CMP Associates Regulation Blog: Paring Quantitative Easing Policy and Peaking Valuations of Risk Financial Assets, World Inflation Waves, Collapse of United States Dynamism of Income Growth and Employment Creation, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation, United States Industrial Production, United States Commercial Banks Assets and Liabilities, World Economic Slowdown and Global Recession Risk: Part III

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Paring Quantitative Easing Policy and Peaking Valuations of Risk Financial Assets, World Inflation Waves, Collapse of United States Dynamism of Income Growth and Employment Creation, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation, United States Industrial Production, United States Commercial Banks Assets and Liabilities, World Economic Slowdown and Global Recession Risk

Carlos M. Pelaez

Executive Summary

I World Inflation Waves

IA Appendix: Transmission of Unconventional Monetary Policy

IA1 Theory

IA2 Policy

IA3 Evidence

IA4 Unwinding Strategy

IB United States Inflation

IC Long-term US Inflation

ID Current US Inflation

IE Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation

IB Collapse of United States Dynamism of Income Growth and Employment Creation

IIA United States Industrial Production

IIB United States Commercial Banks Assets and Liabilities

IIB1 Transmission of Monetary Policy

IIB2 Functions of Banks

IIB3 United States Commercial Banks Assets and Liabilities

IIB4 Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

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	1.8	1.4	1.7	7.6
Japan	0.4	-0.7	0.6	4.1
China	7.7	2.1	-2.6
UK	0.6	2.7* CPIH 2.5	1.2 output 0.8** input 2.2	7.8
Euro Zone	-1.1	1.4	-0.2	12.2
Germany	-0.3	1.6	0.1	5.4
France	-0.4	0.9	0.6	11.0
Nether-lands	-1.3	3.1	-1.5	6.5
Finland	-2.0	2.5	0.7	8.2
Belgium	-0.5	1.1	1.9	8.4
Portugal	-4.0	0.9	0.6	17.8
Ireland	NA	0.5	1.2	13.5
Italy	-2.3	1.3	-1.1	12.0
Greece	-5.3	-0.3	-2.4	NA
Spain	-2.0	1.8	-0.5	26.8

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/may-2013/index.html **Core

PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/may-2013/index.html

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/; 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 1.8 percent in IQ2013 relative to IQ2012 (Table 8 in http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp1q13_2nd.pdf http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html). Japan’s GDP grew 0.1 percent in IQ2013 relative to IQ2012 and 0.2 percent relative to a year earlier. Japan’s grew at the seasonally adjusted annual rate (SAAR) of 4.1 percent in IQQ2013 (http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html). The UK grew at 0.3 percent in IQ2013 relative to IVQ2012 and GDP increased 0.6 percent in IQ2013 relative to IQ2012 (http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html). The Euro Zone grew at minus 0.2 percent in IQ2013 and minus 1.1 percent in IQ2013 relative to IQ2012 (http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html ). These are stagnating or “growth recession” rates, which are positive or about nil growth rates with some contractions that are insufficient to recover employment. The rates of unemployment are quite high: 7.5 percent in the US but 17.1 percent for unemployment/underemployment or job stress of 27.8 million (http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html), 4.1 percent for Japan (http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html and earlier http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html), 7.8 percent for the UK with high rates of unemployment for young people (http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html). Twelve-month rates of inflation have been quite high, even when some are moderating at the margin: 1.4 percent in the US, -0.7 percent for Japan, 2.1 percent for China, 1.4 percent for the Euro Zone and 2.7 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 earlierhttp://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.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 (http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html), weak hiring with the loss of 10 million full-time jobs (http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html) and continuing job stress of 24 to 30 million people in the US and stagnant wages in a fractured job market (http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html

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.

Charles Evans, President of the Federal Reserve Bank of Chicago, proposed an “economic state-contingent policy” or “7/3” approach (Evans 2012 Aug 27):

“I think the best way to provide forward guidance is by tying our policy actions to explicit measures of economic performance. There are many ways of doing this, including setting a target for the level of nominal GDP. But recognizing the difficult nature of that policy approach, I have a more modest proposal: I think the Fed should make it clear that the federal funds rate will not be increased until the unemployment rate falls below 7 percent. Knowing that rates would stay low until significant progress is made in reducing unemployment would reassure markets and the public that the Fed would not prematurely reduce its accommodation.

Based on the work I have seen, I do not expect that such policy would lead to a major problem with inflation. But I recognize that there is a chance that the models and other analysis supporting this approach could be wrong. Accordingly, I believe that the commitment to low rates should be dropped if the outlook for inflation over the medium term rises above 3 percent.

The economic conditionality in this 7/3 threshold policy would clarify our forward policy intentions greatly and provide a more meaningful guide on how long the federal funds rate will remain low. In addition, I would indicate that clear and steady progress toward stronger growth is essential.”

Evans (2012Nov27) modified the “7/3” approach to a “6.5/2.5” approach:

“I have reassessed my previous 7/3 proposal. I now think a threshold of 6-1/2 percent for the unemployment rate and an inflation safeguard of 2-1/2 percent, measured in terms of the outlook for total PCE (Personal Consumption Expenditures Price Index) inflation over the next two to three years, would be appropriate.”

The Federal Open Market Committee (FOMC) decided at its meeting on Dec 12, 2012 to implement the “6.5/2.5” approach (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm):

“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 asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

Another rising risk is division within the Federal Open Market Committee (FOMC) on risks and benefits of current policies as expressed in the minutes of the meeting held on Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):

“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy.

Jon Hilsenrath, writing on “Fed maps exit from stimulus,” on May 11, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887324744104578475273101471896.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the development of strategy for unwinding quantitative easing and how it can create uncertainty in financial markets. Jon Hilsenrath and Victoria McGrane, writing on “Fed slip over how long to keep cash spigot open,” published on Feb 20, 2013 in the Wall street Journal (http://professional.wsj.com/article/SB10001424127887323511804578298121033876536.html), analyze the minutes of the Fed, comments by members of the FOMC and data showing increase in holdings of riskier debt by investors, record issuance of junk bonds, mortgage securities and corporate loans. Jon Hilsenrath, writing on “Jobs upturn isn’t enough to satisfy Fed,” on Mar 8, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324582804578348293647760204.html), finds that much stronger labor market conditions are required for the Fed to end quantitative easing. Unconventional monetary policy with zero interest rates and quantitative easing is quite difficult to unwind because of the adverse effects of raising interest rates on valuations of risk financial assets and home prices, including the very own valuation of the securities held outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash.

Unconventional monetary policy will remain in perpetuity, or QE→∞, changing to a “growth mandate.” There are two reasons explaining unconventional monetary policy of QE→∞: insufficiency of job creation to reduce unemployment/underemployment at current rates of job creation; and growth of GDP at 1.6 to 2.1 percent, which is well below 3.0 percent estimated by Lucas (2011May) from 1870 to 2010. Unconventional monetary policy interprets the dual mandate of low inflation and maximum employment as mainly a “growth mandate” of forcing economic growth in the US at a rate that generates full employment. A hurdle to this “growth mandate” is that US economic growth has been at only 2.1 percent on average in the cyclical expansion in the 15 quarters from IIIQ2009 to IQ2013. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). The average of 7.8 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 3.2 percent obtained by diving GDP of $13,103.5 billion in IIIQ2010 by GDP of $12,701.0 billion in IIQ2009 {[$13.103.5/$12,701.0 -1]100 = 3.2%], or accumulating the quarter on quarter growth rates (http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent and at 7.7 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html). Zero interest rates and quantitative easing have not provided the impulse for growth and were not required in past successful cyclical expansions.

First, total nonfarm payroll employment seasonally adjusted (SA) increased 175,000 in May 2013 and private payroll employment rose 178,000. The average number of nonfarm jobs created in Jan-May 2012 was 204,800 while the average number of nonfarm jobs created in Jan-May 2013 was 189,200, or decline by 7.6 percent. The average number of private jobs created in the US in Jan-May 2012 was 213,600 while the average in Jan-May 2013 was 194,400, or decline by 9.0 percent. The US labor force increased from 153.617 million in 2011 to 154.975 million in 2012 by 1.358 million or 113,167 per month. The average increase of nonfarm jobs in the five months from Jan to May 2013 was 189,200, which is an inadequate rate of job creation to reduce significantly unemployment and underemployment in the United States because of 113,167 new entrants in the labor force per month with 27.8 million unemployed or underemployed. The difference between the average increase of 189,200 new private nonfarm jobs per month in the US from Jan to May 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 76,033 monthly new jobs net of absorption of new entrants in the labor force. There are 27.8 million in job stress in the US currently. Creation of 76,033 new jobs per month net of absorption of new entrants in the labor force would require 365 months to provide jobs for the unemployed and underemployed (27.780 million divided by 76,033) or 30.4 years (365 divided by 12). The civilian labor force of the US in May 2013 not seasonally adjusted stood at 155.734 million with 11.302 million unemployed or effectively 17.998 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them for effective labor force of 162.430 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.1 years (1 million divided by product of 76,033 by 12, which is 912,396). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.787 million (0.05 times labor force of 155.734 million) for new net job creation of 3.515 million (11.302 million unemployed minus 7.787 million unemployed at rate of 5 percent) that at the current rate would take 3.9 years (3.515 million divided by 0.912396). Under the calculation in this blog, there are 17.998 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 162.430 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 9.876 million jobs net of labor force growth that at the current rate would take 10.8 years (17.998 million minus 0.05(162.430 million) = 9.876 million divided by 0.912396, using LF PART 66.2% and Total UEM in Table I-4). These calculations assume that there are no more recessions, defying United States economic history with periodic contractions of economic activity when unemployment increases sharply. The number employed in the US fell from 147.315 million in Jul 2007 to 144.432 million in May 2013, by 2.883 million, or decline of 2.0 percent, while the noninstitutional population increased from 231.958 million in Jul 2007 to 245.363 million in May 2013, by 13.405 million or increase of 5.8 percent, using not seasonally adjusted data. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.

Second, the economy of the US can be summarized in growth of economic activity or GDP as decelerating from mediocre growth of 2.4 percent on an annual basis in 2010 and 1.8 percent in 2011 to 2.2 percent in 2012. Calculations below show that actual growth is around 1.9 percent per year. This rate is well below 3 percent per year in trend from 1870 to 2010, which has been always recovered after events such as wars and recessions (Lucas 2011May). United States real GDP grew at the rate of 3.2 percent between 1929 and 2012 and at 3.2 percent between 1947 and 2012 (http://www.bea.gov/iTable/index_nipa.cfm see http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html). Growth is not only mediocre but also sharply decelerating to a rhythm that is not consistent with reduction of unemployment and underemployment of 28.6 million people corresponding to 17.6 percent of the effective labor force of the United States (http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html). In the four quarters of 2011, the four quarters of 2012 and the first quarter of 2013, US real GDP grew at the seasonally-adjusted annual equivalent rates of 0.1 percent in the first quarter of 2011 (IQ2011), 2.5 percent in IIQ2011, 1.3 percent in IIIQ2011, 4.1 percent in IVQ2011, 2.0 percent in IQ2012, 1.3 percent in IIQ2012, revised 3.1 percent in IIIQ2012, 0.4 percent in IVQ2012 and revised 2.4 percent in IQ2013. The annual equivalent rate of growth of GDP for the four quarters of 2011, the four quarters of 2012 and the first quarter of 2013 is 1.9 percent, obtained as follows. Discounting 0.1 percent to one quarter is 0.025 percent {[(1.001)^1/4 -1]100 = 0.025}; discounting 2.5 percent to one quarter is 0.62 percent {[(1.025)^1/4 – 1]100}; discounting 1.3 percent to one quarter is 0.32 percent {[(1.013)^1/4 – 1]100}; discounting 4.1 percent to one quarter is 1.0 {[(1.04)^1/4 -1]100; discounting 2.0 percent to one quarter is 0.50 percent {[(1.020)^1/4 -1]100); discounting 1.3 percent to one quarter is 0.32 percent {[(1.013)^1/4 -1]100}; discounting 3.1 percent to one quarter is 0.77 {[(1.031)^1/4 -1]100); discounting 0.4 percent to one quarter is 0.1 percent {[(1.004)^1/4 – 1]100}; and discounting 2.4 percent to one quarter is 0.59 percent {[(1.024)^1/4 -1}100}. Real GDP growth in the four quarters of 2011, the four quarters of 2012 and the first quarter of 2013 accumulated to 4.3 percent {[(1.00025 x 1.0062 x 1.0032 x 1.010 x 1.005 x 1.0032 x 1.0077 x 1.001 x 1.0059) - 1]100 = 4.3%}. This is equivalent to growth from IQ2011 to IQ2013 obtained by dividing the seasonally-adjusted annual rate (SAAR) of IQ2013 of $13,746.2 billion by the SAAR of IVQ2010 of $13,181.2 (http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1 and Table I-6 below) and expressing as percentage {[($13,746.2/$13,181.2) - 1]100 = 4.3%}. The growth rate in annual equivalent for the four quarters of 2011, the four quarters of 2012 and the first quarter of 2013 is 1.9 percent {[(1.00025 x 1.0062 x 1.0032 x 1.010 x 1.005 x 1.0032 x 1.0077 x 1.001 x 1.0059)^4/9 -1]100 = 1.9%], or {[($13,746.2/$13,181.2)]^4/9-1]100 = 1.9%} dividing the SAAR of IVQ2012 by the SAAR of IVQ2010 in Table I-6 below, obtaining the average for nine quarters and the annual average for one year of four quarters. Growth in the four quarters of 2012 accumulates to 1.7 percent {[(1.02)^1/4(1.013)^1/4(1.031)^1/4(1.004)^1/4 -1]100 = 1.7%}. This is equivalent to dividing the SAAR of $13,665.4 billion for IVQ2012 in Table I-6 by the SAAR of $13,441.0 billion in IVQ2011 except for a rounding discrepancy to obtain 1.7 percent {[($13,665.4/$13,441.0) – 1]100 = 1.7%}. The US economy is still close to a standstill especially considering the GDP report in detail.

In fact, it is evident to the public that this policy will be abandoned if inflation costs rise. There is concern of the production and employment costs of controlling future inflation. Even if there is no inflation, QE→∞ cannot be abandoned because of the fear of rising interest rates. The economy would operate in an inferior allocation of resources and suboptimal growth path, or interior point of the production possibilities frontier where the optimum of productive efficiency and wellbeing is attained, because of the distortion of risk/return decisions caused by perpetual financial repression. Not even a second-best allocation is feasible with the shocks to efficiency of financial repression in perpetuity.

The statement of the FOMC at the conclusion of its meeting on Dec 12, 2012, revealed policy intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm) practically unchanged in the statement at the conclusion of its meeting on Jan 30, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130130a.htm) and at its meeting on Jun 19, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130619a.htm):

“Release Date: June 19, 2013

For immediate release

Information received since the Federal Open Market Committee met in May suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The Committee also anticipates that inflation over the medium term likely will 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 decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee 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 and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain 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. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

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 asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was James Bullard, who believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings, and Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.“

There are several important issues in this statement.

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”

Open-ended Quantitative Easing or QE_∞. Earlier programs are continued with an additional open-ended $85 billion of bond purchases per month: “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 decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”

Advance Guidance on “6 ¼ 2 ½ “Rule. 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 asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

Monitoring and Policy Focus on Jobs. The FOMC reconsiders its policy continuously in accordance with available information: “In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”

5. Increase or Reduction of Asset Purchases. Market participants focused on slightly different wording about increasing asset purchases: “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.”

Current focus is on paring of quantitative easing by the Federal Open Market Committee (FOMC). There is sharp distinction between the two measures of unconventional monetary policy: (1) fixing of the overnight rate of fed funds at 0 to ¼ percent; and (2) outright purchase of Treasury and agency securities and mortgage-backed securities for the balance sheet of the Federal Reserve. Market are overreacting to the so-called “paring” of outright purchases of $85 billion of securities per month for the balance sheet of the Fed. What is truly important is the fixing of the overnight fed funds at 0 to ¼ percent for which there is no end in sight as evident in the FOMC statement for Jun 19, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130619a.htm):

“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 asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent” (emphasis added).

The key policy is maintaining fed funds rate between 0 and ¼ percent. An increase in fed funds rates could cause flight out of risk financial markets worldwide. There is no exit from this policy without major financial market repercussions. Indefinite financial repression induces carry trades with high leverage, risks and illiquidity.

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 that is actually a target of growth forecast. 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; see Shultz et al 2012), 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 Mar 20, 2013. The Fed releases the data with careful explanations (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.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 IQ2013 is analyzed in Section I (http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.htm) and the PCE inflation data from the report on personal income and outlays in Section IV (http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html). The Bureau of Economic Analysis (BEA) provides the second estimate of IQ2013 GDP with the third estimate for IQ2013 to be released on Jun 26 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm See Section I (http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.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 Section IV (http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html). The next report on “Personal Income and Outlays” for May will be released at 8:30 AM on Jun 27, 2013 (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 report for May 13 was released on Jun 7 and analyzed in this blog (http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html). “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/fomcprojtabl20121212.pdf).

It is instructive to focus on 2013 as 2014, 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 Mar 20, 2013 and the second row “PR” the projection of the Jun 19, 2013 meeting. There are three major changes in the view.

1. Growth “∆% GDP.” The FOMC has reduced the forecast of GDP growth in 2013 from 2.3 to 2.8 percent at the meeting in Mar 2013 to 2.3 to 2.6 percent at the meeting on Jun 20, 2013. The FOMC increased GDP growth in 2014 from 2.9 to 3.4 percent at the meeting in Mar 2013 to 3.0 to 3.5 percent at the meeting in Jun 2013.

2. Rate of Unemployment “UNEM%.” The FOMC reduced the forecast of the rate of unemployment from 7.3 to 7.5 percent at the meeting on Mar 20, 2013 to 7.2 to 7.3 percent at the meeting on Jun 19, 2013. The projection for 2014 decreased to the range of 6.5 to 6.8 in Jun 2013 from 6.7 to 7.0 in Mar 2013. Projections of the rate of unemployment are moving closer to the desire 6.5 percent or lower with 5.8 to 6.2 percent in 2015 after the meeting on Jun 19, 2013.

