Collapse of United States Creation of Wealth, Income and Employment, Forty Eight Million in Poverty and without Health Insurance, Unresolved US Balance of Payments Deficits, Global Financial Turbulence and World Economic and Trade Slowdown with Global Recession Risk
Carlos M. Pelaez
© Carlos M. Pelaez, 2010, 2011, 2012
Executive Summary
I Collapse of United States Creation of Wealth, Income and Employment
IA Household Income at 1996 Levels and Forty Eight Million in Poverty and without Health Insurance
IB Destruction of Three Trillion Dollars of Household Wealth
II Unresolved US Balance of Payments Deficits
III World Financial Turbulence
IIIA Financial Risks
IIIE Appendix Euro Zone Survival Risk
IIIF Appendix on Sovereign Bond Valuation
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
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt Crisis
IIIGA Monetary Policy with Deficit Financing of Economic Growth
IIIGB Adjustment during the Debt Crisis of the 1980s
IV Global Inflation. There is inflation everywhere in the world economy, with slow growth and persistently high unemployment in advanced economies. Table IV-1, updated with every blog comment, provides the latest annual data for GDP, consumer price index (CPI) inflation, producer price index (PPI) inflation and unemployment (UNE) for the advanced economies, China and the highly-indebted European countries with sovereign risk issues. The table now includes the Netherlands and Finland that with Germany make up the set of northern countries in the euro zone that hold key votes in the enhancement of the mechanism for solution of sovereign risk issues (Peter Spiegel and Quentin Peel, “Europe: Northern Exposures,” Financial Times, Mar 9, 2011 http://www.ft.com/intl/cms/s/0/55eaf350-4a8b-11e0-82ab-00144feab49a.html#axzz1gAlaswcW). Newly available data on inflation is considered below in this section. Data in Table IV-1 for the euro zone and its members are updated from information provided by Eurostat but individual country information is provided in this section as soon as available, following Table IV-1. Data for other countries in Table IV-1 are also updated with reports from their statistical agencies. Economic data for major regions and countries is considered in Section V World Economic Slowdown following with individual country and regional data tables.
Table IV-1, GDP Growth, Inflation and Unemployment in Selected Countries, Percentage Annual Rates
| GDP | CPI | PPI | UNE | |
| US | 2.3 | 1.7 | 2.0 | 8.1 |
| Japan | 3.5 | -0.4 | -1.8 | 4.3 |
| China | 8.9 | 2.0 | -3.5 | |
| UK | -0.8 | 2.5* | 2.2* output | 8.1 |
| Euro Zone | -0.5 | 2.6 | 1.8 | 11.3 |
| Germany | 1.0 CA | 2.2 | 0.9 | 5.5 |
| France | 0.3 | 2.4 | 1.3 | 10.3 |
| Nether-lands | -0.5 | 2.5 | 2.5 | 5.3 |
| Finland | 0.3 | 3.3 | 0.9 | 7.6 |
| Belgium | -0.4 | 2.6 | 2.7 | 7.2 |
| Portugal | -3.3 | 3.2 | 3.0 | 15.7 |
| Ireland | NA | 2.6 | 1.6 | 14.9 |
| Italy | -2.5 | 3.3 | 2.4 | 10.7 |
| Greece | -6.2 | 1.2 | 4.1 | NA |
| Spain | -1.3 | 2.7 | 2.6 | 25.1 |
Notes: GDP: rate of growth of GDP; CPI: change in consumer price inflation; PPI: producer price inflation; UNE: rate of unemployment; all rates relative to year earlier
*Office for National Statistics http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/august-2012/index.html **Core
PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/august-2012/index.html Source: EUROSTAT; country statistical sources http://www.census.gov/aboutus/stat_int.html
Table IV-1 shows the simultaneous occurrence of low growth, inflation and unemployment in advanced economies. The US grew at 2.3 percent in IIQ2012 relative to IIQ2011 (Table 8 in http://www.bea.gov/newsreleases/national/gdp/2012/pdf/gdp2q12_2nd.pdf See I Mediocre and Decelerating United States Economic Growth at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html). Japan’s GDP fell 0.7 percent in IVQ2011 relative to IVQ2010 and contracted 1.8 percent in IIQ2011 relative to IIQ2010 because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 but grew at the seasonally-adjusted annual rate (SAAR) of 6.9 percent in IIIQ2011, increasing at the SAAR of 0.3 percent in IVQ 2011, 5.3 percent in IQ2012 and 0.7 percent in IIQ2012 (see Section VB at http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html); the UK grew at minus 0.5 percent in IIQ2012 relative to IQ2012 and GDP fell 0.5 percent in IIQ2012 relative to IIQ2011 (see Section VH at http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with_26.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/07/decelerating-united-states-recovery_29.html); and the Euro Zone grew at minus 0.2 percent in IIQ2012, 0.0 percent in IQ2012 relative to IVQ2011 and fell 0.5 percent in IIQ2012 relative to IIQ2011 (see Section at http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or_10.html and earlier http://cmpassocregulationblog.blogspot.com/2012/08/world-inflation-waves-loss-of-dynamism_19.html). These are stagnating or “growth recession” rates, which are positive or about nil growth rates instead of contractions but insufficient to recover employment. The rates of unemployment are quite high: 8.1 percent in the US but 17.4 percent for unemployment/underemployment or job stress of 28.1 million (see Table I-4 at http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real.html http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-jobs-twenty-eight.html http://cmpassocregulationblog.blogspot.com/2012/04/thirty-million-unemployed-or.html), 4.3 percent for Japan (see Section VB at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or_3778.html), 8.1 percent for the UK with high rates of unemployment for young people (see the labor statistics of the UK in Subsection VH at http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_17.html and earlier http://cmpassocregulationblog.blogspot.com/2012/08/world-inflation-waves-loss-of-dynamism_19.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/07/world-inflation-waves-financial_22.html) and 11.3 percent in the Euro Zone (section VD at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or_3778.html). Twelve-month rates of inflation have been quite high, even when some are moderating at the margin: 1.7 percent in the US, -0.4 percent for Japan, 2.0 percent for China, 2.6 percent for the Euro Zone and 2.5 percent for the UK. Stagflation is still an unknown event but the risk is sufficiently high to be worthy of consideration (see http://cmpassocregulationblog.blogspot.com/2011/06/risk-aversion-and-stagflation.html). The analysis of stagflation also permits the identification of important policy issues in solving vulnerabilities that have high impact on global financial risks. There are six key interrelated vulnerabilities in the world economy that have been causing global financial turbulence: (1) sovereign risk issues in Europe resulting from countries in need of fiscal consolidation and enhancement of their sovereign risk ratings (see Section III and earlier http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html); (2) the tradeoff of growth and inflation in China now with change in growth strategy to domestic consumption instead of investment and political developments in a decennial transition; (3) slow growth by repression of savings with de facto interest rate controls (see IIB at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html), weak hiring with the loss of 10 million full-time jobs (see Section I at http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2012/08/recovery-without-hiring-ten-million.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-hiring-ten-million.html) and continuing job stress of 24 to 30 million people in the US and stagnant wages in a fractured job market (see Section I at http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real.html); (4) the timing, dose, impact and instruments of normalizing monetary and fiscal policies (see Section I at http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with.html and earlier IV Budget/Debt Quagmire in 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/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2011/03/global-financial-risks-and-fed.html http://cmpassocregulationblog.blogspot.com/2011/02/policy-inflation-growth-unemployment.html) in advanced and emerging economies; (5) the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 that had repercussions throughout the world economy because of Japan’s share of about 9 percent in world output, role as entry point for business in Asia, key supplier of advanced components and other inputs as well as major role in finance and multiple economic activities (http://professional.wsj.com/article/SB10001424052748704461304576216950927404360.html?mod=WSJ_business_AsiaNewsBucket&mg=reno-wsj); and (6) geopolitical events in the Middle East.
In the effort to increase transparency, the Federal Open Market Committee (FOMC) provides both economic projections of its participants and views on future paths of the policy rate that in the US is the federal funds rate or interest on interbank lending of reserves deposited at Federal Reserve Banks. These projections and views are discussed initially followed with appropriate analysis.
Jon Hilsenrath, writing on “Fed sets stage for stimulus,” on Aug 31, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390443864204577623220212805132.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the essay presented by Chairman Bernanke at the Jackson Hole meeting of central bankers, as defending past stimulus with unconventional measures of monetary policy that could be used to reduce extremely high unemployment. Chairman Bernanke (2012JHAug31, 18-9) does support further unconventional monetary policy impulses if required by economic conditions (http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm):
“Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Professor John H Cochrane (2012Aug31), at the University of Chicago Booth School of Business, writing on “The Federal Reserve: from central bank to central planner,” on Aug 31, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444812704577609384030304936.html?mod=WSJ_hps_sections_opinion), analyzes that the departure of central banks from open market operations into purchase of assets with risks to taxpayers and direct allocation of credit subject to political influence has caused them to abandon their political independence and accountability. Cochrane (2012Aug31) finds a return to the proposition of Milton Friedman in the 1960s that central banks can cause inflation and macroeconomic instability.
Jon Hilsenrath, writing on “Bernanke letter defends Fed actions,” on Aug 24, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444358404577609231770784446.html?mod=WSJ_hp_LEFTWhatsNewsCollection#project%3Dissaletter082412%26articleTabs%3Darticle), finds support for FOMC policies and possible further actions in a letter by Chairman Bernanke (2012Aug22) in reply to inquiry by Representative Darrell Issa (2012Aug1), which were obtained and published by the WSJ on Aug 22, 2012 (http://online.wsj.com/public/resources/documents/Bernankeletter0812.pdf http://s3.documentcloud.org/documents/413447/issaletter0812.pdf). Issa (2012Aug1) inquired from Chairman Bernanke about analysis of monetary policy of various types, including by distinguished Professor Allan Meltzer (http://www.amazon.com/Allan-H.-Meltzer/e/B001H6MWPC/ref=ntt_dp_epwbk_0), the author of three scholarly analytical volumes on the history of the Federal Reserve (Meltzer 2004, 2010a, 2010b), who has emphasized the short-term nature of economic policy that could be more effective if focused on the long term. Chairman Bernanke (2012Aug22), who is also an eminent scholar, provided detailed answers to the queries by Issa (2012Aug1). The first sentence of the reply ignited positive risk taking in financial markets operating with low holiday volumes: “There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery.”
The statement of the FOMC at the conclusion of its meeting on Sep 13, 2012, revealed the following policy intentions (http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm):
“Release Date: September 13, 2012
For immediate release
Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.
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 agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.”
There are several important issues in this statement.
1. Mandate. The FOMC 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”
2. Open-ended Quantitative Easing. Earlier programs are continued with an additional open-ended $40 billion of bond purchases per months: “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 agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
3. Advance Guidance on Accommodative Policy after Recovery Strengthening. Policy will be accommodative even after the economy recovers satisfactorily: “To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.”
4. Monitoring and Policy Focus on Jobs. The FOMC reconsiders its policy continuously in accordance with available information: “The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”
Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output (http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm): “The [Federal Open Market] Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the recovery strengthens.” The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest during nearly a decade and programmed in monetary policy statements until 2015 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted. If economic perspectives are doomed until 2015 such as to warrant zero interest rates and open-ended bond-buying by “printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html), rational investors and consumers will not invest and consume until just before interest rates are likely to increase. Monetary policy statements on intentions of zero interest rates for another three years or now virtually forever discourage investment and consumption or aggregate demand that can increase economic growth and generate more hiring and opportunities to increase wages and salaries. The doom scenario used to justify monetary policy accentuates adverse expectations on discounted future cash flows of potential economic projects that can revive the economy and create jobs. If it were possible to project the future with the central tendency of the monetary policy scenario and monetary policy tools do exist to reverse this adversity, why the tools have not worked before and even prevented the financial crisis? If there is such thing as “monetary policy science”, why it has such poor record and current inability to reverse production and employment adversity? There is no excuse of arguing that additional fiscal measures are needed because they were deployed simultaneously with similar ineffectiveness.
Table IV-2 provides economic projections of governors of the Board of Governors of the Federal Reserve and regional presidents of Federal Reserve Banks released at the meeting of Sep 13, 2012. The Fed releases the data with careful explanations (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf). Columns “∆% GDP,” “∆% PCE Inflation” and “∆% Core PCE Inflation” are changes “from the fourth quarter of the previous year to the fourth quarter of the year indicated.” The GDP report for IIQ2012 is analyzed in I Mediocre and Decelerating United States Economic Growth at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html and earlier (http://cmpassocregulationblog.blogspot.com/2012/07/decelerating-united-states-recovery.html) and the PCE inflation data from the report on personal income and outlays (Section IV at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html and earlier http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real_09.html). The Bureau of Economic Analysis (BEA) provides the second estimate of IIQ2012 GDP with the third estimate to be released on Sep 27 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm). PCE inflation is the index of personal consumption expenditures (PCE) of the report of the Bureau of Economic Analysis (BEA) on “Personal Income and Outlays” (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm), which is analyzed in sections IA and IV in this blog for Jul 2012 at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html. The next report on “Personal Income and Outlays” for Aug will be released at 8:30 AM on Sep 28, 2012 (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm). PCE core inflation consists of PCE inflation excluding food and energy. Column “UNEMP %” is the rate of unemployment measured as the average civilian unemployment rate in the fourth quarter of the year. The Bureau of Labor Statistics (BLS) provides the Employment Situation Report with the civilian unemployment rate in the first Friday of every month, which is analyzed in this blog (the Aug report in Section I at http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or.html and the Jul report is analyzed at http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html). The report for Sep will be released on Fri Oct 5, 2012 (http://www.bls.gov/ces/). “Longer term projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy” (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf).
It is instructive to focus on 2012 and 2013 as 2014 and 2015 and longer term are too far away, and there is not much information even on what will happen in 2013 and beyond. The central tendency should provide reasonable approximation of the view of the majority of members of the FOMC but the second block of numbers provides the range of projections by FOMC participants. The first row for each year shows the projection introduced after the meeting of Sep 13, 2012 and the second row “PR” the projection of the Jun 20, 2012 meeting. There are three major changes in the view.
1. Growth “∆% GDP.” The FOMC has reduced the forecast of GDP growth in 2012 from 3.3 to 3.7 percent in Jun 2011 to 2.5 to 2.9 percent in Nov 2011 and 2.2 to 2.7 percent at the Jan 25 meeting but increased it to 2.4 to 2.9 percent at the Apr 25, 2012 meeting, reducing it to 1.9 to 2.4 percent at the Jun 20, 2012 meeting and further to 1.7 to 2.0 percent at the Sep 13, 2012 meeting. GDP growth in 2013 has been increased to 2.5 to 3.0 percent at the meeting on Sep 13
2012 from 2.2 to 2.8 percent at the meeting on Jun 20, 2012. Rate of Unemployment “UNEM%.” The FOMC increased the rate of unemployment from 7.8 to 8.2 percent in Jun 2011 to 8.5 to 8.7 percent in Nov 2011 but has reduced it to 8.2 to 8.5 percent at the Jan 25 meeting and further down to 7.8 to 8.0 percent at the Apr 25, 2012 meeting but increased it to 8.0 to 8.2 percent at the Jun 20, 2012 meeting and did not change it at 8.0 to 8.2 at the meeting on Sep 13, 2012. The rate of unemployment for 2013 has been changed to 7.6 to 7.9 percent at the Sep 13 meeting compared with 7.5 to 8.0 percent at the Jun 20 meeting.
3. Inflation “∆% PCE Inflation.” The FOMC changed the forecast of personal consumption expenditures (PCE) inflation from 1.5 to 2.0 percent in Jun 2011 to virtually the same of 1.4 to 2.0 percent in Nov 2011 but has reduced it to 1.4 to 1.8 percent at the Jan 25 meeting but increased it to 1.9 to 2.0 percent at the Apr 25, 2012 meeting, reducing it to 1.2 to 1.7 percent at the Jun 20, 2012 meeting. The interval was increased to 1.7 to 1.8 percent at the Sep 13, 2012 meeting.
4. Core Inflation “∆% Core PCE Inflation.” Core inflation is PCE inflation excluding food and energy. There is again not much of a difference of the projection for 2012 in Jun 2011 of 1.4 to 2.0 percent and the Nov 2011 projection of 1.5 to 2.0 percent, which has been reduced slightly to 1.5 to 1.8 percent at the Jan 25 meeting but increased to 1.8 to 2.0 percent at the Apr 25, 2012 meeting, reducing it to 1.7 to 2.0 percent at the Jun 20, 2012 meeting. The projection was virtually unchanged at 1.7 to 1.9 percent at the Sep 13 meeting. For 2013, the projection for core inflation was changed from 1.6 to 2.0 percent at the Jun 20, 2012 meeting to 1.7 to 2.0 percent at the Sep 13, 2012 meeting.
Table IV-2, US, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents in FOMC, June 2012 and Sep 2012
| ∆% GDP | UNEM % | ∆% PCE Inflation | ∆% Core PCE Inflation | |
| Central | ||||
| 2012 Jun PR | 1.7 to 2.0 1.9 to 2.4 | 8.0 to 8.2 8.0 to 8.2 | 1.7 to 1.8 1.2 to 1.7 | 1.7 to 1.9 1.7 to 2.0 |
| 2013 | 2.5 to 3.0 | 7.6 to 7.9 | 1.6 to 2.0 | 1.7 to 2.0 1.6 to 2.0 |
| 2014 | 3.0 to 3.8 | 6.7 to 7.3 | 1.6 to 2.0 | 1.8 to 2.0 |
| 2015 | 3.0 to 3.8 NA | 6.0 to 6.8 NA | 1.8 to 2.0 NA | 1.9 to 2.0 NA |
| Longer Run Jun PR | 2.3 to 2.5 2.3 to 2.5 | 5.2 to 6.0 5.2 to 6.0 | 2.0 2.0 | |
| Range | ||||
| 2012 | 1.6 to 2.0 | 8.0 to 8.3 | 1.5 to 1.9 | 1.6 to 2.0 |
| 2013 | 2.3 to 3.5 | 7.0 to 8.1 | 1.5 to 2.1 | 1.6 to 2.0 |
| 2014 | 2.7 to 4.1 | 6.3 to 7.5 | 1.6 to 2.2 | 1.6 to 2.2 |
| 2015 Jun PR | 2.5 to 4.2 NA | 5.7 to 6.9 NA | 1.8 to 2.3 NA | 1.8 to 2.3 NA |
| Longer Run Jun PR | 2.2 to 3.0 2.2 to 3.0 | 5.0 to 6.3 4.9 to 6.3 | 2.0 2.0 |
Notes: UEM: unemployment; PR: Projection
Source:
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf
Another important decision at the FOMC meeting on Jan 25, 2012, is formal specification of the goal of inflation of 2 percent per year but without specific goal for unemployment (http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm):
“Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.
The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.
Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals.
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances.
The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants' estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC's Summary of Economic Projections. For example, in the most recent projections, FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent, roughly unchanged from last January but substantially higher than the corresponding interval several years earlier.
In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. ”
The probable intention of this specific inflation goal is to “anchor” inflationary expectations. Massive doses of monetary policy of promoting growth to reduce unemployment could conflict with inflation control. Economic agents could incorporate inflationary expectations in their decisions. As a result, the rate of unemployment could remain the same but with much higher rate of inflation (see Kydland and Prescott 1977 and Barro and Gordon 1983; 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). Strong commitment to maintaining inflation at 2 percent could control expectations of inflation.
The FOMC continues its efforts of increasing transparency that can improve the credibility of its firmness in implementing its dual mandate. Table IV-3 provides the views by participants of the FOMC of the levels at which they expect the fed funds rate in 2012, 2013, 2014 and the in the longer term. Table IV-3 is inferred from a chart provided by the FOMC with the number of participants expecting the target of fed funds rate (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf). There are 18 participants expecting the rate to remain at 0 to ¼ percent in 2012 and only one to be higher. Not much change is expected in 2013 either with 15 participants anticipating the rate at the current target of 0 to ¼ percent and only four expecting higher rates. The rate would still remain at 0 to ¼ percent in 2014 for 13 participants with four expecting the rate to be in the range of 1.0 to 2.0 percent and two participants expecting rates from 2.0 to 3.0. This table is consistent with the guidance statement of the FOMC that rates will remain at low levels until late in 2014. For 2015, ten participants expect rates to be below 1.0 percent while four expect rates from 3.0 to 4.5 percent. In the long-run, all 19 participants expect rates to be between 3.0 and 4.5 percent.
