Thirty Million Unemployed or Underemployed, Falling Real Hourly Wages, Seven Trillion Dollars of Household Wealth Destroyed, World Financial Turbulence and Global Inflation and Economic Slowdown: Part II

 

Thirty Million Unemployed or Underemployed, Falling Real Hourly Wages, Seven Trillion Dollars of Household Wealth Destroyed, World Financial Turbulence and Global Inflation and Economic Slowdown

Carlos M. Pelaez

© Carlos M. Pelaez, 2010, 2011, 2012

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 Destruction of Seven Trillion Dollars of Household Wealth

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 International Monetary Fund (IMF) has revised its World Economic Outlook (WEO) to an environment of lower growth (IMF 2012WEOJan24):

“The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated. Global output is projected to expand by 3¼ percent in 2012—a downward revision of about ¾ percentage point relative to the September 2011 World Economic Outlook (WEO).”

The IMF (2012WEOJan24) projects growth of world output of 3.8 percent in 2011 and 3.3 percent in 2012 after 5.2 percent in 2010. Advanced economies would grow at only 1.6 percent in 2011, 1.2 percent in 2012 and 3.9 percent in 2013 after growing at 3.2 percent in 2010. Emerging and developing economies would drive the world economy, growing at 6.2 percent in 2011, 5.4 percent in 2012 and 5.9 percent in 2012 after growing at 7.3 percent in 2010. The IMF is forecasting deceleration of the world economy.

World economic slowing would be the consequence of the mild recession in the euro area in 2012 caused by “the rise in sovereign yields, the effects of bank deleveraging on the real economy and the impact of additional fiscal consolidation” (IMF 2012WEOJan24). After growing at 1.9 percent in 2010 and 1.6 percent in 2010, the economy of the euro area would contract by 0.5 percent in 2012 and grow at 0.8 percent in 2013. The United States would grow at 1.8 percent in both 2011 and 2012 and at 2.2 percent in 2013. The IMF (2012WEO Jan24) projects slow growth in 2012 of Germany at 0.3 percent and of France at 0.2 percent while Italy contracts 2.2 percent and Spain contracts 1.7 percent. While Germany would grow at 1.5 percent in 2013 and France at 1.0 percent, Italy would contract 0.6 percent and Spain 0.3 percent.

The IMF (2012WEOJan24) also projects a downside scenario, in which the critical risk “is intensification of the adverse feedback loops between sovereign and bank funding pressures in the euro area, resulting in much larger and more protracted bank deleveraging and sizable contractions in credit and output.” In this scenario, there is contraction of private investment by an extra 1.75 percentage points in relation to the projections of the WEO with euro area output contracting 4 percent relative to the base WEO projection. The environment could be complicated by failure in medium-term fiscal consolidation in the United States and Japan.

There is significant deceleration in world trade volume in the projections of the IMF (2012WEOJan24). Growth of the volume of world trade in goods and services decelerates from 12.7 percent in 2010 to 6.9 percent in 2011, 3.8 percent in 2012 and 5.4 percent in 2013. Under these projections there would be significant pressure in economies in stress such as Japan and Italy that require trade for growth. Even the stronger German economy is dependent on foreign trade. There is sharp deceleration of growth of exports of advanced economies from 12.2 percent in 2010 to 2.4 percent in 2012. Growth of exports of emerging and developing economies falls from 13.8 percent in 2010 to 6.1 percent in 2012. Another cause of concern in that oil prices in the projections fall only 4.9 percent in 2012, remaining at relatively high levels.

The JP Morgan Global Manufacturing & Services PMI^™, produced by JP Morgan and Markit in association with ISM and IPFSM, rose to 55.5 in Feb from 54.5 in Jan, indicating expansion at a faster rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9282). 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 from Dec to Jan. New orders are expanding at a faster rate, increasing from 54.0 in Jan to 54.7 in Feb, suggesting further increase in business ahead. The HSBC Brazil Composite Output Index of the HSBC Brazil Services PMI^™, compiled by Markit, rose from 53.8 in Jan to 55.0 in Feb (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9279). Andre Loes, Chief Economist of HSBC in Brazil, finds that the increase of the services HSBC PMI for Brazil from 55.0 in Jan to 57.1 in Feb, which is the highest level since Jul 2007, indicate that the economy may be expanding at a faster rate than anticipated (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9279).

VA United States. Table USA provides the data table for the US.

Table USA, US Economic Indicators

Consumer Price Index	Jan 12 months NSA ∆%: 2.9; ex food and energy ∆%: 2.3 Jan month ∆%: 0.2; ex food and energy ∆%: 0.2 Blog 02/19/12
Producer Price Index	Jan 12 months NSA ∆%: 4.1; ex food and energy ∆% 3.0 Jan month SA ∆% = 0.1; ex food and energy ∆%: 0.4 Blog 02/19/12
PCE Inflation	Jan 12 months NSA ∆%: headline 2.4; ex food and energy ∆% 1.9 Blog 03/04/12
Employment Situation	Household Survey: Jan Unemployment Rate SA 8.3% Blog calculation People in Job Stress Jan: 30.5 million NSA Establishment Survey: Feb Nonfarm Jobs +227,000; Private +233,000 jobs created  Jan 12 months Average Hourly Earnings Inflation Adjusted ∆%: minus 1.1% Blog 03/11/12
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 Dec 2011 2.747 million lower by 0.955 million than 3.702 million in Dec 2006 Blog 02/12/12
GDP Growth	BEA Revised National Income Accounts back to 2003 IQ2011 SAAR ∆%: 0.4 IIQ2011 SAAR ∆%: 1.3 IIIQ2011 SAAR ∆%: 1.8 IVQ2011 ∆%: 3.0 Cumulative 2011 ∆%: 1.6 2011/2010 ∆%: 1.7 Blog 03/04/12
Personal Income and Consumption	Jan month ∆% SA Real Disposable Personal Income (RDPI) minus 0.1 Jan month SA ∆% Real Personal Consumption Expenditures (RPCE): 0.0 12 months NSA ∆%: RDPI: 0.6; RPCE ∆%: 1.2 Blog 03/04/2012
Quarterly Services Report	IVQ11/IIIQ11 SA ∆%: Information 0.6 Professional 1.7 Administrative -1.1 Hospitals 3.5 Blog 03/11/12
Employment Cost Index	IVQ2011 SA ∆%: 0.4 Dec 12 months ∆%: 2.0 Blog 02/05/12
Industrial Production	Jan month SA ∆%: 0.0 Dec 12 months SA ∆%: 3.4 Capacity Utilization: 78.5 Blog 02/19/12
Productivity and Costs	Nonfarm Business Productivity IVQ2011∆% SAAE 0.9; IVQ2011/IVQ2010 ∆% 0.3; Unit Labor Costs IVQ2011 ∆% 2.8; IVQ2011/IVQ2010 ∆%: 3.1 Blog 03/11/2012
New York Fed Manufacturing Index	General Business Conditions From Jan 13.48 to Feb 19.53 New Orders: From Dec 13.70 to Jan 9.73 Blog 02/19/12
Philadelphia Fed Business Outlook Index	General Index from Jan 7.3 to Feb 10.2 New Orders from Jan 6.9 to Feb 11.7 Blog 02/19/12
Manufacturing Shipments and Orders	Jan New Orders SA ∆%: -1.0; ex transport ∆%: -0.3 Jan NSA 12-month ∆%: 8.1; ex transport ∆% 7.2 Blog 03/11/12
Durable Goods	Jan New Orders SA ∆%: minus 4.0; ex transport ∆%: minus 3.2 Jan 12-month NSA New Orders ∆%: 8.8; ex transport ∆% : 6.6 Blog 03/04/12
Sales of New Motor Vehicles	Feb 2012 2,062,683; Feb 2011 1,813,182. Feb SAAR 15.10 million, Dec SAAR 13.56, Feb 2011 SAAR 13.29 million Blog 03/04/12
Sales of Merchant Wholesalers	Jan 2012/Jan 2010 ∆%: Total 11.3; Durable Goods: 14.1; Nondurable Goods 9.1 Blog 03/11/12
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Dec 11/Dec 10 NSA ∆%: Sales Total Business 7.2; Manufacturers 7.0 Retailers 5.6; Merchant Wholesalers 9.0 Blog 02/19/12
Sales for Retail and Food Services	Jan 2012/Jan 2011 ∆%: Retail and Food Services: 5.6; Retail ∆% 5/4 Blog 02/19/12
Value of Construction Put in Place	Jan SAAR month SA ∆%: minus 0.1 Jan 12-month NSA: 8.0 Blog 03/04/12
Case-Shiller Home Prices	Dec 2011/Dec 2010 ∆% NSA: 10 Cities minus 3.9; 20 Cities: minus 4.0 ∆% Dec SA: 10 Cities minus 0.5 ; 20 Cities: minus 0.5 Blog 03/04/12
FHFA House Price Index Purchases Only	Dec SA ∆% 0.7; 12 month ∆%: minus 0.7 Blog 02/26/12
New House Sales	Jan 2012 month SAAR ∆%: minus 0.9 Jan 2012/Jan 2011 NSA ∆%: 4.8 Blog 02/26/12
Housing Starts and Permits	Jan Starts month SA ∆%: 1.5; Permits ∆%: 0.7 Jan 2011/Jan 2010 NSA ∆% Starts 14.2; Permits  ∆% -3.5 Blog 2/19/12
Trade Balance	Balance Jan SA -$52,565 million versus Dec -$50,421 million Exports Jan SA ∆%: 1.4 Imports Dec SA ∆%: 2.1 Goods Exports Jan 2012/2011 NSA ∆%: 7.6 Goods Imports Jan 2011/2011 NSA ∆%: 8.4 Blog 03/11/12
Export and Import Prices	Dec 12 months NSA ∆%: Imports 8.5; Exports 3.6 Blog 02/19/12
Consumer Credit	Jan ∆% annual rate: 8.6 Blog 03/11/12
Net Foreign Purchases of Long-term Treasury Securities	Nov Net Foreign Purchases of Long-term Treasury Securities: $17.9 billion Dec versus Nov $61.3 billion Major Holders of Treasury Securities: China $1101 billion; Japan $1042 billion  Blog 02/19/12
Treasury Budget	Fiscal Year 2012/2011 ∆%: Receipts 4.1; Outlays -3.2; Individual Income Taxes 4.9 Deficit Fiscal Year 2011 $1,296 billion Deficit Fiscal Year 2012 Oct-Jan $418,756 million Blog 02/12/12 CBO Forecast 2012FY Deficit $1.079 trillion Blog 02/05/2012
Flow of Funds	IVQ2011 ∆ since 2007 Assets -$7315B Real estate -$5183B Financial -$2507 Net Worth -$6743 Blog 03/11/12
Current Account Balance of Payments	IIIQ2011 -131B %GDP 2.9 Blog 12/18/11

Links to blog comments in Table USA:

03/04/12 http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening_04.html

02/26/12 http://cmpassocregulationblog.blogspot.com/2012/02/decline-of-united-states-new-house_26.html

02/19/12 http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states_19.html

02/12/12 http://cmpassocregulationblog.blogspot.com/2012/02/hiring-collapse-ten-million-fewer-full_12.html

02/05/12 http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or_05.html

12/18/2011 http://cmpassocregulationblog.blogspot.com/2011/12/recovery-without-hiring-world-inflation_1721.html

Table VA-1 provides the quarterly services report of the US Bureau of the Census of the Department of Commerce. Data are adjusted for seasonality but not for price changes. Fourth quarter growth of revenue was 0.6 for information services, 1.7 percent for professional, scientific and technical services, minus 1.1 percent for administrative services and support and 3.5 percent for hospitals. Growth of revenue in IVQ2011 relative to IVQ2010 was still high: 3.2 percent for information services, 6.9 percent for professional, scientific and technical services, 4.1 percent administrative services and support and 3.5 percent for hospitals. There is again the difficulty in separating price and quantity changes.

Table VA-1, US, Selected Services, Estimates of Quarterly Revenue for Employer Firms, SA Millions of USD and ∆%

	INFO	PROF	ADMIN	HOSP
IVQ2011	290,745	346,594	156,031	219,874
∆% IVQ2011/ IIIQ2011	0.6	1.7	-1.1	3.5
IIIQ2011	288,959	340,739	157,756	212,388
∆% IIIQ2011/IIQ2011	0.5	1.7	1.5	-1.5
IIQ2011	287,475	335,017	155,374	215,685
∆% IIQ2011/ IQ2011	1.9	2.4	2.3	1.7
IQ2011	282,046	327,043	151,899	212,114
∆% IQ2011/ IVQ2010	0.1	0.8	1.3	-0.1
IVQ2010	281,730	324,331	149,885	212,348
∆% IVQ2011/ IVQ2010	3.2	6.9	4.1	3.5
IIIQ2010	279,074	321,596	148,299	207,853
IIIQ2011/ IIIQ2010 ∆%	3.5	6.0	6.4	2.2

Note: INFO: Information; PROF: Professional, Scientific and Technical Services; ADMIN: Administrative and Support and Waste Management and Remediation Services; HOSP: Hospitals

Source: http://www2.census.gov/services/qss/qss-current.pdf

Chart VA-1 of the US Census Bureau of the Department of Commerce provides the quarterly service report SA from IVQ2003 to IVQ2011. Services revenue contracted during the recession from IVQ2007 (December) to IIQ2009 (June) (http://wwwdev.nber.org/cycles/cyclesmain.html) but there appears to be continuing growth especially for professional, scientific and technical services.

Chart VA-1, US, Quarterly Revenue for Selected Services, SA $ Billions

Source: US Census Bureau

http://www2.census.gov/services/qss/qss.gif

The Bureau of Labor Statistics (BLS) of the Department of Labor provides the quarterly report on productivity and costs. The operational definition of productivity used is (http://www.bls.gov/news.release/pdf/prod2.pdf 1): “Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.” The BLS has revised the estimates for productivity and unit costs. Table VA-2 provides revised data for nonfarm business sector productivity and unit labor costs for the final three quarters of 2011 in seasonally adjusted annual equivalent (SAAE) rate and the percentage change from the same quarter a year earlier. Reflecting increases in output of 3.7 percent and of 2.7 percent in hours worked, nonfarm business sector labor productivity rose at a lower revised SAAE rate of 0.9 percent in IVQ2011, as shown in column 2 “IVQ2011 SAEE.” The increase of labor productivity from IVQ2010 to IVQ2011 was 0.3 percent, reflecting increases in output of 2.3 percent and of hours worked of 1.9 percent, as shown in column 3 “IVQ2011 YoY.” The BLS defines unit labor costs as (http://www.bls.gov/news.release/pdf/prod2.pdf 1): “BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.” Unit labor costs increased at the SAAE rate of 2.8 percent in IVQ2011 and rose 3.1 percent in IVQ2011 relative to IVQ2010. Hourly compensation in IVQ2011 increased at the SAAE rate of 3.7 percent, which deflating by the estimated consumer price increase SAAE rate in IVQ2011 results in an increase of real hourly compensation by 2.8 percent. Real hourly compensation increased 0.2 percent in IVQ2011 relative to IVQ2010.

Table VA-2, US, Nonfarm Business Sector Productivity and Costs %

	IVQ 2011 SAAE	IVQ 2011 YoY	IIIQ 2011 SAAE	IIIQ 2011 YoY	IIQ 2011 SAAE	IIQ 2011 YoY
Productivity	0.9	0.3	1.8	0.5	-0.3	0.6
Output	3.7	2.3	2.8	2.3	1.8	2.5
Hours	2.7	1.9	1.0	1.8	2.2	1.9
Hourly Comp.	3.7	3.5	5.7	2.6	-0.5	1.6
Real Hourly Comp.	2.8	0.2	2.6	-1.2	-4.4	-1.7
Unit Labor Costs	2.8	3.1	3.9	2.0	-0.1	1.0
Unit Nonlabor Payments	-1.9	0.5	0.5	2.6	6.7	2.9
Implicit Price Deflator	0.8	2.0	2.5	2.2	2.7	1.8

Notes: SAAE: seasonally adjusted annual equivalent; Comp.: compensation; YoY: Quarter on Same Quarter Year Earlier

Source: http://www.bls.gov/news.release/pdf/prod2.pdf

The revised increases in productivity in Table VA-3 of 4.0 percent in the 2010 annual average and 2.3 percent in the 2009 annual average were facilitated by reductions in hours worked of 0.0 percent in 2010 and 7.2 percent in 2009. The contraction period and the recovery period have been characterized by savings of labor inputs. Hours worked increased 2.0 percent in 2011 but output rose only 2.4 percent such that the increase in productivity was only 0.4 percent. Real hourly compensation fell 0.7 percent in 2011, interrupting increases of 2.1 percent in 2009 and 0.3 percent in 2010.

Table VA-3, US, Revised Nonfarm Business Sector Productivity and Costs Annual Average, ∆% Annual Average 

	2011 ∆%	2010 ∆%	2009 ∆%	2008  ∆%	2007 ∆%
Productivity	0.4	4.0	2.3	0.6	1.5
Output	2.4	4.0	-5.1	-1.5	2.1
Hours	2.0	0.0	-7.2	-2.1	0.5
Hourly Comp.	2.5	1.9	1.7	3.4	4.0
Real Hourly Compensation	-0.7	0.3	2.1	-0.4	1.1
Unit Labor Costs	2.0	-2.0	-0.7	2.8	2.4

Notes: SAAE: seasonally adjusted annual equivalent

Source: http://www.bls.gov/news.release/pdf/prod2.pdf

Productivity jumped in the recovery after the recession from Mar IQ2001 to Nov IVQ2001 (http://www.nber.org/cycles.html). Table VA-4 provides quarter on quarter and annual percentage changes in nonfarm business output per hour, or productivity, from 2001 to 2011. The annual average jumped from 2.9 percent in 2001 to 4.6 percent in 2002. Nonfarm business productivity increased at the SAAE rate of 8.8 percent in the first quarter after the recession in IQ2002. Productivity increases decline later in the expansion period. Productivity increases were mediocre during the recession from Dec IVQ2007 to Jun IIQ2009 (http://www.nber.org/cycles.html) and increased during the first phase of expansion in 2010 but collapsed in 2011.