3. Inflation “∆% PCE Inflation.” The FOMC changed the forecast of personal consumption expenditures (PCE) inflation from 1.3 to 1.7 percent at the meeting on Mar 20, 2012 to 0.8 to 1.2 percent at the meeting on Jun 19, 2013. There are no projections exceeding 2.0 percent.

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 that changed from 1.5 to 1.6 percent at the meeting on Mar 20, 2013 to 1.2 to 1.3 percent at the meeting on Jun 19, 2013.

Table IV-2, US, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents in FOMC, Mar 2013 and Jun 19, 2013

	∆% GDP	UNEM %	∆% PCE Inflation	∆% Core PCE Inflation
Central Tendency
2013 Mar PR	2.3 to 2.6 2.3 to 2.8	7.2 to 7.3 7.3 to 7.5	0.8 to 1.2 1.3 to 1.7	1.2 to 1.3 1.5 to 1.6
2014 Mar PR	3.0 to 3.5 2.9 to 3.4	6.5 to 6.8 6.7 to 7.0	1.4 to 2.0 1.5 to 2.0	1.5 to 1.8 1.7 to 2.0
2015 Mar PR	2.9 to 3.6 2.9 to 3.7	5.8 to 6.2 6.0 to 6.5	1.6 to 2.0 1.7 to 2.0	1.7 to 2.0 1.8 to 2.1
Longer Run Mar 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
2013 Mar PR	2.0 to 2.6 2.0 to 3.0	6.9 to 7.5 6.9 to 7.6	0.8 to 1.5 1.3 to 2.0	1.1 to 1.5 1.5 to 2.0
2014 Mar PR	2.2 to 3.6 2.6 to 3.8	6.2 to 6.9 6.1 to 7.1	1.4 to 2.0 1.4 to 2.1	1.5 to 2.1 1.5 to 2.1
2015 Mar PR	2.3 to 3.8 2.5 to 3.8	5.7 to 6.4 5.7 to 6.5	1.6 to 2.3 1.6 to 2.6	1.7 to 2.3 1.7 to 2.6
Longer Run Mar PR	2.0 to 3.0 2.0 to 3.0	5.0 to 6.0 5.0 to 6.0	2.0 2.0

Notes: UEM: unemployment; PR: Projection

Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130619.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 decision making 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 See Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 99-116). 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 2013, 2014, 2015 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/fomcprojtabl20130320.pdf). There are 18 participants expecting the rate to remain at 0 to ¼ percent in 2013 and one to be higher in the interval below 1.0 percent. The rate would still remain at 0 to ¼ percent in 2014 for 15 participants with three expecting the rate to be in the range of 0.5 to 1.0 percent and one participant expecting rates at 1.0 to 1.5 percent. This table is consistent with the guidance statement of the FOMC that rates will remain at low levels until late in 2014. For 2015, six participants expect rates to be below or at 1.0 percent while nine expect rates from 1.0 to 1.5 percent and four expecting rates in excess of 2.0 percent. In the long term, all 19 participants expect the fed funds rate in the range of 3.0 to 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, Jun 19, 2013

Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130619.pdf

Additional information is provided in Table IV-4 with the number of participants expecting increasing interest rates in the years from 2013 to 2015. It is evident from Table IV-4 that the prevailing view of 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. The FOMC states that rates will continue to be low even after return of the economy to potential growth.

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 19, 2013

Appropriate Year of Increasing Target Fed Funds Rate	Number of Participants
2013	1
2014	3
2015	14
2016	1

Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130619.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 May 2013. The index of current prices paid or costs of inputs increased from 16.13 in Dec 2012 to 20.97 in Jun 2013 while the index of current prices received or sales prices increased from 1.08 in Dec 2012 to 11.29 in Jun 2013. The index of future prices paid or expectations of costs of inputs in the next six months fell from 51.61 in Dec 2012 to 45.16 in Jun 2013 while the index of future prices received or expectation of sales prices in the next six months fell from 25.81 in Dec 2012 to 17.74 in Jun 2013. Prices of sales of finished products are less dynamic than prices of costs of inputs during waves of increases. Prices of costs of costs of inputs fall less rapidly than prices of sales of finished products during waves of price decreases. As a result, margins of prices of sales less costs of inputs oscillate with typical deterioration against producers, forcing companies to manage tightly costs and labor inputs.

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
Jun 2013	20.97	11.29	45.16	17.74
May	20.45	4.55	29.55	14.77
Apr	28.41	5.68	44.32	14.77
Mar	25.81	2.15	50.54	23.66
Feb	26.26	8.08	44.44	13.13
Jan	22.58	10.75	38.71	21.51
Dec 2012	16.13	1.08	51.61	25.81
Nov	14.61	5.62	39.33	15.73
Oct	17.20	4.30	44.09	24.73
Sep	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 2011	24.42	3.49	56.98	36.05
Nov	18.29	6.10	36.59	25.61
Oct	22.47	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 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.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. The index of prices paid or prices of inputs fell from 23.5 in Dec 2012 to 22.5 in Jun 2013. The index of current prices received was minus 3.3 in May 2013, indicating decrease of prices received. The index of current prices received increased from 12.4 in Dec 2012 to 14.6 in Jun 2013. The index of future prices paid fell to 26.4 in Jun 2013 from 45.8 in Dec 2012, indicating expectation of lower pressure of increases of input prices, while the index of future prices received fell from 25.6 in Dec 2012 to 23.5 in Jun 2013. Expectations are incorporating faster increases in prices of inputs or costs of production than of sales of produced goods, forcing companies to manage tightly costs and labor inputs.

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
10-Dec	44.3	6.6	59.6	25.3
11-Jan	48.9	11.9	58.3	34.4
11-Feb	58.9	13.1	62.1	33.3
11-Mar	57.5	16.8	60.2	31.8
11-Apr	49.4	19.8	54.2	32.4
11-May	47.7	18.5	52.7	27.6
11-Jun	38.9	8.1	38.3	6.8
11-Jul	35.6	6.0	49.6	16.7
11-Aug	23.3	-4.7	44.3	22.7
11-Sep	31.6	7.6	41.8	21.8
11-Oct	25.4	4.1	44.5	28.4
11-Nov	26.3	7.6	39.0	29.1
11-Dec	27.5	8.2	46.7	23.5
12-Jan	27.1	7.9	47.2	21.9
12-Feb	30.2	9.7	43.5	28.6
12-Mar	14.3	5.4	35.9	22
12-Apr	16.0	5.3	33.3	18.6
12-May	5.4	-2.2	37.2	8.3
12-Jun	5.4	-3.4	29.6	16.6
12-Jul	10.3	4.2	29.3	19.6
12-Aug	15.7	4.7	38.0	23.9
12-Sep	15.4	4.0	42.8	27.4
12-Oct	20.6	8.4	48.1	16.1
12-Nov	27.9	7.5	50.7	14.0
12-Dec	23.5	12.4	45.8	25.6
13-Jan	14.7	-1.1	34.3	21.7
13-Feb	8.9	-0.5	26.4	25.4
13-Mar	8.5	-0.8	30.9	16.6
13-Apr	3.1	-7.5	26.6	8.3
13-May	6.9	-3.3	30.7	18.2
13-Jun	22.5	14.6	26.4	23.5

Source: Federal Reserve Bank of Philadelphia

http://www.philadelphiafed.org/index.cfm

Chart IV-1 of the Business Outlook Survey of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices paid or prices of inputs from 2006 to 2013. Recession dates are in shaded areas. In the middle of deep global contraction after IVQ2007, input prices continued to increase in speculative carry trades from central bank policy rates falling toward zero into commodities futures. The index peaked above 70 in the second half of 2008. Inflation of inputs moderated significantly during the shock of risk aversion in late 2008, even falling briefly into contraction territory below zero during several months in 2009 in the flight away from risk financial assets into US government securities (Cochrane and Zingales 2009) that unwound carry trades. Return of risk appetite induced carry trade with significant increase until return of risk aversion in the first round of the European sovereign debt crisis in Apr 2010. Carry trades returned during risk appetite in expectation that the European sovereign debt crisis was resolved. The various inflation waves originating in carry trades induced by zero interest rates with alternating episodes of risk aversion are mirrored in the prices of inputs after 2011, in particular after Aug 2012 with the announcement of the Outright Monetary Transactions Program of the European Central Bank (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html). Subsequent risk aversion and flows of capital away from commodities into stocks and high-yield bonds caused sharp decline in the index of prices paid.

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.philadelphiafed.org/index.cfm

Chart IV-2 of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices received from 2006 to 2013. The significant difference between the index of current prices paid in Chart IV-1 and the index of current prices received in Chart IV-2 is that increases in prices paid are significantly sharper than increases in prices received. There were several periods of negative readings of prices received from 2010 to 2013 but none of prices paid. Prices paid relative to prices received deteriorate most of the time largely because of the carry trades from zero interest rates to commodity futures. Profit margins of business are compressed intermittently by fluctuations of commodity prices induced by unconventional monetary policy of zero interest rates, frustrating production, investment and hiring decisions of business, which is precisely the opposite outcome desired by unconventional monetary policy.

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.philadelphiafed.org/index.cfm

The producer price index of Germany increased 0.1 percent in May 2013, calendar and seasonally adjusted (CSA), decreased 0.3 not seasonally adjusted (NSA) in May 2013 and increased 0.2 percent in the 12 months ending in May 2013, as shown in Table IV-7. The producer price index of Germany has similar waves of inflation as in many other countries (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.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 4.3 percent CSA. In the third wave from Jul to Sep 2011, annual-equivalent producer price inflation in Germany was 2.8 percent NSA and 2.8 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 3.0 percent CSA. 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 return of risk aversion. 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 2.4 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 4.9 percent in Aug-Sep 2012 NSA and 4.9 percent SA. In the ninth wave, renewed risk aversion resulted in annual equivalent inflation NSA of minus 1.6 percent in Oct-Dec 2012 and 0.8 percent CSA. In the tenth wave, annual equivalent inflation was 10.0 percent NSA and 1.2 percent CSA in Jan 2013. In the eleventh wave, annual equivalent inflation NSA was minus 2.4 percent in Feb-Apr 2013 and minus 2.1 percent CSA. Data in the bottom of Table IV-10 show that the producer price index fell 5.2 percent in the 12 months ending in Dec 2009 because of the fall of commodity prices originating in risk aversion after the panic beginning in late 2008.

Table IV-7, Germany, Index of Producer Prices for Industrial Products ∆%

	12 Months ∆% NSA	Month ∆% NSA	Month ∆% Calendar and SA
May 2013	0.2	-0.3	0.1
Apr	0.1	-0.2	-0.2
Mar	0.4	-0.2	-0.3
Feb	1.2	-0.1	-0.2
AE ∆% Feb-May		-2.4	-2.1
Jan	1.7	0.8	0.1
AE ∆% Jan		10.0	1.2
Dec 2012	1.5	-0.3	0.1
Nov	1.4	-0.1	0.0
Oct	1.5	0.0	0.1
AE ∆% Oct-Dec		-1.6	0.8
Sep	1.7	0.3	0.2
Aug	1.6	0.5	0.6
AE ∆% Aug-Sep		4.9	4.9
Jul	0.9	0.0	-0.1
Jun	1.6	-0.4	-0.1
May	2.1	-0.3	0.1
AE ∆% May-Jul		-2.8	-0.4
Apr	2.4	0.2	0.0
Mar	3.3	0.6	0.4
Feb	3.2	0.4	0.2
AE ∆% Feb-Apr		4.9	2.4
Jan	3.4	0.6	0.0
Dec 2011	4.0	-0.4	-0.1
AE ∆% Dec-Jan		1.2	-0.6
Nov	5.2	0.1	0.3
Oct	5.3	0.2	0.2
AE ∆% Oct-Nov		1.8	3.0
Sep	5.5	0.3	0.2
Aug	5.5	-0.3	0.0
Jul	5.8	0.7	0.5
AE ∆% Jul-Sep		2.8	2.8
Jun	5.6	0.1	0.3
May	6.1	0.0	0.4
AE ∆% May-Jun		0.6	4.3
Apr	6.4	1.0	0.6
Mar	6.2	0.4	0.3
Feb	6.4	0.7	0.6
Jan	5.7	1.2	0.6
AE ∆% Jan-Apr		10.4	6.5
Dec 2010	5.3	0.7	0.8
Nov	4.4	0.2	0.4
Oct	4.3	0.4	0.4
Sep	3.9	0.3	0.5
Aug	3.2	0.0	0.2
Jul	3.7	0.5	0.6
Jun	1.7	0.6	0.5
May	0.9	0.3	0.3
Apr	0.6	0.8	0.5
Mar	-1.5	0.7	0.6
Feb	-2.9	0.0	0.1
Jan	-3.4	0.8	0.4
Dec 2009	-5.2	-0.1	0.2
Dec 2008	4.0	-0.8	-0.2
Dec 2007	1.9	-0.1	0.4
Dec 2006	4.2	0.1	0.3
Dec 2005	4.8	0.3	0.5
Dec 2004	2.9	0.1	0.3
Dec 2003	1.8	0.0
Dec 2002	0.5	0.1
Dec 2001	0.1	-0.2

Source: Statistiche 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 2005 to 2013. Producer price inflation peaked in 2008 with the rise of commodity prices induced by the carry trade from zero interest rates to commodity futures during a global contraction. 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 futures 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. There is 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. Inflation declines by 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 and Sep 2012 with carry trades into commodity futures with 4.9 percent annual equivalent. Inflation then collapsed to zero in Oct 2012 NSA, minus 0.1 percent in Nov 2012 and minus 0.3 percent in Dec 2012 with increases of 0.8 percent in Jan 2013 but declines of 0.1 in Feb 2013 and 0.2 percent in Mar-Apr 2013. Inflation declines to 0.3 percent in May 2013.

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 provides the index of producer finished goods in the US from 2005 to 2013. 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, 2005-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/ppi/

Chart IV-5 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. There was another increase in Aug-Sep 2012 and flat prices in Oct 2012 with declines of 0.1 percent in Nov 2012 and 0.3 percent in Dec 2012. There was sharp increase of 0.8 percent in Jan 2013 and declines of 0.1 percent in Feb 2013 and 0.2 percent in Mar-Apr 2013. Prices fell 0.3 percent in May 2013.

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

Inflation in the UK is somewhat higher than in many advanced economies, deserving more detailed analysis. Table IV-8 provides 12-month percentage changes of UK output prices for all manufactured products, excluding food, beverage and petroleum and excluding duty. The 12-month rates rose significantly in 2011 in all three categories, reaching 6.3 percent for all manufactured products in Sep 2011 but declining to 5.7 percent in Oct, 5.4 in Nov and down to 1.8 percent in Jul 2012. Inflation of all manufactured products increased marginally to 2.3 percent in Aug 2012, 2.5 percent in Sep, 2.6 in Oct, 2.1 percent in Nov-Jan 2012, 2.3 percent in Feb 2013, 1.9 percent in Mar 2013 and 0.9 percent in Apr 2013. Output prices increased 1.2 percent in the 12 months ending in May 2013. Output price inflation is highly sensitive to commodity prices as shown by the increase by 6.7 percent in 2008 when oil prices rose over $140/barrel even in the midst of a global recession driven by the carry trade from zero interest rates to oil futures. The mirage episode of false deflation in 2001 and 2002 is also captured by output prices for the UK, which was originated in decline of commodity prices (see Barsky and Killian 2004) but was used as an argument for unconventional monetary policy of zero interest rates and quantitative easing during the past decade.

Table IV-8, UK Output Prices 12 Months ∆% NSA

	All Manufactured Products	Excluding Food, Beverage, Tobacco and Petroleum	All Excluding Duty
May 2013	1.2	0.8	1.4
Apr	0.9	0.7	1.0
Mar	1.9	1.3	1.7
Feb	2.3	1.3	2.1
Jan	2.1	1.4	1.9
Dec 2012	2.1	1.5	1.8
Nov	2.1	1.4	1.8
Oct	2.6	1.4	2.3
Sep	2.5	1.2	2.2
Aug	2.3	1.2	1.9
Jul	1.8	1.2	1.5
Jun	2.0	1.7	1.7
May	2.8	2.1	2.5
Apr	3.3	2.3	3.1
Mar	3.7	2.5	3.5
Feb	4.1	3.0	4.1
Jan	4.0	2.4	4.0
Dec 2011	4.8	3.0	4.8
Nov	5.4	3.1	5.6
Oct	5.7	3.3	5.9
Sep	6.3	3.7	6.4
Aug	6.0	3.5	6.2
Jul	6.1	3.4	6.2
Jun	5.8	3.2	5.9
May	5.4	3.4	5.5
Apr	5.6	3.6	5.8
Mar	5.6	3.1	5.5
Feb	5.3	3.1	5.2
Jan	5.0	3.3	5.0
Dec 2010	4.2	2.7	4.0
Year ∆%
2012	2.8	1.8	2.5
2011	5.6	3.4	5.7
2010	4.2	3.0	3.9
2009	1.6	2.5	1.0
2008	6.7	3.7	6.7
2007	2.4	1.4	2.1
2006	2.0	1.5	2.0
2005	1.9	1.0	1.9
2004	1.0	-0.3	0.6
2003	0.6	0.1	0.5
2002	-0.1	-0.4	-0.1
2001	-0.3	-0.6	-0.3
2000	1.4	-0.5	0.8
1999	0.6	-1.0	-0.3
1998	0.0	-0.9	-0.9
1997	0.9	0.3	0.1

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/may-2013/index.html

Monthly and annual equivalent rates of change of output prices are shown in Table IV-9. There are waves of inflation similar to those in other countries (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html). In the first wave, annual equivalent inflation was 12.0 percent in Jan-Apr 2011 with relaxed risk aversion in commodity markets. In the second wave, intermittent risk aversion resulted in annual equivalent inflation of 2.0 percent in May-Oct 2011. In the third wave, alternation of risk aversion resulted in annual equivalent inflation of 1.6 percent in Nov 2011 to Jan 2012. In the fourth wave, the energy commodity shock processed through carry trades caused the jump of annual equivalent inflation to 7.9 percent in Feb-Apr 2012. A fifth wave occurred in May-Jun 2012 with decline of output inflation by 5.3 percent annual equivalent in an environment of risk aversion that caused decline of commodity prices. A sixth wave under commodity shocks induced by carry trades from zero interest rates resulted in annual equivalent inflation of 4.5 percent in Jul-Sep 2012 and 4.0 percent in Jul-Oct 2012. In the seventh wave, annual equivalent inflation in Nov-Dec 2012 fell to minus 3.0 percent. In the eighth wave, annual equivalent inflation returned at 5.3 percent in Jan-Mar 2013. In the ninth wave, risk aversion returned with annual equivalent inflation of minus 1.2 percent in Apr 2013.