Table IV-3, US, Views of Target Federal Funds Rate at Year-End of Federal Reserve Board Members and Federal Reserve Bank Presidents Participating in FOMC, June 20, 2012
| 0 to 0.25 | 0.5 to 1.0 | 1.0 to 1.5 | 1.0 to 2.0 | 2.0 to 3.0 | 3.0 to 4.5 | |
| 2012 | 18 | 1 | ||||
| 2013 | 15 | 3 | 1 | |||
| 2014 | 13 | 4 | 2 | |||
| 2015 | 1 | 9 | 3 | 2 | 4 | |
| Longer Run | 19 |
Source:
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf
Additional information is provided in Table IV-4 with the number of participants expecting increasing interest rates in the years from 2012 to 2015. It is evident from Table IV-4 that the prevailing view in the FOMC is for interest rates to continue at low levels in future years. This view is consistent with the economic projections of low economic growth, relatively high unemployment and subdued inflation provided in Table IV-2.
Table IV-4, US, Views of Appropriate Year of Increasing Target Federal Funds Rate of Federal Reserve Board Members and Federal Reserve Bank Presidents Participating in FOMC, June 20, 2012
| Appropriate Year of Increasing Target Fed Funds Rate | Number of Participants |
| 2012 | 1 |
| 2013 | 3 |
| 2014 | 2 |
| 2015 | 12 |
| 2016 | 1 |
Source:
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf
There are two categories of responses in the Empire State Manufacturing Survey of the Federal Reserve Bank of New York (http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html): current conditions and expectations for the next six months. There are responses in the survey for two types of prices: prices received or inputs of production and prices paid or sales prices of products. Table IV-5 provides indexes for the two categories and within them for the two types of prices from Jan 2011 to Sep 2012. Current prices paid were rising at an accelerating rate from 35.79 in Jan 2011 to 69.89 in May 2011 but the rate of increase dropped significantly to 25.88 in Feb 2012, increasing sharply to 50.62 in Mar in the commodity price shock but falling to 45.78 in Apr, 37.35 in May, 19.59 in Jun and 7.41 in Jul as risk aversion caused decline of commodity prices. At the margin, the index of prices paid rose to 16.47 in Aug and 19.15 in Sep in yet net another bout of carry trade. The index of current prices received also fell sharply from 27.96 in May 2011 to 4.49 in Oct 2011, meaning that prices were increasing at a very low rate and then rose to 13.58 in Mar 2012, increasing to 19.28 in Apr but declining to 12.05 in May, 1.03 in Jun, 3.70 in Jul, 2.35 in Aug, which is also relatively low, near the border of contraction at 0.0, and 5.32 in Sep 2012. In the expectations for the next six months, the index of prices paid also declined from 68.82 in May 2011 to 56.98 in Dec 2011, rising to 66.67 in Mar 2012 but declining to 50.60 in Apr 2012, increasing to 57.83 in May and falling to 34.02 in Jun 2012, 35.80 in Jul and 31.76 in Aug but increasing to 40.42 in Sep 2012. Expected prices received also rose in the first five months of 2011, declining from 35.48 in May 2011 to 15.22 in Aug 2011 but then rising to 32.10 in Mar 2012 and declining to 22.89 in Apr and May 2012, 17.53 in Jun, 16.05 in Jul and 14.12 in Aug but increasing to 23.40 in Sep 2012. Unconventional monetary policy of zero interest rates and quantitative easing has increased the volatility of inflation via carry trades, creating uncertainty in financial and economic decisions.
Table IV-5, US, FRBNY Empire State Manufacturing Survey, Diffusion Indexes, Prices Paid and Prices Received, SA
| Current Prices Paid | Current Prices Received | Six Months Prices Paid | Six Months Prices Received | |
| Sep 2012 | 19.15 | 5.32 | 40.43 | 23.40 |
| Aug | 16.47 | 2.35 | 31.76 | 14.12 |
| Jul | 7.41 | 3.70 | 35.80 | 16.05 |
| Jun | 19.59 | 1.03 | 34.02 | 17.53 |
| May | 37.35 | 12.05 | 57.83 | 22.89 |
| Apr | 45.78 | 19.28 | 50.60 | 22.89 |
| Mar | 50.62 | 13.58 | 66.67 | 32.10 |
| Feb | 25.88 | 15.29 | 62.35 | 34.12 |
| Jan | 26.37 | 23.08 | 53.85 | 30.77 |
| Dec 20111 | 24.42 | 3.49 | 56.98 | 36.05 |
| Nov | 18.29 | 6.10 | 36.59 | 25.61 |
| Oct | 24.47 | 4.49 | 40.45 | 17.98 |
| Sep | 32.61 | 8.70 | 53.26 | 22.83 |
| Aug | 28.26 | 2.17 | 42.39 | 15.22 |
| Jul | 43.33 | 5.56 | 51.11 | 30.00 |
| Jun | 56.12 | 11.22 | 55.10 | 19.39 |
| May | 69.89 | 27.96 | 68.82 | 35.48 |
| Apr | 57.69 | 26.92 | 56.41 | 38.46 |
| Mar | 53.25 | 20.78 | 71.43 | 36.36 |
| Feb | 45.78 | 16.87 | 55.42 | 27.71 |
| Jan | 35.79 | 15.79 | 60.00 | 42.11 |
Source: http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html
Price indexes of the Federal Reserve Bank of Philadelphia Outlook Survey are provided in Table IV-6. As inflation waves throughout the world (analyzed in Section I at http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html), indexes of both current and expectations of future prices paid and received were quite high until May 2011. Prices paid, or inputs, were more dynamic, reflecting carry trades from zero interest rates to commodity futures. All indexes softened after May 2011 with even decline of prices received in Aug 2011 during the first round of risk aversion. Current and future price indexes have increased again but not back to the levels in the beginning of 2011 because of risk aversion frustrating carry trades even under zero interest rates. In Sep 2012, the index of current prices received was -0.2 percent, indicating very moderate contraction of prices received, while the index of current prices paid fell from 22.5 in Apr to minus 2.8 in Jun, indicating moderate contraction, increasing to 11.2 in Aug in a new round of marginal pressure of input inflation but declining to 8.0 in Sep 2012. The index of future prices paid increased from 35.2 percent in Apr 2012 to 37.8 in May and rebounded to 38.0 in Sep 2012, indicating higher expectation of increases in prices paid or prices of inputs while the index of future prices received fell from 20.4 percent in Apr 2012 to 7.7 percent in May, 13.5 in Jun and 14.6 in Jul, indicating softness in expected future prices received or sales prices, but rebounded to 20.3 in Aug and 27.2 in Sep 2012 in yet another round of influence of carry trades.
Table IV-6, US, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and Future Prices Paid and Prices Received, SA
| Current Prices Paid | Current Prices Received | Future Prices Paid | Future Prices Received | |
| Sep 2012 | 8.0 | -0.2 | 38.0 | 27.2 |
| Aug | 11.2 | 2.8 | 33.1 | 20.3 |
| Jul | 3.7 | 1.6 | 22.8 | 14.6 |
| Jun | -2.8 | -6.9 | 20.1 | 13.5 |
| May | 5.0 | -4.5 | 37.8 | 7.7 |
| Apr | 22.5 | 9.4 | 35.2 | 20.4 |
| Mar | 18.7 | 8.4 | 39.4 | 25.6 |
| Feb | 38.7 | 15.0 | 50.4 | 32.0 |
| Jan | 31.8 | 11.2 | 52.7 | 23.8 |
| Dec 2011 | 30.4 | 10.3 | 49.4 | 26.4 |
| Nov | 25.9 | 6.2 | 41.0 | 28.1 |
| Oct | 23.5 | 1.6 | 44.8 | 27.2 |
| Sep | 25.0 | 3.9 | 37.8 | 22.0 |
| Aug | 20.1 | -6.0 | 40.2 | 20.1 |
| Jul | 30.2 | 3.9 | 44.2 | 12.7 |
| Jun | 32.8 | 5.2 | 30.5 | 4.1 |
| May | 46.4 | 16.3 | 53.4 | 27.0 |
| Apr | 54.4 | 23.0 | 55.4 | 33.5 |
| Mar | 59.8 | 19.3 | 63.6 | 34.8 |
| Feb | 63.2 | 17.5 | 67.8 | 35.9 |
| Jan | 51.9 | 14.5 | 62.8 | 36.0 |
Source: Federal Reserve Bank of Philadelphia
http://www.philadelphiafed.org/index.cfm
Chart VI-1of the Business Outlook Survey of the Federal Reserve Bank of Philadelphia provides the diffusion index of current prices paid or prices of inputs from Sep 2011 to Sep 2012. Inflation of inputs moderated significantly during the shock of risk aversion in 2012, even falling briefly into contraction territory below zero and expanding now at very moderate but marginally decreasing pace.
Chart IV-1, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid Diffusion Index SA
Source: Federal Reserve Bank of Philadelphia
http://www.phil.frb.org/index.cfm
Chart IV-2 of the Business Outlook Survey of the Federal Reserve Bank of Philadelphia provides the current diffusion index of prices received, which are prices of sales of products by companies. There is much less dynamism than in prices paid because commodity-rich inputs are only part of total costs. The high levels early in 2011 have not been realized again under the pressure on carry trades of risk financial assets from the European debt crisis and the index crossed again downward into the contraction zone below 0, moving back into very moderate expansion. Carry trades from zero interest rates cause instability in net margins of business because of more dynamic effects on input prices than in prices of product sales.
Chart IV-2, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Received Diffusion Index SA
Source: Federal Reserve Bank of Philadelphia
http://www.phil.frb.org/index.cfm
The producer price index of Germany increased 0.6 percent in Aug 2012, calendar and seasonally adjusted (CSA) and increased 0.5 not seasonally adjusted (NS) relative to Aug 2012 and increased 1.6 percent in the 12 months ending in Aug, as shown in Table IV-7. The producer price index of Germany has similar waves of inflation as in many other countries (Section I http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html). In the first wave from Jan to Apr 2011, the annual equivalent rate of producer price inflation was 10.4 percent NSA and 6.5 percent CSA, propelled by carry trades from zero interest rates to exposures in commodity futures in a mood of risk appetite. In the second wave in May and Jun 2011, the annual equivalent rate of producer price inflation was only 0.6 percent NSA because of the collapse of the carry trade in fear of risks of European sovereign debt but 3.7 percent CSA. In the third wave from Jul to Sep 2011, annual-equivalent producer price inflation in Germany was 2.8 percent NSA and 4.1 percent CSA with fluctuations in commodity prices resulting from perceptions of the sovereign risk crisis in Europe. In the fourth wave from Oct to Nov 2011, annual equivalent inflation was 1.8 percent NSA and 3.7 percent CSA as financial markets were shocked with strong risk aversion. In the fifth wave from Dec 2011 to Jan 2012, annual equivalent inflation was at 1.2 percent NSA and minus 0.6 percent CSA. In the sixth wave, annual equivalent inflation increased to 6.2 percent in Feb-Mar 2012 NSA and 4.9 percent in Feb-Apr and 1.2 percent CSA. In the seventh wave, annual equivalent inflation was minus 2.8 percent in May-Jul 2012 NSA and minus 0.8 percent SA. In the eighth wave, annual equivalent inflation was 6.2 percent in Aug NSA and 6.2 percent SA. Annual data in the bottom of Table IV-7 show that the producer price index fell 5.2 percent in the 12 months ending in Dec 2009 as a result of the fall of commodity prices originating in risk aversion after the panic of 2008.
Table IV-7, Germany, Index of Producer Prices for Industrial Products ∆%
| 12 Months ∆% NSA | Month ∆% Calendar and SA | Month ∆% NSA | |
| Aug 2012 | 1.6 | 0.6 | 0.5 |
| AE ∆% Aug | 7.4 | 6.2 | |
| Jul | 0.9 | -0.1 | 0.0 |
| Jun | 1.6 | -0.1 | -0.4 |
| May | 2.1 | 0.0 | -0.3 |
| AE ∆% May-Jul | -0.8 | -2.8 | |
| Apr | 2.4 | -0.2 | 0.2 |
| Mar | 3.3 | 0.4 | 0.6 |
| Feb | 3.2 | 0.1 | 0.4 |
| AE ∆% Feb-Apr | 1.2 | 4.9 | |
| Jan | 3.4 | 0.1 | 0.6 |
| Dec 2011 | 4.0 | -0.2 | -0.4 |
| AE ∆% Dec-Jan | -0.6 | 1.2 | |
| Nov | 5.2 | 0.3 | 0.1 |
| Oct | 5.3 | 0.3 | 0.2 |
| AE ∆% Oct-Nov | 3.7 | 1.8 | |
| Sep | 5.5 | 0.4 | 0.3 |
| Aug | 5.5 | 0.1 | -0.3 |
| Jul | 5.8 | 0.5 | 0.7 |
| AE ∆% Jul-Sep | 4.1 | 2.8 | |
| Jun | 5.6 | 0.3 | 0.1 |
| May | 6.1 | 0.3 | 0.0 |
| AE ∆% May-Jun | 3.7 | 0.6 | |
| Apr | 6.4 | 0.6 | 1.0 |
| Mar | 6.2 | 0.3 | 0.4 |
| Feb | 6.4 | 0.5 | 0.7 |
| Jan | 5.7 | 0.7 | 1.2 |
| AE ∆% Jan-Apr | 6.5 | 10.4 | |
| Dec 2010 | 5.3 | 0.8 | 0.7 |
| Nov | 4.4 | 0.4 | 0.2 |
| Oct | 4.3 | 0.5 | 0.4 |
| Sep | 3.9 | 0.5 | 0.3 |
| Aug | 3.2 | 0.2 | 0.0 |
| Jul | 3.7 | 0.6 | 0.5 |
| Jun | 1.7 | 0.5 | 0.6 |
| May | 0.9 | 0.3 | 0.3 |
| Apr | 0.6 | 0.5 | 0.8 |
| Mar | -1.5 | 0.6 | 0.7 |
| Feb | -2.9 | 0.0 | 0.0 |
| Jan | -3.4 | 0.4 | 0.8 |
| Dec 2009 | -5.2 | 0.2 | -0.1 |
| Dec 2008 | 4.0 | -0.2 | -0.8 |
| Dec 2007 | 1.9 | 0.4 | -0.1 |
| Dec 2006 | 4.2 | 0.2 | 0.1 |
| Dec 2005 | 4.8 | 0.2 | 0.3 |
| Dec 2004 | 2.9 | 0.2 | 0.1 |
| Dec 2003 | 1.8 | 0.0 | |
| Dec 2002 | 0.5 | 0.1 | |
| Dec 2001 | 0.1 | -0.2 |
Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart IV-3 of the Federal Statistical Agency of Germany Statistiche Bundesamt Deutschland provides the producer price index of Germany from 2003 to 2012. Producer price inflation peaked in 2008 with the rise of commodity prices induced by the carry trade from zero interest rates to commodity futures. Prices then declined with the flight away from risk financial assets to government obligations after the financial panic in Sep 2008. With zero interest rates and no risk aversion, the carry trade pushed commodity future prices upwardly resulting in new rising trend of the producer price index. The right-hand side of the chart shows moderation and even decline in prices because of severe risk aversion frustrating carry trades from zero interest rates to commodity futures but then return of risk appetite with another surge of the index in annual equivalent rate at 6.2 percent in Feb-Mar 2012 and 4.9 percent annual equivalent in Feb-Apr 2012 but decline of 0.3 percent in May 2012 and 0.4 percent in Jun 2012 with flat prices in Jul 2012 with the pace at annual equivalent rate of minus 4.1 percent in May-Jun 2012 and flat prices in Jul 2012. Inflation returned in Aug with carry trades into commodity futures.
Chart IV-3, Germany, Index of Producer Prices for Industrial Products, 2005=100
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart IV-4 of the US Bureau of Labor Statistics provides the US producer price index of finished goods from 2004 to 2012. Chart IV-4 of the US mirrors behavior in Chart IV-3 of Germany. Carry trades from zero interest rates to exposures in commodity futures and risk financial assets have synchronized worldwide inflation during periods of risk appetite and disinflation during periods of risk aversion.
Chart IV-4, US, Producer Price Index, Finished Goods, NSA, 2004-2012
Source: US Bureau of Labor Statstics
http://www.bls.gov/ppi/data.htm
Chart IV-4 of the Federal Statistical Agency of Germany Statistiche Bundesamt Deutschland provides the unadjusted producer price index, trend and trend ends. There is a clear upward trend of prices after the end of risk aversion with zero interest rates in 2009. The actual curve fell below trend in the current episode of severe risk aversion but rose again in Feb-Apr 2012, falling in May-Jun 2012 with flat prices in Jul 2012 and another increase in Aug 2012.
Chart IV-5, Germany, Producer Price Index, Non-adjusted Value and Trend, 2005=100
Source: Statistiche Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Consumer price inflation in the UK is shown in Table IV-8. The CPI index increased 0.5 percent in Aug and 2.5 percent in 12 months. The same inflation waves (Section I at http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html) are present in UK CPI inflation. In the first wave in Jan-Apr 2011, annual equivalent inflation was at a high 6.5 percent. In the second wave in May-Jul, annual equivalent inflation fell to only 0.4 percent. In the third wave in Aug-Nov 2011, annual equivalent inflation returned at 4.6 percent. In the fourth wave in Dec 2011 to Jan 2012, annual equivalent inflation was minus 0.6 percent because of decline of 0.5 percent in Jan 2012. In the fifth wave, annual equivalent inflation increased to 6.2 percent in Feb-Apr 2012. In the seventh wave, annual equivalent inflation was minus 3.0 percent in May-Jun 2012. In the beginning of an eighth wave, annual equivalent inflation in Jul-Aug 2012 was 3.7 percent.
Table IV-8, UK, Consumer Price Index All Items, Month and 12-Month ∆%
| Month ∆% | 12 Months ∆% | |
| Aug 2012 | 0.5 | 2.5 |
| Jul | 0.1 | 2.6 |
| AE ∆% Jul | 3.7 | |
| Jun | -0.4 | 2.4 |
| May | -0.1 | 2.8 |
| AE ∆% May-Jun | -3.0 | |
| Apr | 0.6 | 3.0 |
| Mar | 0.3 | 3.5 |
| Feb | 0.6 | 3.4 |
| AE ∆% Feb-Apr | 6.2 | |
| Jan | -0.5 | 3.6 |
| Dec 2011 | 0.4 | 4.2 |
| AE ∆% Dec-Jan | -0.6 | |
| Nov | 0.2 | 4.8 |
| Oct | 0.1 | 5.0 |
| Sep | 0.6 | 5.2 |
| Aug | 0.6 | 4.5 |
| AE ∆% Aug-Nov | 4.6 | |
| Jul | 0.0 | 4.4 |
| Jun | -0.1 | 4.2 |
| May | 0.2 | 4.5 |
| May-Jul | 0.4 | |
| Apr | 1.0 | 4.5 |
| Mar | 0.3 | 4.0 |
| Feb | 0.7 | 4.4 |
| Jan | 0.1 | 4.0 |
| AE ∆% Jan-Apr | 6.5 | |
| Dec 2010 | 1.0 | 3.7 |
| Nov | 0.4 | 3.3 |
| Oct | 0.3 | 3.2 |
| Sep | 0.0 | 3.1 |
| Aug | 0.5 | 3.1 |
| Jul | -0.2 | 3.1 |
| Jun | 0.1 | 3.2 |
| May | 0.2 | 3.4 |
| Apr | 0.6 | 3.7 |
| Mar | 0.6 | 3.4 |
| Feb | 0.4 | 3.0 |
| Jan | -0.2 | 3.5 |
Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/august-2012/index.html
Inflation has been unusually high in the UK since 2006, as shown in Table IV-9. There were no rates of inflation close to 2.0 percent in the period from 1997 to 2004. Inflation has exceeded 2 percent since 2005, reaching 3.6 percent in 2008, 3.3 percent in 2010 and 4.5 percent in 2011.
