Thirty Million Unemployed or Underemployed, Falling Real Wages, Euro Zone Survival Risk and World Economic Slowdown: Part II

 

Thirty Million Unemployed or Underemployed, Falling Real Wages, Euro Zone Survival Risk and World Economic Slowdown

Carlos M. Pelaez

© Carlos M. Pelaez, 2010, 2011

Executive Summary

I Thirty Million Unemployed or Underemployed

IA Summary of the Employment Situation

IB Number of People in Job Stress

IC Long-term and Cyclical Comparison of Employment

ID Creation of Jobs

II Falling Real Wages

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/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 Oct month ∆%: 0.0; ex food and energy ∆%: 0.2 Blog 12/18/11
Producer Price Index	Nov 12 months NSA ∆%: 5.7; ex food and energy ∆% 2.9 Oct month SA ∆% = 0.3; ex food and energy ∆%: 0.1 Blog 12/18/11
PCE Inflation	Nov 12 months NSA ∆%: headline 2.5; ex food and energy ∆% 1.7 Blog 12/27/11
Employment Situation	Household Survey: Nov Unemployment Rate SA 8.6% Blog calculation People in Job Stress Nov: 28.9 million NSA Establishment Survey: Nov Nonfarm Jobs 100,000; Private +120,000 jobs created  Oct 12 months Average Hourly Earnings Inflation Adjusted ∆%: minus 1.6% Blog 12/04/11
Nonfarm Hiring	Nonfarm Hiring fell from 64.9 million in 2006 to 47.2 million in 2010 or by 17.7 million Private-Sector Hiring Oct 2011 4.091 million lower by 1.605 million than 5.696 million in Oct 2006 Blog 12/18/11
GDP Growth	BEA Revised National Income Accounts back to 2003 IQ2011 SAAR ∆%: 0.4 IIQ2011 SAAR ∆%: 1.3 IIIQ2011 SAAR ∆%: 1.8 First three quarters AE ∆% 1.2  Blog 12/27/11
Personal Income and Consumption	Nov month ∆% SA Real Disposable Personal Income (RDPI) 0.0 Nov month SA ∆% Real Personal Consumption Expenditures (RPCE): 0.2 12 months NSA ∆%: RDPI: -0.1; RPCE ∆%: 1.3 Blog 12/27/11
Quarterly Services Report	IIIQ11/IIQII SA ∆%: Information 0.6 Professional 0.8 Administrative 1.7 Hospitals -0.9 Blog 12/11/11
Employment Cost Index	IIIQ2011 SA ∆%: 0.3 Sep 12 months ∆%: 2.0 Blog 10/30/11
Industrial Production	NOV month SA ∆%: 0.2 Nov 12 months SA ∆%: 3.7 Capacity Utilization: 77.8 Blog 12/18/11
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 New Orders: From -2.07 Nov to minus 5.10 Dec Blog 12/18/11
Philadelphia Fed Business Outlook Index	General Index from 3.6 Nov to 10.3 Dec New Orders from 1.3 Nov to 9.7 Dec Blog 12/18/11
Manufacturing Shipments and Orders	Nov New Orders SA ∆%: minus 1.8; ex transport ∆%: 0.3 12 months Jan-Nov NSA ∆%: 12.3; ex transport ∆% 12.5 Blog 01/08/12
Durable Goods	Nov New Orders SA ∆%: 3.8; ex transport ∆%: 0.3 Jan-Nov months NSA New Orders ∆%: 9.5; ex transport ∆% : 9.1 Blog 12/27/11
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-Oct 2011/2010 ∆%: Total 14.8; Durable Goods: 12.4; Nondurable Goods 16/7 Blog 12/11/11
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Oct 11/Oct 10 NSA ∆%: Total Business 10.4; Manufacturers 11.0 Retailers 7.1; Merchant Wholesalers 12.8 Blog 12/18/11
Sales for Retail and Food Services	Jan-Nov 2011/Jan-Nov 2010 ∆%: Retail and Food Services: 7.8; Retail ∆% 8.1 Blog 12/18/11
Value of Construction Put in Place	Nov SAAR month SA ∆%: 1.2 Oct 12 months NSA: 0.5 Blog 01/08/12
Case-Shiller Home Prices	Oct 2011/Oct 2010 ∆% NSA: 10 Cities minus 3.0; 20 Cities: minus 3.4 ∆% Oct SA: 10 Cities minus 0.5 ; 20 Cities: minus 0.6 Blog 01/01/12
FHFA House Price Index Purchases Only	Oct SA ∆% -0.2; 12 month ∆%: minus 2.7 Blog 12/27/11
New House Sales	Nov month SAAR ∆%: 1.6 Jan-Nov 2011/Jan-Nov 2010 NSA ∆%: minus 6.1 Blog 12/27/11
Housing Starts and Permits	Nov Starts month SA ∆%: 9.3; Permits ∆%: 5.7 Jan-Nov 2011/2010 NSA ∆% Starts 2.1; Permits  ∆% 1.9 Blog 12/27/11
Trade Balance	Balance Oct SA -$43,466 million versus Sep -$44,170 million Exports Oct SA ∆%: -0.8 Imports Oct SA ∆%: -0.9 Goods Exports Jan-Oct 2011/2010 NSA ∆%: 17.6 Good Imports Jan-Oct 2011/2010 NSA ∆%: 16.3 Blog 12/11/11
Export and Import Prices	Nov 12 months NSA ∆%: Imports 9.9; Exports 4.7 Blog 12/18/11
Consumer Credit	Oct ∆% annual rate: 3.7 Blog 12/11/11
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 Major Holders of Treasury Securities: China $1134 billion; Japan $979 billion  Blog 12/18/11
Treasury Budget	Fiscal Year 2012/2011 ∆%: Receipts 7.0; Outlays -5.9; Individual Income Taxes 16.0 Deficit Fiscal Year 2011 $1,298,80 million Deficit Fiscal Year 2012 Oct-Nov $315,474 million Blog 12/18/11
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: 01/01/12 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

Motor vehicle sales and production in the US have been in long-term structural change. Table VA-1 provides the data on new motor vehicle sales and domestic car production in the US from 1990 to 2010. New motor vehicle sales grew from 14,137 thousand in 1990 to the peak of 17,806 thousand in 2000 or 29.5 percent. In that same period, domestic car production fell from 6,231 thousand in 1990 to 5,542 thousand in 2000 or -11.1 percent. New motor vehicle sales fell from 17,445 thousand in 2005 to 11,772 in 2010 or 32.5 percent while domestic car production fell from 4,321 thousand in 2005 to 2,840 thousand in 2010 or 34.3 percent. Domestic car production fell from 6,231 thousand in 1990 to 2,840 thousand in 2010 or 54.4 percent. In 2011, light vehicle sales accumulated to 12.778 million, which is higher by 10.3 percent relative to 11.588 million a year earlier (http://www.motorintelligence.com/m_frameset.html). The seasonally-adjusted annual rate of light vehicle sales in the US reached 13.56 million units in Dec 2011, lower than 13.63 million units in Nov 2011 and higher than 12.51 million in Dec 2010 (http://www.motorintelligence.com/m_frameset.html). 

Table VA-1, US, New Motor Vehicle Sales and Car Production, Thousand Units

	New Motor Vehicle Sales	New Car Sales and Leases	New Truck Sales and Leases	Domestic Car Production
1990	14,137	9,300	4,837	6,231
1991	12,725	8,589	4,136	5,454
1992	13,093	8,215	4,878	5,979
1993	14,172	8,518	5,654	5,979
1994	15,397	8,990	6,407	6,614
1995	15,106	8,536	6,470	6,340
1996	15,449	8,527	6,922	6,081
1997	15,490	8,273	7,218	5,934
1998	15,958	8,142	7,816	5,554
1999	17,401	8,697	8,704	5,638
2000	17,806	8,852	8,954	5,542
2001	17,468	8,422	9,046	4,878
2002	17,144	8,109	9,036	5,019
2003	16,968	7,611	9,357	4,510
2004	17,298	7,545	9,753	4,230
2005	17,445	7,720	9,725	4,321
2006	17,049	7,821	9,228	4,367
2007	16,460	7,618	8,683	3,924
2008	13,494	6,814	6.680	3,777
2009	10,601	5,456	5,154	2,247
2010	11,772	5,729	6,044	2,840

Source: US Census Bureau http://www.census.gov/compendia/statab/cats/wholesale_retail_trade/motor_vehicle_sales.html

Manufacturers’ shipments were flat in Nov after increasing 0.5 percent in Oct and 0.3 in Sep while new orders increased a strong 1.8 percent in Nov after falling 0.2 percent in Oct and 0.1 percent in Sep, as shown in Table VA-2. These data are very volatile. Automobile shipments fell 4.2 percent in Nov after increasing 10.4 percent in Oct and 1.4 percent in Sep. Volatility is illustrated by increase of 73.9 percent of nondefense aircraft in Nov following declines of 13.9 percent in Oct and 26.7 percent in Sep, growth of 26.2 percent in Aug and 49.9 percent in Jul but decline of 24.0 percent in Jun. Capital goods new orders, indicating investment, increased 7.6 percent in Nov after falling 5.5 percent in Oct and 2.8 percent in Sep but growing 4.7 percent in Aug after growing 3.1 percent in Jul but falling 2.4 percent in Jun. New orders of nondefense capital goods jumped 8.1 percent in Nov after declines of 3.7 percent in Oct and 3.5 percent in Sep but with strong growth of 5.4 percent in Aug and 4.2 percent in Jul but decline of 2.4 percent in Jun. Excluding more volatile aircraft, capital goods orders still fell 1.2 percent in Oct and 0.9 percent in Oct.

