year Treasury Yields and Prices, 30-Year Mortgage Rates and 12-month CPI Inflation 1994
| 1994 | FF | 30Y | 30P | 10Y | 10P | MOR | CPI |
| Jan | 3.00 | 6.29 | 100 | 5.75 | 100 | 7.06 | 2.52 |
| Feb | 3.25 | 6.49 | 97.37 | 5.97 | 98.36 | 7.15 | 2.51 |
| Mar | 3.50 | 6.91 | 92.19 | 6.48 | 94.69 | 7.68 | 2.51 |
| Apr | 3.75 | 7.27 | 88.10 | 6.97 | 91.32 | 8.32 | 2.36 |
| May | 4.25 | 7.41 | 86.59 | 7.18 | 88.93 | 8.60 | 2.29 |
| Jun | 4.25 | 7.40 | 86.69 | 7.10 | 90.45 | 8.40 | 2.49 |
| Jul | 4.25 | 7.58 | 84.81 | 7.30 | 89.14 | 8.61 | 2.77 |
| Aug | 4.75 | 7.49 | 85.74 | 7.24 | 89.53 | 8.51 | 2.69 |
| Sep | 4.75 | 7.71 | 83.49 | 7.46 | 88.10 | 8.64 | 2.96 |
| Oct | 4.75 | 7.94 | 81.23 | 7.74 | 86.33 | 8.93 | 2.61 |
| Nov | 5.50 | 8.08 | 79.90 | 7.96 | 84.96 | 9.17 | 2.67 |
| Dec | 6.00 | 7.87 | 81.91 | 7.81 | 85.89 | 9.20 | 2.67 |
Notes: FF: fed funds rate; 30Y: yield of 30-year Treasury; 30P: price of 30-year Treasury assuming coupon equal to 6.29 percent and maturity in exactly 30 years; 10Y: yield of 10-year Treasury; 10P: price of 10-year Treasury assuming coupon equal to 5.75 percent and maturity in exactly 10 years; MOR: 30-year mortgage; CPI: percent change of CPI in 12 months
Sources: yields and mortgage rates http://www.federalreserve.gov/releases/h15/data.htm CPI ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.t
© Carlos M. Pelaez, 2010, 2011, 2012
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