Table IV-9, UK, Consumer Price Index, Annual ∆%
| 1997 | 1.8 |
| 1998 | 1.6 |
| 1999 | 1.3 |
| 2000 | 0.8 |
| 2001 | 1.2 |
| 2002 | 1.3 |
| 2003 | 1.4 |
| 2004 | 1.3 |
| 2005 | 2.1 |
| 2006 | 2.3 |
| 2007 | 2.3 |
| 2008 | 3.6 |
| 2009 | 2.2 |
| 2010 | 3.3 |
| 2011 | 4.5 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/august-2012/index.html
Table IV-10 provides the analysis of inflation in Aug 2012 by the UK Office for National Statistics. The drivers of monthly inflation of 0.5 percent are increase of the price of transport of 1.3 percent with contribution of 0.21 percentage points and increase of clothing and footwear of 2.8 percent with contribution of 0.18 percentage points. Contributions of percentage points to the 12-month rate of consumer price inflation of 2.4 percent are provided by the final two columns in Table IV-14. Housing and household services rose 5.6 percent in 12 months, contributing 0.74 percentage points. Transportation rose 1.7 percent in 12 months, contributing 0.29 percentage points.
Table IV-10, UK, Consumer Price Index Month ∆% and Percentage Point Contribution by Components
| Aug 2012 | Month ∆% | 0.1 Percentage Point Contribution | 12 Months ∆% | 0.2 Percentage Point Contribution |
| CPI All Items | 0.5 | 2.5 | ||
| Food & Non-Alcoholic Beverages | 0.2 | 0.02 | 2.2 | 0.26 |
| Alcohol & Tobacco | 0.2 | 0.01 | 5.8 | 0.24 |
| Clothing & Footwear | 2.8 | 0.18 | -0.7 | -0.05 |
| Housing & Household Services | 0.1 | 0.02 | 5.6 | 0.74 |
| Furniture & Household Goods | 0.8 | 0.05 | 2.3 | 0.14 |
| Health | 0.0 | 0.00 | 2.6 | 0.06 |
| Transport | 1.3 | 0.21 | 1.7 | 0.29 |
| Communication | 0.1 | 0.00 | 4.3 | 0.12 |
| Recreation & Culture | -0.2 | -0.03 | 0.6 | 0.09 |
| Education | 0.0 | 0.00 | 5.1 | 0.09 |
| Restaurants & Hotels | 0.1 | 0.01 | 3.1 | 0.35 |
| Miscellaneous Goods & Services | 0.3 | 0.03 | 1.6 | 0.15 |
Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/august-2012/index.html
V World Economic Slowdown. Table V-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 IMF revised some of the projections in its World Economic Outlook Update released on Jul 16, 2012 (http://www.imf.org/external/pubs/ft/weo/2012/update/02/index.htm). Table V-1 incorporates these revisions with lines “Rev” where appropriate. 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 3.9 percent in 2013 instead of 4.1 percent in the earlier projection, 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, 2.0 percent on average from 2012 to 2015 in contrast with 4.1 percent for the world as a whole, incorporating the revisions. While the world would grow 17.3 percent in the four years from 2012 to 2015, the G7 as a whole would grow 8.4 percent. The difference in dollars of 2011 is rather high: growing by 17.3 percent would add $12.1 trillion of output to the world economy, or roughly two times the output of the economy of Japan of $5,869 but growing by 8.4 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 26.3 percent or at the average yearly rate of 6.0 percent, contributing $6.6 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 Rev | 69,660 | 3.5 | 4.1 3.9 | 4.4 | 4.5 |
| G7 Rev | 33,670 | 1.5 1.4 | 1.9 1.9 | 2.3 | 2.5 |
| Canada | 1,737 | 2.1 | 2.2 | 2.4 | 2.4 |
| France Rev | 2,776 | 0.5 0.3 | 1.1 0.8 | 1.9 | 1.9 |
| DE Rev | 3,577 | 0.6 1.0 | 1.5 1.4 | 1.3 | 1.3 |
| Italy | 2,199 | -1.9 | -0.3 | 0.5 | 1.0 |
| Japan Rev | 5,869 | 2.0 2.4 | 1.7 1.5 | 1.5 | 1.3 |
| UK | 2,418 | 0.8 | 2.0 | 2.5 | 2.6 |
| US Rev | 15,094 | 2.1 0.2 | 2.4 1.4 | 2.9 | 3.3 |
| Euro Area Rev | 13,115 | -0.3 | 0.9 0.7 | 1.4 | 1.6 |
| DE Rev | 3,577 | 0.6 1.0 | 1.5 1.4 | 1.3 | 1.3 |
| France Rev | 2,776 | 0.5 0.3 | 1.1 0.8 | 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 Rev | 1,494 | -1.8 -1.5 | 0.1 -0.6 | 1.6 | 1.6 |
| EMDE Rev | 25,237 | 5.7 5.6 | 6.0 5.9 | 6.2 | 6.3 |
| Brazil Rev | 2,493 | 3.0 2.5 | 4.2 4.6 | 4.0 | 4.1 |
| Russia | 1,850 | 4.0 | 3.9 | 3.9 | 3.9 |
| India Rev | 1,676 | 6.9 6.1 | 7.3 6.5 | 7.5 | 7.7 |
| China Rev | 7,298 | 8.2 8.0 | 8.8 8.5 | 8.7 | 8.7 |
Notes: Rev: Revision of July 19, 2012; 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
http://www.imf.org/external/pubs/ft/weo/2012/update/02/index.htm
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
Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog for IQ2012 and IIQ2012. Growth is weak throughout most of the world. Japan’s GDP increased 1.3 percent in IQ2012 and 2.9 percent relative to a year earlier but part of the jump could be the low level a year earlier because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan is experiencing difficulties with the overvalued yen because of worldwide capital flight originating in zero interest rates with risk aversion in an environment of softer growth of world trade. Japan’s GDP grew 0.2 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of 0.7 percent, which is much lower than 5.3 percent in IQ2012. Growth of 3.2 percent in IIQ2012 in Japan relative to IIQ2011 has effects of the low level of output because of Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. China grew at 1.8 percent in IIQ2012, which annualizes to 7.4 percent. Xinhuanet informs that Premier Wen Jiabao considers the need for macroeconomic stimulus, arguing that “we should continue to implement proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm). Premier Wen elaborates that “the country should properly handle the relationship between maintaining growth, adjusting economic structures and managing inflationary expectations” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm). China’s GDP grew 7.6 percent in IIQ2012 relative to IIQ2011. Growth rates of GDP of China in a quarter relative to the same quarter a year earlier have been declining from 2011 to 2012. China’s GDP grew 8.1 percent in IQ2012 relative to a year earlier but only 7.6 percent in IIQ2012 relative to a year earlier. GDP was flat in the euro area in IQ2012 and also in IQ2012 relative to a year earlier. Euro area GDP contracted 0.2 percent IIQ2012 and fell 0.5 percent relative to a year earlier. Germany’s GDP increased 0.5 percent in IQ2012 and 1.7 percent relative to a year earlier. In IIQ2012, Germany’s GDP increased 0.3 percent and 0.5 percent relative to a year earlier but 1.0 percent relative to a year earlier when adjusted for calendar (CA) effects. Growth of US GDP in IQ2012 was 0.5 percent, at SAAR of 2.0 percent and higher by 2.4 percent relative to IQ2011. US GDP increased 0.4 percent in IIQ2012, 1.5 percent at SAAR and 2.3 percent relative to a year earlier (Section I Mediocre and Decelerating United States Economic Growth at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html) but with substantial underemployment and underemployment (Section I at http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real.html) and weak hiring (Section I http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2012/08/recovery-without-hiring-ten-million.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-hiring-ten-million.html). UK GDP fell 0.5 percent in IIQ2012, declining 0.5 percent relative to IIQ2011. In IQ2011, UK GDP fell 0.3 percent, declining 0.2 percent relative to a year earlier. UK GDP fell 0.5 percent in IIQ2012 and 0.5 percent relative to a year earlier. Italy has experienced decline of GDP in four consecutive quarters from IIIQ2011 to IIQ2012. Italy’s GDP fell 0.8 percent in IIQ2012 and declined 2.6 percent relative to IIQ2011. France’s GDP stagnated in both IQ2012 and IIQ2012 and increased 0.3 percent relative to a year earlier.
Table V-3, Percentage Changes of GDP Quarter on Prior Quarter and on Same Quarter Year Earlier, ∆%
| IQ2012/IVQ2011 | IQ2012/IQ2011 | |
| United States | QOQ: 0.5 SAAR: 2.0 | 2.4 |
| Japan | QOQ: 1.3 SAAR: 5.3 | 2.9 |
| China | 1.8 | 8.1 |
| Euro Area | 0.0 | 0.0 |
| Germany | 0.5 | 1.7 |
| France | 0.0 | 0.3 |
| Italy | -0.8 | -1.5 |
| United Kingdom | -0.3 | -0.2 |
| IIQ2012/IQ2012 | IIQ2012/IIQ2011 | |
| United States | QOQ: 0.4 SAAR: 1.5 | 2.3 |
| Japan | QOQ: 0.2 | 3.2 |
| China | 1.8 | 7.6 |
| Euro Area | -0.2 | -0.5 |
| Germany | 0.3 | 0.5 1.0 CA |
| France | 0.0 | 0.3 |
| Italy | -0.8 | -2.6 |
| United Kingdom | -0.5 | -0.5 |
QOQ: Quarter relative to prior quarter; SAAR: seasonally adjusted annual rate
Source: Country Statistical Agencies
http://www.bea.gov/national/index.htm#gdp http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html http://www.stats.gov.cn/enGliSH/
There is evidence of deceleration of growth of world trade and even contraction in more recent data. Table V-4 provides two types of data: growth of exports and imports in the latest available months and in the past 12 months; and contributions of net trade (exports less imports) to growth of real GDP. Japan provides the most worrisome data (Section VB and for GDP http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html). Japan’s exports decreased 5.8 percent in the 12 months ending in Aug and 8.1 percent in 12 months ending in Jul while imports decreased 5.4 percent in the 12 months ending in Aug and increased 2.1 percent in the 12 months ending in Jul. The second part of Table V-4 shows that net trade deducted 0.3 percentage points from Japan’s growth of GDP in IIQ2012. China’s exports fell 1.8 percent in the month of Jul and increased 1.0 percent in 12 months. In Aug 2012, China’s exports increased 0.6 percent and increased 2.7 percent in 12 months. Germany’s exports increased 0.5 percent in the month of Jul and increased 9.2 percent in the 12 months ending in Jul while imports increased 0.9 percent in the month of Jul and increased 1.9 percent in the 12 months ending in Jul. Net trade contributed 1.1 percentage points to growth of Germany’s GDP in IIQ2012. The Flash Germany Composite Output Index of the Markit Flash Germany PMI®, combining manufacturing and services, increased from 47.0 in Aug to 49.7 in Sep, which is the highest reading in five months resulting from slower rate of decline of manufacturing and improvement in services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10075). The pace of decline of new export orders for manufacturing was more moderate than the 40-month record of decline in Aug. UK’s exports fell 4.6 percent in Jun and decreased 1.4 percent in Apr-Jun 2012 relative to Apr-Jun 2011 while imports fell 0.7 percent in Jun and increased 2.2 percent in Apr-Jun 2012 relative to Apr-Jun 2011. UK exports increased 5.2 percent in Jul and decreased 0.7 percent in May-Jul relative to a year earlier while imports fell 1.7 percent in Jul and decreased 0.4 percent in May-Jul relative to a year earlier. Net trade deducted 1.0 percentage points from UK GDP growth in IIQ2012. France’s exports increased 0.8 percent in Jul and net trade deducted 0.5 percentage points to GDP growth in IIQ2012. US exports decreased 1.0 percent in Jul 2012 and increased 6.2 percent in Jan-Jul relative to a year earlier but net trade deducted 0.31 percentage points from GDP growth in IIQ2012. The Markit Flash US Manufacturing Purchasing Managers’ Index™ (PMI™) seasonally adjusted was unchanged at 51.5 in Sep from 51.5 in Aug, indicating the third weakest reading since Oct 2009 in the beginning of the current recovery with the lowest in Dec 2010; the PMI average in the three months ending in Sep was 51.5, which is lower than 54.2 in the three months ending in Jun and the lowest quarterly reading since IIIQ2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10081). New export orders registered 47.9 in Sep still in contraction territory with 48.8 in Aug, which is the fastest decline in new export orders since Oct 2011. In the six months ending in Aug, United States national industrial production accumulated decline of 0.4 percent at the annual equivalent rate of decline of 0.8 percent, which is substantially lower than 2.8 percent growth in 12 months. Capacity utilization for total industry in the United States fell 1.0 percentage point in Aug to 78.2 percent, which is 2.1 percentage points lower than the long-run average from 1972 to 2011. Manufacturing decreased 0.7 percent in Aug seasonally adjusted, increasing 4.1 percent not seasonally adjusted in 12 months, and fell 0.5 percent in the six months ending in Aug or at the annual equivalent rate of 1.0 percent (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html). Trade values incorporate both price and quantity effects that are difficult to separate. Data do suggest that world trade slowdown is accompanying world economic slowdown.
Table V-4, Growth of Trade and Contributions of Net Trade to GDP Growth, ∆% and % Points
| Exports | Exports 12 M ∆% | Imports | Imports 12 M ∆% | |
| USA | -1.0 | 6.2 Jan-Jul | -0.8 Jun | 5.5 Jan-Jul |
| Japan Aug Jul | -5.8 -8.1 | -5.4 2.1 | ||
| China | -1.8 Jul 0.6 Aug | 1.0 Jul 7.8 Jan-Jul 2.7 Aug 7.1 Jan-Aug | 2.2 Jul -0.3 Aug | 4.7 Jul 6.5 Jan-Jul -2.6 Aug 5.2 Jan-Aug |
| Euro Area | 0.3 Jul | 8.8 Jan-Jul | -1.0 Jul | 2.5 Jan-Jul |
| Germany | 0.5 Jul CSA | 9.2 Jul | 0.9 Jul CSA | 1.9 Jul |
| France Jul | 0.8 | 3.6 | -3.5 | 1.9 |
| Italy Jul | 0.3 | 4.3 | 2.9 | -4.3 |
| UK | -4.6 Jun 5.2 Jul | -1.4 Apr-Jun -0.7 May-Jul | -0.7 Jun -1.7 | 2.2 Apr-Jun -0.4 May-Jul |
| Net Trade % Points GDP Growth | % Points | |||
| USA IIQ2012 | -0.31 | |||
| Japan IIQ2012 | -0.3 | |||
| Germany IIQ2012 | 1.1 | |||
| France IIQ2012 | -0.5 | |||
| UK IIQ2012 | -1.0 |
Sources: http://www.census.gov/foreign-trade/ http://www.bea.gov/iTable/index_nipa.cfm
http://www.customs.go.jp/toukei/latest/index_e.htm http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html
http://english.customs.gov.cn/publish/portal191/ http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home
https://www.destatis.de/EN/PressServices/Press/pr/2012/08/PE12_287_811.html;jsessionid=A761BC574543A771416A9CF81034F7BA.cae1 http://lekiosque.finances.gouv.fr/AppChiffre/Portail_default.asp
http://www.statistics.gov.uk/hub/index.html
The geographical breakdown of exports by imports of Japan with selected regions and countries is provided in Table VB-7 for Aug 2012. The share of Asia in Japan’s trade is more than one half, 56.3 percent of exports and 43.6 percent of imports. Within Asia, exports to China are 19.2 percent of total exports and imports from China 20.8 percent of total imports. The second largest export market for Japan in Aug 2012 is the US with share of 17.6 percent of total exports and share of imports from the US of 8.7 percent in total imports. Western Europe has share of 9.6 percent in Japan’s exports and of 10.8 percent in imports. Rates of growth of exports of Japan in Aug are sharply negative for most countries and regions with the exception of 10.3 percent for exports to the US, 18.7 percent to Canada, 6.5 percent for exports to Mexico and 0.3 percent to Brazil. Comparisons relative to 2011 may have some bias because of the effects of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Deceleration of growth in China and the US and threat of recession in Europe can reduce world trade and economic activity, which could be part of the explanation for the decline of Japan’s exports by 5.8 percent in Aug 2012 while imports decreased by 5.4 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Aug are sharply higher with exception of declines in imports mostly of raw materials: minus 9.3 percent for Middle East, minus 13.2 percent for Australia and minus 27.3 percent for Brazil. Imports from Asia decreased 5.8 percent in the 12 months ending in Aug while imports from China decreased 7.3 percent.
Table V-5, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yens
| Aug 2012 | Exports | 12 months ∆% | Imports Millions Yens | 12 months ∆% |
| Total | 5,045,868 | -5.8 | 5,799,995 | -5.4 |
| Asia | 2,839,710 | -6.7 | 2,526,870 | -5.8 |
| China | 966,299 | -9.9 | 1,208,214 | -7.3 |
| USA | 886,922 | 10.3 | 503,962 | -0.1 |
| Canada | 62,393 | 18.7 | 80,017 | -17.3 |
| Brazil | 42,396 | 0.3 | 67,127 | -27.3 |
| Mexico | 68,528 | 6.5 | 26,944 | 9.1 |
| Western Europe | 484,858 | -28.3 | 624,333 | 2.9 |
| Germany | 125,729 | -17.8 | 174,050 | 8.7 |
| France | 36,868 | -29.8 | 85,122 | 10.3 |
| UK | 72,065 | -42.1 | 48,348 | -5.1 |
| Middle East | 167,393 | -1.2 | 1,083,162 | -9.3 |
| Australia | 117,080 | -1.6 | 408,332 | -13.2 |
Source: http://www.customs.go.jp/toukei/latest/index_e.htm
Table V-6 of the World Trade Organization provides actual volume of world trade from 2008 to 2011 and projections of the World Trade Organization Secretariat for 2012 and 2013. Trade was weak during the global recession, increasing 2.3 percent in 2008 and decreasing 12.5 percent in 2009. Trade growth was 13.8 percent in 2010 and 5.0 percent in 2011. The World Trade Organization has reduced its projection of growth of world trade in 2012 to 2.5 percent.
Table V-6, World Trade Organization Projections of Growth of Volume of World Merchandise Trade and GDP, ∆%, 2008-2013
| 2008 | 2009 | 2010 | 2011 | 2012* | 2013* | |
| World | 2.3 | -12.5 | 13.9 | 5.0 | 2.5 | 4.5 |
| Exports | ||||||
| DE | 0.9 | -15.2 | 13.0 | 4.6 | 1.5 | 3.3 |
| DINGE | 4.3 | -7.8 | 15.3 | 5.3 | 3.5 | 5.7 |
| Imports | ||||||
| DE | -1.1 | -14.4 | 11.0 | 2.9 | 0.4 | 3.4 |
| DINGE | 8.6 | -10.5 | 18.3 | 8.3 | 5.4 | 6.1 |
| Real GDP** | 1.3 | -2.4 | 3.8 | 2.4 | 2.1 | 2.4 |
| DE | 0.0 | -3.8 | 2.7 | 1.5 | 1.2 | 1.5 |
| DINGE | 5.6 | 2.2 | 7.3 | 5.3 | 4.9 | 5.2 |
Notes: World Trade Volume: average of exports and imports; *Projections; **At market exchange rates; DE: Developed economies; DINGE: developing economies
Source: World Trade Organization Secretariat for trade, Consensus estimates of GDP forecasts
http://www.wto.org/english/news_e/pres12_e/pr676_e.htm
VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index™ (PMI™) seasonally adjusted was unchanged at 51.5 in Sep from 51.5 in Aug, indicating the third weakest reading since Oct 2009 in the beginning of the current recovery with the lowest in Dec 2010; the PMI average in the three months ending in Sep was 51.5, which is lower than 54.2 in the three months ending in Jun and the lowest quarterly reading since IIIQ2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10081). New export orders registered 47.9 in Sep still in contraction territory with 48.8 in Aug, which is the fastest decline in new export orders since Oct 2011. Chris Williams, Chief Economist at Markit, finds that manufacturing could have restrained the US economy in IIIQ2012 that coud possibly result in weaker growth than 1.7 percent at seasonally-adjusted annual rate in IIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10081). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business® increased 0.1 percentage points from 49.7 in Jun to 49.8 in Jun, for a second monthly contraction, which are the first since Jul 2009 (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders increased 0.2 percentage points from 47.8 in Jun to 48.0 in Jul, for a second consectuvie contraction interrupting growth in 37 months since Apr 2009. The Non-Manufacturing ISM Report on Business® PMI increased 0.5 percentage points from 52.1 in Jun to 52.6 in Jul while the index of new orders increased 1.0 percentage points from 53.3 in Jun to 54.3 in Jul (http://www.ism.ws/ISMReport/NonMfgROB.cfm?navItemNumber=12943). Table USA provides the country economic indicators for the US.
