World Inflation Waves, Monetary Policy with Deficit Financing of Economic Growth, World Financial Turbulence and Economic Slowdown
Carlos M. Pelaez
© Carlos M. Pelaez, 2010, 2011, 2012
Executive Summary
I World Inflation Waves
IA World Inflation Waves
IB United States Inflation
IB1 Long-term US Inflation
IB2 Current US Inflation
II Monetary Policy with Deficit Financing of Economic Growth
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. Table I-1 is constructed with the database of the IMF (http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx) to show GDP in dollars in 2010 and the growth rate of real GDP of the world and selected regional countries from 2011 to 2014. The data illustrate the concept often repeated of “two-speed recovery” of the world economy from the recession of 2007 to 2009. The IMF has lowered its forecast of the world economy to 3.5 percent in 2012 but accelerating to 4.1 percent in 2013, 4.4 percent in 2014 and 4.5 percent in 2015. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $33,670 billion of world output of $69,660 billion, or 48.3 percent, but are projected to grow at much lower rates than world output, 2.1 percent on average from 2012 to 2015 in contrast with 4.1 percent for the world as a whole. While the world would grow 17.6 percent in the four years from 2012 to 2015, the G7 as a whole would grow 8.5 percent. The difference in dollars of 2011 is rather high: growing by 17.6 percent would add $12.3 trillion of output to the world economy, or roughly two times the output of the economy of Japan of $5,869 but growing by 8.5 percent would add $5.9 trillion of output to the world, or about the output of Japan in 2011. The “two speed” concept is in reference to the growth of the 150 countries labeled as emerging and developing economies (EMDE) with joint output in 2011 of $25,237 billion, or 36.2 percent of world output. The EMDEs would grow cumulatively 26.5 percent or at the average yearly rate of 6.1 percent, contributing $6.7 trillion from 2012 to 2015 or the equivalent of somewhat less than the GDP of $7,298 billion of China in 2011. The final four countries in Table 1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output adds to $13,317 billion, or 19.1 percent of world output, which is equivalent to 39.6 percent of the combined output of the major advanced economies of the G7.
Table V-1, IMF World Economic Outlook Database Projections of Real GDP Growth
| GDP USD 2011 | Real GDP ∆% | Real GDP ∆% | Real GDP ∆% | Real GDP ∆% | |
| World | 69,660 | 3.5 | 4.1 | 4.4 | 4.5 |
| G7 | 33,670 | 1.5 | 1.9 | 2.3 | 2.5 |
| Canada | 1,737 | 2.1 | 2.2 | 2.4 | 2.4 |
| France | 2,776 | 0.5 | 1.1 | 1.9 | 1.9 |
| DE | 3,577 | 0.6 | 1.5 | 1.3 | 1.3 |
| Italy | 2,199 | -1.9 | -0.3 | 0.5 | 1.0 |
| Japan | 5,869 | 2.0 | 1.7 | 1.5 | 1.3 |
| UK | 2,418 | 0.8 | 2.0 | 2.5 | 2.6 |
| US | 15,094 | 2.1 | 2.4 | 2.9 | 3.3 |
| Euro Area | 13,115 | -0.3 | 0.9 | 1.4 | 1.6 |
| DE | 3,577 | 0.6 | 1.5 | 1.3 | 1.3 |
| France | 2,776 | 0.5 | 1.1 | 1.9 | 1.9 |
| Italy | 2,199 | -1.9 | -0.3 | 0.5 | 1.0 |
| POT | 239 | -3.3 | 0.3 | 2.1 | 1.9 |
| Ireland | 218 | 0.5 | 2.1 | 2.5 | 2.8 |
| Greece | 303 | -4.7 | 0.0 | 2.5 | 3.1 |
| Spain | 1,494 | -1.8 | 0.1 | 1.6 | 1.6 |
| EMDE | 25,237 | 5.7 | 6.0 | 6.2 | 6.3 |
| Brazil | 2,493 | 3.0 | 4.2 | 4.0 | 4.1 |
| Russia | 1,850 | 4.0 | 3.9 | 3.9 | 3.9 |
| India | 1,676 | 6.9 | 7.3 | 7.5 | 7.7 |
| China | 7,298 | 8.2 | 8.8 | 8.7 | 8.7 |
Notes; DE: Germany; EMDE: Emerging and Developing Economies (150 countries); POT: Portugal
Source: IMF World Economic Outlook databank
http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx
The JP Morgan Global All-Industry Output Index of the JP Morgan Manufacturing and Services PMI™, produced by JP Morgan and Markit in association with ISM and IFPSM, with high association with world GDP, fell from 55.4 in Mar to 52.2 in Apr, which is the lowest reading in three months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9544). Sharp deceleration in services offset stronger manufacturing. David Hensley, Director of Global Economic Coordination at JP Morgan, finds that the PMI data suggest world GDP growth easing into the middle of 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9544). The JP Morgan Global Manufacturing PMI™, produced by JP Morgan and Markit in association with ISM and IFPSM, improved marginally at 51.4 in Apr relative to 51.1 in Mar, for a fifth consecutive month of increase above the borderline of 50 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9520). Higher oil and transportation prices were contributing to higher costs of inputs. David Hensley, Director of Global Economics Coordination at JPMorgan, finds that the global PMI™ finds consistency of the index with global manufacturing growth at annual equivalent 2.5 percent (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9520).
The HSBC Brazil Services PMI™ with Composite PMI data, compiled by Markit, fell marginally from 53.4 in Mar to 52.7 in Apr, suggesting sound activity of the private sector (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9533). Andre Loes, Chief Economist, Brazil, at HSBC, finds that the HSBC Services PMI increased to 54.4 in Apr relative to 53.8 in Feb, but expansion of services in the Brazilian economist has continued during 33 consecutive months even at a lower reading than 55.3 in IQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9394). There is continuing strength in other indicators of the services sector. The HSBC Brazil Purchasing Managers’ IndexTM (PMI™) fell slightly from 51.1 in Mar to 49.3 in Apr, indicating modest business conditions in Brazilian manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9496). Andre Loes, Chief Economist, Brazil at HSBC, finds broad weakness in the index with all segments below the borderline of contraction at 50 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9496 ).
Continuing high rates of unemployment in advanced economies constitute another characteristic of the database of the WEO (http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx). Table V-2 is constructed with the WEO database to provide rates of unemployment from 2011 to 2015 for major countries and regions. In fact, unemployment rates for 2011 in Table ESV-2 are high for all countries: unusually high for countries with high rates most of the time and unusually high for countries with low rates most of the time. The rates of unemployment are particularly high for the countries with sovereign debt difficulties in Europe: 12.7 percent for Portugal (POT), 14.4 percent for Ireland, 17.3 percent for Greece, 21.6 percent for Spain and 8.4 percent for Italy, which is lower but still high. The G7 rate of unemployment is 7.7 percent. Unemployment rates are not likely to decrease substantially if slow growth persists in advanced economies.
Table V-2, IMF World Economic Outlook Database Projections of Unemployment Rate as Percent of Labor Force
| % Labor Force 2011 | % Labor Force 2012 | % Labor Force 2013 | % Labor Force 2014 | % Labor Force 2015 | |
| World | NA | NA | NA | NA | NA |
| G7 | 7.7 | 7.4 | 7.3 | 7.0 | 6.7 |
| Canada | 7.5 | 7.4 | 7.3 | 7.1 | 6.9 |
| France | 9.7 | 9.9 | 10.1 | 9.8 | 9.4 |
| DE | 6.0 | 5.6 | 5.5 | 5.3 | 5.3 |
| Italy | 8.4 | 9.5 | 9.7 | 9.8 | 9.5 |
| Japan | 4.5 | 4.5 | 4.4 | 4.3 | 4.2 |
| UK | 8.0 | 8.3 | 8.2 | 7.8 | 7.4 |
| US | 8.9 | 8.2 | 7.9 | 7.5 | 6.9 |
| Euro Area | 10.1 | 10.9 | 10.8 | 10.5 | 10.1 |
| DE | 6.0 | 5.6 | 5.5 | 5.3 | 5.3 |
| France | 9.7 | 9.9 | 10.1 | 9.8 | 9.4 |
| Italy | 8.4 | 9.5 | 9.7 | 9.8 | 9.5 |
| POT | 12.7 | 14.3 | 13.9 | 13.2 | 12.4 |
| Ireland | 14.4 | 14.5 | 13.8 | 12.9 | 12.0 |
| Greece | 17.3 | 19.4 | 19.4 | 18.2 | 16.8 |
| Spain | 21.6 | 24.2 | 23.9 | 22.8 | 21.9 |
| EMDE | NA | NA | NA | NA | NA |
| Brazil | 6.0 | 6.0 | 6.5 | 7.0 | 7.0 |
| Russia | 7.5 | 6.5 | 6.0 | 6.0 | 6.0 |
| India | NA | NA | NA | NA | NA |
| China | 4.1 | 4.0 | 4.0 | 4.0 | 4.0 |
Notes; DE: Germany; EMDE: Emerging and Developing Economies (150 countries)
Source: IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weoselgr.aspx
VA United States. Table USA provides the data table for the US.
Table USA, US Economic Indicators
| Consumer Price Index | Apr 12 months NSA ∆%: 2.3; ex food and energy ∆%: 2.3 Apr month ∆%: 0.0; ex food and energy ∆%: 0.2 |
| Producer Price Index | Apr 12-month NSA ∆%: 1.9; ex food and energy ∆% 2.7 |
| PCE Inflation | Mar 12-month NSA ∆%: headline 2.1; ex food and energy ∆% 2.0 |
| Employment Situation | Household Survey: Apr Unemployment Rate SA 8.1% |
| Nonfarm Hiring | Nonfarm Hiring fell from 69.4 million in 2004 to 50.1 million in 2011 or by 19.3 million |
| GDP Growth | BEA Revised National Income Accounts back to 2003 IIIQ2011 SAAR ∆%: 1.8 IVQ2011 ∆%: 3.0 IQ2012 SAAR ∆%: 2.2 IQ2012/IQ2011 ∆%: 2.1 |
| Personal Income and Consumption | Mar month ∆% SA Real Disposable Personal Income (RDPI) Mar month SA ∆% minus 0.2 |
| Quarterly Services Report | IVQ11/IIIQ11 SA ∆%: |
| Employment Cost Index | IQ2012 SA ∆%: 0.4 |
| Industrial Production | Apr month SA ∆%: 1.1 Manufacturing Apr SA ∆% 0.6 Apr 12 months SA ∆% 5.8, NSA 5.6 |
| Productivity and Costs | Nonfarm Business Productivity IQ2012∆% SAAE -0.5; IQ2012/IQ2011 ∆% 0.5; Unit Labor Costs SAAE IQ2012 ∆% 2.0; IQ2012/IQ2011 ∆%: 2.1 Blog 5/6/2012 |
| New York Fed Manufacturing Index | General Business Conditions From Apr 6.56 to May 17.09 |
| Philadelphia Fed Business Outlook Index | General Index from Apr 8.5 to May minus 5.8 |
| Manufacturing Shipments and Orders | Mar New Orders SA ∆%: -1.5; ex transport ∆%: 0.0 |
| Durable Goods | Mar New Orders SA ∆%: minus 4.2; ex transport ∆%: minus 1.1 |
| Sales of New Motor Vehicles | Apr 2012 4,651,943; Apr 2011 4,217,599. Apr SAAR 14.4 million, Mar SAAR 14/37 million, Mar 2011 SAAR 13.17 million Blog 5/6/12 |
| Sales of Merchant Wholesalers | Jan-Mar 2012/Jan-Mar 2011 NSA ∆%: Total 9.0; Durable Goods: 11.2; Nondurable |
| Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers | Mar 12/Mar 11 NSA ∆%: Sales Total Business 4.9; Manufacturers 4.1 |
| Sales for Retail and Food Services | Jan-Apr 2012/Jan-Apr 2011 ∆%: Retail and Food Services 7.2; Retail ∆% 7.0 |
| Value of Construction Put in Place | Mar SAAR month SA ∆%: minus 0.1 Mar 12-month NSA: 5.4 |
| Case-Shiller Home Prices | Feb 2012/Feb 2011 ∆% NSA: 10 Cities minus 3.6; 20 Cities: minus 3.5 |
| FHFA House Price Index Purchases Only | Feb SA ∆% 0.3; |
| New House Sales | Mar 2012 month SAAR ∆%: |
| Housing Starts and Permits | Apr Starts month SA ∆%: 2.6; Permits ∆%: minus 7.0 |
| Trade Balance | Balance Mar SA -$51,825 million versus Feb -$45,416 million |
| Export and Import Prices | Apr 12-month NSA ∆%: Imports 0.5; Exports 0.7 |
| Consumer Credit | Mar ∆% annual rate: 10.2 |
| Net Foreign Purchases of Long-term Treasury Securities | Mar Net Foreign Purchases of Long-term Treasury Securities: $36.2 billion |
| Treasury Budget | Fiscal Year Oct-Apr 2012/2011 ∆%: Receipts 5.6; Outlays -3.5; Individual Income Taxes 5.0 Deficit Fiscal Year 2012 Oct-Apr $719,859 million CBO Forecast 2012FY Deficit $1.079 trillion Blog 5/13/2012 |
| 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 | IVQ2011 -$124B %GDP 3.2 Blog 03/18/12 |
Links to blog comments in Table USA:
5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html
5/6/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-jobs-twenty-eight_06.html
4/29/12 http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment_29.html
3/18/12 http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk_18.html
3/11/12 http://cmpassocregulationblog.blogspot.com/2012/03/thirty-million-unemployed-or_11.html
Industrial production increased 1.1 percent in Apr after declining 0.6 in Mar, increasing 5.2 percent in the 12 months ending in Apr, as shown in Table VA-1, with all data seasonally adjusted. In the six months ending in Apr, industrial production grew at the annual equivalent rate of 5.1 percent. Business equipment increased 1.5 percent in Apr, growing 6.8 percent in the 12 months ending in Apr and at the annual equivalent rate of 14.0 percent in the six months ending in Apr. Capacity utilization of total industry is analyzed by the Fed in its report (http://www.federalreserve.gov/releases/g17/Current/): “The rate of capacity utilization for total industry edged moved up to 79.2 percent, a rate 3.1 percentage points above its level from a year earlier but 1.1 percentage points below its long-run (1972-2011) average.” Manufacturing contributed $1,331 billion to US national income of $13,332 billion without capital consumption adjustment in IVQ2011, or 10.0 percent of the total, according to data of the Bureau of Economic Analysis (http://www.bea.gov/iTable/index_nipa.cfm see Table I-13 at http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment.html).
Table VA-1, US, Industrial Production and Capacity Utilization, SA, ∆%, %
| 2011-2012 | Apr | Mar | Feb | Jan | Dec | Nov | Apr 12/ Apr 11 |
| Total | 1.1 | -0.6 | 0.4 | 0.6 | 0.8 | 0.2 | 5.2 |
| Market | |||||||
| Final Products | 0.9 | -0.3 | 0.7 | 0.7 | 0.4 | -0.2 | 5.4 |
| Consumer Goods | 0.8 | -0.5 | 0.5 | 0.3 | 0.4 | -0.7 | 3.1 |
| Business Equipment | 1.5 | 0.2 | 1.4 | 1.9 | 0.9 | 0.7 | 12.0 |
| Non | 1.0 | -0.6 | 1.2 | 0.4 | 1.2 | -0.3 | 4.6 |
| Construction | 0.0 | -1.6 | 2.1 | 0.2 | 2.4 | 0.8 | 6.5 |
| Materials | 1.3 | -0.8 | -0.1 | 0.6 | 1.0 | 0.7 | 5.1 |
| Industry Groups | |||||||
| Manufacturing | 0.6 | -0.5 | 0.8 | 1.0 | 1.4 | 0.0 | 5.8 |
| Mining | 1.6 | -1.7 | -1.9 | 0.2 | 0.5 | 1.4 | 4.9 |
| Utilities | 4.5 | 0.7 | 1.1 | -1.8 | -3.6 | 0.2 | 1.1 |
| Capacity | 79.2 | 78.4 | 78.9 | 78.7 | 78.2 | 77.7 | 1.0 |
Sources: http://www.federalreserve.gov/releases/g17/current/
Manufacturing increased 0.6 percent in Apr seasonally adjusted, increasing 5.6 percent not seasonally adjusted in 12 months, and grew 3.3 percent in the six months ending in Apr or at the annual equivalent rate of 6.8 percent. A longer perspective of manufacturing in the US is provided by Table VA-2. There has been evident deceleration of manufacturing growth in the US from 2010 and the first three months of 2011 as shown by 12 months rates of growth but growth rates may be increasing again closer to 6 percent. The rates of decline of manufacturing in 2009 are quite high with a drop of 18.4 percent in the 12 months ending in Apr 2009. Manufacturing recovered from this decline and led the recovery from the recession. Rates of growth appear to be returning to the levels at 3 percent or higher in the annual rates before the recession.
Table VA-2, US, Monthly and 12-Month Rates of Growth of Manufacturing ∆%
| Month SA ∆% | 12-Month NSA ∆% | |
| Apr 2012 | 0.6 | 5.6 |
| Mar | -0.5 | 4.4 |
| Feb | 0.8 | 5.9 |
| Jan | 1.0 | 4.8 |
| Dec 2011 | 1.4 | 4.3 |
| Nov | 0.0 | 4.0 |
| Oct | 0.5 | 4.3 |
| Sep | 0.4 | 4.0 |
| Aug | 0.3 | 3.4 |
| Jul | 0.8 | 3.2 |
| Jun | 0.0 | 3.1 |
| May | 0.2 | 3.0 |
| Apr | -0.6 | 4.1 |
| Mar | 0.6 | 6.0 |
| Feb | 0.2 | 6.3 |
| Jan | 0.4 | 6.3 |
| Dec 2010 | 1.0 | 6.6 |
| Nov | 0.2 | 5.5 |
| Oct | 0.1 | 6.6 |
| Sep | 0.2 | 6.7 |
| Aug | 0.0 | 7.1 |
| Jul | 0.8 | 7.3 |
| Jun | -0.1 | 9.0 |
| May | 1.4 | 8.3 |
| Apr | 1.0 | 6.5 |
| Mar | 1.1 | 4.2 |
| Feb | 0.1 | 0.6 |
| Jan | 0.9 | 0.5 |
| Dec 2009 | 0.1 | -3.7 |
| Nov | 0.9 | -6.6 |
| Oct | -0.1 | -9.4 |
| Sep | 0.7 | -10.7 |
| Aug | 1.0 | -13.7 |
| Jul | 1.2 | -15.3 |
| Jun | -0.3 | -17.8 |
| May | -1.2 | -17.8 |
| Apr | -0.8 | -18.4 |
| Mar | -2.1 | -17.5 |
| Feb | 0.0 | -16.3 |
| Jan | -2.9 | -16.6 |
| Dec 2008 | -3.3 | -14.1 |
| Nov | -2.4 | -11.4 |
| Oct | -0.7 | -9.1 |
| Sep | -3.4 | -8.8 |
| Aug | -1.4 | -5.3 |
| Jul | -1.1 | -3.8 |
| Jun | -0.6 | -3.2 |
| May | -0.6 | -2.5 |
| Apr | -1.1 | -1.3 |
| Mar | -0.4 | -0.7 |
| Feb | -0.4 | 0.8 |
| Jan | -0.4 | 2.1 |
| Dec 2007 | 0.3 | 1.9 |
| Nov | 0.4 | 3.2 |
| Oct | -0.5 | 2.7 |
| Sep | 0.5 | 2.9 |
| Aug | -0.5 | 2.6 |
| Jul | 0.2 | 3.4 |
| Jun | 0.3 | 2.9 |
| May | -0.2 | 3.1 |
| Apr | 0.8 | 3.6 |
| Mar | 0.6 | 2.5 |
| Feb | 0.6 | 1.7 |
| Jan | -0.5 | 1.4 |
| Dec 2006 | 2.8 | |
| Dec 2005 | 3.4 | |
| Dec 2004 | 4.0 | |
| Dec 2003 | 1.8 | |
| Dec 2002 | 2.3 | |
| Dec 2001 | -5.5 | |
| Dec 2000 | 0.4 | |
| Dec 1999 | 5.4 | |
| Average ∆% Dec 1986-Dec 2011 | 2.3 | |
| Average ∆% Dec 1986-Dec 1999 | 4.3 | |
| Average ∆% Dec 1999-Dec 2006 | 1.3 | |
| Average ∆% Dec 1999-Dec 2011 | 0.2 |
Source: http://www.federalreserve.gov/releases/g17/current/table1.htm
Chart VA-1 of the Board of Governors of the Federal Reserve System provides industrial production, manufacturing and capacity since the 1970s. There was acceleration of growth of industrial production, manufacturing and capacity in the 1990s because of rapid growth of productivity in the US (see Pelaez and Pelaez, The Global Recession Risk (2007), 135-44). The slopes of the curves flatten in the 2000s. Production and capacity have not recovered to the levels before the global recession.
Chart VA-1, US, Industrial Production, Capacity and Utilization
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g17/current/ipg1.gif
The modern industrial revolution of Jensen (1993) is captured in Chart VA-2 of the Board of Governors of the Federal Reserve System (for the literature on M&A and corporate control see Pelaez and Pelaez, Regulation of Banks and Finance (2009a), 143-56, Globalization and the State, Vol. I (2008a), 49-59, Government Intervention in Globalization (2008c), 46-49). The slope of the curve of total industrial production accelerates in the 1990s to a much higher rate of growth than the curve excluding high-technology industries. Growth rates decelerate into the 2000s and output and capacity utilization have not recovered fully from the strong impact of the global recession. Growth in the current cyclical expansion has been more subdued than in the prior comparably deep contractions in the 1970s and 1980s. Chart VA-2 shows that the past recessions after World War II are the relevant ones for comparison with the recession after 2007 instead of common comparisons with the Great Depression (http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment.html). The bottom left-hand part of Chart VA-2 shows the strong growth of output of communication equipment, computers and semiconductor that continued from the 1990s into the 2000s. Output of semiconductors has already surpassed the level before the global recession.
Chart VA-2, US, Industrial Production, Capacity and Utilization of High Technology Industries
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g17/current/ipg3.gif
Additional detail on industrial production and capacity utilization is provided in Chart VA-3 of the Board of Governors of the Federal Reserve System. Production of consumer durable goods fell sharply during the global recession by more than 30 percent and is still around 5 percent below the level before the contraction. Output of nondurable consumer goods fell around 10 percent and is some 5 percent below the level before the contraction. Output of business equipment fell sharply during the contraction of 2001 but began rapid growth again after 2004. An important characteristic is rapid growth of output of business equipment in the cyclical expansion after sharp contraction in the global recession. Output of defense and space only suffered reduction in the rate of growth during the global recession and surged ahead of the level before the contraction. Output of construction supplies collapsed during the global recession and is well below the level before the contraction. Output of energy materials was stagnant before the contraction but has recovered sharply above the level before the contraction.
Chart VA-3, US, Industrial Production and Capacity Utilization
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g17/current/ipg2.gif
The index of general business conditions of the Federal Reserve Bank of New York Empire State Manufacturing Survey rebounded sharply from 6.56 in Apr to 17.09 in May, as shown in Table VA-3. The index had been registering negative changes in the five months from Jun to Oct. The new orders segment improved mildly from 6.48 in Apr to 8.32 in May. There is positive reading in shipments from 6.41 in Apr to 24.14 in May. The segment of number of employees fell back into contraction territory from minus 5.43 in Sep to minus 3.66 in Nov but recovered strongly to 13.58 in Mar, 19.28 in Apr and 20.14 in May. Number of weekly hours worked fell from 18.52 in Mar to 6.02 in Apr but also rebounded to 12.05 in May. Expectations for the next six months of the general business conditions index peaked at 54.87 in Jan, declining to a still strong 47.50 in Mar and 43.12 in Apr but falling to 29.26 in May. Expectations of new orders also peaked at 53.85 in Jan, declining to a still strong 47.50 in Mar and 45.78 in Apr but falling to 30.12 in May. There is a similar pattern of strong recovery in shipments with decline to 25.3 in May. Number of employees and hours worked fell sharply in May to 12.05 and 8.43, respectively.