Table VA-4, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2011

Year	Qtr1	Qtr2	Qtr3	Qtr4	Annual
1999	3.9	0.3	3.3	7.1	3.3
2000	-1.5	9.4	0.1	4.0	3.4
2001	-1.3	7.4	2.5	5.8	2.9
2002	8.8	0.5	3.8	-0.2	4.6
2003	3.7	5.5	9.5	1.5	3.7
2004	0.6	3.3	0.7	0.5	2.6
2005	4.2	-0.8	3.1	-0.2	1.6
2006	2.5	0.4	-2.2	2.7	0.9
2007	-0.2	3.4	4.8	1.9	1.5
2008	-2.6	2.4	-0.8	-3.4	0.6
2009	1.3	8.3	6.4	5.3	2.3
2010	4.5	1.2	1.8	1.8	4.0
2011	-1.0	-0.3	1.8	0.9	0.4

Source: US Bureau of Labor Statistics

http://www.bls.gov/lpc/home.htm

Chart VA-2 of the Bureau of Labor Statistics (BLS) provides SAAE rates of nonfarm business productivity from 2001 to 2011. There is a clear pattern in both episodes of economic cycles in 2001 and 2007 of rapid expansion of productivity in the transition from contraction to expansion followed by more subdued productivity expansion. Part of the explanation is the reduction in labor utilization resulting from adjustment of business to the sudden shock of collapse of sales.

Chart VA-2, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/lpc/home.htm

Percentage changes from prior quarter at SAAE rates and annual average percentage changes of nonfarm business unit labor costs are provided in Table VA-3. Unit labor costs fell during the contractions with continuing negative percentage changes in the early phases of the recovery. Weak labor markets partly explain the decline in unit labor costs. As the economy moves toward full employment, labor markets tighten with increase in unit labor costs. The expansion beginning in IIIQ2009 has been characterized by high unemployment and underemployment. Table VA-3 shows continuing subdued unit labor costs.

Table VA-3, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2011

Year	Qtr1	Qtr2	Qtr3	Qtr4	Annual
1999	3.0	0.5	0.1	1.6	0.9
2000	17.4	-7.4	8.6	-1.6	3.9
2001	10.9	-5.8	-1.1	-1.7	1.5
2002	-4.1	3.4	-1.6	2.2	-1.3
2003	2.8	1.4	-3.5	1.8	1.0
2004	-2.5	2.4	5.8	2.7	0.7
2005	-1.0	3.5	2.6	2.6	2.3
2006	2.9	1.3	3.6	6.8	2.8
2007	4.0	-1.8	-1.9	4.3	2.4
2008	8.7	-3.4	4.3	5.7	2.8
2009	-4.0	-1.1	-4.0	-4.1	-0.7
2010	-3.1	1.4	-0.2	-1.7	-2.0
2011	6.2	-0.1	3.9	2.8	2.0

Source: US Bureau of Labor Statistics

http://www.bls.gov/lpc/home.htm

Chart VA-3 provides percentage changes quarter on quarter at SAAE rates of nonfarm business unit labor costs. With the exception of a jump of 6.2 percent in IQ2011, 2.8 percent in IVQ2011 and 3.9 percent in IIIQ2010, changes in nonfarm business unit labor costs have been negative.

Chart VA-3, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/lpc/home.htm

Table VA-4 provides percentage change from prior quarter at annual rates for nonfarm business real hourly worker compensation. The expansion after the contraction of 2001 was followed by strong recovery of real hourly compensation. Real hourly compensation increased at the rate of 0.3 percent in IQ2011 but fell at annual rates of 4.1 percent in IIQ2011 and at 3.2 percent in IIIQ2011. In 2011, real hourly compensation fell 1.2 percent.

Table VA-4, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 1999-2011

Year	Qtr1	Qtr2	Qtr3	Qtr4	Annual
1999	5.4	-2.0	0.2	5.6	2.2
2000	11.4	-1.8	4.7	-0.4	4.0
2001	5.4	-1.5	0.2	4.5	1.6
2002	2.8	0.6	0.0	-0.6	1.5
2003	2.4	7.7	2.5	1.8	2.4
2004	-5.2	2.6	3.7	-1.1	0.6
2005	1.3	-0.1	-0.3	-1.3	0.6
2006	3.1	-1.8	-2.6	11.6	0.5
2007	-0.1	-3.1	0.3	1.5	1.1
2008	1.2	-6.1	-2.8	12.5	-0.4
2009	-0.5	5.1	-1.4	-1.7	2.1
2010	0.1	3.2	0.2	-2.5	0.3
2011	-0.2	-4.4	2.6	2.8	-0.7

Source: US Bureau of Labor Statistics

http://www.bls.gov/lpc/home.htm

Chart VA-5 provides percentage change from prior quarter at annual rate of nonfarm business real hourly compensation from 2001 to 2011. There are significant fluctuations in quarterly percentage changes oscillating between positive and negative. There is no clear pattern in the two contractions in the 2000s.

Chart VA-5, US, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 2001-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/lpc/home.htm

Chart VA-6 provides percentage change from prior quarter at annual rate for nonfarm business output per hour from 1947 to 2011. The average would be represented by a horizontal line above zero. There is an increase in the rate of improvement of productivity in the 1990s that was not continued into the 2000s.

Chart VA-6, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate 1947-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/lpc/home.htm

Chart VA-7 provides percentage changes from prior quarter at annual rate for US nonfarm business unit labor costs from 1947 to 2011. The most remarkable period is the 1970s in which stagflation occurred in fluctuating but high positive percentage changes of unit labor costs. There was significant moderation of increases in unit labor costs in the 1980s. Fluctuation has characterized the 2000s.

Chart VA-7, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1947-2011

Source: US bureau of Labor Statistics

http://www.bls.gov/lpc/home.htm

Chart VA-8 provides percentage changes from the prior quarter at annual rate of nonfarm business real hourly compensation from 1947 to 2011. Negative changes have occurred more frequently and pronounced in the 2000s than during the Great Inflation of the 1970s.

Chart VA-8, US, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 1947-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/lpc/home.htm

Manufacturers’ shipments increased 0.9 percent in Jan after increasing 0.8 percent in Dec while new orders fell 1.0 percent in Jan after growing 1.4 percent in Dec, as shown in Table VA-5. These data are very volatile. Automobile shipments fell 3.4 percent in Nov but increased 4.0 percent in Dec, remaining flat in Jan. Volatility is illustrated by increase of 88.1 percent of nondefense aircraft in Nov and 21.0 percent in Dec but decline of 19.0 percent in Jan. Capital goods new orders, indicating investment, fell 4.1 percent in Jan after increasing 5.2 percent in Dec and 8.0 percent in Nov. New orders of nondefense capital goods fell 5.9 percent in Jan after increasing 6.9 percent in Dec and 9.3 percent in Nov. Excluding more volatile aircraft, capital goods orders fell 3.9 percent in Jan after increasing 3.5 percent in Dec but falling 1.5 percent in Nov.

Table VA-5, US, Value of Manufacturers’ Shipments and New Orders, SA, Month ∆%

2011	Jan  ∆%	Dec ∆%	Nov  ∆%
All Mfg Industries
S	0.9	0.8	0.2
NO	-1.0	1.4	2.2
Excluding Transport
S	0.3	0.7	0.6
NO	-0.3	0.7	0.5
Excluding Defense
S	0.9	0.7	0.2
NO	-1.2	1.6	2.3
Durable Goods
S	0.4	2.0	-0.2
NO	-3.7	3.3	4.2
Machinery
S	-5.9	3.8	0.7
NO	-10.5	6.5	1.2
Computers & Electronic Products
S	-0.8	-0.9	-3.0
NO	0.8	-0.2	-6.4
Computers
S	-9.9	-3.0	-12.3
NO	-14.4	-7.6	-9.0
Transport Equipment
S	6.1	1.1	-2.5
NO	-5.7	6.3	16.6
Automobiles
S	0.0	4.0	-3.4
Motor Vehicles
S	0.8	2.6	-0.2
NO	-1.1	2.7	1.9
Nondefense Aircraft
S	17.4	1.0	-11.6
NO	-19.0	21.0	88.1
Capital Goods
S	-0.9	3.2	-2.0
NO	-4.1	5.2	8.0
Nondefense Capital Goods
S	-0.9	2.6	-2.2
NO	-5.9	6.9	9.3
Capital Goods ex Aircraft
S	-3.0	2.8	-0.9
NO	-3.9	3.5	-1.5
Nondurable Goods
S NO	1.3	-0.4	0.9

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-9 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-9, 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-10. Values are cumulative millions of dollars in Jan 2012 not seasonally adjusted (NSA). Shipments of all manufacturing industries in Jan 2012 total $426.3 billion and new orders total $430.0 billion, growing respectively by 8.4 percent and 8.1 percent relative to the same period in 2010. Excluding transportation equipment, shipments grew 7.9 percent and new orders increased 7.2 percent. Excluding defense, shipments grew 8.6 percent and new orders grew 9.7 percent. Important information in Table VA-10 is the large share of nondurable goods: with shipments and orders of $164.9 billion, growing by 7.7 percent, in part driven by higher prices for food and energy that have been less dynamic. Durable goods are lower in value, with shipments of $188.1 billion, growing by 10.1 percent, and new orders of $191.8 billion, growing by 9.4 percent. Capital goods have relatively high value of $68.0 billion for shipments, growing 7.7 percent, and new orders $79.0 billion, growing 11.7 percent, which could be a favorable sign of future investment. Excluding aircraft, capital goods shipments reached $57.9 billion, growing by 6.6 percent, and new orders $62.2 billion, growing 7.6 percent. Automobile shipments reached $4.4 billion, growing by 20.8 percent. There is no suggestion in these data that the US economy is close to recession.

Table VA-10, US, Value of Manufacturers’ Shipments and New Orders, NSA, Millions of Dollars 

Jan 2012	Shipments	∆% 2012/ 2011	New Orders	∆% 2011/ 2010
All Manufacturing Industries	426,286	8.4	430,029	8.1
Excluding Transport	382,694	7.9	380,271	7.2
Excluding Defense	418,237	8.6	421,590	9.7
Durable Goods	188,064	10.1	191,807	9.4
Machinery	26,707	10.1	29,292	4.3
Computers & Electronic Products	28,018	-5.0	20,595	-3.5
Computers	3,104	-16.4	2,864	-19.7
Transport Equipment	43,592	13.4	49,578	15.8
Automobiles	4,448	20.8	NA	NA
Motor vehicles	13,823	8.1	13,827	6.9
Nondefense Aircraft	6,676	36.8	19,279	169.8
Capital Goods	68,013	7.7	79,039	11.7
Nondefense Capital Goods	61,881	9.3	72,643	22.6
Capital Goods ex Aircraft	57,981	6.6	62,178	7.6
Nondurable Goods	164,915	7.7	164,915	7.7

Note: Transport: transportation

Source: US Census Bureau

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

Manufacturers’ new orders in the months of Nov and Dec 2011 and Jan 2012, not seasonally adjusted are provided in Table VA-11 from 1992 to 2011. The level of new orders in Jan 2012 of $430,029 million is above the level of $383,693 million in Jan 2006 and slightly lower than $442,231 million in Dec 2008. The comparison is somewhat distorted by inflation in the latter years because the data are not adjusted for inflation.

Table VA-11, US, Manufacturers’ New Orders NSA Millions of Dollars

Year	Jan	Nov	Dec
1992	NA	238,753	245,841
1993	224,516	249,000	250,599
1994	240,343	277,084	279,657
1995	263,051	288,737	291,866
1996	272,083	306,883	298,661
1997	285,190	326,856	317,483
1998	295,916	313,623	319,159
1999	298,792	331,794	346,933
2000	323,474	339,253	342,367
2001	312,350	305,478	310,984
2002	289,500	314,727	315,270
2003	305,157	326,624	342,484
2004	314,821	367,104	374,934
2005	347,749	412,683	420,982
2006	383,693	416,901	434,133
2007	395,908	456,298	477,816
2008	442,231	368,944	376,947
2009	319,390	353,470	381,071
2010	355,265	398,065	422,050
2011	397,758	444,953	467,743
2012	430,029	NA	NA

Source: US Census Bureau

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

Table VA-12 provides 12-month percentage changes of manufacturers’ new orders not seasonally annualized from 2009 to 2012. High percentage declines slowed from 29.8 in Apr 2009 to 4.2 percent in Nov 2009, with the first positive change of 1.1 percent in Dec 2009. Recovery was quite vigorous in the first half of 2010 with high double-digit gains. As with other series of the US economy, 12-month percentage changes moderated in the second half of 2010 and in 2011.

Table VA-12, Twelve-Month Percentage Changes of Manufacturers’ New Orders NSA

	2012	2011	2010	2009
Jan	8.1	12.0	11.2	-27.8
Feb		10.5	12.3	-28.9
Mar		14.3	17.4	-26.7
Apr		10.4	19.7	-29.8
May		14.8	14.5	-29.5
Jun		12.5	12.5	-27.6
Jul		13.4	10.4	-26.6
Aug		15.7	11.7	-23.6
Sep		9.6	12.9	-18.9
Oct		10.2	9.1	-13.5
Nov		11.8	12.6	-4.2
Dec		10.8	10.8	1.1

Source: US Census Bureau

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

Sales and inventories of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-13 for Jan 2012 and percentage changes from the prior month and from Jan 2011. These data are volatile aggregating diverse categories of durable and nondurable goods without adjustment for price changes. Total sales for the US rose 11.3 percent in Jan 2012 relative to Jan 2011 and fell 0.1 percent in Jan relative to Dec. The value of total sales is quite high at $391.0 billion, exceeding four trillion dollars in a year. Value in the breakdown is useful in identifying relative importance of individual categories. Sales of durable goods in Jan 2011 reached $173.5 billion, over two trillion for a year, falling 0.2 percent in Jan relative to Dec and increasing 14.1 percent in Jan 2012 relative to Jan 2011. Sales of automotive products reached $30.6 billion in Jan 2012, increasing 2.4 percent in the month and increasing 26.1 percent relative to a year earlier. There is strong performance of 24.0 percent in machinery and 9,4 percent in electrical products. Sales of nondurable goods rose 9.1 percent. The influence of commodity prices moderated as shown by decrease of 1.1 percent in farm products and increase of only 9,3 percent in petroleum products. The final three columns in Table VA-13 provide the value of inventories and percentage changes from the prior month and from the same month a year earlier. US total inventories of wholesalers increased 0.4 percent in Jan and increased 9.0 percent relative to a year earlier. Inventories of durable goods of $277.6 billion are 57.8 percent of total inventories of $479.9 billion and rose 10.7 percent relative to a year earlier. Automotive inventories jumped 17.9 percent relative to a year earlier. Machinery inventories of $70.4 billion rose 14.2 percent relative to a year earlier. Inventories of nondurable goods of $202.3 billion are 42.2 percent of the total and increased 6.8 percent relative to a year earlier. Inventories of farm products fell 1.6 percent in Jan relative to Dec and declined 17.1 percent relative to a year earlier. Inventories of petroleum products increased 2.3 percent in Jan and 16.2 percent relative to a year earlier.

Table VA-13, US, Sales and Inventories of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, Month ∆%

2012	Sales $ Billions Jan 2012 NSA	Sales Jan ∆% SA	Sales∆% Jan 2012 from Jan 2011  NSA	INV $ Billions Jan 2012 NSA	INV  Jan ∆% SA	INV  ∆% Jan 2012 from Jan 2011 NSA
US Total	391.0	-0.1	11.3	479.9	0.4	9.0
Durable	173.5	-0.2	14.1	277.6	0.8	10.7
Automotive	30.5	2.4	26.1	45.9	0.5	17.9
Prof. Equip.	28.7	0.2	3.2	31.7	-0.2	1.7
Computer Equipment	14.8	1.7	1.2	11.7	1.1	-4.1
Electrical	31.6	0.9	9.4	40.6	0.4	7.7
Machinery	29.9	-1.8	24.0	70.4	1.2	14.2
Not Durable	217.5	-0.1	9.1	202.3	-0.2	6.8
Drugs	34.9	0.1	7.4	32.2	-0.3	7.0
Apparel	10.2	-1.4	8.1	22.9	-0.9	12.8
Groceries	49.9	-0.1	17.5	33.7	0.4	11.1
Farm Products	22.9	0.7	-1.1	26.8	-1.6	-17.1
Petroleum	59.7	0.1	9.3	26.1	2.3	16.2

Note: INV: inventories

Source: US Census Bureau

http://www2.census.gov/wholesale/pdf/mwts/currentwhl.pdf

Inventory/sales ratios of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-10. The total for the US has remained almost unaltered at 1.15 in Jan and 1.15 in Dec relative to 1.14 in Dec 2011. Inventory/sales ratios are higher in durable goods industries but still remain relatively stable with 1.48 in Jan 2012 relative to 1.46 in Dec 2011 and 1.47 in Jan 2011. Computer equipment operates with low inventory/sales ratios of 0.72 in Jan 2012 relative to 0.74 in Jan 2011 because of the capacity to fill orders on demand. As expected because of perishable nature, nondurable inventory/sales ratios are quite low with 0.88 in Jan 2012, which is almost equal to 0.88 in Dec 2011 and almost equal to 0.86 in Jan 2011. There are exceptions such as 1.99 in Jan 2012 in apparel that is higher than 1.84 in Jan 2011 perhaps because of the expectation of stronger holiday sales.