Table IV-9, UK Output Prices Month ∆% NSA

	All Manufactured Products	Excluding Food, Beverage and Petroleum	All Excluding Duty
May 2013	0.0	0.1	0.0
Apr	-0.2	0.0	-0.2
∆% AE Apr-May	-1.2	0.6	-1.2
Mar	0.2	0.1	0.2
Feb	0.7	0.3	0.8
Jan	0.4	0.3	0.4
∆% AE Jan-Mar	5.3	2.8	5.7
Dec 2012	-0.2	0.0	-0.2
Nov	-0.3	-0.1	-0.2
∆% AE Nov-Dec	-3.0	-0.6	-2.4
Oct	0.2	0.1	0.2
Sep	0.5	0.3	0.5
Aug	0.5	0.1	0.6
Jul	0.1	-0.1	0.1
∆% AE Jul-Oct	4.0	1.2	4.3
Jun	-0.6	-0.2	-0.6
May	-0.3	-0.1	-0.4
∆% AE May-Jun	-5.3	-1.8	-5.8
Apr	0.7	0.6	0.5
Mar	0.6	0.1	0.5
Feb	0.6	0.5	0.6
∆% AE Feb-Apr	7.9	4.9	6.6
Jan	0.4	0.3	0.3
Dec 2011	-0.2	-0.1	-0.2
Nov	0.2	-0.1	0.2
∆% AE Nov-Jan	1.6	0.4	1.2
Oct	0.0	-0.1	0.1
Sep	0.3	0.3	0.2
Aug	0.0	0.1	0.1
Jul	0.3	0.4	0.3
Jun	0.2	0.2	0.2
May	0.2	0.2	0.2
∆% AE May-Oct	2.0	2.2	2.2
Apr	1.1	0.8	0.9
Mar	1.1	0.5	1.1
Feb	0.5	0.0	0.5
Jan	1.1	0.8	1.1
Jan-Apr ∆% AE	12.0	6.5	11.4
Dec 2010	0.5	0.0	0.6

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/may-2013/index.html

Input prices in the UK have been more dynamic than output prices until the current event of risk aversion, as shown by Table IV-10, but with sharp oscillations because of the commodity and raw material content. The 12-month rates of increase of input prices, even excluding food, tobacco, beverages and petroleum, are very high, reaching 18.1 percent in Sep 2011 for materials and fuels purchased and 13.3 percent excluding food, beverages and petroleum. Inflation in 12 months of materials and fuels purchased moderated to 5.4 percent in Mar 2012 and 4.1 percent excluding food, tobacco, beverages and petroleum with the rates falling further in Apr to 1.1 percent for materials and fuels purchased and 2.2 percent excluding food, tobacco, beverages and petroleum. Input-price inflation collapsed in the 12 months ending in Jul 2012 to minus 2.6 percent for materials and fuels purchased and minus 1.5 percent excluding food, beverages and tobacco. Inflation returned at 1.2 percent in the 12 months ending in Aug 2012 but minus 0.5 percent excluding food, tobacco, beverages and petroleum. Inflation of input prices in Sep 2012 was minus 0.8 percent and minus 0.8 percent excluding food, beverages and petroleum. In Nov 2012, inflation of input prices of all manufacturing and materials purchased was minus 0.1 percent in 12 months and minus 0.2 percent in 12 months excluding food, tobacco, beverages and petroleum. Inflation of materials and fuels purchased in 12 months was 0.6 percent in Dec 2012 and 0.1 percent excluding tobacco, beverages and petroleum. Inflation of inputs returned with 1.9 percent in the 12 months ending in Jan 2013 and 0.7 percent excluding various items, increasing to 2.2 percent in Feb 2013 and 1.8 percent excluding various items. In Mar 2013, inflation of all manufacturing materials and fuels increased 0.8 percent in 12 months and 1.9 percent excluding various items. Prices of all manufacturing materials and fuels fell 0.1 percent in the 12 months ending in Apr 2013 and increased 1.3 percent excluding food and other items. Prices of all manufacturing increased 2.2 percent in the 12 months ending in May 2013 and 1.9 percent excluding various items. There is comparable experience with 22.2 percent inflation of materials and fuels purchased in 2008 and 16.9 percent excluding food, beverages and petroleum followed in 2009 by decline of 3.8 percent by materials and fuels purchased and increase of 1.6 percent for the index excluding items. UK input and output inflation is sensitive to commodity price increases driven by carry trades from zero interest rates. The mirage of false deflation is also observed in input prices in 1997-9 and then again from 2001 to 2003.

Table IV-10, UK, Input Prices 12-Month ∆% NSA

	All Manufacturing Materials and Fuels Purchased	Excluding Food, Tobacco, Beverages and Petroleum
May 2013	2.2	1.9
Apr	-0.1	1.3
Mar	0.8	1.9
Feb	2.2	1.8
Jan	1.9	0.7
Dec 2012	0.6	0.1
Nov	-0.1	-0.2
Oct	0.2	-0.4
Sep	-0.8	-0.8
Aug	1.2	-0.5
Jul	-2.6	-1.5
Jun	-2.2	-0.3
May	0.1	1.1
Apr	1.1	2.2
Mar	5.4	4.1
Feb	7.7	5.7
Jan	6.5	5.6
Dec 2011	8.9	7.2
Nov	13.8	10.2
Oct	14.5	11.0
Sep	18.1	13.3
Aug	16.3	13.0
Jul	18.5	13.3
Jun	16.8	12.6
May	16.3	11.4
Apr	17.9	12.2
Mar	14.8	10.3
Feb	14.9	10.7
Jan	14.2	10.5
Dec 2010	13.1	9.0
Year ∆%
2012	1.4	1.1
2011	15.4	11.5
2010	9.9	5.7
2009	-3.8	1.6
2008	22.2	16.9
2007	2.9	2.3
2006	9.8	7.3
2005	11.0	6.9
2004	3.3	1.6
2003	1.2	-0.6
2002	-4.4	-4.8
2001	-1.2	-1.2
2000	7.4	3.7
1999	-1.3	-3.6
1998	-9.1	-4.6
1997	-8.2	-6.3

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/may-2013/index.html

Table IV-11 provides monthly percentage changes of UK input prices for materials and fuels purchased and excluding food, tobacco, beverages and petroleum. There are strong waves of inflation of input prices in the UK similar to those worldwide (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html). In the first wave, input prices rose at the high annual equivalent rate of 35.6 percent in Jan-Apr 2011, driven by carry trades from unconventional monetary policy into commodity exposures. In the second wave, alternating risk aversion caused annual equivalent inflation of minus 3.1 percent in May-Oct 2011. In the third wave, renewed risk aversion resulted in annual equivalent inflation of minus 1.2 percent in Nov-Dec 2011. In the fourth wave, annual equivalent inflation of input prices in the UK surged at 18.1 percent in Jan-Mar 2012 under relaxed risk aversion. In the fifth wave, annual equivalent inflation was minus 21.9 percent in Apr-Jun 2012 because of collapse of commodity prices during increasing risk aversion. In the sixth wave, annual equivalent inflation of materials and fuels purchased jumped to 14.0 percent in Jul-Aug 2012. In the seventh wave, annual equivalent inflation moderated to 1.5 percent in Sep-Dec 2012. In the eighth wave, annual equivalent inflation in Jan-Feb 2013 jumped to 28.3 percent. In the eighth wave, annual equivalent inflation of materials and fuels purchased was minus 9.3 percent in Mar-May 2013.

Table IV-11, UK Input Prices Month ∆%

	All Manufacturing Materials and Fuels Purchased NSA	Excluding Food, Tobacco, Beverages and Petroleum SA
May 2013	-0.3	-0.1
Apr	-2.3	-0.4
Mar	0.2	-0.4
∆% Mar-May	-9.3	-3.5
Feb	2.8	1.7
Jan	1.4	0.4
∆% Jan-Feb	28.3	13.3
Dec 2012	0.1	-0.2
Nov	0.1	0.2
Oct	0.2	0.3
Sep	0.1	0.2
∆% Sep-Dec	1.5	1.5
Aug	2.0	1.0
Jul	0.2	-0.3
∆% Jul-Aug	14.0	4.3
Jun	-2.1	-0.3
May	-2.6	-0.8
Apr	-1.4	0.1
∆% Apr-Jun	-21.9	-3.9
Mar	1.6	-0.5
Feb	2.5	0.7
Jan	0.1	-0.1
∆% AE Jan-Mar	18.1	0.4
Dec 2011	-0.6	-0.7
Nov	0.4	0.1
∆% AE Nov-Dec	-1.2	-3.6
Oct	-0.8	-0.5
Sep	2.1	0.6
Aug	-1.9	0.1
Jul	0.6	0.9
Jun	0.1	1.0
May	-1.6	-0.1
∆% AE May-Oct	-3.1	4.1
Apr	2.8	2.0
Mar	3.8	1.0
Feb	1.4	1.0
Jan	2.3	1.5
∆% AE Jan-Apr	35.6	17.8
Dec 2010	3.9	1.9

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/may-2013/index.html

The UK Office for National Statistics also provides contributions in percentage points to the monthly and 12-month rates of inflation of manufactured products, shown in Table IV-12. There are high contributions to 12-month percentage changes of 0.68 percentage points by food products, 0.35 percentage points by tobacco and alcohol, 0.12 percentage points by computer, electrical and optical and 0.17 percentage points by other manufactured products. There are diversified sources of contributions to 12 months output price inflation such as 0.23 percentage points by clothing, textile and leather and 0.11 percentage points by transport equipment. Petroleum deducted 0.31 percentage points. In general, contributions by products rich in commodities are the drivers of price changes. There were diversified contributions in percentage points to monthly inflation: 0.08 percentage points by food products, 0.13 percentage points by clothing, textile and leather and 0.01 percentage points by tobacco and alcohol. Decrease of petroleum prices by 1.6 percent deducted 0.18 percentage points from monthly inflation of manufactured products.

Table IV-12, UK, Contributions to Month and 12-Month Change in Prices of All Manufactured Products, Percentage Points, NSA

May 2013	12 Months % Points	12 Months ∆%	Month % Points	Month ∆%
Total %		1.2		0.0
Food Products	0.68	4.6	0.08	0.5
Tobacco & Alcohol	0.35	3.4	0.01	0.1
Clothing, Textile & Leather	0.23	2.2	0.13	1.2
Paper and Printing	-0.03	-1.0	0.00	0.0
Petroleum	-0.31	-2.9	-0.18	-1.6
Chemical & Pharmaceutical	-0.10	-1.3	-0.07	-0.8
Metal, Machinery & Equipment	0.01	0.2	0.00	-0.1
Computer, Electrical & Optical	0.12	1.5	0.00	-0.1
Transport Equipment	0.11	1.2	0.00	0.1
Other Manufactured Products	0.17	1.1	-0.01	0.0

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/may-2013/index.html

The UK Office for National Statistics also provides contributions in percentage points to the monthly and 12-month rates of inflation of input prices, shown in Table IV-13. Crude oil is a large factor with deduction of 1.09 percentage points to the 12-month rate and deduction of 0.12 percentage points to the monthly rate in May. Price changes also transfer to the domestic economy through the prices of imported inputs: imported metals deducted 0.30 percentage points from the 12-month rate and 0.09 percentage points to the May rate. Domestic food added 1.95 percentage points to the 12-month rate and 0.11 percentage points to the May rate. Exposures and reversals of commodity exposures in carry trades during risk aversion are a major source of financial instability.

Table IV-13, UK, Contributions to Month and 12-Month Change in Prices of Inputs, Percentage Points NSA

May 2013	12 Months % Points	12 Months ∆%	Month % Points	Month ∆%
Total		2.2		-0.3
Fuel	0.76	7.9	-0.17	-2.0
Crude Oil	-1.09	-4.0	-0.12	-0.6
Domestic Food Materials	1.95	19.2	0.11	1.1
Imported Food Materials	0.22	4.1	0.03	0.7
Other Domestic Produced Materials	0.00	0.0	-0.02	-0.6
Imported Metals	-0.30	-3.8	-0.09	-1.4
Imported Chemicals	-0.04	-0.4	-0.03	-0.4
Imported Parts and Equipment	0.45	2.9	-0.01	-0.1
Other Imported Materials	0.25	2.6	0.0	0.1

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/may-2013/index.html

Consumer price inflation in the UK is shown in Table IV-14. The CPI index increased 0.2 percent in Apr 2013 and 2.7 percent in 12 months. The same inflation waves (Section I and http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.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 2011, 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 eighth wave, annual equivalent inflation in Jul-Dec 2012 was 4.5 percent and 6.2 percent in Oct 2012 with the rate in Oct caused mostly by increases in university tuition payments. In the ninth wave, annual equivalent inflation was minus 5.8 percent in Jan 2013. In the tenth wave, annual equivalent inflation jumped to 4.9 percent in Feb-May 2013.

Table IV-14, UK, Consumer Price Index All Items, Month and 12-Month ∆%

	Month ∆%	12 Months ∆%
May 2013	0.2	2.7
Apr	0.2	2.4
Mar	0.3	2.8
Feb	0.7	2.8
AE ∆% Feb-May	4.3
Jan 2013	-0.5	2.7
AE ∆% Jan	-5.8
Dec 2012	0.5	2.7
Nov	0.2	2.7
Oct	0.5	2.7
Sep	0.4	2.2
Aug	0.5	2.5
Jul	0.1	2.6
AE ∆% Jul-Dec	4.5
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/may-2013/index.html

Inflation has been unusually high in the UK since 2006, as shown in Table IV-15. 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, 4.5 percent in 2011 and 2.8 percent in 2012.

Table IV-15, 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
2012	2.8

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/may-2013/index.html

Table IV-16 provides the analysis of inflation in May 2013 by the UK Office for National Statistics. In the rate of 0.2 percent for May, clothing and footwear added 0.07 percentage points, furniture and household goods added 0.05 percentage points and transport added 0.05 percentage points. Contributions of percentage points to the 12-month rate of consumer price inflation of 2.7 percent are in the third columns in Table IV-14. Food and nonalcoholic beverages deducted 0.03 percentage points, alcohol and tobacco added 0.02 percentage points and transport added 0.19 percentage points.

Table IV-16, UK, Consumer Price Index Month and Twelve-month Percentage Point Contributions to Change by Components

May 2013	Percentage Point Contribution May	Percentage Point Contribution 12 Months May
CPI All Items ∆%	0.2	2.7
Food & Non-Alcoholic Beverages	0.00	-0.03
Alcohol & Tobacco	0.02	0.02
Clothing & Footwear	0.07	0.09
Housing & Household Services	-0.01	-0.01
Furniture & Household Goods	0.05	0.03
Health	0.00	0.00
Transport	0.05	0.19
Communication	0.01	-0.01
Recreation & Culture	-0.03	0.02
Education	0.00	0.00
Restaurants & Hotels	0.03	-0.01
Miscellaneous Goods & Services	-0.01	-0.01

Note: there are rounding effects in contributions

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/may-2013/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/2013/01/weodata/index.aspx) to show GDP in dollars in 2012 and the growth rate of real GDP of the world and selected regional countries from 2013 to 2016. 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 3.3 percent in 2013 but accelerating to 4.0 percent in 2014, 4.4 percent in 2015 and 4.5 percent in 2016. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $33,932 billion of world output of $71,707 billion, or 47.3 percent, but are projected to grow at much lower rates than world output, 2.1 percent on average from 2013 to 2016 in contrast with 4.1 percent for the world as a whole. While the world would grow 17.2 percent in the four years from 2013 to 2016, the G7 as a whole would grow 8.8 percent. The difference in dollars of 2012 is rather high: growing by 17.2 percent would add $12.3 trillion of output to the world economy, or roughly, two times the output of the economy of Japan of $5,964 but growing by 8.8 percent would add $6.3 trillion of output to the world, or about the output of Japan in 2012. 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 2012 of $27,290 billion, or 38.1 percent of world output. The EMDEs would grow cumulatively 25.2 percent or at the average yearly rate of 5.8 percent, contributing $6.9 trillion from 2013 to 2016 or the equivalent of somewhat less than the GDP of $8,227 billion of China in 2012. The final four countries in Table 1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output in 2012 adds to $14,470 billion, or 20.2 percent of world output, which is equivalent to 42.6 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 2012	Real GDP ∆% 2013	Real GDP ∆% 2014	Real GDP ∆% 2015	Real GDP ∆% 2016
World	71,707	3.3	4.0	4.4	4.5
G7	33,932	1.3	2.2	2.5	2.5
Canada	1,819	1.5	2.4	2.5	2.4
France	2,609	-0.1	0.9	1.5	1.7
DE	3,401	0.6	1.5	1.3	1.3
Italy	2,014	-1.5	0.5	1.2	1.4
Japan	5,964	1.6	1.4	1.1	1.2
UK	2,441	0.7	1.5	1.8	1.9
US	15,685	1.9	2.9	3.6	3.4
Euro Area	12,198	-0.3	1.1	1.4	1.6
DE	3,401	0.6	1.5	1.3	1.3
France	2,609	-0.1	0.9	1.5	1.7
Italy	2,014	-1.5	0.5	1.2	1.4
POT	213	-2.3	0.6	1.5	1.8
Ireland	210	1.1	2.2	2.7	2.7
Greece	249	-4.2	0.6	2.9	3.7
Spain	1,352	-1.6	0.7	1.4	1.5
EMDE	27,290	5.3	5.7	6.0	6.1
Brazil	2,396	3.0	4.0	4.1	4.2
Russia	2,022	3.4	3.8	3.7	3.6
India	1,825	5.7	6.2	6.6	6.9
China	8,227	8.0	8.2	8.5	8.5

Notes; DE: Germany; EMDE: Emerging and Developing Economies (150 countries); POT: Portugal