Table VA-2, US, Value of Manufacturers’ Shipments and New Orders, SA, Month ∆%

2011	Nov  ∆%	Oct    ∆%	Sep        ∆%	Aug ∆%	Jul ∆%
All Mfg Industries
S	0.0	0.5	0.3	0.1	1.2
NO	1.8	-0.2	-0.1	0.1	2.1
Excluding Transport
S	0.3	-0.1	0.6	0.7	0.5
NO	0.3	0.4	0.9	-0.1	0.6
Excluding Defense
S	0.0	0.6	0.4	0.0	1.3
NO	1.8	0.3	-0.2	0.0	2.3
Durable Goods
S	-0.3	1.5	-0.4	0.1	2.1
NO	3.7	0.1	-1.4	0.1	4.2
Machinery
S	0.6	-2.7	-1.0	5.8	0.7
NO	0.4	0.8	-1.9	-1.9	1.9
Computers & Electronic Products
S	-2.2	1.1	-0.8	0.6	1.7
NO	-4.3	1.3	2.2	1.4	-3.5
Computers
S	-10.0	9.7	3.8	-4.7	4.6
NO	-6.7	6.1	7.3	2.5	-6.3
Transport Equipment
S	-2.5	5.0	-1.9	-4.9	7.0
NO	14.7	-4.5	-7.5	0.8	15.0
Automobiles
S	-4.3	10.4	1.4	-5.5	3.0
Motor Vehicles
S	-0.9	2.7	-1.2	-5.6	8.1
NO	0.0	1.3	-2.1	-5.4	8.5
Nondefense Aircraft
S	-11.4	8.3	3.1	3.4	8.8
NO	73.9	-13.9	-26.7	26.2	49.9
Capital Goods
S	1.7	0.3	-0.4	3.0	0.7
NO	7.6	-5.4	-2.8	4.7	3.1
Nondefense Capital Goods
S	-2.0	-0.5	-0.4	3.0	1.4
NO	8.1	-3.5	-3.5	5.4	4.2
Capital Goods ex Aircraft
S	-0.8	-0.9	-0.5	3.1	0.3
NO	-1.2	-0.9	1.4	0.9	-0.3
Nondurable Goods
S NO	0.3	-0.3	0.9	0.0	0.4

Note:Mfg: manufacturing; S: shipments; NO: new orders; Transport: transportation

Source: http://www.census.gov/manufacturing/m3/prel/pdf/s-i-o.pdf

Chart VA-1 of the US Census Bureau shows monthly changes in manufacturers’ new orders in the past 12 months. Trends are difficult to discern for these data because of the significant volatility.

Chart VA-1, US, Manufacturers’ New Orders 2010-2011 Seasonally Adjusted, Month ∆%

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr022.html

Additional perspective on manufacturers’ shipments and new orders is provided by Table VA-3. Values are cumulative millions of dollars in Jan-Nov 2011 not seasonally adjusted (NSA). Shipments of all manufacturing industries in the first eleven months of 2011 total $4.9 trillion and new orders also total $4.9 trillion, growing respectively by 11.5 percent and 12.3 percent relative to the same period in 2010. Excluding transportation equipment, shipments grew 12.4 percent and new orders increased 12.5 percent. Excluding defense, shipments grew 12.4 percent and new orders grew 13.0 percent. Important information in Table VA-3 is the large share of nondurable goods: with shipments of $2.7 trillion, growing by 14.9 percent, and new orders of $2.7 trillion, growing by 14.9 percent, in part driven by higher prices for food and energy. Durable goods are lower in value, with shipments of $2.2 trillion, growing by 8.0 percent, and new orders of $2.2 trillion, growing by 9.5 percent. Capital goods have relatively high value of $828.5 billion for shipments, growing 5.6 percent, and new orders $874.7 billion, growing 9.7 percent, which could be a favorable sign of future investment. Excluding aircraft, capital goods shipments reached $698.8 billion, growing by 9.4 percent, and new orders $722.5 billion, growing 10.7 percent. Automobile shipments reached $57.8 billion, growing by 5.7 percent. There is no suggestion in these data that the US economy is close to recession.

Table VA-3, US, Value of Manufacturers’ Shipments and New Orders, NSA, Millions of Dollars 

Jan-Nov 2011	Shipments	∆% 2011/ 2010	New Orders	∆% 2011/ 2010
All Manufacturing Industries	4,910,921	11.5	4,891,329	12.3
Excluding Transport	4,398,161	12.4	4,357,012	12.5
Excluding Defense	4,803,156	12.4	4,781,233	13.0
Durable Goods	2,176,185	8.0	2,156,593	9.5
Machinery	321,591	12.5	316,156	14.8
Computers & Electronic Products	336,211	1.6	261,305	-0.9
Computers	45,673	10.1	45,350	9.4
Transport Equipment	512,760	4.5	534,317	10.7
Automobiles	57,753	5.7	NA	NA
Motor vehicles	158,273	6.5	158,151	6.9
Nondefense Aircraft	78,840	11.5	101,409	33.3
Capital Goods	828,482	5.6	874,663	9.7
Nondefense Capital Goods	744,613	9.5	788,403	12.8
Capital Goods ex Aircraft	698,825	9.4	722,493	10.7
Nondurable Goods	2,734,736	14.5	2,734,736	14.5

Note: Transport: transportation

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr022.html

Manufacturers’ new orders in the months of Sep, Oct and Nov, not seasonally adjusted are provided in Table VA-4 from 1992 to 2011. The level of new orders in Nov 2011 of $443,419 million is above the level of $416,901 million in Nov 2006 and slightly lower than $456,298 billion in Nov 2007. The comparison is somewhat distorted by inflation in the latter years because the data are not adjusted for inflation.

Table VA-4, US, Manufacturers’ New Orders NSA Millions of Dollars

Year	Sep	Oct	Nov
1992	251,642	250,738	238,753
1993	259,484	257,233	249,000
1994	285,477	280,143	277,084
1995	307,951	294,603	288,737
1996	317,268	311,265	306,883
1997	339,406	330,521	326,856
1998	339,286	323,043	313,623
1999	353,716	343,647	331,794
2000	370,860	345,596	339,253
2001	320,269	327,895	305,478
2002	330,911	332,120	314,727
2003	349,325	355,217	326,624
2004	373,947	370,121	367,104
2005	418,386	415,061	412,683
2006	445,135	423,058	416,901
2007	454,199	470,485	456,298
2008	462,904	431,450	368,944
2009	375,249	373,374	353,470
2010	423,825	407,224	398,065
2011	464,693	448,923	443,419

Source: http://www.census.gov/manufacturing/m3/

Nov was a good month in for construction spending in the US, as shown in Table VA-5. Construction spending at seasonally-adjusted annualized rate (SAAR) reached $807.1 billion in Nov, which was higher by 1.2 percent than in the prior month of Oct. Residential investment rose a high 1.8 percent in the month and nonresidential investment increased 0.2 percent. Public construction increased 1.7 percent while private construction grew 1.0 percent. Data in Table VA-5 show that nonresidential construction at $555.6 billion is much higher in value than residential construction at $251.4 billion while total private construction at $522.3 billion is much higher than public construction at $284.9 billion, all in SAAR.

Table VA-5, US, Value of Construction Put in Place in the United States Billion Dollars and Month and 12 Months ∆%  

	Nov 2011 SAAR $ Billions	Month ∆%	12 Month ∆%
Total	807.1	1.2	0.5
Residential	251.4	1.8	2.0
Nonresidential	555.6	0.9	-0.1
Total Private	522.3	1.0	4.0
Private Residential	243.7	2.0	3.4
New Single Family	109.1	1.5	2.5
New Multi-Family	15.4	1.3	4.1
Private Nonresidential	278.6	0.0	4.5
Total Public	284.9	1.7	-5.3
Public Residential	7.8	-3.1	-28.5
Public Nonresidential	277.1	1.8	-4.4

SAAR: seasonally adjusted annual rate; B: billions

Source: http://www.census.gov/construction/c30/pdf/release.pdf

Further information on construction spending is provided in Table VA-6. The original monthly estimates not-seasonally adjusted and their 12 months rates of change are provided in the first two columns while the SAAR and their monthly changes are provided in the final two columns. There has been improvement in construction in the US in 2011. On a monthly basis, construction fell four consecutive months from Dec 2010 to Mar 2011, increasing in six of the eight months from Apr to No, with decline of 3.3 percent in Jul. The 12 months rates of change improved from minus 6.9 percent in Apr to the first positive 12 months percentage change of 0.1 percent in Oct followed by 0.7 percent in Nov.

Table VA-6, US, Value and Percentage Change in Value of Construction Put in Place, Dollars Millions and ∆%

	Value NSA Month $ Millions	12 Months ∆% NSA	Value SAAR $ Millions	Month ∆% SA*
Nov 2011	68,672	0.7	807,114	1.2
Oct	73,421	0.1	797,422	-0.2
Sep	74,421	-0.3	798,972	1.1
Aug	75,838	-0.4	790,277	2.2
Jul	70,562	-3.8	773,296	-3.3
Jun	72,357	-1.5	799,568	1.5
May	67,296	-1.8	787,396	2.5
Apr	61,817	-6.9	768,226	0.7
Mar	56,731	-6.1	762,557	-0.2
Feb	51,412	-4.5	764,198	-1.0
Jan	52,278	-5.6	771,982	-1.4
AE ∆%				0.6
Dec 2010	60,066	-6.3	782,880	-2.5

SAAR: Seasonally-adjusted Annual Rate

*Percentages are calculated with values without numbers and may differ from rounded numbers

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

The strong contraction of the value of construction in the US is revealed by Table VA-7. Construction spending in the first eleven months of 2011, not seasonally adjusted, reached $724.8 billion, which is lower by 2.5 percent than $743.6 billion in the same period in 2010. The depth of the contraction is shown by the decline of construction spending from $1,103.9 billion in the first eleven months of 2006 to only $724.8 billion in the same period in 2011, or decline by minus 34.3 percent. The comparable decline from Jan-Nov 2005 to Jan-Oct 2011 is minus 31.2 percent. Construction spending in the first ten months of 2011 fell by 14.2 percent relative to the same period in 2003. Construction spending is lower by 14.0 percent in the first eleven months of 2011 relative to the same period in 2009. Construction has been weaker than the economy as a whole.