Table VA-10, Inventory/Sales Ratios of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, % SA

	Jan 2012	Dec 2011	Jan 2011
US Total	1.15	1.15	1.14
Durable	1.48	1.46	1.47
Automotive	1.36	1.39	1.40
Prof. Equip.	1.00	1.01	0.99
Comp. Equip.	0.72	0.72	0.74
Electrical	1.19	1.20	1.17
Machinery	2.17	2.11	2.26
Not Durable	0.88	0.88	0.86
Drugs	0.93	0.94	0.90
Apparel	1.99	1.98	1.84
Groceries	0.65	0.64	0.68
Farm Products	1.02	1.04	1.17
Petroleum	0.44	0.43	0.39

Sources: http://www2.census.gov/wholesale/pdf/mwts/currentwhl.pdf

Chart VA-10 provides the chart of the US Census Bureau with inventories/sales ratios of merchant wholesalers from 2002 to 2011 seasonally adjusted. Inventory/sales ratios rise during contractions as merchants are caught with increasing inventories because of weak sales and fall during expansions as merchants attempt to fill sales with existing stocks.

Chart VA-10, US, Monthly Inventories/Sales Ratios of Merchant Wholesalers, SA, 2002-2011

Source: US Census Bureau

http://www2.census.gov/wholesale/img/mwtsbrf.jpg

The report of consumer credit outstanding of the Board of Governors of the Federal Reserve System is provided in Table VA-11. The data are in seasonally-adjusted annual rates both percentage changes and billions of dollars. Consumer credit is divided into two categories. (1) Revolving consumer credit (REV in Table VA-11) consists mainly of unsecured credit cards. (2) Non-revolving consumer credit (NREV in Table VA-11) consists of consumer loans such as car loans. In Jan 2012, revolving credit was $801 billion, or 31.9 percent of total consumer credit of $2512 billion, and non-revolving credit was $1711 billion, or 68.1 percent of total consumer credit outstanding. Consumer credit grew at relatively high rates before the recession beginning in IVQ2007 and extending to IIQ2009 as dated by the National Bureau of Economic Research or NBER (http://www.nber.org/cycles/cyclesmain.html). Percentage changes of consumer credit outstanding fell already in 2008. Rates were still negative in 2010. Contraction was sharper in revolving credit that fell at the rates of 10.1 percent in IIIQ2010, 2.6 percent in IVQ2010, 3.7 percent in IQ2011 and 2.0 percent in IIIQ2011. There was a sharp jump in consumer credit outstanding in Jan 2011: 8.6 percent total, minus 4.4 percent revolving and 14.7 percent non-revolving.

Table VA-11, US, Consumer Credit Outstanding, SA, Annual Rate and Billions of Dollars

	Total ∆%	REV ∆%	NRV ∆%	Total $B	REV $B	NREV $B
2012
Jan	8.6	-4.4	14.7	2512	801	1711
2011
Dec	7.9	5.5	9.0	2495	804	1691
Nov	9.8	9.9	9.7	2478	800	1678
IVQ	6.9	6.0	7.4	2495	804	1691
IIIQ	1.4	-2.0	3.0	2451	792	1660
IIQ	3.6	1.5	4.6	2443	796	1647
IQ	2.2	-3.7	5.1	2422	793	1629
2010
IVQ	2.5	-2.6	5.0	2408	800	1608
IIIQ	-2.1	-10.1	2.1	2394	805	1588
2011	3.6	0.4	5.1	2495	804	1691
2010	-1.7	-7.5	1.5	2408	800	1608
2009	-4.4	-9.6	-1.2	2450	866	1585
2008	1.6	1.7	1.5	2562	958	1604
2007	5.8	8.1	4.4	2523	942	1581
2006	4.1	5.0	3.6	2385	871	1514

Note: REV: Revolving; NREV: Non-revolving; ∆%: simple annual rate from unrounded data; Total may not add exactly because of rounding

Source: http://www.federalreserve.gov/releases/g19/current/default.htm

Chart VA-11 of the Board of Governors of the Federal Reserve System provides percentage changes of total consumer credit outstanding in the US since 1944. The shaded bars are the cyclical contraction dates of the National Bureau of Economic Research. Consumer credit is cyclical, declining during contractions as shown by negative percentage changes during economic contractions.

Chart VA-11, US, Consumer Credit Outstanding Seasonally Adjusted Annual Percentage Rate

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/datadownload/Chart.aspx?rel=G19&series=3e4b643fa48b7bff9962454e556c8761&lastObs=&from=&to=&filetype=csv&label=include&layout=seriescolumn&type=package&pp=Format

Table VA-12 provides the trade balance of the US and monthly growth of exports and imports seasonally adjusted. The US trade balance deteriorated sharply from Nov to Jan with growth of imports by cumulative 4.9 percent and cumulative growth of exports of only 0.7 percent, resulting in deficits of $47,524 million in Nov, $50,421 million in Dec and $52,565 million in Jan, which are the highest since $51,774 million in Jun. There was mild improvement in the balance of international trade in goods and services of the US from Jul to Oct, declining from deficit of $50,210 million in May and $51,774 million in Jun to deficit of $43,121 million in Oct, as shown in Table VA-12. In the months of Jun to Oct, exports increased 2.2 percent while imports fell 1.4 percent. The trade balance deteriorated from cumulative deficit of $500,027 million in Jan-Dec 2010 to deficit of $559,856 million in Jan-Dec 2011.

Table VA-12, US, Trade Balance of Goods and Services Seasonally Adjusted Millions of Dollars and ∆%  

	Trade Balance	Exports	Month ∆%	Imports	Month ∆%
Jan 2012	-52,565	180,807	1.4	233,372	2.1
Dec 2011	-50,421	178,229	0.4	228,650	1.6
Nov	-47,524	177,567	-1.1	225,091	1.1
Oct	-43,121	179,593	-0.9	222,714	-1.1
Sep	-44,009	181,156	1.4	225,165	0.6
Aug	-45,091	178,639	0.1	223,730	-0.1
Jul	-45,613	178,395	3.8	224,008	0.2
Jun	-51,774	171,806	-2.2	223,580	-1.1
May	-50,210	175,744	-0.3	225,954	2.9
Apr	-43,231	176,315	1.3	219,547	-0.2
Mar	-46,059	173,997	5.0	220,056	4.2
Feb	-45,381	165,741	-1.3	211,123	-2.0
Jan	-47,521	167,864	2.4	215,385	5.3
Dec 2010	-40,454	164,006	1.7	204,459	2.2
Jan-Dec 2011	-559,956	2,105,046		2,665,002
Jan-Dec 2010	-500,027	1,837,577		2,337,604

Note: Trade Balance of Goods and Services = Exports of Goods and Services less Imports of Goods and Services. Trade balance may not add exactly because of errors of rounding.

Source: http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

Table VA-13 provides the US international trade balance, exports and imports on an annual basis from 1992 to 2011. The most recent estimate of the US current account deficit by the Bureau of Economic Analysis of the US Department of Commerce is for IIIQ2011 (http://www.bea.gov/scb/pdf/2012/01%20January/0112_itaq.pdf 1):

“The US current account deficit—a net measure of transactions between the United States and the rest of the world in goods, services, income, and unilateral current transfers—decreased to $110.3 billion (preliminary) in the third quarter of 2011 from $124.7 billion (revised) in the second quarter. The deficit decreased to 2.9 percent of current-dollar gross domestic product (GDP)—down from 3.3 percent in the second quarter—after six straight quarters at 3.0 percent or higher. Most of the decrease reflected a drop in the deficit on goods; smaller contributions came from a decrease in net unilateral current transfers and increases in the surpluses on services and income” (for the balance of payments in IIIQ2011 see http://cmpassocregulationblog.blogspot.com/2011/12/recovery-without-hiring-world-inflation_1721.html).

In IVQ2010, “the deficit decreased to 3.0 percent of current-dollar GDP from 3.4 percent, the first decrease after five straight quarterly increases” (http://www.bea.gov/scb/pdf/2011/04%20April/0411_itaq-text.pdf 1). The ratio of the current account deficit to GDP has stabilized around 3 percent of GDP compared with much higher percentages before the recession (see Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State, Vol. II (2008b), 183-94, Government Intervention in Globalization (2008c), 167-71). The current account deficit reached 6.1 percent of GDP in 2006. The external imbalance of the US measured by the current account deficit must be financed with foreign borrowings. The US borrows heavily from other countries. China is the largest holder of US Treasury securities with $1100.7 billion in Dec 2011, slightly lower than $1160.1 billion in Dec 2010. Japan increased its holdings from $882.3 billion in Dec 2010 to $1042.9 billion in Dec 2011. The United Kingdom increased its holdings to $414.8 billion in Dec 2011 relative to $270.4 billion in billion in Dec 2010 (Table VA-13 at http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states_19.html).

Table VA-13, US, International Trade Balance, Exports and Imports SA, Millions of Dollars

Period	Balance	Exports	Imports
Total
Annual
1992	-39,212	616,882	656,094
1993	-70,311	642,863	713,174
1994	-98,493	703,254	801,747
1995	-96,384	794,387	890,771
1996	-104,065	851,602	955,667
1997	-108,273	934,453	1,042,726
1998	-166,140	933,174	1,099,314
1999	-263,160	967,008	1,230,168
2000	-376,749	1,072,783	1,449,532
2001	-361,771	1,007,726	1,369,496
2002	-417,432	980,879	1,398,311
2003	-490,984	1,023,519	1,514,503
2004	-605,357	1,163,146	1,768,502
2005	-708,624	1,287,441	1,996,065
2006	-753,288	1,459,823	2,213,111
2007	-696,728	1,654,561	2,351,289
2008	-698,338	1,842,682	2,541,020
2009	-381,272	1,575,037	1,956,310
2010	-500,027	1,837,577	2,337,604
2011	-559,956	2,105,046	2,665,002

Source: http://www.bea.gov/international/index.htm#trade

Chart VA-12 of the US Census Bureau of the Department of Commerce shows that the trade deficit (gap between exports and imports) fell during the economic contraction after 2007 but has grown again during the expansion. There was slight improvement at the margin from Jul to Oct 2011 but new increase in the gap in Nov, Dec and Jan as exports stagnate in value while imports are more dynamic. Weaker world and internal demand and moderating commodity price increases explain the declining or less dynamic changes in exports and imports in Chart VA-12.

Chart VA-12, US Balance, Exports and Imports of Goods and Services $ Billions

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr042.html

The balance of international trade in goods of the US seasonally-adjusted is shown in Table VA-14. The US has a dynamic surplus in services that reduces the large deficit in goods for a still very sizeable deficit in international trade of goods and services. The balance in international trade of goods deteriorated sharply from $61.3 billion in Jan 2011 to $67.5 billion in Jan 2012. Deterioration occurred both in the petroleum balance, exports less imports of petroleum, as well as in the non-petroleum balance, exports less imports of non-petroleum goods. Exports rose 7.6 percent with non-petroleum exports growing 7.1 percent. Total imports rose 8.4 percent with petroleum imports increasing 11.5 percent and non-petroleum imports increasing 7.6 percent.

Table VA-14, US, International Trade in Goods Balance, Exports and Imports $ Millions and ∆% SA

	Jan 2012	Jan 2011	∆%
Total Balance	-67,484	-61.290
Petroleum	-29,708	-26,890
Non Petroleum	-36,789	-33,719
Total Exports	128,578	119,498	7.6
Petroleum	9,383	8,169	14.9
Non Petroleum	117,721	109,907	7.1
Total Imports	196,061	180,788	8.4
Petroleum	39,090	35,059	11.5
Non Petroleum	154,510	143,626	7.6

Details may not add because of rounding and seasonal adjustment

Source: http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

US exports and imports of goods not seasonally adjusted in Jan 2012 and Jan 2011 are shown in Table VA-15. The rate of growth of exports was 7.3 percent, which is lower than 10.1 percent for imports. The US has partial hedge of commodity price increases in exports of agricultural commodities that rose 16.9 percent and of mineral fuels that increased 15.9 percent both because of higher prices of raw materials and commodities. The US exports an insignificant amount of crude oil. US exports and imports consist mostly of manufactured products, with less rapidly increasing prices. US manufactured exports rose 9.0 percent while imports rose 9.9 percent. Significant part of the US trade imbalance originates in imports of mineral fuels growing by 10.6 percent and crude oil increasing 12.9 percent. The limited hedge in exports of agricultural commodities and mineral fuels compared with substantial imports of mineral fuels and crude oil results in deterioration of the terms of trade of the US, export prices relative to import prices, originating in commodity price increases caused by carry trades from zero interest rates.

Table VA-15, US, Exports and Imports of Goods, Not Seasonally Adjusted Millions of Dollars and %

	Jan 2012 $ Millions	Jan 2011 $ Millions	∆%
Exports	119,615	111,501	7.3
Manufactured	77,154	70,773	9.0
Agricultural Commodities	11,491	12,239	-6.1
Mineral Fuels	10,606	9,153	15.9
Crude Oil	157	116	35.3
Imports	185,887	168,782	10.1
Manufactured	132,599	120,679	9.9
Agricultural Commodities	9,055	7,745	16.9
Mineral Fuels	38,290	34,630	10.6
Crude Oil	28,484	25,221	12.9

Source: http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

VB. Japan. The Markit/JMMA Purchasing Managers’ Index^™ (PMI^™) was mostly unchanged from 51.1 in Jan to 51.2 in Feb but still suggesting only marginal growth in private sector economic activity (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9261). New export business grew for the first time in eleven months with improvement in demand both internal and from abroad. Alex Hamilton, economist at Markit and author of the report finds continuing growth in manufacturing and services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9261). Table JPY provides the country 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	Jan ∆% -0.1 12 months ∆% 0.5 Blog 02/12/12
Consumer Price Index	Jan NSA ∆% 0.2 Jan 12 months NSA ∆% 0.1 Blog 03/04/12
Real GDP Growth	IVQ2011 ∆%: -0.2 on IIIQ2011;  IVQ2011 SAAR minus 0.7% ∆% from quarter a year earlier: -0.6 % Blog 3/11/12
Employment Report	Jan Unemployed 2.91 million Change in unemployed since last year: minus 190 thousand Unemployment rate: 4.6% Blog 03/04/12
All Industry Indices	Dec month SA ∆% 1.3 12 months NSA ∆% -0.5 Blog 02/26/12
Industrial Production	Jan SA month ∆%: 2.0 12 months NSA ∆% minus 1.2 Blog 03/04/12
Machine Orders	Total Dec ∆% minus 7.2 Private ∆%: minus 22.2 Dec ∆% Excluding Volatile Orders minus 7.1 Blog 02/12/12
Tertiary Index	Dec month SA ∆% 0.6 Dec 12 months NSA ∆% 1.4 Blog 02/19/12
Wholesale and Retail Sales	Jan 12 months: Total ∆%: minus 2.1 Wholesale ∆%: minus 3.6 Retail ∆%: +1.9 Blog 03/04/12
Family Income and Expenditure Survey	Jan 12 months ∆% total nominal consumption minus 2.1, real minus 2.3 Blog 03/04/12
Trade Balance	Exports Jan 12 months ∆%: minus 9.3 Imports Jan 12 months ∆% +9.8 Blog 02/26/12

Links to blog comments in Table JPY:

03/04/12 http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening_04.html

02/26/12 http://cmpassocregulationblog.blogspot.com/2012/02/decline-of-united-states-new-house_26.html

02/19/12 http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states_19.html

02/12/12 http://cmpassocregulationblog.blogspot.com/2012/02/hiring-collapse-ten-million-fewer-full_12.html

07/31/11: http://cmpassocregulationblog.blogspot.com/2011/07/growth-recession-debt-financial-risk.html

The second estimate of the national accounts of Japan is more encouraging. Japan’s GDP fell 0.2 percent in IVQ2011 relative to IIIQ2011, seasonally adjusted, as shown in Table VB-1 that incorporates the latest revisions. IIIQ2011 GDP growth was revised upward to 1.7 percent and IQ2011 was revised downward to minus 1.8 percent. The economy of Japan had already weakened in IVQ2010 when GDP fell revised minus 0.2 percent. As in other advanced economies, Japan’s recovery from the global recession has not been robust. GDP fell in IQ2011 by 1.8 percent and fell again 0.3 percent in IIQ2011 as a result of the disruption of the tragic Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Recovery was robust in the first two quarters of 2010. The deepest quarterly contractions in the recession were 3.2 percent in IVQ2008 and 3.9 percent in IQ2009.