Table VA-3, US, New York Federal Reserve Bank Empire State Manufacturing Survey Index SA
| General | New Orders | Ship-ents | # Workers | Average Work-week | |
| Current | |||||
| May 2012 | 17.09 | 8.32 | 24.14 | 20.14 | 12.05 |
| Apr | 6.56 | 6.48 | 6.41 | 19.28 | 6.02 |
| Mar | 20.21 | 6.84 | 18.21 | 13.58 | 18.52 |
| Feb | 19.53 | 9.73 | 22.79 | 11.76 | 7.06 |
| Jan | 13.48 | 13.70 | 21.69 | 12.09 | 6.59 |
| Dec 2011 | 8.19 | 5.99 | 20.06 | 2.33 | -2.33 |
| Nov | 0.80 | -0.82 | 11.70 | -3.66 | 2.44 |
| Oct | -7.22 | -0.26 | 2.89 | 3.37 | -4.49 |
| Sep | -7.43 | -7.52 | -8.28 | -5.43 | -2.17 |
| Six Months | |||||
| May 2012 | 29.26 | 30.12 | 25.3 | 12.05 | 8.43 |
| Apr | 43.12 | 45.78 | 44.58 | 27.71 | 10.84 |
| Mar | 47.50 | 41.98 | 43.21 | 32.10 | 20.99 |
| Feb | 50.38 | 44.71 | 49.41 | 29.41 | 18.82 |
| Jan | 54.87 | 53.85 | 52.75 | 28.57 | 17.58 |
| Dec 2011 | 45.61 | 54.65 | 51.16 | 24.42 | 22.09 |
| Nov | 32.06 | 35.37 | 36.59 | 14.63 | 8.54 |
| Oct | 13.99 | 12.36 | 17.98 | 6.74 | -2.25 |
| Sep | 22.93 | 13.04 | 13.04 | 0.0 | -6.52 |
Source: http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html
The Philadelphia Business Outlook Survey in Table VA-4 provides an optimistic reading in Oct with the movement to 10.8 away from the contraction zone of minus 12.7 in Sep and recovered to 12.5 in Mar from the decline to 3.1 in Nov but then fell to 8.5 in Apr and back to contraction territory at minus 5.8 in May. New orders were signaling increasing future activity, rising from contraction at minus 5.5 in Sep to positive reading but registered only 3.3 in Mar and fell further to 2.7 in Apr and into contraction reading at minus 1.2 in May. There is similar behavior in shipments as in new orders. Employment or number of employees fell to 1.1 in Feb, near the contraction border of zero, but rose to 6.8 in Mar and jumped to 17.9 in Apr but declined to contraction at minus 1.3 in May. The average work week also fell from 10.1 in Feb to 2.7 in Mar and then to contraction territory of minus 2.3 in Apr and minus 5.4 in May. Most indexes of expectations for the next six months are showing sharp increases but interruptions from Feb to Apr for the general index, new orders and shipments. Employment increased from Jan to Apr, deteriorating in May while the average work week weakened in Apr and contracted at minus 1.1 in May.
Table VA-4, FRB of Philadelphia Business Outlook Survey Diffusion Index SA
| General | New Orders | Ship-ments | # Workers | Average Work-week | |
| Current | |||||
| May 12 | -5.8 | -1.2 | 3.5 | -1.3 | -5.4 |
| Apr | 8.5 | 2.7 | 2.8 | 17.9 | -2.3 |
| Mar | 12.5 | 3.3 | 3.5 | 6.8 | 2.7 |
| Feb | 10.2 | 11.7 | 15.0 | 1.1 | 10.1 |
| Jan | 7.3 | 6.9 | 5.7 | 11.6 | 5.0 |
| Dec 11 | 6.8 | 10.7 | 9.1 | 11.5 | 2.8 |
| Nov | 3.1 | 3.5 | 6.0 | 10.6 | 7.1 |
| Oct | 10.8 | 8.5 | 13.6 | 5.0 | 4.2 |
| Sep | -12.7 | -5.5 | -16.6 | 7.3 | -6.2 |
| Aug | -22.7 | -22.2 | -8.9 | -0.9 | -11.2 |
| Jul | 6.2 | 0.5 | 8.2 | 9.5 | -3.9 |
| Future | |||||
| May 12 | 15.0 | 26.3 | 20.8 | 10.6 | -1.1 |
| Apr | 33.8 | 35.4 | 31.0 | 27.8 | 7.5 |
| Mar | 32.9 | 36.4 | 31.3 | 21.8 | 11.2 |
| Feb | 33.3 | 32.5 | 29.0 | 22.5 | 10.8 |
| Jan | 49.0 | 49.7 | 48.2 | 19.1 | 9.2 |
| Dec 11 | 40.0 | 44.1 | 36.4 | 10.8 | 4.5 |
| Nov | 37.7 | 36.9 | 35.5 | 25.2 | 4.0 |
| Oct | 28.8 | 28.1 | 29.0 | 15.5 | 8.4 |
| Sep | 25.2 | 24.6 | 27.1 | 14.0 | 6.8 |
| Aug | 6.3 | 20.6 | 18.4 | 11.2 | -0.7 |
| Jul | 25.8 | 31.2 | 26.1 | 12.9 | 6.6 |
Source: http://www.philadelphiafed.org/index.cfm
Chart VA-4 of the Federal Reserve Bank of Philadelphia is very useful, providing current and future general activity indexes from Jan 1995 to Apr 2012. The shaded areas are the recession cycle dates of the National Bureau of Economic Research (NBER) (http://www.nber.org/cycles.html). The Philadelphia Fed index dropped during the initial period of recession and then led the recovery, as industry overall. There was a second decline of the index into 2011 followed now by what hopefully could be renewed strength from late 2011 into Jan 2012 but marginal weakness in Feb with stability in Mar and Apr followed by sharp decline in May.
Chart VA-4, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and Future Activity Indexes
Source: Federal Reserve Bank of Philadelphia
http://www.philadelphiafed.org/index.cfm
Chart VA-5 of the Federal Reserve Bank of Philadelphia provides the index of new orders of the Business Outlook Survey. Strong growth in the beginning of 2011 was followed by a bump after Mar that lasted until Oct. The strength of the first quarter of 2011 has not been recovered with weakness in Apr-May 2012.
Chart VA-5, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current New Orders Diffusion Index
Source: Federal Reserve Bank of Philadelphia
http://www.philadelphiafed.org/index.cfm
Growth rates and levels of sales in billions of dollars of manufacturers, retailers and merchant wholesalers are provided in Table VA-5. Total business sales rose 0.6 percent in Mar 2012 after 0.7 percent in Feb and were up by 4.9 percent in Mar 2012 relative to Mar 2011. Sales of manufacturers increased 0.7 percent in Mar after increasing 0.1 percent in Feb and rose 4.1 percent in the 12 months ending in Mar 2012. Retailers’ sales increased 0.7 percent in Mar after increasing 1.1 percent in Feb and 7.2 percent in 12 months ending in Mar. Sales of merchant wholesalers increased 0.5 percent in Mar after zero 1.1 in Feb and grew 3.9 percent in 12 months. These data are not adjusted for price changes such that they reflect increases in both quantities and prices.
Table VA-5, US, Percentage Changes for Sales of Manufacturers, Retailers and Merchant Wholesalers
| Mar 12/ Feb 12 | Mar 2012 | Feb 12/ Jan 12 ∆% SA | Mar 12/ Mar 11 | |
| Total Business | 0.6 | 1,294,741 | 0.7 | 4.9 |
| Manufacturers | 0.7 | 490,637 | 0.1 | 4.1 |
| Retailers | 0.7 | 374,034 | 1.1 | 7.2 |
| Merchant Wholesalers | 0.5 | 430,070 | 1.1 | 3.9 |
Source: US Census Bureau http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf
Businesses added to inventories to replenish stocks in an environment of strong sales. Retailers added 0.4 percent to inventories in Mar and 0.5 percent in Feb with growth of 5.1 percent in 12 months, as shown in Table VA-6. Total business increased inventories by 0.3 percent in Mar, 0.6 percent in Feb and 6.6 percent in 12 months. Inventories sales/ratios of total business continued at a level close to 1.27 under judicious management to avoid costs and risks. Inventory/sales ratios of manufacturers and retailers are higher than for merchant wholesalers. There is stability in inventory/sales ratios in individual months and relative to a year earlier.
Table VA-6, US, Percentage Changes for Inventories of Manufacturers, Retailers and Merchant Wholesalers and Inventory/Sales Ratios
| Inventory Change | Mar 12 | Mar 12/ Feb 12 ∆% SA | Feb 12/ Jan 12 ∆% SA | Mar 12/ Mar 11 ∆% NSA |
| Total Business | 1,294,741 | 0.3 | 0.6 | 6.6 |
| Manufacturers | 490,637 | 0.3 | 0.3 | 6.6 |
| Retailers | 374,034 | 0.4 | 0.5 | 5.1 |
| Merchant | 430,070 | 0.3 | 0.9 | 8.3 |
| Inventory/ | Feb 12 | Mar 2012 SA | Feb 2012 SA | Mar 2011 SA |
| Total Business | 1,294,741 | 1.27 | 1.28 | 1.26 |
| Manufacturers | 490,637 | 1.33 | 1.33 | 1.30 |
| Retailers | 374,034 | 1.32 | 1.33 | 1.34 |
| Merchant Wholesalers | 430,070 | 1.17 | 1.17 | 1.15 |
Source: US Census Bureau http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf
Inventories follow business cycles. When recession hits sales inventories pile up, declining with expansion of the economy. In a fascinating classic opus, Lloyd Meltzer (1941, 129) concludes:
“The dynamic sequences (I) through (6) were intended to show what types of behavior are possible for a system containing a sales output lag. The following conclusions seem to be the most important:
(i) An economy in which business men attempt to recoup inventory losses will always undergo cyclical fluctuations when equilibrium is disturbed, provided the economy is stable.
This is the pure inventory cycle.
(2) The assumption of stability imposes severe limitations upon the possible size of the marginal propensity to consume, particularly if the coefficient of expectation is positive.
(3) The inventory accelerator is a more powerful de-stabilizer than the ordinary acceleration principle. The difference' in stability conditions is due to the fact that the former allows for replacement demand whereas the usual analytical formulation of the latter does not. Thus, for inventories, replacement demand acts as a de-stabilizer. Whether it does so for all types of capital goods is a moot question, but I believe cases may occur in which it does not.
(4) Investment for inventory purposes cannot alter the equilibrium of income, which depends only upon the propensity to consume and the amount of non-induced investment.
(5) The apparent instability of a system containing both an accelerator and a coefficient of expectation makes further investigation of possible stabilizers highly desirable.”
Chart VA-6 shows the increase in the inventory/sales ratios during the recessions of 2001 and 2007-2009. The inventory/sales ratio fell during the expansions. The inventory/sales ratio declined to a trough in 2011, climbed and then stabilized at current levels.
Chart VA-6, Total Business Inventories/Sales Ratios 2002 to 2011
Source: US Census Bureau
http://www2.census.gov/retail/releases/historical/mtis/img/mtisbrf.gif
Sales of retail and food services increased 0.1 percent in Apr 2012 after 0.7 percent in Mar and increased 7.2 percent in Jan-Apr 2012 relative to Jan-Apr 2011, as shown in Table VA-7. Excluding motor vehicles and parts, retail sales also increased 0.1 percent in Apr after 0.8 percent in Mar and growing 7.1 percent in Jan-Apr relative to a year earlier. Sales of motor vehicles and parts increased 0.5 percent in Apr after 0.2 percent in Mar and 7.7 percent in Jan-Apr relative to a year earlier. Gasoline station sales decreased 0.3 percent in Apr after increasing 1.0 percent in Mar in fluctuating prices of gasoline, increasing 8.7 percent in Jan-Apr relative to a year earlier.
Table VA-7, US, Percentage Change in Monthly Sales for Retail and Food Services, ∆%
| Apr/Feb ∆% SA | Mar/Feb ∆% SA | Jan-Apr 2012 Billion Dollars NSA | Jan-Apr 2012 from Jan-Apr 2011 ∆% NSA | |
| Retail and Food Services | 0.1 | 0.7 | 1,588.7 | 7.2 |
| Excluding Motor Vehicles and Parts | 0.1 | 0.8 | 1,268.1 | 7.1 |
| Motor Vehicles & Parts | 0.5 | 0.2 | 290.6 | 7.7 |
| Retail | 0.1 | 0.7 | 1,387.6 | 7.0 |
| Building Materials | -1.8 | 2.7 | 91.0 | 12.7 |
| Food and Beverage | 0.3 | 0.7 | 203.7 | 4.2 |
| Grocery | 0.5 | 0.7 | 184.2 | 4.0 |
| Health & Personal Care Stores | 0.6 | 0.2 | 92.3 | 3.3 |
| Clothing & Clothing Accessories Stores | -0.7 | -0.1 | 71.0 | 7.5 |
| Gasoline Stations | -0.3 | 1.0 | 177.3 | 8.7 |
| General Merchandise Stores | -0.1 | 0.6 | 199.7 | 4.4 |
| Food Services & Drinking Places | 0.4 | 0.9 | 171.2 | 8.9 |
Source: http://www.census.gov/retail/marts/www/marts_current.pdf
Chart VA-7 of the US Bureau of the Census shows percentage change of retails and food services sales. Auto sales have been strongly monthly, and particularly relative to a year earlier, but with strength in the total excluding auto sales.
Chart VA-7, US, Percentage Change of Retail and Food Services Sales
Source: US Census Bureau
http://www2.census.gov/retail/releases/historical/marts/img/martsbrf.gif
Twelve-month rates of growth of US sales of retail and food services in Apr from 2000 to 2012 are shown in Table VA-8. Nominal sales have been dynamic in 2011 and 2010 after declines of 10.5 percent in 2009 and increase of only 2.0 percent in 2007. It is difficult to separate price and quantity effects in these nominal data. Sales growth in Apr 2012 relative to Apr 2011 has been lower at 4.5 percent.
Table VA-8, US, Percentage Change in 12-Month Sales for Retail and Food Services, ∆% NSA
| Apr | 12 Months ∆% |
| 2012 | 4.5 |
| 2011 | 7.4 |
| 2010 | 8.2 |
| 2009 | -10.5 |
| 2008 | 3.0 |
| 2007 | 2.0 |
| 2006 | 4.8 |
| 2005 | 6.5 |
| 2004 | 7.1 |
| 2003 | 3.3 |
| 2002 | 3.6 |
| 2001 | 4.0 |
| 2000 | 5.4 |
Source: http://www.census.gov/retail/
Seasonally-adjusted annual rates (SAAR) of housing starts and permits are shown in Table VA-9. Housing starts increased 2.6 percent in Apr 2012 after falling 2.6 percent in Mar and 0.3 percent in Feb, increasing 3.3 percent in Jan, falling 1.6 percent in Dec and jumping 12.4 percent in Nov. The increase of 15 percent in Sep was revised to 11.4 percent. Housing permits, indicating future activity, fell 7.0 in Apr 2012 after increasing 8.8 percent in Mar, 3.4 percent in Feb, decreasing 1.1 percent in Jan. Monthly rates in starts and permits fluctuate significantly as shown in Table VA-9.
Table VA-9, US, Housing Starts and Permits SSAR Month ∆%
| Housing | Month ∆% | Housing | Month ∆% | |
| Apr 2012 | 717 | 2.6 | 715 | -7.0 |
| Mar | 699 | -2.6 | 769 | 8.8 |
| Feb | 718 | -0.3 | 707 | 3.4 |
| Jan | 720 | 3.3 | 684 | -2.4 |
| Dec 2011 | 697 | -1.6 | 701 | -1.1 |
| Nov | 708 | 12.4 | 709 | 6.3 |
| Oct | 630 | -2.6 | 667 | 8.3 |
| Sep | 647 | 11.4 | 616 | -4.5 |
| Aug | 581 | -5.4 | 645 | 2.9 |
| Jul | 614 | -0.2 | 627 | -0.9 |
| Jun | 615 | 11.6 | 633 | 1.4 |
| May | 551 | -0.2 | 624 | 7.9 |
| Apr | 552 | -8.0 | 578 | -2.0 |
| Mar | 600 | 15.8 | 590 | 10.1 |
| Feb | 518 | -18.0 | 536 | -5.3 |
| Jan | 632 | 17.3 | 566 | -10.4 |
| Dec 2010 | 539 | -1.1 | 632 | 12.9 |
| Nov | 545 | 0.4 | 560 | 0.4 |
| Oct | 543 | -8.6 | 558 | -0.9 |
| Sep | 594 | -0.8 | 563 | -3.0 |
SAAR: Seasonally Adjusted Annual Rate
Source: US Census Bureau http://www.census.gov/construction/nrc/
Housing starts and permits in Jan-Apr not-seasonally adjusted are provided in Table VA-10. Housing starts increased 25.2 percent in Jan-Apr 2012 relative to Jan-Apr 2011 and in the same period new permits increased 29.6 percent. Construction of new houses in the US remains at very depressed levels. Housing starts fell 65.0 percent in Jan-Apr 2012 relative to Jan-Apr 2006 and fell 65.5 percent relative to Jan-Apr 2005. Housing permits fell 65.6 in Jan-Apr 2006 relative to Jan-Apr 2012 and fell 66.0 percent in Jan-Apr 2012 from Jan-Apr 2005.
Table VA-10, US, Housing Starts and New Permits, Thousands of Units, NSA, and %
| Housing Starts | New Permits | |
| Jan-Apr 2012 | 218.5 | 229.7 |
| Jan-Apr 2011 | 174.5 | 177.2 |
| ∆% Jan-Apr 2012/Jan-Apr 2011 | 25.2 | 29.6 |
| Jan-Apr 2006 | 624.6 | 667.9 |
| ∆%/Jan-Apr 2012 | -65.0 | -65.6 |
| Jan-Apr 2005 | 632.8 | 675.7 |
| ∆%/ Jan-Apr 2012 | -65.5 | -66.0 |
Source: http://www.census.gov/construction/nrc/pdf/newresconst.pdf
http://www.census.gov/construction/nrc/pdf/newresconst_200704.pdf
http://www.census.gov/construction/nrc/pdf/newresconst_200604.pdf
Chart VA-8 of the US Census Bureau shows the sharp increase in construction of new houses from 2000 to 2006. Housing construction fell sharply through the recession, recovering from the trough around IIQ2009. The right-hand side of Chart VA-8 shows a mild downward trend or stagnation from mid 2010 to the present in single-family houses with a recent mild upward trend in recent months in the category of two or more units but marginal decline in Mar-Apr 2012.
Chart VA-8, US, New Housing Units Started in the US, SAAR (Seasonally Adjusted Annual Rate)
Source: US Census Bureau
http://www.census.gov/briefrm/esbr/www/esbr020.html
A longer perspective on residential construction in the US is provided by Table VA-11 with annual data from 1960 to 2011. Housing starts fell 70.6 percent from 2005 to 2011, 61.2 percent from 2000 to 2011 and 51.3 percent relative to 1960. Housing permits fell 71.7 percent from 2005 to 2011, 61.2 percent from 2000 to 2011 and 51.4 percent from 1960 to 2011. Housing starts rose 31.8 from 2000 to 2005 while housing permits grew 35.4 percent. From 1990 to 2000 housing starts increased 31.5 percent while permits increased 43.3 percent.
Table VA-11, US, Annual New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places and New Privately Owned Housing Units Started, Thousands
| Starts | Permits | |
| 2011 | 608.8 | 624.1 |
| ∆% 2011/2010 | 3.7 | 3.2 |
| ∆% 2011/2005 | -70.6 | -71.0 |
| ∆% 2011/2000 | -61.2 | -60.8 |
| ∆% 2011/1960 | -51.4 | -37.4 |
| 2010 | 586.9 | 604.6 |
| ∆% 2010/2005 | -71.6 | -71.9 |
| ∆% 2010/2000 | -62.6 | -62.0 |
| ∆% 2010/1960 | -53.1 | -39.4 |
| 2009 | 554,0 | 583.0 |
| 2008 | 905.5 | 905.4 |
| 2007 | 1,355,0 | 1,398.4 |
| 2006 | 1,800.9 | 1,838.9 |
| 2005 | 2,068.3 | 2,155.3 |
| ∆% 2005/2000 | 31.8 | 35.4 |
| 2004 | 1,955.8 | 2,070.1 |
| 2003 | 1,847.7 | 1,889,2 |
| 2002 | 1,704.9 | 1,747.2 |
| 2001 | 1,602.7 | 1,1637.7 |
| 2000 | 1,568.7 | 1,592.3 |
| ∆% 2000/1990 | 31.5 | 43.3 |
| 1990 | 1,192,7 | 1,110.8 |
| 1980 | 1,292.2 | 1,190.6 |
| 1970 | 1,433.6 | 1,351.5 |
| 1960 | 1,252.2 | 997.6 |
Source: http://www.census.gov/construction/nrc/
Risk aversion channels funds toward US long-term and short-term securities. Net foreign purchases of US long-term securities (row C in Table VA-12) increased from $10.1 billion in Feb 2012 to $36.2 billion in Mar 2012. Foreign (residents) purchases minus sales of US long-term securities (row A in Table VA-12) in Feb of minus $24.8 billion decreased to $22.3 billion in Mar 2012. Net US (residents) purchases of long-term foreign securities (row B in Table VA-12) in Feb were minus $14.6 billion but increased to $13.9 billion in Mar. In Mar,
C = A + B = $22.3 billion + $13.9 billion = $36.2 billion
There is weakening demand in Table VA-12 in Feb in A1 private purchases by residents overseas of US long-term securities of minus $4.0 billion of which decreases in A11 Treasury securities of $11.1 billion and A12 $1.4 billion agency securities and increase of corporate bonds by $2.0 billion and increase of $6.5 billion in equities. Official purchases of Treasury securities in row A21 increased $26.3 billion with increase of Treasury securities of $31.6 billion. Row D shows sharp decrease in Mar in purchases of short-term dollar denominated obligations. Foreign private holdings of US Treasury bills increased $2.1 billion (row D11) with foreign official holdings decreasing $4.8 billion and the category other decreasing $6.7 billion. Risk aversion of losses in foreign securities dominates decisions to accept zero interest rates in Treasury securities with no perception of principal losses. In the case of long-term securities, investors prefer to sacrifice inflation and possible duration risk to avoid principal losses.
Table VA-12, Net Cross-Borders Flows of US Long-Term Securities, Billion Dollars, NSA
| Mar 2011 12 Months | Mar 2012 12 Months | Feb 2012 | Mar 2012 | |
| A Foreign Purchases less Sales of | 827.9 | 420.7 | 24.8 | 22.3 |
| A1 Private | 663.2 | 231.0 | 6.2 | -4.0 |
| A11 Treasury | 409.8 | 214.2 | 4.3 | -11.1 |
| A12 Agency | 128.9 | 63.8 | 2.3 | -1.4 |
| A13 Corporate Bonds | 7.2 | -49.9 | -8.9 | 2.0 |
| A14 Equities | 117.2 | 3.0 | 8.6 | 6.5 |
| A2 Official | 164.8 | 189.6 | 18.6 | 26.3 |
| A21 Treasury | 183.5 | 178.5 | 11.1 | 31.6 |
| A22 Agency | -16.2 | 7.4 | 7.8 | -5.3 |
| A23 Corporate Bonds | -2.0 | 0.3 | 0.7 | -0.4 |
| A24 Equities | -0.5 | 3.4 | -1.0 | 0.5 |
| B Net US Purchases of LT Foreign Securities | -158.6 | -35.8 | -14.6 | 13.9 |
| B1 Foreign Bonds | -61.4 | 3.1 | -8.7 | 17.0 |
| B2 Foreign Equities | -97.2 | -38.9 | -5.9 | -3.0 |
| C Net Foreign Purchases of US LT Securities | 669.3 | 384.8 | 10.1 | 36.2 |
| D Increase in Foreign Holdings of Dollar Denominated Short-term | -57.7 | -53.9 | 51.7 | -9.4 |
| D1 US Treasury Bills | -60.9 | -30.1 | 26.2 | -2.7 |
| D11 Private | 25.5 | 28.9 | 15.0 | 2.1 |
| D12 Official | -86.4 | -59.0 | 11.1 | -4.8 |
| D2 Other | 3.2 | -23.8 | 25.5 | -6.7 |
C = A + B;
A = A1 + A2
A1 = A11 + A12 + A13 + A14
A2 = A21 + A22 + A23 + A24
B = B1 + B2
D = D1 + D2
D1 = D11 + D12
Sources: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticpress.aspx
Table VA-13 provides major foreign holders of US Treasury securities. China is the largest holder with $1169.9 billion in Mar 2012, increasing 2.2 percent from $1144.9 billion in Mar 2011. Japan increased its holdings from $908.1 billion in Mar 2011 to $1083.0 billion in Mar 2012. Total foreign holdings of Treasury securities rose from $4477.6 billion in Mar 2011 to $5117.6 billion in Mar 2012, or 14.3 percent. The US continues to finance its fiscal and balance of payments deficits with foreign savings.