Table VA-7, US, Value of Construction Put in Place in the United States, Not Seasonally Adjusted, $ Billions and ∆%

Jan-Nov 2011 $ B	724.8
Jan-Nov 2010 $ B	743.6
∆% to 2011	-2.5
Jan-Nov 2009	843.1
∆% to 2011	-14.0
Jan-Nov 2006 $ B	1,103.9
∆% to 2011	-34.3
Jan-Nov 2005 $ B	1,053.4
∆% to 2011	-31.2
Jan-Nov 2003	844.3
∆% to 2011	-14.2

Source: http://www.census.gov/construction/c30/pdf/release.pdf http://www.census.gov/construction/c30/pdf/pr201011.pdf http://www.census.gov/construction/c30/pdf/pr200711.pdf http://www.census.gov/construction/c30/pdf/pr200611.pdf http://www.census.gov/construction/c30/pdf/pr200411.pdf

Monthly construction spending in the US in the quarter Sep to Nov not seasonally adjusted is shown in Table VA-8 for the years between 2002 and 2011. The values of $68.2 billion in Nov 2010 and $68.7 billion in Nov 2011 are lower than $71.4 billion in Nov 2002. Construction in Nov fell by 29.5 percent from the peak of $97.5 in Nov 2005 to $68.7 billion in Nov 2011. The data are not adjusted for inflation or changes in quality.

Table VA-8, US, Value of Construction Spending NSA Millions of Dollars

Year	Sep	Oct	Nov
2002	76,542	75,710	71,362
2003	83,841	83,133	77,915
2004	92,538	90,582	86,394
2005	103,269	102,339	97,549
2006	104,191	101,582	95,339
2007	105,150	103,847	94,822
2008	96,755	95,612	86,067
2009	81,213	79,949	71,906
2010	74,669	73,379	68,163
2011	74,421	73,421	68,672

Source: US Census Bureau http://www.census.gov/const/www/c30index.html

Chart VA-2 of the US Bureau of the Census shows SAARs of construction spending for the US since 1993. Construction spending surged in nearly vertical slope after the stimulus of 2003 combining near zero interest rates and subsequent slow adjustment in 17 doses of increases by 25 basis points between Jun 2004 and Jun 2006 together with other housing subsidies. Construction spending collapsed after subprime mortgages defaulted with the fed funds rate increasing from 1.00 percent in Jun 2004 to 5.25 percent in Jun 2006. Subprime mortgages were programmed for refinancing in two years after increases in homeowner equity in the assumption that fed funds rates would remain low forever or increase in small increments (Gorton 2009EFM see http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Price declines of houses or even uncertainty prevented refinancing of subprime mortgages that defaulted, causing the financial crisis that eventually triggered the global recession.

Chart VA-2, US, Construction Expenditures SAAR 1993-2011

Source: US Census Bureau http://www.census.gov/briefrm/esbr/www/esbr050.html

Construction spending at SAARs in the quarter Sep to Nov is shown in Table VA-9 for the years between 2002 and 2011. There is a peak in 2006 to 2007 with subsequent collapse of SAARs.

Table VA-9, US, Value of Construction Spending Seasonally Adjusted Annual Rate Millions of Dollars

Year	Sep	Oct	Nov
2002	832,134	839,690	844,697
2003	911,589	925,732	925,985
2004	1,012,290	1,015,562	1,023,210
2005	1,131,739	1,145,663	1,156,977
2006	1,151,104	1,139,292	1,137,488
2007	1,165,162	1,152,511	1,127,558
2008	1,056,666	1,050,690	1,029,211
2009	880,259	869,374	850,732
2010	797,259	801,995	802,980
2011	798,972	797,422	807,114

Source: http://www.census.gov/const/www/c30index.html

Annual available data for the value of construction put in place in the US between 1993 and 2010 are provided in Table VA-10. Data from 1993 to 2001 are available for public and private construction with breakdown in residential and nonresidential only for private construction. Data beginning in 2002 provide aggregate residential and nonresidential values. Total construction value put in place in the US increased 65.5 percent between 1993 and 2010 but most of the growth, 65.3 percent, concentrated in 1993 to 2000 with growth of only 0.1 percent between 2000 and 2010. Total value of construction fell 5.2 percent between 2002 and 2010 with value of nonresidential construction increasing 24.4 percent while value of residential construction fell 38.1 percent. Value of total construction fell 29.5 percent between 2005 and 2010, with value of residential construction declining 38.1 percent while value of nonresidential construction rose 14.0 percent. Value of total construction fell 31.2 percent between 2006 and 2010, with value of nonresidential construction increasing 1.4 percent while value of residential construction fell 59.9 percent. In 2002, nonresidential construction had a share of 52.6 percent in total construction while the share of residential construction was 47.4 percent. In 2010, the share of nonresidential construction in total value rose to 69.1 percent while that of residential construction fell to 30.9 percent.

Table VA-10, Annual Value of Construction Put in Place 1993-2010, Millions of Dollars and ∆% 

	Total	Private Nonresidential	Private Residential
1993	485,548	150,006	208,180
1994	531,892	160,438	241,033
1995	548,666	180,534	228,121
1996	599,693	195,523	257,495
1997	631,853	213,720	264,696
1998	688,515	237,394	296,343
1999	744,551	249,167	326,302
2000	802,756	275,293	346,138
2001	840,249	273,922	364,414
	Total	Total Nonresidential	Total Private Residential
2002	847,874	445,914	401,960
2003	891,497	440,246	451,251
2004	991,356	452,948	538,408
2005	1,140,136	486,629	617,507
2006	1,167,222	547,408	619,814
2007	1,152,351	651,883	500,468
2008	1,067,564	709,818	357,746
2009	903,201	649,273	253,928
2010	803,621	554,915	248,706
∆% 1993-2010	65.5
∆% 1993-2000	65.3
∆% 2000-2010	0.1
∆% 2002-2010	-5.2	24.4	-38.1
∆% 2005-2010	-29.5	14.0	-59.7
∆% 2006-2010	-31.2	1.4	-59.9

Source: http://www.census.gov/const/www/c30index.html

VB Japan. 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 for Japan.

Table JPY, Japan, Economic Indicators

Historical GDP and CPI	1981-2010 Real GDP Growth and CPI Inflation 1981-2010 Blog 07/31/11
Corporate Goods Prices	Nov ∆% 0.1 12 months ∆% 1.7 Blog 12/18/11
Consumer Price Index	Nov NSA ∆% minus 0.6 Nov 12 months NSA ∆% -0.5 Blog 01/01/12
Real GDP Growth	IIIQ2011 ∆%: 1.4 on IIQ2011;  IIIQ2011 SAAR 5.6% ∆% from quarter a year earlier: -0.7 % Blog 12/11/11
Employment Report	Nov Unemployed 2.80 million Change in unemployed since last year: minus 380 thousand Unemployment rate: 4.5% Blog 01/01/12
All Industry Index	Oct month SA ∆% 0.8 12 months NSA ∆% 0.2 Blog 12/27/11
Industrial Production	Nov SA month ∆%: minus 2.6 12 months NSA ∆% minus 0.4 Blog 01/01/12
Machine Orders	Total Oct ∆% 3.2 Private ∆%: -9.2 Sep ∆% Excluding Volatile Orders -6.9 Blog 12/04/2011
Tertiary Index	Oct month SA ∆% 0.6 Oct 12 months NSA ∆% 0.5 Blog 12/18/2011
Wholesale and Retail Sales	Nov 12 months: Total ∆%: minus 2.5 Wholesale ∆%: minus 2.6 Retail ∆%: minus 2.3 Blog 01/01/12
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	Nov 12 months ∆%: 2.7 Jan-Nov ∆%: 6.4 Nov month ∆%: -0.7 Blog 12/11/11
Consumer Price Index	Nov month ∆%: -0.2 Nov 12 month ∆%: 4.2 Jan-Nov ∆%: 5.5 Blog 12/11/11
Value Added of Industry	Nov 12 month ∆%: 12.4 Jan-Nov 2011/Jan-Oct 2010 ∆%: 14.0 Blog 12/18/11
GDP Growth Rate	Year IIIQ2011 ∆%: 9.1 Quarter IIQ2011 ∆%: 2.2 Blog 10/23/11
Investment in Fixed Assets	Total Jan-Nov ∆%: 24.4 Jan-Nov ∆% real estate development: 29.9 Blog 12/18/11
Retail Sales	Nov month ∆%: 1.3 Nov 12 month ∆%: 17.3 Jan-Nov ∆%: 17.0 Blog 12/11/11
Trade Balance	Nov balance $14.52 billion Exports ∆% 13.8 Imports ∆% 22.1 Cumulative Nov: $138.55 billion Blog 12/11/11

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

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 Blog 12/18/11
Producer Prices	Euro Zone industrial producer prices Nov ∆%: 0.2 Nov 12 months ∆%: 5.3 Blog 01/08/12
Industrial Production	Oct month ∆%: -0.1 Sep 12 months ∆%: 1.3 Blog 12/18/11
Industrial New Orders	Oct month ∆%: minus 1.8 Oct 12 months ∆%: 1.6 Blog 01/08/12
Construction Output	Oct month ∆%: -1.4 Oct 12 months ∆%: -2.8 Blog 12/27/11
Retail Sales	Nov month ∆%: minus 0.8 Nov 12 months ∆%: minus 2.5 Blog 01/08/12
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-Oct 2011/2010 Exports ∆%: 13.3 Imports ∆%: 13.8 Blog 12/18/11
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:

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

Eurostat reported the rate of unemployment in the euro area as 10.3 percent in Nov as shown in Table VD-1. The number of unemployed in Nov 2011 was 16.372, which was 0.587 million higher than in Nov 2010.