Table VB-1, Japan, Real GDP ∆% Changes from the Previous Quarter Seasonally Adjusted ∆%

	IQ	IIQ	IIIQ	IVQ
2011	-1.8	-0.3	1.7	-0.2
2010	1.5	1.3	0.6	-0.2
2009	-3.9	1.8	-0.2	1.8
2008	0.7	-1.1	-1.2	-3.2
2007	1.0	0.2	-0.4	0.9
2006	0.4	0.4	-0.1	1.3
2005	0.2	1.3	0.4	0.2
2004	1.1	-0.1	0.2	-0.3
2003	-0.5	1.2	0.4	1.1
2002	-0.2	1.0	0.7	0.4
2001	0.7	-0.2	-1.1	-0.1
2000	1.7	0.2	-0.3	0.7
1999	-0.8	0.4	-0.1	0.5

Source: http://www.cao.go.jp/index-e.html

Table VB-2 provides contributions to real GDP at seasonally-adjusted annual rates (SAAR). The SAAR of GDP in IVQ2011 was minus 0.7 percent: 0.8 percentage points from growth of personal consumption expenditures (PC) plus 2.0 percentage points from gross fixed capital formation (GFCF) plus 0.3 percentage points from government consumption (GOVC) less net trade (exports less imports) deduction of 2.6 percentage points less 1.3 deduction of private inventory change. The SAAR of GDP in IIIQ2011 was revised to a high 7.1 percent. Net trade deducted from GDP growth in three quarters of 2011. Growth in 2011 has been driven by personal consumption expenditures.

Table VB-2, Japan, Contributions to Changes in Real GDP, Seasonally Adjusted Annual Rates (SAAR), %

	GDP	PC	GFCF	Trade	PINV	GOVC
2011
I	-6.9	-2.6	-0.5	-0.8	-3.5	0.4
II	-1.2	0.8	0.9	-4.1	0.5	0.6
III	7.1	2.5	0.3	3.1	0.8	0.2
IV	-0.7	0.8	2.0	-2.6	-1.3	0.3
2010
I	6.0	1.9	0.3	2.3	1.8	-0.3
II	5.2	0.6	1.2	0.4	2.0	1.2
III	2.3	0.8	0.5	-0.1	1.0	0.2
IV	-0.6	0.3	-1.2	-0.4	0.2	0.3
2009
I	-14.8	-1.9	-2.0	-4.3	-7.6	0.9
II	7.2	4.0	-2.9	7.5	-1.8	0.4
III	-0.7	0.0	-1.5	1.7	-1.8	0.9
IV	7.4	3.4	0.1	2.8	0.7	0.4
2008
I	2.7	1.4	0.3	1.2	-0.4	0.1
II	-4.4	-3.3	-2.2	0.7	1.3	-0.9
III	-4.6	-0.3	-1.0	-0.4	-2.9	-0.1
IV	-12.3	-2.9	-4.5	-11.3	5.8	0.4
2007
I	4.0	0.9	0.5	1.1	1.2	0.4
II	0.7	0.5	-1.5	0.8	0.2	0.5
III	-1.7	-0.8	-1.7	1.8	-0.8	-0.2
IV	3.6	0.2	0.3	1.5	1.0	0.6

Note: PC: Private Consumption; GFCF: Gross Fixed Capital Formation; PINV: Private Inventory; Trade: Net Exports; GOVC: Government Consumption

Source: http://www.cao.go.jp/index-e.html

Japan’s quarterly growth of GDP not seasonally-adjusted relative to the same quarter a year earlier is shown in Table VB-3. Contraction of GDP extended over seven quarters from IIQ2008 through IVQ2009. It was strongest in IQ2009 with output declining 9.3 percent relative to a year earlier. Yearly quarterly rates of growth of Japan were relatively high for a mature economy through the decade with the exception of the contractions in 2001 and after 2007. The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 caused decline of GDP in IQ2011 of 0.3 percent relative to the same quarter a year earlier and decline of 1.7 percent in IIQ2011. GDP fell 0.4 percent in IIIQ2011 relative to a year earlier and fell 0.6 percent in IVQ2011 relative to a year earlier. Japan faces the challenge of recovery from the devastation of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 in an environment of declining world trade and bouts of risk aversion that cause appreciation of the Japanese yen that erode the country’s competitiveness in world markets.

Table VB-3, Japan, Real GDP ∆% Changes from Same Quarter Year Earlier, NSA ∆%

	IQ	IIQ	IIIQ	IVQ
2011	-0.3	-1.7	-0.4	-0.6
2010	4.8	4.4	5.5	3.1
2009	-9.3	-6.6	-5.6	-0.5
2008	1.4	-0.1	-0.6	-4.7
2007	2.8	2.3	2.0	1.6
2006	2.6	1.3	0.9	2.0
2005	0.4	1.4	1.5	1.9
2004	4.0	2.6	2.2	0.7
2003	1.7	1.8	1.5	1.8
2002	-1.6	-0.2	1.4	1.6
2001	1.6	0.9	0.0	-1.0
2000	2.7	2.4	2.2	1.8
1999	-0.3	0.1	-0.1	-0.5

Source: http://www.cao.go.jp/index-e.html

VC. China. The HSBC Composite Output Index for China, compiled by Markit, registered an increase from 49.7 in Jan to 51.8 in Feb, suggesting improving private-sector business activity (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9262). Growth of services compensated weakness of manufacturing. Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds that increases in new orders drove the increase in services but that the combination with manufacturing deceleration because of weak external orders can result in growth of only 8 percent in IQ2012 GDP until further easing permeates throughout the economy (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9262). Table CNY provides the country table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry	Jan 12 months ∆%: 0.7 Jan month ∆%: -0.1 Blog 02/12/12
Consumer Price Index	Feb month ∆%: -0.1 Feb 12 month ∆%: 3.2 Blog 03/11/12
Value Added of Industry	Dec 12 month ∆%: 12.8 Jan-Dec 2011/Jan-Dec 2010 ∆%: 13.9 Blog 1/22/12
GDP Growth Rate	Year IVQ2011 ∆%: 8.9 Quarter IIQ2011 ∆%: 2.0 Blog 1/22/12
Investment in Fixed Assets	Total Jan-Dec ∆%: 23.8 Jan-Dec ∆% real estate development: 27.9 Blog 01/22/11
Retail Sales	Dec month ∆%: 1.41 Dec 12 month ∆%: 18.1 Jan-Nov ∆%: 17.1 Blog 1/22/12
Trade Balance	Jan balance $27.28 billion Exports ∆% -0.5 Imports ∆% -15.3 Cumulative Jan: $27.28 billion Blog 02/12/12

Links to blog comments in Table CNY:

02/12/12 http://cmpassocregulationblog.blogspot.com/2012/02/hiring-collapse-ten-million-fewer-full_12.html

01/22/12 http://cmpassocregulationblog.blogspot.com/2012/01/world-inflation-waves-united-states.html

VC Euro Area. The Markit Eurozone PMI^® Composite Output Index declined to 49.3 in Feb from 50.4 in Jan, which is the first reading above the contraction zone at 50.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9242). The index suggests decline of business activity during four month, expansion in Jan and then contraction in Feb. Chris Williamson, Chief Economist at Markit, finds that economic activity could have contracted 0.1 percent in IQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9242). Table EUR provides the country economic indicators for the euro area.

Table EUR, Euro Area Economic Indicators

GDP	IVQ2011 ∆% minus 0.3; IVQ2011/IVQ2010 ∆% 0.7 Blog 03/11/12
Unemployment	Jan 2012: 10.7% unemployment rate Jan 2012: 16.925 million unemployed Blog 03/04/12
HICP	Jan month ∆%: minus 0.8 12 months Jan ∆%: 2.6 Blog 03/04/12
Producer Prices	Euro Zone industrial producer prices Jan ∆%: 0.7 Jan 12 months ∆%: 3.7 Blog 03/04/12
Industrial Production	Dec month ∆%: -1.1 Nov 12 months ∆%: -2.0 Blog 02/19/12
Industrial New Orders	Dec month ∆%: 1.9 Oct 12 months ∆%: minus 1.7 Blog 02/26/12
Construction Output	Dec month ∆%: 0.3 Dec 12 months ∆%: 7.8 Blog 02/19/12
Retail Sales	Jan month ∆%: 0.3 Jan 12 months ∆%: 0.0 Blog 03/11/12
Confidence and Economic Sentiment Indicator	Sentiment 93.9 Feb 2012 down from 107 in Dec 2010 Confidence minus 20.1 Jan 2012 down from minus 11 in Dec 2010 Blog 03/04/12
Trade	Jan-Dec 2011/2010 Exports ∆%: 12.7 Imports ∆%: 12.2 Blog 02/19/12
HICP, Rate of Unemployment and GDP	Historical from 1999 to 2011 Blog 02/05/12

Links to blog comments in Table EUR:

03/04/12 http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening_04.html

02/26/12 http://cmpassocregulationblog.blogspot.com/2012/02/decline-of-united-states-new-house_26.html

02/19/12 http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states_19.html

02/05/12 http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html

Table VD-1 provides the yearly growth rates of the combined GDP of the members of the European Monetary Union (EMU) or euro area since 1996. Growth was very strong at 3.3 percent in 2006 and 3.0 percent in 2007. The global recession had strong impact with growth of only 0.4 percent in 2008 and decline of 4.3 percent in 2009. Recovery was at lower growth rates of 1.9 percent in 2010 and 1.4 percent in 2011. EUROSTAT forecasts growth of GDP of the euro area of minus 0.5 percent in 2012 but growth of 1.3 percent in 2013.

Table VD-1, Euro Area, Real GDP Growth Rate

Year	∆%
2013 EUROSTAT Forecast	1.3
2012 EUROSTAT Forecast	-0.3
2011	1.4
2010	1.9
2009	-4.3
2008	0.4
2007	3.0
2006	3.3
2005	1.7
2004	2.2
2003	0.7
2002	0.9
2001	2.0
2000	3.8
1999	2.9
1998	2.8
1997	2.6
1996	1.5

Source: EUROSTAT

Table VD-2 provides GDP growth in IVQ2011 and relative to the same quarter a year earlier for the euro zone, European Union, Japan and the US. Both the euro zone and the European Union experienced decline of GDP of 0.3 percent in IVQ2011 and meager growth of 0.7 percent and 0.9 percent, respectively, relative to IVQ2010. Growth in IVQ2011 was weak worldwide with somewhat stronger performance by the US but still insufficient to reduce unemployment and underemployment (Section I Thirty Million Unemployed or Underemployed).

Table VD-2, Euro Zone, European Union, Japan and USA, Real GDP Growth

	∆% IVQ2011/ IIIQ2011	∆% IVQ2011/ IVQ2010
Euro Zone	-0.3	0.7
European Union	-0.3	0.9
Germany	-0.2	2.0
France	0.2	1.4
Netherlands	-0.7	-0.7
Finland	0.1	1.4
Belgium	-0.2	0.9
Portugal	-1.3	-2.7
Ireland	NA	NA
Italy	-0.7	-0.5
Greece	NA	-7.0
Spain	-0.3	0.3
United Kingdom	-0.2	0.7
Japan	-0.6	-1.0
USA	0.7	1.6

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-06032012-AP/EN/2-06032012-AP-EN.PDF

Chart VD-3 of EUROSTAT provides growth rates for the euro zone and European Union. There are significant differences in growth experience. Countries in need of fiscal adjustment are growing slowly or contracting.

Chart VD-3, Euro Zone, European Union, Real GDP Growth ∆% on Previous Year

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/tgm/graph.do?tab=graph&plugin=1&pcode=tsieb020&language=en&toolbox=type

Chart VD-3 of EUROSTAT provides growth rates for the euro zone and European Union. There are significant differences in growth experience. Countries in need of fiscal adjustment are growing slowly or contracting.

Table VD-3, Euro Area and European Union, Growth of Real GDP

	IQ2011	IIQ2011	IIIQ2011	IVQ2011
∆% from Prior Quarter
EA 17	0.8	0.1	0.1	-0.3
EU 27	0.7	0.2	0.3	-0.3
∆% from Same Quarter Year Earlier
EA 17	2.4	1.6	1.3	0.7
EA 27	2.4	1.6	1.4	0.9

Notes: EA: Euro Area; EU: European Union

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-06032012-AP/EN/2-06032012-AP-EN.PDF

Advanced economies are experiencing weak demand. Table VD-4 provides the volume of retail sales in the euro zone from Jan 2011 to Jan 2012. Retail sales increased 0.3 percent in Jan 2012 and zero percent in the 12 months ending in Jan 2012. The 12 months rates of growth have become negative since Mar with exception of 1.1 percent in Apr.

Table VD-4, Euro Zone, Volume of Retail Sales, ∆%

	Month ∆%	12-Month ∆%
Jan 2012	0.3	0.0
Dec 2011	-0.5	-1.3
Nov	-0.3	-1.4
Oct	-0.1	-0.7
Sep	-0.6	-1.2
Aug	0.1	-0.1
Jul	0.3	-0.4
Jun	0.9	-0.8
May	-1.4	-1.8
Apr	0.6	1.1
Mar	-0.9	-1.4
Feb	0.3	1.1
Jan	0.2	0.6

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05032012-AP/EN/4-05032012-AP-EN.PDF

Growth rates of retail sales of the euro zone by products are in Table VD-5. There is improvement with growth in sales in Jan 2012 in all products. Total sales are flat in Jan 2012 relative to Jan 2011.

Table VD-5, Euro Zone, Volume of Retail Sales by Products, ∆%

Jan 2012	Month ∆%	12-Month ∆%
Total	0.3	0.0
Food, Drinks, Tobacco	0.6	-0.9
Nonfood Products ex Automotive Fuel	0.5	1.1

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05032012-AP/EN/4-05032012-AP-EN.PDF

Month and 12-month rates of change of retail sales by member countries of the euro zone are shown in Table VD-6 for Jan 2012. 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. Belgium, France, Finland and the UK are economies with positive growth of retail sales in the 12 months ending in Jan 2012.

Table VD-6, Euro Zone, Volume of Retail Sales by Member Countries, ∆%

Jan 2012	Month ∆%	12-Month ∆%
Euro Zone	0.3	0.0
Germany	-1.6	-1.7
France	2.1	6.0
Netherlands	NA	NA
Finland	2.5	1.9
Belgium	-0.2	3.3
Portugal	-2.7	-8.7
Ireland	-1.2	-2.3
Italy	NA	NA
Greece	NA	NA
Spain	NA	NA
UK	1.1	2.9

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05032012-AP/EN/4-05032012-AP-EN.PDF

VE Germany. The Markit Flash Germany Composite Output Index of the Germany PMI^®, which is highly associated with German GDP, fell marginally to 53.2 in Feb from 53.9 in Jan (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9278). The index has remained above 50 during three consecutive months, indicating improving activity in both manufacturing and services. Tim Moore, Senior Economist at Markit, finds that German GDP is not likely to contract again in IQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9278). Table DE provides the country data table for Germany.

Table DE, Germany, Economic Indicators

GDP	IVQ2011 -0.2 ∆%; IV/Q2011/IVQ2010 ∆% 1.5 2011/2010: 3.0% GDP ∆% 1992-2011 Blog 02/26/12
Consumer Price Index	Feb month SA ∆%: +0.7 Feb 12-month ∆%: 2.3 Blog 03/11/12
Producer Price Index	Jan month ∆%: 0.6 12-month NSA ∆%: 3.4 Blog 02/19/12
Industrial Production	Mfg Jan month SA ∆%: 1.5 12 months NSA: 6.5 Blog 03/11/12
Machine Orders	Jan month ∆%: -2.7 Jan 12 months ∆%: -2.1 Blog 03/11/12
Retail Sales	Jan Month ∆% minus 1.6 12-Month ∆% 1.6 Blog 03/04/12
Employment Report	Unemployment Rate Feb 7.4% of Labor Force Blog 03/04/12
Trade Balance	Exports Jan 12 months NSA ∆%: 9.3 Imports Dec 12 months NSA ∆%: 6.3 Exports Jan month SA ∆%: 2.3; Imports Jan month SA 2.4 Blog 03/11/12

Links to blog comments in Table DE:

03/04/12 http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening_04.html

02/26/12 http://cmpassocregulationblog.blogspot.com/2012/02/decline-of-united-states-new-house_26.html

02/19/12 http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states_19.html

The production industries index of Germany in Table VE-1 shows increase of 1.6 percent in Jan and increase of 5.1 percent in the 12 months ending in Jan, recovering from decline of 2.6 percent in Dec and increase of 1.3 percent in 12 months. Germany’s industry suffered decline of 7.3 percent in Dec 2008 relative to Dec 2007 and decline of 2.3 percent in 2009. Recovery was vigorous with 14.2 percent in the 12 months ending in Dec 2010. The first quarter of 2011 was quite strong when the German economy outperformed the other advanced economies. The performance of Germany’s industry from 2003 to 2006 was vigorous with average rate of 5.1 percent. Data for the production industries index of Germany fluctuate sharply from month to month and also in 12-month rates.

Table VE-1, Germany, Production Industries, Month and 12-Months ∆%

	12-Month ∆% NSA	Month ∆% Calendar SA
Jan 2012	5.1	1.6
Dec 2011	1.3	-2.6
Nov	4.4	0.0
Oct	0.4	0.9
Sep	5.4	-2.5
Aug	11.3	-0.3
Jul	6.5	3.0
Jun	0.2	-0.9
May	19.0	0.7
Apr	6.0	-0.2
Mar	10.2	1.3
Feb	16.4	1.3
Jan	16.0	1.2
Dec 2010	14.2	0.2
Dec 2009	-2.3	-0.1
Dec 2008	-7.3	-3.5
Dec 2007	-0.1	0.9
Dec 2006	2.5	0.6
Dec 2005	4.9	0.3
Dec 2004	5.3	0.0
Dec 2003	5.1	0.1
Dec 2002	2.0	-2.2

Source: Statistiche Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/TimeSeries/Indicators/ShortTermIndicators__nk.psml;jsessionid=78491A81748BD667A718DC10D58E0624.internet

Table VE-2 provides monthly percentage changes of the German production industries index by components from Jun 2011 to Jan 2012. The production industries index fell 2.6 percent in Dec with negative changes in all components. All components rebounded in Jan, with the exception of intermediate goods and nondurable goods. Manufacturing fell 1.9 percent in Dec, declining in five of the seven months from Jun to Jan but grew 1.4 percent in Jan. The investment goods segment also fell 2.7 percent in Dec but grew 3.5 percent in Jan. Jul was quite strong with monthly growth of 3.0 percent for the index, 3.2 percent for manufacturing, 5.0 percent for investment goods and 14.4 percent for durable goods. It is quite difficult to analyze trends in these data. There is generalized perception that growth in the euro area slowed after the European summer.