Table USA, US Economic Indicators
| Consumer Price Index | Aug 12 months NSA ∆%: 1.7; ex food and energy ∆%: 1.9 Aug month ∆%: 0.6; ex food and energy ∆%: 0.1 |
| Producer Price Index | Aug 12-month NSA ∆%: 2.0; ex food and energy ∆% 2.5 |
| PCE Inflation | Jul 12-month NSA ∆%: headline 1.3; ex food and energy ∆% 1.6 |
| Employment Situation | Household Survey: Aug 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 IIQ2012/IIQ2011 2.3 IQ2012 SAAR 2.0 IIQ2012 SAAR 1.7 |
| Personal Income and Consumption | Jul month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 0.3 |
| Quarterly Services Report | IQ12/IQ11 SA ∆%: |
| Employment Cost Index | IIQ2012 SA ∆%: 0.5 |
| Industrial Production | Aug month SA ∆%: -1.2 Manufacturing Jul SA ∆% -0.7 Aug 12 months SA ∆% 3.8, NSA 4.1 |
| Productivity and Costs | Nonfarm Business Productivity IIQ2012∆% SAAE 2.2; IIQ2012/IIQ2011 ∆% 1.2; Unit Labor Costs SAAE IIQ2012 ∆% 1.5; IIQ2012/IIQ2011 ∆%: 0.9 Blog 9/9/2012 |
| New York Fed Manufacturing Index | General Business Conditions From Aug -5.85 to Sep -10.41 |
| Philadelphia Fed Business Outlook Index | General Index from Aug minus 7.1 to Sep -1.9 |
| Manufacturing Shipments and Orders | Jul New Orders SA ∆%: 2.8; ex transport ∆%: 0.8 |
| Durable Goods | Jul New Orders SA ∆%: 4.2; ex transport ∆%: -0.4 |
| Sales of New Motor Vehicles | Aug 2012 9,711,044; Aug 2011 8,464,450. Aug SAAR 14.52 million, Jul SAAR 14.09 million, Aug 2011 SAAR 12.46 million Blog 9/2/12 |
| Sales of Merchant Wholesalers | Jan-Jul 2012/Jan-Jul 2011 NSA ∆%: Total 6.8; Durable Goods: 8.7; Nondurable |
| Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers | Jul 12/Jul 11 NSA ∆%: Sales Total Business 3.7; Manufacturers 2.9 |
| Sales for Retail and Food Services | Jan-Aug 2012/Jan-Aug 2011 ∆%: Retail and Food Services 5.8; Retail ∆% 5.6 |
| Value of Construction Put in Place | Jul SAAR month SA ∆%: -0.9 Jul 12-month NSA: 9.6 |
| Case-Shiller Home Prices | Jun 2012/Jun 2011 ∆% NSA: 10 Cities 0.1; 20 Cities: 0.5 |
| FHFA House Price Index Purchases Only | Jun SA ∆% 0.7; |
| New House Sales | Jul 2012 month SAAR ∆%: |
| Housing Starts and Permits | Jul Starts month SA ∆%: 2.3 ; Permits ∆%: -1.0 |
| Trade Balance | Balance Jul SA -$42002 million versus Jun -$41899 million |
| Export and Import Prices | Aug 12-month NSA ∆%: Imports -2.2; Exports -0.9 |
| Consumer Credit | Jul ∆% annual rate: -1.5 |
| Net Foreign Purchases of Long-term Treasury Securities | Jul Net Foreign Purchases of Long-term Treasury Securities: $67.0 billion |
| Treasury Budget | Fiscal Year Oct-Aug 2012/2011 ∆%: Receipts 6.1; Outlays 1.7; Individual Income Taxes 3.9 Deficit Fiscal Year 2012 Oct-Jul $973,172 million CBO Forecast 2012FY Deficit $1.171 trillion Blog 9/16/2012 |
| CBO Budget and Economic Outlook | 2012 Deficit $1128 B 7.3% GDP Debt 11,318 B 72.8% GDP 2013 Deficit $614 B, Debt 12,064 B 76.1% GDP Blog 8/26/12 |
| Commercial Banks Assets and Liabilities | Jul 2012 SAAR ∆%: Securities 17.7 Loans 3.1 Cash Assets 31.6 Deposits 15.4 Blog 8/26/12 |
| Flow of Funds | IIQ2012 ∆ since 2007 Assets -$4193B Real estate -$4451B Financial $-157 MM Net Worth -$3389B Blog 9/23/12 |
| Current Account Balance of Payments | IIQ2012 -$1285 B %GDP 3.0 Blog 9/23/12 |
Links to blog comments in Table USA:
9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html
9/9/12 http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or_10.html
9/2/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html
8/26/12 http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with_26.html
8/5/12 http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html
6/17/12 http://cmpassocregulationblog.blogspot.com/2012/06/destruction-of-three-trillion-dollars_17.html
In the six months ending in Aug, United States national industrial production accumulated decline of 0.4 percent at the annual equivalent rate of decline of 0.8 percent, which is substantially lower than 2.8 percent growth in 12 months. Capacity utilization for total industry in the United States fell 1.0 percentage point in Aug to 78.2 percent, which is 2.1 percentage points lower than the long-run average from 1972 to 2011. Manufacturing decreased 0.7 percent in Aug seasonally adjusted, increasing 4.1 percent not seasonally adjusted in 12 months, and fell 0.5 percent in the six months ending in Aug or at the annual equivalent rate of 1.0 percent (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html). The index of general business conditions of the Federal Reserve Bank of New York Empire State Manufacturing Survey has fluctuated with further decline to contraction territory at minus 10.41 in Sep 2012, as shown in Table VA-1. The index had been registering negative changes in the five months from Jun to Oct 2011. The new orders segment fell to minus 5.50 in Aug 2012, indicating mild contraction, and to 14.03 in Sep 2012, indicating faster contraction. There is declining reading in shipments decreasing to 4.09 in Aug 2012 but rebounding to 10.28 in Sep 2012. The segment of number of employees eased to 16.47 in Aug 2012 and dropped to 4.26 in Sep 2012. Number of weekly hours worked fell to neutral at zero in Jul 2012 and increased marginally to 3.53 in Aug but fell to minus 1.06 in Sep, indicating moderate contraction. Expectations for the next six months of the general business conditions index peaked at 54.87 in Jan 2012, declining to 27.22 in Sep 2012. Expectations of new orders also peaked at 53.85 in Jan 2012, declining to 2.35 in Aug 2012 but rebounding to 17.02 in Sep 2012. There is a similar pattern of strong recovery in shipments with decline to 8.24 in Aug 2012 and rebound to 12.77 in Sep 2012. Number of employees fell sharply to 3.53 in Aug 2012 and rebounded to 8.51 in Sep 2012. Hours worked collapsed to minus 8.24 in Aug, indicating expected contraction, but rebounded to 2.13 in Sep 2012, indicating moderate expansion.
Table VA-1, US, New York Federal Reserve Bank Empire State Manufacturing Survey Index SA
| General | New Orders | Shipments | # Workers | Average Work-week | |
| Current | |||||
| Sep 2012 | -10.41 | -14.03 | 10.28 | 4.26 | -1.06 |
| Aug | -5.85 | -5.50 | 4.09 | 16.47 | 3.53 |
| Jul | 7.39 | -2.69 | 10.28 | 18.52 | 0.00 |
| Jun | 2.29 | 2.18 | 4.81 | 12.37 | 3.09 |
| May | 17.09 | 8.32 | 24.14 | 20.48 | 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 | |||||
| Sep 2012 | 27.22 | 17.02 | 12.77 | 8.51 | 2.13 |
| Aug | 15.20 | 2.35 | 8.24 | 3.53 | -8.24 |
| Jul | 20.20 | 13.58 | 14.81 | 6.17 | -4.94 |
| Jun | 23.13 | 15.46 | 12.37 | 16.49 | 2.06 |
| May | 29.26 | 30.12 | 25.30 | 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 | 0.00 | -6.52 |
Source: http://www.newyorkfed.org/survey/empire/empiresurvey_overview.htm
The Philadelphia Business Outlook Survey in Table VA-2 provides an optimistic reading in Oct 2011 with the movement to 10.8 away from the contraction zone of minus 12.7 in Sep and recovered to 12.5 in Mar 2012 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 and even sharper contraction at minus 16.6 in Jun, easing to minus 12.9 in Jul 2012 with contraction at minus 7.1 in Aug and milder contraction of 1.9 in Sep 2012. New orders were signaling increasing future activity, rising from contraction at minus 5.5 in Sep 2011 to positive reading but registered only 3.3 in Mar 2012 and fell further to 2.7 in Apr and into contraction reading at minus 1.2 in May and sharp contraction at 18.8 in Jun, with milder contraction at minus 5.5 in Aug 2012 and moderate expansion at 1.0 in Sep 2012. There is similar behavior in shipments as in new orders but with sharp contraction in Sep 2012. Employment or number of employees fell to contraction at minus 8.6 in Aug 2012 and minus 7.3 in Sep 2012. The average work week also fell to sharp contraction at minus 19.1 in Jun 2012 and 14.6 in Aug 2012, remaining in contraction territory at minus 7.3 in Sep 2012. Most indexes of expectations for the next six months are showing sharp increases but interruptions from May to Aug 2012 for the general index that rebounded to 41.2 in Sep 2012. Employment increased from Jan to Apr 2012, deteriorating in May and further deterioration in Aug but improvement in Sep while the average work week weakened in Apr and contracted at minus 1.1 in May and minus 0.8 in Jun but recovery at 14.5 in Jul, declining to 4.8 in Aug and improving to 14.6 in Sep. With most US workers on hourly remuneration, contraction of the workweek means reduction of labor income, which can affect consumption. Personal consumption expenditures have share of 71.0 percent of GDP in IIQ2012 (see Table I-10 at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html).
Table VA-2, FRB of Philadelphia Business Outlook Survey Diffusion Index SA
| General | New Orders | Ship-ments | # Workers | Average Work-week | |
| Current | |||||
| Sep 12 | -1.9 | 1.0 | -21.2 | -7.3 | -7.3 |
| Aug | -7.1 | -5.5 | -11.3 | -8.6 | -14.6 |
| Jul | -12.9 | -6.9 | -8.6 | -8.4 | -17.3 |
| Jun | -16.6 | -18.8 | -16.6 | 1.8 | -19.1 |
| May | -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 | |||||
| Sep 12 | 41.2 | 49.4 | 42.9 | 21.4 | 14.6 |
| Aug | 12.5 | 18.5 | 11.7 | 10.8 | 4.8 |
| Jul | 19.3 | 26.1 | 19.0 | 11.3 | 14.5 |
| Jun | 19.5 | 38.2 | 38.0 | 18.7 | -0.8 |
| May | 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: Federal Reserve Bank of Philadelphia
http://www.philadelphiafed.org/index.cfm
Chart VA-1 of the Federal Reserve Bank of Philadelphia is very useful, providing current and future general activity indexes from Jan 1995 to Jun 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 2012 with stability in Mar and Apr followed by sharp decline in May and Jun with marginal recovery in Jul and further drop in Aug with recovery in Sep.
Chart VA-1, 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-2 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 2011. The strength of the first quarter of 2011 has not been recovered with weakness in Apr-Aug 2012 moving into contraction territory with marginal improvement.
Chart VA-2, 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
Seasonally-adjusted annual rates (SAAR) of housing starts and permits are shown in Table VA-3. Housing starts increased 2.3 percent in Aug 2012 after decreasing 2.8 percent in Jul 2012. Housing permits, indicating future activity, decreased 1.0 percent in Aug 2012 after increasing 6.7 percent in Jul. Monthly rates in starts and permits fluctuate significantly as shown in Table VA-3.
Table VA-3, US, Housing Starts and Permits SSAR Month ∆%
| Housing | Month ∆% | Housing | Month ∆% | |
| Aug 2012 | 750 | 2.3 | 803 | -1.0 |
| Jul | 733 | -2.8 | 811 | 6.7 |
| Jun | 754 | 6.8 | 760 | -3.1 |
| May | 706 | -5.5 | 784 | 8.4 |
| Apr | 747 | 5.8 | 723 | -6.0 |
| Mar | 706 | -1.7 | 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-Aug not-seasonally adjusted are provided in Table VA-4. Housing starts increased 25.7 percent in Jan-Aug 2012 relative to Jan-Aug 2011 and in the same period new permits increased 30.5 percent. Construction of new houses in the US remains at very depressed levels. Housing starts fell 61.0 percent in Jan-Aug 2012 relative to Jan-Aug 2006 and fell 64.1 percent relative to Jan-Aug 2005. Housing permits fell 60.5 percent in Jan-Aug 2012 relative to Jan-Aug 2006 and fell 63.8 percent in Jan-Aug 2012 from Jan-Aug 2005.
Table VA-4, US, Housing Starts and New Permits, Thousands of Units, NSA, and %
| Housing Starts | New Permits | |
| Jan-Aug 2012 | 504.4 | 532.2 |
| Jan-Aug 2011 | 401.2 | 407.7 |
| ∆% Jan-Aug 2012/Jan-Aug 2011 | 25.7 | 30.5 |
| Jan-Aug 2006 | 1292.5 | 1346.3 |
| ∆% Jan-Aug 2012/ | -61.0 | -60.5 |
| Jan-Aug 2005 | 1403.2 | 1471.9 |
| ∆%/ Jan-Aug 2012 | -64.1 | -63.8 |
Source: http://www.census.gov/construction/nrc/
Chart VA-3 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-3 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-Jul 2012.
Chart VA-3, 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
Table VA-5 provides new housing units started in the US at seasonally adjusted annual rates (SAAR) in the first eight months of the year from 2000 to 2012. SAARs have dropped from high levels around 2 million in 2005-2006 to the range of 706,000 to 754,000 in 2012, which is an improvement over the range of 551,000 to 632,000 in Jan-Aug 2011.
Table VA-5, New Housing Units Started in the US, Seasonally Adjusted Annual Rates, Thousands of Units
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | |
| 2000 | 1,636 | 1,737 | 1,604 | 1,626 | 1,575 | 1,559 | 1,463 | 1,541 |
| 2001 | 1,600 | 1,625 | 1,590 | 1,649 | 1,605 | 1,636 | 1,670 | 1,567 |
| 2002 | 1,698 | 1,829 | 1,642 | 1,592 | 1,764 | 1,717 | 1,655 | 1,633 |
| 2003 | 1,853 | 1,629 | 1,726 | 1,643 | 1,751 | 1,867 | 1,897 | 1,833 |
| 2004 | 1,911 | 1,846 | 1,998 | 2,003 | 1,981 | 1,828 | 2,002 | 2,024 |
| 2005 | 2,144 | 2,207 | 1,864 | 2,061 | 2,025 | 2,068 | 2,054 | 2,095 |
| 2006 | 2,273 | 2,119 | 1,969 | 1,821 | 1,942 | 1,802 | 1,737 | 1,650 |
| 2007 | 1,409 | 1,480 | 1,495 | 1,490 | 1,415 | 1,448 | 1,354 | 1,330 |
| 2008 | 1,084 | 1,103 | 1,005 | 1,013 | 973 | 1,046 | 923 | 844 |
| 2009 | 490 | 582 | 505 | 478 | 540 | 585 | 594 | 586 |
| 2010 | 614 | 604 | 636 | 687 | 583 | 536 | 546 | 599 |
| 2011 | 632 | 518 | 600 | 552 | 551 | 615 | 614 | 581 |
| 2012 | 720 | 718 | 706 | 747 | 706 | 754 | 733 | 750 |
Source: US Census Bureau
http://www.census.gov/construction/nrc/
Chart VA-4 of the US Census Bureau provides construction of new housing units started in the US at seasonally adjusted annual rate (SAAR) from Jan 1959 to Aug 2012 that help to analyze in historical perspective the debacle of US new house construction. There are three periods in the series. (1) There is stationary behavior with wide fluctuations from 1959 to the beginning of the decade of the 1970s. (2) There is sharp upward trend from the 1990s to 2006 propelled by the US housing subsidy, politics of Fannie Mae and Freddie Mac and unconventional monetary policy of near zero interest rates and suspension of the auction of 30-year Treasury bonds from Jun 2003 to Jun 2004. 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 . (3) Housing construction dropped vertically during the global recession. There was initial stability followed by some recovery in recent months.
Chart VA-4, US, New Housing Units Started in the US, SAAR (Seasonally Adjusted Annual Rate), Thousands of Units, Jan 1959-Aug 2012
Source: US Census Bureau
http://www.census.gov/construction/nrc/
Table VA-6 provides actual new housing units started in the US, or not seasonally adjusted, in Jan-Aug from 2000 to 2012. The number of housing units started fell from the peak of 197.9 thousand in May 2005 to 67.8 thousand in May 2012 or 65.7 percent. The number of housing units started fell from 192.0 thousand in Aug 2005 to 69.9 thousand in Aug 2012 or by 63.6 percent. The number of housing units started jumped from 54.5 thousand in Aug 2011 to 69.9 thousand in Aug 2012 or by 28.3 percent.
Table VA-6, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | |
| 2000 | 104.0 | 119.7 | 133.4 | 149.5 | 152.9 | 146.3 | 135.0 | 141.4 |
| 2001 | 106.4 | 108.2 | 133.2 | 151.3 | 154.0 | 155.2 | 154.6 | 141.5 |
| 2002 | 110.4 | 120.4 | 138.2 | 148.8 | 165.5 | 160.3 | 155.9 | 147.0 |
| 2003 | 117.8 | 109.7 | 147.2 | 151.2 | 165.0 | 174.5 | 175.8 | 163.8 |
| 2004 | 124.5 | 126.4 | 173.8 | 179.5 | 187.6 | 172.3 | 182.0 | 185.9 |
| 2005 | 142.9 | 149.1 | 156.2 | 184.6 | 197.9 | 192.8 | 187.6 | 192.0 |
| 2006 | 153.0 | 145.1 | 165.9 | 160.5 | 190.2 | 170.2 | 160.9 | 146.8 |
| 2007 | 95.0 | 103.1 | 123.8 | 135.6 | 136.5 | 137.8 | 127.9 | 121.2 |
| 2008 | 70.8 | 78.4 | 82.2 | 89.5 | 91.7 | 102.5 | 86.7 | 76.4 |
| 2009 | 31.9 | 39.8 | 42.7 | 42.5 | 52.2 | 59.1 | 56.8 | 52.9 |
| 2010 | 38.9 | 40.7 | 54.7 | 62.0 | 56.2 | 53.8 | 51.5 | 56.3 |
| 2011 | 40.2 | 35.4 | 49.9 | 49.0 | 54.0 | 60.5 | 57.6 | 54.5 |
| 2012 | 47.2 | 49.7 | 58.0 | 66.8 | 67.8 | 74.7 | 70.2 | 69.9 |
Source: US Census Bureau
http://www.census.gov/construction/nrc/
Chart VA-5 of the US Census Bureau provides new housing units started in the US not seasonally adjusted (NSA) from Jan 1959 to Jul 2012. There is the same behavior as in Chart VA-5 SA but with sharper fluctuations in the original series without seasonal adjustment. There are the same three periods. (1) The series is virtually stationary with wide fluctuations from 1959 to the late 1980s. (2) There is downward trend during the savings and loans crisis of the 1980s. Benston and Kaufman (1997, 139) find that there was failure of 1150 US commercial and savings banks between 1983 and 1990, or about 8 percent of the industry in 1980, which is nearly twice more than between the establishment of the Federal Deposit Insurance Corporation in 1934 through 1983. More than 900 savings and loans associations, representing 25 percent of the industry, were closed, merged or placed in conservatorships (see Pelaez and Pelaez, Regulation of Banks and Finance (2008b), 74-7). The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) created the Resolution Trust Corporation (RTC) and the Savings Association Insurance Fund (SAIF) that received $150 billion of taxpayer funds to resolve insolvent savings and loans. The GDP of the US in 1989 was $5482.1 billion (http://www.bea.gov/iTable/index_nipa.cfm), such that the partial cost to taxpayers of that bailout was around 2.74 percent of GDP in a year. US GDP in 2011 is estimated at $15,075.7 billion, such that the bailout would be equivalent to cost to taxpayers of about $412.5 billion in current GDP terms. A major difference with the Troubled Asset Relief Program (TARP) for private-sector banks is that most of the costs were recovered with interest gains whereas in the case of savings and loans there was no recovery. (3) There is vertical drop of new housing construction in the US during the global recession from (Dec) IVQ2007 to (Jun) IIQ2009 (http://www.nber.org/cycles/cyclesmain.html). The final segment shows upward trend but it could be simply part of yet another fluctuation. Marginal improvement in housing in the US should not obscure the current depressed levels relative to earlier periods.