Table VD-1, Euro Area, Unemployment Rate and Number of Unemployed, % and Millions, SA 

	Unemployment Rate %	Number Unemployed Millions
Nov 2011	10.3	16.372
Oct	10.3	16.327
Sep	10.2	16.198
Aug	10.1	15.984
Jul	10.1	15.928
Jun	10.0	15.787
May	10.0	15.751
Apr	9.9	15.645
Mar	10.0	15.660
Feb	10.0	15.663
Jan	10.0	15.704
Nov 2010	10.0	15.785

Source: http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

Table VD-2 shows the disparity in rates of unemployment in the euro area with 10.3 for the region as a whole but 5.5 percent in Germany. At the other extreme is Spain with rate of unemployment of 22.9 percent and 5.333 million unemployed.

Table VD-2, Unemployed and Unemployment Rate in Countries and Regions, Millions and %

Nov 2011
Euro Zone	10.3	16.372
Germany	5.5	2.339
France	9.8	2.850
Netherlands	4.9	0.437
Finland	7.4	0.201
Portugal	13.2	0.720
Ireland	14.6	0.303
Italy	8.6	2.142
Greece	NA	NA
Spain	22.9	5.333
Belgium	7.2	0.351
European Union	9.8	23.674
United States	8.6	13.326
Japan	4.5	2.950
United Kingdom

Source: http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

Chart VD-1 provides Eurosat estimates of unemployment rates in the European Union. There is significant diversity in the rates of unemployment in members of the euro zone and the European Union.

Chart VD-1, Unemployment Rate in Various Countries and Regions

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

Table VD-3 provides the euro area harmonized index of consumer prices, rate of unemployment and GDP growth from 1999 to 2011. The gains in reducing the rate of unemployment to 7.6 percent by 2007 were eroded by the global recession with increase of the rate of unemployment to more than 10.0 percent. GDP growth is stalling at the margin with significant differences in the economies of member countries.

Table VD-3, Euro Area, HICP, Rate of Unemployment and GDP

	Harmonized Index of Consumer Prices ∆%	Rate of Unemployment %	GDP ∆%
2011	2.8	10.3	1.6*
2010	1.6	10.1	1.8
2009	0.3	9.6	-4.1
2008	3.3	7.6	0.4
2007	2.1	7.6	2.8
2006	2.2	8.5	3.1
2005	2.2	9.2	1.7
2004	2.2	9.0	2.2
2003	2.1	8.9	0.8
2002	2.3	8.5	0.9
2001	2.4	8.1	1.9
2000	2.2	8.5
1999	1.2	9.4

*EUROSTAT Forecast; HICP flash for Dec 2011

Sources: http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

There is significant volatility in industrial new orders and the euro zone is not an exception. Table VD-4 shows percentage changes of euro zone industrial new orders. Both monthly changes and 12 months changes are highly volatile. Industrial new orders rebounded with growth of 1.8 percent in Nov 2011 and 1.6 percent in 12 months. Industrial new orders fell 7.8 percent in Sep 2011 and were higher by 1.6 percent than in Sep 2010. Monthly changes were negative in Jul, Jun and Apr. The 12 months rates of change have declined from 21.6 percent in Feb to 1.6 percent in Oct. The data consist of values such that moderation of producer prices may influence rates of change.

Table VD-4, Euro Zone, Industrial New Orders ∆%

	Month	12 Months
Oct 2011	1.8	1.6
Sep	-7.8	1.6
Aug	1.7	6.0
Jul	-1.7	8.9
Jun	-0.9	10.3
May	3.5	13.4
Apr	-0.2	11.3
Mar	-0.3	14.3
Feb	1.4	21.6
Jan	1.3	20.5
Dec 2010	1.2	18.9

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05012012-BP/EN/4-05012012-BP-EN.PDF

http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

Table VD-5 provides the monthly rates of change of new orders by components. Total new orders fell 7.8 percent in Sep but rebounded 1.8 percent in Oct. There is high volatility even when excluding heavy transport and equipment, falling 0.5 percent in Nov and 5.5 percent in Sep after growing 0.8 percent in Aug and 1.3 percent in Jul but falling 2.9 percent in Jun. Orders for capital goods have been somewhat stronger and nondurable goods more moderate. The month of Jun was particularly weak with all segments showing declines with the exception of capital goods.

Table VD-5, Euro Zone, Industrial New Orders Month ∆%

2011	Nov	Sep	Aug	Jul	Jun	May
Total	1.8	-7.8	1.7	-1.7	-0.9	3.5
Interm.	-0.2	-3.3	0.6	1.6	-4.2	2.2
Capital Goods	1.6	-8.1	3.2	-7.6	4.6	3.6
Durable	-2.3	-0.7	-1.0	3.3	-4.2	0.6
Non- durable	-0.5	-2.4	0.7	0.6	-3.5	4.8
Total Ex Heavy T&E	-0.5	-5.5	0.8	1.3	-2.9	2.9

Note: Interm: Intermediate; T&E: Transport & Equipment

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05012012-BP/EN/4-05012012-BP-EN.PDF

Table VD-6 provides 12-month percentage changes of industrial new orders by components in the euro zone. Total industrial new orders are still positive relative to a year earlier but have fallen from growth of 13.4 percent in May to 1.6 percent in Nov. Capital goods new orders have fallen from growth of 16.6 percent in the 12 months ending in May to 2.7 percent in the 12 months ending in Nov.

Table VD-6, Euro Zone, Industrial New Orders 12-Month ∆%

2011	Nov	Sep	Aug	Jul	Jun	May
Total	1.6	1.6	6.0	8.9	10.3	13.4
Interm.	1.4	2.9	6.0	7.7	5.6	13.5
Capital Goods	2.7	1.0	7.6	11.9	17.0	16.6
Durable	-4.9	1.9	-3.5	2.7	-5.0	-0.5
Non- durable	-1.0	0.7	3.3	3.0	2.3	9.5
Total Ex Heavy T&E	1.9	2.5	4.7	8.2	7.3	12.4

Note: Interm: Intermediate; T&E: Transport & Equipment

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05012012-BP/EN/4-05012012-BP-EN.PDF

Advanced economies are experiencing weak demand. Table VD-7 provides the volume of retail sales in the euro zone from Jan to Nov 2011. Retail sales fell 0.8 percent in Nov and 2.5 percent in the 12 months ending in Nov. Cumulative growth of retail sales in the first eleven months of 2011 was minus 1.5 and the annual equivalent rate is minus 1.6 percent. The 12 months rates of growth have become negative since Mar with exception of 1.1 percent in Apr.

Table VD-7, Euro Zone, Volume of Retail Sales, ∆%

	Month ∆%	12 Months ∆%
Nov 2011	-0.8	-2.5
Oct	0.1	-0.7
Sep	-0.6	-1.2
Aug	0.0	-0.1
Jul	0.2	-0.4
Jun	0.5	-0.8
May	-1.2	-1.8
Apr	0.7	1.1
Mar	-0.8	-1.4
Feb	0.2	1.1
Jan	0.2	0.6
Jan-Nov ∆%	-1.5
AE ∆%	-1.6

AE: Annual equivalent

Source: http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

Growth rates of retail sales of the euro zone by products are in Table VD-8. There is weakness in all products without an increase in any segment in the 12-month rates of change. All product categories fell in the month of Nov at around 0.8 percent.

Table VD-8, Euro Zone, Volume of Retail Sales by Products, ∆%

Nov 2011	Month ∆%	12 Months ∆%
Total	-0.8	-2.5
Food, Drinks, Tobacco	-0.8	-1.6
Nonfood Products ex Automotive Fuel	-0.7	-3.0

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-06012012-AP/EN/4-06012012-AP-EN.PDF

Monthly and 12 months rates of change of retail sales by member countries of the euro zone are shown in Table VD-9 for Nov 2011. Retail sales are weak throughout the euro zone. The final line provides retail sales for the UK, which is not a member of the euro zone. Germany, France and the UK are the largest economies with positive growth of retail sales in the 12 months ending in Nov for Germany and the UK.

Table VD-9, Euro Zone, Volume of Retail Sales by Member Countries, ∆%

Nov 2011	Month ∆%	12 Months ∆%
Euro Zone	-0.8	-2.5
Germany	-0.9	0.8
France	-0.4	-2.0
Netherlands	NA	NA
Finland	-0.9	1.7
Belgium	-0.3	-3.3
Portugal	-2.6	-9.2
Ireland	2.0	-0.4
Italy	NA	NA
Greece	NA	NA
Spain	-0.7	-7.0
UK	-0.4	1.8

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-06012012-AP/EN/4-06012012-AP-EN.PDF

The Economic Sentiment Indicator of the European Economic Commission, Economic and Financial Affairs, provides excellent correlation with the economic cycle since 1990, capturing all three recessions in the period and even the threat of recession from 1994 to 1995. The latest chart of this index accessible in the link in parenthesis shows trend of decline in 2011 that has punctured the historical average of 100 (http://ec.europa.eu/economy_finance/db_indicators/surveys/index_en.htm). This deterioration is shown in Table VD-10 with the index falling from 108.0 in Feb to 93.3 in Dec.