Table VE-2, Germany, Production Industries, Industry and Components, Month ∆%

	Jan	Dec	Nov	Oct	Sep	Aug	Jul	Jun
Production Industries	1.6	-2.6	0.0	0.9	-2.5	-0.3	3.0	-0.9
Industry	1.4	-2.0	-0.3	0.7	-2.6	-0.3	3.2	-1.0
Mfg	1.5	-1.9	-0.3	0.7	-2.6	-0.3	3.3	-1.0
Intermediate Goods	-0.2	-1.7	-0.2	-0.2	-1.9	-0.3	1.7	0.4
Investment Goods	3.5	-2.7	-0.4	1.7	-4.6	1.1	5.0	-2.1
Durable Goods	2.3	-2.3	-2.4	1.6	0.0	-9.7	14.4	-6.3
Nondurable Goods	-0.4	-0.6	-0.2	-0.4	1.7	-3.1	-0.3	-0.3
Energy	1.7	-5.0	0.2	3.8	-4.2	1.2	-0.8	3.2

Seasonally Calendar Adjusted

Source: Statistiche Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/TimeSeries/Indicators/ShortTermIndicators__nk.psml;jsessionid=78491A81748BD667A718DC10D58E0624.internet

Table VE-3 provides 12-month unadjusted percentage changes of industry and components in Germany. Although there are sharp fluctuations in the data there is suggestion of deceleration that would be expected from much higher earlier rates. The deceleration is quite evident in single-digit percentage changes in the quarter Sep to Jan relative to high double-digit percentage changes in Jan-Mar. Growth rates in the recovery from the global recession from IVQ2007 to IIQ2009 were initially very vigorous in comparison with the growth rates before the contraction that are shown in the bottom part of Table VE-3.

Table VE-3, Germany, Industry and Components, 12 Months ∆% Unadjusted

	IND	MFG	INTG	INVG	DG	NDG	EN
2012
Jan	6.5	6.5	3.8	11.4	3.9	1.5	-9.7
2011
Dec	1.4	1.5	2.8	1.0	-1.1	-0.2	-16.6
Nov	5.0	5.2	4.3	7.9	1.3	-0.4	-7.6
Oct	1.2	1.3	0.8	3.5	-3.3	-3.2	-8.5
Sep	6.6	6.6	6.8	8.9	3.3	0.3	-9.3
Aug	12.9	12.7	11.2	20.2	4.0	1.4	-5.1
Jul	8.1	8.3	6.8	13.0	7.3	-0.3	-9.4
Jun	1.0	1.0	1.8	2.0	-10.5	-2.1	-6.3
May	21.4	21.5	18.0	28.2	21.6	13.2	-11.7
Apr	7.5	7.6	6.2	11.0	4.8	2.3	-7.5
Mar	10.7	10.9	10.2	14.8	8.5	1.9	-0.3
Feb	17.0	17.2	16.3	22.4	11.0	6.1	-2.9
Jan	17.1	17.2	17.0	23.2	11.2	4.4	-3.0
2010
Dec	17.5	17.6	14.5	26.3	9.1	2.9	4.8
Nov	13.8	13.8	13.1	19.0	7.9	3.6	2.9
Oct	9.9	10.1	10.1	13.9	6.5	0.9	0.2
Sep	9.5	9.3	12.1	10.0	7.9	1.7	-2.4
Aug	17.2	17.2	19.0	20.3	19.5	6.9	-2.1
Jul	9.1	8.8	12.7	8.7	7.2	0.9	-0.2
Jun	16.2	16.1	20.5	16.0	20.5	5.3	-2.5
May	13.3	13.3	20.2	11.6	10.7	1.7	12.8
Apr	14.9	14.8	21.8	15.3	8.5	0.0	9.9
Mar	14.2	14.5	20.4	11.7	11.8	6.4	7.2
Feb	7.1	7.5	10.8	7.0	7.4	-1.2	5.4
Jan	0.6	0.9	6.7	-3.4	-0.4	-3.9	3.3
Dec 2010	17.5	17.6	14.5	26.3	9.1	2.9	4.8
Dec 2009	-3.3	-3.2	3.3	-9.9	-0.1	1.1	3.8
Dec 2008	-7.6	-7.4	-14.4	-5.5	-11.2	3.7	-9.0
Dec 2007	0.1	-0.3	-0.6	2.5	-10.0	-2.6	1.7
Dec 2006	3.1	3.1	5.2	2.3	8.7	-1.0	-5.4
Dec 2005	5.8	5.8	3.5	8.9	3.2	2.2	0.6
Dec 2004	5.2	5.6	7.6	3.4	0.9	5.7	9.6
Dec 2003	5.5	5.3	5.6	6.3	1.6	4.6	0.3
Dec 2002	3.7	3.4	5.3	3.4	-5.9	2.2	-2.6

Note: IND: Industry; MFG: Manufacturing; INTG: Intermediate Goods; INVG: Investment Goods; DG: Durable Goods; NDG: Nondurable Goods; EN: Energy

Source:  Statistiche Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/TimeSeries/Indicators/ShortTermIndicators__nk.psml;jsessionid=78491A81748BD667A718DC10D58E0624.internet

Broader perspective since 2002 is provided by Chart VE-1 of the Statistiche Bundesamt Deutschland, Federal Statistical Agency of Germany. The index rises by more than one third between 2003 and 2008 with sharp fluctuations and then collapses during the global recession during 2008. Recovery has been in a steep upward trajectory that has recovered at the more recent peaks the losses during the contraction. Recovery was reversed by the drop in Dec.

Chart VE-1, Germany, Production Industries, Not Adjusted, 2005=100

Source: Statistiche Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/TimeSeries/Indicators/ShortTermIndicators__nk.psml;jsessionid=78491A81748BD667A718DC10D58E0624.internet

More detail is provided by Chart VE-2 of the Statistiche Bundesamt Deutschland, or Federal Statistical Agency of Germany, with the unadjusted production industries index and trend from 2007 to 2011. There could be some flattening in recent months as depicted by trend.

Chart VE-2, Germany, Production Index, Production Industries, Not Adjusted Index and Trend, 2005=100

Source: Statistiche Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/TimeSeries/Indicators/ShortTermIndicators__nk.psml;jsessionid=78491A81748BD667A718DC10D58E0624.internet

Table VE-4 provides month and 12-month rates of growth of manufacturing in Germany in 2011 and Jan 2012. There are fluctuations in both the rates for a month and in the past 12 months. Deceleration appears in the annual equivalent rate of 10.3 percent for Jan-May but minus 5.1 percent in the annual equivalent Jun-Dec. Recovery is strong in Jan 2012.

Table VE-4, Germany, Manufacturing Month and 12- Month ∆%

	12 Months ∆% NSA	Month ∆% SA and Calendar Adjusted
Jan 2012	6.5	1.5
Dec 2011	0.7	-1.9
Nov	5.2	-0.3
Oct	1.3	0.7
Sep	6.6	-2.6
Aug	12.7	-0.3
Jul	8.3	3.3
Jun	1.0	-1.0
May	21.5	1.3
Apr	7.6	0.2
Mar	10.9	1.1
Feb	17.2	1.5
Jan	17.2	0.0
Dec	17.6	1.4

AE: Annual Equivalent

Source:

Statistiche Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/TimeSeries/Indicators/ShortTermIndicators__nk.psml;jsessionid=78491A81748BD667A718DC10D58E0624.internet

Chart VE-3 of the Statistiche Bundesamt Deutschland, or Federal Statistical Office of Germany, provides the manufacturing index of Germany from 2007 to 2011. Manufacturing was already flattening in 2007 and fell sharply in 2008 to the beginning of 2010. Manufacturing grew sharply in the initial phase of recovery but has flattened in recent months as revealed by the trend.

Chart VE-3, Germany, Manufacturing Index, Not Adjusted Index and Trend, 2005=100

Source: Statistiche Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/Production/Content100/kpi112graf0.psml

Several tables and charts facilitate analysis of machinery orders in Germany. Table VE-5 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 decreased 2.7 percent in Jan 2012 with growth of 0.8 percent in domestic orders partially compensating sharp decline of 5.5 percent in foreign orders. As in other countries, data on orders for manufacturing are highly volatile. In Dec, growth of foreign orders of 4.3 percent compensated decline of domestic orders of 1.8 percent for growth of total orders of 1.6 percent.

Table VE-5, 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
2012
Jan	-2.1	-2.7	-4.4	-5.5	0.8	0.9
2011
Dec	-0.1	1.6	-0.8	4.3	1.0	-1.8
Nov	-4.3	-4.9	-7.6	-7.8	-0.2	-1.1
Oct	1.9	5.0	4.3	8.1	-1.0	1.2
Sep	2.2	-4.6	1.1	-5.8	3.5	-3.0
Aug	6.5	-1.3	4.3	0.3	9.3	-3.2
Jul	5.7	-2.4	5.3	-7.0	6.1	3.6
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	-2.8	11.6	-2.8	5.5	-2.7
Feb	21.1	1.9	24.8	1.6	16.9	2.1
Jan	20.1	2.3	23.6	0.9	16.0	4.2
2010
Dec	22.2	-2.9	27.3	-3.0	15.8	-2.8
Nov	21.5	5.0	26.8	7.6	15.6	1.8
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	-0.4
Jul	14.2	-1.9	21.7	-3.4	6.3	-0.3
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	2.6	33.0	2.7	25.2	2.4
Mar	29.4	5.7	32.3	6.2	26.4	5.1
Feb	23.4	-0.7	27.6	-0.7	18.6	-0.8
Jan	16.7	4.7	23.6	4.4	9.7	5.1
Dec 2009	9.2	-2.1	10.6	-2.4	7.4	-1.7
Dec 2008	-28.2	-7.1	-31.5	-9.8	-23.7	-3.9
Dec 2007	7.1	-1.5	9.1	-2.4	4.5	-0.4
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: 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

Orders for investment goods of Germany are shown in Table VE-6. Total investment goods orders fell 4.3 percent in Jan 2012 with foreign orders decreasing 6.5 percent and domestic orders decreasing 4.3 percent. 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-5 and VE-6 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-6, 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
2012
Jan	-2.6	-5.5	-4.3	-6.5	0.0	-4.2
2011
Dec	1.5	2.8	0.1	3.8	3.7	1.6
Nov	-5.8	-6.5	-9.2	-10.5	-0.1	0.2
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: 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-4 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 late in 2011.

Chart VE-4, 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-5 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-5, 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/KeyIndicators/OrdersRecieved/liste__aeverg,templateId=renderPrint.psml

Twelve-month rates of growth Germany’s exports and imports are shown in Table VE-7. There was sharp decline in the rates in Jun and Jul to single-digit levels especially for exports. In the 12 months ending in Aug, exports rose 14.4 percent and imports 13.2 percent. In Sep, exports grew 10.5 percent relative to a year earlier and imports grew 12.0 percent. Growth rates in 12 months ending in Oct fell significantly to 3.7 percent for exports and 8.9 percent for imports. Lower prices may explain part of the decline in nominal values. Exports grew 9.3 percent in Jan 2012 and imports 6.3 percent. Growth had been much stronger in the recovery during 2010 and 2011 from the fall from 2007 to 2009. Germany’s trade grew at high rates in 2006 and 2005.

Table VE-7, Germany, Exports and Imports NSA Euro Billions and 12-Month ∆%

	Exports EURO Billions	12- Month ∆%	Imports EURO Billions	12-Month ∆%
Jan 2012	85.9	9.3	72.8	6.3
Dec 2011	85.0	4.9	72.1	5.4
Nov	94.8	8.2	78.9	7.0
Oct	89.2	3.7	77.9	8.9
Sep	95.0	10.5	77.8	12.0
Aug	85.1	14.4	73.5	13.2
Jul	85.7	5.3	75.3	10.0
Jun	88.1	3.3	75.6	6.2
May	92.0	20.8	77.4	17.2
Apr	84.3	12.1	73.4	18.1
Mar	98.2	14.7	79.4	14.5
Feb	84.1	20.1	72.1	27.1
Jan	78.6	24.1	68.5	24.4
Dec 2010	81.0	20.0	68.4	24.3
Nov	87.6	21.2	73.7	30.9
Oct	86.0	18.7	71.5	19.1
Sep	86.0	21.2	69.5	17.0
Aug	74.4	23.8	64.9	27.1
Jul	81.4	15.3	68.4	24.4
Jun	85.3	27.5	71.2	33.9
May	76.2	25.6	66.0	31.2
Apr	75.2	16.7	62.2	14.5
Mar	85.6	22.0	69.3	18.0
Feb	70.0	9.7	56.8	3.2
Jan	63.4	-0.3	55.1	-1.9
Dec 2009	67.5	1.2	55.0	-7.3
Dec 2008	66.7	-8.6	59.4	-5.0
Dec 2007	73.0	-0.6	62.5	-0.1
Dec 2006	73.4	10.2	62.6	8.5
Dec 2005	66.6	11.5	57.7	18.1
Dec 2004	59.7	9.2	48.9	10.8
Dec 2003	54.7	7.6	44.1	3.9
Dec 2002	50.8	5.5
Dec 2001	48.2	-3.7
Dec 2000	50.0

Source: Statistiche Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2012/03/PE12__084__51,templateId=renderPrint.psml

Table VE-8 provides monthly rates of growth of exports and imports of Germany. Exports surged in Jan after sharp negative growth in Dec. Export growth and import growth were vigorous in Jan-Mar but less dynamic and consistent in following months.

Table VE-8, Germany, Exports and Imports Month ∆% Calendar and Seasonally Adjusted 

	Exports	Imports
Jan 2012	2.3	2.4
Dec 2011	-4.4	-3.9
Nov	2.6	-0.2
Oct	-2.9	0.1
Sep	0.8	-0.9
Aug	3.2	0.0
Jul	-1.0	0.5
Jun	-0.5	-0.3
May	2.9	3.0
Apr	-4.0	-1.9
Mar	5.5	2.6
Feb	2.5	3.2
Jan	0.3	3.6
Dec 2010	-1.1	-2.6

Source: Statistiche Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2012/03/PE12__084__51,templateId=renderPrint.psml

Chart VE-6 of the Statistisches Bundesamt Deutschland shows exports and trend of German exports. Growth has been with fluctuations around a strong upward trend.

Chart VE-6, Germany, Exports Original Value and Trend 2007-2011

Source: Statistisches Bundesamt Deutschland

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

Chart VE-7 of the Statistisches Bundesamt Deutschland provides German imports and trend. Imports also fell sharply and have been recovering with fluctuations around a strong upward trend that could be flattening.

Chart VE-7, Germany, Imports Original Value and Trend 2007-2011

Source: Statistisches Bundesamt Deutschland

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

Chart VE-8 of the Statistisches Bundesamt Deutschland shows the trade balance of Germany since 2007. There was sharp decline during the global recession and fluctuations around a mild upward trend during the recovery with stabilization followed by stronger trend in recent months.

Chart VE-8, Germany, Trade Balance Original and Trend 2007-2011

Source: Statistisches Bundesamt Deutschland

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

There is extremely important information in Table VE-9 for the current sovereign risk crisis in the euro zone. Table VE-9 provides the structure of regional and country relations of Germany’s exports and imports with newly available data for Jan. German exports to other European Union members are 59.3 percent of total exports in Jan 2012 and 59.2 percent in Jan-Dec 2011. Exports to the euro area are 39.8 percent in Jan and 39.7 percent in Jan-Dec. Exports to third countries are 40.7 percent of the total in Jan and 40.8 percent in Jan-Dec. There is similar distribution for imports. Economic performance in Germany is closely related to its high competitiveness in world markets. Weakness in the euro zone and the European Union in general could affect the German economy. This may be the major reason for choosing the “fiscal abuse” of the European Central Bank considered by Buiter (2011Oct31) over the breakdown of the euro zone. There is a tough analytical, empirical and forecasting doubt of growth and trade in the euro zone and the world with or without maintenance of the European Monetary Union (EMU) or euro zone. Germany could benefit from depreciation of the euro because of its high share in exports to countries not in the euro zone but breakdown of the euro zone raises doubts on the region’s economic growth that could affect German exports to other member states.

Table VE-9, Germany, Structure of Exports and Imports by Region, € Billions and ∆%

	Jan 2012  € Billions	12-Month ∆%	Jan–Dec 2011 € Billions	Jan-Dec 2011/ Jan-Dec 2010 ∆%
Total Exports	85.9	9.3	1,060.1	11.4
A. EU Members	50.9 % 59.3	5.4	627.3 % 59.2	9.9
Euro Area	34.2 % 39.8	4.6	420.9 % 39.7	8.6
Non-euro Area	16.7 % 19.4	7.1	206.4 % 19.5	12.6
B. Third Countries	35.0 % 40.7	15.4	432.8 % 40.8	13.6
Total Imports	72.8	6.3	902.0	13.2
C. EU Members	44.9 % 61.7	7.4	572.6 % 63.5	13.8
Euro Area	31.4 % 43.1	7.1	401.5 % 44.5	12.9
Non-euro Area	13.5 % 18.5	8.2	171.1 % 18.9	16.1
D. Third Countries	28.0 % 38.5	4.5	329.4 % 36.5	12.0

Notes: Total Exports = A+B; Total Imports = C+D

Source:

Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2012/03/PE12__084__51,templateId=renderPrint.psml

VF France. The Markit France Services Activity Index of the Markit France Services PMI^® fell from 52.3 in Jan to 50.0 in Feb such that the Markit France Composite Output Index fell from 51.2 in Jan to 50.2 in Feb (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9277). Higher activity in manufacturing was mostly compensated by flat activity in services. Jack Kennedy, Senior Economist at Markit and author of the Flash France PMI^®, finds encouragement in increasing orders for services even with stagnating output (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9277). Table FR provides the country data table for France. Table FR provides the country data table for France.