Chart VA-5, US, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units, Jan 1959-Aug 2012
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-7 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 51.4 percent relative to 1960. Housing permits fell 71.7 percent from 2005 to 2011, 60.8 percent from 2000 to 2011 and 37.4 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-7, 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 | 1,636.7 |
| 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: US Census Bureau http://www.census.gov/construction/nrc/
Risk aversion channels funds toward US long-term and short-term securities that finance the US balance of payments and fiscal deficits benefitting at the moment from risk flight to US dollar denominated assets. Net foreign purchases of US long-term securities (row C in Table VA-8) increased from $9.3 billion in Jun 2012 to $67.0 billion in Jul 2012. Foreign (residents) purchases minus sales of US long-term securities (row A in Table VA-8) in Jun of $5.5 billion increased to $60.2 billion in Jul 2012. Net US (residents) purchases of long-term foreign securities (row B in Table VA-8) increased from $3.9 billion in Jun to $6.8 billion in Jul. In Jul,
C = A + B = $60.2 billion + $6.8 billion = $67.0 billion
There is increasing demand in Table VA-8 in Jul in A1 private purchases by residents overseas of US long-term securities of $37.7 billion of which increases in A11 Treasury securities of $20.1 billion, increase in A12 of $12.8 billion in agency securities, decrease by $1.2 billion of corporate bonds and increase of $6.1 billion in equities. Worldwide risk aversion causes flight into US Treasury obligations with significant oscillations. Official purchases of securities in row A2 increased $22.5 billion with increase of Treasury securities of $29.9 billion in Jul, which is higher than $21.3 billion in Jun. Official purchases of agency securities fell $14.6 billion in Jun and $8.3 billion in Jul. Row D shows decrease in Jul in purchases of short-term dollar denominated obligations. Foreign private holdings of US Treasury bills decreased $5.2 billion (row D11) with foreign official holdings decreasing $7.2 billion while the category other increased $4.4 billion. Risk aversion of default 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-8, Net Cross-Borders Flows of US Long-Term Securities, Billion Dollars, NSA
| Jul 2011 12 Months | Jul 2012 12 Months | Jun 2012 | Jul 2012 | |
| A Foreign Purchases less Sales of | 710.4 | 504.7 | 5.5 | 60.2 |
| A1 Private | 514.0 | 320.2 | -1.4 | 37.7 |
| A11 Treasury | 314.5 | 336.7 | 11.2 | 20.1 |
| A12 Agency | 57.5 | 87.4 | 14.0 | 12.8 |
| A13 Corporate Bonds | 15.7 | -79.4 | -19.4 | -1.2 |
| A14 Equities | 126.4 | -24.5 | -7.1 | 6.1 |
| A2 Official | 196.4 | 184.5 | 6.8 | 22.5 |
| A21 Treasury | 219.7 | 191.7 | 21.3 | 29.9 |
| A22 Agency | -21.6 | -14.5 | -14.6 | -8.3 |
| A23 Corporate Bonds | -3.5 | 1.0 | -2.7 | 0.6 |
| A24 Equities | 1.7 | 6.3 | 2.8 | 0.3 |
| B Net US Purchases of LT Foreign Securities | -201.9 | 48.5 | 3.9 | 6.8 |
| B1 Foreign Bonds | -96.3 | 73.4 | 10.6 | 7.5 |
| B2 Foreign Equities | -105.6 | -24.9 | -6.7 | -0.8 |
| C Net Foreign Purchases of US LT Securities | 508.5 | 553.2 | 9.3 | 67.0 |
| D Increase in Foreign Holdings of Dollar Denominated Short-term | -140.9 | -4.1 | -2.7 | -8.0 |
| D1 US Treasury Bills | -134.5 | 12.4 | 1.7 | -12.5 |
| D11 Private | -45.0 | 49.7 | -0.7 | -5.2 |
| D12 Official | -89.5 | -37.3 | 2.4 | -7.2 |
| D2 Other | -6.4 | -16.5 | -4.4 | 4.4 |
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-9 provides major foreign holders of US Treasury securities. China is the largest holder with $1149.6 billion in Jul 2012, decreasing 12.6 percent from $1314.9 billion in Jul 2011. Japan increased its holdings from $885.2 billion in Jul 2011 to $1117.3 billion in Jul 2012 or by 26.2 percent likely in part by intervention to buy dollars against the yen to depreciate the overvalued yen/dollar rate that diminishes the competitiveness of Japan. Total foreign holdings of Treasury securities rose from $4668.3 billion in Jul 2011 to $5348.5 billion in Jul 2012, or 14.6 percent. The US continues to finance its fiscal and balance of payments deficits with foreign savings (see Pelaez and Pelaez, The Global Recession Risk (2007)). In their classic work on “unpleasant monetarist arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of monetary policy by fiscal policy (emphasis added):
“Imagine that fiscal policy dominates monetary policy. The fiscal authority independently sets its budgets, announcing all current and future deficits and surpluses and thus determining the amount of revenue that must be raised through bond sales and seignorage. Under this second coordination scheme, the monetary authority faces the constraints imposed by the demand for government bonds, for it must try to finance with seignorage any discrepancy between the revenue demanded by the fiscal authority and the amount of bonds that can be sold to the public. Suppose that the demand for government bonds implies an interest rate on bonds greater than the economy’s rate of growth. Then if the fiscal authority runs deficits, the monetary authority is unable to control either the growth rate of the monetary base or inflation forever. If the principal and interest due on these additional bonds are raised by selling still more bonds, so as to continue to hold down the growth of base money, then, because the interest rate on bonds is greater than the economy’s growth rate, the real stock of bonds will growth faster than the size of the economy. This cannot go on forever, since the demand for bonds places an upper limit on the stock of bonds relative to the size of the economy. Once that limit is reached, the principal and interest due on the bonds already sold to fight inflation must be financed, at least in part, by seignorage, requiring the creation of additional base money.”
The current real value of government debt plus monetary liabilities depends on the expected discounted values of future primary surpluses or difference between tax revenue and government expenditure excluding interest payments (Cochrane 2011Jan, 27, equation (16)). There is a point when adverse expectations about the capacity of the government to generate primary surpluses to honor its obligations can result in increases in interest rates on government debt.
Table VA-9, US, Major Foreign Holders of Treasury Securities $ Billions at End of Period
| Jul 2012 | Jun 2012 | Jul 2011 | |
| Total | 5348.5 | 5311.0 | 4668.3 |
| China | 1149.6 | 1147.0 | 1314.9 |
| Japan | 1117.1 | 1110.1 | 885.2 |
| Oil Exporters | 262.3 | 268.2 | 244.0 |
| Brazil | 242.8 | 245.8 | 216.2 |
| Caribbean Banking Centers | 253.0 | 244.3 | 219.1 |
| Caribbean Banking Centers | 246.2 | 244.2 | 177.9 |
| Taiwan | 196.1 | 196.4 | 147.6 |
| Switzerland | 190.1 | 171.8 | 118.5 |
| Russia | 154.3 | 163.8 | 141.7 |
| Belgium | 144.2 | 144.5 | 86.6 |
| United Kingdom | 140.9 | 137.8 | 141.0 |
| Hong Kong | 136.7 | 136.0 | 105.9 |
| Foreign Official Holdings | 3875.6 | 3852.9 | 3509.9 |
| A. Treasury Bills | 355.0 | 362.2 | 392.3 |
| B. Treasury Bonds and Notes | 3520.6 | 3490.7 | 3117.6 |
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. These forecasts are biannual in Apr and Oct.
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
http://www.boj.or.jp/en/mopo/outlook/index.htm/
Private-sector activity in Japan contracted at a moderate rate with the Markit Composite Output PMI™ Index increasing from 47.4 in Jul to 48.6 in Aug, which is still below 50 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9974). Alex Hamilton, economist at Markit and author of the report, finds that three consecutive monthly declines of both output of manufacturing and activity in services suggest disappearing growth of the economy of Japan (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9974). The Markit Business Activity Index of Services increased from 47.5 in Jul to 49.3 in Aug, also showing contraction at slower pace (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9974). The Markit/JMMA Purchasing Managers’ Index™ (PMI™), seasonally adjusted, fell from 47.9 in Jul to 47.7 in Aug, in the weakest private-sector manufacturing activity in 16 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9971). Alex Hamilton, economist at Markit and author of the report, finds deterioration in total new business of exports and domestic with orders with growth restrained in the midst of weakening international demand (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9971).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 | Aug ∆% +0.3 |
| Consumer Price Index | Jul NSA ∆% -0.3; Jul 12 months NSA ∆% -0.4 |
| Real GDP Growth | IIQ2012 ∆%: 0.3 on IQ2012; IIQ2012 SAAR 0.7; |
| Employment Report | Jul Unemployed 2.88 million Change in unemployed since last year: minus 240 thousand |
| All Industry Indices | Jul month SA ∆% -0.6 Blog 9/23/12 |
| Industrial Production | Jul SA month ∆%: -1.2 |
| Machine Orders | Total Jul ∆% -2.6 Private ∆%: 4.3 |
| Tertiary Index | Jul month SA ∆% -0.8 |
| Wholesale and Retail Sales | Jul 12 months: |
| Family Income and Expenditure Survey | Jul 12-month ∆% total nominal consumption 1.2, real 1.7 Blog 9/2/12 |
| Trade Balance | Exports Aug 12 months ∆%: -5.8 Imports Aug 12 months ∆% -5.4 Blog 9/23/12 |
Links to blog comments in Table JPY: 9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html
9/2/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html
8/9/11 http://cmpassocregulationblog.blogspot.com/2011/08/turbulence-in-world-financial-markets.html
The indices of all industry activity of Japan, which is an approximation of GDP or economic activity, fell to levels close to the worst point of the recession, showing the brutal impact of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Table VB-1 with the latest revisions shows the quarterly index which permits comparison with the movement of real GDP. The first row provides weights of the various components of the index: AG (agriculture) 1.4 percent (not shown), CON (construction) 5.7 percent, IND (industrial production) 18.3 percent, TERT (services) 63.2 percent, and GOVT (government) 11.4 percent. GDP increased 0.2 percent in IIQ2012 (Table VB-1 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html), industry decreased 2.0 percent, the tertiary sector was unchanged, government decreased 0.3 percent and construction decreased 1.9 percent. The report shows that the all industry index decreased 0.1 percent in IIQ2012. Industry deducted 0.37 percentage points to growth of the all industry index and the tertiary index contributed 0.07 percentage points. Japan had already experienced a very weak quarter in IVQ2010, with decline of the all industry index of 0.2 percent and unchanged GDP (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html Table VB-1), when it was unexpectedly hit by the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. The worst impact of the natural disaster was on construction with drop of 7.5 percent in IIQ2011 relative to IQ2011 but recovery at 3.3 percent in IIIQ2011. Industrial production fell 4.2 percent from IQ2011 into IIQ2011 but grew 5.4 percent in IIIQ2011. Many accounts had already been closed when the earthquake occurred, but there is visible decline of the index of all industry by 1.3 percent in IQ2011 caused by decline of industrial production by 1.5 percent and services by 1.0 percent with GDP falling revised 2.0 percent (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html Table VB-1).
Table VB-1, Japan, Indices of All Industry Activity Percentage Change from Prior Quarter SA ∆%
| CON | IND | TERT | GOVT | ALL IND | REAL | |
| Weight | 5.7 | 18.3 | 63.2 | 11.4 | 100.0 | |
| 2012 | ||||||
| IIQ | -1.5 | -2.0 | 0.1 | -0.3 | -0.1 | 0.2 |
| Cont to IIQ % Change | -0.07 | -0.37 | 0.07 | -0.04 | ||
| IQ | 5.7 | 1.3 | 0.0 | 0.1 | -0.1 | 1.3 |
| 2011 | ||||||
| IVQ | -1.5 | 0.4 | 0.5 | 0.2 | 0.5 | 0.1 |
| IIIQ | 3.3 | 5.4 | 1.5 | 0.2 | 2.1 | 1.7 |
| IIQ | -7.5 | -4.2 | -0.5 | 0.1 | -0.9 | -0.3 |
AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity
Source: http://www.meti.go.jp/english/statistics/tyo/zenkatu/index.html
There are more details in Table VB-2. The all industry activity index decreased 0.6 percent in Jul 2012 relative to Jun 2012 with decrease of 0.8 percent of the tertiary or services sector and decrease of industry of 1.0 percent while construction decreased 2.0 percent and government increased 0.7 percent. Industry deducted 0.17 percentage points to growth in Jul while the tertiary sector deducted 0.53 percentage points, construction deducted 0.10 percentage points and government added 0.08 percentage points. It is not possible to explain accurately the overall index by the reported contributions of components. Weakness in Sep and Aug 2011 had interrupted the sharp recovery from Apr to Jul with renewed strength in Oct but weakness again in Nov followed by strong rebound in Dec that was interrupted in Jan-Mar 2012 with modest growth in Apr, new decline in May 2012, moderate increase in Jun 2012 and new decline of 0.6 percent in Jul 2012. The highest risk to Japan is if weakening world growth would affect Japanese exports.
Table VB-2, Japan, Indices of All Industry Activity Percentage Change from Prior Month SA ∆%
| CON | IND | TERT | GOVT | ALL IND | |
| Jul 2012 | -2.0 | -1.0 | -0.8 | 0.7 | -0.6 |
| Cont to Jul % Change | -0.10 | -0.17 | -0.53 | 0.08 | |
| Jun 2012 | 1.0 | 0.4 | 0.2 | -0.4 | 0.3 |
| May | 9.5 | -3.4 | 0.9 | -0.1 | -0.2 |
| Apr | -5.5 | -0.2 | -0.2 | 0.1 | 0.1 |
| Mar | -5.4 | 1.3 | -0.6 | -0.1 | -0.3 |
| Feb | 4.2 | -1.6 | 0.0 | -0.4 | -0.1 |
| Jan | 5.6 | 0.9 | -0.6 | 0.5 | -0.7 |
| Dec 2011 | -1.4 | 2.3 | 1.6 | -0.2 | 1.7 |
| Nov | 0.3 | -1.7 | -0.8 | 0.1 | -0.9 |
| Oct | -2.6 | 1.8 | 0.6 | 0.1 | 0.6 |
| Sep | 1.6 | -1.9 | -0.2 | 0.2 | -0.1 |
| Aug | 1.1 | 0.9 | 0.1 | -0.1 | 0.2 |
| Jul | 0.1 | 1.1 | 0.4 | -0.2 | 0.5 |
| Jun | -0.1 | 3.8 | 1.2 | 0.2 | 1.5 |
| May | 6.5 | 5.8 | 0.9 | 0.7 | 1.6 |
| Apr | -5.1 | 2.4 | 2.1 | -0.9 | 2.0 |
| Mar | -10.6 | -16.2 | -5.4 | 0.7 | -6.6 |
| Feb | 2.3 | 1.1 | 0.3 | 0.0 | 0.1 |
| Jan | 6.3 | 1.2 | 0.5 | -0.5 | 0.6 |
| Dec 2010 | -0.5 | 2.4 | -0.2 | 0.3 | 0.1 |
| Nov | -1.4 | 1.6 | 0.6 | -0.4 | 0.3 |
| Oct | 0.1 | -1.4 | 0.2 | -0.1 | 0.0 |
| Sep | -1.9 | -0.8 | -0.4 | -0.1 | -0.4 |
| Aug | 1.6 | -0.1 | 0.1 | 0.1 | -0.5 |
| Jul | 0.8 | 0.3 | 0.7 | 0.1 | 1.1 |
| Jun | -2.1 | -1.5 | 0.1 | -0.1 | 0.2 |
| May | 6.3 | -0.1 | -0.3 | 0.0 | 0.0 |
| Apr | -3.1 | 0.6 | 1.6 | -0.2 | 0.9 |
AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity
Sources: http://www.meti.go.jp/english/statistics/tyo/zenkatu/index.html
Percentage changes from a year earlier in calendar years and relative to the same quarter a year earlier of the all industry activity indices are provided in Table VB-3. The first row shows that services contribute 63.2 percent of the total index and industry contributes 18.3 percent for joint contribution of 81.5 percent. The all industry activity index increased 2.6 percent in IIQ2012 and GDP increased 3.2 percent relative to a year earlier. Industry increased 5.3 percent relative to a year earlier while the tertiary sector increased 2.3 percent, contributing combined 2.44 percentage points to growth of the all industry activity index of 2.6 percent. The fall of industrial production in 2009 was by a catastrophic 21.9 percent. Japan emerged from the crisis with industrial growth of 16.4 percent in 2010. Quarterly data show that industry is the most dynamic sector of the Japanese economy. The all-industry index fell 0.5 percent in 2011, almost equal to the revised decline of 0.8 percent in GDP. Industry fell 2.3 percent, deducting 0.42 percentage points, while the tertiary sector increased 0.1 percent, adding 0.07 percentage points. The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 201, declining world trade and revaluation of the yen in fear of world financial risks interrupted the recovery of the Japanese economy from the global recession.
Table VB-3, Japan, Indices of All Industry Activity Percentage Change from Earlier Calendar Year and Same Quarter Year Earlier NSA ∆%
| CON | IND | TERT | GOVT | ALL IND | REAL | |
| Weight | 5.7 | 18.3 | 63.2 | 11.4 | 100.0 | |
| Calendar Year | ||||||
| 2011 | -2.0 | -2.3 | 0.1 | -0.2 | -0.5 | -0.8 |
| Cont to 2011 % Change | -0.09 | -0.42 | 0.07 | -0.02 | ||
| 2010 | -7.0 | 16.4 | 1.3 | -0.7 | 3.1 | 4.5 |
| 2009 | -5.6 | -21.9 | -5.2 | 0.1 | -7.7 | -5.5 |
| 2008 | -7.6 | -3.4 | -1.0 | -1.4 | -1.9 | -1.0 |
| 2012 | ||||||
| II Q | 5.8 | 5.3 | 2.3 | 0.2 | 2.6 | 3.2 |
| Cont to IIQ % Change | 0.23 | 0.92 | 1.52 | 0.02 | ||
| IQ | -0.3 | 4.8 | 2.4 | 0.1 | 2.4 | 2.9 |
| 2011 | ||||||
| IVQ | -2.8 | -1.6 | 0.6 | 0.6 | 0.0 | -0.7 |
| IIIQ | -3.2 | -0.9 | 0.3 | -0.1 | -0.1 | -0.6 |
| IIQ | -5.1 | -5.8 | -0.5 | -0.4 | -1.6 | -1.8 |
| IQ | 2.3 | -1.3 | -0.3 | -1.0 | -0.5 | 0.0 |
| 2010 | ||||||
| IV Q | -0.6 | 5.9 | 1.6 | -0.8 | 2.1 | 3.2 |
| III Q | -3.2 | 14.0 | 1.8 | -0.6 | 3.2 | 5.6 |
| IIQ | -11.3 | 21.3 | 1.4 | -0.7 | 3.5 | 4.5 |
| IQ | -12.4 | 28.0 | 0.8 | -0.5 | 3.9 | 4.8 |
AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity
Source: http://www.meti.go.jp/english/statistics/tyo/zenkatu/index.html
Percentage changes of a month relative to the same month a year earlier for the indices of all industry activity of Japan are shown in Table VB-4. The all industry activity index increased 0.5 percent in Jul 2012 relative to Jul 2011. Industry fell 0.8 percent in Jul 2012 relative to a year earlier, subtracting 0.15 percentage points to growth of the all industry activity index. The tertiary sector increased 0.8 percent, adding 0.53 percentage points. Construction added 0.23 percentage points to the index and government did not contribute or deduct.