Table VA-13, US, Major Foreign Holders of Treasury Securities $ Billions at End of Period
| Mar 2012 | Feb 2012 | Mar 2011 | |
| Total | 5117.6 | 5099.8 | 4477.6 |
| China | 1169.9 | 1155.2 | 1144.9 |
| Japan | 1083.0 | 1085.4 | 908.1 |
| Oil Exporters | 254.5 | 264.9 | 222.5 |
| Brazil | 237.4 | 228.4 | 193.5 |
| Caribbean Banking Centers | 224.8 | 221.7 | 155.4 |
| Taiwan | 184.4 | 183.7 | 156.1 |
| Switzerland | 147.8 | 145.3 | 108.8 |
| Russia | 146.7 | 144.8 | 127.8 |
| Hong Kong | 138.8 | 141.8 | 121.6 |
| Luxembourg | 136.8 | 140.9 | 79.8 |
| Belgium | 125.7 | 125.1 | 32.2 |
Source: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticsec2.aspx#ussecs
VB Japan. Table VB-BOJF provides the forecasts of economic activity and inflation in Japan by the majority of members of the Policy Board of the Bank of Japan, which is part of their Outlook for Economic Activity and Prices (http://www.boj.or.jp/en/mopo/outlook/gor1204a.pdf
http://www.boj.or.jp/en/mopo/outlook/gor1204b.pdf). For fiscal 2012, the forecast is of growth of GDP between 2.1 and 2.4 percent, with domestic producer price inflation (Corporate Goods Price Index, CGPI) in the range of 0.4 to 0.7 percent and the all items CPI less fresh food of 0.1 to 0.4 percent.
Table VB-BOJF, Bank of Japan, Forecasts of the Majority of Members of the Policy Board, % Year on Year
| Fiscal Year | Real GDP | Domestic CGPI | CPI All Items Less Fresh Food |
| 2011 | |||
| Apr 2012 | -0.2 to –0.2 | +1.7 | 0.0 |
| Jan 2012 | -0.4 to –0.3 | +1.8 to +1.9 | -0.1 to 0.0 |
| 2012 | |||
| Apr 2012 | +2.1 to +2.4 | +0.4 to +0.7 | +0.1 to +0.4 |
| Jan 2012 | +1.8 to +2.1 | -0.1 to +0.2 | 0.0 to +0.2 |
| 2013 | |||
| Apr 2012 | +1.6 to +1.8 | +0.7 to +0.9 | +0.5 to +0.7 |
| Jan 2012 | +1.4 to +1.7 | +0.6 to 1.0 | +0.4 to +0.5 |
Figures in brackets are the median of forecasts of Policy Board members
Source: Policy Board, Bank of Japan
http://www.boj.or.jp/en/mopo/outlook/gor1204a.pdf
http://www.boj.or.jp/en/mopo/outlook/gor1204b.pdf
Private-sector activity in Japan expanded at lower pace with the Markit Composite Output PMI™ Index declining from 53.2 in Mar to 51.3 in Apr (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9477). Alex Hamilton, economist at Markit and author of the report, finds softer conditions in Japan relative to Mar (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9477). The Markit Business Activity Index of Services decreased from 53.7 in Mar to 51.0 in Apr, also showing slower pace (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9477). The Markit/JMMA Purchasing Managers’ Index™, seasonally adjusted, fell from 51.1 in Mar to 50.7 in Apr, for the highest reading in seven months, indicating marginal improvement in manufacturing in Japan (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9457). Alex Hamilton, economist at Markit and author of the report, finds that investment goods drove the recovery and that new orders registered strong growth but that foreign demand and yen overvaluation are important risk of continuing improvement (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9457).
Table JPY provides the country data table for Japan.
Table JPY, Japan, Economic Indicators
| Historical GDP and CPI | 1981-2010 Real GDP Growth and CPI Inflation 1981-2010 |
| Corporate Goods Prices | Apr ∆% 0.3 |
| Consumer Price Index | Mar NSA ∆% 0.5 |
| Real GDP Growth | IQ2012 ∆%: 1.0 on IVQ2011; IQ2012 SAAR 4.1; |
| Employment Report | Mar Unemployed 3.07 million Change in unemployed since last year: minus 150 thousand |
| All Industry Indices | Feb month SA ∆% minus 0.1 Blog 4/29/12 |
| Industrial Production | Mar SA month ∆%: 1.0 |
| Machine Orders | Total Mar ∆% 4.1 Private ∆%: -4.3 |
| Tertiary Index | Mar month SA ∆% -0.6 |
| Wholesale and Retail Sales | Mar 12 months: |
| Family Income and Expenditure Survey | Mar 12-month ∆% total nominal consumption 4.1, real 3.4 Blog 4/29/12 |
| Trade Balance | Exports Mar 12 months ∆%: +5.9 Imports Mar 12 months ∆% +10.5 Blog 4/22/12 |
Links to blog comments in Table JPY:
4/29/12 http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment_29.html
4/22/12 http://cmpassocregulationblog.blogspot.com/2012/04/imf-view-of-world-economy-and-finance_22.html
7/31/11: http://cmpassocregulationblog.blogspot.com/2011/07/growth-recession-debt-financial-risk.html
The first estimate of the national accounts of Japan is encouraging. Japan’s GDP increased 1.0 percent in IQ2012 relative to IVQ2011, seasonally adjusted, as shown in Table VB-1 that incorporates the latest revisions. IIIQ2011 GDP growth was revised upward to 1.9 percent and IQ2011 was revised downward to minus 2.0 percent. The economy of Japan had already weakened in IVQ2010 when GDP was flat. As in other advanced economies, Japan’s recovery from the global recession has not been robust. GDP fell in IQ2011 by 2.0 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 4.0 percent in IQ2009.
Table VB-1, Japan, Real GDP ∆% Changes from the Previous Quarter Seasonally Adjusted ∆%
| IQ | IIQ | IIIQ | IVQ | |
| 2012 | 1.0 | |||
| 2011 | -2.0 | -0.3 | 1.9 | 0.0 |
| 2010 | 1.3 | 1.3 | 0.7 | 0.0 |
| 2009 | -4.0 | 1.7 | 0.0 | 1.9 |
| 2008 | 0.7 | -1.3 | -1.1 | -3.2 |
| 2007 | 1.0 | 0.0 | -0.4 | 0.9 |
| 2006 | 0.4 | 0.4 | -0.1 | 1.4 |
| 2005 | 0.2 | 1.3 | 0.3 | 0.2 |
| 2004 | 1.0 | 0.0 | 0.1 | -0.2 |
| 2003 | -0.5 | 1.3 | 0.4 | 1.1 |
| 2002 | -0.2 | 1.0 | 0.6 | 0.4 |
| 2001 | 0.7 | -0.2 | -1.1 | -0.2 |
| 2000 | 1.7 | 0.1 | -0.2 | 0.6 |
| 1999 | -0.9 | 0.4 | -0.1 | 0.4 |
Source: http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html
Table VB-2 provides contributions to real GDP at seasonally-adjusted annual rates (SAAR). The SAAR of GDP in IQ2012 was 4.1 percent: 2.6 percentage points from growth of personal consumption expenditures (PC) less 1.3 percentage points from gross fixed capital formation (GFCF) plus 0.6 percentage points from government consumption (GOVC) plus net trade (exports less imports) of 0.5 percentage points plus 1.7 percentage point of private inventory change. The SAAR of GDP in IIIQ2011 was revised to a high 7.6 percent. Net trade deducted from GDP growth in three quarters of 2011 and provided the growth impulse of 3.1 percentage points in IIIQ2011. Growth in 2011 and IQ2012 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 | |
| 2012 | ||||||
| I | 4.1 | 2.6 | -1.3 | 0.5 | 1.7 | 0.6 |
| 2011 | ||||||
| I | -7.9 | -3.4 | -0.5 | -0.9 | -3.4 | 0.3 |
| II | -1.2 | 1.4 | 0.9 | -4.0 | 0.1 | 0.6 |
| III | 7.6 | 2.6 | 0.3 | 3.1 | 1.3 | 0.2 |
| IV | 0.1 | 1.7 | 2.0 | -2.9 | -1.5 | 0.3 |
| 2010 | ||||||
| I | 5.2 | 1.4 | 0.3 | 2.2 | 1.5 | -0.4 |
| II | 5.2 | 0.7 | 1.2 | 0.2 | 2.1 | 1.2 |
| III | 2.9 | 1.0 | 0.5 | 0.0 | 1.2 | 0.2 |
| IV | 0.0 | 0.5 | -1.2 | -0.2 | 0.2 | 0.3 |
| 2009 | ||||||
| I | -15.0 | -2.1 | -2.0 | -4.3 | -7.6 | 0.9 |
| II | 6.8 | 4.0 | -2.9 | 7.3 | -1.9 | 0.5 |
| III | -0.1 | 0.2 | -1.5 | 1.8 | -1.6 | 0.9 |
| IV | 7.9 | 3.5 | 0.1 | 3.0 | 0.7 | 0.4 |
| 2008 | ||||||
| I | 2.9 | 1.4 | 0.3 | 1.4 | -0.4 | 0.0 |
| II | -5.1 | -3.4 | -2.2 | 0.2 | 1.2 | -0.9 |
| III | -4.2 | -0.2 | -1.0 | -0.2 | -2.7 | -0.1 |
| IV | -12.1 | -2.8 | -4.5 | -11.1 | 5.8 | 0.4 |
| 2007 | ||||||
| I | 4.2 | 0.8 | 0.5 | 1.3 | 1.2 | 0.4 |
| II | 0.1 | 0.4 | -1.5 | 0.5 | 0.1 | 0.5 |
| III | -1.5 | -0.7 | -1.7 | 1.8 | -0.7 | -0.2 |
| IV | 3.8 | 0.3 | 0.3 | 1.7 | 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.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.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 2001-2002 and after 2007. The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 caused decline of GDP in IQ2011 of 0.2 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 0.5 percent in IVQ2011 relative to a year earlier. Growth resumed with 2.7 percent in IQ2012 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 | |
| 2012 | 2.7 | |||
| 2011 | -0.2 | -1.7 | -0.4 | -0.5 |
| 2010 | 4.9 | 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.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html
Japan’s machinery orders in Table VB-4 increased 4.1 percent in Mar after falling sharply in Feb by 11.4 percent. Total orders grew 13.4 percent in Jan after falling 2.7 percent in Dec. Private-sector orders excluding volatile orders, which are closely watched, fell 2.8 percent in Mar, increasing 2.8 percent in Feb after growing Jan 0.7 percent in Jan but falling 20.2 percent in Dec. Orders for manufacturing fell 8.4 percent in Mar, increasing 9.5 percent in Feb after falling 1.3 percent in Jan and 4.0 percent in Dec. Overseas orders fell 14.4 percent in Mar after dropping 13.4 percent in Feb but jumping 14.6 percent in Jan. There is significant volatility in industrial orders in advanced economies.
Table VB-4, Japan, Machinery Orders, Month ∆%, SA
| 2011-2012 | Mar | Feb | Jan | Dec |
| Total | 4.1 | -11.4 | 13.4 | -2.7 |
| Private Sector | -4.3 | 3.5 | 4.6 | -20.2 |
| Excluding Volatile Orders | -2.8 | 2.8 | 0.7 | -2.5 |
| Mfg | -8.4 | 9.5 | -1.3 | -4.0 |
| Non Mfg ex Volatile | -3.9 | 2.1 | 1.4 | -4.0 |
| Government | 40.0 | -6.1 | -16.1 | 41.3 |
| From Overseas | -14.4 | -13.4 | 14.6 | 4.1 |
| Through Agencies | 21.5 | 3.8 | -2.1 | 2.5 |
Note: Mfg: manufacturing
Source: Japan Economic and Social Research Institute, Cabinet Office
http://www.esri.cao.go.jp/en/stat/juchu/juchu-e.html
Total orders for machinery and total private-sector orders excluding volatile orders for Japan are shown in Chart VB-1 of Japan’s Economic and Social Research Institute at the Cabinet Office. The trend of private-sector orders excluding volatile orders is showing recovery from the drop in after Mar 2011 because of the earthquake/tsunami. There could be reversal of the trend of increase in total orders with recent increases. Fluctuations still prevent detecting longer term trends.
Chart VB-1, Japan, Machinery Orders
Source: Japan Economic and Social Research Institute, Cabinet Office
http://www.esri.cao.go.jp/en/stat/juchu/juchu-e.html
Table VB-5 provides values and percentage changes from a year earlier of Japan’s machinery orders without seasonal adjustment. Total orders of JPY 3,462,415 million in Mar 2012 are divided between JPY 1,132,510 overseas orders, or 32.7 percent of the total, and domestic orders of JPY 2,199,11, or 63.5 percent of the total, with orders through agencies of JPY 130,794 million, or 3.8 percent of the total. Orders through agencies are not shown in the table because of the minor value. Twelve-month percentages changes in Mar 2012 rebounded: 8.1 percent for total orders, minus 8.9 percent for overseas orders, 19.0 percent for domestic orders and minus 1.1 percent for private orders excluding volatile items. Performance in Feb 2012 was weak with growth of total orders of minus 9.3 percent, minus 8.9 percent of overseas orders, minus 11.2 percent of domestic orders and 8.9 percent of private orders excluding volatile items. Jan 2012 was quite strong with growth of total orders of 9.8 percent driven by growth of overseas orders of 18.3 percent. There is sharp reversal of 12-month percentage changes in Nov with increase of 11.0 percent in total orders, 8.0 percent in overseas orders, 13.5 percent in domestic orders and 12.5 percent in private orders excluding volatile items. The pace of increase declined in Dec with growth in 12 months of 0.8 percent for total orders, 12.6 percent for overseas orders, decline of 8.5 percent for domestic orders and growth of private orders excluding volatile items of 6.3 percent. There was strong impact from the global recession with total orders falling 23.3 percent in 2008, overseas orders dropping 29.4 percent and domestic orders decreasing 17.4 percent. Recovery was vigorous in 2010 with increase of total orders by 9.4 percent, overseas orders by 3.5 percent and domestic orders by 14.1 percent. The heavy impact of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 also affected machinery orders.
Table VB-5, Japan, Machinery Orders, 12 Months ∆% and Million Yen, Original Series
| Total | Overseas | Domestic | Private ex Volatile | |
| Value Mar 2012 | 3,462,415 | 1,132,510 | 2,199,111 | 1,126,865 |
| % Total | 100.0 | 32.7 | 63.5 | 32.6 |
| Value Mar 2011 | 3,203,532 | 1,258,385 | 1,847,642 | 1,138,991 |
| % Total | 100.0 | 39.3 | 57.7 | 35.6 |
| 12-month ∆% | ||||
| Mar 2012 | 8.1 | -10.0 | 19.0 | -1.1 |
| Feb 2012 | -9.3 | -8.9 | -11.2 | 8.9 |
| Jan 2012 | 9.8 | 18.3 | 0.5 | 5.7 |
| Dec 2011 | 0.8 | 12.6 | -8.5 | 6.3 |
| Nov 2011 | 11.0 | 8.0 | 13.5 | 12.5 |
| Oct 2011 | -6.8 | -15.6 | -1.0 | 1.5 |
| Dec 2010 | 9.4 | 3.5 | 14.1 | -0.6 |
| Dec 2009 | 1.8 | 0.4 | 3.6 | -1.9 |
| Dec 2008 | -23.3 | -29.4 | -17.4 | -24.7 |
| Dec 2007 | 1.3 | 9.8 | -4.3 | -6.4 |
| Dec 2006 | 0.8 | 0.9 | -0.1 | 0.1 |
Note: Total machinery orders = overseas + domestic demand + orders through agencies. Orders through agencies in Oct 2011 were JPY 88,919 million, or 4.5 percent of the total, and are not shown in the table. The data are the original numbers without any adjustments and differ from the seasonally-adjusted data.
Source: Japan Economic and Social Research Institute, Cabinet Office http://www.esri.cao.go.jp/en/stat/juchu/juchu-e.html
The tertiary activity index of Japan seasonally adjusted fell at the annual equivalent rate of minus 4.7 percent in Jan-Mar 2012 for cumulative decline of 1.2 percent but increased 4.2 percent not seasonally adjusted in the 12 months ending in Mar 2012, as shown in Table VB-6. There was strong impact from the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 in the decline of the tertiary activity index by 5.4 percent in Mar 2011 and 3.4 percent in 12 months. The performance of the tertiary sector in the quarter Jul-Sep was weak: increase of 0.4 percent in Jul, increase of 0.1 percent in Aug and decline of 0.2 percent in Sep, after increasing 1.2 percent in Jun. The index seasonally adjusted has gained 4.8 percent in the eleven months from Apr 2011 to Mar 2012 and the not seasonally adjusted index has gained 4.2 percent in the 12 months ending in Mar 2012. Most of the growth occurred in the quarter from Apr to Jun with gain of 4.3 percent or at annual equivalent rate of 18.1 percent.
Table VB-6, Japan, Tertiary Activity Index, ∆%
| Month ∆% SA | 12 Months ∆% NSA | |
| Mar 2012 | -0.6 | 4.2 |
| Feb | 0.0 | 2.4 |
| Jan | -0.6 | 0.4 |
| Dec 2011 | 1.6 | 1.2 |
| Nov | -0.8 | -0.3 |
| Oct | 0.6 | 0.9 |
| Sep | -0.2 | 0.1 |
| Aug | 0.1 | 0.8 |
| Jul | 0.4 | 0.1 |
| Jun | 1.2 | 1.0 |
| May | 0.9 | -0.2 |
| Apr | 2.1 | -2.3 |
| Mar | -5.4 | -3.4 |
| Feb | 0.3 | 2.0 |
| Jan | 0.5 | 1.0 |
| Dec 2010 | -0.2 | 1.8 |
| Nov | 0.6 | 2.5 |
| Oct | 0.2 | 0.5 |
| Sep | -0.4 | 1.3 |
| Aug | 0.1 | 2.3 |
| Jul | 0.7 | 1.6 |
| Jun | 0.1 | 1.0 |
| May | -0.3 | 1.2 |
| Dec 2009 | -2.7 | |
| Dec 2008 | -3.3 | |
| Dec 2007 | -0.3 | |
| Dec 2006 | 0.6 | |
| Dec 2005 | 2.6 | |
| Dec 2004 | 1.6 | |
| Calendar Year | ||
| 2011 | 0.1 | |
| 2010 | 1.3 | |
| 2009 | -5.2 |
Source: http://www.meti.go.jp/statistics/tyo/sanzi/result/pdf/hv37903_201203j.pdf
http://www.meti.go.jp/english/statistics/tyo/sanzi/index.html
Month and 12-month rates of growth of the tertiary activity index of Japan and components in Jan are provided in Table VB-7. Electricity, gas, heat supply and water increased 0.7 percent in Mar and 2.2 percent in the 12 months ending in Mar. Wholesale and retail trade decreased 0.4 percent in the month of Mar but increased 2.2 percent in 12 months. Information and communications fell 7.3 percent in Mar and grew 3.4 percent in 12 months.
Table VB-7, Japan, Tertiary Index and Components, Month and 12-Month Percentage Changes ∆%
| Mar 2012 | Weight | Month ∆% SA | 12 Months ∆% NSA |
| Tertiary Index | 10,000.0 | -0.6 | 4.2 |
| Electricity, Gas, Heat Supply & Water | 372.9 | 0.7 | 2.2 |
| Information & Communications | 951.2 | -7.3 | 3.4 |
| Wholesale & Retail Trade | 2,641.2 | -0.4 | 2.2 |
| Finance & Insurance | 971.1 | 1.8 | 1.1 |
| Real Estate & Goods Rental & Leasing | 903.4 | 0.3 | 0.9 |
| Scientific Research, Professional & Technical Services | 551.3 | 1.8 | 8.6 |
| Accommodations, Eating, Drinking | 496.0 | -0.4 | 16.8 |
| Living-Related, Personal, Amusement Services | 552.7 | -2.9 | 21.0 |
| Learning Support | 116.9 | -0.1 | 2.0 |
| Medical, Health Care, Welfare | 921,1 | 0.5 | 2.3 |
| Miscellaneous ex Government | 626.7 | 1.2 | 2.7 |
Source:
http://www.meti.go.jp/statistics/tyo/sanzi/result/pdf/hv37903_201203j.pdf
http://www.meti.go.jp/english/statistics/tyo/sanzi/index.html
VC China. China estimates an index of nonmanufacturing purchasing managers on the basis of a sample of 1200 nonmanufacturing enterprises across the country (http://www.stats.gov.cn/english/pressrelease/t20120507_402803684.htm). Table CIPMS provides this index and components from Jan to Apr 2012. Although the index fell from 58.0 in Mar to 56.1 in Apr, it is higher than in Jan and remains above the threshold of contraction of 50.0.
Table CIPMS, China, Nonmanufacturing Index of Purchasing Managers, %, Seasonally Adjusted
| Total Index | New Orders | Interm. | Subs Prices | Exp | |
| Apr | 56.1 | 52.7 | 57.9 | 50.3 | 66.1 |
| Mar | 58.0 | 53.5 | 60.2 | 52.0 | 66.6 |
| Feb | 57.3 | 52.7 | 59.0 | 51.2 | 63.8 |
| Jan | 55.7 | 52.2 | 58.2 | 51.1 | 65.3 |
Notes: Interm.: Intermediate; Subs: Subscription; Exp: Business Expectations
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120507_402803684.htm
Chart CIPMS provides the index from Apr 2011 to Apr 2012. There was slowing of the general index in Apr after the increase in Jan-Mar.
Chart CIPMS, China, Nonmanufacturing Index of Purchasing Managers, Seasonally Adjusted
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120507_402803684.htm
China estimates a manufacturing index of purchasing managers on the basis of a sample of 820 enterprises (http://www.stats.gov.cn/english/pressrelease/t20120503_402802871.htm). Chart CIPMM provides the index from Apr 2011 to Apr 2012. There deceleration from 52.9 in Apr 2011 to marginal contraction at 49.0 in Nov 2011. Manufacturing activity recovered to 53.3 in Apr 2012.
Chart CIPMM, China, Manufacturing Index of Purchasing Managers, Seasonally Adjusted
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120503_402802871.htm
The HSBC China Services PMI™, compiled by Markit, finds marginally improving business activity in China with the HSBC Composite Output, combining manufacturing and services, increasing from 49.9 in Mar to 51.4 in Apr (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9484). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that the economy of China will reach bottom in IIQ2012 because of improving conditions in services originating in new business together with moderate manufacturing conditions (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9484).The HSBC Purchasing Managers’ Index™ (PMI™), compiled by Markit, increased to 49.3 in Apr from 48.3 in Feb, in a six consecutive month of declining conditions in manufacturing in China but at a marginal rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9479). The index for the first quarter of 2012 was the weakest since IQ2009. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds stabilization with likely bottom of growth of 8.1 percent growth of GDP in IQ2012 that may increase to 8.5 percent for the second half of 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9479).
Wang Xiaotian, writing on China Daily, on “China cuts its reserve ratio again,” published by Xinhuanet on May 13, 2012 (http://news.xinhuanet.com/english/china/2012-05/13/c_131584252.htm), informs that the People’s Bank of China (PBC) (http://www.pbc.gov.cn/publish/english/963/index.html) reduced the reserve requirement imposed on Chinese lenders by 50 basis points with the objective of injecting liquidity to strengthen the economy. This is the second such reduction of reserve requirements in 2012. The reduction is estimated to release CNY 400 in China’s money market. The reserve requirement will be 20 percent for larger banks and 16.5 percent for smaller banks. The measures are intended to strengthen the economy. Data still not fully available at the National Bureau of Statistics of China (http://www.stats.gov.cn/enGliSH/), which will be analyzed in this blog on Apr 20, show industrial production growing at 9.3 percent for the lowest rate in three years, retail sales growing at 14.1 percent in Apr relative to 15.2 percent in Mar and export growth falling from 8.9 percent in Mar to 4.9 percent in Apr as analyzed below.
Table CNY provides the country table for China.