Source: IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx

Continuing high rates of unemployment in advanced economies constitute another characteristic of the database of the WEO (http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx). Table I-2 is constructed with the WEO database to provide rates of unemployment from 2012 to 2016 for major countries and regions. In fact, unemployment rates for 2012 in Table I-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: 15.7 percent for Portugal (POT), 14.7 percent for Ireland, 24.2 percent for Greece, 25.0 percent for Spain and 10.6 percent for Italy, which is lower but still high. The G7 rate of unemployment is 7.4 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 2012	% Labor Force 2013	% Labor Force 2014	% Labor Force 2015	% Labor Force 2016
World	NA	NA	NA	NA	NA
G7	7.4	7.4	7.3	7.0	6.6
Canada	7.3	7.3	7.2	7.1	7.0
France	10.2	11.2	11.6	11.4	10.9
DE	5.5	5.6	5.7	5.6	5.6
Italy	10.6	12.0	12.4	12.0	11.2
Japan	4.4	4.1	4.1	4.1	4.1
UK	8.0	7.8	7.8	7.4	6.9
US	8.1	7.7	7.5	6.9	6.3
Euro Area	11.4	12.3	12.3	11.9	11.4
DE	5.5	5.6	5.7	5.6	5.6
France	10.2	11.2	11.6	11.4	10.9
Italy	10.6	12.0	12.4	12.0	11.2
POT	15.7	18.3	18.5	18.1	17.5
Ireland	14.7	14.2	13.8	12.9	11.9
Greece	24.2	27.0	26.1	24.0	21.0
Spain	25.0	27.0	26.5	25.6	24.7
EMDE	NA	NA	NA	NA	NA
Brazil	5.5	6.0	6.5	6.5	6.5
Russia	6.0	5.5	5.5	5.5	5.5
India	NA	NA	NA	NA	NA
China	4.1	4.1	4.1	4.1	4.1

Notes; DE: Germany; EMDE: Emerging and Developing Economies (150 countries)

Source: IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx

Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog from IQ2012 to IQ2013 available now for all countries. Growth is weak throughout most of the world. Japan’s GDP increased 1.2 percent in IQ2012 and 3.4 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 fell 0.2 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of minus 0.6 percent, which is much lower than 4.8 percent in IQ2012. Growth of 3.9 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. Japan’s GDP contracted 0.9 percent in IIIQ2012 at the SAAR of minus 3.6 percent and increased 0.2 percent relative to a year earlier. Japan’s GDP grew 0.3 percent in IVQ2012 at the SAAR of 1.2 percent and increased 0.4 percent relative to a year earlier. Japan grew 1.0 percent in IQ2013 at the SAAR of 4.1 percent and 0.4 percent relative to a year earlier. China grew at 1.9 percent in IIQ2012, which annualizes to 7.8 percent and 7.6 percent relative to a year earlier. China grew at 2.1 percent in IIIQ2012, which annualizes at 8.7 percent and 7.4 percent relative to a year earlier. In IVQ2012, China grew at 2.0 percent, which annualizes at 8.2 percent, and 7.9 percent in IVQ2012 relative to IVQ2011. In IQ2013, China grew at 1.6 percent, which annualizes at 6.6 percent and 7.7 percent relative to a year earlier. 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). There is decennial change in leadership in China (http://www.xinhuanet.com/english/special/18cpcnc/index.htm). China’s GDP grew 7.9 percent in IVQ2012 relative to IVQ2011. 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, 7.4 percent in IIIQ2012 relative to IIIQ2011, 7.9 percent in IVQ2012 relative to year earlier and 7.7 percent in IQ2013. GDP fell 0.1 percent in the euro area in IQ2012 and decreased 0.1 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. In IIIQ2012, euro area GDP fell 0.1 percent and declined 0.7 percent relative to a year earlier. In IVQ2012, euro area GDP fell 0.6 percent relative to the prior quarter and fell 1.0 percent relative to a year earlier. In IQ2013, the GDP of the euro area fell 0.2 percent and decreased 1.1 percent relative to a year earlier. Germany’s GDP increased 0.6 percent in IQ2012 and 1.8 percent relative to a year earlier. In IIQ2012, Germany’s GDP increased 0.2 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. In IIIQ2012, Germany’s GDP increased 0.2 percent and 0.4 percent relative to a year earlier. Germany’s GDP contracted 0.7 percent in IVQ2012 and increased 0.0 percent relative to a year earlier. In IQ2013, Germany’s GDP increased 0.1 percent and fell 1.4 percent relative to a year earlier. 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 0.5 percent in IQ2012 at the SAAR of 2.0 percent and grew 2.4 percent relative to a year earlier. US GDP increased 0.3 percent in IIQ2012, 1.3 percent at SAAR and 2.1 percent relative to a year earlier. In IIIQ2012, GDP grew 0.8 percent, 3.1 percent at SAAR and 2.6 percent relative to IIIQ2011. In IVQ2012, GDP grew 0.0 percent, 0.4 percent at SAAR and 1.7 percent relative to IVQ2011. In IQ2013, US GDP grew at 2.4 percent SAAR, 0.6 percent relative to the prior quarter and 1.8 percent relative to the same quarter in 2013 (http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html) with weak hiring (http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html). In IQ2012, UK GDP fell 0.1 percent, increasing 0.5 percent relative to a year earlier. UK GDP fell 0.4 percent in IIQ2012 and changed 0.0 percent relative to a year earlier. UK GDP increased 0.9 percent in IIIQ2012 and increased 0.4 percent relative to a year earlier. UK GDP fell 0.3 percent in IVQ2012 relative to IIIQ2012 and increased 0.2 percent relative to a year earlier. UK GDP increased 0.3 percent in IQ2013 and 0.6 percent relative to a year earlier. Italy has experienced decline of GDP in seven consecutive quarters from IIIQ2011 to IQ2013. Italy’s GDP fell 1.0 percent in IQ2012 and declined 1.7 percent relative to IQ2011. Italy’s GDP fell 0.6 percent in IIQ2012 and declined 2.5 percent relative to a year earlier. In IIIQ2012, Italy’s GDP fell 0.3 percent and declined 2.6 percent relative to a year earlier. The GDP of Italy contracted 0.9 percent in IVQ2012 and fell 2.8 percent relative to a year earlier. In IQ2013, Italy’s GDP contracted 0.6 percent and fell 2.3 percent relative to a year earlier. France’s GDP changed 0.0 percent in IQ2012 and increased 0.3 percent relative to a year earlier. France’s GDP decreased 0.2 percent in IIQ2012 and increased 0.1 percent relative to a year earlier. In IIIQ2012, France’s GDP increased 0.1 percent and increased 0.0 percent relative to a year earlier. France’s GDP fell 0.2 percent in IVQ2012 and declined 0.3 percent relative to a year earlier. In IQ2013, France GDP fell 0.2 percent and declined 0.4 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: 1.2 SAAR: 4.8	3.4
China	1.6	8.1
Euro Area	-0.1	-0.1
Germany	0.6	1.8
France	0.0	0.3
Italy	-1.0	-1.7
United Kingdom	-0.1	0.5
	IIQ2012/IQ2012	IIQ2012/IIQ2011
United States	QOQ:0.3 SAAR: 1.3	2.1
Japan	QOQ: -0.2 SAAR: -0.6	3.9
China	1.9	7.6
Euro Area	-0.2	-0.5
Germany	0.2	0.5 1.0 CA
France	-0.2	0.1
Italy	-0.6	-2.5
United Kingdom	-0.4	0.0
	IIIQ2012/ IIQ2012	IIIQ2012/ IIIQ2011
United States	QOQ: 0.8 SAAR: 3.1	2.6
Japan	QOQ: –0.9 SAAR: –3.6	0.2
China	2.1	7.4
Euro Area	-0.1	-0.7
Germany	0.2	0.4
France	0.1	0.0
Italy	-0.3	-2.6
United Kingdom	0.9	0.4
	IVQ2012/IIIQ2012	IVQ2012/IVQ2011
United States	QOQ: 0.1 SAAR: 0.4	1.7
Japan	QOQ: 0.3 SAAR: 1.2	0.4
China	2.0	7.9
Euro Area	-0.6	-1.0
Germany	-0.7	0.0
France	-0.2	-0.3
Italy	-0.9	-2.8
United Kingdom	-0.3	0.2
	IQ2013/IVQ2012	IQ2013/IQ2012
United States	QOQ: 0.6 SAAR: 2.4	1.8
Japan	QOQ: 1.0 SAAR: 4.1	0.4
China	1.6	7.7
Euro Area	-0.2	-1.1
Germany	0.1	-1.4
France	-0.2	-0.4
Italy	-0.6	-2.4
UK	0.3	0.6

QOQ: Quarter relative to prior quarter; SAAR: seasonally adjusted annual rate

Source: Country Statistical Agencies http://www.bea.gov/national/index.htm#gdp

There is evidence of deceleration of growth of world trade and even contraction in 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 earlier at http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html and earlier http://cmpassocregulationblog.blogspot.com/2012/11/contraction-of-united-states-real_25.html and for GDP Section VB and earlier http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/recovery-without-hiring-forecast-growth.html). In May 2013, Japan’s exports grew 10.1 percent in 12 months while imports increased 10.0 percent. The second part of Table V-4 shows that net trade deducted 1.1 percentage points from Japan’s growth of GDP in IIQ2012, deducted 2.8 percentage points from GDP growth in IIIQ2012 and deducted 0.6 percentage points from GDP growth in IVQ2012. In Apr 2013, China exports increased 14.7 percent relative to a year earlier and imports 16.8 percent. Germany’s exports increased 1.9 percent in the month of Apr 2013 and increased 8.5 percent in the 12 months ending in Apr 2013 while imports increased 2.2 percent in the month of Apr and increased 5.2 percent in the 12 months ending in Apr. Net trade contributed 0.4 percentage points to growth of GDP in IQ2012, contributed 1.3 percentage points in IIQ2012, contributed 1.4 percentage points in IIIQ2012, contributed 0.7 percentage points in IVQ2012 and contributed 1.0 percentage points in 2012. Net trade deducted 0.1 percentage points from Germany’s GDP growth. Net trade deducted 0.7 percentage points from UK value added in IQ2012, deducted 0.8 percentage points in IIQ2012, added 0.4 percentage points in IIIQ2012 and subtracted 0.2 percentage points in IVQ2012. In IQ2013, net trade deducted 0.1 percentage points from UK’s GDP growth. France’s exports increased 4.1 percent in Apr 2013 while imports increased 3.8 percent and net trade added 0.2 percentage points to GDP growth in IIQ2012, adding 0.2 percentage points in IIIQ2012 and 0.2 percentage points in IVQ2012. Net trade deducted 0.2 percentage points from France’s GDP growth in IQ2013. US exports decreased 0.9 percent in Mar 2013 and goods exports increased 2.2 percent in Jan-Mar 2013 relative to a year earlier but net trade added 0.38 percentage points to GDP growth in IIIQ2012 and added 0.33 percentage points in IVQ2012. In IQ2013, net trade deducted 0.21 percentage points from US GDP growth. US imports increased 1.2 percent in Apr 2013 and goods imports increased 0.8 percent in Jan-Apr 2013 relative to a year earlier. Industrial production changed 0.0 percent in May 2013 after falling 0.4 percent in Apr 2013, as shown in Table II-1, with all data seasonally adjusted. The report of the Board of Governors of the Federal Reserve System states (http://www.federalreserve.gov/releases/g17/Current/default.htm):

“Industrial production was unchanged in May after having decreased 0.4 percent in April. In May, manufacturing production rose 0.1 percent after falling in each of the previous two months, and the output at mines increased 0.7 percent. The gains in manufacturing and mining were offset by a decrease of 1.8 percent in the output of utilities. At 98.7 percent of its 2007 average, total industrial production in May was 1.6 percent above its year-earlier level.”

In the six months ending in May 2013, United States national industrial production accumulated increase of 0.5 percent at the annual equivalent rate of 1.0 percent, which is lower than growth of percent in 12 months. Excluding growth of 0.7 in Feb 2013, growth in the remaining five months from Dec 2012 to May 2013 accumulated to minus 0.2 percent or minus 0.5 percent annual equivalent. Industrial production stagnated in three of the past six months and fell in one. Business equipment accumulated growth of 0.9 percent in the six months from Dec 2012 to May 2013 at the annual equivalent rate of 1.8 percent, which is much lower than growth of 3.3 percent in 12 months. The Fed analyzes capacity utilization of total industry in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm): “The rate of capacity utilization for total industry edged down 0.1 percentage point to 77.6 percent, a rate 0.2 percentage point below its level of a year earlier and 2.6 percentage points below its long-run (1972–2012) average.” United States industry is apparently decelerating. Manufacturing increased 0.1 percent in May 2013 after decreasing 0.4 percent in Apr 2013 seasonally adjusted, increasing 1.7 percent not seasonally adjusted in 12 months. Manufacturing grew cumulatively 0.9 percent in the six months ending in May 2013 or at the annual equivalent rate of 1.8 percent. Excluding the increase of 0.9 percent in Dec 2012 perhaps partly because of recovery from hurricane Sandy, manufacturing accumulated growth of 0.0 percent from Jan 2013 to May 2013 or at the annual equivalent rate of 0.0 percent. Manufacturing fell 7.3 percent from the peak in Jun 2007 to May 2013 and increased 18.6 from the trough in Apr 2008 to May 2013. Manufacturing grew 18.6 percent from the trough in Apr 2009 to Apr 2013. Manufacturing output in May 2013 is 7.3 percent below the peak in Jun 2007. 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 M ∆%	Exports 12 M ∆%	Imports M ∆%	Imports 12 M ∆%
USA	1.2 Apr	0.8 Jan-Apr	2.4 Apr	-1.9 Jan-Apr
Japan		May 2013 10.1 Apr 2013 3.8 Mar 2013 1.1 Feb 2013 -2.9 Jan 2013 6.4 Dec -5.8 Nov -4.1 Oct -6.5 Sep -10.3 Aug -5.8 Jul -8.1		May 2013 10.0 Apr 2013 9.4 Mar 2013 5.5 Feb 2013 7.3 Jan 2013 7.3 Dec 1.9 Nov 0.8 Oct -1.6 Sep 4.1 Aug -5.4 Jul 2.1
China		14.7 Apr 10.0 Mar 13 17.3 Jan-Apr 13		16.8 Apr 14.1 Mar 13 10.6 Jan-Apr 13
Euro Area	9.1 12-M Apr	3.2 Jan-Apr	1.2 12-M Apr	-3.6 Jan-Apr
Germany	1.9 Apr CSA	8.5 Apr	2.3Apr CSA	5.2 Apr
France Apr	4.1	4.1	3.8	-0.6
Italy Apr	0.0	4.4	-0.9	-2.6
UK	-1.3 Apr	0.3 Feb-Apr 13 /Feb-Apr 12	-2.7 Apr	-0.9 Feb-Apr 13/Feb-Apr 12
Net Trade % Points GDP Growth	% Points
USA	IQ2013 -0.21 IVQ2012 +0.33 IIIQ2012 +0.38 IIQ2012 +0.23 IQ2012 +0.06
Japan	-1.1 IIQ2012 -2.8 IIIQ2012 -0.6 IVQ2012
Germany	0.4 IQ2012 1.3 IIQ2012 1.4 IIIQ2012 0.7 IVQ2012 1.0 2012 IQ2013 -0.1
France	0.2 IIQ2012 0.1 IIIQ2012 0.2 IVQ2012 -0.2 IQ2013
UK	-0.7 IQ2012 -0.8 IIQ2012 +0.4 IIIQ2012 -0.2 IVQ2012 -0.1 IQ2013

Sources: Country Statistical Agencies http://www.census.gov/foreign-trade/ http://www.bea.gov/iTable/index_nipa.cfm

The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table VB-5 for May 2013. The share of Asia in Japan’s trade is more than one-half for 55.5 percent of exports and 44.1 percent of imports. Within Asia, exports to China are 18.1 percent of total exports and imports from China 21.5 percent of total imports. While exports to China increased 8.3 percent in the 12 months ending in May 2013, imports from China increased 14.6 percent. The largest export market for Japan in May 2013 is the US with share of 18.1 percent of total exports, which is almost equal to that of China, and share of imports from the US of 9.1 percent in total imports. Western Europe has share of 9.4 percent in Japan’s exports and of 9.9 percent in imports. Rates of growth of exports of Japan in May 2013 are relatively high for several countries and regions with growth of 16.3 percent for exports to the US, 13.0 for exports to Mexico, 27.1 percent for exports to Brazil and 23.6 percent for exports to Australia. 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. Growth rates of imports in the 12 months ending in May 2013 are positive for all trading partners. Imports from Asia increased 9.7 percent in the 12 months ending in May 2013 while imports from China increased 14.6 percent. Data are in millions of yen, which may have effects of recent depreciation of the yen relative to the United States dollar (USD).

Table V-5, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yens

May 2013	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	5,767,644	10.1	6,761,560	10.0
Asia	3,199,236	11.1	2,981,223	9.7
China	1,046,464	8.3	1,456,429	14.6
USA	1,041,261	16.3	614,143	10.2
Canada	69,274	11.7	111,621	18.9
Brazil	46,286	27.1	107,740	24.9
Mexico	79,321	13.0	38,810	18.3
Western Europe	540,295	-4.4	668,524	8.2
Germany	135,169	-6.5	179,691	6.6
France	48,414	16.6	87,713	11.9
UK	88,823	-0.2	60,459	10.5
Middle East	193,783	8.0	1,230,780	11.5
Australia	149,932	23.6	449,571	7.0

Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm

World trade projections of the IMF are in Table V-6. There is increasing growth of the volume of world trade of goods and services from 3.6 percent in 2013 to 6.1 percent in 2015 and 5.7 percent in 2018. World trade would be slower for advanced economies while emerging and developing economies (EMDE) experience faster growth. World economic slowdown would more challenging with lower growth of world trade.