Table FR, France, Economic Indicators

CPI	Jan month ∆% minus 0.4 12 months ∆%: 2.4 02/26/12
PPI	Jan month ∆%: 0.6 Jan 12 months ∆%: 4.2 Blog 03/04/12
GDP Growth	IVQ2011/IIIQ2011 ∆%: 0.2 IVQ2011/IVQ2010 ∆%: 1.4 Blog 02/19/12
Industrial Production	Jan/Dec SA ∆%: Industrial Production 0.3; Manufacturing 0.2 Dec YOY NSA ∆%: Industrial Production -0.6; Manufacturing 0.6 Blog 03/11/12
Industrial New Orders	Mfg Dec ∆% minus 0.1 YOY ∆% 0.8 Blog 02/26/12
Consumer Spending	Jan Manufactured Goods ∆%: minus 0.8 Jan 12-Month Manufactured Goods ∆%: minus 2.4 Blog 03/04/12
Employment	IVQ2011 Unemployed 2.678 million Unemployment Rate: 9.4% Employment Rate: 63.8% Blog 03/04/12
Trade Balance	Jan Exports ∆%: month 1.5, 12 months 7.3 Jan Imports ∆%: month 1.9, 12 months 3.4 Blog 03/11/12
Confidence Indicators	Historical averages 100 Feb: France 91 Mfg Business Climate 92 Retail Trade 89 Services 95 Building 99 Household 82 Blog 02/26/12

Links to blog comments in Table FR:

03/04/12 http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening_04.html

02/26/12 http://cmpassocregulationblog.blogspot.com/2012/02/decline-of-united-states-new-house_26.html

02/19/12 http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states_19.html

France’s industrial production by segments is provided in Table VF-1. Total industry increased 0.3 percent in Jan after falling 1.3 percent in Dec. Construction increased 0.6 percent in Jan after falling 0.4 percent in Dec. Mining grew 2.4 percent in Jan after falling 1.3 percent in Dec. There were declines for all categories in the quarter with exception of growth of 0.8 percent in construction. Industry fell 0.6 percent relative to the same quarter a year earlier and manufacturing grew 0.6 percent while mining fell 8.2 percent.

Table VF-1, France, Industrial Production ∆%

2011-2012	Jan/Dec	Dec/Nov	QOQ	YOY
Industry	0.3	-1.3	-0.3	-0.6
Manufacturing	0.2	-1.3	-0.1	0.6
Mining, Mining, Energy, Water, Waste Mgt	2.4	-1.3	-1.8	-8.2
Construction	0.6	-0.4	0.8	4.1

Note: QOQ: quarter on quarter; YOY:most recent quarter on the same quarter a year earlier

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20120309

Table VF-2 provides longer historical perspective of manufacturing in France. Growth of 0.2 percent in Jan was insufficient to pull the 12-month rate from declining 1.2 percent. The decline of 1.3 percent in Dec corresponded to increase of 0.8 percent in 12 months. There is similar strength earlier in the recovery in 2010 and early 2011 with less strong performance in the latter part of 2011. Manufacturing fell 12.8 percent in 2008 during the global contraction and an additional 2.8 percent in 2009.

Table VF-2, France, Manufacturing, Month and 12-Month ∆%

	Month ∆%	12-Month ∆%
Jan 2012	0.2	-1.2
Dec 2011	-1.3	0.8
Nov	1.2	2.3
Oct	0.3	2.9
Sep	-2.0	1.8
Aug	0.3	4.7
Jul	1.6	3.9
Jun	-2.0	3.3
May	1.3	4.2
Apr	-0.3	3.4
Mar	-1.0	4.5
Feb	0.5	7.2
Jan	2.2	6.7
Dec 2010	0.2	5.0
Dec 2009		-2.8
Dec 2008		-12.8
Dec 2007		-0.2
Dec 2006		2.4
Dec 2005		-0.1
Dec 2004		1.5
Dec 2003		0.3
Dec 2002		-0.5
Dec 2001		-4.8
Dec 2000		5.1
Average ∆% 1990-2000		1.5

Source:

Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20120309

Chart VF-1 of France’s Institut National de la Statistique et des Études Économiques shows indices of manufacturing in France from 2008 to 2012. Manufacturing, which is CZ in Chart VF-1, fell deeply in 2008 and part of 2009. All curves of industrial indices tend to flatten recently with oscillations.

Chart VF-1, France, Industrial Production Indices 2007-2011

Legend : CZ : Manufacturing - (C1) : Manufacture of food products and beverages - (C3) : Electrical and electronic equipment; machine equipment - (C4) : Manufacture of transport equipment - (C5) : Other manufacturing

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20120309

France has been running a trade deficit fluctuating around €6,000 million, as shown in Table VF-3. Exports increased 1.9 percent in Jan while imports increased 1.9 percent, resulting in increase of the trade deficit from €5052 million in Dec to €5234 million in Jan.

Table VF-3, France, Exports, Imports and Trade Balance, € Millions 

	Exports	Imports	Trade Balance
Jan 2012	36,833	42,157	-5,234
Dec 2011	36,296	41,348	-5,052
Nov	37,308	41,548	-4,240
Oct	35,941	41,759	-5,818
Sep	35,761	42,083	-6,322
Aug	37,656	42,342	-4,686
Jul	35,086	41,538	-6,452
Jun	34,825	40,096	-5,271
May	34,799	41,413	-6,614
Apr	34,508	41,480	-6,972
Mar	35,033	41,192	-6,159
Feb	34,723	41,118	-6,395
Jan	34,339	40,781	-6,442
Dec 2010	34,023	39,474	-5,451

Source: http://lekiosque.finances.gouv.fr/AppChiffre/nationales/surcadre_nationales.asp?TF=revue

Month and 12-month rates of growth of exports and imports of France are provided in Table VF-4. Exports fell 2.7 percent in Dec and grew 6.7 percent in 12 months but recovered with monthly growth of 1.5 percent in Jan and 7.3 percent in 12 months. Imports fell 0.5 percent in Dec and grew 4.7 percent in 12 months but rebounded with growth of 1.9 percent in Jan and 3.4 percent in 12 months. Growth of exports and imports has fluctuated in 2011 as a result of price surges of commodities and raw materials.

Table VF-4, France, Exports and Imports, Month and 12-Month ∆%

	Exports Month ∆%	Exports 12-Month ∆%	Imports Month ∆%	Imports 12-Month ∆%
Jan 2012	1.5	7.3	1.9	3.4
Dec 2011	-2.7	6.7	-0.5	4.7
Nov	3.8	7.8	-0.5	4.9
Oct	0.5	8.8	-0.8	14.5
Sep	-5.0	7.6	-0.6	10.9
Aug	7.3	11.1	1.9	8.8
Jul	0.7	2.2	3.6	9.4
Jun	0.1	3.5	-3.2	8.3
May	0.8	15.3	-0.2	16.1
Apr	-1.5	7.6	0.7	14.3
Mar	0.9	11.2	0.2	14.6
Feb	1.1	13.9	0.8	21.5
Jan	0.9	13.9	3.3	20.2
Dec 2011		6.7		4.7
Dec 2010		14.5		15.2
Dec 2009		-9.9		-2.1
Dec 2008		-7.3		-11.2
Dec 2007		6.1		8.4
Dec 2006		7.4		6.9
Dec 2005		11.1		14.9
Dec 2004		-3.5		5.9
Dec 2003		7.1		1.6

Source: http://lekiosque.finances.gouv.fr/AppChiffre/nationales/surcadre_nationales.asp?TF=revue

VG Italy. The Markit/ADACI Purchasing Managers’ Index^® (PMI^®) rose from 46.8 in Jan to 47.8 in Feb, which is the highest level in five months for the seventh consecutive month of deterioration in manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9224). Phil Smith, economist at Markit and author of the Italian Manufacturing PMI^® find slower rates of decline of new export orders and employment (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9224). The Markit/ADACI Business Activity Index experienced the fastest contraction since Oct, declining to 44.1 in Feb from 44.8 in Jan for the ninth consecutive monthly decline (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9266). Phil Smith, economist at Markit and author of the Italy Services PMI^®, finds that low expectations on the future reflect impediments to growth such as cost pressures and unavailability of credit. Table IT provides the country data table for Italy.

Table IT, Italy, Economic Indicators

Consumer Price Index	Feb month ∆%: 0.4 Feb 12 months ∆%: 3.3 Blog 03/04/12
Producer Price Index	Jan month ∆%: 0.7 Jan 12-month ∆%: 3.4 Blog 03/11/12
GDP Growth	IVQ2011/IVQ2010 SA ∆%: minus 0.5 IVQ2011/IIIQ2011 NSA ∆%: minus 0.7 Blog 02/19/12
Labor Report	Jan 2012 Participation rate 62.7% Employment ratio 57.0% Unemployment rate 9.2% Blog 03/04/12
Industrial Production	Jan month ∆%: -2.5 12 months ∆%: minus 5.0 Blog 03/11/12
Retail Sales	Dec month ∆%: minus 1.1 Dec 12 months ∆%: minus 3.7 Blog 02/26/12
Business Confidence	Mfg Feb 91.5, Oct 93.8 Construction Feb 82.5, Oct 80.7 Blog 03/04/12
Consumer Confidence	Consumer Confidence Jan 91.6, Dec 96.1 Economy Jan 75.3, Dec 77.1 Blog 01/29/12
Trade Balance	Balance Dec SA €613 million versus Nov -€948 Exports Dec month SA ∆%: +4.2; Imports Dec month SA ∆%: -0.8 Exports 12 months NSA ∆%: +5.7 Imports 12 months NSA ∆%: -8.4 Blog 02/12/12

Links to blog comments in Table IT:

03/04/12 http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening_04.html

02/26/12 http://cmpassocregulationblog.blogspot.com/2012/02/decline-of-united-states-new-house_26.html

02/19/12 http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states_19.html

02/12/12 http://cmpassocregulationblog.blogspot.com/2012/02/hiring-collapse-ten-million-fewer-full_12.html

01/29/12 http://cmpassocregulationblog.blogspot.com/2012/01/mediocre-economic-growth-financial.html

Italy’s industrial production fell 2.5 percent in Jan and 5.0 percent in 12 months, as shown in Table VG-1. There have been negative changes with oscillations in monthly industrial production. Industrial production fell 18.8 percent in 2009 after falling 3.2 percent in 2008.

Table VG-1, Italy, Industrial Production ∆% 

	Month ∆% SA	12-Month ∆% Calendar Adjusted
Jan 2012	-2.5	-5.0
Dec 2011	1.2	-1.8
Nov	0.2	-4.1
Oct	-0.8	-4.0
Sep	-4.5	-2.6
Aug	3.4	4.7
Jul	-0.7	-1.2
Jun	-0.8	0.1
May	-0.8	1.9
Apr	0.6	3.8
Mar	0.4	3.4
Feb	0.3	2.4
Jan	-0.6	0.4
Dec 2010	-0.4	6.3
Nov	0.8	5.2
Oct	0.0	3.8
Sep	0.5	5.5
Aug	-0.6	11.0
Jul	0.3	7.0
Jun	0.9	9.6
May	1.0	8.6
Apr	0.6	9.2
Mar	-0.2	7.9
Feb	-0.7	4.2
Jan	4.0	0.6
Dec 2009	-1.3	-6.6
Year
2011		0.0
2010		6.4
2009		-18.8
2008		-3.2

Source: Istituto Nazionale di Statistica

http://www.istat.it/it/archivio/56158

Chart VG-1 of Italy’s 12-month percentage changes of Italy’s industrial production are provided in Chart VG-1 of Istituto Nazionale di Statistica. There is trend of deterioration after Aug 2011.

Chart VG-1, Italy, Industrial Production, 12-Month Percentage Changes

Source: Istituto Nazionale di Statistica

http://www.istat.it/en

Month and 12-month rates of growth of Italy’s industrial production and major categories are provided in Table VG-2 for Dec 2011. Monthly and 12-month rates of change are all negative and relatively high.

Table VG-2, Italy, Industrial Production Rate of Change ∆%

Jan 2012	Month ∆%	12-Month ∆%
Total	-2.5	-5.0
Consumer Goods	-3.2	-5.8
Durable	-3.1	-12.9
Nondurable	-3.2	-4.3
Capital Goods	-4.3	-4.2
Intermediate Goods	-0.6	-5.4
Energy	-0.1	-5.9

Source:

Istituto Nazionale di Statistica

http://www.istat.it/it/archivio/56158

The Markit/CIPS UK Services PMI^® from from 56.0 in Dec to 53.8 in Feb because of inability to drive sales by discounting (http://www.supplymanagement.com/resources/pmi-reports/uk-services-activity-grows-but-rate-slows/). Chris Williamson, Chief Economist at Markit, finds that IQ2012 activity is the best since the spring of 2010, indicating that the UK economy will avoid another recession (http://www.supplymanagement.com/resources/pmi-reports/uk-services-activity-grows-but-rate-slows/). Table UK provides the country data table for the UK.

Table UK, UK Economic Indicators

CPI	Jan month ∆%: -0.5 Dec 12-month ∆%: 3.6 Blog 02/19/12
Output/Input Prices	Output Prices: Feb 12 months NSA ∆%: 4.1; excluding food, petroleum ∆%: 3.0 Input Prices: Jan 12 months NSA ∆%: 7.3 Excluding ∆%: 5.4 Blog 03/11/12
GDP Growth	IVQ2011 prior quarter ∆% minus 0.2; year earlier same quarter ∆%: 0.7 Blog 02/26/12
Industrial Production	Jan 2011/Dec 2010 NSA ∆%: Production Industries minus 3.8; Manufacturing 0.3 Blog 03/11/12
Retail Sales	Jan month SA ∆%: +0.9 Dec 12 months ∆%: +2.0 Blog 02/19/12
Labor Market	Oct-Dec Unemployment Rate: 8.4%; Claimant Count 5%; Earnings Growth 2.0% Blog 02/12/19
Trade Balance	Balance Dec minus ₤1109 million Exports Dec ∆%: 0.5 Oct/Dec ∆%: 7.8 Imports Dec ∆%: 0.9 Oct/Dec ∆%: 4.1 Blog 02/12/12

Links to blog comments in Table UK:

02/26/12 http://cmpassocregulationblog.blogspot.com/2012/02/decline-of-united-states-new-house_26.html

02/19/12 http://cmpassocregulationblog.blogspot.com/2012/02/world-inflation-waves-united-states_19.html

02/12/12 http://cmpassocregulationblog.blogspot.com/2012/02/hiring-collapse-ten-million-fewer-full_12.html

The UK Office for National Statistics provides the output of production industries with revisions. Table VH-1 incorporates the revisions released on Oct 11, 2011(http://www.ons.gov.uk/ons/rel/iop/index-of-production/august-2011/index.html) and the latest available data for Jan. Manufacturing accounts for 66.6 percent of the production industries of the UK and increased 0.3 percent in the 12 months ending Jan. Capital goods industries grew at 4.2 percent in the 12 months ending in Jan 2012 and have been growing at very high rates during the current cyclical recovery but falling from the unsustainable high of 10.0 percent in the 12 months ending in Jan 2011. Mining and quarrying fell 21.3 percent in the 12 months ending in Jan 2012. The 12-month rates of growth of the entire index of production industries registered declines for all 12 months from Mar 2011 to Jan 2012. Energy and mining have been the drivers of decline. The lower part of Table VH-1 provides rates of change of yearly values. Manufacturing output fell 9.6 percent in 2009 after falling 2.6 percent in 2008 but grew at 3.7 percent in the initial phase of the recovery in 2010.