Table CNY, China, Economic Indicators
| Price Indexes for Industry | Apr 12-month ∆%: minus 0.7 Apr month ∆%: 0.2 |
| Consumer Price Index | Apr month ∆%: -0.1 Apr 12 month ∆%: 3.4 |
| Value Added of Industry | Mar month ∆%: 0.93 Jan-Apr 2012/Jan-Apr 2011 ∆%: 11.0 |
| GDP Growth Rate | Year IQ2012 ∆%: 8.1 |
| Investment in Fixed Assets | Total Jan-Apr 2012 ∆%: 20.2 Real estate development: 18.7 |
| Retail Sales | Apr month ∆%: 1.1 Jan-Apr ∆%: 14.7 |
| Trade Balance | Apr balance $18.42 billion Cumulative Apr: $19.3 billion |
Links to blog comments in Table CNY:
5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html
4/15/12 http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring_15.html
Cumulative and 12-months rates of value added of industry in China are provided in Table VC-1. Value added in total industry in Jan-Apr 2012 increased 11.0 percent relative to a year earlier and 9.3 percent in the 12 months ending in Apr. Heavy industry had been the driver of growth with a cumulative rate of 11.0 percent relative to a year earlier in Mar that declined to 10.5 percent in Jan-Apr 2012 relative to the same period a year earlier. Light industry grew 12.3 percent in Jan-Apr 2012 relative to a year earlier and 10.3 percent in 12 months ending in Apr. Growth of total industry has decelerated from cumulative 14.2 percent in Jan-Mar 2011 to 11.0 percent in Jan-Apr 2012.
Table VC-1, China, Growth Rate of Value Added of Industry ∆%
| Industry | Light Industry | Heavy | State | Private | |
| 2012 | |||||
| Jan-Apr | 11.0 | 12.3 | 10.5 | 6.6 | 12.9 |
| 12 M Apr | 9.3 | 10.3 | 8.9 | 4.3 | 10.7 |
| Jan-Mar | 11.6 | 13.2 | 11.0 | 7.2 | 13.8 |
| 12 M Mar | 11.9 | 13.9 | 11.2 | 8.0 | 13.7 |
| Jan-Feb | 11.4 | 12.7 | 10.9 | 7.3 | 13.9 |
| 12 M Dec | 12.8 | 12.6 | 13.0 | 9.2 | 14.7 |
| Jan-Dec | 13.9 | 13.0 | 14.3 | 9.9 | 15.8 |
| 12 M Nov | 12.4 | 12.4 | 12.4 | 7.8 | 14.4 |
| Jan-Nov | 14.0 | 13.0 | 14.4 | 9.9 | 16.0 |
| 12 M Oct | 13.2 | 12.1 | 13.7 | 8.9 | 15.1 |
| Jan-Oct | 14.1 | 13.0 | 14.5 | 10.1 | 9.1 |
| 12 M Sep | 13.8 | 12.8 | 14.3 | 9.9 | 16.0 |
| Jan-Sep | 14.2 | 13.1 | 14.6 | 10.4 | 16.1 |
| 12 M Aug | 13.5 | 13.4 | 13.5 | 9.4 | 15.5 |
| Jan-Aug | 14.2 | 13.1 | 14.6 | 10.4 | 16.1 |
| 12 M | 14.0 | 12.8 | 14.5 | 9.5 | |
| Jan-Jul | 14.3 | ||||
| 12 M | 15.1 | 13.9 | 15.6 | 10.7 | 20.8 |
| Jan-Jun | 14.3 | 13.1 | 14.7 | 10.7 | 19.7 |
| 12 M May | 13.3 | 12.9 | 13.5 | 8.9 | 18.7 |
| Jan-May | 14.0 | 12.9 | 14.4 | 10.7 | 19.3 |
| 12 M Apr | 13.4 | 11.9 | 14.0 | 10.4 | 18.0 |
| Jan-Apr | 14.2 | 12.9 | 14.7 | 11.2 | 19.5 |
| 12 M Mar | 14.8 | 12.8 | 15.6 | 12.9 | 19.2 |
| Jan-Mar | 14.4 | 13.1 | 14.9 | 11.4 | 19.8 |
| 12 M Feb | 14.9 | 13.1 | 15.6 | 10.5 | 21.7 |
| Jan-Feb | 14.1 | 13.3 | 14.4 | 10.6 | 20.3 |
Source: http://www.stats.gov.cn/english/pressrelease/t20120514_402805327.htm
Chart VC-1 provides cumulative growth rates of value added of industry in 2011 and Jan-Apr 2012. Growth rates of value added of industry in the first five months of 2010 were higher than in 2011 as would be expected in an earlier phase of recovery from the global recession. Growth rates have converged in the second half of 2011 to lower percentages with further decline into 2012.
Chart VC-1, China, Growth Rate of Total Value Added of Industry, Cumulative Year-on-Year ∆%
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120514_402805327.htm
Yearly rates of growth for the past 12 months and cumulative relative to the earlier year of various segments of industrial production in China are provided in Table VC-2. Rates for Jan-Dec 2011 relative to the same period a year earlier fluctuated but remained above 10 percent with the exception of motor vehicles and crude oil. There is deceleration in Jan-Apr of percentage change with no segment showing growth exceeding 10 percent with exception of 10.7 percent for motor vehicles in the 12 months ending Apr 2012.
Table VC-2, China, Industrial Production Operation ∆%
| Elec- | Pig Iron | Cement | Crude | Non- | Motor Vehicles | |
| 2012 | ||||||
| Jan-Apr | 5.0 | 6.2 | 5.5 | 2.9 | 4.6 | 3.1 |
| 12 M Apr | 0.7 | 7.9 | 4.9 | -0.3 | 2.3 | 10.7 |
| Jan-Mar | 7.1 | 6.5 | 7.3 | 3.1 | 5.8 | 0.0 |
| 12 M Mar | 7.2 | 10.2 | 7.9 | 2.0 | 3.3 | 5.1 |
| Jan-Feb | 7.1 | 4.6 | 4.8 | 4.0 | 8.4 | -1.8 |
| 2011 | ||||||
| 12 M Dec | 9.7 | 3.7 | 7.0 | 4.0 | 13.2 | -6.5 |
| Jan-Dec | 12.0 | 8.4 | 16.1 | 4.9 | 10.6 | 3.0 |
| 12 M Nov | 8.5 | 7.8 | 11.2 | 3.2 | 8.2 | -1.3 |
| Jan-Nov | 12.0 | 13.1 | 17.2 | 5.3 | 10.2 | 3.9 |
| 12 M | 9.3 | 13.4 | 16.5 | -0.9 | 3.7 | 1.3 |
| Jan-Oct | 12.3 | 13.7 | 18.0 | 5.4 | 10.4 | 5.2 |
| 12 M Sep | 11.5 | 18.8 | 15.7 | 1.5 | 13.9 | 2.5 |
| Jan-Sep | 12.7 | 13.9 | 18.1 | 6.0 | 11.2 | 5.5 |
| 12 M Aug | 10.0 | 12.9 | 12.8 | 4.5 | 15.6 | 9.5 |
| Jan-Aug | 13.0 | 13.1 | 18.4 | 6.6 | 4.7 | |
| 12 M | 13.2 | 14.9 | 16.8 | 5.9 | 9.8 | -1.3 |
| Jan-Jul | 13.3 | 13.0 | 19.2 | 6.9 | 9.9 | 4.0 |
| 12 M | 16.2 | 14.8 | 19.9 | -0.7 | 9.8 | 3.6 |
| 12 M | 12.1 | 10.6 | 19.2 | 6.0 | 14.2 | -1.9 |
| 12 M Apr | 11.7 | 8.3 | 22.4 | 6.8 | 6.1 | -1.6 |
| 12 M Mar | 14.8 | 13.7 | 29.8 | 8.0 | 11.6 | 9.9 |
| 12 M Feb | 11.7 | 14.5 | 9.1 | 10.9 | 14.4 | 10.3 |
| 12 M Jan | 5.1 | 3.5 | 16.4 | 12.2 | 1.4 | 23.9 |
| 12 M Dec 2010 | 5.6 | 4.6 | 17.3 | 10.3 | -1.9 | 27.6 |
M: month
Source: http://www.stats.gov.cn/english/pressrelease/t20120514_402805327.htm
Monthly growth rates of industrial production in China are provided in Table VC-3. Monthly rates have fluctuated around 1 percent. Jan and Feb 2012 are somewhat weaker but there was improvement to 1.16 percent in Mar. The rate of 0.35 percent in Apr is the lowest in the monthly series from Feb 2011 to Apr 2012.
Table VC-3, China, Industrial Production Operation, Month ∆%
| 2011 | Month ∆% |
| Feb | 0.93 |
| Mar | 0.99 |
| Apr | 1.30 |
| May | 0.85 |
| Jun | 1.29 |
| Jul | 0.75 |
| Aug | 0.83 |
| Sep | 1.00 |
| Oct | 0.75 |
| Nov | 0.73 |
| Dec | 0.96 |
| Jan 2012 | 0.47 |
| Feb | 0.62 |
| Mar | 1.16 |
| Apr | 0.35 |
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120514_402805327.htm
Table VC-4 provides cumulative growth of investment in fixed assets in China in 2011 relative to 2010 and in Jan-Apr 2012 relative to a year earlier. Total fixed investment has grown at a high rate fluctuating around 25 percent and fixed investment in real estate development has grown at rates in excess of 30 percent. In Jan-Dec investment in fixed assets in China grew 23.8 percent relative to a year earlier and 27.9 percent in real estate development. There was slight deceleration in the final two months of 2011 that continued into Jan-Mar 2012. Percentage change of investment in fixed assets declined further to 20.2 in Jan-Apr 2012 relative to Jan-Apr 2011 and to 18.7 for real estate development.
Table VC-4, China, Investment in Fixed Assets ∆% Relative to a Year Earlier
| Total | State | Real Estate Development | |
| Jan-Apr 2012 | 20.2 | 9.5 | 18.7 |
| Jan-Mar | 20.9 | 9.0 | 23.5 |
| Jan-Feb | 21.5 | 8.8 | 27.8 |
| Jan-Dec 2011 | 23.8 | 11.1 | 27.9 |
| Jan-Nov | 24.5 | 11.7 | 29.9 |
| Jan-Oct | 24.9 | 12.4 | 31.1 |
| Jan-Sep | 24.9 | 12.7 | 32.0 |
| Jan-Aug | 25.0 | 12.1 | 33.2 |
| Jan-Jul | 25.4 | 13.6 | 33.6 |
| Jan-Jun | 25.6 | 14.6 | 32.9 |
| Jan-May | 25.8 | 14.9 | 34.6 |
| Jan-Apr | 25.4 | 16.6 | 34.3 |
| Jan-Mar | 25.0 | 17.0 | 34.1 |
| Jan-Feb | 24.9 | 15.6 | 35.2 |
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120514_402805317.htm
http://www.stats.gov.cn/english/pressrelease/t20120514_402805343.htm
Chart VC-2 provides cumulative fixed asset investment in China relative to a year earlier. Growth rose to 25.8 percent in Jan-May 2011 and then fell back to 24.9 percent in Sep and Oct, declining further to 24.5 percent in Nov and 23.8 percent in Dec with deeper drop in Jan-Feb 2012 to 21.5 percent, 20.9 percent in Jan-Mar and 20.2 percent in Jan-Apr 2012.
Chart VC-2, China, Investment in Fixed Assets, ∆% Cumulative over Year Earlier
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120514_402805317.htm
Monetary policy has been used in China in the form of increases in interest rates and required reserves of banks to moderate real estate investment. These policies have been reversed because of lower inflation and weakening economic growth. Chart VC-3 shows decline of fluctuating cumulative growth rates of investment in real estate development relative to a year earlier from 35.2 percent in Jan-Feb 2011 to 31.1 percent in Jan-Oct, 29.9 percent in Jan-Nov, 27.9 percent in Jan-Dec 2011, 27.9 percent in Jan-Feb 2012 and sharper decline to 23.5 percent in Jan-Mar 2012 and 18.7 percent in Jan-Apr 2012.
Chart VC-3, China, Investment in Real Estate Development, ∆% Cumulative over Year Earlier
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120514_402805343.htm
Table VC-5 provides monthly growth rates of investment in fixed assets in China from Feb 2011 to Apr 2012. Growth rates moderated from Nov 2011 to Mar 2012. The rate of 0.77 percent in Apr 2012 is the lowest for any month after Mar 2011.
Table VC-5, China, Investment in Fixed Assets, Month ∆%
| Month ∆% | |
| Feb 2011 | -0.23 |
| Mar | 2.45 |
| Apr | 2.24 |
| May | 1.45 |
| Jun | 1.75 |
| Jul | 1.50 |
| Aug | 1.41 |
| Sep | 1.92 |
| Oct | 1.82 |
| Nov | 1.10 |
| Dec | 1.42 |
| Jan 2012 | 1.09 |
| Feb | 1.85 |
| Mar | 1.15 |
| Apr | 0.77 |
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120514_402805317.htm
Growth rates of retail sales in China monthly, 12 months and cumulative relative to a year earlier are in Table VC-6. There is still insufficient data to assess if the decline of growth rates to cumulative 14.7 percent in Feb 2012, 14.8 percent in Mar and 14.7 percent in Apr constitutes the beginning of a downward trend.
Table VC-6, China, Total Retail Sales of Consumer Goods ∆%
| Month ∆% | 12-Month ∆% | Cumulative ∆%/ | |
| 2012 | |||
| Apr | 1.13 | 14.1 | 14.7 |
| Mar | 1.19 | 15.2 | 14.8 |
| Feb | 1.32 | 14.7 | 14.7 |
| Jan | 0.91 | ||
| 2011 | |||
| Dec | 1.67 | 18.1 | 17.1 |
| Nov | 1.43 | 17.3 | 17.0 |
| Oct | 1.44 | 17.2 | 17.0 |
| Sep | 1.52 | 17.7 | 17.0 |
| Aug | 1.42 | 17.0 | 16.9 |
| Jul | 1.33 | 17.2 | 16.8 |
| Jun | 1.52 | 17.7 | 16.8 |
| May | 1.35 | 16.9 | 16.6 |
| Apr | 1.31 | 17.1 | 16.5 |
| Mar | 1.26 | 17.4 | 17.4 |
| Feb | 1.35 | 11.6 | 15.8 |
| Jan | 19.9 | 19.9 |
Note: there are slight revisions of month relative to earlier month data but not of the month on the same month year earlier or cumulative relative to cumulative year earlier in the databank
Source: http://www.stats.gov.cn/english/pressrelease/t20120514_402805335.htm
Chart VC-4 of the National Bureau of Statistics of China provides 12-month rates of growth of retail sales in 2011. There is again a drop into 2012 with the lowest percentage in Chart VC-4.
Chart VC-4, China, Total Retail Sales of Consumer Goods 12-Month ∆%
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120514_402805335.htm
Table VC-7 provides monthly percentage changes of retail sales in China. Although the rate of 0.91 percent in Jan 2012 is the lowest in Table VC-7, the rate of 1.32 percent in Feb is relatively high and 1.18 percent in Mar is also relatively low followed by lower 1.13 percent in Apr.
Table VC-7, China, Retail Sales, Month ∆%
| 2011 | Month ∆% |
| Feb | 1.35 |
| Mar | 1.26 |
| Apr | 1.31 |
| May | 1.35 |
| Jun | 1.52 |
| Jul | 1.33 |
| Aug | 1.42 |
| Sep | 1.52 |
| Oct | 1.44 |
| Nov | 1.43 |
| Dec | 1.67 |
| 2012 | |
| Jan | 0.91 |
| Feb | 1.32 |
| Mar | 1.19 |
| Apr | 1.13 |
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120514_402805335.htm
VC Euro Area. The Markit Eurozone PMI® Composite Output Index, combining services and manufacturing activity with close association with GDP, fell from 49.1 in Mar to 46.7 in Apr (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9542) in one of the deepest contractions since the middle of 2009. Chris Williamson, Chief Economist at Markit, finds that the data are consistent with decline of GDP at a quarterly rate of 0.5 percent in Apr, which could result in the third consecutive quarterly contraction of euro area GDP (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9542). The economy of the euro area may have fallen in a technical recession with two consecutive quarters of contraction. The Markit Eurozone Manufacturing PMI® declined close to a three-year low at 45.9 in Apr from 47.7 in Mar (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9460). Chris Williamson, Chief Economist at Markit, finds that output in the euro area in Apr declined at a quarterly rate in excess of 2.2 percent (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9460). Table EUR provides the economic indicators for the euro area. Table EUR provides the economic indicators for the euro area.
Table EUR, Euro Area Economic Indicators
| GDP | IQ2012 ∆% 0.0; IQ2012/IQ2011 ∆% 0.0 Blog 5/20/12 |
| Unemployment | Mar 2012: 10.9% unemployment rate Mar 2012: 17.365 million unemployed Blog 5/6/12 |
| HICP | Apr month ∆%: 0.5 12 months Apr ∆%: 2.6 |
| Producer Prices | Euro Zone industrial producer prices Mar ∆%: 0.5 |
| Industrial Production | Mar month ∆%: -0.3; Mar 12 months ∆%: -2.2 |
| Industrial New Orders | Dec month ∆%: 1.9 Oct 12 months ∆%: minus 1.7 |
| Construction Output | Feb month ∆%: minus 7.1 |
| Retail Sales | Mar month ∆%: 0.3 |
| Confidence and Economic Sentiment Indicator | Sentiment 93.2 Apr 2012 Confidence minus 8.7 Apr 2012 Blog 4/29/12 |
| Trade | Jan-Mar 2012/Jan-Mar 2011 Exports ∆%: 8.5 Mar 2012 12-month Exports ∆% 4.4 Imports ∆% -0.4 |
| HICP, Rate of Unemployment and GDP | Historical from 1999 to 2011 Blog 5/20/12 |
Links to blog comments in Table EUR:
5/6/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-jobs-twenty-eight_06.html
4/29/12 http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment_29.html
4/22/12 http://cmpassocregulationblog.blogspot.com/2012/04/imf-view-of-world-economy-and-finance_22.html
2/26/12 http://cmpassocregulationblog.blogspot.com/2012/02/decline-of-united-states-new-house_26.html
Table VD-1 provides 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 1.5 percent in 2011. EUROSTAT forecasts growth of GDP of the euro area of minus 0.3 percent in 2012 but growth of 1.0 percent in 2013.
Table VD-1, Euro Area, Real GDP Growth Rate
| Year | ∆% |
| 2013 EUROSTAT Forecast | 1.0 |
| 2012 EUROSTAT Forecast | -0.3 |
| 2011 | 1.5 |
| 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 http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tsieb020
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 flat growth of GDP in IQ2012 relative to IVQ2011 and flat growth in IQ2012 relative to IQ2011 for the euro area and 0.1 percent for the European Union. Growth in IVQ2011 and IQ2012 was weak worldwide with somewhat stronger performance by the US but still insufficient to reduce unemployment and underemployment (http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-jobs-twenty-eight.html) with depressed hiring (http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million.html).
Table VD-2, Euro Zone, European Union, Japan and USA, Real GDP Growth
| ∆% IQ2012/ IVQ2011 | ∆% IQ2012/ IQ2011 | |
| Euro Zone | 0.0 | 0.0 |
| European Union | 0.0 | 0.1 |
| Germany | 0.5 | 1.2 |
| France | 0.0 | 0.3 |
| Netherlands | -0.2 | -1.3 |
| Finland | 1.3 | 2.9 |
| Belgium | 0.3 | 0.5 |
| Portugal | -0.1 | -2.2 |
| Ireland | NA | NA |
| Italy | -0.8 | -1.3 |
| Greece | NA | -6.2 |
| Spain | -0.3 | -0.4 |
| United Kingdom | 0.5 | 2.1 |
| Japan | -0.6 | -1.0 |
| USA | 0.5 | 2.1 |
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-15052012-AP/EN/2-15052012-AP-EN.PDF
Chart VD-1 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-1, Euro Zone, European Union, Real GDP Growth ∆% on Previous Year
Source: EUROSTAT
Table VD-3 provides growth rates for the euro zone and European Union estimated by EUROSTAT. There is deterioration in the quarterly rates with equal declines of 0.3 percent in IVQ2011 and flat performance in IQ2012. The euro area experienced flat growth in IQ2012 relative to IQ2011 while the European Union grew 0.1 percent.
Table VD-3, Euro Area and European Union, Growth of Real GDP
| IIQ2011 | IIIQ2011 | IVQ2011 | IQ2012 | |
| ∆% from Prior Quarter | ||||
| EA 17 | 0.1 | 0.1 | -0.3 | 0.0 |
| EU 27 | 0.2 | 0.3 | -0.3 | 0.0 |
| ∆% from Same Quarter Year Earlier | ||||
| EA 17 | 1.6 | 1.3 | 0.7 | 0.0 |
| EA 27 | 1.6 | 1.4 | 0.8 | 0.1 |
Notes: EA: Euro Area; EU: European Union
Source: EUROSTAT
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-15052012-AP/EN/2-15052012-AP-EN.PDF
Industrial production in the euro area decreased 0.3 percent in Mar 2012 after declining in three of five months from Sep 2011 to Jan 2012 and being flat in Jan 2012, as shown in Table VD-4 with revised estimates by EUROSTAT. Production fell cumulatively 1.0 percent from Oct 2011 to Mar 2012 or at the annual equivalent rate of decline of 2.0 percent. Growth in Feb 2012 was driven by increase of 8.7 percent in energy during inclement winter weather with sharp declines of 1.7 percent in durable goods, 1.3 percent of nondurable goods and 1.4 percent of intermediate goods. Improved weather caused decline of energy by 8.5 percent in Apr that drove down the rate of growth of total industry to minus 0.3 percent. All segments of industrial production fell in Dec with exception of no change in nondurable goods but all increased in Jan with exception of declines of capital goods by 0.4 percent and nondurable goods by 0.8 percent. Industrial production is highly volatile in the euro zone
Table VD-4, Euro Zone, Industrial Production Month ∆%
| Total | INT | ENE | CG | DUR | NDUR | |
| Mar 2012 | -0.3 | 1.0 | -8.5 | 1.1 | -0.2 | 0.8 |
| Feb | 0.8 | -1.4 | 8.7 | 1.4 | -1.7 | -1.3 |
| Jan | 0.0 | 0.7 | 0.3 | -0.4 | 0.2 | -0.8 |
| Dec 2011 | -1.0 | -0.9 | -3.2 | -1.0 | -0.1 | 0.0 |
| Nov | -0.4 | 0.0 | 0.5 | -0.1 | 0.0 | -1.6 |
| Oct | -0.1 | -0.8 | -1.3 | 0.9 | -1.1 | 0.5 |
Notes: INT: Intermediate; ENE: Energy; CG: Capital Goods; DUR: Durable Consumer Goods; NDUR: Nondurable Consumer Goods
Source: Eurostat
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-14052012-AP/EN/4-14052012-AP-EN.PDF
Table VD-5 provides monthly and 12-month percentage changes of industrial production and major industrial categories in the euro zone. Industrial production decreased 2.2 percent in the 12 months ending in Feb. There is only positive 12-month growth of 2.3 percent for capital goods. With the exception of durable consumer goods, declining 0.2 percent, and energy, falling 8.5 percent, all segments registered increases in Mar 2012.
Table VD-5, Euro Zone, Industrial Production 12-Month ∆%
| 2012 | Mar Month ∆% | Mar 12-Month ∆% |
| Total | -0.3 | -2.2 |
| Intermediate Goods | 1.0 | -3.0 |
| Energy | -8.5 | -7.3 |
| Capital Goods | 1.1 | 2.3 |
| Durable Consumer Goods | -0.2 | -6.7 |
| Nondurable Consumer Goods | 0.8 | -3.8 |
Source: Eurostat http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-14052012-AP/EN/4-14052012-AP-EN.PDF
There has been significant decline in percentage changes of industrial production and major categories in 12-month rates throughout 2011 and into 2012 as shown in Table VD-6. The 12-month rate of growth in Oct 2011 of 1.0 percent has fallen to minus 2.2 percent in Mar 2012. Trend is difficult to identify because of significant volatility. Capital goods were growing at 5.0 percent in the 12 months ending in Oct 2011 and only at 2.3 percent in the 12 months ending in Mar 2012.