Table V-6, IMF, Projections of World Trade, ∆%

	2013	2014	2015	Average ∆% 2013-2018
World Trade Volume (Goods and Services)	3.6	5.3	6.1	5.7
Oil Price USD/Barrel	102.60	97.58	NA	NA
Commodity Price Index	181.84	174.06	NA	NA
Commodity Industrial Inputs Price 2005=100	170.04	164.66	NA	NA
Imports Goods & Services
G7	1.8	4.0	4.7	4.3
EMDE	6.2	7.3	7.9	7.5
Exports Goods & Services
G7	2.2	4.4	4.9	4.5
EMDE	4.8	6.5	7.6	7.1

Notes: Commodity Price Index includes Fuel and Non-fuel Prices; Commodity Industrial Inputs Price includes agricultural raw materials and metal prices; Oil price is average of WTI, Brent and Dubai

Source: International Monetary Fund World Economic Outlook databank

http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx

The JP Morgan Global All-Industry Output Index of the JP Morgan Manufacturing and Services PMI^™, produced by JP Morgan and Markit in association with ISM and IFPSM, with high association with world GDP, increased to 53.1 in May from 51.9 in Apr, indicating expansion at a moderate rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/e1cd4b422e4142abb5b7cc388ed55e52).This index has remained above the contraction territory of 50.0 during 46 consecutive months. The employment index remained unchanged at 50.4 in May relative to 50.4 in Apr with input prices rising at slower rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/e1cd4b422e4142abb5b7cc388ed55e52). The JP Morgan Global Manufacturing PMI^™, produced by JP Morgan and Markit in association with ISM and IFPSM, increased marginally to 50.6 in May from 50.4 in Apr, which is the fifth consecutive reading above 50 (http://www.markiteconomics.com/Survey/PressRelease.mvc/29fc067a0d4342edb2b0ba45b77a9bee). New export business is near stagnation and total new orders increased from 50.8 in Apr to 51.4 in May. The HSBC Brazil Composite Output Index, compiled by Markit, decreased marginally from 51.5 in Apr to 51.2 in May, indicating moderate increase in private sector activity (http://www.markiteconomics.com/Survey/PressRelease.mvc/de8a2ffef594427487be825fd917927c). The HSBC Brazil Services Business Activity index, compiled by Markit, decreased from 51.3 in Apr to 51.0 in May (http://www.markiteconomics.com/Survey/PressRelease.mvc/de8a2ffef594427487be825fd917927c). Andre Loes, Chief Economist, Brazil, at HSBC, finds slower rate of increase in input prices but moderate growth of the private sector (http://www.markiteconomics.com/Survey/PressRelease.mvc/de8a2ffef594427487be825fd917927c). The HSBC Brazil Purchasing Managers’ Index^TM (PMI^™) decreased from 50.8 in Apr to 50.4 in May (http://www.markiteconomics.com/Survey/PressRelease.mvc/08d8ebe4ce0c4273aab97f69e1210b58). Andre Loes, Chief Economist, Brazil at HSBC, finds that companies may have time to improve profit margins because of increases in prices of output relative to prices of inputs (http://www.markiteconomics.com/Survey/PressRelease.mvc/08d8ebe4ce0c4273aab97f69e1210b58).

VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index^™ (PMI^™) seasonally adjusted decreased marginally to 52.2 in Jun from 52.3 in May, for the lowest reading in eight months (http://www.markiteconomics.com/Survey/PressRelease.mvc/c96fce226f8442bbb3b355ca5d4f168c).New export orders registered 47.5 in Jun down from 49.8 in Apr, indicating contraction at a faster rate while output fell from 56.6 in Mar to 53.6 in Apr. Chris Williams, Chief Economist at Markit, finds that the survey data are consistent with growth at only 2.4 percent annual rhythm in IIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/c96fce226f8442bbb3b355ca5d4f168c). The Markit US Manufacturing Purchasing Managers’ Index^™ (PMI^™) increased to 52.3 in May from 52.1 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/1b6c8066bfa54224abb1ec66117c8e38). The index of new exports orders fell from 51.8 in Apr t0 49.8 in May while total new orders increased from 51.5 in Apr to 53.3 in May. Chris Williamson, Chief Economist at Markit, finds moderate growth in all segments of the index, suggesting risk of standstill (http://www.markiteconomics.com/Survey/PressRelease.mvc/1b6c8066bfa54224abb1ec66117c8e38). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business^® decreased 1.7 percentage points from 50.7 in Apr to 49.0 in May, which is the lowest reading since Jul 2009 that stood at 45.8 (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders decreased 3.5 percentage points from 52.3 in Apr to 48.8 in May. The index of exports decreased 3.0 percentage points from 54.0 in Apr to 51.0 in May, remaining in expansion territory. The Non-Manufacturing ISM Report on Business^® PMI increased 0.6 percentage points from 53.1 in Apr to 53.7 in May, indicating growth of business activity/production during 46 consecutive months, while the index of new orders increased 1.5 percentage points from 54.5 in A[t to 56.0 in May (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	May 12 months NSA ∆%: 1.4; ex food and energy ∆%: 1.7 May month SA ∆%: 0.1; ex food and energy ∆%: 0.2 Blog 6/23/13
Producer Price Index	May 12-month NSA ∆%: 1.7; ex food and energy ∆% 1.7 May month SA ∆% = 0.5; ex food and energy ∆%: 0.1 Blog 6/23/13
PCE Inflation	Apr 12-month NSA ∆%: headline 0.7; ex food and energy ∆% 1.1 Blog 6/2/13
Employment Situation	Household Survey: May Unemployment Rate SA 7.6% Blog calculation People in Job Stress May: 27.8 million NSA, 17.1% of Labor Force Establishment Survey: Nov Nonfarm Jobs +175,000; Private +178,000 jobs created Apr 12-month Average Hourly Earnings Inflation Adjusted ∆%: 0.2 Blog 6/9/13
Nonfarm Hiring	Nonfarm Hiring fell from 63.8 million in 2006 to 52.0 million in 2012 or by 11.8 million Private-Sector Hiring Apr 2013 4.076 million lower by 0.886 million than 4.962 million in Apr 2007 Blog 6/16/13
GDP Growth	BEA Revised National Income Accounts IQ2012/IQ2011 ∆%: 2.4 IIQ2012/IIQ2011 2.1 IIIQ2012/IIIQ2011 2.6 IVQ2012/IVQ2011 1.7 IQ2013/IQ2012 1.8 IQ2012 SAAR 2.0 IIQ2012 SAAR 1.3 IIIQ2012 SAAR 3.1 IVQ2012 SAAR 0.4 IQ2013 SAAR 2.4 Blog 6/2/13
Real Private Fixed Investment	SAAR IQ2013 4.1 ∆% IVQ2007 to IIIQ2012: minus 8.8% Blog 6/2/13
Personal Income and Consumption	Apr month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 0.1 Real Personal Consumption Expenditures (RPCE): 0.1 12-month Apr NSA ∆%: RDPI: 1.0; RPCE ∆%: 2.1 Blog 6/2/13
Quarterly Services Report	IQ13/IQ12 SA ∆%: Information 4.3 Financial & Insurance 1.8 Blog 6/9/13
Employment Cost Index	Compensation Private IQ2013 SA ∆%: 0.3 Jan 13 months ∆%: 1.7 Blog 5/5/13
Industrial Production	May month SA ∆%: 0.0 May 12 months SA ∆%: 1.6 Manufacturing May SA ∆% 0.1 May 12 months SA ∆% 1.7, NSA 1.7 Capacity Utilization: 77.6 Blog 6/23/13
Productivity and Costs	Nonfarm Business Productivity IQ2013∆% SAAE 0.5; IQ2013/IQ2012 ∆% 0.9; Unit Labor Costs SAAE IQ2013 ∆% -4.3; IQ2013/IQ2012 ∆%: 1.1 Blog 6/9/2013
New York Fed Manufacturing Index	General Business Conditions From May -1.43 to Jun 7.84 New Orders: From May -1.17 to Jun -6.69 Blog 6/23/13
Philadelphia Fed Business Outlook Index	General Index from May -5.2 to Jun 12.5 New Orders from May -7.9 to Jun 16.6 Blog 6/23/13
Manufacturing Shipments and Orders	New Orders SA Apr ∆% 1.0 Ex Transport -0.1 Jan-Apr NSA New Orders 0.2 Ex transport 0.2 Blog 6/9/13
Durable Goods	Apr New Orders SA ∆%: minus 3.3; ex transport ∆%: 1.3 Jan-Apr 13/Jan-Apr 12 New Orders NSA ∆%: 0.7; ex transport ∆% 0.7 Blog 5/26/13
Sales of New Motor Vehicles	Jan-May 2013 6,424,707; Jan-May 2012 5,986,605. May 13 SAAR 15.31 million, Apr 13 SAAR 14.92 million, May 2012 SAAR 13.95 million Blog 6/9/13
Sales of Merchant Wholesalers	Jan-Apr 2013/Jan-Apr 2012 NSA ∆%: Total 1.9; Durable Goods: 2.4; Nondurable Goods: 1.5 Blog 6/16/13
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Apr 13/Apr 12 NSA ∆%: Sales Total Business 3.1; Manufacturers 1.6 Retailers 4.3; Merchant Wholesalers 4.0 Blog 6/16/13
Sales for Retail and Food Services	Jan-May 2013/Jan-May 2012 ∆%: Retail and Food Services 3.7; Retail ∆% 3.7 Blog 6/16/13
Value of Construction Put in Place	Apr SAAR month SA ∆%: -0.4 Apr 12-month NSA: 4.3 Jan-Apr 2013 ∆% 4.5 Blog 6/9/13
Case-Shiller Home Prices	Mar 2013/Mar 2012 ∆% NSA: 10 Cities 10.3; 20 Cities: 10.9 ∆% Mar SA: 10 Cities 1.4 ; 20 Cities: 1.1 Blog 6/2/13
FHFA House Price Index Purchases Only	Mar SA ∆% 1.3; 12 month NSA ∆%: 7.2 Blog 5/26/13
New House Sales	Apr 2013 month SAAR ∆%: minus 2.3 Jan-Apr 2013/Jan-Apr 2012 NSA ∆%: 26.8 Blog 5/26/13
Housing Starts and Permits	May Starts month SA ∆%: 6.8 ; Permits ∆%: -3.1 Jan-May 2013/Jan-May 2012 NSA ∆% Starts 28.1; Permits ∆% 26.6 Blog 6/23/13
Trade Balance	Balance Apr SA -$38,829 million versus Mar -$42,960 million Exports Apr SA ∆%: 1.2 Imports Apr SA ∆%: 2.4 Goods Exports Jan-Apr 2013/2012 NSA ∆%: 0.8 Goods Imports Jan-Apr 2013/2012 NSA ∆%: -1.9 Blog 6/9/13
Export and Import Prices	May 12-month NSA ∆%: Imports -1.9; Exports -0.9 Blog 6/16/13
Consumer Credit	Apr ∆% annual rate: 4.7 Blog 6/9/13
Net Foreign Purchases of Long-term Treasury Securities	Apr Net Foreign Purchases of Long-term US Securities: minus $37.3 billion Major Holders of Treasury Securities: China $1265 billion; Japan $1100 billion; Total Foreign US Treasury Holdings Feb $5671 billion Blog 6/16/13
Treasury Budget	Fiscal Year 2013/2012 ∆% May: Receipts 15.1; Outlays 0.8; Individual Income Taxes 19.5 Deficit Fiscal Year 2011 $1,296 billion Deficit Fiscal Year 2012 $1,087 billion Blog 6/16/2013
CBO Budget and Economic Outlook	2012 Deficit $1089 B 7.0% GDP Debt 11,280 B 72.5% GDP 2013 Deficit $845 B, Debt 12,229 B 76.3% GDP Blog 8/26/12 11/18/12 2/10/13
Commercial Banks Assets and Liabilities	May 2013 SAAR ∆%: Securities -3.1 Loans 5.1 Cash Assets 73.4 Deposits 1.6 Blog 6/23/13
Flow of Funds	IQ2013 ∆ since 2007 Assets +$2612.8 MM Real estate -$2733.8 MM Financial +4799.7 MM Net Worth +$3487.4 MM Blog 6/16/13
Current Account Balance of Payments	IQ2013 -83,219 MM %GDP 2.7 Blog 6/16/13

Links to blog comments in Table USA:

6/16/13 http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html

6/9/13 http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html

6/2/13 http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html

5/26/13 http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html

5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html

2/10/13 http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html

11/18/12 http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html

Seasonally adjusted annual rates (SAAR) of housing starts and permits are shown in Table VA-1. Housing starts increased 6.8 percent in May 2013 after decreasing 14.8 percent in Apr 2013 and increasing 3.7 percent in Mar 2013. Housing permits, indicating future activity, decreased 3.1 percent after increasing 12.9 percent in Apr 2013 and decreasing 6.5 percent in Mar 2013. Monthly rates in starts and permits fluctuate significantly as shown in Table VA-1.

Table VA-1, US, Housing Starts and Permits SSAR Month ∆%

	Housing Starts SAAR	Month ∆%	Housing Permits SAAR	Month ∆%
May 2013	914	6.8	974	-3.1
Apr	856	-14.8	1005	12.9
Mar	1005	3.7	890	-6.5
Feb	969	7.9	952	4.0
Jan	898	-8.6	915	-3.0
Dec 2012	983	16.7	943	1.1
Nov	842	-2.5	933	2.8
Oct	864	1.2	908	-1.4
Sep	854	14.0	921	11.4
Aug	749	1.1	827	-1.4
Jul	741	-2.1	839	6.9
Jun	757	6.5	785	-2.6
May	711	-5.7	806	7.6
Apr	754	6.6	749	-4.6
Mar	707	-0.8	785	6.2
Feb	713	-1.4	739	3.5
Jan	723	4.2	714	2.4
Dec 2011	694	-2.4	697	-1.3
Nov	711	16.6	706	5.2
Oct	610	-6.2	671	10.0
Sep	650	11.1	610	-5.7
Aug	585	-6.1	647	4.2
Jul	623	2.5	621	-2.4
Jun	608	8.4	636	2.9
May	561	1.3	618	6.4
Apr	554	-7.7	581	-0.3
Mar	600	16.1	583	7.6
Feb	517	-17.9	542	-5.9
Jan	630	16.9	576	-8.9
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	-2.9

SAAR: Seasonally Adjusted Annual Rate

Source: US Census Bureau http://www.census.gov/construction/nrc/

Housing starts and permits in Jan-May not-seasonally adjusted are provided in Table VA-2. Housing starts increased 28.1 percent in Jan-May 2013 relative to Jan-May 2012 and in the same period new permits increased 26.6 percent. Construction of new houses in the US remains at very depressed levels. Housing starts fell 54.5 percent in Jan-May 2013 relative to Jan-May 2006 and fell 55.4 percent relative to Jan-May 2005. Housing permits fell 54.1 percent in Jan-May 2013 relative to Jan-May 2006 and fell 54.9 percent in Jan-May 2013 from Jan-May 2005.

Table VA-2, US, Housing Starts and New Permits, Thousands of Units, NSA, and %

	Housing Starts	New Permits
Jan-May 2013	370.8	391.2
Jan-May 2012	289.5	309.1
∆% Jan-May 2013/Jan-May 2012	28.1	26.6
Jan-May 2006	814.7	852.5
∆% Jan-May 2013/Jan-May 2006	-54.5	-54.1
Jan-May 2005	830.8	868.3
∆% Jan-May 2013/Jan-May 2005	-55.4	-54.9

Source: US Census Bureau http://www.census.gov/construction/nrc/

Chart VA-1 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-1 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 recent months.

Chart VA-1, 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-3 provides new housing units that started in the US at seasonally adjusted annual rates (SAAR) from Jan to May of the year from 2000 to 2013. SAARs have dropped from high levels around 2 million in 2005-2006 to the range of 707,000 in Mar 2012 to 983,000 in Dec 2012 and 1,021,000 in Mar 2013, which is an improvement over the range of 517,000 in Feb 2011 to 708,000 in Nov 2011. There is improvement in May 2013 with SAAR of 914,000 relative to 711,000 in May 2012.

Table VA-3, New Housing Units Started in the US, Seasonally Adjusted Annual Rates, Thousands of Units

	Jan	Feb	Mar	Apr	May
2000	1,636	1,737	1,604	1,626	1,575
2001	1,600	1,625	1,590	1,649	1,605
2002	1,698	1,829	1,642	1,592	1,764
2003	1,853	1,629	1,726	1,643	1,751
2004	1,911	1,846	1,998	2,003	1,981
2005	2,144	2,207	1,864	2,061	2,025
2006	2,273	2,119	1,969	1,821	1,942
2007	1,409	1,480	1,495	1,490	1,415
2008	1,084	1,103	1,005	1,013	973
2009	490	582	505	478	540
2010	614	604	636	687	583
2011	630	517	600	554	561
2012	723	713	707	754	711
2013	898	969	1,005	856	914

Source: US Census Bureau http://www.census.gov/construction/nrc/

Chart VA-2 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 May 2013 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 from Jun 2003 to Jun 2004 and suspension of the auction of 30-year Treasury bonds intended to lower mortgage rates. 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-2, US, New Housing Units Started in the US, SAAR (Seasonally Adjusted Annual Rate), Thousands of Units, Jan 1959-May 2013

Source: US Census Bureau http://www.census.gov/construction/nrc/

Table VA-4 provides actual new housing units started in the US, not seasonally adjusted, from Jan to Jun 2013. The number of housing units started fell from the peak of 197.9 thousand in May 2005 to 86.2 thousand in May 2013 or 56.4 percent. The number of housing units started jumped from 54.0 thousand in May 2011 to 67.8 thousand in May 2013 or by 59.6 percent.