Table VB-4, Japan, Indices of All Industry Activity Percentage Change from Same Month Year Earlier NSA ∆%
| CON | IND | TERT | GOVT | ALL IND | |
| Jul 2012 | 5.6 | -0.8 | 0.8 | -0.2 | 0.5 |
| Cont to Jul % Change | 0.23 | -0.15 | 0.53 | -0.00 | |
| Jun | 7.6 | -1.5 | 0.9 | 0.2 | 0.6 |
| May | 6.4 | 6.0 | 3.2 | -0.6 | 3.3 |
| Apr | 3.7 | 12.9 | 2.6 | 0.8 | 4.1 |
| Mar | 4.1 | 14.2 | 4.2 | 0.6 | 5.5 |
| Feb | -1.6 | 1.5 | 2.4 | -0.7 | 1.6 |
| Jan | -3.4 | -1.6 | 0.4 | 0.4 | -0.1 |
| Dec 2011 | -3.0 | -3.0 | 1.2 | 0.8 | 0.2 |
| Nov | -1.2 | -2.9 | -0.3 | 0.8 | -0.7 |
| Oct | -4.0 | 0.9 | 0.9 | 0.2 | 0.5 |
| Sep | -0.4 | -2.4 | 0.1 | 0.1 | -0.3 |
| Aug | -4.3 | 1.6 | 0.8 | -1.1 | 0.4 |
| Jul | -4.8 | -1.7 | 0.1 | 0.5 | -0.4 |
| Jun | -4.6 | -0.6 | 1.0 | 0.3 | 0.4 |
| May | -6.5 | -4.6 | -0.2 | -0.8 | -1.3 |
| Apr | -4.1 | -12.7 | -2.3 | -0.6 | -4.0 |
| Mar | -2.8 | -12.4 | -3.4 | 0.0 | -4.6 |
| Feb | 4.4 | 4.5 | 2.0 | -1.4 | 2.1 |
| Jan | 5.9 | 6.1 | 1.0 | -1.4 | 1.8 |
| Dec 2010 | -0.5 | 5.9 | 1.8 | -0.7 | 2.1 |
| Nov | -0.5 | 7.0 | 2.5 | -1.9 | 2.7 |
| Oct | -1.1 | 5.0 | 0.5 | 0.3 | 1.3 |
| Sep | -2.8 | 12.1 | 1.3 | -0.6 | 2.7 |
| Aug | -1.7 | 15.5 | 2.3 | -1.1 | 3.8 |
| Jul | -5.3 | 14.6 | 1.6 | -0.1 | 3.3 |
| Jun | -8.3 | 16.6 | 1.0 | -0.7 | 3.0 |
| May | -8.1 | 20.7 | 1.2 | -0.9 | 3.4 |
| Apr | -17.0 | 27.0 | 1.9 | -0.4 | - |
AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity
Source: http://www.meti.go.jp/english/statistics/tyo/zenkatu/index.htm
The structure of exports and imports of Japan is in Table VB-5. Japan imports all types of raw materials and fuels at rapidly increasing prices caused by the carry trade from zero interest rates to commodities, oscillating under shocks of risk aversion. Mineral fuels account for 33.3 percent of Japan’s imports and decreased 6.3 percent in the 12 months ending in Aug 2012. Weakness of world demand depresses prices of industrial goods. Manufactured products contribute 13.6 percent of Japan’s exports with decrease of 5.8 percent in the 12 months ending in Aug. Machinery contributes 20.4 percent of Japan’s exports with decrease of 5.1 percent in the 12 months ending in Aug. Electrical machinery contributes 18.9 percent of Japan’s exports with decrease of 0.8 percent in the 12 months ending in Aug. The best outcome is exports of transport equipment with share of 21.1 percent in total exports and decrease of 2.2 percent in the 12 months ending in Aug but had been increasing sharply largely because of the low level after the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. The breakdown of transport equipment in Table VB-5 shows decrease of the major categories of motor vehicles of 1.8 percent: cars decreased 3.0 percent with increase of 0.4 percent in the minor category of buses and trucks, increase of 8.7 percent for parts of motor vehicles, decrease of 13.1 percent for motorcycles and decrease of 28.4 percent for ships. The result of rising commodity prices and stable or declining prices of industrial products is pressure on Japan’s terms of trade with oscillations when risk aversion causes reversion of carry trades from zero interest rates to commodity prices.
Table VB-5, Japan, Structure and Growth of Exports and Imports % and ∆% Millions Yens
| Aug 2012 | Value JPY Millions | % of Total | 12 Months ∆% | Contribution Degree % |
| Exports | 5,045,868 | 100.0 | -5.8 | -5.8 |
| Foodstuffs | 28,340 | 0.6 | 8.1 | 0.0 |
| Raw Materials | 79,149 | 1.6 | -3.9 | -0.1 |
| Mineral Fuels | 95,862 | 1.9 | -31.4 | -0.8 |
| Chemicals | 528,713 | 10.5 | -3.4 | -0.3 |
| Manufactured Goods | 684,064 | 13.6 | -5.8 | -0.8 |
| Machinery | 1,029,323 | 20.4 | -5.1 | -1.0 |
| Electrical Machinery | 954,539 | 18.9 | -0.8 | -0.2 |
| Transport Equipment | 1,062,684 | 21.1 | -2.2 | -0.5 |
| Motor Vehicles | 657,196 | 13.0 | -1.8 | -0.2 |
| Cars | 551,192 | 10.9 | -3.0 | -0.3 |
| Buses & Trucks | 95,127 | 1.9 | 0.4 | 0.0 |
| Parts of Motor Vehicles | 253,842 | 5.0 | 8.7 | 0.4 |
| Motorcycles | 12,988 | 0.3 | -13.1 | 0.0 |
| Ships | 92,962 | 1.8 | -28.4 | -0.7 |
| Other | 583,193 | 11.6 | -16.7 | -2.2 |
| Imports | 5,799,995 | 100.0 | -5.4 | -5.4 |
| Foodstuffs | 489,039 | 8.4 | -4.3 | -0.4 |
| Raw Materials | 407,491 | 7.0 | -16.4 | -1.3 |
| Mineral Fuels | 1,931,067 | 33.3 | -6.3 | -2.1 |
| Chemicals | 493,892 | 8.5 | -7.1 | -0.6 |
| Manufactured Goods | 458,415 | 7.9 | -15.2 | -1.3 |
| Machinery | 377,614 | 6.5 | -9.2 | -0.6 |
| Electrical Machinery | 652,460 | 11.2 | -2.5 | -0.3 |
| Transport Equipment | 197,513 | 3.4 | 22.3 | 0.6 |
| Other | 792,506 | 13.7 | 5.1 | 0.6 |
Source: http://www.customs.go.jp/toukei/latest/index_e.htm
Table VB-6 provides Japan’s exports, imports and trade balance in five-year intervals from 1950 to 1975 and then yearly from 1979 to 2011. Exports grew at the average yearly rate of 3.4 percent while imports grew at 3.3 percent per year in the years from 1979 to 2011. Abstracting from the global recession and the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011, exports grew at the average annual rate of 4.8 percent between 1979 and 2007 and imports at 4.0 percent. The global recession had a brutal impact on Japan’s trade. Exports fell 35.5 percent from 2007 to 2009 while imports fell 29.6 percent. Japan had the first trade deficit in 2011 since 1980.
Table VB-6, Japan, Exports and Imports Calendar Year 1979-2010 Billion Yens
| Years | Exports | Imports | Balance |
| 1950 | 298 | 348 | -50 |
| 1955 | 723 | 889 | -166 |
| 1960 | 1,459 | 1,616 | -157 |
| 1965 | 3,042 | 2,940 | 102 |
| 1970 | 6,954 | 6,797 | 157 |
| 1975 | 16,545 | 17,170 | -625 |
| 1979 | 22,531 | 24,245 | -1,714 |
| 1980 | 29,382 | 31,995 | -2,613 |
| 1981 | 33,468 | 31,464 | 2,004 |
| 1982 | 34,432 | 32,656 | 1,776 |
| 1983 | 34,909 | 30,014 | 4,895 |
| 1984 | 40,325 | 32,321 | 8,004 |
| 1985 | 41,955 | 31,084 | 10,871 |
| 1986 | 35,289 | 21,550 | 13,739 |
| 1987 | 33,315 | 21,736 | 11,579 |
| 1988 | 33,939 | 24,006 | 9,933 |
| 1989 | 37,822 | 28,978 | 8,844 |
| 1990 | 41,456 | 33,855 | 7,601 |
| 1991 | 42,359 | 31,900 | 10,459 |
| 1992 | 43,012 | 29,527 | 13,485 |
| 1993 | 40,202 | 26,826 | 13,376 |
| 1994 | 40,497 | 28,104 | 12,393 |
| 1995 | 41,530 | 31,548 | 9,982 |
| 1996 | 44,731 | 37,993 | 6,738 |
| 1997 | 50,937 | 40,956 | 9,981 |
| 1998 | 50,645 | 36,653 | 13,992 |
| 1999 | 47,547 | 35,268 | 12,279 |
| 2000 | 51,654 | 40,938 | 10,716 |
| 2001 | 48,979 | 42,415 | 6,564 |
| 2002 | 52,108 | 42,227 | 9,881 |
| 2003 | 54,548 | 44,362 | 10,186 |
| 2004 | 61,169 | 49,216 | 11,953 |
| 2005 | 65,656 | 56,949 | 8,707 |
| 2006 | 75,246 | 67,344 | 7,902 |
| 2007 | 83,931 | 73,135 | 10,796 |
| 2008 | 81,018 | 78,954 | 2,424 |
| 2009 | 54,170 | 51,499 | 2,671 |
| 2010 | 67,399 | 60,764 | 6,635 |
| 2011 | 65,546 | 68,111 | -2,565 |
Source: http://www.customs.go.jp/toukei/latest/index_e.htm
The geographical breakdown of exports by imports of Japan with selected regions and countries is provided in Table VB-7 for Aug 2012. The share of Asia in Japan’s trade is more than one half, 56.3 percent of exports and 43.6 percent of imports. Within Asia, exports to China are 19.2 percent of total exports and imports from China 20.8 percent of total imports. The second largest export market for Japan in Aug 2012 is the US with share of 17.6 percent of total exports and share of imports from the US of 8.7 percent in total imports. Western Europe has share of 9.6 percent in Japan’s exports and of 10.8 percent in imports. Rates of growth of exports of Japan in Aug are sharply negative for most countries and regions with the exception of 10.3 percent for exports to the US, 18.7 percent to Canada, 6.5 percent for exports to Mexico and 0.3 percent to Brazil. Comparisons relative to 2011 may have some bias because of the effects of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Deceleration of growth in China and the US and threat of recession in Europe can reduce world trade and economic activity, which could be part of the explanation for the decline of Japan’s exports by 5.8 percent in Aug 2012 while imports decreased by 5.4 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Aug are sharply higher with exception of declines in imports mostly of raw materials: minus 9.3 percent for Middle East, minus 13.2 percent for Australia and minus 27.3 percent for Brazil. Imports from Asia decreased 5.8 percent in the 12 months ending in Aug while imports from China decreased 7.3 percent.
Table VB-7, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yens
| Aug 2012 | Exports | 12 months ∆% | Imports Millions Yens | 12 months ∆% |
| Total | 5,045,868 | -5.8 | 5,799,995 | -5.4 |
| Asia | 2,839,710 | -6.7 | 2,526,870 | -5.8 |
| China | 966,299 | -9.9 | 1,208,214 | -7.3 |
| USA | 886,922 | 10.3 | 503,962 | -0.1 |
| Canada | 62,393 | 18.7 | 80,017 | -17.3 |
| Brazil | 42,396 | 0.3 | 67,127 | -27.3 |
| Mexico | 68,528 | 6.5 | 26,944 | 9.1 |
| Western Europe | 484,858 | -28.3 | 624,333 | 2.9 |
| Germany | 125,729 | -17.8 | 174,050 | 8.7 |
| France | 36,868 | -29.8 | 85,122 | 10.3 |
| UK | 72,065 | -42.1 | 48,348 | -5.1 |
| Middle East | 167,393 | -1.2 | 1,083,162 | -9.3 |
| Australia | 117,080 | -1.6 | 408,332 | -13.2 |
Source: http://www.customs.go.jp/toukei/latest/index_e.htm
The geographical distribution of Japan’s trade balance is provided in Table VB-8. The combined trade surpluses with the US, UK and Mexico of JPY 448,261 million are more than erased by the trade deficits of importing raw materials and fuels from Australia and the Middle East, adding to JPY 1,207,021 million. China typically contributes a sizeable trade deficit of Japan with deficit of JPY 241,915 million in Aug 2012.
Table VB-8, Japan, Trade Balance, Millions of Yen
| Aug 2012 | Millions of Yen |
| Total | -754,127 |
| Asia | 312,840 |
| China | -241,915 |
| USA | 382,960 |
| Canada | -17,624 |
| Brazil | -24,731 |
| Mexico | 41,584 |
| Western Europe | -139,475 |
| Germany | -48,321 |
| France | -48,254 |
| UK | 23,717 |
| Middle East | -915,769 |
| Australia | -291,252 |
Source: http://www.customs.go.jp/toukei/latest/index_e.htm
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/t20120904_402833237.htm). Table CIPMNM provides this index and components from Jan to Aug 2012. The index fell from 58.0 in Mar to 55.2 in May but climbed to 56.7 in Jun, which is lower than 58.0 in Mar and 57.3 in Feb but higher than in any other of the months in 2012. In Jul 2012 the index fell marginally to 55.6 and then to 56.3 in Aug.
Table CIPMNM, China, Nonmanufacturing Index of Purchasing Managers, %, Seasonally Adjusted
| 2012 | Total Index | New Orders | Interm. | Subs Prices | Exp |
| Aug | 56.3 | 52.7 | 57.6 | 51.2 | 63.2 |
| Jul | 55.6 | 53.2 | 49.7 | 48.7 | 63.9 |
| Jun | 56.7 | 53.7 | 52.1 | 48.6 | 65.5 |
| May | 55.2 | 52.5 | 53.6 | 48.5 | 65.4 |
| 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/t20120904_402833237.htm
Chart CIPMNM provides China’s nonmanufacturing purchasing managers’ index from Aug 2011 to Aug 2012. There was slowing of the general index in Apr 2012 after the increase in Jan-Mar 2012 and further decline to 55.2 in May 2012 but increase to 56.7 in Jun 2012 with marginal decline to 55.6 in Jul 2012 and 56.3 in Aug 2012.
Chart CIPMNM, China, Nonmanufacturing Index of Purchasing Managers, Seasonally Adjusted
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120904_402833237.htm
Table CIPMNMFG provides the index of purchasing managers of manufacturing seasonally adjusted of the National Bureau of Statistics of China. The general index (IPM) rose from 50.5 in Jan 2012 to 53.3 in Apr and declined to 50.1 in Jul and to the contraction zone at 49.2 in Aug. The index of new orders (NOI) fell from 54.5 in Apr 2012 to 49.0 in Jul and 48.7 in Aug. The index of employment also fell from 51.0 in Apr to 49.1 in Aug.
Table CIPMNMFG, China, Manufacturing Index of Purchasing Managers, %, Seasonally Adjusted
| 2012 | IPM | PI | NOI | INV | EMP | SDEL |
| Aug | 49.2 | 50.9 | 48.7 | 45.1 | 49.1 | 50.0 |
| Jul | 50.1 | 51.8 | 49.0 | 48.5 | 49.5 | 49.0 |
| Jun | 50.2 | 52.0 | 49.2 | 48.2 | 49.7 | 49.1 |
| May | 50.4 | 52.9 | 49.8 | 45.1 | 50.5 | 49.0 |
| Apr | 53.3 | 57.2 | 54.5 | 48.5 | 51.0 | 49.6 |
| Mar | 53.1 | 55.2 | 55.1 | 49.5 | 51.0 | 48.9 |
| Feb | 51.0 | 53.8 | 51.0 | 48.8 | 49.5 | 50.3 |
| Jan | 50.5 | 53.6 | 50.4 | 49.7 | 47.1 | 49.7 |
IPM: Index of Purchasing Managers; PI: Production Index; NOI: New Orders Index; EMP: Employed Person Index; SDEL: Supplier Delivery Time Index
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120904_402833158.htm
China estimates the manufacturing index of purchasing managers on the basis of a sample of 820 enterprises (http://www.stats.gov.cn/english/pressrelease/t20120904_402833158.htm). Chart CIPMM provides the index from Aug 2011 to Aug 2012. There is deceleration from 51.2 in Sep 2011 to marginal contraction at 49.0 in Nov 2011. Manufacturing activity recovered to 53.3 in Apr 2012 but then declined to 50.4 in May 2012 and 50.1 in Jun 2012, which is the lowest in a year with exception of contraction at 49.0 in Nov 2011. The index then fell to contraction at 49.2 in Aug 2012.
Chart CIPMMFG, China, Manufacturing Index of Purchasing Managers, Seasonally Adjusted
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/pressrelease/t20120904_402833158.htm
The HSBC Flash China Manufacturing Purchasing Managers’ Index™ (PMI™) compiled by Markit (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10082 ) is mixed. The overall Flash China Manufacturing PMI™ increased marginally from 47.6 in Aug to 47.8 in Sep for a two-month high while the Flash China Manufacturing Output Index decreased from 48.2 in Aug to 47.0 in Sep, at a ten-month low and in contraction territory below 50.0. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that new easing policies implemented in recent weeks should help in improving the economy beginning in IVQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10082).The HSBC China Services PMI™, compiled by Markit, shows improving business activity in China with the HSBC Composite Output, combining manufacturing and services, increasing from 50.6 in Jun to 51.9 in Jul with both manufacturing and services growing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9920). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds stabilizing economy in China, suggesting that with lower inflation there is room for further stimulus (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9920). The HSBC Business Activity index increased from 52.3 in Jun to 53.1 with improving activity in services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9920). The HSBC Purchasing Managers’ Index™ (PMI™), compiled by Markit, increased to 49.3 in Jul from 49.3 in May, indicating moderate reduction of activity (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9882). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that improving economic slowdown in China still requires further easing of policy (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9721).
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. Xinhuanet, writing on “China announces surprise rate cuts amid economic downshift,” on Jun 5, 2012 (http://news.xinhuanet.com/english/china/2012-07/05/c_131697843.htm), informs that the central bank of China People’s Bank of China reduced the one year deposit rate by 25 basis points and the one year lending rate by 31 basis points effective Jun 6, 2012. The People’s Bank of China posts the new rates (http://www.pbc.gov.cn/publish/english/955/2012/20120608171005950734495/20120608171005950734495_.html). Table CNY provides the country data table for China.