Table VD-6, Euro Zone, Industrial Production 12-Month ∆%
| Total | INT | ENE | CG | DUR | NDUR | |
| Mar 2012 | -2.2 | -3.0 | -7.3 | 2.3 | -6.7 | -3.8 |
| Feb | -1.5 | -4.4 | 3.9 | 1.6 | -5.7 | -4.6 |
| Jan | -1.8 | -1.6 | -7.3 | 1.6 | -3.0 | -2.1 |
| Dec 2011 | -1.6 | -0.1 | -12.2 | 2.2 | -3.0 | -0.4 |
| Nov | 0.0 | -0.5 | -5.4 | 4.7 | -3.2 | -1.7 |
| Oct | 1.0 | 0.0 | -4.5 | 5.0 | -3.0 | 0.6 |
Notes: INT: Intermediate; ENE: Energy; CG: Capital Goods; DUR: Durable Consumer Goods; NDUR: Nondurable Consumer Goods
Source: Eurostat
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-14052012-AP/EN/4-14052012-AP-EN.PDF
Blanchard (2011WEOSep) analyzes the difficulty of fiscal consolidation efforts during periods of weak economic growth. Table VD-7 provides monthly and 12-month percentage changes of industrial production in the euro zone for various members and the UK, which is not a member. The only positive growth of industrial production in the 12 months ending in Mar 2012 is 1.4 percent for Germany.
Table VD-7, Euro Zone, Industrial Production, Month and 12-Month ∆%
| Month ∆% Mar 2012 | Month ∆% Feb 2012 | 12 Months ∆% Mar 2012 | 12 Months ∆% Feb 2012 | |
| Euro Zone | -0.3 | 0.8 | -2.2 | -1.5 |
| Germany | 1.3 | 0.8 | 1.4 | 1.0 |
| France | -0.9 | 0.9 | -1.2 | -1.1 |
| Netherlands | -9.0 | 10.9 | -3.5 | 4.9 |
| Finland | -2.3 | 2.4 | -6.1 | -1.9 |
| Belgium | NA | 0.6 | NA | -4.7 |
| Portugal | 2.3 | 0.5 | -5.7 | -7.3 |
| Ireland | -2.7 | -3.2 | -3.2 | -3.1 |
| Italy | 0.5 | -0.7 | -5.8 | -6.8 |
| Greece | -1.0 | -2.3 | -8.5 | -8.5 |
| Spain | -1.8 | -0.6 | -7.5 | -5.3 |
| UK | -0.3 | 0.4 | -1.8 | -3.3 |
| European Union | -0.4 | 0.4 | -1.9 | -1.5 |
Source: Eurostat
http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-14052012-AP/EN/4-14052012-AP-EN.PDF
Euro zone trade growth continues to be relatively strong as shown in Table VD-8. Exports grew at 8.5 percent and imports at 3.4 percent in Jan-Mar 2012 relative to Jan-Mar 2011. The 12-month rate of growth of exports was 11.2 percent in Feb 2012 while imports increased 7.1 percent. In Mar 2012, exports increased 4.4 percent in 12 months and imports fell 0.4 percent. At the margin, rates of growth of trade are declining in part because of moderation of commodity prices.
Table VD-8, Euro Zone, Exports, Imports and Trade Balance, Billions of Euros and Percent, NSA
| Exports | Imports | |
| Jan-Mar 2012 | 453.4 | 450.8 |
| Jan-Mar 2011 | 417.8 | 435.8 |
| ∆% | 8.5 | 3.4 |
| Feb 2012 | 149.8 | 147.5 |
| Feb 2011 | 134.9 | 137.7 |
| ∆% | 11.0 | 7.1 |
| Mar 2012 | 164.9 | 156.3 |
| Mar 2011 | 157.9 | 156.9 |
| ∆% | 4.4 | -0.4 |
| Trade Balance | Jan-Mar 2012 | Jan-Mar 2011 |
| € Billions | 2.6 | -18.0 |
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-16052012-AP/EN/6-16052012-AP-EN.PDF
The structure of trade of the euro zone in Jan-Feb 2012 is provided in Table VD-9. Data are still not available for trade structure for Mar 2012. Manufactured exports grew 9.2 percent in Jan-Feb 2012 relative to Jan-Feb 2011 while imports grew 1.3 percent. The trade surplus in manufactured products was lower than the trade deficit in primary products in both Jan –Feb 2012 and Jan-Feb 2011.
Table VD-9, Euro Zone, Structure of Exports, Imports and Trade Balance, € Billions, NSA, ∆%
| Primary | Manufactured | Other | Total | |
| Exports | ||||
| Jan-Feb 2012 € B | 45.7 | 234.2 | 8.5 | 288.5 |
| Jan-Feb 2011 € B | 38.6 | 214.5 | 6.8 | 259.9 |
| ∆% | 18.4 | 9.2 | 25.0 | 11.0 |
| Imports | ||||
| Jan-Feb 2012 € B | 109.3 | 179.6 | 5.6 | 294.5 |
| Jan-Feb 2011 € B | 96.9 | 177.3 | 4.7 | 278.9 |
| ∆% | 12.8 | 1.3 | 19.1 | 5.6 |
| Trade Balance € B | ||||
| Jan-Feb 2012 | -63.6 | 54.6 | 2.9 | -6.1 |
| Jan-Feb 2011 | -58.3 | 37.3 | 2.1 | -19.0 |
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-16052012-AP/EN/6-16052012-AP-EN.PDF
VE Germany. The Markit Germany Composite Output Index, combining services and manufacturing activity with high association with German GDP, fell from 51.6 in Mar to 50.5 in Apr, indicating modest growth of private-sector activity (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9540). Tim Moore, Senior Economist at Markit and author of the report, finds that weakness of the index leaves thin margin for another contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9540). The Markit/BME Germany Purchasing Managers’ Index® (PMI®) fell from 48.4 in Mar to 46.2 in Apr, for a second month below the contraction frontier of 50.0, in the sharpest weakening since Jul 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9510). Tim Moore, Senior Economist at Markit and author of the report, finds that Germamy begins IIQ2012 in the worst conditions in three years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9510). Table DE provides the country data table for Germany.
Table DE, Germany, Economic Indicators
| GDP | IQ2012 0.5 ∆%; I/Q2012/IQ2011 ∆% 1.2 2011/2010: 3.0% GDP ∆% 1992-2011 Blog 5/20/12 |
| Consumer Price Index | Apr month SA ∆%: +0.2 |
| Producer Price Index | Apr month ∆%: 0.2 |
| Industrial Production | Mfg Mar month SA ∆%: 1.4 |
| Machine Orders | Mar month ∆%: 2.2 |
| Retail Sales | Mar Month ∆% 0.8 12-Month ∆% 2/3 Blog 5/6/12 |
| Employment Report | Unemployment Rate Mar 5.5% |
| Trade Balance | Exports Mar 12-month NSA ∆%: 0.7 Blog 5/13/12 |
Links to blog comments in Table DE:
5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html
5/6/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-jobs-twenty-eight_06.html
Table VE-1 provides percentage change of Germany’s GDP in one quarter relative to the prior quarter from 2003 to 2012. Germany’s GDP contracted during four consecutive quarters from IIQ2008 to IQ2009. The deepest contraction was 4.0 percent in IQ2009. Growth was quite strong from IIIQ2009 to IQ2011 for cumulative growth of 6.7 percent in seven quarters or at the average rate of 0.9 percent per quarter, which is equivalent to 3.8 percent per year. Economic growth decelerated in IIQ2006 to 0.3 percent but rebounded to 0.6 percent in IIIQ2011. The economy contracted mildly by 0.2 percent in IVQ2011 and grew 0.5 percent in IQ2012.
Table VE-1, Germany Quarter GDP ∆% Relative to Prior Quarter, Seasonally and Calendar Adjusted
| IQ | IIQ | IIIQ | IV | |
| 2012 | 0.5 | |||
| 2011 | 1.3 | 0.3 | 0.6 | -0.2 |
| 2010 | 0.5 | 1.9 | 0.8 | 0.5 |
| 2009 | -4.0 | 0.3 | 0.8 | 0.7 |
| 2008 | 1.1 | -0.4 | -0.4 | -2.2 |
| 2007 | 0.7 | 0.6 | 0.9 | 0.3 |
| 2006 | 1.2 | 1.5 | 1.0 | 1.2 |
| 2005 | -0.1 | 0.7 | 0.8 | 0.3 |
| 2004 | 0.0 | 0.3 | -0.2 | 0.0 |
| 2003 | -0.8 | -0.1 | 0.5 | 0.4 |
Seasonal and calendar adjusted
Source: Statistiche Bundesamt Deutschland
Table VE-2 provides percentage changes of Germany’s GDP in a quarter relative to the same quarter a year earlier. Growth was weak in the recovery from the recession of 2001 through 2005, as in most of the euro area (see Pelaez and Pelaez, The Global Recession Risk (2007), 116-46). Germany’s economy then grew robustly in 2006 and 2007 until the global recession after 2007. Germany recovered with strong growth in 2010 and vigorous 4.7 percent in IQ2011. The economy decelerated in the final three quarter of 2011, growing 1.2 percent in IQ2012 relative to IQ2011.
Table VE-2, Germany, Quarter GDP ∆% Relative to Same Quarter a Year Earlier, Calendar and Price Adjusted NSA
| IQ | IIQ | IIIQ | IV | |
| 2012 | 1.2 | |||
| 2011 | 4.7 | 2.9 | 2.7 | 2.0 |
| 2010 | 2.5 | 4.0 | 4.0 | 3.7 |
| 2009 | -6.7 | -6.2 | -5.1 | -2.3 |
| 2008 | 2.1 | 3.1 | 1.1 | -1.9 |
| 2007 | 4.3 | 3.4 | 3.3 | 2.2 |
| 2006 | 4.3 | 2.4 | 3.5 | 4.6 |
| 2005 | -0.8 | 1.2 | 1.2 | 1.0 |
| 2004 | 1.5 | 1.6 | 0.6 | 0.9 |
| 2003 | 0.0 | -1.1 | -0.5 | 0.1 |
Calendar and price adjusted NSA
Source: Statistiche Bundesamt Deutschland
Table VE-3 provides yearly growth rates of the German economy from 1992 to 2011, price adjusted chain-linked and price and calendar-adjusted chain-linked. Germany’s GDP fell 5.1 percent in 2009 after growing below trend at 1.1 percent in 2008. Recovery has been robust in contrast with other advanced economy. The German economy grew at 3.7 percent in 2010 and at 3.0 percent in 2011. Growth slowed in 2011 from 1.3 percent in IQ2011, 0.3 percent in IIQ2011 and 0.6 percent in IIIQ2011 to decline of 0.2 percent in IVQ2011 and growth of 0.5 percent in IQ2012. The Federal Statistical Agency of Germany analyzes the fall and recovery of the German economy (http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/Aktuell,templateId=renderPrint.psml):
“The German economy again grew strongly in 2011. The price-adjusted gross domestic product (GDP) increased by 3.0% compared with the previous year. Accordingly, the catching-up process of the German economy continued during the second year after the economic crisis. In the course of 2011, the price-adjusted GDP again exceeded its pre-crisis level. The economic recovery occurred mainly in the first half of 2011. In 2009, Germany experienced the most serious post-war recession, when GDP suffered a historic decline of 5.1%. The year 2010 was characterised by a rapid economic recovery (+3.7%).”
Table VE-3, Germany, GDP Year ∆%
| Price Adjusted Chain-Linked | Price- and Calendar-Adjusted Chain Linked | |
| 2011 | 3.0 | 3.1 |
| 2010 | 3.7 | 3.6 |
| 2009 | -5.1 | -5.1 |
| 2008 | 1.1 | 0.8 |
| 2007 | 3.3 | 3.4 |
| 2006 | 3.7 | 3.9 |
| 2005 | 0.7 | 0.8 |
| 2004 | 1.2 | 0.7 |
| 2003 | -0.4 | -0.4 |
| 2002 | 0.0 | 0.0 |
| 2001 | 1.5 | 1.6 |
| 2000 | 3.1 | 3.3 |
| 1999 | 1.9 | 1.8 |
| 1998 | 1.9 | 1.7 |
| 1997 | 1.7 | 1.8 |
| 1996 | 0.8 | 0.8 |
| 1995 | 1.7 | 1.8 |
| 1994 | 2.5 | 2.5 |
| 1993 | -1.0 | -1.0 |
| 1992 | 1.9 | 1.5 |
Source: Statistiche Bundesamt Deutschland http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2012/01/PE12__010__811,templateId=renderPrint.psml
Chart VE-1 of the Statistiche Bundesamt Deutschland (Federal Statistics Agency of Germany) provides GDP at current prices from 2003 to 2011. The German economy is productive with significant dynamism over the long term.
Chart VE-1, Germany, GDP, Current Prices, Billion Euro
Source: Statistiche Bundesamt Deutschland
https://www.destatis.de/DE/ZahlenFakten/Indikatoren/Konjunkturindikatoren/Konjunkturindikatoren.html
Chart VE-2 of the Statistiche Bundesamt Deutschland (Federal Statistics Agency of Germany) provides the index of price-adjusted chain-linked GDP of Germany from 2007 to 2011. Germany was growing rapidly before the global contraction and rebounded with significant strength along a strong upward trend.
Chart VE-2, Germany, Index of Price-Adjusted Chain-Linked GDP, 2000=100
Source: Statistiche Bundesamt Deutschland
https://www.destatis.de/DE/ZahlenFakten/Indikatoren/Konjunkturindikatoren/Konjunkturindikatoren.html
VF France. The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, fell from 48.7 in Mar to 45.9 in Apr, which is the lowest reading in six months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9538). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI®, finds general deteriorating conditions in France with hopes of improvement of outlook after the elections (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9538).The Markit France Manufacturing Purchasing Managers’ Index® was virtually unchanged at 46.9 in Apr relative to 46.7 in Mar with the sharpest decline in new orders in three years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9511). Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI®, finds continuing deterioration in manufacturing with trend of decline in new orders (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9511).Table FR provides the country data table for France. Table FR provides the country data table for France.
Table FR, France, Economic Indicators
| CPI | Apr month ∆% 0.1 |
| PPI | Mar month ∆%: 0.5 Blog 4/29/12 |
| GDP Growth | IQ2012/IVQ2011 ∆%: 0.0 |
| Industrial Production | Mar SA ∆%: |
| Industrial New Orders | Mfg Dec ∆% +0.7 YOY ∆% minus 0.4 Blog 3/25/12 |
| Consumer Spending | Mar Manufactured Goods |
| Employment | IVQ2011 Unemployed 2.678 million |
| Trade Balance | Mar Exports ∆%: month -1.5, 12 months 3.9 Mar Imports ∆%: month -2.6, 12 months 2.1 Blog 5/13/12 |
| Confidence Indicators | Historical averages 100 Apr Mfg Business Climate 95 Blog 4/29/12 |
Links to blog comments in Table FR:
5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html
4/29/12 http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment_29.html
3/25/12 http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk_25.html
3/4/12 http://cmpassocregulationblog.blogspot.com/2012/03/mediocre-economic-growth-flattening_04.html
Growth of GDP in a quarter relative to the prior quarter is provided for France in Table VF-1. GDP growth in in IQ2012 was flat and was 0.1 percent IVQ2011. The French economy was flat in IIQ2011 but grew 0.3 percent in IIIQ2011. Growth in the seven quarters of expansion from IIIQ2009 to IQ2011 accumulated 3.4 percent at the annual equivalent rate of 1.9 percent while growth from the second quarter of 2011 to the first quarter of 2012 accumulated 0.4 percent has been at the annual equivalent rate of 0.4 percent. Recovery has been much weaker than the cumulative 2.7 percent in the four quarters of 2006. Weak recoveries in advanced economies have prevented full utilization of labor, capital and productive resources.
Table VF-1, France, Quarterly Real GDP Growth, Quarter on Prior Quarter ∆%
| IQ | IIQ | IIIQ | IVQ | |
| 2012 | 0.0 | |||
| 2011 | 0.9 | 0.0 | 0.3 | 0.1 |
| 2010 | 0.3 | 0.6 | 0.4 | 0.4 |
| 2009 | -1.7 | 0.0 | 0.1 | 0.6 |
| 2008 | 0.3 | -0.6 | -0.5 | -1.5 |
| 2007 | 0.6 | 0.5 | 0.4 | 0.3 |
| 2006 | 0.7 | 1.0 | 0.1 | 0.9 |
| 2005 | 0.1 | 0.3 | 0.5 | 0.7 |
| 2004 | 0.5 | 0.8 | 0.4 | 0.9 |
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=26&date=20120515
Growth rates of France’s real GDP in a quarter relative to the same quarter a year earlier are shown in Table VF-2. France has not recovered the rates of growth in excess of 2 percent prior to the global recession. GDP fell 4.3 percent in IQ2009, 3.7 percent in IIQ2009, 3.1 percent in IIIQ2009 and 1.0 percent in IVQ2009. Growth in IVQ2011 relative to IVQ2010 was 1.2 percent and GDP was flat in IQ2012 relative to IQ2011.
Table VF-2, France, Real GDP Growth Current Quarter Relative to Same Quarter Year Earlier ∆%
| IQ | IIQ | IIIQ | IVQ | |
| 2012 | 0.0 | |||
| 2011 | 2.4 | 1.7 | 1.5 | 1.2 |
| 2010 | 1.0 | 1.6 | 1.9 | 1.8 |
| 2009 | -4.3 | -3.7 | -3.1 | -1.0 |
| 2008 | 1.6 | 0.5 | -0.5 | -2.3 |
| 2007 | 2.6 | 2.1 | 2.5 | 1.9 |
| 2006 | 2.3 | 3.0 | 2.6 | 2.7 |
| 2005 | 2.1 | 1.7 | 1.9 | 1.7 |
| 2004 | 1.8 | 2.6 | 2.3 | 2.5 |
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=26&date=20120515
Percentage changes and contributions of segments of GDP in France are provided in Table VF-3. Internal demand contributed 0.1 percentage points to GDP growth in IQ2012, 0.4 percentage points to GDP growth in IVQ2011, 0.3 percentage points in IIIQ2011 and minus 0.4 percentage points in IIQ2011. Net foreign trade subtracted 0.1 percentage points of GDP growth in IQ2012 but contributed 0.7 percentage points in IVQ201 after contributing 0.2 percentage points in IIIQ2011 and 0.4 percentage points in IIQ2011.
Table VF-3, France, Contributions to GDP Growth, Calendar and Seasonally Adjusted, %
| ∆% from Prior Period | IIQ 2011 | IIIQ | IVQ | IQ 2012 | 2011 | 2012 |
| GDP | 0.0 | 0.3 | 0.1 | 0.0 | 1.7 | 0.2 |
| Imports | -0.6 | 0.4 | -1.4 | 0.7 | 5.2 | -0.3 |
| Household Consump. | -1.0 | 0.4 | 0.1 | 0.2 | 0.2 | 0.2 |
| Govt. | 0.0 | 0.2 | 0.2 | 0.5 | 0.2 | 0.7 |
| GFCF | 0.7 | 0.2 | 1.3 | -0.8 | 3.5 | 0.4 |
| Exports | 0.9 | 1.4 | 1.1 | 0.3 | 5.5 | 2.1 |
| % Point | ||||||
| Internal Demand ex Inventory Changes | -0.4 | 0.3 | 0.3 | 0.1 | 0.9 | 0.4 |
| Inventory Changes | 0.0 | -0.3 | -1.0 | 0.1 | 0.8 | -0.8 |
| Net Foreign Trade | 0.4 | 0.2 | 0.7 | -0.1 | 0.0 | 0.6 |
Notes: Consump.: Consumption; Gvt.: Government; GFCF: Gross Fixed Capital Formation; Contribus.: Contributions
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=26&date=20120515
Chart VF-1 of France’s Institut National de la Statistique et des Études Économiques provides percentage point contributions to GDP growth. GDP grew sharply into IQ2011 and then stalled in IIQ2011. Final consumption was the key negative contributor to GDP growth in IIQ2011. GDP growth strengthened in IIIQ2011 with the impulse originating in final consumption. Net trade, gross fixed capital formation (GFCF) and final consumption drove GDP growth in IVQ2011. Final consumption and inventory change were positive contributors to GDP growth in IQ2012 with subtractions by GFCF (Gross Fixed Capital Formation) and net trade.
Chart VF-1, France, Percentage Point Contributions to GDP Growth
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=26&date=20120515
VG Italy. The Markit/ADACI Business Activity Index fell from 44.3 in Mar to 42.3 in Apr, indicating sharp contraction of output of Italy’s services sector at the lowest reading in about three years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9536). Phil Smith, economist at Markit and author of the Italy Services PMI®, finds that the rates of contraction are approaching the ones experienced at the bottom of the 2008-2009 contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9536). The Markit/ADACI Purchasing Managers’ Index® (PMI®), fell from 47.9 in Mar relative to 43.8 in Apr for a ninth consecutive month of contraction of Italy’s manufacturing and the sharpest since Oct (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9507). Phil Smith, economist at Markit and author of the Italian Manufacturing PMI®, finds the sharpest fall in monthly new business in three years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9507). Table IT provides the country data table for Italy.
Table IT, Italy, Economic Indicators
| Consumer Price Index | Apr month ∆%: 0.5 |
| Producer Price Index | Mar month ∆%: 0.3 Blog 5/6/12 |
| GDP Growth | IQ2012/IVQ2011 SA ∆%: minus 0.8 |
| Labor Report | Mar 2012 Participation rate 63.3% Employment ratio 57.0% Unemployment rate 9.8% Blog 5/6/12 |
| Industrial Production | Mar month ∆%: +0.5 |
| Retail Sales | Feb month ∆%: 0.6 Feb 12-month ∆%: 0.1 Blog 4/29/12 |
| Business Confidence | Mfg Apr 89.5, Dec 91.3 Construction Apr 82.9, Dec 80.5 Blog 4/29/12 |
| Consumer Confidence | Consumer Confidence Apr 89.0, Mar 96.3 Economy Apr 72.1, Mar 85.4 Blog 4/29/12 |
| Trade Balance | Balance Mar SA €718 million versus Feb -€440 |
Links to blog comments in Table IT:
5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html
5/6/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-jobs-twenty-eight_06.html
4/29/12 http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment_29.html
Table VG-1 provides revised percentage changes of GDP in Italy of quarter on prior quarter and quarter on same quarter a year earlier. Italy’s GDP fell 0.8 percent in IQ2012 and declined 1.3 percent relative to IQ2011. GDP had been growing during six consecutive quarters but at very low rates from IQ2010 to IIIQ2011 but has fallen in three consecutive quarters from IIIQ2011 to IQ2012 at increasingly higher rates of contraction from 0.2 percent in IIIQ2011 to 0.7 percent in IVQ2011 and 0.8 percent in IQ2012. The yearly rate has fallen from 2.2 percent in IVQ2010 to minus 1.3 percent in IQ2012. The fiscal adjustment of Italy is significantly more difficult with the economy not growing especially on the prospects of increasing government revenue. The strategy is for reforms to improve productivity so as to facilitate future fiscal consolidation.
Table VG-1, Italy, GDP ∆%
| Quarter ∆% Relative to Preceding Quarter | Quarter ∆% Relative to Same Quarter Year Earlier | |
| IQ2012 | -0.8 | -1.3 |
| IVQ2011 | -0.7 | -0.4 |
| IIIQ2011 | -0.2 | 0.4 |
| IIQ2011 | 0.3 | 1.0 |
| IQ2011 | 0.1 | 1.2 |
| IVQ2010 | 0.2 | 2.2 |
| IIIQ2010 | 0.4 | 1.9 |
| IIQ2010 | 0.5 | 1.8 |
| IQ2010 | 1.1 | 1.1 |
| IVQ2009 | -0.2 | -3.5 |
| IIIQ2009 | 0.4 | -5.1 |
| IIQ2009 | -0.2 | -6.5 |
| IQ2009 | -3.5 | -6.9 |
| IVQ2008 | -1.8 | -3.0 |
| IIIQ2008 | -1.1 | -1.8 |
| IIQ2008 | -0.6 | -0.3 |
| IQ2008 | 0.5 | 0.4 |
| IV2007 | -0.4 | 0.1 |
| IIIQ2007 | 0.3 | 1.7 |
| IIQ2007 | 0.2 | 2.0 |
| IQ2007 | 0.0 | 2.4 |
Source: Istituto Nazionale di Statistica
http://www.istat.it/it/archivio/61783
Chart VG-1 of the Italian National Institute of Statistics (ISTAT) provides growth of GDP of Italy at market prices. The year on year rate of growth pulled strongly out of the contraction. There is an evident trend of deceleration with marginal contraction.