Table VH-1, UK, Output of the Production Industries, Chain Volume Indices of Gross Value Added, 12-Month ∆%

	PROD IND	MNG	MFG	ENGY	CON DUR	CON NDUR	CAP
2012
Jan	-3.8	-21.3	0.3	-16.1	-3.1	0.9	4.2
2011
Dec	-3.1	-15.4	0.9	-15.9	-3.7	0.1	5.7
Nov	-3.3	-15.0	-1.0	-12.7	0.6	-0.9	4.2
Oct	-2.5	-14.0	-0.4	-11.4	-1.3	-1.4	4.6
Sep	-1.9	-18.0	0.9	-11.9	-1.2	-0.1	6.1
Aug	-1.5	-15.7	0.9	-9.6	-1.5	1.7	3.7
Jul	-1.4	-16.8	1.9	-11.0	1.5	3.2	4.1
Jun	-0.7	-16.5	2.8	-10.1	6.5	2.3	7.1
May	-1.6	-22.3	3.3	-14.2	1.7	3.6	5.9
Apr	-2.0	-16.3	1.9	-12.4	1.1	3.8	4.1
Mar	-0.8	-16.7	2.8	-11.4	1.3	0.3	8.2
Feb	1.3	-12.3	4.7	-8.4	0.4	0.8	10.2
Jan	3.3	-3.2	5.6	-3.3	3.4	-0.3	10.0
2010
Dec	3.3	-4.8	4.3	0.8	-4.6	3.1	8.0
Nov	2.7	-6.2	5.1	-3.1	-9.4	1.2	9.5
Oct	2.7	-6.2	5.3	-3.1	-9.5	4.2	7.3
Sep	3.7	2.9	5.2	1.2	-9.0	2.1	9.7
Aug	3.8	0.3	6.2	-1.1	0.2	3.5	12.7
Jul	1.6	-8.9	5.0	-7.1	-1.4	-0.9	12.7
Jun	1.2	-9.5	3.9	-6.6	-6.2	0.5	9.6
May	2.5	-1.0	3.5	-1.4	-2.6	-3.3	12.2
Apr	0.9	-5.9	2.1	-3.6	-3.7	-6.3	10.1
Mar	2.2	-1.4	3.2	-0.9	0.2	-1.7	9.2
Feb	-0.6	-8.4	1.0	-5.9	-1.5	-2.7	7.4
Jan	-1.6	-8.7	-0.4	-5.1	-3.5	-1.4	4.9
2011/ 2010	-1.2	-15.2	2.0	-11.0	0.7	1.1	6.1
2010/ 2009	1.9	-4.9	3.7	-3.1	-4.3	-0.2	9.4
2009/ 2008	-9.0	-9.0	-9.6	-6.2	-7.5	-0.8	-10.7
2008/ 2007	-2.8	-6.5	-2.6	-2.9	-5.6	-1.9	-3.0
2007/ 2006	0.5	-2.5	0.8	-1.2	1.0	-1.7	2.5
2006/ 2005	--	-7.6	1.7	-5.4	0.3	0.7	2.9

Notes: PROD IND: Production Industries; MNG: Mining; MFG: Manufacturing; ENGY: Energy; CON DUR: Consumer Durables; CONS NDUR: Consumer Nondurables; CAP: Capital Goods

Source: http://www.ons.gov.uk/ons/rel/iop/index-of-production/january-2012/index.html

Percentage changes in the production industries and major components in the latest month relative to the prior month are shown in Table VH-2. Manufacturing fell in all months from Jun to Nov with the exception of no growth in Sep. In Dec, manufacturing grew 1.1 percent and increased 0.1 percent in Jan 2012. Growth was stronger in the first five months to May with the exception of decline by 1.3 percent in Apr. Output of consumer durables has fallen sharply in Jul-Dec by cumulative 5.9 percent with growth only in Nov by 1.0 percent but jumped 3.1 percent in Jan 2012. Output of capital goods fell 0.8 percent in Jul and then another 0.2 percent in Aug but grew strongly by 2.0 percent in Sep but declined slightly by 1.0 percent in Oct, increasing 1.5 percent in Nov and 0.8 percent in Dec, declining marginally 0.1 percent in Jan 2012.

Table VH-2, UK, Output of the Production Industries, Chained Volume Indices of Gross Value Added, Latest Month on Previous Month ∆%

	PROD IND	MNG	MFG	ENGY	CON DUR	CON NDUR	CAP
2012
Jan	-0.4	-3.0	0.1	-2.0	3.1	-0.3	-0.1
2011
Dec	0.4	-2.9	1.1	-1.7	-0.6	1.3	0.8
Nov	-0.5	-1.9	-0.1	-1.5	1.3	-0.2	1.5
Oct	-1.1	-0.2	-0.9	-1.8	-0.2	-0.7	-1.0
Sep	-0.2	-1.6	0.0	-1.2	-2.6	-2.3	2.0
Aug	0.2	2.5	-0.4	1.8	-1.8	0.3	-0.1
Jul	-0.4	-0.2	-0.2	-1.2	-2.1	-0.2	-0.8
Jun	0.1	0.7	-0.3	1.1	0.6	0.3	-0.2
May	0.9	-5.1	1.7	-1.1	0.5	0.7	2.8
Apr	-1.6	-0.8	-1.3	-2.2	-0.9	0.3	-3.3
Mar	0.1	-1.3	0.3	-0.8	0.6	1.2	0.9
Feb	-1.4	-9.4	0.3	-6.5	-1.0	0.2	1.6
Jan	0.3	4.3	0.7	-1.8	2.4	-1.0	1.4
2010
Dec	0.2	-2.5	-0.7	2.1	3.9	0.2	-0.6

Notes: PROD IND: Production Industries; MNG: Mining; MFG: Manufacturing; ENGY: Electricity, Gas and Water Supply; CON DUR: Consumer Durables; CONS NDUR: Consumer Nondurables; CAP: Capital Goods

Source: http://www.ons.gov.uk/ons/rel/iop/index-of-production/january-2012/index.html

The weights of components of the production index and contributions by components to the monthly and 12-month percentage changes of volume are provided in Table VH-3. The 12-month rate of output of the production industries of minus 3.8 percent was driven by negative contribution of 3.14 percentage points of the general component of mining with the subcomponent of oil and gas contributing negative 2.94 percentage points. Manufacturing contributed 0.19 percentage points to growth of the production industries index. The contribution of manufacturing is anemic because of its share of 66.6 percent in the production index but growth of only 0.3 percent in 12 months. The contributions do not add exactly because of rounding. Manufacturing increased 0.1 percent in Jan contributing 0.06 percentage points. Growth of mining by minus 3.0 percent contributed minus 0.37 percentage points.

Table VH-3, UK, Weights of Components, Volume 12-Month and Month ∆% and Percentage Point Contributions of Production Industries by Components

	Weight %	Volume 12-Month ∆% Ending in Jan 2012	% Point Contrib.	Volume Month ∆% Jan 2012	% Point Contrib.
PROD IND	100.0	-3.8	-3.81	-0.4	-0.40
MNG	16.4	-21.3	-3.14	-3.0	-0.37
MNG 06	14.1	-23.9	-2.94	-3.3	-0.33
MFG	66.6	0.3	0.19	0.1	0.06
ELEC	9.3	-9.3	-0.90	-1.2	-0.11
WATER & SEW	7.7	0.5	0.04	0.2	0.02

Notes: Contrib: Contribution; PROD IND: Index of Production; MNG: Mining and Quarrying (of which 14.4 percent of the total weight in oil and gas extraction); MNG 06: Subdivision of Mining including oil and gas extraction; MFG: Manufacturing; ELEC: Electricity, gas, steam and air conditioning; WATER & SEW: water supply, sewerage and waste management

Source: http://www.ons.gov.uk/ons/rel/iop/index-of-production/january-2012/index.html

Table VH-4 provides the breakdown of manufacturing 12-month and monthly growth and percentage contributions. Food products, beverage and tobacco (CA), chemical and chemical products (CE), textiles, wearing apparel and leather products (CB), electrical equipment (CJ), basic metals and metal products (CH), machinery and equipment (CK) and transport equipment (CL) provided the impulse to the 12-month rates of growth with all other segments subtracting with negative contributions.

Table VH-4, UK, Growth Rates of Manufacturing and Percentage Point Contributions to the Index of Production, Nov 2011

Sub-sector	% of production	Year on year growth (%)	Contribution to production (% points)	Month on month growth (%)	Contribution to production (% points)
CA	11.2	0.7	0.09	-2.5	-0.34
CB	2.1	0.4	0.01	3.1	0.07
CC	5.9	-1.4	-0.08	-0.8	-0.05
CD	0.4	-4.0	-0.02	3.6	0.02
CE	5.5	-2.9	-0.15	2.9	0.15
CF	4.9	-2.9	-0.13	6.0	0.26
CG	5.0	-5.9	-0.27	-1.1	-0.05
CH	9.3	1.0	0.09	2.6	0.23
CI	4.9	-0.2	-0.01	5.1	0.23
CJ	2.2	0.3	0.01	7.7	0.15
CK	4.4	3.8	0.18	-0.6	-0.03
CL	5.8	6.7	0.49	-2.2	-0.18
CM	4.9	0.0	0.00	-1.7	-0.09

Notes:

CA Manufacture of food products, beverages and tobacco; CB Textiles, wearing apparel and leather products; CC Wood and paper products and printing; CD Coke and refined petroleum products; CE Chemicals and chemical products; CF Basic pharmaceutical products and preparations; CG Rubber and plastic products and nonmetallic mineral products; CH Basic metals and metal products; CI Computer, electronic and optical products; CJ Electrical equipment; CK Machinery and equipment not elsewhere classified; CL Transport equipment; CM Other manufacturing and repair.

Source: http://www.ons.gov.uk/ons/rel/iop/index-of-production/january-2012/index.html

VI Valuation of Risk Financial Assets. The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html 

Table VI-1 shows the phenomenal impulse to valuations of risk financial assets originating in the initial shock of near zero interest rates in 2003-2004 with the fed funds rate at 1 percent, in fear of deflation that never materialized, and quantitative easing in the form of suspension of the auction of 30-year Treasury bonds to lower mortgage rates. World financial markets were dominated by monetary and housing policies in the US. Between 2002 and 2008, the DJ UBS Commodity Index rose 165.5 percent largely because of unconventional monetary policy encouraging carry trades from low US interest rates to long leveraged positions in commodities, exchange rates and other risk financial assets. The charts of risk financial assets show sharp increase in valuations leading to the financial crisis and then profound drops that are captured in Table VI-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 10.1 percent by Fri Mar 9, 2012. 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	03/09 /2012
Rate	1.1423	1.5914	1.192	1.3123
CNY/USD	01/03 2000	07/21 2005	7/15 2008	03/09/ 2012
Rate	8.2798	8.2765	6.8211	6.3105
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

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 1.3123/EUR or by 10.1 percent {[(1.3123/1.192)-1]100}. Yellen (2011AS, 6) admits that Fed monetary policy results in dollar devaluation with the objective of increasing net exports, which was the policy that Joan Robinson (1947) labeled as “beggar-my-neighbor” remedies for unemployment. China fixed the CNY to the dollar for a long period at a highly undervalued level of around CNY 8.2765/USD subsequently revaluing to CNY 6.8211/USD until Jun 7, 2010, or by 17.6 percent and after fixing it again to the dollar, revalued to CNY 6.3105/USD on Fri Mar 9, 2012, or by an additional 7.5 percent, for cumulative revaluation of 23.8 percent. The Dow Jones Newswires informs on Oct 15 that the premier of China Wen Jiabao announced that the Chinese yuan will not be further appreciated to prevent adverse effects on exports (http://professional.wsj.com/article/SB10001424052970203914304576632790881396896.html?mod=WSJ_hp_LEFTWhatsNewsCollection). The policy appeared to be implemented because the rate of CNY 6.3838/USD on Oct 21, 2011, amounts to a small depreciation of 0.1 percent relative to the rate of CNY 6.379/USD a week earlier on Oct 14, 2011. Table VI-2 now includes three last rows with the CNY/USD weekly rate. The final row of Table VI-2 shows the percentage change from the prior week with positive signs for appreciation and negative signs for depreciation. In the week of Nov 11 there was no change but the CNY depreciated by 0.2 percent in the week of Nov 18 and by a further 0.4 percent in the week of Nov 25, for cumulative depreciation of 0.6 percent in the two weeks. In the week of Dec 2, revaluation returned with appreciation of 0.3 percent. In the week of Dec 9, there was minute depreciation of 0.1 percent. Revaluation continued with 0.3 percent in the week of Dec 16 and 0.2 percent in the week of Dec 23. Revaluation accelerated in the week of Dec 30 with appreciation of 0.7 percent. A new pause occurred in the week of Jan 6, 2012, with depreciation of 0.2 percent. China fixed the rate at CNY 6.3068/USD on Jan 13, 2012, which is virtually unchanged from the prior week. China devalued the yuan relative to the dollar by 0.4 percent with the rate of CNY 6.334/USD on Jan 20. Financial markets were closed in China during the week of Jan 27. China then resumed revaluation with 0.5 percent in the week of Feb 3, 2012. In the week of Feb 10 China revalued by an additional 0.1 percent. There was marginal devaluation of 0.1 percent in the week of Feb 17. The rate remained virtually unchanged at CNY 6.2986 in the week of Feb 24. There was virtually no change to the rate of 6.2992 on Mar 2. The rate of CNY 6.3105/USD fixed on Mar 9 is equivalent to depreciation of the CNY by 0.2 percent relative to the USD. 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	03/09 /2012
Rate	1.1423	1.5914	1.192	1.3123
CNY/USD	01/03 2000	07/21 2005	7/15 2008	03/09/ 2012
Rate	8.2798	8.2765	6.8211	6.3105
Weekly Rates	02/17/12	02/24/  2012	03/02/  2012	03/09/  2012
CNY/USD	6.2982	6.2986	6.2992	6.3105
∆% from Earlier Week*	-0.1	0.0	0.0	-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. 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 03/09/12,” 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, mixed sentiment in the weeks of Jan 6 and Jan 13 2012 and strength in the weeks of Jan 20, Jan 27 and Feb 3 followed by weakness in the week of Feb 10 but strength in the weeks of Feb 17 and 24 followed by uncertainty on financial counterparty risk in the weeks of Mar 2 and Mar 9, all financial values show positive change in valuation in column “∆% Trough to 03/09/12.” Asia and financial entities are experiencing their own risk environments. The highest valuations are by US equities indexes: DJIA 33.4 percent and S&P 500 34.1 percent, driven by stronger earnings and economy in the US than in other advanced economies. The DJIA reached 13,087.16 in intraday trading on Feb 29, which is the highest level in 52 weeks (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). 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 03/09/12” had double digit gains relative to the trough around Jul 2, 2010 but now only three valuations show increases of less than 10 percent: NYSE Financial is 8.8 percent above the trough; STOXX 50 Europe is 8.4 percent above the trough; and China’s Shanghai Composite is 2.4 percent above the trough. DJ UBS Commodities is 17.3 percent above the trough; Dow Global is 16.2 percent above the trough; and DAX is 21.3 percent above the trough. Japan’s Nikkei Average is 12.5 percent above the trough on Aug 31, 2010 and 12.8 percent below the peak on Apr 5, 2010. The Nikkei Average closed at 9929.74 on Fri Mar 9, 2012 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata), which is 3.2 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 10.1 percent relative to the euro and even higher before the new bout of sovereign risk issues in Europe. The column “∆% week to 03/09/12” in Table VI-4 shows negative performance of risk financial assets in the week of Mar 9, 2012 with the exception of increase of 0.1 percent for the S&P 500 and 1.6 percent of the Nikkei. There are still high uncertainties on European sovereign risks, US and world growth slowdown 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 03/09/12” that provides the percentage change from the peak in Apr 2010 before the sovereign risk event to Mar 9, 2012. Most risk financial assets had gained not only relative to the trough as shown in column “∆% Trough to 03/09/12” but also relative to the peak in column “∆% Peak to 03/09/12.” There are now only three equity indexes above the peak in Table VI-4: DJIA 15.3 percent, S&P 500 12.6 percent and Dax 8.7 percent. There are several indexes below the peak: NYSE Financial Index (http://www.nyse.com/about/listed/nykid.shtml) by 13.3 percent, Nikkei Average by 12.8 percent, Shanghai Composite by 22.9 percent, STOXX 50 by 8.2 percent and Dow Global by 5.2 percent. DJ UBS Commodities Index is now 0.3 percent above the peak. 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.

Table VI-4, Stock Indexes, Commodities, Dollar and 10-Year Treasury  

	Peak	Trough	∆% to Trough	∆% Peak to 03/09 /12	∆% Week 03/09/ 12	∆% Trough to 03/09 12
DJIA	4/26/ 10	7/2/10	-13.6	15.3	-0.4	33.4
S&P 500	4/23/ 10	7/20/ 10	-16.0	12.6	0.1	34.1
NYSE Finance	4/15/ 10	7/2/10	-20.3	-13.3	-0.4	8.8
Dow Global	4/15/ 10	7/2/10	-18.4	-5.2	-1.0	16.2
Asia Pacific	4/15/ 10	7/2/10	-12.5	-0.6	-0.9	13.5
Japan Nikkei Aver.	4/05/ 10	8/31/ 10	-22.5	-12.8	1.6	12.5
China Shang.	4/15/ 10	7/02 /10	-24.7	-22.9	-0.9	2.4
STOXX 50	4/15/10	7/2/10	-15.3	-8.2	-0.6	8.4
DAX	4/26/ 10	5/25/ 10	-10.5	8.7	-0.6	21.3
Dollar Euro	11/25 2009	6/7 2010	21.2	13.3	0.5	-10.1
DJ UBS Comm.	1/6/ 10	7/2/10	-14.5	0.3	-1.6	17.3
10-Year T Note	4/5/ 10	4/6/10	3.986	2.031

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 Mar 9, 2012, shows that the S&P 500 is now 13.1 percent above the Apr 26, 2010 level and the DJIA is 15.3 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. Relaxed risk aversion has contributed to recovery of valuations. 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
Jan 13	0.5	10.9	0.9	6.4
Jan 20	2.4	13.5	2.0	8.5
Jan 27	-0.5	13.0	0.1	8.6
Feb 3	1.6	14.8	2.2	11.0
Feb 10	-0.5	14.2	-0.2	10.8
Feb 17	1.2	15.6	1.4	12.3
Feb 24	0.3	15.9	0.3	12.7
Mar 2	0.0	15.8	0.3	13.0
Mar 9	-0.4	15.3	0.1	13.1

Source: http://professional.wsj.com/mdc/public/page/mdc_us_stocks.html?mod=mdc_topnav_2_3014

Table VI-6, updated with every blog comment, 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 4.6 percent to ZAR 7.568/USD on Mar 9, 2012, which is still 34.6 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 6.9 percent stronger at SGD 1.2545/USD on Mar 9 relative to the trough of depreciation but still stronger by 19.2 percent relative to the peak of depreciation on Mar 3, 2009. Another example is the Brazilian real (BRL) that depreciated at the peak to BRL 2.43/USD on Dec 5, 2008 but appreciated 28.5 percent to the trough at BRL 1.737/USD on Apr 30, 2010, showing depreciation of 3.1 percent relative to the trough to BRL 1.7915/USD on Mar 9, 2012 but still stronger by 26.3 percent relative to the peak on Dec 5, 2008. At one point in 2011 the Brazilian real traded at BRL 1.55/USD and in the week of Sep 23 surpassed BRL 1.90/USD in intraday trading for depreciation of more than 20 percent. The Banco Central do Brasil, Brazil’s central bank, lowered its policy rate SELIC for the fourth consecutive meeting of its monetary policy committee, COPOM (http://www.bcb.gov.br/textonoticia.asp?codigo=3440&IDPAI=NEWS):

“Copom reduces the Selic rate to 9.75 percent

07/03/2012 7:00:00 PM

Brasília - Continuing the process of adjustment of monetary conditions, the Copom decided to reduce the Selic rate to 9.75 percent, without bias, with five votes for the monetary policy action and two votes in favor of reducing the Selic rate by 50 basis points.”