Table VD-10, Euro Area, Indicators of Confidence and Economic Sentiment SA

	ESI	IND	SERV	CON	RET	CONS
Historical Average	100.0	-6.5	11.4	-12.6	-8.9	-18.4
Dec 2011	93.3	-7.1	-2.1	-21.1	-11.7	-25.2
Nov	93.8	-7.1	-1.6	-20.4	-11.1	-25.0
Oct	94.8	-6.5	0.1	-19.9	-9.7	-25.1
Sep	95.0	-5.9	0.0	-19.1	-9.8	-26.6
Aug	98.4	-2.7	3.7	-16.5	-8.7	-23.4
Jul	103.0	0.9	7.9	-11.2	-3.6	-24.3
Jun	105.4	3.5	10.1	-9.7	-2.6	-23.5
May	105.5	3.8	9.3	-9.9	-2.4	-24.7
Apr	106.1	5.6	10.3	-11.6	-1.8	-24.3
Mar	107.3	6.6	10.8	-10.6	-1.4	-25.4
Feb	108.0	6.7	11.2	-10.0	-0.2	-24.2
Jan	106.8	6.2	9.9	-11.2	-0.6	-26.0
Dec 2010	107.0	5.3	9.8	-11.0	4.3	-26.7

ESI: Economic Sentiment Index; IND: Industry; SERV: Services; CON: Consumer; RET: Retail Trade; CONS: Construction

Source: European Commission Services 

http://ec.europa.eu/economy_finance/db_indicators/surveys/index_en.htm

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 Blog 11/27/11
Consumer Price Index	Dec month SA ∆%: 0.7 Dec 12 months ∆%: 2.1 Blog 01/01/12
Producer Price Index	Oct month ∆%: 0.1 12 months NSA ∆%: 5.2 Blog 12/27/11
Industrial Production	Oct month SA ∆%: minus 0.8 12 months NSA: 1.4 Blog 12/11/11
Machine Orders	Nov month ∆%: -4.8 Nov 12 months ∆%: -4.4 Blog 01/08/12
Retail Sales	Nov Month ∆% 0.8 12 Months ∆% -0.9 Blog 01/08/12
Employment Report	Employment Accounts: Nov Employed 12 months NSA ∆%: 3.1 Labor Force Survey: Aug Unemployment Rate: 5.5% Blog 01/08/12
Trade Balance	Exports Oct 12 month NSA ∆%: 3.8 Imports Oct 12 months NSA ∆%: 8.6 Exports Oct month SA ∆%: -3.6 percent; Imports Oct month SA minus 1.0 Blog 12/11/11

Links to blog comments in Table DE:

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

Data from the labor force survey of Germany are in Table VE-1. The number unemployed increased 6.3 percent from 2.22 million in Oct 2011 to 2.36 million in Nov 2011, which is lower by 11.6 percent than 2.67 million unemployed in Nov 2010. The rate of unemployment increased from 5.2 percent in Oct 2011 to 5.5 percent in Nov, which is significantly lower than 6.4 percent in Nov 2010. The employment rate rose from 61.9 percent of the population in Nov 2010 to 64.0 percent in Nov 2011. Seasonally adjusted, the rate of unemployment fell from 5.6 percent in Oct 2011 to 5.5 percent in Nov 2011, which is much lower than 6.7 percent a year earlier in Nov 2010.

Table VE-1, Germany, Unemployment Labor Force Survey

	Nov 2011	Oct 2011	Nov 2010
NSA
Number Unemployed Millions	2.36 ∆% Nov 2011/Oct 2011: 6.3 ∆% Nov 2011/Nov 2010: –11.6	2.22	2.67
% Rate Unemployed	5.5	5.2	6.4
Persons in Employment Millions	40.26 ∆% Nov 2011/Oct 2011: 0.0 ∆% Nov 2011/Nov 2010: 3.1	40.25	39.04
Employment Rate	64.0	63.9	61.9
SA
Number Unemployed Millions	2.34 ∆% Nov 2011/Oct  2011: –2.1 ∆% Nov 2011/Nov 2010: –15.8	2.39	2.78
% Rate Unemployed	5.5	5.6	6.7
Persons in Employment Millions	40.16 ∆% Nov 2011/Oct 2011: 0.3 ∆% Nov  2011/Nov 2010: 3.4	40.02	38.85

NSA: not seasonally adjusted; SA: seasonally adjusted

Source: Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2012/01/PE12__002__132,templateId=renderPrint.psml

https://www-genesis.destatis.de/genesis/online/logon?sequenz=tabelleErgebnis&selectionname=13231-0001&startjahr=2010&endjahr=2011&leerzeilen=false

The unemployment rate in Germany as percent of the labor force in Table VE-2 stood at 6.6 percent in Dec 2011, which is slightly higher than 6.4 percent in Nov and 6.5 percent in Oct. The rate is much lower than 11.1 percent in 2005 and 9.6 percent in 2006.

Table VE-2, Germany, Unemployment Rate in Percent of Labor Force

	Percent of Labor Force
Dec 2011	6.6
Nov	6.4
Oct	6.5
Sep	6.6
Aug	7.0
Jul	7.0
Jun	6.9
May	7.0
Apr	7.3
Mar	7.6
Feb	7.9
Jan	7.9
Dec 2010	7.1
Dec 2009	7.8
Dec 2008	7.4
Dec 2007	8.1
Dec 2006	9.6
Dec 2005	11.1

Source: Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/LabourMarket/Content75/arb210a,templateId=renderPrint.psml

Chart VE-1 shows the long-term decline of the rate of unemployment in Germany from more than 12 percent in early 2005 to 6.6 percent in Dec 2011.

Note: Statistics of the Federal Employment Agency. No results before 2005.

Chart VE-1, Germany, Unemployment Rate, Original Value, Percent

Source: Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/KeyIndicators/UnemploymentRate/liste__alqinsg,templateId=renderPrint.psml

Several tables and charts facilitate analysis of machinery orders in Germany. Table VE-3 reveals strong fluctuations in an evident deceleration of total orders for industry of Germany. The same behavior is observed for total, foreign and domestic orders with decline in 12-month rates from two-digit levels to single digits and some negative changes. An important aspect of Germany is that the bulk of orders is domestic or from other European countries while foreign orders have been growing rapidly. Total orders fell 4.8 percent in Nov 2011 mostly because of the sharp decrease of foreign orders by 7.8 percent while domestic orders fell only 1.1 percent. All percentage changes in the row for Nov are negative.

Table VE-3, Germany, Volume of Orders Received in Manufacturing, Total, Domestic and Foreign, ∆%

	Total 12 M	Total M	Foreign 12 M	Foreign M	Home 12 M	Home M
2011
Nov	-4.4	-4.8	-7.7	-7.8	-0.2	-1.1
Oct	1.9	5.0	4.3	8.1	-1.0	1.3
Sep	2.2	-4.6	1.1	-5.8	3.5	-3.0
Aug	6.5	-1.4	4.3	0.3	9.3	-3.2
Jul	5.7	-2.4	5.3	-7.0	6.1	3.7
Jun	2.9	0.8	6.2	11.0	-1.2	-10.1
May	22.5	1.9	15.7	-5.2	30.5	10.7
Apr	7.3	2.9	10.5	3.5	3.4	2.2
Mar	8.8	-2.7	11.6	-2.8	5.5	-2.6
Feb	21.1	1.8	24.8	1.6	16.9	2.1
Jan	20.1	2.4	23.6	0.9	16.0	4.3
AE ∆%
2010
Dec	22.2	-2.9	27.3	-3.0	15.8	-2.9
Nov	21.5	4.9	26.8	7.6	15.6	1.7
Oct	14.1	1.7	17.7	1.4	10.4	2.0
Sep	13.9	-2.8	16.0	-4.9	11.6	-0.2
Aug	23.5	3.3	31.9	6.5	14.4	-0.5
Jul	14.2	-1.9	21.7	-3.4	6.3	-0.2
Jun	28.5	3.3	32.0	5.4	24.3	0.9
May	24.4	0.5	28.9	1.0	19.9	-0.1
Apr	29.3	2.7	33.0	2.7	25.2	2.5
Mar	29.4	5.6	32.3	6.2	26.4	5.0
Feb	23.4	-0.7	27.6	-0.7	18.6	-0.8
Jan	16.7	4.7	23.6	4.4	9.7	5.2
Dec 2009	9.2	-2.1	10.6	-2.4	7.4	-1.7
Dec 2008	-28.2	-7.2	-31.5	-9.8	-23.7	-4.0
Dec 2007	7.1	-1.5	9.1	-2.4	4.5	-0.5
Dec 2006	2.9	0.3	3.4	0.0	2.2	0.5
Dec 2005	4.9	-0.9	10.5	-1.6	-1.5	0.0
Dec 2004	12.7	6.6	12.9	8.4	12.7	4.9
Dec 2003	10.7	2.4	16.4	5.4	5.1	-0.8
Dec 2002	-0.2	-3.4	-0.8	-6.6	0.2	-0.3

Notes: AE: Annual Equivalent; M: Month; M: Calendar and seasonally-adjusted; 12 M: Non-adjusted

Source: http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/KeyIndicators/OrdersRecieved/liste__aeverg,templateId=renderPrint.psml

Orders for investment goods of Germany are shown in Table VE-4. Total investment goods orders fell 6.5 percent in Nov and 5.8 percent in 12 months. The driver of the decline was the drop of foreign orders by 10.6 percent in Nov and 9.4 percent in 12 months. The increase of 0.6 percent in Nov of domestic orders was insufficient to support total orders. The same behavior as for total orders is observed in the form of declining orders from all sources for total orders for investment goods. There has been evident deceleration from 2010 and early 2011 with growth rates falling from two digit levels to single digits and multiple negative changes. An important aspect of Germany’s economy shown in Tables VE-3 and VE-4 is the success in increasing the competitiveness of its economic activities as shown by rapid growth of orders for industry after the recession of 2001 in the period before the global recession beginning in late 2007.