Chart VG-1, Italy, GDP at Market Prices, ∆% on Same Quarter Year Earlier
Source: Istituto Nazionale di Statistica
Exports and imports of Italy and monthly growth rates SA are provided in Table VG-2. There have been significant fluctuations. Seasonally-adjusted exports increased 1.7 percent in Mar 2012 while imports decreased 1.9 percent. The SA trade balance improved from deficit of €440 million in Feb to surplus of €718 million in Mar 2012.
Table VG-2, Italy, Exports, Imports and Trade Balance SA Million Euros and Month SA ∆%
| Exports € M | Exports | Imports € M | Imports | Balance € M | |
| Mar 2012 | 32,370 | 1.7 | 31,652 | -1.9 | 718 |
| Feb | 31,831 | 0.0 | 32,271 | 0.5 | -440 |
| Jan | 31,842 | -2.8 | 32,098 | -0.5 | -256 |
| Dec 2011 | 32,749 | 3.9 | 32,262 | -1.6 | 487 |
| Nov | 31,530 | 1.6 | 32,777 | 0.7 | -1,247 |
| Oct | 31,026 | -2.8 | 32,549 | -1.8 | -1,523 |
| Sep | 31,923 | 0.1 | 33,161 | -3.8 | -1,238 |
| Aug | 31,891 | 0.9 | 34,466 | 2.4 | -2,575 |
| Jul | 31,596 | 1.0 | 33,659 | 2.8 | -2,063 |
| Jun | 31,275 | -2.4 | 32,731 | -5.8 | -1,456 |
| May | 32,057 | 1.8 | 34,755 | 1.0 | -2,698 |
| Apr | 31,485 | 1.2 | 34,397 | -1.4 | -2,912 |
| Mar | 31,116 | 2.1 | 34,870 | 5.3 | -3,754 |
| Feb | 30,490 | -1.9 | 33,102 | -1.8 | -2,612 |
| Jan | 31,065 | 4.8 | 33,716 | 1.0 | -2,651 |
| Dec 2010 | 29,630 | 1.5 | 33,374 | 2.9 | -3,744 |
Source: http://www.istat.it/it/archivio/61853
Italy’s trade not seasonally adjusted is provided in Table VG-3. Values are different because the data are original and not adjusted. Exports grew 4.9 percent in the 12 months ending in Mar 2012 while imports decreased 10.9 percent. Twelve-month rates of growth picked up again in Aug with 14.9 percent for exports and 12.1 percent for imports. In Sep, exports grew 10.2 percent relative to a year earlier while imports grew only 3.6 percent. In Oct, exports grew 4.5 percent while imports fell 0.4 percent. In Nov, exports grew 6.5 percent in 12 months while imports grew 0.5 percent. Exports continued to growth of 4.9 percent in Mar while imports fell 10.9 percent. The actual or not seasonally adjusted trade balance deficit fell from €2905 million in Aug to surplus of €1150 million in Dec but turned into deficit of €4346 million in Jan 2012, improving to lower deficit of €1113 million in Feb 2012 and surplus of €2064 million in Mar 2012. Exports fell 20.9 percent and imports 22.1 percent during the global recession in 2009.
Table VG-3, Italy, Exports, Imports and Trade Balance NSA Million Euros and 12 Month ∆%
| Exports € M | Exports | Imports € M | Imports | Balance € M | |
| Mar 2012 | 36,107 | 4.9 | 34,042 | -10.9 | 2,064 |
| Feb 2012 | 31,754 | 7.3 | 32,890 | 0.8 | -1,136 |
| Jan | 27,271 | 4.3 | 31,617 | -2.6 | -4,346 |
| Dec 2011 | 31,551 | 6.2 | 34,401 | -7.1 | 1,150 |
| Nov | 32,428 | 6.5 | 34,011 | 0.5 | -1,583 |
| Oct | 32,131 | 4.5 | 33,186 | -0.4 | -1,055 |
| Sep | 32,997 | 10.2 | 34,878 | 3.6 | -1,881 |
| Aug | 24,177 | 14.9 | 27,082 | 12.1 | -2,905 |
| Jul | 35,264 | 5.8 | 33,743 | 6.1 | 1,521 |
| Jun | 32,605 | 7.9 | 34,309 | 1.6 | -1,704 |
| May | 33,491 | 19.8 | 35,722 | 18.4 | -2,231 |
| Apr | 31,045 | 12.5 | 33,869 | 18.0 | -2,824 |
| Mar | 34,418 | 14.0 | 38,203 | 19.8 | -3,785 |
| Feb | 29,595 | 17.7 | 32,621 | 16.2 | -3,026 |
| Jan | 26,146 | 24.6 | 32,455 | 28.4 | -6,309 |
| Dec 2010 | 29,714 | 20.2 | 32,732 | 31.7 | -3,018 |
| Year | |||||
| 2011 | 375,850 | 11.4 | 400,480 | 9.0 | -24,630 |
| 2010 | 337,346 | 15.6 | 367,390 | 23.4 | -30,044 |
| 2009 | 291,733 | -20.9 | 297,609 | -22.1 | -5,876 |
| 2008 | 369,016 | 1.2 | 382,050 | 2.3 | -13,034 |
Source: http://www.istat.it/it/archivio/61853
Growth rates of Italy’s trade and major products are provided in Table VG-4 for the period Mar 2012 relative to Mar 2011. Growth rates of imports are negative with the exception of energy. The higher rate of growth of exports of 4.9 percent relative to imports of minus 10.9 percent may reflect weak demand in Italy with GDP declining during three consecutive quarters from IIIQ2011 through IQ2012.
Table VG-4, Italy, Exports and Imports % Share of Products in Total and ∆%
| Exports | Exports | Imports | Imports | |
| Consumer | 28.9 | 5.4 | 25.0 | -8.4 |
| Durable | 5.9 | 2.1 | 3.0 | -17.0 |
| Non | 23.0 | 6.4 | 22.0 | -7.2 |
| Capital Goods | 32.2 | 4.2 | 20.8 | -20.7 |
| Inter- | 34.3 | 3.0 | 34.5 | -16.3 |
| Energy | 4.7 | 20.7 | 19.7 | 8.8 |
| Total ex Energy | 95.3 | 4.1 | 80.3 | -15.2 |
| Total | 100.0 | 4.9 | 100.0 | -10.9 |
Source: http://www.istat.it/it/archivio/61853
Table VG-5 provides Italy’s trade balance by product categories in Mar 2012 and cumulative Jan-Mar 2012. Italy’s trade balance excluding energy generated surplus of €7571 million in Mar 2012 and €14,022 million in Jan-Mar 2012 but the energy trade balance created deficit of €5507 million in Mar 2012 and €17,441 million in Jan-Mar 2012. The overall surplus in Mar 2012 was €2064 million but there was an overall deficit of €3418 million in Jan-Mar 2012. Italy has significant competitiveness in various economic activities in contrast with some other countries with debt difficulties.
Table VG-5, Italy, Trade Balance by Product Categories, € Millions
| Mar 2012 | Cumulative Jan-Mar 2012 | |
| Consumer Goods | 2,076 | 3,483 |
| Durable | 1,214 | 2,642 |
| Nondurable | 862 | 842 |
| Capital Goods | 4,461 | 9,622 |
| Intermediate Goods | 1,034 | 916 |
| Energy | -5,507 | -17,441 |
| Total ex Energy | 7,571 | 14,022 |
| Total | 2,064 | -3,418 |
Source: http://www.istat.it/it/archivio/61853
Professors Ricardo Caballero and Francesco Giavazzi (2012Jan15) find that the resolution of the European sovereign crisis with survival of the euro area would require success in the restructuring of Italy. That success would be assured with growth of the Italian economy. A critical problem is that the common euro currency prevents Italy from devaluing the exchange rate to parity or the exchange rate that would permit export growth to promote internal economic activity, which could generate fiscal revenues for primary fiscal surplus that ensure creditworthiness. Fiscal consolidation and restructuring are important but of long-term gestation. Immediate growth of the Italian economy would consolidate the resolution of the sovereign debt crisis. Caballero and Giavazzi (2012Jan15) argue that 55 percent of the exports of Italy are to countries outside the euro area such that devaluation of 15 percent would be effective in increasing export revenue. Newly available data in Table VG-6 providing Italy’s trade with regions and countries supports the argument of Caballero and Giavazzi (2012Jan15). Italy’s exports to the European Monetary Union (EMU) are only 42.7 percent of the total. Exports to the non-European Union area are growing at 12.4 percent in Mar 2012 relative to Mar 2011 while those to EMU are falling at 1.8 percent.
Table VG-6, Italy, Exports and Imports by Regions and Countries, % Share and 12-Month ∆%
| Mar 2012 | Exports | ∆% Mar 2012/ Mar 2011 | Imports | Imports |
| EU | 56.0 | -0.5 | 53.3 | -11.4 |
| EMU 17 | 42.7 | -1.8 | 43.2 | -11.5 |
| France | 11.6 | 0.2 | 8.3 | -9.0 |
| Germany | 13.1 | 2.9 | 15.6 | -17.1 |
| Spain | 5.3 | -10.3 | 4.5 | -12.6 |
| UK | 4.7 | 12.4 | 2.7 | -12.1 |
| Non EU | 44.0 | 12.4 | 46.7 | -10.3 |
| Europe non EU | 13.3 | 11.5 | 11.1 | -7.1 |
| USA | 6.1 | 23.5 | 3.3 | 7.0 |
| China | 2.7 | -12.3 | 7.3 | -33.3 |
| OPEC | 4.7 | 32.0 | 8.6 | 5.5 |
| Total | 100.0 | 4.9 | 100.0 | -10.9 |
Notes: EU: European Union; EMU: European Monetary Union (euro zone)
Source: http://www.istat.it/it/archivio/61853
Table VG-7 provides Italy’s trade balance by regions and countries. Italy had trade deficit of €216 million with the 17 countries of the euro zone (EMU 17) in Mar and deficit of €346 million in Jan-Mar. Depreciation to parity could permit greater competitiveness in improving the trade surpluses of €1863 million in Jan-Mar with Europe non European Union and of €2135 million with the US. There is significant rigidity in the trade deficits in Jan-Mar of €4111 million with China and €6162 million with members of the Organization of Petroleum Exporting Countries (OPEC).
Table VG-7, Italy, Trade Balance by Regions and Countries, Millions of Euro
| Regions and Countries | Trade Balance Mar 2012 Millions of Euro | Trade Balance Cumulative Jan-Mar 2012 Millions of Euro |
| EU | 1,554 | 2,729 |
| EMU 17 | 216 | -346 |
| France | 1,173 | 2,972 |
| Germany | -491 | -1,361 |
| Spain | 271 | 741 |
| UK | 836 | 2,141 |
| Non EU | 510 | -6,148 |
| Europe non EU | 1,165 | 1,863 |
| USA | 1,043 | 2,135 |
| China | -902 | -4,111 |
| OPEC | -1,690 | -6,162 |
| Total | 2,064 | -3,418 |
Notes: EU: European Union; EMU: European Monetary Union (euro zone)
Source: http://www.istat.it/it/archivio/61853
VH United Kingdom. The Business Activity Index of the Markit/CIPS UK Services PMI® fell from 55.3 in Mar to 53.3 in Apr for 16 consecutive monthly increases but the slowest growth since Nov (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9523). Chris Williamson, Chief Economist at Markit, finds that services continue to expand and that the data from panelists are not consistent with the economy in recession such that there is room for a change of the first estimate of IQ2012 GDP from negative to moderately positive (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9523). The Markit/CIPS UK Manufacturing Purchasing Managers’ Index® (PMI®) fell from revised 51.9 in Mar to 50.5 in Apr, which is above the border of contraction of 50.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9487). Rob Dobson, Senior Economist at Markit and author of the Markit/CIPS Manufacturing PMI®, finds that manufacturing growth requires dynamism in new orders that was frustrated by declining foreign demand in Apr (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9487).Table UK provides the country data table for the UK.
Table UK, UK Economic Indicators
| CPI | Mar month ∆%: 0.3 |
| Output/Input Prices | Output Prices: |
| GDP Growth | IQ2012 prior quarter ∆% minus 0.2; year earlier same quarter ∆%: 0.0 |
| Industrial Production | Mar 2012/Mar 2011 NSA ∆%: Production Industries minus 2.6; Manufacturing minus 0.9 |
| Retail Sales | Mar month SA ∆%: 1.8 |
| Labor Market | Jan-Mar Unemployment Rate: 8.2%; Claimant Count 4.9%; Earnings Growth 0.6% |
| Trade Balance | Balance Mar minus ₤2739 million |
Links to blog comments in Table UK:
5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html
4/22/12 http://cmpassocregulationblog.blogspot.com/2012/04/imf-view-of-world-economy-and-finance_22.html
Labor market statistics of the UK for the quarter Jan-Mar 2012 are provided in Table VH-1. The unemployment rate fell to 8.2 percent and the number unemployed decreased 45,000 in Jan-Mar, reaching 2.625 million. There are 887,000 unemployed over one year, up 27,000 on the quarter, and 428,000 unemployed over two years, up 5,000 on the quarter. The employment rate is 70.5 percent. Earnings growth including bonuses was 0.6 percent over the earlier year. The claimant count or those receiving unemployment benefits stands at 4.9 percent, unchanged on Mar but up 0.3 percentage point on the year. There are 7.94 million people working part time in Dec-Feb. The number of employees and self-employed part-time because they could not find full-time employment increased 73,000 to 1.42 million, which is the highest since 1992 when records begin. The rate of unemployment and the number unemployed in ages from 16 to 24 years are the highest since records begin in 1992 but other data show higher numbers in the mid 1980s.
Table VH-1, UK, Labor Market Statistics
| Quarter Jan-Mar 2012 | |
| Unemployment Rate | 8.2% -0.2 % points on quarter and +0.5 from year earlier, highest since 8.6% in Sep-Nov 1995 |
| Number Unemployed | (1) -45,000 on quarter +148,000 from year earlier to reach 2.625 million (2) Unemployment rate 16 to 24 years of age -0.3 % points from Oct-Dec to 21.9% of that age group; number unemployed 16 to 24 years 1.020 million; unemployment rate and number for 16-24 years highest since 1992 when records begin but other data show higher unemployment ages 16 to 24 in mid 1980s (3) Unemployed 16 to 24 years excluding those in full-time education 707,000 (314,000 in full-time education); unemployment rate 20.3%, down 0.4 % points |
| Number Unemployed > one and two years | (1) Number unemployed over one year: 887,000 Jan-Mar, up 27,000 on quarter, highest since Jul-Sep 1996, 33.8% of all unemployed (2) Number unemployed over two years: 428,000 Jan-Mar, up 5,000 on Dec-Feb |
| Inactivity Rate 16-64 Years of Age (Definition: Not in employment but have not been seeking employment in the past four weeks or are unable to start work in two weeks) | (1) 23.0%, down 0.1 % points on quarter (2) Economically inactive 16-64 years down 35,000 on quarter and down 73,000 on year to 9.250 million |
| Employment Rate | 70.5% Jan-Mar, up 0.2 % points on quarter |
| Number Employed | (1) Up 105,000 on quarter to 29.233 million (2) Number of employees down 109,000 on quarter to 24.79 million, fastest decline since 1992 (when records begin) (3) Self-employed +101,000 on quarter to 4.12 million, largest number since 1992 (5) Number in other job categories +26,000 to 210,000 |
| Earnings Growth Rates Year on Year | (1) Total +0.6% (including bonuses) over year earlier, down 0.5 Dec-Feb; regular 1.6%; private sector fell from 1.2% to 0.3% on year earlier, public sector rose 1.1% on year earlier, lowest since 2001 when comparable records begin (2) Regular private +1.9% (excluding bonuses) over year earlier; regular public 1.3% on year earlier |
| Full-time and Part-time | (1) Number full-time 21.24 million, down 13,000 on quarter (2) Number part-time 7.94 million in Dec-Feb, up 80,000 on quarter (3) Number employees and self-employed working part-time because they could not find full-time employment up 73,000 to 1.42 million, highest since 1992 when records begin |
| Claimant Count (Jobseeker’s Allowance, JSA) | (1) Latest estimate: 1.590 million; -13,700 in Apr +106,500 on year earlier (2) Claimant count 4.9%, unchanged on Mar but up 0.3 % point on year |
| Labor Productivity | (1) Output per worker rose 0.5% from IIIQ2011 to IVQ2011 |
Source: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/may-2012/index.html
Table VH-2 UK provides indicators of the labor force survey of the UK for Jan-Mar 2012 and earlier quarters. There has been deterioration in UK labor markets with the rate of unemployment increasing from 7.7 percent in Jan-Mar 2011 to 8.4 percent in Oct-Dec 2011.
Table VH-2, UK, Labor Force Survey Indicators
| LFHP | EMP | PART | UNE | RATE | |
| Jan-Mar 2012 | 40,190 | 29,233 | 70.5 | 2,625 | 8.2 |
| Oct-Dec 2011 | 40,184 | 29,129 | 70.3 | 2,671 | 8.4 |
| Jul-Sep 2011 | 40,180 | 29,069 | 70.2 | 2,622 | 8.3 |
| Apr-Jun 2011 | 40,161 | 29,265 | 70.7 | 2,494 | 7.9 |
| Jan-Mar 2011 | 40,118 | 29,240 | 70.7 | 2,455 | 7.7 |
| Jan-Mar 2010 | 39,927 | 28,825 | 70.2 | 2,511 | 8.0 |
Notes: LFHP: Labor Force Household Population Ages 16 to 64 in thousands; EMP: Employed Ages 16 to 64 in thousands; PART: Employment as % of Population Ages 16 to 64; UNE: Unemployed in thousands ; Rate: Number Unemployed as % of Employed plus Unemployed
Source: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/may-2012/index.html
The UK’s trade account is shown in Table VH-1. In Mar 2012, the UK ran a deficit in trade of goods and services (total trade) of ₤2739 million. The deficit in trade of goods was ₤8564 million and ₤7287 million in goods excluding oil. A surplus in services of ₤5825 million contributed to the smaller overall deficit in goods and services (-₤8564 million plus ₤5825 equal to -₤2739). Services have contributed to lower trade account deficits and also softened the impact of the global recession on the UK economy. Exports of goods and services increased 4.1 percent in Mar 2012 and rose 1.9 percent in the quarter Jan-Mar2012 relative to the same quarter a year earlier with imports increasing 3.3 percent in Mar and rising 4.3 percent in Jan-Mar 2012 relative to the same quarter a year earlier. Excluding oil, UK exports of goods increased 6.7 percent in Mar and increased 3.2 percent in Jan-Mar 2012 relative to a year earlier while imports increased 2.4 percent in Mar and increased 3.3 percent in Jan-Mar 2012 relative to a year earlier. The great advantage of the UK similar to the US is the substantial surplus in services. Services exports increased 1.2 percent in Mar and 0.1 percent in Jan-Mar 2012 relative to a year earlier and imports decreased 1.5 percent in Mar and increased 0.9 percent Jan-Mar 2012 relative to a year earlier.
Table VH-3, Value of UK Trade in Goods and Services, Balance of Payments Basis, ₤ Million and ∆%
| ₤ Million SA Mar 2012 | Month ∆% | Jan -Mar 2012 ∆% Jan-Mar 2011 | |
| Total Trade | |||
| Exports | 41,816 | 4.1 | 1.9 |
| Imports | 44,555 | 3.3 | 4.3 |
| Balance | -2,739 | ||
| Trade in Goods | |||
| Exports | 26,362 | 5.8 | 4.2 |
| Imports | 34,926 | 4.1 | 5.3 |
| Balance | -8,564 | ||
| Trade in Goods Excluding Oil | |||
| Exports | 22,880 | 6.7 | 3.2 |
| Imports | 30,167 | 2.4 | 3.3 |
| Balance | -7,287 | ||
| Trade in Services | |||
| Exports | 15,454 | 1.2 | 0.1 |
| Imports | 9,629 | -1.5 | 0.9 |
| Balance | 5,825 |
Source: http://www.ons.gov.uk/ons/rel/uktrade/uk-trade/march-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/2011/01/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 7.2 percent by Fri May 18, 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 | 5/18/2012 |
| Rate | 1.1423 | 1.5914 | 1.192 | 1.2780 |
| CNY/USD | 01/03 | 07/21 | 7/15 | 5/18/ 2012 |
| Rate | 8.2798 | 8.2765 | 6.8211 | 6.3260 |
| 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 1.2780/EUR on May 18, 2012 or by 7.2 percent {[(1.2780/1.192)-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 6.3260/USD on Fri May 18, 2012, or by an additional 7.3 percent, for cumulative revaluation of 23.6 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. The rate of CNY 6.3226/USD on Mar 16, 2012 is equivalent to depreciation of the CNY by 0.2 percent relative to the USD. In two weeks, the CNY depreciated by 0.4 percent. In the week of Mar 30, China resumed revaluation of 0.1 percent to CNY 6.2976/USD. The yuan depreciated 0.1 percent in the week of Apr 6, 2012, appreciated 0.1 percent in the week of Apr 13, depreciated 0.1 percent in the week of Apr 20 and appreciated 0.1 percent in the week of Apr 27. The CNY depreciated relative to the USD during two consecutive weeks, 0.3 percent in the week of Mar 11 and 0.2 percent in the week of May 18, as shown in the final row of Table VI-2. The rate of CNY 6.3260/USD on May 18, 2012 is equivalent to revaluation of 7.3 percent from CNY 6.8211 on Jul 15, 2008 {[(6.3260/6.8211) – 1]100} and cumulative 23.6 percent from CNY 8.2765 on Jul 21, 2005 {[(6.3260/8.2765) -1]100}. 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. An important statement by the People’s Bank of China (PBC), China’s central bank, on Apr 14, 2012, announced the widening of the daily maximum band of fluctuation of the renminbi (RMB) yuan (http://www.pbc.gov.cn/publish/english/955/2012/20120414090756030448561/20120414090756030448561_.html):
“Along with the development of China’s foreign exchange market, the pricing and risk management capabilities of market participants are gradually strengthening. In order to meet market demands, promote price discovery, enhance the flexibility of RMB exchange rate in both directions, further improve the managed floating RMB exchange rate regime based on market supply and demand with reference to a basket of currencies, the People’s Bank of China has decided to enlarge the floating band of RMB’s trading prices against the US dollar and is hereby making a public announcement as follows:
Effective from April 16, 2012 onwards, the floating band of RMB’s trading prices against the US dollar in the inter-bank spot foreign exchange market is enlarged from 0.5 percent to 1 percent, i.e., on each business day, the trading prices of the RMB against the US dollar in the inter-bank spot foreign exchange market will fluctuate within a band of ±1 percent around the central parity released on the same day by the China Foreign Exchange Trade System. The spread between the RMB/USD selling and buying prices offered by the foreign exchange-designated banks to their customers shall not exceed 2 percent of the central parity, instead of 1 percent, while other provisions in the Circular of the PBC on Relevant Issues Managing the Trading Prices in the Inter-bank Foreign Exchange Market and Quoted Exchange Rates of Exchange-Designated Banks(PBC Document No.[2010]325) remain valid.
In view of the domestic and international economic and financial conditions, the People’s Bank of China will continue to fulfill its mandates in relation to the RMB exchange rate, keeping RMB exchange rate basically stable at an adaptive and equilibrium level based on market supply and demand with reference to a basket of currencies to preserve stability of the Chinese economy and financial markets.”
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 | 5/18 |
| Rate | 1.1423 | 1.5914 | 1.192 | 1.2780 |
| CNY/USD | 01/03 | 07/21 | 7/15 | 5/18/2012 |
| Rate | 8.2798 | 8.2765 | 6.8211 | 6.3260 |
| Weekly Rates | 4/27/2012 | 5/4/2012 | 5/11/2012 | 5/18/2012 |
| CNY/USD | 6.3016 | 6.2928 | 6.3114 | 6.3260 |
| ∆% from Earlier Week* | 0.1 | 0.1 | -0.3 | -0.2 |
*Negative sign is depreciation, positive sign is appreciation
Source: Table VI-1 and same table in earlier blog posts.
The database of the World Economic Outlook (WEO) of the IMF (http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx) is used to contract Table VI-3 with fiscal and current account imbalances projected for 2011 and 2015. The WEO finds the need to rebalance external and domestic demand (IMF 2011WEOSep xvii):
“Progress on this front has become even more important to sustain global growth. Some emerging market economies are contributing more domestic demand than is desirable (for example, several economies in Latin America); others are not contributing enough (for example, key economies in emerging Asia). The first set needs to restrain strong domestic demand by considerably reducing structural fiscal deficits and, in some cases, by further removing monetary accommodation. The second set of economies needs significant currency appreciation alongside structural reforms to reduce high surpluses of savings over investment. Such policies would help improve their resilience to shocks originating in the advanced economies as well as their medium-term growth potential.”