Jeffrey T. Lewis, writing on “Brazil steps up battle to curb real’s rise,” on Mar 1, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052970203986604577255793224099580.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes new measures by Brazil to prevent further appreciation of its currency, including the extension of the tax on foreign capital for three years terms and intervention in the foreign exchange market by the central bank. 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	Mar 9, 2012	∆T Mar 9, 2012	∆P Mar 9, 2012
EUR USD	7/15 2008	6/7 2010		03/9 2012
Rate	1.59	1.192		1.3123
∆%			-33.4		9.2	-21.2
JPY USD	8/18 2008	9/15 2010		03/9 2012
Rate	110.19	83.07		82.47
∆%			24.6		0.7	25.2
CHF USD	11/21 2008	12/8 2009		03/9 2012
Rate	1.225	1.025		0.919
∆%			16.3		10.3	24.9
USD GBP	7/15 2008	1/2/ 2009		03/9 2012
Rate	2.006	1.388		1.5673
∆%			-44.5		11.4	-27.9
USD AUD	7/15 2008	10/27 2008		03/9 2012
Rate	1.0215	1.6639		1.0575
∆%			-62.9		43.2	7.4
ZAR USD	10/22 2008	8/15 2010		03/9 2012
Rate	11.578	7.238		7.568
∆%			37.5		-4.6	34.6
SGD USD	3/3 2009	8/9 2010		03/9 2012
Rate	1.553	1.348		1.2545
∆%			13.2		6.9	19.2
HKD USD	8/15 2008	12/14 2009		03/9 2012
Rate	7.813	7.752		7.7579
∆%			0.8		-0.1	0.7
BRL USD	12/5 2008	4/30 2010		03/9 2012
Rate	2.43	1.737		1.7915
∆%			28.5		-3.1	26.3
CZK USD	2/13 2009	8/6 2010		03/9 2012
Rate	22.19	18.693		18.765
∆%			15.7		-0.4	15.4
SEK USD	3/4 2009	8/9 2010		03/9 2012
Rate	9.313	7.108		6.68035
∆%			23.7		4.3	26.9
CNY USD	7/20 2005	7/15 2008		03/9 2012
Rate	8.2765	6.8211		6.3105
∆%			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 2012. 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

Chart VI-2 of the Board of Governors of the Federal Reserve System provides the exchange rate of the US relative to the euro, or USD/EUR. During maintenance of the policy of zero fed funds rates the dollar appreciates during periods of significant risk aversion such as the flight into US government obligations in late 2008 and early 2009 and during the various fears generated by the European sovereign debt crisis.

Chart VI-2, US Dollars per Euro, 2009-2012

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/DataDownload/Chart.aspx?rel=H10&series=e85cfb140ce469e13bec458013262fa1&lastObs=780&from=&to=&filetype=csv&label=include&layout=seriescolumn&pp=Download&names={H10/H10/RXI$US_N.B.EU}

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 2.031 percent at the close of market on Fri Mar 9, 2012 would be equivalent to price of 105.3512 in a hypothetical bond maturing in 10 years with coupon of 2.625 percent for price gain of 4.0 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 first to 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 VI-7 are expectations of rising inflation and US government debt estimated to be around 70 percent of GDP in 2012 (http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html 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 40.5 percent of GDP in 2008, 54.1 percent in 2009 (Table IV-1 at http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html and Table 2 in http://cmpassocregulationblog.blogspot.com/2011/04/budget-quagmire-fed-commodities_10.html) and 67.7 percent in 2011. On Mar 7, 2012, the line “Reserve Bank credit” in the Fed balance sheet stood at $2867 billion, or $2.9 trillion, with portfolio of long-term securities of $2573 billion, or $2.6 trillion, consisting of $1564 billion Treasury nominal notes and bonds, $68 billion of notes and bonds inflation-indexed, $100 billion Federal agency debt securities and $841 billion mortgage-backed securities; reserve balances deposited with Federal Reserve Banks reached $1605 billion or $1.6 trillion (http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1). There is no simple exit of this trap created by the highest monetary policy accommodation in US history together with the highest deficits and debt in percent of GDP since World War II. Risk aversion from various sources, discussed in section III World Financial Turbulence, has been affecting financial markets for several months. The risk is that in a reversal of risk aversion that has been typical in this cyclical expansion of the economy yields of Treasury securities may back up sharply.

Table VI-7, Yield, Price and Percentage Change to November 4, 2010 of Ten-Year Treasury Note

Date	Yield	Price	∆% 11/04/10
05/01/01	5.510	78.0582	-22.9
06/10/03	3.112	95.8452	-5.3
06/12/07	5.297	79.4747	-21.5
12/19/08	2.213	104.4981	3.2
12/31/08	2.240	103.4295	2.1
03/19/09	2.605	100.1748	-1.1
06/09/09	3.862	89.8257	-11.3
10/07/09	3.182	95.2643	-5.9
11/27/09	3.197	95.1403	-6.0
12/31/09	3.835	90.0347	-11.1
02/09/10	3.646	91.5239	-9.6
03/04/10	3.605	91.8384	-9.3
04/05/10	3.986	88.8726	-12.2
08/31/10	2.473	101.3338	0.08
10/07/10	2.385	102.1224	0.8
10/28/10	2.658	99.7119	-1.5
11/04/10	2.481	101.2573	-
11/15/10	2.964	97.0867	-4.1
11/26/10	2.869	97.8932	-3.3
12/03/10	3.007	96.7241	-4.5
12/10/10	3.324	94.0982	-7.1
12/15/10	3.517	92.5427	-8.6
12/17/10	3.338	93.9842	-7.2
12/23/10	3.397	93.5051	-7.7
12/31/10	3.228	94.3923	-6.7
01/07/11	3.322	94.1146	-7.1
01/14/11	3.323	94.1064	-7.1
01/21/11	3.414	93.4687	-7.7
01/28/11	3.323	94.1064	-7.1
02/04/11	3.640	91.750	-9.4
02/11/11	3.643	91.5319	-9.6
02/18/11	3.582	92.0157	-9.1
02/25/11	3.414	93.3676	-7.8
03/04/11	3.494	92.7235	-8.4
03/11/11	3.401	93.4727	-7.7
03/18/11	3.273	94.5115	-6.7
03/25/11	3.435	93.1935	-7.9
04/01/11	3.445	93.1129	-8.0
04/08/11	3.576	92.0635	-9.1
04/15/11	3.411	93.3874	-7.8
04/22/11	3.402	93.4646	-7.7
04/29/11	3.290	94.3759	-6.8
05/06/11	3.147	95.5542	-5.6
05/13/11	3.173	95.3387	-5.8
05/20/11	3.146	95.5625	-5.6
05/27/11	3.068	96.2089	-4.9
06/03/11	2.990	96.8672	-4.3
06/10/11	2.973	97.0106	-4.2
06/17/11	2.937	97.3134	-3.9
06/24/11	2.872	97.8662	-3.3
07/01/11	3.186	95.2281	-5.9
07/08/11	3.022	96.5957	-4.6
07/15/11	2.905	97.5851	-3.6
07/22/11	2.964	97.0847	-4.1
07/29/11	2.795	98.5258	-2.7
08/05/11	2.566	100.5175	-0.7
08/12/11	2.249	103.3504	2.1
08/19/11	2.066	105.270	3.7
08/26/11	2.202	103.7781	2.5
09/02/11	1.992	105.7137	4.4
09/09/11	1.918	106.4055	5.1
09/16/11	2.053	101.5434	0.3
09/23/11	1.826	107.2727	5.9
09/30/11	1.912	106.4602	5.1
10/07/11	2.078	104.9161	3.6
10/14/11	2.251	103.3323	2.0
10/21/11	2.220	103.6141	2.3
10/28/11	2.326	102.6540	1.4
11/04/11	2.066	105.0270	3.7
11/11/11	2.057	105.1103	3.8
11/18/11	2.003	105.6113	4.3
11/25/11	1.964	105.9749	4.7
12/02/11	2.042	105.2492	3.9
12/09/11	2.065	105.0363	3.7
12/16/11	1.847	107.0741	5.7
12/23/11	2.027	105.3883	4.1
12/30/11	1.871	106.8476	5.5
01/06/12	1.957	106.0403	4.7
01/13/12	1.869	106.8664	5.5
01/20/12	2.026	105.3976	4.1
01/27/12	1.893	106.6404	5.3
02/03/12	1.923	106.3586	5.0
02/10/12	1.974	105.8815	4.6
02/17/12	2.000	105.6392	4.3
02/24/12	1.977	105.8535	4.5
03/02/12	1.977	105.8535	4.5
03/09/12	2.031	105.3512	4.0

Note: price is calculated for an artificial 10-year note paying semi-annual coupon and maturing in ten years using the actual yields traded on the dates and the coupon of 2.625% on 11/04/10

Source:

http://professional.wsj.com/mdc/public/page/mdc_bonds.html?mod=mdc_topnav_2_3000

VII Economic Indicators. Crude oil input in refineries increased 0.3 percent to 14,701 thousand barrels per day on average in the four weeks ending on Mar 2, 2012 from 14,653 thousand barrels per day in the four weeks ending on Feb 24, 2012, as shown in Table VII-1. The rate of capacity utilization in refineries continues at a relatively high level of 84.2 percent on Mar 2, 2012, which is higher than 80.9 percent on Mar 4, 2011 and 84.0 percent on Feb 24, 2012. Imports of crude oil increased 0.8 percent from 8,825 thousand barrels per day on average in the four weeks ending on Feb 24 to 8,900 thousand barrels per day in the week of Mar 2. The Energy Information Administration (EIA) informs that “US crude oil imports averaged 8.7 million barrels per day last week, down by 475 thousand barrels per day from the previous week [Mar 2]” (http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf). Slight increase in utilization in refineries with increasing imports at the margin in the prior week resulted in increase of commercial crude oil stocks by 0.8 million barrels from 344.9 million barrels on Feb 24 to 345.7 million barrels on Mar 2. Motor gasoline production decreased 0.1 percent to 8,800 thousand barrels per day in the week of Mar 2 from 8,810 thousand barrels per day on average in the week of Feb 24. Gasoline stocks decreased 0.4 million barrels and stocks of fuel oil decreased 1.9 million barrels. Supply of gasoline fell from 9,066 thousand barrels per day on Mar 4, 2011, to 8,355 thousand barrels per day on Mar 2, 2012, or by 7.8 percent, while fuel oil supply fell 7.6 percent. Part of the fall in consumption of gasoline is due to higher prices and part to the growth recession. Table VII-1 also shows increase in the WTI price of crude oil by 2.2 percent from Mar 4, 2011 to Mar 2, 2012. Gasoline prices rose 7.8 percent from Mar 7, 2011 to Mar 5, 2012. Increases in prices of crude oil and gasoline relative to a year earlier are moderating because year earlier prices are already reflecting the commodity price surge and commodity prices have been declining recently during worldwide risk aversion. Gasoline prices are increasing to the highest levels at this time of the year.

Table VII-1, US, Energy Information Administration Weekly Petroleum Status Report

Four Weeks Ending Thousand Barrels/Day	03/02/12	02/24/12	03/04/11
Crude Oil Refineries Input	14,701 Week       ∆%: +0.3	14,653	13,785
Refinery Capacity Utilization %	84.2	84.0	80.9
Motor Gasoline Production	8,800 Week      ∆%: -0.1	8,810	9,141
Distillate Fuel Oil Production	4,298 Week     ∆%: -1.6	4,366	4,042
Crude Oil Imports	8,900 Week        ∆%: +0.8	8,825	8,138
Motor Gasoline Supplied	8,355 ∆% 2012/2011= -7.8%	8,299	9,066
Distillate Fuel Oil Supplied	3,588 ∆% 2012/2011 = -7.6%	3,561	3,884
	03/02/12	02/24/12	03/04/11
Crude Oil Stocks Million B	345.7     ∆= +0.8 MB	344.9	348.9
Motor Gasoline Million B	229.5    ∆= -0.4 MB	229.9	229.2
Distillate Fuel Oil Million B	139.5 ∆= -1.9 MB	141.4	155.2
WTI Crude Oil Price $/B	106.68 ∆% 2012/2011 2.2	109.39	104.34
	03/05/12	2/27/12	3/07/11
Regular Motor Gasoline $/G	3.793 ∆% 2012/2011 7.8	3.721	3.520

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 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 distillate oil stocks since Jun 2010. Distillate fuel 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. Distillate fuel oil stocks have been in a clear downward trend for some weeks.

Chart VII-2, US, Distillate Fuel 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 during the recession of 2001. The upward trend after 2003 was promoted by the carry trade from near zero interest rates. The jump above $140/barrel during the global recession in 2008 can only be explained by the carry trade promoted by monetary policy of zero fed funds rate. After moderation of risk aversion, the carry trade returned with resulting sharp upward trend of crude prices.

Chart VII-3, US, Crude Oil Futures Contract

Source: US Energy Information Administration

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RCLC1&f=D

There is significant difference between initial claims for unemployment insurance adjusted and not adjusted for seasonality provided in Table VII-2. Seasonally adjusted claims increased by 8,000 from 354,000 on Feb 25 to 362,000 on Mar 3. Claims not adjusted for seasonality increased 31,513 from 334,241 on Feb 25 to 365,754 on Mar 3. Strong seasonality is preventing clear analysis of labor markets.

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

	SA	NSA	4-week MA SA
Mar 3, 12	362,000	365,754	355,000
Feb 25, 12	354,000	334,241	354,750
Change	+8,000	+31,513	+250
Feb 18, 12	353,000	346,659	359,500
Prior Year	405,000	407,299	396,000

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 2001 to 2012. Seasonally adjusted claims typically are lower than claims not adjusted for seasonality. Claims not seasonally adjusted have declined from 645,827 on Feb 28, 2009 to 407,299 on Mar 5, 2011, and now to 379,286 on Mar 3, 2012. There is strong indication of significant decline in the level of layoffs in the US. Hiring has not recovered (Section I Hiring Collapse in http://cmpassocregulationblog.blogspot.com/2012/02/hiring-collapse-ten-million-fewer-full.html and http://cmpassocregulationblog.blogspot.com/2012/01/recovery-without-hiring-united-states.html).

Table VII-3, US, Unemployment Insurance Weekly Claims

	Not Seasonally Adjusted Claims	Seasonally Adjusted Claims
Mar 3, 2001	379,286	384,000
Mar 3, 2002	385,272	392,000
Mar 1, 2003	429,782	436,000
Feb 28, 2004	342,140	348,000
Mar 5, 2005	332,067	333,000
Mar 4, 2006	301,867	302,000
Mar 3, 2007	320,194	319,000
Mar 1, 2008	345,287	343,000
Feb 28, 2009	645,827	644,000
Mar 6, 2010	462,679	462,000
Mar 5, 2011	407,299	405,000
Mar 3, 2012	379,286	362,000

Source: http://www.workforcesecurity.doleta.gov/unemploy/claims.asp

VIII Interest Rates. It is quite difficult to measure inflationary expectations because they tend to break abruptly from past inflation. There could still be an influence of past and current inflation in the calculation of future inflation by economic agents. Table VIII-1 provides inflation of the CPI. In the quarter Nov 2011 to Jan 2012, CPI inflation for all items seasonally adjusted was 1.2 percent in annual equivalent, that is, compounding inflation in Nov-Jan and assuming it would be repeated for a full year. In the 12 months ending in Jan, CPI inflation of all items not seasonally adjusted was 2.9 percent. Inflation in Jan 2012 not seasonally adjusted was 0.4 percent relative to Dec 2011 (http://www.bls.gov/cpi/). The second row provides the same measurements for the CPI of all items excluding food and energy: 2.3 percent in 12 months and 2.0 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 0.04 percent for three months, 0.14 percent for six months, 0.18 percent for 12 months, 0.31 percent for two years, 0.44 percent for three years, 0.88 percent for five years, 1.41 percent for seven years, 2.02 percent for ten years and 3.17 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 Jan 2012/Jan 2012 NSA	∆% Annual Equivalent Nov 2011-Jan 2012 SA
CPI All Items	2.9	1.2
CPI ex Food and Energy	2.3	2.0

Source: http://www.bls.gov/cpi/

IX Conclusion. The US economy is in growth standstill at an annual equivalent rate in the four quarters of 2011 of 1.6 percent primarily driven by drawing on savings. Real disposable income stagnates in 12 months and declines at the margin. There are around 30 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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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, 2012