Table VA-4, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units

	Jan	Feb	Mar	Apr	May	Jun
2000	104.0	119.7	133.4	149.5	152.9	146.3
2001	106.4	108.2	133.2	151.3	154.0	155.2
2002	110.4	120.4	138.2	148.8	165.5	160.3
2003	117.8	109.7	147.2	151.2	165.0	174.5
2004	124.5	126.4	173.8	179.5	187.6	172.3
2005	142.9	149.1	156.2	184.6	197.9	192.8
2006	153.0	145.1	165.9	160.5	190.2	170.2
2007	95.0	103.1	123.8	135.6	136.5	137.8
2008	70.8	78.4	82.2	89.5	91.7	102.5
2009	31.9	39.8	42.7	42.5	52.2	59.1
2010	38.9	40.7	54.7	62.0	56.2	53.8
2011	40.2	35.4	49.9	49.0	54.0	60.5
2012	47.2	49.7	58.0	66.8	67.8	74.7
2013	58.7	66.1	83.3	76.6	86.2	NA

Source: US Census Bureau http://www.census.gov/construction/nrc/

Chart VA-3 of the US Census Bureau provides new housing units started in the US not seasonally adjusted (NSA) from Jan 1959 to May 2013. There is the same behavior as in Chart VA-2 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 2012 is estimated at $15,684.8 billion, such that the bailout would be equivalent to cost to taxpayers of about $429.8 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-3, US, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units, Jan 1959-May 2013

Source: US Census Bureau http://www.census.gov/construction/nrc/

A longer perspective on residential construction in the US is provided by Table VA-5 with annual data from 1960 to 2012. Housing starts fell 62.3 percent from 2005 to 2012, 50.2 percent from 2000 to 2012 and 45.4 percent relative to the average from 1959 to 1963. Housing permits fell 61.5 percent from 2005 to 2012, 47.9 percent from 2000 to 2012 and 28.4 percent from the average of 1969-1963 to 2012. 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-5, 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
2012	780.6	829.7
∆% 2012/2011	28.2	32.9
∆% 2012/2010	33.0	37.2
∆% 2012/2005	-62.3	-61.5
∆% 2012/2000	-50.2	-47.9
∆% 2012/Av 1959-1963	-45.4	-28.4
2011	608.8	624.1
∆% 2011/2005	-70.6	-71.0
∆% 2011/2000	-61.2	-60.8
∆% 2011/Av 1959-1963	-57.4	-46.1
2010	586.9	604.6
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
Average 1959-63	1,429.7	1158.2

Source: US Census Bureau http://www.census.gov/construction/nrc/

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/gor1304b.pdf). For fiscal 2013, the forecast is of growth of GDP between 2.4 and 3.0 percent, with the all items CPI less fresh food of 0.4 to 0.8 percent. The critical difference is forecast of the CPI excluding fresh food of 2.7 to 3.6 percent in 2014 and 1.6 to 2.9 percent in 2015. The new monetary policy of the Bank of Japan aims to increase inflation to 2 percent. These forecasts are biannual in Apr and Oct. The Cabinet Office, Ministry of Finance and Bank of Japan released on Jan 22, 2013, a “Joint Statement of the Government and the Bank of Japan on Overcoming Deflation and Achieving Sustainable Economic Growth” (http://www.boj.or.jp/en/announcements/release_2013/k130122c.pdf) with the important change of increasing the inflation target of monetary policy from 1 percent to 2 percent:

“The Bank of Japan conducts monetary policy based on the principle that the policy shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy, and is responsible for maintaining financial system stability. The Bank aims to achieve price stability on a sustainable basis, given that there are various factors that affect prices in the short run.

The Bank recognizes that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening competitiveness and growth potential of Japan's economy make progress. Based on this recognition, the Bank sets the price stability target at 2 percent in terms of the year-on-year rate of change in the consumer price index.

Under the price stability target specified above, the Bank will pursue monetary easing and aim to achieve this target at the earliest possible time. Taking into consideration that it will take considerable time before the effects of monetary policy permeate the economy, the Bank will ascertain whether there is any significant risk to the sustainability of economic growth, including from the accumulation of financial imbalances.”

The Bank of Japan also provided explicit analysis of its view on price stability in a “Background note regarding the Bank’s thinking on price stability” (http://www.boj.or.jp/en/announcements/release_2013/data/rel130123a1.pdf http://www.boj.or.jp/en/announcements/release_2013/rel130123a.htm/). The Bank of Japan also amended “Principal terms and conditions for the Asset Purchase Program” (http://www.boj.or.jp/en/announcements/release_2013/rel130122a.pdf): “Asset purchases and loan provision shall be conducted up to the maximum outstanding amounts by the end of 2013. From January 2014, the Bank shall purchase financial assets and provide loans every month, the amount of which shall be determined pursuant to the relevant rules of the Bank.”

Financial markets in Japan and worldwide were shocked by new bold measures of “quantitative and qualitative monetary easing” by the Bank of Japan (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf). The objective of policy is to “achieve the price stability target of 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) at the earliest possible time, with a time horizon of about two years” (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf). The main elements of the new policy are as follows:

Monetary Base Control. Most central banks in the world pursue interest rates instead of monetary aggregates, injecting bank reserves to lower interest rates to desired levels. The Bank of Japan (BOJ) has shifted back to monetary aggregates, conducting money market operations with the objective of increasing base money, or monetary liabilities of the government, at the annual rate of 60 to 70 trillion yen. The BOJ estimates base money outstanding at “138 trillion yen at end-2012) and plans to increase it to “200 trillion yen at end-2012 and 270 trillion yen at end 2014” (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf).
Maturity Extension of Purchases of Japanese Government Bonds. Purchases of bonds will be extended even up to bonds with maturity of 40 years with the guideline of extending the average maturity of BOJ bond purchases from three to seven years. The BOJ estimates the current average maturity of Japanese government bonds (JGB) at around seven years. The BOJ plans to purchase about 7.5 trillion yen per month (http://www.boj.or.jp/en/announcements/release_2013/rel130404d.pdf). Takashi Nakamichi, Tatsuo Ito and Phred Dvorak, wiring on “Bank of Japan mounts bid for revival,” on Apr 4, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887323646604578401633067110420.html ), find that the limit of maturities of three years on purchases of JGBs was designed to avoid views that the BOJ would finance uncontrolled government deficits.
Seigniorage. The BOJ is pursuing coordination with the government that will take measures to establish “sustainable fiscal structure with a view to ensuring the credibility of fiscal management” (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf).
Diversification of Asset Purchases. The BOJ will engage in transactions of exchange traded funds (ETF) and real estate investment trusts (REITS) and not solely on purchases of JGBs. Purchases of ETFs will be at an annual rate of increase of one trillion yen and purchases of REITS at 30 billion yen.

Table VB-BOJF, Bank of Japan, Forecasts of the Majority of Members of the Policy Board, % Year on Year

Fiscal Year Date of Forecast	Real GDP	CPI All Items Less Fresh Food	Excluding Effects of Consumption Tax Hikes
2012
Apr 2013	+1.0 to +1.0 [+1.0]	-0.2
Jan 2013	+1.0 to +1.1 [+1.0]	-0.2 to –0.1 [-0.2]
2013
Apr 2013	+2.4 to +3.0 [+2.9]	+0.4 to +0.8 [+0.7]
Jan 2013	+1.9 to +2.5 [+2.3]	+0.3 to +0.6 [+0.4]
2014
Apr 2013	+1.0 to +1.5 [+1.4]	+2.7 to +3.6 [+3.4]	+0.7 to +1.6 [+1.4]
Jan 2013	+0.6 to +1.0 [+0.8]	+2.5 to +3.0 [+2.9]	+0.5 to +1.0 [+0.9]
2015
Apr 2013	+1.4 to +1.9 [+1.6]	+1.6 to +2.9 [+2.6]	+0.9 to +2.2 [+1.9]

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/gor1304a.pdf

Private-sector activity in Japan expanded with the Markit Composite Output PMI^™ Index increasing from 51.8 in Apr to 54.1 in May, which is a new high of the series (http://www.markiteconomics.com/Survey/PressRelease.mvc/eddc14aea9794212a1b77033f0ffae45). Paul Smith, economist at Markit and author of the report, finds that the survey data suggest continuing growth of the economy of Japan with performance that could exceed the annual rate of 3.5 percent in IQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/eddc14aea9794212a1b77033f0ffae45). The Markit Business Activity Index of Services increased from 51.7 in Apr, to 54.8 in May (http://www.markiteconomics.com/Survey/PressRelease.mvc/eddc14aea9794212a1b77033f0ffae45). Paul Smith, Senior Economist at Markit and author of the report, finds continuing confidence in demand for services that is generating record creation of jobs (http://www.markiteconomics.com/Survey/PressRelease.mvc/eddc14aea9794212a1b77033f0ffae45). Markit/JMMA Purchasing Managers’ Index^™ (PMI™), seasonally adjusted, increased from 51.1 in Apr to 51.5 in May, which is the highest reading in 21 months, indicating modest growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/be0802fd0033425db2b840bfd36d068e). Foreign and domestic business continued improvement with yen devaluation supporting foreign demand but with increases in input costs. Paul Smith, Senior Economist at Markit and author of the report, finds that output increased at the fastest rhythm in 19 months (http://www.markiteconomics.com/Survey/PressRelease.mvc/be0802fd0033425db2b840bfd36d068e).Table JPY provides the country data table for Japan.

Table JPY, Japan, Economic Indicators

Historical GDP and CPI	1981-2010 Real GDP Growth and CPI Inflation 1981-2010 Blog 8/9/11 Table 26
Corporate Goods Prices	May ∆% +0.1 12 months ∆% 0.6 Blog 6/16/13
Consumer Price Index	Apr NSA ∆% 0.3; Apr 12 months NSA ∆% -0.7 Blog 6/2/13
Real GDP Growth	IQ2013 ∆%: 1.0 on IVQ2012; IQ2013 SAAR 4.1; ∆% from quarter a year earlier: 0.4 % Blog 6/16/13
Employment Report	Apr Unemployed 2.91 million Change in unemployed since last year: minus 240 thousand Unemployment rate: 4.1% Blog 6/2/13
All Industry Indices	Mar month SA ∆% -0.3 12-month NSA ∆% -1.0 Blog 5/26/13
Industrial Production	Apr SA month ∆%: 1.7 12-month NSA ∆% -2.3 Blog 6/2/13
Machine Orders	Total Apr ∆% -14.2 Private ∆%: -12.4 Apr ∆% Excluding Volatile Orders -8.8 Blog 6/16/13
Tertiary Index	Mar month SA ∆% -1.3 Mar 12 months NSA ∆% -0.1 Blog 5/19/13
Wholesale and Retail Sales	Apr 12 months: Total ∆%: -0.2 Wholesale ∆%: -0.2 Retail ∆%: -0.1 Blog 6/2/13
Family Income and Expenditure Survey	Apr 12-month ∆% total nominal consumption 0.8, real 1.5 Blog 6/2/13
Trade Balance	Exports May 12 months ∆%: 10.1 Imports May 12 months ∆% 10.0 Blog 6/23/13

Links to blog comments in Table JPY:

6/16/13 http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html

6/2/13 http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html

5/26/13 http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html

5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

8/9/11 http://cmpassocregulationblog.blogspot.com/2011/08/turbulence-in-world-financial-markets.html

The structure of exports and imports of Japan is in Table VB-1. 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 31.7 percent of Japan’s imports and increased 2.7 percent in the 12 months ending in May 2013 because of alternating carry trades into commodity futures in accordance with risk aversion. Weakness of world demand depresses prices of industrial goods. Manufactured products contribute 13.7 percent of Japan’s exports with increase of 4.2 percent in the 12 months ending in May 2013. Machinery contributes 18.9 percent of Japan’s exports with increase of 4,5 percent in the 12 months ending in May 2013. Electrical machinery contributes 17.0 percent of Japan’s exports with increase of 9.6 percent in the 12 months ending in May 2013. Exports of transport equipment with share of 22.3 percent in total exports increased 4.9 percent in the 12 months ending in May 2013 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-1 shows increase of the major categories of motor vehicles of 5.5 percent: cars increased 6.3 percent with decrease of 1.1 percent in the minor category of buses and trucks, increase of 3.5 percent for parts of motor vehicles, increase of 13.7 percent for motorcycles and decrease of 7.7 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 reversal of carry trades from zero interest rates to commodity prices. Data in Table VB-1 are in millions of yen that have been affected by recent depreciation of the yen relative to the USD with invoicing of many products in dollars.

Table VB-1, Japan, Structure and Growth of Exports and Imports % and ∆% Millions Yens

May 2013	Value JPY Millions	% of Total	12 Months ∆%	Contribution Degree %
Exports	5,767,644	100.0	10.1	10.1
Foodstuffs	36,626	0.6	34.7	0.2
Raw Materials	107,611	1.9	10.1	0.2
Mineral Fuels	174,440	3.0	66.8	1.3
Chemicals	614,176	10.6	16.9	1.7
Manufactured Goods	789,450	13.7	4.2	0.6
Machinery	1,088,918	18.9	4.5	0.9
Electrical Machinery	981,837	17.0	9.6	1.6
Transport Equipment	1,284,990	22.3	4.9	1.1
Motor Vehicles	795,098	13.8	5.5	0.8
Cars	684,057	11.9	6.3	0.8
Buses & Trucks	100,100	1.7	-1.1	0.0
Parts of Motor Vehicles	278,447	4.8	3.5	0.2
Motorcycles	17,219	0.3	13.7	0.0
Ships	121,329	2.1	-7.7	-0.2
Other	689,596	12.0	22.9	2.5
Imports	6,761,560	100.0	10.0	10.0
Foodstuffs	603,201	8.9	12.3	1.1
Raw Materials	551,635	8.2	20.0	1.5
Mineral Fuels	2,140,325	31.7	2.7	0.9
Chemicals	570,274	8.4	8.7	0.7
Manufactured Goods	536,377	7.9	6.3	0.5
Machinery	508,346	7.5	10.7	0.8
Electrical Machinery	850,313	12.6	23.7	2.6
Transport Equipment	217,542	3.2	14.3	0.4
Other	783,547	11.6	12.2	1.4

Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm

Table VB-2 provides Japan’s exports, imports and trade balance in five-year intervals from 1950 to 1975 and then yearly from 1979 to 2012. Exports grew at the average yearly rate of 3.2 percent while imports grew at 3.3 percent per year in the years from 1979 to 2012. 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 and the highest deficit in 2012.

Table VB-2, 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	78,955	2,063
2009	54,170	51,499	2,671
2010	67,399	60,764	6,635
2011	65,546	68,111	-2,565
2012	63,748	70,689	-6,941

Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm

The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table VB-3 for May 2013. The share of Asia in Japan’s trade is more than one-half for 55.5 percent of exports and 44.1 percent of imports. Within Asia, exports to China are 18.1 percent of total exports and imports from China 21.5 percent of total imports. While exports to China increased 8.3 percent in the 12 months ending in May 2013, imports from China increased 14.6 percent. The largest export market for Japan in May 2013 is the US with share of 18.1 percent of total exports, which is almost equal to that of China, and share of imports from the US of 9.1 percent in total imports. Western Europe has share of 9.4 percent in Japan’s exports and of 9.9 percent in imports. Rates of growth of exports of Japan in May 2013 are relatively high for several countries and regions with growth of 16.3 percent for exports to the US, 13.0 for exports to Mexico, 27.1 percent for exports to Brazil and 23.6 percent for exports to Australia. 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. Growth rates of imports in the 12 months ending in May 2013 are positive for all trading partners. Imports from Asia increased 9.7 percent in the 12 months ending in May 2013 while imports from China increased 14.6 percent. Data are in millions of yen, which may have effects of recent depreciation of the yen relative to the United States dollar (USD).

Table VB-3, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yens

May 2013	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	5,767,644	10.1	6,761,560	10.0
Asia	3,199,236	11.1	2,981,223	9.7
China	1,046,464	8.3	1,456,429	14.6
USA	1,041,261	16.3	614,143	10.2
Canada	69,274	11.7	111,621	18.9
Brazil	46,286	27.1	107,740	24.9
Mexico	79,321	13.0	38,810	18.3
Western Europe	540,295	-4.4	668,524	8.2
Germany	135,169	-6.5	179,691	6.6
France	48,414	16.6	87,713	11.9
UK	88,823	-0.2	60,459	10.5
Middle East	193,783	8.0	1,230,780	11.5
Australia	149,932	23.6	449,571	7.0

Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm

Japan registered another deficit in the trade balance of JPY 993,916 million, as shown in Table VB-4. The significantly large deficits of JPY 1,036,997 million with the Middle East, JPY 409,965 million with China, JPY 299,639 million with Australia and JPY 128,229 million with Western Europe are not compensated by surpluses of JPY 218,013 with Asia and JPY 427,118 with the US.

Table VB-4, Japan, Trade Balance, Millions of Yen

May 2013	Millions of Yen
Total	-993,916
Asia	218,013
China	-409,965
USA	427,118
Canada	-42,347
Brazil	-61,454
Mexico	40,511
Western Europe	-128,229
Germany	-44,522
France	-39,299
UK	28,364
Middle East	-1,036,997
Australia	-299,639

Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/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/t20121009_402841094.htm). Table CIPMNM provides this index and components. 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 and 53.7 in Sep but rebounded to 55.5 in Oct and 55.6 in Nov 2012. Improvement continued with 56.1 in Dec 2012 and 56.2 in Jan 2013, declining marginally to 54.5 in Feb 2013 and 55.6 in Mar 2013. The index fell to 54.5 in Apr 2013 and 54.3 in May 2013.

Table CIPMNM, China, Nonmanufacturing Index of Purchasing Managers, %, Seasonally Adjusted

	Total Index	New Orders	Interm. Input Prices	Subs Prices	Exp
May 2013	54.3	50.1	54.4	50.7	62.9
Apr	54.5	50.9	51.1	47.6	62.5
Mar	55.6	52.0	55.3	50.0	62.4
Feb	54.5	51.8	56.2	51.1	62.7
Jan	56.2	53.7	58.2	50.9	61.4
Dec 2012	56.1	54.3	53.8	50.0	64.6
Nov	55.6	53.2	52.5	48.4	64.6
Oct	55.5	51.6	58.1	50.5	63.4
Sep	53.7	51.8	57.5	51.3	60.9
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/

Chart CIPMNM provides China’s nonmanufacturing purchasing managers’ index. 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 and sharper drop to 53.7 in Sep 2012, rebounding to 55.5 in Oct 2012, 55.6 in Nov 2012, 56.1 in Dec 2012 and 55.6 in Mar 2013. The index fell again to 54.5 in Apr 2013 and 54.3 in May 2013.

Chart CIPMNM, China, Nonmanufacturing Index of Purchasing Managers, Seasonally Adjusted

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Table CIPMMFG 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 and 49.8 in Sep, climbing above 50.0 to 50.2 in Oct, 50.6 in Nov-Dec 2012, 50.9 in Mar 2013 and 50.6 in Apr 2013. The index increased to 50.8 in May 2013. The index of new orders (NOI) fell from 54.5 in Apr 2012 to 49.0 in Jul and 48.7 in Aug, climbing above 50.0, 51.2 in Nov 2012-Dec 2012, 52.3 in Mar 2013 and 51.7 in Apr 2013. The index of new orders increased to 51.8 in May 2013. The index of employment also fell from 51.0 in Apr to 49.1 in Aug and further down to 48.7 in Nov 2012, 49.9 in Dec 2012, 49.8 in Mar 2013 and 49.0 in Apr 2013. The index of employment fell to 48.8 in May 2013.