The IMF (2012WEOApr, XVII) explains decreasing importance of the issue of global imbalances as follows:
“The latest developments suggest that global current account imbalances are no longer expected to widen again, following their sharp reduction during the Great Recession. This is largely because the excessive consumption growth that characterized economies that ran large external deficits prior to the crisis has been wrung out and has not been offset by stronger consumption in surplus economies. Accordingly, the global economy has experienced a loss of demand and growth in all regions relative to the boom years just before the crisis. Rebalancing activity in key surplus economies toward higher consumption, supported by more market-determined exchange rates, would help strengthen their prospects as well as those of the rest of the world.”
Table VI-3, Fiscal Deficit, Current Account Deficit and Government Debt as % of GDP and 2011 Dollar GDP
| GDP 2011 | FD | CAD | Debt | FD%GDP | CAD%GDP | Debt | |
| US | 15094 | -7.3 | -3.1 | 80.3 | -2.3 | -3.2 | 88.3 |
| Japan | 5869 | -9.1 | 2.0 | 126.6 | -5.8 | 2.4 | 155.0 |
| UK | 2418 | -5.8 | -1.9 | 78.3 | -0.8 | -0.4 | 88.1 |
| Euro | 13115 | -1.6 | 0.3 | 68.4 | 1.1 | 1.2 | 71.3 |
| Ger | 3577 | 0.7 | 5.7 | 56.1 | 1.4 | 4.3 | 52.4 |
| France | 2776 | -2.9 | -2.2 | 80.4 | 0.3 | -0.8 | 83.8 |
| Italy | 2199 | 0.8 | -3.2 | 99.6 | 4.4 | -1.6 | 101.5 |
| Can | 1737 | -4.1 | -2.8 | 33.3 | -1.1 | -2.5 | 37.4 |
| China | 7298 | -1.2 | 2.7 | 25.8 | -0.1 | 3.4 | 14.8 |
| Brazil | 2493 | 3.1 | -2.1 | 36.4 | 3.1 | -3.4 | 31.9 |
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/2012/01/weodata/weoselgr.aspx
The International Monetary Fund (IMF) provides an international safety net for prevention and resolution of international financial crises. The IMF’s Financial Sector Assessment Program (FSAP) provides analysis of the economic and financial sectors of countries (see Pelaez and Pelaez, International Financial Architecture (2005), 101-62, Globalization and the State, Vol. II (2008), 114-23). Relating economic and financial sectors is a challenging task both for theory and measurement. The IMF (2012WEOApr) provides surveillance of the world economy with its Global Economic Outlook (WEO) (http://www.imf.org/external/pubs/ft/weo/2012/01/pdf/text.pdf), of the world financial system with its Global Financial Stability Report (GFSR) (IMF 2012GFSRApr) (http://www.imf.org/external/pubs/ft/gfsr/2012/01/pdf/text.pdf) and of fiscal affairs with the Fiscal Monitor (IMF 2012FMApr) (http://www.imf.org/external/pubs/ft/fm/2012/01/pdf/fm1201.pdf). There appears to be a moment of transition in global economic and financial variables that may prove of difficult analysis and measurement. It is useful to consider global economic and financial risks, which are analyzed in the comments of this blog.
Economic risks include the following:
1. China’s Economic Growth. China is lowering its growth target to 7.5 percent per year. Lu Hui, writing on “China lowers GDP target to achieve quality economic growth, on Mar 12, 2012, published in Beijing by Xinhuanet (http://news.xinhuanet.com/english/china/2012-03/12/c_131461668.htm), informs that Premier Jiabao wrote in a government work report that the GDP growth target will be lowered to 7.5 percent to enhance the quality and level of development of China over the long term. The quarterly growth rate of GDP in IQ2012 of 1.8 percent is equivalent to 7.4 percent per year (see subsection VC at http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring_15.html). There is also ongoing political development in China during a decennial political reorganization
2. United States Economic Growth, Labor Markets and Budget/Debt Quagmire. (i) The US economy grew at 1.6 percent in 2011 (Section I in http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-economic-growth-falling-real.html), 1.7 percent in annual equivalent in the five quarters from IQ2011 to IQ2012 and 2.1 percent in IQ2012 relative to IQ2011 (see Section I at http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment.html). (ii) The labor market continues fractured with 27.8 million unemployed or underemployed (see Section I at http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-jobs-twenty-eight.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/04/thirty-million-unemployed-or.html). There are over 10 million fewer full-time jobs and hiring has collapsed (see Section I at http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html). (iii) There is a difficult climb from the record deficit of 9.9 percent in 2009 and cumulative deficit of $5,082 in four consecutive years of deficits exceeding one trillion dollars from 2009 to 2012 (http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html). There is no subsequent jump of debt in US peacetime history as the one from 40.5 percent of GDP in 2008 to 62.8 percent of GDP in 2011 and projected by the Congressional Budget Office (CBO 2012JanBEO) at 67.7 percent in 2012. The CBO (2012JanBEO) must use current law without any changes in the baseline scenario but also calculates another alternative scenario with different assumptions. In the alternative scenario, the debt/GDP ratio rises to 94.2 percent by 2022. The US is facing an unsustainable debt/GDP path. Feldstein (2012Mar19) finds that the most troubling uncertainty in the US is the programmed tax increases projected by the CBO (2012JanBEO) under current law with federal government revenue increasing from $2.4 trillion in fiscal year 2012 to $2.9 trillion in fiscal year 2013. The increase of $512 billion of federal revenue would be about 2.9 percent of GDP, raising the share of federal revenue in GDP from 15.8 percent in fiscal year 2012 to 18.7 percent of GDP in fiscal year 2013. In the analysis of Feldstein (2012Mar19), increasing revenue would originate in higher personal tax rates, payroll tax contributions and taxes on dividends, capital gains and corporate income tax. The share of federal revenue in GDP would increase to 19.8 percent in 2014, remaining above 20 percent during the rest of the decade. Feldstein (2012Mar19) finds that such a shock of sustained tax increases would risk another recession in 2013, requiring preventive legislation to smooth tax increases
3. Economic Growth and Labor Markets in Advanced Economies. Advanced economies are growing slowly. Japan’s GDP fell 0.5 percent in IVQ2011 relative to a year earlier but grew 2.7 percent in IQ2012 relative to a year earlier and 1.1 percent in IQ2012 relative to IVQ2011. The euro zone’s GDP fell 0.3 percent in IVQ2011 and was flat in IQ2012 relative to a year earlier; Germany’s GDP fell 0.2 percent in IVQ2011 but grew 0.5 percent in IQ2012; and the UK’s GDP fell 0.3 percent in IVQ2011 and 0.2 percent in IQ2012. There is still high unemployment in advanced economies
4. World Inflation Waves. Inflation continues in repetitive waves globally (see Section I Inflation Waves and earlier at http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html and http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk.html)
A list of financial uncertainties includes:
1. Euro Area Survival Risk. The resilience of the euro to fiscal and financial doubts on larger member countries is still an unknown risk. Adjustment programs consist of immediate adoption of economic reforms that would increase future growth permitting fiscal consolidation, which would reduce risk spreads on sovereign debt. Fiscal consolidation is challenging in an environment of weak economic growth as analyzed by Blanchard (2011WEOSep) and consolidation can restrict growth as analyzed by Blanchard (2012WEOApr). Adjustment of countries such as Italy requires depreciation of the currency to parity, as proposed by Caballero and Giavazzi (2012Jan15), but it is not workable within the common currency and zero interest rates in the US. Bailouts of euro area member countries with temporary liquidity challenges cannot be permanently provided by stronger members at the risk of impairing their own sovereign debt credibility
2. Foreign Exchange Wars. Exchange rate struggles continue as zero interest rates in advanced economies induce devaluation. After deep global recession, regulation, trade and devaluation wars were to be expected (Pelaez and Pelaez, Government Intervention in Globalization: Regulation, Trade and Devaluation Wars (2008c), 181): “There are significant grounds for concern on the basis of this experience. International economic cooperation and the international financial framework can collapse during extreme events. It is unlikely that there will be a repetition of the disaster of the Great Depression. However, a milder contraction can trigger regulatory, trade and exchange wars”
3. Valuation of Risk Financial Assets. Valuations of risk financial assets have reached extremely high levels in markets with lower volumes. For example, the DJIA has increased 27.7 percent since the trough of the sovereign debt crisis in Europe on Jul 2, 2010, and the S&P 500 has gained 26.7 percent. It is challenging in theory and practice to assess when variables have peaked but sustained valuations to very high levels could be followed by contractions of valuations. Jonathan Cheng, writing on “Stocks add 66 points, post first-quarter record,” published on Mar 30, 2012, in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052702303816504577313123753822852.html?mod=WSJ_Markets_LEFTTopStories&mg=reno64-sec-wsj), finds that the DJIA rose 8.1 percent in IQ2012, which is the highest since 1998, while the S&P 500 gained 12 percent. Paul A. Samuelson remarked that “the stock market has predicted nine of the last five recessions.” Another version of this phrase would be that “the stock market has predicted nine of the last five economic booms.” The tool of analysis of Cochrane (2011Jan, 27, equation (16)) is the government debt valuation equation:
(Mt + Bt)/Pt = Et∫(1/Rt, t+τ)st+τdτ (1)
Equation (1) expresses the monetary, Mt, and debt, Bt, liabilities of the government, divided by the price level, Pt, in terms of the expected value discounted by the ex-post rate on government debt, Rt, t+τ, of the future primary surpluses st+τ, which are equal to Tt+τ – Gt+τ or difference between taxes, T, and government expenditures, G. Cochrane (2010A) provides the link to a web appendix demonstrating that it is possible to discount by the ex post Rt, t+τ. The present value of the firm can also be expressed as the discounted future value of net cash flows. Equities can inflate beyond sound values if cash flows that depend on economic activity prove to be illusory in continuing mediocre growth
4. Duration Trap of the Zero Bound. The yield of the US 10-year Treasury rose from 2.031 percent on Mar 9, 2012, to 2.294 percent on Mar 16, 2012. Considering a 10-year Treasury with coupon of 2.625 percent and maturity in exactly 10 years, the price would fall from 105.3512 corresponding to yield of 2.031 percent to 102.9428 corresponding to yield of 2.294 percent, for loss in a week of 2.3 percent but far more in a position with leverage of 10:1. Min Zeng, writing on “Treasurys fall, ending brutal quarter,” published on Mar 30, 2012, in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052702303816504577313400029412564.html?mod=WSJ_hps_sections_markets), informs that Treasury bonds maturing in more than 20 years lost 5.52 percent in the first quarter of 2012
5. Credibility and Commitment of Central Bank Policy. There is a credibility issue of the commitment of monetary policy. The Federal Open Market Committee (FOMC) advised on its Apr 25, 2012 statement that: “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels of the federal funds rate at least through late 2014” (http://www.federalreserve.gov/newsevents/press/monetary/20120425a.htm). At its meeting on Jan 25, the FOMC began to provide to the public the specific forecasts of interest rates and other economic variables by FOMC members (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120425.pdf). These forecasts are analyzed in Section IV Global Inflation. Thomas J. Sargent and William L. Silber, writing on “The challenges of the Fed’s bid for transparency,” on Mar 20, published in the Financial Times (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120125.pdf
), analyze the costs and benefits of transparency by the Fed. In the analysis of Sargent and Silber (2012Mar20), benefits of transparency by the Fed will exceed costs if the Fed is successful in conveying to the public what policies would be implemented and how forcibly in the presence of unforeseen economic events. History has been unkind to policy commitments. The risk in this case is if the Fed would postpone adjustment because of political pressures as has occurred in the past or because of errors of evaluation and forecasting of economic and financial conditions. Both political pressures and errors abounded in the unhappy stagflation of the 1970s also known as the US Great Inflation (see 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 and Appendix I The Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB). The challenge of the Fed, in the view of Sargent and Silber 2012Mar20), is to convey to the public the need to deviate from the commitment to interest rates of zero to ¼ percent because conditions have changed instead of unwarranted inaction or policy changes. Errors have abounded such as a critical cause of the global recession pointed by Sargent and Silber (2012Mar20): “While no president is known to have explicitly pressurized Mr. Bernanke’s predecessor, Alan Greenspan, he found it easy to maintain low interest rates for too long, fuelling the credit boom and housing bubble that led to the financial crisis in 2008.” Sargent and Silber (2012Mar20) also find need of commitment of fiscal authorities to consolidation needed to attain sustainable path of debt.
The analysis by Kydland and Prescott (1977, 447-80, equation 5) uses the “expectation augmented” Phillips curve with the natural rate of unemployment of Friedman (1968) and Phelps (1968), which in the notation of Barro and Gordon (1983, 592, equation 1) is:
Ut = Unt – α(πt – πe) α > 0 (1)
Where Ut is the rate of unemployment at current time t, Unt is the natural rate of unemployment, πt is the current rate of inflation and πe is the expected rate of inflation by economic agents based on current information. Equation (1) expresses unemployment net of the natural rate of unemployment as a decreasing function of the gap between actual and expected rates of inflation. The system is completed by a social objective function, W, depending on inflation, π, and unemployment, U:
W = W(πt, Ut) (2)
The policymaker maximizes the preferences of the public, (2), subject to the constraint of the tradeoff of inflation and unemployment, (1). The total differential of W set equal to zero provides an indifference map in the Cartesian plane with ordered pairs (πt, Ut - Un) such that the consistent equilibrium is found at the tangency of an indifference curve and the Phillips curve in (1). The indifference curves are concave to the origin. The consistent policy is not optimal. Policymakers without discretionary powers following a rule of price stability would attain equilibrium with unemployment not higher than with the consistent policy. The optimal outcome is obtained by the rule of price stability, or zero inflation, and no more unemployment than under the consistent policy with nonzero inflation and the same unemployment. Taylor (1998LB) attributes the sustained boom of the US economy after the stagflation of the 1970s to following a monetary policy rule instead of discretion (see Taylor 1993, 1999).
6. Carry Trades. Commodity prices driven by zero interest rates have resumed their increasing path. Some analytical aspects of the carry trade are instructive (Pelaez and Pelaez, Globalization and the State, Vol. I (2008a), 101-5, Pelaez and Pelaez, Globalization and the State, Vol. II (2008b), 202-4), Government Intervention in Globalization: Regulation, Trade and Devaluation Wars (2008c), 70-4). Consider the following symbols: Rt is the exchange rate of a country receiving carry trade denoted in units of domestic currency per dollars at time t of initiation of the carry trade; Rt+τ is the exchange of the country receiving carry trade denoted in units of domestic currency per dollars at time t+τ when the carry trade is unwound; if is the domestic interest rate of the high-yielding country where investment will be made; iusd is the interest rate on short-term dollar debt assumed to be 0.5 percent per year; if >iusd, which expresses the fact that the interest rate on the foreign country is much higher than that in short-term USD (US dollars); St is the dollar value of the investment principal; and π is the dollar profit from the carry trade. The investment of the principal St in the local currency debt of the foreign country provides a profit of:
π = (1 + if)(RtSt)(1/Rt+τ) – (1 + iusd)St (3)
The profit from the carry trade, π, is nonnegative when:
(1 + if)/ (1 + iusd) ≥ Rt+τ/Rt (4)
In words, the difference in interest rate differentials, left-hand side of inequality (4), must exceed the percentage devaluation of the currency of the host country of the carry trade, right hand side of inequality (4). The carry trade must earn enough in the host-country interest rate to compensate for depreciation of the host-country at the time of return to USD. A simple example explains the vulnerability of the carry trade in fixed-income. Let if be 0.10 (10 percent), iusd 0.005 (0.5 percent), St USD100 and Rt CUR 1.00/USD. Adopt the fixed-income rule of months of 30 days and years of 360 days. Consider a strategy of investing USD 100 at 10 percent for 30 days with borrowing of USD 100 at 0.5 percent for 30 days. At time t, the USD 100 are converted into CUR 100 and invested at [(30/360)10] equal to 0.833 percent for thirty days. At the end of the 30 days, assume that the rate Rt+30 is still CUR 1/USD such that the return amount from the carry trade is USD 0.833. There is still a loan to be paid [(0.005)(30/360)USD100] equal to USD 0.042. The investor receives the net amount of USD 0.833 minus USD 0.042 or US 0.791. The rate of return on the investment of the USD 100 is 0.791 percent, which is equivalent to the annual rate of return of 9.49 percent {(0.791)(360/30)}. This is incomparably better than earning 0.5 percent. There are alternatives of hedging by buying forward the exchange for conversion back into USD.
Research by the Federal Reserve Bank of St. Louis finds that the dollar declined on average by 6.56 percent in the events of quantitative easing, ranging from depreciation of 10.8 percent relative to the Japanese yen to 3.6 percent relative to the pound sterling (http://research.stlouisfed.org/wp/2010/2010-018.pdf). A critical assumption of Rudiger Dornbusch (1976) in his celebrated analysis of overshooting (Rogoff 2002MF http://www.imf.org/external/np/speeches/2001/kr/112901.pdf) is “that exchange rates and asset markets adjust fast relative to goods markets” (Rudiger Dornbusch 1976, 1162). The market response of a monetary expansion is “to induce an immediate depreciation in the exchange rate and accounts therefore for fluctuations in the exchange rate and the terms of trade. During the adjustment process, rising prices may be accompanied by an appreciating exchange rate so that the trend behavior of exchange rates stands potentially in strong contrast with the cyclical behavior of exchange rates and prices” (Dornbusch 1976, 1162). The volatility of the exchange rate “is needed to temporarily equilibrate the system in response to monetary shocks, because underlying national prices adjust so slowly” (Rogoff 2002MF http://www.imf.org/external/np/speeches/2001/kr/112901.pdf 3). The exchange rate “is identified as a critical channel for the transmission of monetary policy to aggregate demand for domestic output” (Dornbusch 1976, 1162).
In a world of exchange wars, depreciation of the host-country currency can move even faster such that the profits from the carry trade may become major losses. Depreciation is the percentage change in instants against which the interest rate of a day is in the example [(10)(1/360)] or 0.03 percent. Exchange rates move much faster in the real world as in the overshooting model of Dornbusch (1976). Profits in carry trades have greater risks but equally greater returns when the short position in zero interest rates, or borrowing, and on the dollar, are matched with truly agile financial risk assets such as commodities and equities. A simplified analysis could consider the portfolio balance equations Aij = f(r, x) where Aij is the demand for i = 1,2,∙∙∙n assets from j = 1,2, ∙∙∙m sectors, r the 1xn vector of rates of return, ri, of n assets and x a vector of other relevant variables. Tobin (1969) and Brunner and Meltzer (1973) assume imperfect substitution among capital assets such that the own first derivatives of Aij are positive, demand for an asset increases if its rate of return (interest plus capital gains) is higher, and cross first derivatives are negative, demand for an asset decreases if the rate of return of alternative assets increases. Theoretical purity would require the estimation of the complete model with all rates of return. In practice, it may be impossible to observe all rates of return such as in the critique of Roll (1976). Policy proposals and measures by the Fed have been focused on the likely impact of withdrawals of stocks of securities in specific segments, that is, of effects of one or several specific rates of return among the n possible rates. In fact, the central bank cannot influence investors and arbitrageurs to allocate funds to assets of desired categories such as asset-backed securities that would lower the costs of borrowing for mortgages and consumer loans. Floods of cheap money may simply induce carry trades in arbitrage of opportunities in fast moving assets such as currencies, commodities and equities instead of much lower returns in fixed income securities (see 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).
It is in this context of economic and financial uncertainties that decisions on portfolio choices of risk financial assets must be made. 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 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 now complicated by political developments, 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 or the “sharp shifts in risk appetite” of Blanchard (2012WEOApr, XIII). 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 5/18/12,” 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. There has been rollercoaster fluctuation in risk aversion and financial risk asset valuations: 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 have fluctuated with events such as the surge in the week of Mar 16 on favorable news of Greece’s bailout even with new risk issues arising in the week of Mar 23 but renewed risk appetite in the week of Mar 30 because of the end of the quarter and the increase in the firewall of support of sovereign debts in the euro area. New risks developed in the week of Apr 6 with increase of yields of sovereign bonds of Spain and Italy, doubts on Fed policy and weak employment report. Asia and financial entities are experiencing their own risk environments. Financial markets were under stress in the week of Apr 13 because of the large exposure of Spanish banks to lending by the European Central Bank and the annual equivalent growth rate of China’s GDP of 7.4 percent in IQ2012. There was strength again in the week of Apr 20 because of the enhanced IMF firewall and Spain placement of debt, continuing into the week of Apr 27. Risk aversion returned in the week of May 4 because of the expectation of elections in Europe and the new trend of deterioration of job creation in the US. Europe’s sovereign debt crisis and the fractured US job market continued to influence risk aversion in the week of May 11. Politics in Greece and banking issues in Spain were important factors of sharper risk aversion in the week of May 18. The highest valuations in column “∆% Trough to 5/18/12” are by US equities indexes: DJIA 27.7 percent and S&P 500 26.7 percent, driven by stronger earnings and economy in the US than in other advanced economies but with doubts on the relation of business revenue to the weakening economy and fractured job market. The DJIA reached in intraday trading 13,331.77 on Mar 16, 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, almost all assets in the column “∆% Trough to 5/18/12” had double digit gains relative to the trough around Jul 2, 2010 but now most valuations of equity indexes show increase of less than 10 percent: China’s Shanghai Composite is 1.6 percent below the trough; STOXX 50 of Europe is 2.1 percent below the trough; Japan’s Nikkei Average is 2.4 percent below the trough; Dow Asia Pacific is 0.6 percent above the trough; Dow Global is 3.0 percent above the trough; and NYSE Financial is 1.9 percent below the trough. DJ UBS Commodities is 9.7 percent above the trough. DAX is 10.6 percent above the trough. Japan’s Nikkei Average is 1.5 percent above the trough on Aug 31, 2010 and 21.4 percent below the peak on Apr 5, 2010. The Nikkei Average closed at 8611.31 on Fri May 18, 2012 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata), which is 16.0 percent lower than 10,254.43 on Mar 11, 2011, on the date of the Great East Japan Earthquake/tsunami. Global risk aversion erased the earlier gains of the Nikkei. The dollar depreciated by 7.2 percent relative to the euro and even higher before the new bout of sovereign risk issues in Europe. The column “∆% week to 5/18/12” in Table VI-4 shows that with exception of increase of 0.9 of the DJ-UBS Commodities Index there were sharp decreases of all valuations of risk financial assets in the week of May 18, 2012 such as 3.5 percent for DJIA, 4.3 percent for S&P 500, 7.2 percent for NYSE Financial, 5.4 percent for Dow Global, 5.0 percent for DJ Asia Pacific, 3.8 percent for Nikkei Average, 2.1 percent for Shanghai Composite, 4.8 percent for STOXX 50 and 4.7 percent for Dax. There are still high uncertainties on European sovereign risks, US and world growth slowdown and China’s growth tradeoffs. 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 5/18/12” that provides the percentage change from the peak in Apr 2010 before the sovereign risk event to May 4, 2012. Most risk financial assets had gained not only relative to the trough as shown in column “∆% Trough to 5/18/12” but also relative to the peak in column “∆% Peak to 5/18/12.” There are now only two equity indexes above the peak in Table VI-4: DJIA 10.4 percent and S&P 500 6.4 percent. There are several indexes below the peak: NYSE Financial Index (http://www.nyse.com/about/listed/nykid.shtml) by 21.8 percent, Nikkei Average by 24.4 percent, Shanghai Composite by 25.9 percent, Dow Asia Pacific by 11.9 percent, STOXX 50 by 17.1 percent, Dax by 0.9 percent and Dow Global by 15.9 percent. DJ UBS Commodities Index is now 6.2 percent below 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 2010 because improvement could signal that conditions have returned to normal levels before European sovereign doubts in Apr 2010. An intriguing issue is the difference in performance of valuations of risk financial assets and economic growth and employment. Paul A. Samuelson (http://www.nobelprize.org/nobel_prizes/economics/laureates/1970/samuelson-bio.html) popularized the view of the elusive relation between stock markets and economic activity in an often-quoted phrase “the stock market has predicted nine of the last five recessions.” In the presence of zero interest rates forever, valuations of risk financial assets are likely to differ from the performance of the overall economy. The interrelations of financial and economic variables prove difficult to analyze and measure.