Table CNY, China, Economic Indicators
| Price Indexes for Industry | Aug 12-month ∆%: minus 3.5 Aug month ∆%: minus 0.5 |
| Consumer Price Index | Aug month ∆%: 0.6 Aug 12 months ∆%: 2.0 |
| Value Added of Industry | Aug month ∆%: 0.69 Jan-Aug 2012/Jan-Aug 2011 ∆%: 10.1 |
| GDP Growth Rate | Year IIQ2012 ∆%: 7.6 |
| Investment in Fixed Assets | Aug month ∆%: 1.33 Total Jan-Aug 2012 ∆%: 20.2 Real estate development: 15.6 |
| Retail Sales | Aug month ∆%: 1.28 Jan-Aug ∆%: 14.1 |
| Trade Balance | Aug balance $26.66 billion Cumulative Aug: $120.76 billion |
Links to blog comments in Table CNY:
9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html
7/15/12 http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-hiring-ten-million_15.html
VD Euro Area. Table VD-EUR 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 3.2 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 4.4 percent in 2009. Recovery was at lower growth rates of 2.0 percent in 2010 and 1.4 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-EUR, Euro Area, Yearly Percentage Change of Harmonized Index of Consumer Prices, Unemployment Rate and GDP, ∆%
| Year | HICP ∆% | Unemployment | GDP ∆% |
| 1999 | 1.2 | 9.6 | 2.9 |
| 2000 | 2.2 | 8.7 | 3.8 |
| 2001 | 2.4 | 8.1 | 2.0 |
| 2002 | 2.3 | 8.5 | 0.9 |
| 2003 | 2.1 | 9.0 | 0.7 |
| 2004 | 2.2 | 9.3 | 2.2 |
| 2005 | 2.2 | 9.2 | 1.7 |
| 2006 | 2.2 | 8.5 | 3.3 |
| 2007 | 2.1 | 7.6 | 3.0 |
| 2008 | 3.3 | 7.6 | 0.4 |
| 2009 | 0.3 | 9.6 | -4.4 |
| 2010 | 1.6 | 10.1 | 2.0 |
| 2011 | 2.7 | 10.2 | 1.4 |
| 2012* | -0.3 | ||
| 2013* | 1.0 |
*EUROSTAT forecast http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database
The Flash Eurozone PMI Composite Output Index of the Markit Flash Eurozone PMI®, combining activity in manufacturing and services, fell from 46.3 in Aug to 45.9 in Sep, for eight consecutive declines and twelve drops in thirteen months, registering the lowest reading in 39 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9951). Chris Williamson, Chief Economist at Markit, finds that the Markit Flash Eurozone PMI suggests technical recession (defined as two or more consecutive declines in GDP) in the economy of the euro zone in IIIQ2012; the index is consistent with decline of GDP of 0.6 percent in IIIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10072). The Markit Eurozone PMI® Composite Output Index, combining services and manufacturing activity with close association with GDP, increased from 46.4 in Jun to 46.5 in Jul, which is the tenth contraction in the past eleven months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9888) in the deepest contraction in three years. Chris Williamson, Chief Economist at Markit, finds that the data are consistent with decline of GDP at a quarterly rate of 0.6 percent IIQ2012, which could result in a consecutive quarterly contraction of euro area GDP (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9888). The Markit Eurozone Manufacturing PMI® fell from 45.1 in Jun to 44.0 in Jul, which indicates the sharpest deteriorating activity in 37 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9854). Chris Williamson, Chief Economist at Markit, finds that the index suggests manufacturing in the euro area declined at a quarterly rate of about 1 percent, exerting pressure on GDP (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9854). Table EUR provides the regional data table for the euro area.
Table EUR, Euro Area Economic Indicators
| GDP | IIQ2012 ∆% -0.2; IIQ2012/IIQ2011 ∆% -0.5 Blog 9/9/12 |
| Unemployment | Jul 2012: 11.3% unemployment rate Jul 2012: 18.002 million unemployed Blog 9/2/12 |
| HICP | Aug month ∆%: 0.4 12 months Jul ∆%: 2.6 |
| Producer Prices | Euro Zone industrial producer prices Jul ∆%: 0.4 |
| Industrial Production | Jul month ∆%: 0.6; Jul 12 months ∆%: -2.3 |
| Retail Sales | Jul month ∆%: -0.2 |
| Confidence and Economic Sentiment Indicator | Sentiment 86.1 Aug 2012 Confidence minus 24.6 Aug 2012 Blog 9/2/12 |
| Trade | Jan-Jul 2012/Jan-Jul 2011 Exports ∆%: 8.8 Jul 2012 12-month Exports ∆% 11.2 Imports ∆% 2.1 |
Links to blog comments in Table EUR:
9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html
9/9/12 http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or_10.html
9/2/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html
Euro zone trade growth continues to be relatively strong as shown in Table VD-1. Exports grew at 8.8 percent and imports at 2.5 percent in Jan-Jul 2012 relative to Jan-Jul 2011. The 12-month rate of growth of exports was 11.2 percent in Jul 2012 while imports increased 2.1 percent. In Jun 2012, exports increased 12.4 percent in 12 months and imports increased 3.1 percent. At the margin, rates of growth of trade are declining in part because of moderation of commodity prices.
Table VD-1, Euro Zone, Exports, Imports and Trade Balance, Billions of Euros and Percent, NSA
| Exports | Imports | |
| Jan-Jul 2012 | 1,084.4 | 1.043.6 |
| Jan-Jul 2011 | 997.0 | 1,017.9 |
| ∆% | 8.8 | 2.5 |
| Jul 2012 | 162.2 | 146.6 |
| Jul 2011 | 145.8 | 143.6 |
| ∆% | 11.2 | 2.1 |
| Jun 2012 | 161.7 | 148.1 |
| Jun 2011 | 143.8 | 143.6 |
| ∆% | 12.4 | 3.1 |
| Trade Balance | Jan-Jul 2012 | Jan-Jul 2011 |
| € Billions | 40.9 | -20.9 |
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-17092012-AP/EN/6-17092012-AP-EN.PDF
The structure of trade of the euro zone in Jan-Jun 2012 is provided in Table VD-2. Data are still not available for trade structure for Jul 2012. Manufactured exports increased 7.5 percent in Jan-Jun 2012 relative to Jan-Jun 2011 while imports fell 1.0 percent. The trade surplus in manufactured products was marginally higher than the trade deficit in primary products in Jan-Jun 2012 but lower in Jan-Jun 2011 largely because of the commodity shock caused by carry trades.
Table VD-2, Euro Zone, Structure of Exports, Imports and Trade Balance, € Billions, NSA, ∆%
| Primary | Manufactured | Other | Total | |
| Exports | ||||
| Jan-Jun 2012 € B | 143.7 | 752.2 | 26.3 | 922.2 |
| Jan-Jun 2011 € B | 128.9 | 699.5 | 22.9 | 851.2 |
| ∆% | 11.5 | 7.5 | 14.8 | 8.3 |
| Imports | ||||
| Jan-Jun 2012 € B | 331.1 | 550.3 | 15.6 | 897.0 |
| Jan-Jun 2011 € B | 305.0 | 555.9 | 13.3 | 874.2 |
| ∆% | 8.6 | -1.0 | 17.3 | 2.6 |
| Trade Balance € B | ||||
| Jan-Jun 2012 | -187.4 | 202.0 | 10.7 | 25.3 |
| Jan-Jun 2011 | -176.1 | 143.6 | 9.5 | -23.0 |
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-17092012-AP/EN/6-17092012-AP-EN.PDF
VE Germany. Table VE-DE 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-DE, Germany, GDP Annual ∆%
| Price Adjusted Chain-Linked | Price- and Calendar-Adjusted Chain Linked | |
| 2011 | 3.0 | 3.1 |
| 2010 | 4.2 | 4.0 |
| 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: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2012/08/PE12_287_811.html;jsessionid=A761BC574543A771416A9CF81034F7BA.cae1
The Flash Germany Composite Output Index of the Markit Flash Germany PMI®, combining manufacturing and services, increased from 47.0 in Aug to 49.7 in Sep, which is the highest reading in five months resulting from slower rate of decline of manufacturing and improvement in services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10075). The pace of decline of new export orders for manufacturing was more moderate than the 40-month record of decline in Aug. Tim Moore, Senior Economist at Markit, finds that output stabilization was attained by executing existing orders because of the lack of new business (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10075).The Markit Germany Composite Output Index of the Markit Germany Services PMI®, combining manufacturing and services with close association with Germany’s GDP, fell from 48.1 in Jun to 47.5 in Jul, which is the lowest level since Jun 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9923). Tim Moore, Senior Economist at Markit and author of the report, finds that the economy of Germany is beginning the third quarter from a weaker base since the global recession (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9923). There was marginal improvement in the Germany Services Business Activity Index from 49.9 in Jun to 50.3 in Jul (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9923). The Markit/BME Germany Purchasing Managers’ Index® (PMI®), showing close association with Germany’s manufacturing output, fell from 45.0 in Jun to 43.0 in Jul, which is the weakest reading since Jun 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9890). Tim Moore, Senior Economist at Markit and author of the report, finds that Germany’s manufacturing output is showing the sharpest drop in about three years with contracting orders from export markets and lack of new work (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9890 ).Table DE provides the country data table for Germany.
Table DE, Germany, Economic Indicators
| GDP | IIQ2012 0.3 ∆%; II/Q2012/IIQ2011 ∆% 0.5 1.0 CA 2011/2010: 3.0% GDP ∆% 1992-2011 Blog 8/26/12 5/27/12 |
| Consumer Price Index | Aug month NSA ∆%: 0.4 |
| Producer Price Index | Aug month ∆%: 0.5 CSA, 0.6 NSA |
| Industrial Production | Mfg Jul month CSA ∆%: 1.8 |
| Machine Orders | MFG Jul month ∆%: 0.5 |
| Retail Sales | Jul Month ∆% -1.0 12-Month ∆% -0.9 Blog 9/2/12 |
| Employment Report | Unemployment Rate Jul 5.8% |
| Trade Balance | Exports Jul 12-month NSA ∆%: 9.2 Blog 9/9/12 |
Links to blog comments in Table DE:
9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html
9/9/12 http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or_10.html
9/2/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html
8/26/12 http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with_26.html
VF France. Table VF-FR provides growth rates of GDP of France with the estimates of Institut National de la Statistique et des Études Économiques (INSEE). The long-term rate of GDP growth of France from IIQ1949 to IIQ2012 is quite high at 3.3 percent. France’s growth rates were quite high in the four decades of the 1950s, 1960, 1970s and 1980s with an average growth rate of 4.1 percent compounding the average rates in the decades and discounting to one decade. The growth impulse diminished with 1.8 percent in the 1990s and 1.7 percent from 2000 to 2007. The average growth rate from 2000 to 2012, using second quarter data, is 1.1 percent because of the sharp impact of the global recession from IVQ2007 to IIQ2009. Cobet and Wilson (2002) provide estimates of output per hour and unit labor costs in national currency and US dollars for the US, Japan and Germany from 1950 to 2000 (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). The average yearly rate of productivity change from 1950 to 2000 was 2.9 percent in the US, 6.3 percent for Japan and 4.7 percent for Germany while unit labor costs in USD increased at 2.6 percent in the US, 4.7 percent in Japan and 4.3 percent in Germany. From 1995 to 2000, output per hour increased at the average yearly rate of 4.6 percent in the US, 3.9 percent in Japan and 2.6 percent in Germany while unit labor costs in US fell at minus 0.7 percent in the US, 4.3 percent in Japan and 7.5 percent in Germany. There was increase in productivity growth in the G7 in Japan and France in the second half of the 1990s but significantly lower than the acceleration of 1.3 percentage points per year in the US. Lucas (2011May) compares growth of the G7 economies (US, UK, Japan, Germany, France, Italy and Canada) and Spain, finding that catch-up growth with earlier rates for the US and UK stalled in the 1970s.
Table VF-FR, France, Average Growth Rates of GDP Fourth Quarter, 1949-2012
| Period | Average ∆% |
| 1949-2012* | 3.3 |
| 2000-2012* | 1.1 |
| 2000-2011 | 1.1 |
| 2000-2007 | 1.7 |
| 1990-1999 | 1.8 |
| 1980-1989 | 2.6 |
| 1970-1979 | 3.8 |
| 1960-1969 | 5.7 |
| 1950-1959 | 4.2 |
*Second Quarter on Second Quarter
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=26&date=20120814
The Markit Flash France Composite Output Index fell sharply from 48.0 in Aug to 44.1 in Sep, which is the lowest reading in 41 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10071). Jack Kennedy, Senior Economist at Markit and author of the report, finds weakness in IIIQ2012 GDP with possible contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10071).
The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, increased from 47.3 in Jun to 47.9 in Jun, indicating contraction of private sector activity at a more moderate rate and the highest reading in four months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9887). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI®, finds that improving activity in services was compensated by deeper decline in manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9887). The Markit France Services Activity index rose from 47.9 in Jun to 50.0 in Jul for the highest reading in four months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9887). The Markit France Manufacturing Purchasing Managers’ Index® fell to 43.4 in Jul from 45.2 in Jun, which was the sharpest decline of the manufacturing economy since May 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9864). Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI®, finds continuing deterioration in manufacturing with weakening new orders and adversities at home and abroad (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9864). Table FR provides the country data table for France.
Table FR, France, Economic Indicators
| CPI | Aug month ∆% 0.7 |
| PPI | Jun month ∆%: -1.1 Blog 8/5/12 |
| GDP Growth | IIQ2012/IQ2012 ∆%: 0.0 |
| Industrial Production | Jul SA ∆%: |
| Consumer Spending | Jun Manufactured Goods |
| Employment | IIQ2012 Unemployed 2.785 million |
| Trade Balance | Jul Exports ∆%: month 0.8, 12 months 3.6 Jul Imports ∆%: month -3.5, 12 months -1.9 Blog 9/9/12 |
| Confidence Indicators | Historical averages 100 Aug Mfg Business Climate 90 Blog 9/2/12 |
Links to blog comments in Table FR:
9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html
9/9/12 http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or_10.html
9/2/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html
8/19/12 http://cmpassocregulationblog.blogspot.com/2012/08/world-inflation-waves-loss-of-dynamism_19.html
8/5/12 http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html
VG Italy. The Markit/ADACI Business Activity Index increased from 43.0 in Jul to 44.0 in Aug, indicating sharp contraction of output of Italy’s services sector in 15 consecutive months of contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10045). Phil Smith, economist at Markit and author of the Italy Services PMI®, finds that the rate of contraction in services moderated in Aug but continues at very weak relative levels in the history of the index (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10045). The Markit/ADACI Purchasing Managers’ Index® (PMI®), fell from 44.3 in Jul to 43.6 in Aug for 11 consecutive months of contraction of Italy’s manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10011). Phil Smith, economist at Markit and author of the Italian Manufacturing PMI®, finds deeper fall in Italy’s manufacturing with the second worst reading in more than three years, affecting GDP (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10011). Table IT provides the country data table for Italy.
Table IT, Italy, Economic Indicators
| Consumer Price Index | Aug month ∆%: 0.4 |
| Producer Price Index | Jul month ∆%: 0.4 Blog 9/2/12 |
| GDP Growth | IIQ2012/IQ2012 SA ∆%: minus 0.8 |
| Labor Report | Jul 2012 Participation rate 64.0% Employment ratio 57.1% Unemployment rate 10.7% Blog 9/2/12 |
| Industrial Production | Jul month ∆%: -0.2 |
| Retail Sales | Jun month ∆%: 0.4 Jun 12-month ∆%: -0.5 Blog 9/2/12 |
| Business Confidence | Mfg Aug 87.2, Apr 89.3 Construction Aug 82.0, Apr 83.8 Blog 9/2/12 |
| Trade Balance | Balance Jul SA €1607 million versus Jun €801 |
Links to blog comments in Table IT:
9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html
9/2/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html
Exports and imports of Italy and monthly growth rates SA are provided in Table VG-1. There have been significant fluctuations. Seasonally-adjusted exports increased 0.3 percent in Jul 2012 while imports increased 2.8 percent. The SA trade balance deteriorated from surplus of €1607 million in Jun 2012 to surplus of €801 million in Jul 2012.
Table VG-1, Italy, Exports, Imports and Trade Balance SA Million Euros and Month SA ∆%
| Exports | Exports Month ∆% | Imports € Millions | Imports | Trade € Millions | |
| Dec 2010 | 29,615 | 1.5 | 33,384 | 2.9 | -3,769 |
| Jan 2011 | 31,050 | 4.8 | 33,722 | 1.0 | -2,672 |
| Feb | 30,468 | -1.9 | 33,070 | -1.9 | -2,602 |
| Mar | 31,084 | 2.0 | 34,860 | 5.4 | -3,776 |
| Apr | 31,438 | 1.1 | 34,127 | -2.1 | -2,689 |
| May | 32,124 | 2.2 | 34,654 | 1.5 | -2,530 |
| Jun | 31,314 | -2.5 | 33,051 | -4.6 | -1,737 |
| Jul | 31,619 | 1.0 | 33,648 | 1.8 | -2,029 |
| Aug | 31,906 | 0.9 | 34,540 | 2.7 | -2,634 |
| Sep | 31,929 | 0.1 | 33,215 | -3.8 | -1,286 |
| Oct | 31,024 | -2.8 | 32,565 | -2.0 | -1,541 |
| Nov | 31,527 | 1.6 | 32,812 | 0.8 | -1,285 |
| Dec | 32,738 | 3.8 | 32,270 | -1.7 | 468 |
| Jan 2012 | 31,816 | -2.8 | 32,091 | -0.6 | -275 |
| Feb | 31,795 | -0.1 | 32,251 | 0.5 | -456 |
| Mar | 32,347 | 1.7 | 31,541 | -2.2 | 806 |
| Apr | 32,345 | 0.0 | 32,274 | 2.3 | 71 |
| May | 32,773 | 1.3 | 32,467 | 0.6 | 306 |
| Jun | 32,343 | -1.3 | 30,736 | -5.3 | 1,607 |
| Jul | 32,434 | 0.3 | 31,633 | 2.9 | 801 |
Source: Istituto Nazionale di Statistica
http://www.istat.it/it/archivio/70437
Italy’s trade account not seasonally adjusted is provided in Table VG-2. Values are different because the data are original and not adjusted. Exports increased 4.3 percent in the 12 months ending in Jul 2012 while imports decreased 4.3 percent. Twelve-month rates of growth picked up again in Aug 2011 with 14.9 percent for exports and 12.1 percent for imports. In Sep 2011, exports grew 10.2 percent relative to a year earlier while imports grew only 3.6 percent. In Oct 2011, exports grew 4.5 percent while imports fell 0.4 percent. In Nov 2011, exports grew 6.5 percent in 12 months while imports grew 0.5 percent. Exports continued to growth of 4.9 percent in the 12 months ending in Mar 2012 while imports fell 10.9 percent. The actual or not seasonally adjusted trade balance deficit fell from €2905 million in Aug 2011 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 €2067 million in Mar 2012, returning to deficit of €200 million in Apr and surplus of €1013 million in May. In Jun 2012, the actual surplus was €2516 million and then €4490 million in Jul 2012 which was the highest in 2012. Exports fell 20.9 percent and imports 22.1 percent during the global recession in 2009.
VG-2, Italy, Exports, Imports and Trade Balance NSA Million Euros and 12 Month ∆%
| Dec 2010 | 29,714 | 20.2 | 32,732 | 31.7 | -3,018 |
| 2011 | |||||
| Jan | 26,146 | 24.6 | 32,455 | 28.4 | -6,309 |
| Feb | 29,595 | 17.7 | 32,621 | 16.2 | -3,026 |
| Mar | 34,418 | 14.0 | 38,203 | 19.8 | -3,785 |
| Apr | 31,045 | 12.5 | 33,869 | 18.0 | -2,824 |
| May | 33,491 | 19.8 | 35,722 | 18.4 | -2,231 |
| Jun | 32,605 | 7.9 | 34,309 | 1.6 | -1,704 |
| Jul | 35,264 | 5.8 | 33,743 | 6.1 | 1,521 |
| Aug | 24,177 | 14.9 | 27,082 | 12.1 | -2,905 |
| Sep | 32,997 | 10.2 | 34,878 | 3.6 | -1,881 |
| Oct | 32,131 | 4.5 | 33,186 | -0.4 | -1,055 |
| Nov | 32,428 | 6.5 | 34,011 | 0.5 | -1,583 |
| Dec | 31,551 | 6.2 | 30,401 | -7.1 | 1,150 |
| 2012 | |||||
| Jan | 27,271 | 4.3 | 31,617 | -2.6 | -4,346 |
| Feb | 31,754 | 7.3 | 32,890 | 0.8 | -1,136 |
| Mar | 36,107 | 4.9 | 34,040 | -10.9 | 2,067 |
| Apr | 30,521 | -1.7 | 30,721 | -9.3 | -200 |
| May | 35,109 | 4.8 | 34,096 | -4.6 | 1,013 |
| Jun | 34,388 | 5.5 | 31,872 | -7.1 | 2,516 |
| Jul | 36,770 | 4.3 | 32,280 | -4.3 | 4,490 |
Source: Istituto Nazionale di Statistica
http://www.istat.it/it/archivio/70437
Growth rates of Italy’s trade and major products are provided in Table VG-3 for the period Jan-Jul 2012 relative to Jan-Jul 2011. Growth rates of imports are negative with the exception of energy. The higher rate of growth of exports of 5.5 percent in Jan-Jul 2012/Jan-Jul 2011 relative to imports of minus 2.5 percent may reflect weak demand in Italy with GDP declining during four consecutive quarters from IIIQ2011 through IIQ2012
Table VG-3, Italy, Exports and Imports % Share of Products in Total and ∆%
| Exports | Exports | Imports | Imports | |
| Consumer | 28.9 | 5.5 | 25.0 | -2.5 |
| Durable | 5.9 | 1.5 | 3.0 | -7.2 |
| Non | 23.0 | 6.6 | 22.0 | -1.9 |
| Capital Goods | 32.2 | 2.7 | 20.8 | -11.5 |
| Inter- | 34.3 | 2.8 | 34.5 | -11.6 |
| Energy | 4.7 | 17.8 | 19.7 | 8.6 |
| Total ex Energy | 95.3 | 3.5 | 80.3 | -8.9 |
| Total | 100.0 | 4.2 | 100.0 | -4.3 |
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/70437
Table VG-4 provides Italy’s trade balance by product categories in Jul 2012 and cumulative Jan-Jul 2012. Italy’s trade balance excluding energy generated surplus of €9335 million in Jul 2012 and €41,928 million in Jan-Jul 2012 but the energy trade balance created deficit of €4845 million in Jul 2012 and €37,525 million in Jan-Jul 2012. The overall surplus in Jul 2012 was €4403 million and €4403 million in Jan-Jul 2012. Italy has significant competitiveness in various economic activities in contrast with some other countries with debt difficulties.