Table CIPMMFG, China, Manufacturing Index of Purchasing Managers, %, Seasonally Adjusted

	IPM	PI	NOI	INV	EMP	SDEL
May 2013	50.8	53.3	51.8	47.6	48.8	50.8
Apr	50.6	52.6	51.7	47.5	49.0	50.8
Mar	50.9	52.7	52.3	47.5	49.8	51.1
Feb	50.1	51.2	50.1	49.5	47.6	48.3
Jan	50.4	51.3	51.6	50.1	47.8	50.0
Dec 2012	50.6	52.0	51.2	47.3	49.0	48.8
Nov	50.6	52.5	51.2	47.9	48.7	49.9
Oct	50.2	52.1	50.4	47.3	49.2	50.1
Sep	49.8	51.3	49.8	47.0	48.9	49.5
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/

China estimates the manufacturing index of purchasing managers on the basis of a sample of 820 enterprises (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Chart CIPMMFG provides the manufacturing index of purchasing managers. 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 and improved to 49.8 in Sep with movement to 50.2 in Oct 2012, 50.6 in Nov 2012, 50.9 in Mar 2013 and 50.6 in Apr 2013 above the neutral zone of 50.0. The index increased to 50.8 in May 2013.

Chart CIPMMFG, China, Manufacturing Index of Purchasing Managers, Seasonally Adjusted

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Growth of China’s GDP in IQ2013 relative to the same period in 2012 was 7.7 percent, as shown in Table VC-GDP. Secondary industry accounts for 45.9 percent of GDP of which industry alone for 41.1 percent in IQ2013 and construction with the remaining 4.8 percent in the first three quarters of 2012. Tertiary industry accounts for 47.8 percent of GDP in the IQ2013 and primary industry for 6.3 percent. China’s growth strategy consisted of rapid increases in productivity in industry to absorb population from agriculture where incomes are lower (Pelaez and Pelaez, The Global Recession Risk (2007), 56-80). The bottom block of Table VC-1 provides quarter-on-quarter growth rates of GDP and their annual equivalent. China’s GDP growth decelerated significantly from annual equivalent 9.9 percent in IIQ2011 to 7.4 percent in IVQ2011 and 6.6 percent in IQ2012, rebounding to 7.8 percent in IIQ2012, 8.7 percent in IIIQ2012 and 8.2 percent in IVQ2012. Annual equivalent growth in IQ2013 fell to 6.6 percent.

Table VC-GDP, China, Quarterly Growth of GDP, Current CNY 100 Million and Inflation Adjusted ∆%

Cumulative GDP IQ2013	Value Current CNY 100 Million	2013 Year-on-Year ∆%
GDP	118855	7.7
Primary Industry	7427	3.4
Farming	7427	3.4
Secondary Industry	54569	7.8
Industry	48832	7.5
Construction	5737	9.8
Tertiary Industry	56859	8.3
Transport, Storage, Post	6563	7.0
Wholesale, Retail Trades	11914	10.5
Hotel & Catering Services	2419	4.5
Financial Intermediation	8099	11.5
Real Estate	8383	7.8
Other	19481	6.8
Growth in Quarter Relative to Prior Quarter	∆% on Prior Quarter	∆% Annual Equivalent
2012
IQ2013	1.6	6.6
IVQ2012	2.0	8.2
IIIQ2012	2.1	8.7
IIQ2012	1.9	7.8
IQ2012	1.6	6.6
2011
IVQ2011	1.8	7.4
IIIQ2011	2.3	9.6
IIQ2011	2.4	9.9
IQ2011	2.3	9.5

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Growth of China’s GDP in IQ2013 relative to the same period in 2012 was 7.7 percent, as shown in Table VC-GDPA. Secondary industry accounts for 45.9 percent of GDP of which industry alone for 41.1 percent in IQ2013 and construction with the remaining 4.8 percent in the first three quarters of 2012. Tertiary industry accounts for 47.8 percent of GDP in the IQ2013 and primary industry for 6.3 percent. China’s growth strategy consisted of rapid increases in productivity in industry to absorb population from agriculture where incomes are lower (Pelaez and Pelaez, The Global Recession Risk (2007), 56-80). The bottom block of Table VC-1 provides quarter-on-quarter growth rates of GDP and their annual equivalent. China’s GDP growth decelerated significantly from annual equivalent 9.9 percent in IIQ2011 to 7.4 percent in IVQ2011 and 6.6 percent in IQ2012, rebounding to 7.8 percent in IIQ2012, 8.7 percent in IIIQ2012 and 8.2 percent in IVQ2012. Annual equivalent growth in IQ2013 fell to 6.6 percent.

Table VC-GDPA, China, Growth Rate of GDP, ∆% Relative to a Year Earlier and ∆% Relative to Prior Quarter

	IQ 2013
GDP	7.7
Primary Industry	3.4
Secondary Industry	7.8
Tertiary Industry	8.3
GDP ∆% Relative to a Prior Quarter	1.6
	IQ 2011	IIQ 2011	IIIQ 2011	IVQ 2011	IQ 2012	IIQ 2012	IIIQ 2012	IVQ 2012
GDP	9.7	9.5	9.1	8.9	8.1	7.6	7.4	7.9
Primary Industry	3.5	3.2	3.8	4.5	3.8	4.3	4.2	4.5
Secondary Industry	11.1	11.0	10.8	10.6	9.1	8.3	8.1	8.1
Tertiary Industry	9.1	9.2	9.0	8.9	7.5	7.7	7.9	8.1
GDP ∆% Relative to a Prior Quarter	2.3	2.4	2.3	1.8	1.6	1.9	2.1	2.0
	IQ 2010	IIQ 2010	IIIQ 2010	IVQ 2010
GDP	12.1	11.2	10.7	12.1
Primary Industry	3.8	3.6	4.0	3.8
Secondary Industry	14.5	13.3	12.6	14.5
Tertiary Industry	10.5	9.9	9.7	10.5

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Chart VC-GDP of the National Bureau of Statistics of China provides annual value and growth rates of GDP. China’s GDP growth in 2012 is still high at 7.8 percent but at the lowest rhythm in five years

Chart VC-GDP, China, Gross Domestic Product, Million Yuan and ∆%, 2008-2012

Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/

The HSBC Flash China Manufacturing Purchasing Managers’ Index^™ (PMI^™) compiled by Markit (http://www.markiteconomics.com/Survey/PressRelease.mvc/f2ffa599067442d492b2baadc42da5d5) is moving at slower pace. The overall Flash HSBC China Manufacturing PMI^™ decreased from 49.2 in May to 48.3 in Jun, which is moderately below the contraction frontier of 50.0, while the Flash HSBC China Manufacturing Output Index decreased from 50.7 in May to 48.8 in Jun, moving into moderate contraction territory. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that the economy of China is confronting weak internal and external demand together with reduction of stocks, suggesting weaker growth in IIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/f2ffa599067442d492b2baadc42da5d5). The HSBC China Services PMI^™, compiled by Markit, shows marginal strength in business activity in China with the HSBC Composite Output, combining manufacturing and services, decreasing from 51.1 in Apr to 50.9 in May for the seventh consecutive month of expansion (http://www.markiteconomics.com/Survey/PressRelease.mvc/62bd462cd58e42b381bdd4ec852c8efa). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that combined manufacturing and services data suggest downward effects on growth and employment in IIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/62bd462cd58e42b381bdd4ec852c8efa). The HSBC Business Activity index increased from 51.1 in Apr to 51.2 in May at one of the slowest rates in the history of the index (http://www.markiteconomics.com/Survey/PressRelease.mvc/62bd462cd58e42b381bdd4ec852c8efa). Hongbin Ku, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds concern with growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/62bd462cd58e42b381bdd4ec852c8efa). The HSBC Purchasing Managers’ Index^™ (PMI^™), compiled by Markit, decreased to 49.2 in May from 50.4 in Apr, indicating moderate contraction in manufacturing for the first time after six consecutive months of improvement (http://www.markiteconomics.com/Survey/PressRelease.mvc/374b1d5a958242508eb6aa9ec226002c). New export orders decreased for the second consecutive month. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds marginally deteriorating conditions because of weak internal demand (http://www.markiteconomics.com/Survey/PressRelease.mvc/374b1d5a958242508eb6aa9ec226002c). Table CNY provides the country data table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry	May 12-month ∆%: minus 2.9 May month ∆%: -0.6 Blog 6/16/13
Consumer Price Index	May month ∆%: minus 0.6 May 12 months ∆%: 2.1 Blog 6/16/13
Value Added of Industry	May month ∆%: 0.62 Jan-May 2013/Jan-May 2012 ∆%: 9.4 Blog 6/16/13
GDP Growth Rate	Year IQ2013 ∆%: 7.9 Quarter IQ2013 ∆%: 7.7 Blog 4/21/13
Investment in Fixed Assets	May month ∆%: 1.43 Total Jan-May 2013 ∆%: 20.4 Real estate development: 20.6 Blog 6/16/13
Retail Sales	May month ∆%: 1.17 May 12 month ∆%: 12.9 Jan-May ∆%: 12.5 Blog 6/16/13
Trade Balance	May balance $18.2 billion Exports 12M ∆% 1.0 Imports 12M ∆% -0.3 Cumulative May: $81.42 billion Blog 6/16/13

Links to blog comments in Table CNY:

6/16/13 http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html

4/21/13 http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.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 0.6 percent in 2012 and minus 0.4 percent in 2013 but 1.2 percent in 2014.

Table VD-EUR, Euro Area, Yearly Percentage Change of Harmonized Index of Consumer Prices, Unemployment 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	3.2
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	1.5
2012*	2.5	11.4	-0.6
2013*			-0.4
2014*			1.2

*EUROSTAT forecast Source: EUROSTAT

The GDP of the euro area in 2011 in current US dollars in the dataset of the World Economic Outlook (WEO) of the International Monetary Fund (IMF) is $13,114.4 billion (http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/index.aspx). The sum of the GDP of France is $2778.1 billion with the GDP of Germany of $3607.4 billion, Italy of $2198.7 billion and Spain $1479.6 billion is $10,063.8 billion or 76.7 percent of total euro area GDP. The four largest economies account for slightly more than three quarters of economic activity of the euro area. Table VD-EUR1 is constructed with the dataset of EUROSTAT, providing growth rates of the euro area as a whole and of the largest four economies of Germany, France, Italy and Spain annually from 1996 to 2011 with the estimate of 2012 and forecasts for 2013 and 2014 by EUROSTAT. The impact of the global recession on the overall euro area economy and on the four largest economies was quite strong. There was sharp contraction in 2009 and growth rates have not rebounded to earlier growth with exception of Germany in 2010 and 2011.

Table VD-EUR1, Euro Area, Real GDP Growth Rate, ∆%

	Euro Area	Germany	France	Italy	Spain
2014*	1.2	1.8	1.1	0.7	0.9
2013*	-0.4	0.4	-0.1	-1.3	-1.5
2012	-0.6	0.7	0.0*	-2.4	-1.4*
2011	1.5	3.0	2.0	0.4	0.4
2010	2.0	4.2	1.7	1.7	-0.3
2009	-4.4	-5.1	-3.1	-5.5	-3.7
2008	0.4	1.1	-0.1	-1.2	0.9
2007	3.0	3.3	2.3	1.7	3.5
2006	3.2	3.7	2.5	2.2	4.1
2005	1.7	0.7	1.8	0.9	3.6
2004	2.2	1.2	2.5	1.7	3.3
2003	0.7	-0.4	0.9	0.0	3.1
2002	0.9	0.0	0.9	0.5	2.7
2001	2.0	1.5	1.8	1.9	3.7
2000	3.8	3.1	3.7	3.7	5.0
1999	2.9	1.9	3.3	1.5	4.7
1998	2.8	1.9	3.4	1.4	4.5
1997	2.6	1.7	2.2	1.9	3.9
1996	1.5	0.8	1.1	1.1	2.5

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ 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, increased from 47.7 in May to 48.9 in May, for seventeen consecutive contractions but with deceleration of the rate of contraction to the lowest pace since Mar 2012 (http://www.markiteconomics.com/Survey/PressRelease.mvc/899f6d7cc57342b487bd764ce5610c18). The average for IIQ2013 of 47.8 is marginally higher than 47.7 in IQ2013, suggesting recession in the euro area during seventeen consecutive months. Chris Williamson, Chief Economist at Markit, finds that the Markit Flash Eurozone PMI index is consistent with the seventh quarterly contraction of economic conditions in the region at a likely rate of decline of 0.2 percent in IIQ2013 but at slower pace in France with moderate growth in Germany and slower decline in other members (http://www.markiteconomics.com/Survey/PressRelease.mvc/899f6d7cc57342b487bd764ce5610c18). The Markit Eurozone PMI^® Composite Output Index, combining services and manufacturing activity with close association with GDP, increased from 46.9 in Apr to 47.7 in May with aggregate output declining during 16 months (http://www.markiteconomics.com/Survey/PressRelease.mvc/f22c0e3f86d7424580bdf50ec8720e90). Chris Williamson, Chief Economist at Markit, finds that the data are consistent GDP falling in IIQ2012 at 0.2 percent (http://www.markiteconomics.com/Survey/PressRelease.mvc/f22c0e3f86d7424580bdf50ec8720e90). The Markit Eurozone Services Business Activity Index increased from 47.0 in Apr to 47.2 in May, indicating contraction (http://www.markiteconomics.com/Survey/PressRelease.mvc/f22c0e3f86d7424580bdf50ec8720e90). The Markit Eurozone Manufacturing PMI^® increased marginally to 48.3 in May from 46.7 in May, which indicates contraction for the twenty-second consecutive month but the slowest rate since Feb 2012 (http://www.markiteconomics.com/Survey/PressRelease.mvc/0df9b459246542d2a1b60332deb37e6a). New orders fell at the slowest rate since Jun 2011 with unchanged export orders and weak internal ordes. Chris Williamson, Chief Economist at Markit, finds the survey data consistent with contraction of GDP at 0.2 percent in IIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/0df9b459246542d2a1b60332deb37e6a). Table EUR provides the data table for the euro area.

Table EUR, Euro Area Economic Indicators

GDP	IQ2013 ∆% -0.2; IQ2013/IQ2012 ∆% -1.1 Blog 6/9/13
Unemployment	Apr 2013: 12.2% unemployment rate Apr 2013: 19.375 million unemployed Blog 6/2/13
HICP	Apr month ∆%: -0.1 12 months Apr ∆%: 1.2 Blog 5/19/13
Producer Prices	Euro Zone industrial producer prices Mar ∆%: -0.2 Mar 12-month ∆%: 0.7 Blog 5/5/13
Industrial Production	Apr month ∆%: 0.4; Apr 12 months ∆%: -0.6 Blog 6/16/13
Retail Sales	Apr month ∆%: -0.5 Mar 12 months ∆%: minus 1.1 Blog 6/9/13
Confidence and Economic Sentiment Indicator	Sentiment 89.4 May 2013 Consumer minus 21.9 Apr 2013 Blog 6/2/13
Trade	Jan-Apr 2013/Jan-Apr 2012 Exports ∆%: 3.2 Imports ∆%: -3.6 Apr 2013 12-month Exports ∆% 9.1 Imports ∆% 1.2 Blog 6/23/13

Links to blog comments in Table EUR:

6/16/13 http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html

6/9/13 http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html

6/2/13 http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html

5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html

Euro zone trade growth continues to be relatively strong as shown in Table VD-1 but with deceleration at the margin. Exports grew at 3.2 percent and imports fell 3.6 percent in Jan-Apr 2013 relative to Jan-Apr 2012. The 12-month rate of growth of exports was 9.1 percent in Apr 2013 while imports increased 1.2 percent. In Mar 2013, exports decreased 0.1 percent in 12 months and imports decreased 9.9 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-Apr 2013	621.8	579.5
Jan-Apr 2012	602.8	600.9
∆%	3.2	-3.6
Apr 2013	161.3	146.4
Apr 2012	147.9	144.7
∆%	9.1	1.2
Mar 2013	165.4	143.0
Mar 2012	165.6	158.7
∆%	-0.1	-9.9
Trade Balance	Jan-Mar 2013	Jan-Mar 2012
€ Billions	42.3	2.0

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

The structure of trade of the euro zone in Jan-Mar 2013 is provided in Table VD-2. Data are still not available for trade structure for Apr 2013. Manufactured exports increased 0.5 percent in Jan-Mar 2013 relative to Jan-Mar 2012 while imports decreased 3.9 percent. The trade surplus in manufactured products was marginally higher than the trade deficit in primary products in Jan-Mar 2013 but lower in Jan-Mar 2012 partly 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-Mar 2013 € B	74.0	372.1	14.4	460.5
Jan-Mar 2012 € B	71.5	370.2	13.2	454.9
∆%	3.5	0.5	9.1	1.2
Imports
Jan-Mar 2013 € B	159.3	265.7	8.1	433.1
Jan-Mar 2012 € B	171.2	276.4	8.6	456.2
∆%	-7.0	-3.9	-5.8	-5.1
Trade Balance € B
Jan-Mar 2013	-85.3	106.4	6.3	27.4
Jan-Mar 2012	-99.8	93.8	4.6	-1.3

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

VE Germany. Table VE-DE provides yearly growth rates of the German economy from 1992 to 2012, 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 economies. The German economy grew at 4.2 percent in 2010, 3.0 percent in 2011 and 0.7 percent in 2012.