Table VE-4, Germany, Volume of Orders Received of Investment Goods Industries, Total, Foreign and Domestic, ∆%

	Total 12 M	Total M	Foreign 12 M	Foreign M	Domestic 12 M	Domestic M
2011
Nov	-5.8	-6.5	-9.4	-10.6	0.3	0.6
Oct	5.2	8.1	10.0	12.4	-1.9	1.3
Sep	2.8	-4.7	1.8	-5.7	4.6	-2.9
Aug	6.0	-1.1	3.5	0.7	10.2	-3.7
Jul	8.5	-6.3	7.7	-11.9	9.6	3.6
Jun	7.1	3.1	10.6	17.1	1.2	-14.8
May	26.8	2.8	17.9	-7.0	40.4	19.0
Apr	11.8	5.0	15.6	6.7	6.3	2.2
Mar	10.7	-5.3	13.7	-4.8	6.5	-6.1
Feb	28.9	3.5	32.8	3.3	23.1	3.8
Jan	24.3	1.4	28.6	0.5	17.9	2.6
2010
Dec	27.3	-4.6	31.0	-6.1	21.3	-2.1
Nov	30.1	8.1	35.9	12.2	21.5	2.2
Oct	20.6	1.7	23.9	0.3	16.0	4.0
Sep	18.1	-3.9	20.4	-6.2	14.6	-0.2
Aug	29.3	6.8	42.8	10.4	12.0	1.4
Jul	14.1	-4.7	28.4	-6.9	-2.3	-1.3
Jun	33.5	5.6	41.3	8.8	22.2	0.7
May	25.9	2.0	35.6	1.8	13.6	2.5
Apr	30.1	2.2	40.1	3.2	17.4	0.6
Mar	26.2	7.5	33.8	8.6	16.1	5.7
Feb	20.3	-1.9	30.3	-1.5	8.1	-2.5
Jan	16.9	4.6	29.5	3.3	2.5	6.6
Dec 2009	8.1	-1.4	13.6	-1.9	0.5	-0.8
Dec 2008	-32.2	-7.6	-36.7	-10.7	-24.4	-3.1
Dec 2007	9.6	-0.6	11.6	-2.7	6.3	2.7
Dec 2006	3.6	1.8	3.8	1.9	3.1	1.9
Dec 2005	1.9	-2.8	9.8	-3.8	-8.5	-1.3
Dec 2004	19.4	11.2	18.6	12.2	20.5	9.8
Dec 2003	11.7	2.1	17.2	5.0	5.4	-1.6
Dec 2002	-2.8	-4.3	-3.7	-8.1	-1.8	0.2

Notes: AE: Annual Equivalent; M: Month; M: Calendar and seasonally-adjusted; 12 M: Non-adjusted

Source: http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/KeyIndicators/OrdersRecieved/liste__aeverg,templateId=renderPrint.psml

Chart VE-2 of the German Statistisches Bundesamt Deutschland shows the sharp upward trend of total orders in manufacturing before the global recession. There is also an obvious upward trend in the recovery from the recession with Germany’s economy being among the most dynamic in the advanced economies until the slowdown in 2011.

Chart VE-2, Germany, Volume of Total Orders in Manufacturing, Non-Adjusted, 2005=100

Source: Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/KeyIndicators/OrdersRecieved/liste__aeverg,templateId=renderPrint.psml

Chart VE-3 of the German Statistisches Bundesamt Deutschland provides unadjusted volume of total orders in manufacturing and a trend curve. The final segment on the right could be the beginning of flattening of the trend curve but it is early to reach conclusions.

Chart VE-3, Germany, Volume of Total Orders in Manufacturing and Trend, Non-Adjusted, 2005=100

Source: Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/OrdersRecieved/Content100/kae211graf0.psml

Retail sales in Germany adjusted for inflation are provided in Table VE-5. There have been sharp fluctuations in monthly and 12 months percentage changes. Retail sales fell 0.9 percent in Nov but still increasing 0.8 percent in 12 months.

Table VE-5, Retail Sales in Germany Adjusted for Inflation

	12 Months ∆% NSA	Month ∆% SA and Calendar Adjusted
Nov 2011	0.8	-0.9
Oct	-0.6	-0.2
Sep	1.3	0.9
Aug	3.4	-0.6
Jul	-2.0	0.3
Jun	-2.4	2.1
May	4.7	-1.2
Apr	5.0	0.4
Mar	-2.6	-1.1
Feb	2.4	-0.2
Jan	2.9	0.9
Cumulative ∆%		0.4
Dec 2010	0.4	0.5
Dec 2009	-2.2
Dec 2008	3.3
Dec 2007	-6.2
Dec 2006	1.3

Source: Statistiche Bundesamt Deutschland, Federal Statistical Office of Germany http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/RetailTrade/Content100/kums331x12,templateId=renderPrint.psml

Chart VE-4 of the Statistiche Bundesamt Deutschland, Federal Statistical Office of Germany, shows retail sales at constant prices from 2007 to 2011. There appear to be fluctuations without trend.

Chart VE-4, Germany, Turnover in Retail Trade at Constant Prices 2005=100

Source: Statistiche Bundesamt Deutschland, Federal Statistical Office of Germany http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/RetailTrade/Content100/kums331graf0.psml

Chart VE-5 of the Statistiche Bundesamt Deutschland, Federal Statistical Office of Germany, shows retail sales at current prices from 2007 to 2011. There are also sharp fluctuations but without trend.

Chart VE-5, Germany, Turnover in Retail Sales at Current Prices, Original Values, 2005=100

Source: Statistiche Bundesamt Deutschland, Federal Statistical Office of Germany http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/RetailTrade/Content100/kums330graf0.psml

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	Nov month ∆% 0.3 12 months ∆%: 2.5 12/18/11
PPI	Oct month ∆%: 0.4 Oct 12 months ∆%: 5.6 Blog 12/27/11
GDP Growth	IIIQ2011/IIQ2011 ∆%: 0.3 IIIQ2011/IIIQ2010 ∆%: 1.5 Blog 12/27/11
Industrial Production	Oct/Sep SA ∆%: Industrial Production 0.0; Manufacturing minus 0.0 Oct 12 months NSA ∆%: Industrial Production 2.3; Manufacturing 3.1 Blog 12/11/11
Industrial New Orders	Mfg Oct/Sep ∆% 0.3 YOY ∆% 5.0 Blog 12/27/11
Consumer Spending	Nov Manufactured Goods ∆%: 0.0 Nov 12 Months Manufactured Goods ∆%: minus 1.9 Blog 01/08/12
Employment	IIIQ2011 Unemployed 2.631 million Unemployment Rate: 9.3% Employment Rate: 63.8% Blog 12/04/11
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:

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

The Nov monthly report of household expenditures in consumption goods for France is in Table VF-1. Total consumption fell 0.1 percent in Nov 2011 and consumption of manufactured products was flat. Total consumption fell 2.1 percent in Nov 2011 relative to Nov 2010 and consumption of manufactured goods fell 1.8 percent in Nov 2011 relative to Nov 2010. Internal demand is weak throughout most advanced economies.

Table VF-1, France, Household Expenditures in Consumption Goods, Month ∆% Chained Billion Euros Trading Days SA

	Total	Food	Eng. Goods	Energy	Mfg Goods
Nov   2011	-0.1	-0.1	0.2	-0.8	0.0
Nov       2011/  Nov 2010	-2.1	0.0	-1.9	-6.9	-1.8
Oct	0.1	-0.2	-0.3	-1.1	0.3
Sep	-0.1	0.6	1.8	-2.7	0.1
Aug	0.4	0.3	0.0	2.5	0.4
Jul	-0.6	-0.4	-1.1	0.4	-0.8
Jun	0.8	-0.4	1.5	1.1	0.9
May	-0.1	-1.4	0.1	5.1	-1.1
Apr	-1.8	1.5	-6.3	-6.0	-1.2
Mar	-0.9	-0.9	-1.1	-0.7	-1.0
Feb	0.4	0.5	0.9	-0.3	0.6
Jan	-0.4	0.2	-0.2	-2.4	-0.1
Dec 2010	0.1	0.4	1.9	-1.8	0.1

Eng. Goods: Engineered Goods

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=19&date=20120104

Chart VF-1 of Institut National de la Statistique et des Études Économiques of France provides growth of total consumption in France. Internal demand is not supporting overall economic growth.

Chart VF-1, France, Total Consumption of Goods, Billions of Euros Trading and Seasonally Adjusted and Quarterly ∆%

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=19&date=20120104

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 Dec 12 months ∆%: 3.3 Blog 01/08/12
Producer Price Index	Nov month ∆%: 0.2 Nov 12 months ∆%: 4.5 Blog 01/01/12
GDP Growth	IIIQ2011/IIIQ2010 SA ∆%: 0.2 IIIQ2011/IIQ2011 NSA ∆%: -0.2 Blog 12/27/11
Labor Report	Nov 2011 Participation rate 62.2% Employment ratio 56.9% Unemployment rate 8.6% Blog 01/08/12
Industrial Production	Oct month ∆%: minus 0.9 12 months ∆%: minus 4.2 Blog 12/11/11
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 Exports Oct month SA ∆%: -3.2; Imports Oct month SA ∆%: -1.1 Exports 12 months NSA ∆%: 4.5 Imports 12 months NSA ∆%: -0.3 Blog 12/27/11

Links to blog comments in Table IT:

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

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

Data on Italy’s labor market since 2004 are provided in Table VG-1. The unemployment rate has risen from 6.2 in Dec 2006 to 8.6 in Nov 2011. As in other advanced economies, unemployment has stabilized at high levels.