Table VI-4, Stock Indexes, Commodities, Dollar and 10-Year Treasury
| Peak | Trough | ∆% to Trough | ∆% Peak to 5/18 /12 | ∆% Week 5/18/ 12 | ∆% Trough to 5/18 12 | |
| DJIA | 4/26/ | 7/2/10 | -13.6 | 10.4 | -3.5 | 27.7 |
| S&P 500 | 4/23/ | 7/20/ | -16.0 | 6.4 | -4.3 | 26.7 |
| NYSE Finance | 4/15/ | 7/2/10 | -20.3 | -21.8 | -7.2 | -1.9 |
| Dow Global | 4/15/ | 7/2/10 | -18.4 | -15.9 | -5.4 | 3.0 |
| Asia Pacific | 4/15/ | 7/2/10 | -12.5 | -11.9 | -5.0 | 0.6 |
| Japan Nikkei Aver. | 4/05/ | 8/31/ | -22.5 | -24.4 | -3.8 | -2.4 |
| China Shang. | 4/15/ | 7/02 | -24.7 | -25.9 | -2.1 | -1.6 |
| STOXX 50 | 4/15/10 | 7/2/10 | -15.3 | -17.1 | -4.8 | -2.1 |
| DAX | 4/26/ | 5/25/ | -10.5 | -0.9 | -4.7 | 10.6 |
| Dollar | 11/25 2009 | 6/7 | 21.2 | 15.5 | -1.1 | 7.2 |
| DJ UBS Comm. | 1/6/ | 7/2/10 | -14.5 | -6.2 | 0.9 | 9.7 |
| 10-Year T Note | 4/5/ | 4/6/10 | 3.986 | 1.714 |
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 May 18, 2012, shows that the S&P 500 is now 6.4 percent above the Apr 26, 2010 level and the DJIA is 10.4 percent above the level on Apr 26, 2010. Multiple rounds of risk aversion eroded 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 | ∆% S&P 500 from prior date | ∆% S&P 500 from |
| Apr 26 | ||||
| May 6 | -6.1 | -6.1 | -6.9 | -6.9 |
| May 26 | -5.2 | -10.9 | -5.4 | -11.9 |
| Jun 8 | -1.2 | -11.3 | 2.1 | -12.4 |
| Jul 2 | -2.6 | -13.6 | -3.8 | -15.7 |
| Aug 9 | 10.5 | -4.3 | 10.3 | -7.0 |
| Aug 31 | -6.4 | -10.6 | -6.9 | -13.4 |
| Nov 5 | 14.2 | 2.1 | 16.8 | 1.0 |
| Nov 30 | -3.8 | -3.8 | -3.7 | -2.6 |
| Dec 17 | 4.4 | 2.5 | 5.3 | 2.6 |
| Dec 23 | 0.7 | 3.3 | 1.0 | 3.7 |
| Dec 31 | 0.03 | 3.3 | 0.07 | 3.8 |
| Jan 7 | 0.8 | 4.2 | 1.1 | 4.9 |
| Jan 14 | 0.9 | 5.2 | 1.7 | 6.7 |
| Jan 21 | 0.7 | 5.9 | -0.8 | 5.9 |
| Jan 28 | -0.4 | 5.5 | -0.5 | 5.3 |
| Feb 4 | 2.3 | 7.9 | 2.7 | 8.1 |
| Feb 11 | 1.5 | 9.5 | 1.4 | 9.7 |
| Feb 18 | 0.9 | 10.6 | 1.0 | 10.8 |
| Feb 25 | -2.1 | 8.3 | -1.7 | 8.9 |
| Mar 4 | 0.3 | 8.6 | 0.1 | 9.0 |
| Mar 11 | -1.0 | 7.5 | -1.3 | 7.6 |
| Mar 18 | -1.5 | 5.8 | -1.9 | 5.5 |
| Mar 25 | 3.1 | 9.1 | 2.7 | 8.4 |
| Apr 1 | 1.3 | 10.5 | 1.4 | 9.9 |
| Apr 8 | 0.03 | 10.5 | -0.3 | 9.6 |
| Apr 15 | -0.3 | 10.1 | -0.6 | 8.9 |
| Apr 22 | 1.3 | 11.6 | 1.3 | 10.3 |
| Apr 29 | 2.4 | 14.3 | 1.9 | 12.5 |
| May 6 | -1.3 | 12.8 | -1.7 | 10.6 |
| May 13 | -0.3 | 12.4 | -0.2 | 10.4 |
| May 20 | -0.7 | 11.7 | -0.3 | 10.0 |
| May 27 | -0.6 | 11.0 | -0.2 | 9.8 |
| Jun 3 | -2.3 | 8.4 | -2.3 | 7.3 |
| Jun 10 | -1.6 | 6.7 | -2.2 | 4.9 |
| Jun 17 | 0.4 | 7.1 | 0.04 | 4.9 |
| Jun 24 | -0.6 | 6.5 | -0.2 | 4.6 |
| Jul 1 | 5.4 | 12.3 | 5.6 | 10.5 |
| Jul 8 | 0.6 | 12.9 | 0.3 | 10.9 |
| Jul 15 | -1.4 | 11.4 | -2.1 | 8.6 |
| Jul 22 | 1.6 | 13.2 | 2.2 | 10.9 |
| Jul 29 | -4.2 | 8.4 | -3.9 | 6.6 |
| Aug 05 | -5.8 | 2.1 | -7.2 | -1.0 |
| Aug 12 | -1.5 | 0.6 | -1.7 | -2.7 |
| Aug 19 | -4.0 | -3.5 | -4.7 | -7.3 |
| Aug 26 | 4.3 | 0.7 | 4.7 | -2.9 |
| Sep 02 | -0.4 | 0.3 | -0.2 | -3.1 |
| Sep 09 | -2.2 | -1.9 | -1.7 | -4.8 |
| Sep 16 | 4.7 | 2.7 | 5.4 | 0.3 |
| Sep 23 | -6.4 | -3.9 | -6.5 | -6.2 |
| Sep 30 | 1.3 | -2.6 | -0.4 | -6.7 |
| Oct 7 | 1.7 | -0.9 | 2.1 | -4.7 |
| Oct 14 | 4.9 | 3.9 | 5.9 | 1.0 |
| Oct 21 | 1.4 | 5.4 | 1.1 | 2.2 |
| Oct 28 | 3.6 | 9.2 | 3.8 | 6.0 |
| Nov 04 | -2.0 | 6.9 | -2.5 | 3.4 |
| Nov 11 | 1.4 | 8.5 | 0.8 | 4.3 |
| Nov 18 | -2.9 | 5.3 | -3.8 | 0.3 |
| Nov 25 | -4.8 | 0.2 | -4.7 | -4.4 |
| Dec 02 | 7.0 | 7.3 | 7.4 | 2.7 |
| Dec 09 | 1.4 | 8.7 | 0.9 | 3.6 |
| Dec 16 | -2.6 | 5.9 | -2.8 | 0.6 |
| Dec 23 | 3.6 | 9.7 | 3.7 | 4.4 |
| Dec 30 | -0.6 | 9.0 | -0.6 | 3.8 |
| Jan 6 2012 | 1.2 | 10.3 | 1.6 | 5.4 |
| Jan 13 | 0.5 | 10.9 | 0.9 | 6.4 |
| 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 |
| Mar 16 | 2.4 | 18.1 | 2.4 | 15.9 |
| Mar 23 | -1.1 | 16.7 | -0.5 | 15.3 |
| Mar 30 | 1.0 | 17.9 | 0.8 | 16.2 |
| Apr 6 | -1.1 | 16.6 | -0.7 | 15.3 |
| Apr 13 | -1.6 | 14.7 | -2.0 | 13.1 |
| Apr 20 | 1.4 | 16.3 | 0.6 | 13.7 |
| Apr 27 | 1.5 | 18.1 | 1.8 | 15.8 |
| May 4 | -1.4 | 16.4 | -2.3 | 12.9 |
| May 11 | -1.7 | 14.4 | -1.1 | 11.7 |
| May 18 | -3.5 | 10.4 | -4.3 | 6.4 |
Source: http://professional.wsj.com/mdc/public/page/mdc_us_stocks.html?mod=mdc_topnav_2_3014
Table VI-6, updated with every 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 15.3 percent to ZAR 8.3471/USD on May 18, 2012, which is still 27.9 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 5.4 percent stronger at SGD 1.2746/USD on May 18, 2012 relative to the trough of depreciation but still stronger by 17.9 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 16.5 percent relative to the trough to BRL 2.0241/USD on May 18, 2012 but still stronger by 16.7 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 by 75 basis points for the fifth 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 9.00 percent
18/04/2012 8:06:00 PM
Brasília - Continuing the adjustment process of monetary conditions, the Copom unanimously decided to reduce the Selic rate to 9.00 percent.”
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, subsequently broadened to five years, 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 | May 18, 2012 | ∆% T May 18, 2012 | ∆% P May 18, 2012 | |
| EUR USD | 7/15 | 6/7 2010 | 5/18 2012 | |||
| Rate | 1.59 | 1.192 | 1.2780 | |||
| ∆% | -33.4 | 6.7 | -24.4 | |||
| JPY USD | 8/18 | 9/15 | 5/18 2012 | |||
| Rate | 110.19 | 83.07 | 79.01 | |||
| ∆% | 24.6 | 4.9 | 28.3 | |||
| CHF USD | 11/21 2008 | 12/8 2009 | 5/18 2012 | |||
| Rate | 1.225 | 1.025 | 0.9398 | |||
| ∆% | 16.3 | 8.3 | 23.3 | |||
| USD GBP | 7/15 | 1/2/ 2009 | 5/18 2012 | |||
| Rate | 2.006 | 1.388 | 1.5819 | |||
| ∆% | -44.5 | 12.3 | -26.8 | |||
| USD AUD | 7/15 2008 | 10/27 2008 | 5/18 | |||
| Rate | 1.0215 | 1.6639 | 0.9843 | |||
| ∆% | -62.9 | 38.9 | 0.5 | |||
| ZAR USD | 10/22 2008 | 8/15 | 5/18 2012 | |||
| Rate | 11.578 | 7.238 | 8.3471 | |||
| ∆% | 37.5 | -15.3 | 27.9 | |||
| SGD USD | 3/3 | 8/9 | 5/18 | |||
| Rate | 1.553 | 1.348 | 1.2746 | |||
| ∆% | 13.2 | 5.4 | 17.9 | |||
| HKD USD | 8/15 2008 | 12/14 2009 | 5/18 | |||
| Rate | 7.813 | 7.752 | 7.7672 | |||
| ∆% | 0.8 | -0.2 | 0.6 | |||
| BRL USD | 12/5 2008 | 4/30 2010 | 5/18 2012 | |||
| Rate | 2.43 | 1.737 | 2.0241 | |||
| ∆% | 28.5 | -16.5 | 16.7 | |||
| CZK USD | 2/13 2009 | 8/6 2010 | 5/18 | |||
| Rate | 22.19 | 18.693 | 19.768 | |||
| ∆% | 15.7 | -5.8 | 10.9 | |||
| SEK USD | 3/4 2009 | 8/9 2010 | 5/18 2012 | |||
| Rate | 9.313 | 7.108 | 7.1414 | |||
| ∆% | 23.7 | -0.5 | 23.3 | |||
| CNY USD | 7/20 2005 | 7/15 | 5/18 | |||
| Rate | 8.2765 | 6.8211 | 6.3260 | |||
| ∆% | 17.6 | 7.3 | 23.6 |
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, US Dollar Currency Indexes
Source: Board of Governors of the Federal Reserve System
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
Table VI-7, updated with every blog comment, provides in the second column the yield at the close of market of the 10-year Treasury note on the date in the first column. The price in the third column is calculated with the coupon of 2.625 percent of the 10-year note current at the time of the second round of quantitative easing after Nov 3, 2010 and the final column “∆% 11/04/10” calculates the percentage change of the price on the date relative to that of 101.2573 at the close of market on Nov 4, 2010, one day after the decision on quantitative easing by the Fed on Nov 3, 2010. Prices with new coupons such as 2.0 percent in recent auctions (http://www.treasurydirect.gov/RI/OFAuctions?form=extended&cusip=912828RR3) are not comparable to prices in Table VI-7. The highest yield in the decade was 5.510 percent on May 1, 2001 that would result in a loss of principal of 22.9 percent relative to the price on Nov 4. Monetary policy has created a “duration trap” of bond prices. Duration is the percentage change in bond price resulting from a percentage change in yield or what economists call the yield elasticity of bond price. Duration is higher the lower the bond coupon and yield, all other things constant. This means that the price loss in a yield rise from low coupons and yields is much higher than with high coupons and yields. Intuitively, the higher coupon payments offset part of the price loss. Prices/yields of Treasury securities were affected by the combination of Fed purchases for its program of quantitative easing and also by the flight to dollar-denominated assets because of geopolitical risks in the Middle East, subsequently by the tragic Great East Japan Earthquake and Tsunami and now again by the sovereign risk doubts in Europe and the growth recession in the US and the world. The yield of 1.714 percent at the close of market on Fri May 18, 2012 would be equivalent to price of 108.3393 in a hypothetical bond maturing in 10 years with coupon of 2.625 percent for price gain of 7.0 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. The price loss between Mar 9, 2012 and Mar 16, 2012 is 2.3 percent but much higher when using common leverage of 10:1. 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 May 16, 2012, the line “Reserve Bank credit” in the Fed balance sheet stood at $2834 billion, or $2.9 trillion, with portfolio of long-term securities of $2581 billion, or $2.6 trillion, consisting of $1561 billion Treasury nominal notes and bonds, $68 billion of notes and bonds inflation-indexed, $94 billion Federal agency debt securities and $858 billion mortgage-backed securities; reserve balances deposited with Federal Reserve Banks reached $1514 billion or $1.5 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 |
| 03/16/12 | 2.294 | 102.9428 | 1.7 |
| 03/23/12 | 2.234 | 103.4867 | 2.2 |
| 03/30/12 | 2.214 | 103.6687 | 2.4 |
| 04/06/12 | 2.058 | 105.1010 | 3.8 |
| 04/13/12 | 1.987 | 105.7603 | 4.4 |
| 04/20/12 | 1.959 | 106.0216 | 4.7 |
| 04/27/12 | 1.931 | 106.2836 | 5.0 |
| 05/04/12 | 1.876 | 106.8004 | 5.5 |
| 05/11/12 | 1.845 | 107.0930 | 5.8 |
| 05/18/12 | 1.714 | 108.3393 | 7.0 |
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 1.0 percent to 14,743 thousand barrels per day on average in the four weeks ending on May 11, 2012 from 14,595 thousand barrels per day in the four weeks ending on May 4, 2012, as shown in Table VII-1. The rate of capacity utilization in refineries continues at a relatively high level of 86.3 percent on May 11, 2012, which is higher than 82.6 percent on May 13, 2011 and higher than 85.4 percent on May 4, 2012. Imports of crude oil increased 0.5 percent from 8,779 thousand barrels per day on average in the four weeks ending on May 4 to 8,820 thousand barrels per day in the week of May 11. The Energy Information Administration (EIA) informs that “US crude oil imports averaged nearly 8.9 million barrels per day last week, down by 86 thousand barrels per day from the previous week [May]” (http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf). Increasing utilization in refineries with decreasing imports at the margin in the prior week resulted in increase of commercial crude oil stocks by 2.1 million barrels from 379.5 million barrels on May 4 to 381.6 million barrels on May 11. Motor gasoline production increased 0.5 percent to 8,940 thousand barrels per day in the week of May 11 from 8,894 thousand barrels per day on average in the week of May 4. Gasoline stocks decreased 2.8 million barrels and stocks of fuel oil decreased 1.0 million barrels. Supply of gasoline decreased from 8,991 thousand barrels per day on May 13, 2011, to 8,756 thousand barrels per day on May 11, 2012, or by 2.6 percent, while fuel oil supply decreased 0.5 percent. Part of the fall in consumption of gasoline is due to higher prices and part to the growth recession. WTI crude oil price traded at $96.03/barrel on May 11, 2012, decreasing 3.2 percent relative to $99.21/barrel on May 13, 2011. Gasoline prices fell 5.2 percent from May 16, 2011 to May 14, 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 had been 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 | 5/11/12 | 4/4/12 | 5/13/11 |
| Crude Oil Refineries Input | 14,743 Week ∆%: 1.0 | 14,595 | 14,148 |
| Refinery Capacity Utilization % | 86.3 | 85.4 | 82.6 |
| Motor Gasoline Production | 8,940 Week ∆%: 0.5 | 8,894 | 8,918 |
| Distillate Fuel Oil Production | 4,304 Week ∆%: 0.4 | 4,286 | 4,113 |
| Crude Oil Imports | 8,820 Week ∆%: 0.5 | 8,779 | 8,885 |
| Motor Gasoline Supplied | 8,756 ∆% 2012/2011= -2.6% | 8,707 | 8,991 |
| Distillate Fuel Oil Supplied | 3,738 ∆% 2012/2011 = -0.5% | 3,830 | 3,755 |
| 5/11/12 | 5/4/12 | 5/13/11 | |
| Crude Oil Stocks | 381.6 ∆= +2.1 MB | 379.5 | 370.3 |
| Motor Gasoline Million B | 204.3 ∆= -2.8 MB | 207.1 | 205.9 |
| Distillate Fuel Oil Million B | 119.8 | 120.8 | 143.1 |
| WTI Crude Oil Price $/B | 96.03 ∆% 2012/2011 -3.2 | 98.49 | 99.21 |
| 5/14/12 | 5/7/12 | 5/16/11 | |
| Regular Motor Gasoline $/G | 3.754 ∆% 2012/2011 | 3.790 | 3.960 |
B: barrels; G: gallon
Source: US Energy Information Administration 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 followed by several sharp weekly increases.
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 crude oil stocks since Jun 2010. There is a recent spike in crude oil stocks.
Chart VII-2, US, Crude Oil Stocks
Source: US Energy Information Administration
Chart VII-3 of the US Energy Information Administration shows the price of WTI crude oil since the 1980s. Chart VII-3 captures commodity price shocks during the past decade. The costly mirage of deflation was caused by the decline in oil prices 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 were unchanged from 370,000 on May 5 to 370,000 on May 12. Claims not adjusted for seasonality decreased 18,259 from 341,080 on May 5 to 322,281 on May 12. Strong seasonality is preventing clear analysis of labor markets.
Table VII-2, US, Initial Claims for Unemployment Insurance
| SA | NSA | 4-week MA SA | |
| May 12, 12 | 370,000 | 322,821 | 375,000 |
| May 5, 12 | 370,000 | 341,080 | 379,750 |
| Change | 0 | -18,259 | -4,750 |
| Apr 28, 12 | 368,000 | 333,476 | 384,250 |
| Prior Year | 418,000 | 361,573 | 434,500 |
Note: SA: seasonally adjusted; NSA: not seasonally adjusted; MA: moving average
Source: http://www.dol.gov/opa/media/press/eta/ui/current.htm
Table VII-3 provides seasonally and not seasonally adjusted claims in the comparable week for the years from 2001 to 2012. Seasonally adjusted claims typically are lower than claims not adjusted for seasonality. Claims not seasonally adjusted have declined from 570,412 on May 9, 2009 to 397,737 on May 7, 2011, and now to 361,573 on May 12, 2012. There is strong indication of significant decline in the level of layoffs in the US. Hiring has not recovered (see Section IA Hiring Collapse at http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html).
Table VII-3, US, Unemployment Insurance Weekly Claims
| Not Seasonally Adjusted Claims | Seasonally Adjusted Claims | |
| May 12, 2001 | 331,765 | 390,000 |
| May 11, 2002 | 358,286 | 413,000 |
| May 10, 2003 | 364,287 | 417,000 |
| May 8, 2004 | 292,756 | 329,000 |
| May 7, 2005 | 297,347 | 327,000 |
| May 6, 2006 | 317,239 | 347,000 |
| May 5, 2007 | 274,801 | 300,000 |
| May 10, 2008 | 325,479 | 366,000 |
| May 9, 2009 | 570,412 | 626,000 |
| May 8, 2010 | 414,327 | 451,000 |
| May 7, 2011 | 397,737 | 430,000 |
| May 12, 2012 | 361,573 | 370,000 |
Source: http://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 Feb to Apr 2012, CPI inflation for all items seasonally adjusted was 2.8 percent in annual equivalent, that is, compounding inflation in Feb-Apr 2012 and assuming it would be repeated for a full year. In the 12 months ending in Apr, CPI inflation of all items not seasonally adjusted was 2.3 percent. Inflation in Apr 2012 not seasonally adjusted unchanged relative to Mar 2011 (http://www.bls.gov/cpi/), which is equivalent to 0.0 percent per year. 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 0.08 percent for three months, 0.14 percent for six months, 0.19 percent for 12 months, 0.30 percent for two years, 0.42 percent for three years, 0.75 percent for five years, 1.17 percent for seven years, 1.74 percent for ten years and 2.82 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 Apr 2012/Apr | ∆% Annual Equivalent Feb-Apr 2012 SA | |
| CPI All Items | 2.3 | 2.8 |
| 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 and now 2012 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.bls.gov/web/empsit/cpseea01.htm
http://data.bls.gov/pdq/SurveyOutputServlet
There is a false impression of the existence of a monetary policy “science,” measurements and forecasting with which to steer the economy into “prosperity without inflation.” Market participants are remembering the Great Bond Crash of 1994 shown in Table I2 when monetary policy pursued nonexistent inflation, causing trillions of dollars of losses in fixed income worldwide while increasing the fed funds rate from 3 percent in Jan 1994 to 6 percent in Dec. The exercise in Table I2 shows a drop of the price of the 30-year bond by 18.1 percent and of the 10-year bond by 14.1 percent. CPI inflation remained almost the same and there is no valid counterfactual that inflation would have been higher without monetary policy tightening because of the long lag in effect of monetary policy on inflation (see Culbertson 1960, 1961, Friedman 1961, Batini and Nelson 2002, Romer and Romer 2004). The pursuit of nonexistent deflation during the past ten years has resulted in the largest monetary policy accommodation in history that created the 2007 financial market crash and global recession and is currently preventing smoother recovery while creating another financial crash in the future. The issue is not whether there should be a central bank and monetary policy but rather whether policy accommodation in doses from zero interest rates to trillions of dollars in the fed balance sheet endangers economic stability.
Table I2, Fed Funds Rates, Thirty and Ten Year Treasury Yields and Prices, 30-Year Mortgage Rates and 12-month CPI Inflation 1994
| 1994 | FF | 30Y | 30P | 10Y | 10P | MOR | CPI |
| Jan | 3.00 | 6.29 | 100 | 5.75 | 100 | 7.06 | 2.52 |
| Feb | 3.25 | 6.49 | 97.37 | 5.97 | 98.36 | 7.15 | 2.51 |
| Mar | 3.50 | 6.91 | 92.19 | 6.48 | 94.69 | 7.68 | 2.51 |
| Apr | 3.75 | 7.27 | 88.10 | 6.97 | 91.32 | 8.32 | 2.36 |
| May | 4.25 | 7.41 | 86.59 | 7.18 | 88.93 | 8.60 | 2.29 |
| Jun | 4.25 | 7.40 | 86.69 | 7.10 | 90.45 | 8.40 | 2.49 |
| Jul | 4.25 | 7.58 | 84.81 | 7.30 | 89.14 | 8.61 | 2.77 |
| Aug | 4.75 | 7.49 | 85.74 | 7.24 | 89.53 | 8.51 | 2.69 |
| Sep | 4.75 | 7.71 | 83.49 | 7.46 | 88.10 | 8.64 | 2.96 |
| Oct | 4.75 | 7.94 | 81.23 | 7.74 | 86.33 | 8.93 | 2.61 |
| Nov | 5.50 | 8.08 | 79.90 | 7.96 | 84.96 | 9.17 | 2.67 |
| Dec | 6.00 | 7.87 | 81.91 | 7.81 | 85.89 | 9.20 | 2.67 |
Notes: FF: fed funds rate; 30Y: yield of 30-year Treasury; 30P: price of 30-year Treasury assuming coupon equal to 6.29 percent and maturity in exactly 30 years; 10Y: yield of 10-year Treasury; 10P: price of 10-year Treasury assuming coupon equal to 5.75 percent and maturity in exactly 10 years; MOR: 30-year mortgage; CPI: percent change of CPI in 12 months
Sources: yields and mortgage rates http://www.federalreserve.gov/releases/h15/data.htm CPI ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.t
© Carlos M. Pelaez, 2010, 2011, 2012
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