Table VG-4, Italy, Trade Balance by Product Categories, € Millions
| Jul 2012 | Cumulative Jan-Jul 2012 | |
| Consumer Goods | 2,654 | 9,670 |
| Durable | 1,242 | 6,843 |
| Nondurable | 1,411 | 2,827 |
| Capital Goods | 5,459 | 28,954 |
| Intermediate Goods | 1,222 | 3,304 |
| Energy | -4,845 | -37,525 |
| Total ex Energy | 9,335 | 41,928 |
| Total | 4,490 | 4,403 |
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/70437
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-5 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 9.8 percent in Jan-Jul 2012 relative to Jan-Jul 2011 while those to EMU are falling at 1.2 percent.
Table VG-5, Italy, Exports and Imports by Regions and Countries, % Share and 12-Month ∆%
| Jul 2012 | Exports | ∆% Jan-Jul 2012/ Jan-Jul 2011 | Imports | Imports |
| EU | 56.0 | 0.0 | 53.3 | -7.0 |
| EMU 17 | 42.7 | -1.2 | 43.2 | -6.6 |
| France | 11.6 | 0.1 | 8.3 | -4.5 |
| Germany | 13.1 | 0.9 | 15.6 | -10.5 |
| Spain | 5.3 | -8.6 | 4.5 | -7.2 |
| UK | 4.7 | 10.3 | 2.7 | -13.7 |
| Non EU | 44.0 | 9.8 | 46.7 | -3.9 |
| Europe non EU | 13.3 | 11.0 | 11.1 | -6.8 |
| USA | 6.1 | 18.7 | 3.3 | 3.4 |
| China | 2.7 | -12.4 | 7.3 | -15.4 |
| OPEC | 4.7 | 23.5 | 8.6 | 24.9 |
| Total | 100.0 | 4.2 | 100.0 | -5.6 |
Notes: EU: European Union; EMU: European Monetary Union (euro zone)
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/70437
Table VG-6 provides Italy’s trade balance by regions and countries. Italy had trade surplus of €910 million with the 17 countries of the euro zone (EMU 17) in Jul 2012 and deficit of €711 million in Jan-Jul 2012. Depreciation to parity could permit greater competitiveness in improving the trade surpluses of €6594 million in Jan-Jul with Europe non European Union and of €8071 million with the US. There is significant rigidity in the trade deficits in Jan-Jul of €10,032 million with China and €12,672 million with members of the Organization of Petroleum Exporting Countries (OPEC). Higher exports could drive economic growth in the economy of Italy that would permit less onerous adjustment of the country’s fiscal imbalances, raising the country’s credit rating.
Table VG-6, Italy, Trade Balance by Regions and Countries, Millions of Euro
| Regions and Countries | Trade Balance Jul 2012 Millions of Euro | Trade Balance Cumulative Jan-Jul 2012 Millions of Euro |
| EU | 2,653 | 7,782 |
| EMU 17 | 910 | -711 |
| France | 1,385 | 7,286 |
| Germany | 19 | -3,151 |
| Spain | 211 | 1,162 |
| UK | 1,035 | 5,612 |
| Non EU | 1,836 | -3,379 |
| Europe non EU | 1,630 | 6,594 |
| USA | 1,461 | 8,071 |
| China | -1,728 | -10,032 |
| OPEC | -1,596 | -12,672 |
| Total | 4.490 | 4,403 |
Notes: EU: European Union; EMU: European Monetary Union (euro zone)
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/70437
VH United Kingdom. Annual data in Table VH-UK show the strong impact of the global recession in the UK with decline of GDP of 4.0 percent in 2009 after dropping 1.0 percent in 2008. Recovery of 1.8 percent in 2010 is relatively low compared to annual growth rates in 2007 and earlier years. Growth was only 0.8 percent in 2011. The bottom part of Table VH-UK provides average growth rates of UK GDP since 1948. The UK economy grew at 2.7 percent on average between 1948 and 2011, which is relatively high for an advanced economy. The growth rate of GDP between 2000 and 2007 is higher at 3.0 percent. Growth in the current cyclical expansion has been only at 1.3 percent as advanced economies struggle with weak internal demand and world trade.
Table VH-UK, UK, Gross Domestic Product, ∆%
| ∆% on Prior Year | |
| 1998 | 3.5 |
| 1999 | 3.2 |
| 2000 | 4.2 |
| 2001 | 2.9 |
| 2002 | 2.4 |
| 2003 | 3.8 |
| 2004 | 2.9 |
| 2005 | 2.8 |
| 2006 | 2.6 |
| 2007 | 3.6 |
| 2008 | -1.0 |
| 2009 | -4.0 |
| 2010 | 1.8 |
| 2011 | 0.8 |
| Average ∆% per Year | |
| 1948-2011 | 2.7 |
| 1948-1959 | 2.9 |
| 1960-1969 | 3.3 |
| 1970-1979 | 2.5 |
| 1980-1989 | 3.2 |
| 1990-1999 | 2.6 |
| 2000-2011 | 1.7 |
| 2000-2007 | 3.0 |
| 2009-2011 | 1.3 |
Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/naa2/second-estimate-of-gdp/q2-2012/index.html
The Business Activity Index of the Markit/CIPS UK Services PMI® increased from 51.0 in Jul to 53.7 in Aug with growth during 20 consecutive months, increasing at the margin (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10047). Chris Williamson, Chief Economist at Markit, finds rising activity in services increases hopes for positive reading of GDP in IIIQ2012 after decline of 0.5 percent in IIQ2012 but with remaining uncertainty on construction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10047). The Markit/CIPS UK Manufacturing Purchasing Managers’ Index® (PMI®) increased from 45.2 in Jul to 49.5 in Aug, for the highest reading in four months and approaching the expansion barrier at 50 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10013). The decline of 4.3 points in May is the second sharpest decline in the history of 20 years of the index. Rob Dobson, Senior Economist at Markit and author of the Markit/CIPS Manufacturing PMI®, finds that weakness in Europe and lower world economic growth could affect manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10013).
Table UK, UK Economic Indicators
| CPI | Aug month ∆%: 0.5 |
| Output/Input Prices | Output Prices: |
| GDP Growth | IIQ2012 prior quarter ∆% minus 0.5; year earlier same quarter ∆%: minus 0.5 |
| Industrial Production | Jul 2012/Jul 2011 NSA ∆%: Production Industries minus 0.8; Manufacturing minus 0.5 |
| Retail Sales | Aug month ∆%: -0.2 |
| Labor Market | May-Jul Unemployment Rate: 8.1%; Claimant Count 4.8%; Earnings Growth 1.5% |
| Trade Balance | Balance Jul minus ₤1517 million |
Links to blog comments in Table UK:
9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html
9/9/12 http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or_10.html
8/26/12 http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with_26.html
The volume of retail sales in the UK decreased 0.2 percent in Aug 2012 and increased 2.7 percent in the 12 months ending in Aug, as shown in Table VH-1. Retail sales percentage changes in 12 months had been positive since Sep 2011 with exception of decline of 1.6 percent in Apr 2012. Cumulative growth from Sep 2011 to Mar 2012 was 3.3 percent, or at the high annual equivalent rate of 5.7 percent. Growth in the five months Apr-Aug 2012 was -0.5 percent because of the decline of 2.6 percent in Apr 2012. There has been significant volatility in monthly retail sales in the UK.
Table VH-1, UK, Volume of Retail Sales ∆%
| Month ∆% | 12-Month ∆% | |
| Aug 2012 | -0.2 | 2.7 |
| Jul | 0.3 | 2.3 |
| Jun | 0.5 | 2.3 |
| May | 1.5 | 2.0 |
| Apr | -2.6 | -1.6 |
| Mar | 2.0 | 2.9 |
| Feb | -0.7 | 0.8 |
| Jan | 0.2 | 0.8 |
| Dec 2011 | 0.5 | 2.3 |
| Nov | -0.3 | 0.2 |
| Oct | 0.7 | 0.6 |
| Sep | 0.9 | 0.4 |
| Aug | -0.6 | -1.2 |
| Jul | 0.2 | -0.9 |
| Jun | 0.2 | -0.8 |
| May | -2.1 | -0.7 |
| Apr | 1.9 | 2.1 |
| Mar | -0.2 | 0.1 |
| Feb | -0.7 | 0.2 |
| Jan | 1.7 | 3.6 |
| Dec 2010 | -1.6 | -2.1 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/rsi/retail-sales/august-2012/index.html
Retail sales in the UK struggle with relatively high inflation. Table VH-2 provides 12-month percentage changes of the implied deflator of UK retail sales. The implied deflator of all retail sales increased 0.2 percent in the 12 months ending in Aug while that of sales excluding auto fuel increased 0.3 percent. The 12-month increase of the implied deflator of auto fuel sales rose to 16.9 percent in Sep 2011, which is the highest 12-month increase in 2011, but then declined to 14.7 percent in Oct 2011, 12.6 percent in Nov, 1.2 percent in May 2012 and minus 1.3 percent in Jul 2012, increasing 0.4 percent in Aug 2012. The percentage change of the implied deflator of sales of food stores at 2.0 percent in Aug 2012 is also higher than for total retail sales. Increases in fuel prices at the retail level have occurred throughout most years since 2005 with exception of the decline of 9.5 percent in 2008 when commodity carry trades were reversed in the panic of the financial crisis, as shown in Table VH-1. UK inflation is particularly sensitive to changes in commodity prices.
Table VH-2, UK, Implied Deflator of Retail Sales, 12-Month Percentage Changes, ∆%
| All Retail | Ex Auto | Food | Non- | Auto | |
| Aug | 0.2 | 0.3 | 2.0 | -1.1 | 0.4 |
| Jul | 0.2 | 0.5 | 1.9 | -0.6 | -1.3 |
| Jun | 0.3 | 0.7 | 2.2 | -0.5 | -1.1 |
| May | 1.2 | 1.3 | 3.1 | -0.1 | 1.2 |
| Apr | 2.0 | 1.7 | 3.7 | 0.0 | 5.2 |
| Mar | 2.9 | 2.5 | 4.5 | 0.9 | 4.9 |
| Feb | 2.6 | 2.2 | 4.0 | 0.6 | 5.3 |
| Jan | 2.5 | 2.1 | 3.5 | 0.9 | 5.3 |
| Dec 2011 | 2.8 | 2.0 | 4.3 | 0.6 | 9.1 |
| Nov | 3.8 | 2.7 | 4.6 | 1.4 | 12.6 |
| Oct | 4.6 | 3.4 | 5.0 | 2.1 | 14.7 |
| Sep | 5.1 | 3.6 | 6.1 | 1.5 | 16.9 |
| Aug | 5.4 | 4.0 | 6.0 | 2.3 | 16.2 |
| Jul | 5.1 | 3.8 | 5.9 | 2.1 | 14.4 |
| Jun | 4.6 | 3.3 | 6.1 | 1.0 | 14.5 |
| May | 4.6 | 3.4 | 5.5 | 1.7 | 13.1 |
| Apr | 4.2 | 3.2 | 4.8 | 1.9 | 12.2 |
| Mar | 4.3 | 2.9 | 4.3 | 1.7 | 14.8 |
| Feb | 4.9 | 3.6 | 5.5 | 2.0 | 15.0 |
| Jan | 4.2 | 3.0 | 5.3 | 1.1 | 14.4 |
| Dec 2010 | 3.4 | 2.9 | 5.2 | 1.1 | 12.4 |
| Dec 2009 | 3.6 | 2.4 | 2.1 | 1.7 | 16.8 |
| Dec 2008 | -0.3 | 0.4 | 7.1 | -4.1 | -9.5 |
| Dec 2007 | 1.8 | 0.6 | 3.9 | -1.7 | 15.3 |
| Dec 2006 | 1.1 | 0.9 | 3.3 | -1.0 | 1.1 |
| Dec 2005 | -0.4 | -1.0 | 1.3 | -2.6 | 6.6 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/rsi/retail-sales/august-2012/index.html
UK monthly retail volume of sales is quite volatile, as shown in Table VH-3. Total volume of sales decreased 0.2 percent in Aug 2012. There were increases in most major categories in Aug 2012, with exception of decline of 0.3 percent in retail stores excluding auto fuel and 2.7 percent in household goods stores and 6.7 percent in non-store retailing (with the last two segments not shown in Table VH-3 (http://www.ons.gov.uk/ons/rel/rsi/retail-sales/august-2012/stb-rsi-august-2012.html). Multiple positive and negative variations and changes in magnitudes confirm high volatility.
Table VH-3, UK, Growth of Retail Sales Volume by Component Groups Month SA ∆%
| All Retail | Ex Auto | Food | Non- | Auto | |
| Aug 2012 | -0.2 | -0.3 | 0.2 | 0.2 | 0.4 |
| Jul | 0.3 | 0.0 | 0.3 | -0.8 | 2.9 |
| Jun | 0.5 | 0.9 | 0.4 | 1.6 | -3.2 |
| May | 1.5 | 1.0 | 0.5 | 1.4 | 6.2 |
| Apr | -2.6 | -1.4 | -0.5 | -2.5 | -13.6 |
| Mar | 2.0 | 1.6 | 0.0 | 2.9 | 6.0 |
| Feb | -0.7 | -0.6 | -0.4 | -1.0 | -1.0 |
| Jan | 0.2 | 0.5 | -0.3 | 1.0 | -2.3 |
| Dec 2011 | 0.5 | 0.5 | 0.6 | 0.4 | 1.0 |
| Nov | -0.3 | -0.6 | -0.7 | -1.0 | 2.8 |
| Oct | 0.7 | 0.6 | 0.6 | 0.7 | 1.3 |
| Sep | 0.9 | 1.0 | 0.2 | 2.1 | -0.1 |
| Aug | -0.6 | -0.6 | 0.0 | -1.5 | -0.8 |
| Jul | 0.2 | 0.3 | 0.9 | 0.0 | 0.0 |
| Jun | 0.2 | 0.3 | 0.3 | -0.2 | -0.3 |
| May | -2.1 | -2.3 | -4.2 | -1.0 | 0.4 |
| Apr | 1.9 | 2.0 | 3.0 | 1.1 | 0.8 |
| Mar | -0.2 | -0.1 | 1.3 | -1.3 | -0.8 |
| Feb | -0.7 | -0.9 | -0.7 | -1.2 | 1.1 |
| Jan | 1.7 | 1.1 | 0.3 | 1.9 | 7.7 |
| Dec 2010 | -1.6 | -1.0 | -1.9 | -1.1 | -6.4 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/rsi/retail-sales/august-2012/index.html
Percentage growth in 12 months of retail sales volume by component groups in the UK is provided in Table VH-4. Total retail sales increased 2.7 percent in the 12 months ending in Aug 2012 with increase of 3.1 percent in sales excluding auto fuel. Significant improvement since Aug 2011 was interrupted with sharp declines in Apr 2012 but recovery in May-Aug 2012.
Table VH-4, UK, Growth of Retail Sales Volume by Component Groups 12-Month ∆%
| All Retail | Ex Auto | Food | Non- | Auto | |
| Aug 2012 | 2.7 | 3.1 | 0.9 | 5.0 | -1.0 |
| Jul | 2.3 | 2.8 | 0.7 | 3.2 | -2.3 |
| Jun | 2.3 | 3.0 | 1.3 | 4.1 | -5.0 |
| May | 2.0 | 2.4 | 1.2 | 2.3 | -2.2 |
| Apr | -1.6 | -1.0 | -3.6 | -0.2 | -7.6 |
| Mar | 2.9 | 2.4 | -0.2 | 3.6 | 7.8 |
| Feb | 0.8 | 0.8 | 1.1 | -0.7 | 0.9 |
| Jan | 0.8 | 0.5 | 0.8 | -0.9 | 3.0 |
| Dec 2011 | 2.3 | 1.2 | 1.4 | 0.0 | 13.6 |
| Nov | 0.2 | -0.4 | -1.1 | -1.6 | 5.2 |
| Oct | 0.6 | 0.4 | 0.5 | -0.9 | 2.4 |
| Sep | 0.4 | 0.1 | -0.1 | -1.2 | 3.5 |
| Aug | -1.2 | -1.6 | -0.6 | -3.9 | 2.1 |
| Jul | -0.9 | -1.2 | -1.1 | -2.8 | 2.2 |
| Jun | -0.8 | -1.2 | -4.1 | -0.8 | 3.3 |
| May | -0.7 | -1.0 | -3.2 | -0.7 | 2.4 |
| Apr | 2.1 | 1.9 | 1.8 | 0.6 | 4.0 |
| Mar | 0.1 | -0.3 | -0.9 | -0.7 | 3.9 |
| Feb | 0.2 | -0.3 | -2.2 | 0.0 | 4.8 |
| Jan | 3.6 | 3.2 | -2.4 | 7.1 | 7.4 |
| Dec 2010 | -2.1 | -1.5 | -3.9 | -0.3 | -8.4 |
| Dec 2009 | 1.2 | 1.8 | 2.4 | 0.7 | -4.1 |
| Dec 2008 | 1.3 | 2.6 | -1.1 | 4.3 | -9.0 |
Source: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/rsi/retail-sales/august-2012/index.html
Table VH-5 provides the analysis of the UK Office for National Statistics of contributions to 12-month percentage changes of value and volume of retail sales in the UK. The volume of retail sales seasonally adjusted increased 2.7 percent in the 12 months ending in Aug 2012. Sales of predominantly food stores with weight of 41.3 percent increased 0.9 percent in the 12 months ending in Aug 2012, contributing 0.4 percentage points. Mostly nonfood stores with weight of 41.6 percent increased 5.0 percent with contribution of 2.2 percentage points. Positive contribution to 12-month percentage changes of volume was made by non-store retailing with weight of 5.3 percent, growth of 4.2 percent and positive contribution of 0.2 percentage points but automotive fuel with weight of 11.8 percent and growth of minus 1.0 percent deducted 0.1 percentage points. The value of retail sales increased 3.0 percent in the 12 months ending in Aug 2012. There were positive contributions: 1.2 percentage points for predominantly food stores, 1.6 percentage points for predominantly nonfood stores and 0.2 percentage points for non-store retailing. Automotive fuel stores did not contribute.
Table VH-5, UK, Value of Retail Sales 12-month ∆% and Percentage Points Contributions by Sectors
| Aug 2012 | Weight | Volume SA | PP Cont. | Value SA | PP Cont. |
| All Retailing | 100.0 | 2.7 | 3.0 | ||
| Mostly | 41.3 | 0.9 | 0.4 | 3.0 | 1.2 |
| Mostly Nonfood Stores | |||||
| Total | 41.6 | 5.0 | 2.2 | 3.8 | 1.6 |
| Non- | 7.8 | 8.0 | 0.7 | 6.2 | 0.5 |
| Textile, Clothing & Footwear | 12.3 | 4.1 | 0.6 | 3.9 | 0.5 |
| Household Goods Stores | 8.8 | -0.6 | -0.1 | -1.0 | -0.1 |
| Other | 12.7 | 7.9 | 1.0 | 5.5 | 0.7 |
| Non-store Retailing | 5.3 | 4.2 | 0.2 | 3.2 | 0.2 |
| Automotive Fuel | 11.8 | -1.0 | -0.1 | -0.4 | 0.0 |
Cont.: Contribution
Sources: UK Office for National Statistics
http://www.ons.gov.uk/ons/rel/rsi/retail-sales/august-2012/index.html
© Carlos M. Pelaez, 2010, 2011, 2012
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