Table VG-1, Italy, Labor Report

	Participation Rate %	Employment Ratio %	Unemployment Rate %
Nov	62.2	56.9	8.6
Oct	62.2	56.9	8.5
Sep	62.1	56.9	8.3
Aug	62.1	57.1	7.9
Jul	62.2	57.1	8.0
Jun	62.0	57.0	8.0
May	62.1	57.0	8.2
Apr	62.0	56.9	8.1
Mar	62.3	57.1	8.2
Feb	62.0	56.8	8.2
Jan	62.0	56.8	8.2
Dec 2010	62.1	56.9	8.3
Dec 2009	62.3	57.0	8.3
Dec 2008	62.6	58.2	6.9
Dec 2007	63.2	59.0	6.7
Dec 2006	62.5	58.5	6.2
Dec 2005	62.5	57.8	7.5
Dec 2004	62.5	57.5	7.9

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/49697

Chart VG-1 of Istituto Nazionale di Statistica of Italy provides the total number of employed people. The level of employment has declined in the past few months.

Chart VG-1, Italy, Total Number of Employed Persons

Source: Istituto Nazionale di Statistica

http://www.istat.it/en/

Table VG-2 provides more detail on the labor report for Italy in Nov 2011. The level of employment fell 28,000 from Oct and 67,000 from a year earlier. Unemployment increased 15,000 in Nov and 114,000 from a year earlier. A dramatic aspect found in most advanced economies is the high rate of unemployment of youth at 30.1 percent in Nov 2011 for ages 15 to 24.

Table VG-2, Italy, Labor Report

Nov 2011	1000s	Change from Prior Month 1000s	∆% from Prior Month	Change from Prior Year 1000s	∆% from Prior Year
EMP	22.906	-28	-0.1	-67	-0.3
UNE	2.142	15	0.7	114	5.6
INA   15-64	14.979	-8	-0.1	-5	0.0
EMP %	56.9		-0.1		-0.2
UNE %	8.6		0.1		0.4
Youth UNE %  15-24	30.1		--		--
INA % 15-64	37.8		0.0		-0.1

Notes: EMP: Employed; UNE: Unemployed; INA 15-64: Inactive aged 15 to 64; EMP %: Employment Rate; UNE %: Unemployment Rate; Youth UNE % 15-24: Youth Unemployment Rate aged 15 to 24; INA % 15-64: Inactive Rate aged 15 to 64.

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/49697

Table VG-3 provides the unemployment rate in the US for ages 16 to 19 years from 1979 to 1989. The rate peaked at 24.1 percent in Dec 1982, falling to 15.3 percent by Dec 1989.

Table VG-3, US, Unemployment Rate 16-19 Years of Age 1979-89, SA

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
1979	16.1	16.1	15.9	16.3	16.1	15.7	15.6	16.5	16.5	16.5	15.9	16.2
1980	16.5	16.6	16.3	16.2	18.6	18.9	19.1	18.9	18.0	18.4	18.5	17.6
1981	19.1	19.3	19.2	18.8	19.1	19.8	18.6	18.8	19.7	20.3	21.3	21.1
1982	22.0	22.6	21.8	22.8	22.8	22.9	24.0	23.7	23.6	23.7	24.1	24.1
1983	23.1	22.8	23.5	23.4	22.8	24.0	22.8	22.9	21.7	21.4	20.2	19.9
1984	19.5	19.4	19.8	19.2	18.7	18.2	18.8	18.7	19.2	18.6	17.7	18.8
1985	18.8	18.3	18.2	17.5	18.5	18.5	20.2	17.9	17.9	20.0	18.3	19.1
1986	18.1	18.8	18.2	19.2	18.6	19.2	18.4	18.0	18.4	17.7	18.1	17.5
1987	17.7	18.0	17.9	17.3	17.4	16.5	15.8	15.9	16.2	17.3	16.6	16.0
1988	16.1	15.6	16.6	16.0	15.3	14.2	14.8	15.4	15.5	15.1	13.9	14.8
1989	16.4	15.0	13.9	14.6	14.8	15.7	14.2	14.6	15.2	15.0	15.5	15.3

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Chart VG-2 of the Bureau of Labor Statistics show the sharp rise of the unemployment rate for ages 16 to 19 years. Rapid growth of the economy lowered the rate throughout the 1980s.

Chart VG-2, US, Unemployment rate 16-19 Years of Age 1979-89, SA

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Table VG-4 provides the unemployment rate in the US for ages 16 to 19 years from 2001 to 2011. There are sharp increases in the rate of unemployment in both recessions of 2001 and after 2007. The rate peaked at 27.0 percent in Oct 2009 and Oct 2010, falling to 23.1 percent in Dec 2011, which is sharply higher than 14.0 percent in May 2006.

Table VG-4, US, Unemployment Rate 16-19 Years of Age 2001-2011, SA

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
2001	13.8	13.7	13.8	13.9	13.4	14.2	14.4	15.6	15.2	16.0	15.9	17.0
2002	16.5	16.0	16.6	16.7	16.6	16.7	16.8	17.0	16.3	15.1	17.1	16.9
2003	17.2	17.2	17.8	17.7	17.9	19.0	18.2	16.6	17.6	17.2	15.7	16.2
2004	17.0	16.5	16.8	16.6	17.1	17.0	17.8	16.7	16.6	17.4	16.4	17.6
2005	16.2	17.5	17.1	17.8	17.8	16.3	16.1	16.1	15.5	16.1	17.0	14.9
2006	15.1	15.3	16.1	14.6	14.0	15.8	15.9	16.0	16.3	15.2	14.8	14.6
2007	14.8	14.9	14.9	15.9	15.9	16.3	15.3	15.9	15.9	15.4	16.2	16.8
2008	17.7	16.7	16.1	15.9	19.0	19.2	20.7	18.6	19.1	19.9	20.3	20.6
2009	20.7	22.2	22.2	22.3	23.4	24.7	24.3	25.1	25.9	27.0	26.8	26.7
2010	25.9	25.4	26.2	25.7	26.7	25.9	25.9	25.8	25.8	27.0	24.5	25.2
2011	25.4	23.9	24.5	24.9	24.1	24.6	24.9	25.3	24.5	24.0	23.7	23.1

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Chart VG-3 provides the unemployment rate ages 16 to 19 years from 2001 to 2011. The rate rose sharply during the contraction from IVQ2007 to IIQ2009 and has stabilized at a high level.

Chart VG-3, US, Unemployment rate 16-19 Years of Age 2001-2011, SA

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

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 Nov 12 months ∆%: 5.0 Blog 12/18/11
Output/Input Prices	Output Prices: Nov 12 months NSA ∆%: 5.4; excluding food, petroleum ∆%: 3.2 Input Prices: Nov 12 months NSA ∆%: 13.4 Excluding ∆%: 10.0 Blog 12/11/11
GDP Growth	IIIQ2011 prior quarter ∆% 0.6; year earlier same quarter ∆%: 0.5 Blog 12/27/11
Industrial Production	Oct 2011/Oct 2010 NSA ∆%: Industrial Production minus 1.7; Manufacturing 0.3 Blog 12/11/11
Retail Sales	Nov month SA ∆%: -0.4 Oct 12 months ∆%: 0.7 Blog 12/18/11
Labor Market	Aug-Oct Unemployment Rate: 8.3% Blog 12/18/11
Trade Balance	Balance Oct minus ₤1,552 million Exports Oct ∆%: 5.8 Aug/Oct ∆%: 9.9 Imports Oct ∆%: -0.1 Aug/Oct ∆%: 7.2 Blog 12/11/11

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

12/04/11 http://cmpassocregulationblog.blogspot.com/2011/12/twenty-nine-million-in-job-stress.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 6.7 percent by Fri Jan 6, 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	01/06 /2012
Rate	1.1423	1.5914	1.192	1.272
CNY/USD	01/03 2000	07/21 2005	7/15 2008	01/06/ 2012
Rate	8.2798	8.2765	6.8211	6.3094
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 6.7 percent. 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 6.3094/USD on Fri Jan 6, 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. 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	01/06 /2012
Rate	1.1423	1.5914	1.192	1.272
CNY/USD	01/03 2000	07/21 2005	7/15 2008	01/06 2012
Rate	8.2798	8.2765	6.8211	6.3094
Weekly Rates	12/16/ 2011	12/23/ 2011	12/30/ 2011	01/06/ 2012
CNY/USD	6.3484	6.3372	6.294	6.3094
∆% from Earlier Week*	0.3	0.2	0.7	-0.2

*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 $B 2011	FD %GDP 2011	CAD %GDP 2011	Debt %GDP 2011	FD%GDP 2015	CAD%GDP 2015	Debt %GDP 2015
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 01/06/12,” 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 week of Jan 6, 2012, there are now only three financial values with negative change in valuation in column “∆% Trough to 01/06/12:” NYSE Financial minus 3.3 percent, Japan’s Nikkei Average minus 4.9 percent and Shanghai Composite minus 9.2 percent. Asia and financial entities are experiencing their own risk environments. The highest valuations are by US equities indexes: DJIA 27.6 percent and S&P 500 24.9 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 27.6 percent from the trough and of the S&P 500 by 24.9 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 01/06/12” 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 6.4 percent above the trough; Dow Asia Pacific is now higher by 2.1 percent; and Dax is 6.8 percent above the trough on May 25, 2010. Japan’s Nikkei Average is 4.9 percent below the trough on Aug 31, 2010 and 25.8 percent below the peak on Apr 5, 2010. The Nikkei Average closed at 8390.35 on Fri Jan 6, 2012, which is 18.2 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 6.7 percent relative to the euro and even higher before the new bout of sovereign risk issues in Europe. The column “∆% week to 01/06/12” in Table VI-4 shows mixed performance of risk financial assets in the week of Jan 6, 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 01/06/12” 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 01/06/12” but also relative to the peak in column “∆% Peak to 01/06/12.” There are now only two US equity indexes above the peak in Table VI-4: DJIA 10.3 percent and S&P 500 5.0 percent. There are several indexes well below the peak: NYSE Financial Index (http://www.nyse.com/about/listed/nykid.shtml) by 22.9 percent, Nikkei Average by 26.4 percent, Shanghai Composite by 31.6 percent, STOXX 50 by 11.5 percent, Dow Global by 13.1 percent and Dow Asia Pacific by 10.6 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 01/06 /12	∆% Week 01/06/ 12	∆% Trough to 01/06 12
DJIA	4/26/ 10	7/2/10	-13.6	10.3	1.2	27.6
S&P 500	4/23/ 10	7/20/ 10	-16.0	5.0	1.6	24.9
NYSE Finance	4/15/ 10	7/2/10	-20.3	-22.9	-1.2	-3.3
Dow Global	4/15/ 10	7/2/10	-18.4	-13.1	0.6	6.4
Asia Pacific	4/15/ 10	7/2/10	-12.5	-10.6	0.5	2.1
Japan Nikkei Aver.	4/05/ 10	8/31/ 10	-22.5	-26.4	-0.8	-4.9
China Shang.	4/15/ 10	7/02 /10	-24.7	-31.6	-1.6	-9.2
STOXX 50	4/15/10	7/2/10	-15.3	-11.5	1.3	4.5
DAX	4/26/ 10	5/25/ 10	-10.5	-4.3	2.7	6.8
Dollar Euro	11/25 2009	6/7 2010	21.2	15.9	1.7	-6.7
DJ UBS Comm.	1/6/ 10	7/2/10	-14.5	-1.7	1.3	14.9
10-Year T Note	4/5/ 10	4/6/10	3.986	1.957

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 6, 2012, shows that the S&P 500 is now 5.4 percent above the Apr 26, 2010 level and the DJIA is 10.3 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 Apr 26	∆% S&P 500 from prior date	∆% S&P 500 from Apr 26
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

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 12.8 percent to ZAR 8.163/USD on Jan 6, 2012, which is still 29.5 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 4.0 percent stronger at SGD 1.294/USD on Jan 6 relative to the trough of depreciation but still stronger by 16.7 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 6.4 percent relative to the trough to BRL 1.849/USD on Jan 6, 2012 but still stronger by 23.9 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 6, 2012	∆T Jan 6, 2012	∆P Jan 6 2012
EUR USD	7/15 2008	6/7 2010		01/06 2012
Rate	1.59	1.192		1.272
∆%			-33.4		6.3	-25.0
JPY USD	8/18 2008	9/15 2010		01/06 2012
Rate	110.19	83.07		76.96
∆%			24.6		7.4	30.2
CHF USD	11/21 2008	12/8 2009		01/06 2012
Rate	1.225	1.025		0.956
∆%			16.3		6.7	21.9
USD GBP	7/15 2008	1/2/ 2009		01/06 2012
Rate	2.006	1.388		1.541
∆%			-44.5		9.9	-30.2
USD AUD	7/15 2008	10/27 2008		01/06 2012
Rate	1.0215	1.6639		1.022
∆%			-62.9		41.2	4.2
ZAR USD	10/22 2008	8/15 2010		01/06 2012
Rate	11.578	7.238		8.163
∆%			37.5		-12.8	29.5
SGD USD	3/3 2009	8/9 2010		01/06 2012
Rate	1.553	1.348		1.294
∆%			13.2		4.0	16.7
HKD USD	8/15 2008	12/14 2009		01/06 2012
Rate	7.813	7.752		7.765
∆%			0.8		-0.2	0.6
BRL USD	12/5 2008	4/30 2010		01/06 2012
Rate	2.43	1.737		1.849
∆%			28.5		-6.4	23.9
CZK USD	2/13 2009	8/6 2010		01/06 2012
Rate	22.19	18.693		20.282
∆%			15.7		-8.5	8.6
SEK USD	3/4 2009	8/9 2010		01/06 2012
Rate	9.313	7.108		6.6942
∆%			23.7		5.8	28.1
CNY USD	7/20 2005	7/15 2008		01/06 2012
Rate	8.2765	6.8211		6.3094
∆%			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

http://www.federalreserve.gov/DataDownload/Chart.aspx?rel=H10&series=122e3bcb627e8e53f1bf72a1a09cfb81&lastObs=260&from=&to=&filetype=csv&label=include&layout=seriescolumn&pp=Download&names=%7bH10/H10/JRXWTFB_N.B,H10/H10/JRXWTFN_N.B,H10/H10/JRXWTFO_N.B%7d

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 1.957 percent at the close of market on Fri Jan 6, 2012 would be equivalent to price of 106.0403 in a hypothetical bond maturing in 10 years with coupon of 2.625 percent for price gain of 4.7 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 $2899 billion, or $2.9 trillion, with portfolio of long-term securities of $2577 billion, or $2.6 trillion, consisting of $1567 billion Treasury nominal notes and bonds, $68 billion of notes and bonds inflation-indexed, $104 billion Federal agency debt securities and $838 billion mortgage-backed securities; reserve balances deposited with Federal Reserve Banks reached $1567 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 II 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

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 decreased 0.8 percent to 14,651 thousand barrels per day on average in the four weeks ending on Dec 30 from 14,773 thousand barrels per day in the four weeks ending on Dec 23, as shown in Table VII-1. The rate of capacity utilization in refineries continues at a relatively high level of 84.8 percent on Dec 30, 2011, which is slightly lower than 87.9 percent on Dec 31, 2010 and 85.5 percent on Dec 23, 2011. Imports of crude oil fell 1.2 percent from 8,546 thousand barrels per day on average in the four weeks ending on Dec 23 to 8,443 thousand barrels per day in the week of Dec 30. The Energy Information Administration (EIA) finds that “US crude oil imports averaged 9.0 million barrels per days last week [Dec 30], up by 34 thousand barrels per day from the previous week” (http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf  1). Slight decrease in utilization in refineries but with imports increasing at the margin in the past week of Dec 30 resulted in increase of commercial crude oil stocks by 2.2 million barrels from 327.5 million barrels on Dec 23 to 329.7 million barrels on Dec 30. Motor gasoline production decreased 0.5 percent from 9,366 thousand barrels per day in the week of Dec 23 to 9,318 thousand barrels per day on average in the week of Dec 30. Gasoline stocks increased 2.5 million barrels and stocks of fuel oil increased 3.2 million barrels. Supply of gasoline fell from 9,204 thousand barrels per day on Dec 31, 2010, to 8,756 thousand barrels per day on Dec 30, 2011, or by 4.9 percent, while fuel oil supply rose 0.9 percent. Part of the fall in consumption of gasoline is due to higher prices and part to the growth recession. Table VI-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 7.5 percent from Jan 3, 2010 to Jan 2, 2011. 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	12/30/11	12/23/11	12/31/10
Crude Oil Refineries Input	14,651 Week ∆%: -0.8	14,773	14,954
Refinery Capacity Utilization %	84.8	85.5	87.9
Motor Gasoline Production	9,318 Week ∆%: -0.5	9,366	9,248
Distillate Fuel Oil Production	4,925 Week ∆%: -1.0	4,975	4,615
Crude Oil Imports	8,443 Week ∆%: -1.2	8,546	8,390
Motor Gasoline Supplied	8,756 ∆% 2011/2010= -4.9%	8,761	9,204
Distillate Fuel Oil Supplied	3,921 ∆% 2011/2010 = +0.9%	4,019	3,887
	12/30/11	12/23/11	12/31/10
Crude Oil Stocks Million B	329.7 ∆= +2.2 MB	327.5	335.3
Motor Gasoline Million B	220.2     ∆= 2.5 MB	217.7	218.1
Distillate Fuel Oil Million B	143.6 ∆= +3.2 MB	140.4	162.1
WTI Crude Oil Price $/B	98.83 ∆% 2011/2010 +8.2	99.61	91.38 (12/17/2010)
	01/02/12	12/26/11	01/03/11
Regular Motor Gasoline $/G	3.299 ∆% 2011/2010 +7.5	3.258	3.070

B: barrels; G: gallon

Source: http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf

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 and Dec 30.

Chart VII-2, US, Crude Oil Stocks

Source: US Energy Information Administration

http://www.eia.gov/petroleum/

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 decreased 15,000 from upwardly revised 387,000 on Dec 24 to 372,000 on Dec 31. Claims not adjusted for seasonality increased 37,423, from 497,689 on Dec 24 to 535,112 on Dec 31. There is strong seasonality in Dec.

Table VII-2, US, Initial Claims for Unemployment Insurance

2011	SA	NSA	4-week MA SA
Dec 31	372,000	535,112	373,250
Dec 24	387,000	497,689	376,500
Change	-15,000	+37,423	-3,250
Dec 10	366,000	421,103	380,750
Prior Year	418,000	578,904	418,000

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 2000 to 2011. Seasonally adjusted claims typically exceed claims not adjusted for seasonality. Claims not seasonally adjusted have declined from 717,000 on Dec 27, 2008 to 578,904 on Jan 1, 2011, and now to 535,112 on Dec 31, 2011. 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
Dec 30, 2000	568,973	353,000
Dec 29, 2001	647,045	421,000
Dec 28, 2002	620,929	409,00
Dec 27, 2003	516,493	349,000
Jan 1, 2005	540,927	356,000
Dec 31, 2005	475,889	302,000
Dec 30, 2006	499,979	341,000
Dec 29, 2007	507,908	356,000
Dec 27, 2008	717,000	524,000
Jan 2, 2010	651,215	462,000
Jan 1, 2011	578,904	418,000
Dec 31, 2011	535,112	372,000

Source: http://www.workforcesecurity.doleta.gov/unemploy/wkclaims/report.asp

VII 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 0.01 percent for three months, 0.05 percent for six months, 0.09 percent for 12 months, 0.26 percent for two years, 0.38 percent for three years, 0.85 percent for five years, 1.39 percent for seven years, 1.96 percent for ten years and 3.02 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 2010 NSA	∆% 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

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.bea.gov/national/nipaweb/TableView.asp?SelectedTable=2&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=2009&LastYear=2010&3Place=N&Update=Update&JavaBox=no

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