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 Year ∆%

	Price Adjusted Chain-Linked	Price- and Calendar-Adjusted Chain Linked
2012	0.7	0.9
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 (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=59DE7E440F9F7393B12C16FDA63BEB66.cae1

The Flash Germany Composite Output Index of the Markit Flash Germany PMI^®, combining manufacturing and services, increased from 50.2 in May to 50.9 in Jun, with stronger improvement in services at 51.3 with unchanged manufacturing at 50.1 (http://www.markiteconomics.com/Survey/PressRelease.mvc/19df23bd5faf42a884b89501e2e69a15). New export orders for manufacturing decreased at the highest rate in 2013. Andrew Hacker, Senior Economist at Markit, finds limited growth impulse in Germany’s manufacturing and services in IIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/19df23bd5faf42a884b89501e2e69a15). The Markit Germany Composite Output Index of the Markit Germany Services PMI^®, combining manufacturing and services with close association with Germany’s GDP, increased from 49.2 in Apr to 50.2 in May (http://www.markiteconomics.com/Survey/PressRelease.mvc/534dd918be41426f9cbc8ab706af3607). Tim Moore, Senior Economist at Markit and author of the report, finds risks of standstill in the economy of Germany (http://www.markiteconomics.com/Survey/PressRelease.mvc/534dd918be41426f9cbc8ab706af3607). The Germany Services Business Activity Index increased from 49.6 in Apr to 49.7 in May (http://www.markiteconomics.com/Survey/PressRelease.mvc/534dd918be41426f9cbc8ab706af3607). The Markit/BME Germany Purchasing Managers’ Index^® (PMI^®), showing close association with Germany’s manufacturing conditions, increased from 48.1 in Apr to 49.4 in May, in very moderate contraction territory below 50.0 (http://www.markiteconomics.com/Survey/PressRelease.mvc/f33b9dcfa04642c781b5b3e9810e06fc). New export orders were unchanged in May with strength in orders from China and the US compensating for weakness in new orders inside the euro area. Tim Moore, Senior Economist at Markit and author of the report, finds improving conditions in German manufacturing with stronger output and new orders (http://www.markiteconomics.com/Survey/PressRelease.mvc/f33b9dcfa04642c781b5b3e9810e06fc).Table DE provides the country data table for Germany.

Table DE, Germany, Economic Indicators

GDP	IQ2013 0.1 ∆%; I/Q2013/IQ2012 ∆% -1.4 2012/2011: 0.7% GDP ∆% 1992-2012 Blog 8/26/12 5/27/12 11/25/12 2/24/13 5/19/13 5/26/13
Consumer Price Index	May month NSA ∆%: 0.4 May 12-month NSA ∆%: 1.5 Blog 6/16/13
Producer Price Index	May month ∆%: -0.3 CSA, 0.1 12-month NSA ∆%: 0.2 Blog 6/23/13
Industrial Production	MFG Apr month CSA ∆%: 1.5 12-month NSA: 8.9 Blog 6/9/13
Machine Orders	MFG Apr month ∆%: -2.3 Mar 12-month ∆%: 5.6 Blog 6/9/13
Retail Sales	Apr Month ∆% -0.4 12-Month ∆% 1.8 Blog 6/2/13
Employment Report	Unemployment Rate SA Mar 5.4% Blog 6/2/13
Trade Balance	Exports Apr 12-month NSA ∆%: 8.5 Imports Apr 12 months NSA ∆%: 5.2 Exports Apr month CSA ∆%: 1.9; Imports Apr month SA 2.3 Blog 6/9/13

Links to blog comments in Table DE:

6/16/13 http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html

6/9/13 http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html

6/2/13 http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.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 IVQ1949 to IVQ2012 is quite high at 3.2 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 1.9 percent in the 1990s and 1.7 percent from 2000 to 2007. The average growth rate from 2000 to 2012, using fourth quarter data, is 1.0 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	3.2
2000-2012	1.0
2000-2011	1.1
2000-2007	1.7
1990-1999	1.9
1980-1989	2.6
1970-1979	3.8
1960-1969	5.7
1950-1959	4.2

Source: Institut National de la Statistique et des Études Économiques http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20130327

The Markit Flash France Composite Output Index increased from 44.6 in May to 46.8 in Jun for the highest reading in ten months (http://www.markiteconomics.com/Survey/PressRelease.mvc/474f97906cf6429aafb0aff2e364c243). Jack Kennedy, Senior Economist at Markit and author of the report, finds that the data suggest slower rate of output contraction in IIQ2013 in both manufacturing and services (http://www.markiteconomics.com/Survey/PressRelease.mvc/474f97906cf6429aafb0aff2e364c243).

The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, increased from 44.3 in Apr to 44.6 in May, indicating of private sector activity at the slowest rate of deterioration in 2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/ee6a106df24542c89bb47f88945390d5). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI^®, finds that composite data for manufacturing and services indicate another quarter of contraction of GDP (http://www.markiteconomics.com/Survey/PressRelease.mvc/ee6a106df24542c89bb47f88945390d5). The Markit France Services Activity index was unchanged from 43.3 in Apr to 44.3 in May (http://www.markiteconomics.com/Survey/PressRelease.mvc/ee6a106df24542c89bb47f88945390d5). The Markit France Manufacturing Purchasing Managers’ Index^® increased to 46.4 in May from 44.4 in Apr, for the highest reading in about a year but remaining deeply below the neutral level of 50.0 (http://www.markiteconomics.com/Survey/PressRelease.mvc/5e6a4fec63424237bab6e6d0f3e8083c). Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI^®, finds slower decline in manufacturing but that the current period of 15 consecutive months of deterioration is the longest since beginning of the survey in 1998 (http://www.markiteconomics.com/Survey/PressRelease.mvc/5e6a4fec63424237bab6e6d0f3e8083c). Table FR provides the country data table for France.

Table FR, France, Economic Indicators

CPI	Apr month ∆% -0.1 12 months ∆%: 0.8 6/16/13
PPI	Apr month ∆%: -0.9 Apr 12 months ∆%: 0.6 Blog 6/2/13
GDP Growth	IQ2013/IQ2012 ∆%: -0.2 IVQ2012/IVQ2011 ∆%: -0.4 Blog 3/31/13 5/19/12
Industrial Production	Apr ∆%: Manufacturing 2.6 12-Month ∆%: Manufacturing minus 0.2 Blog 6/16/13
Consumer Spending	Manufactured Goods Apr ∆%: -0.4 Apr 12-Month Manufactured Goods ∆%: 0.2 Blog 6/2/13
Employment	Unemployment Rate: 10.4% Blog 6/9/13
Trade Balance	Apr Exports ∆%: month 4.1, 12 months 4.1 Apr Imports ∆%: month 3.8, 12 months -0.6 Blog 6/9/13
Confidence Indicators	Historical averages 100 Apr Mfg Business Climate 92 Blog 5/26/13

Links to blog comments in Table FR:

6/16/13 http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html

6/9/13 http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html

6/2/13 http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html

5/26/13 http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html

5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

VG Italy. Table VG-IT provides percentage changes in a quarter relative to the same quarter a year earlier of Italy’s expenditure components in chained volume measures. GDP has been declining at sharper rates from minus 0.5 percent in IVQ2011 to minus 2.8 percent in IVQ2012 and minus 2.4 percent in IQ2013. The aggregate demand components of consumption and gross fixed capital formation (GFCF) have been declining at faster rates.

Table VG-IT, Italy, GDP and Expenditure Components, Chained Volume Measures, Quarter ∆% on Same Quarter Year Earlier

	GDP	Imports	Consumption	GFCF	Exports
2013
IQ	-2.4	-5.2	-2.7	-7.5	-0.2
2012
IVQ	-2.8	-6.7	-4.2	-7.8	1.8
IIIQ	-2.6	-8.1	-4.3	-8.2	2.5
IIQ	-2.5	-7.5	-3.9	-8.3	2.5
IQ	-1.7	-8.9	-3.3	-7.6	2.1
2011
IVQ	-0.5	-6.9	-1.8	-3.3	3.1
IIIQ	0.3	0.1	-0.7	-2.1	5.6
IIQ	0.9	3.1	0.6	-0.6	7.0
IQ	1.3	8.8	0.9	0.6	10.9
2010
IVQ	2.0	15.3	1.1	0.8	13.2
IIIQ	1.8	13.2	1.3	2.4	12.0
IIQ	1.9	13.5	0.8	1.1	12.0
IQ	1.1	7.2	0.8	-2.0	7.3
2009
IVQ	-3.4	-6.4	0.2	-7.8	-9.3
IIIQ	-4.9	-12.2	-0.8	-12.6	-16.4
IIQ	-6.6	-17.9	-1.5	-13.6	-21.4
IQ	-7.0	-17.2	-1.7	-12.6	-22.8
2008
IVQ	-3.0	-8.2	-0.9	-8.3	-10.3
IIIQ	-1.9	-5.0	-0.8	-4.5	-3.9
IIQ	-0.2	-0.1	-0.3	-1.5	0.4
IQ	0.5	1.7	0.1	-1.0	2.9

GFCF: Gross Fixed Capital Formation

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/92338

The Markit/ADACI Business Activity Index decreased from 47.0 in Apr to 46.5 in May, indicating contraction of output of Italy’s services sector for 24 consecutive months of decline since Jun 2011 with some respondents experiencing moderately faster rate of contraction than in the first quarter (http://www.markiteconomics.com/Survey/PressRelease.mvc/812d0745b08d42d682b788f614dd7d5b). Phil Smith, economist at Markit and author of the Italy Services PMI^®, finds that the index suggests slower rate of decline of GDP in the second quarter (http://www.markiteconomics.com/Survey/PressRelease.mvc/812d0745b08d42d682b788f614dd7d5b). The Markit/ADACI Purchasing Managers’ Index^® (PMI^®), increased from 45.5 in Apr to 47.3 in May for 22 consecutive months of contraction of Italy’s manufacturing below 50.0 with the May at the highest in four months (http://www.markiteconomics.com/Survey/PressRelease.mvc/c45abc76abab42639cb3813e1c38539e). Phil Smith, economist at Markit and author of the Italian Manufacturing PMI^®, finds that manufacturing has been improving by obtaining foreign orders with internal demand still weak (http://www.markiteconomics.com/Survey/PressRelease.mvc/c45abc76abab42639cb3813e1c38539e). Table IT provides the country data table for Italy.

Table IT, Italy, Economic Indicators

Consumer Price Index	May month ∆%: 0.0 May 12-month ∆%: 1.1 Blog 6/16/13
Producer Price Index	Apr month ∆%: -0.5 Apr 12-month ∆%: -1.1 Blog 6/2/13
GDP Growth	IQ2013/IVQ2012 SA ∆%: minus 0.6 IQ2013/IQ2012 NSA ∆%: minus 2.4 Blog 3/17/13 6/16/13
Labor Report	Apr 2013 Participation rate 63.8% Employment ratio 56.0% Unemployment rate 12.0% Blog 6/2/13
Industrial Production	Apr month ∆%: -0.3 12 months CA ∆%: -4.6 Blog 6/16/13
Retail Sales	Mar month ∆%: -0.3 Mar 12-month ∆%: -3.0 Blog 5/26/13
Business Confidence	Mfg May 88.5, Jan 88.3 Construction May 81.8, Jan 80.4 Blog 6/2/13
Trade Balance	Balance Apr SA €2666 million versus Mar €402 Exports Apr month SA ∆%: 0.0; Imports Apr month ∆%: -0.9 Exports 12 months Apr NSA ∆%: 4.4 Imports 12 months NSA ∆%: -2.6 Blog 6/23/13

Links to blog comments in Table IT:

6/16/13 http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html

6/2/13 http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html

5/26/13 http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html

3/17/13 http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html

Exports and imports of Italy and monthly growth rates SA are in Table VG-1. There have been significant fluctuations. Seasonally adjusted exports changed 0.0 percent in Apr 2013 while imports decreased 0.9 percent. The SA trade balance improved from surplus of €2402 million in Mar 2013 to surplus of €2666 million in Apr 2013.

Table VG-1, Italy, Exports, Imports and Trade Balance SA Million Euros and Month SA ∆%

	Exports	∆%	Imports	∆%	Balance
2011
Apr	31,487	1.1	34,343	-2.4	-2,856
May	32,212	2.3	34,842	1.5	-2,630
Jun	31,411	-2.5	33,336	-4.3	-1,925
Jul	31,619	0.7	33,948	1.8	-2,329
Aug	31,648	0.1	34,277	1.0	-2,629
Sep	31,886	0.8	33,268	-2.9	-1,382
Oct	31,060	-2.6	32,609	-2.0	-1,549
Nov	31,536	1.5	32,949	1.0	-1,413
Dec	32,698	3.7	31,964	-3.0	734
2012
Jan	31,799	-2.7	32,211	0.8	-412
Feb	32,058	0.8	32,526	1.0	-468
Mar	32,393	1.0	31,830	-2.1	563
Apr	32,396	0.0	32,400	1.8	-4
May	32,795	1.2	32,577	0.5	218
Jun	32,355	-1.3	30,650	-5.9	1,705
Jul	32,646	0.9	31,725	3.5	921
Aug	33,476	2.5	32,654	2.9	822
Sep	32,755	-2.2	31,200	-4.5	1,555
Oct	32,698	-0.2	31,260	0.2	1,438
Nov	32,787	0.3	30,479	-2.5	2,308
Dec	32,661	-0.4	30,964	1.6	1,697
2013
Jan	33,111	1.4	30,976	0.0	2,135
Feb	32,134	-3.0	30,056	-3.0	2,078
Mar	32,504	1.2	30,102	0.2	2,402
Apr	32,493	0.0	29,827	-0.9	2,666

Source: Istituto Nazionale di Statistica

http://www.istat.it/it/archivio/93481

Italy’s trade account not seasonally adjusted is in Table VG-2. Values are different because the data are original and not adjusted. Exports increased 4.4 percent in the 12 months ending in Apr 2013 while imports decreased 2.6 percent with actual trade surplus of €1907 million. Twelve-month rates of growth picked up again in Aug 2011 with 15.2 percent for exports and 12.6 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 0.2 percent. In Nov 2011, exports grew 6.5 percent in 12 months while imports grew 0.5 percent. Exports continued to growth of 7.2 percent in the 12 months ending in Aug 2012 while imports fell 2.7 percent. The actual or not seasonally adjusted trade balance deficit fell from €2948 million in Aug 2011 to surplus of €1407 million in Dec 2011 but turned into deficit of €4574 million in Jan 2012. The deficit improved to lower deficit of €1195 million in Feb 2012 and surplus of €1792 million in Mar 2012, returning to deficit of €250 million in Apr and surplus of €867 million in May. In Jun 2012, the actual surplus was €2780 million and then €4733 million in Jul 2012, which was the highest in 2012 but deteriorated to actual deficit of €483 million in Aug 2012. Exports fell 20.9 percent and imports 22.1 percent during the global recession in 2009. Growth of exports of 12.0 percent in the 12 months ending in Oct 2012 while imports increased 1.0 percent increased the trade surplus to €2420 million. The trade surplus was €2105 million in Dec 2012 with growth of exports of minus 3.6 percent in 12 months while imports fell 6.0 percent. The trade balance deteriorated to deficit of €1614 million in Jan 2013 even with growth of exports of 8.7 percent in 12 months while imports fell 1.8 million. The trade balance returned to surplus of €1092 million in Feb 2013 with decline of exports by 2.8 percent and decrease of exports by 9.7 percent. The surplus widened to €3240 million in Mar 2013 with exports declining 6.0 percent and imports falling 10.6 percent. The surplus shrank to €1907 with growth of exports of 4.4 and decline of imports of 2.6 percent.

Table VG-2, Italy, Exports, Imports and Trade Balance NSA Million Euros and 12 Month ∆%

	Exports		Import		Balance
2010	337,346	15.6	367,390	23.4	-30,044
2011	375,904	11.4	401,428	9.3	-25,524
2012	389,725	3.7	378,759	-5.6	10,966
2011
Apr	31,079	12.6	33,969	18.4	-2,890
May	33,545	19.9	35,853	18.8	-2,308
Jun	32,649	8.1	34,481	2.1	-1,832
Jul	35,327	6.0	34,058	7.1	1,269
Aug	24,245	15.2	27,193	12.6	-2,948
Sep	32,996	10.2	34,886	3.6	-1,890
Oct	32,131	4.5	33,245	-0.2	-1,114
Nov	32,440	6.5	34,025	0.5	-1,585
Dec	31,364	5.6	29,957	-8.5	1,407
2012
Jan	27,429	4.8	32,003	-1.7	-4,574
Feb	31,787	7.3	32,982	0.9	-1,195
Mar	36,070	5.0	34,278	-11.0	1,792
Apr	30,510	-1.8	30,760	-9.4	-250
May	35,132	4.7	34,265	-4.4	867
Jun	34,358	5.2	31,578	-8.4	2,780
Jul	37,019	4.8	32,286	-5.2	4,733
Aug	25,979	7.2	26,462	-2.7	-483
Sep	31,602	-4.2	31,193	-10.6	409
Oct	35,997	12.0	33,577	1.0	2,420
Nov	33,593	3.6	31,230	-8.2	2,363
Dec	30,250	-3.6	28,145	-6.0	2,105
2013
Jan	29,824	8.7	31,438	-1.8	-1,614
Feb	30,890	-2.8	29,798	-9.7	1,092
Mar	33,894	-6.0	30,654	-10.6	3,240
Apr	31,866	4.4	29,959	-2.6	1,907

Source: Istituto Nazionale di Statistica

http://www.istat.it/it/archivio/93481

Growth rates of Italy’s trade and major products are in Table VG-3 for the period Jan-Apr 2013 relative to Jan-Apr 2012. Growth rates of cumulative imports relative to a year earlier are negative for energy with minus 18.5 percent and minus 10.9 percent for durable goods. The higher rate of growth of exports of 0.5 percent in Jan-Apr 2013/Jan-Apr 2012 relative to imports of minus 6.3 percent may reflect weak demand in Italy with GDP declining during seven consecutive quarters from IIIQ2011 through IQ2013 together with softening commodity prices.

Table VG-3, Italy, Exports and Imports % Share of Products in Total and ∆%

	Exports Share %	Exports ∆% Jan-Apr 2013/ Jan-Apr 2012	Imports Share %	Imports ∆% Jan-Apr 2013/ Jan-Apr 2012
Consumer Goods	29.3	7.2	25.6	0.9
Durable	5.8	2.0	2.9	-10.9
Non-Durable	23.5	8.5	22.7	2.4
Capital Goods	31.6	0.4	19.5	-6.5
Inter- mediate Goods	33.6	-2.2	32.6	-2.8
Energy	5.5	-16.3	22.3	-18.5
Total ex Energy	94.5	1.5	77.7	-2.6
Total	100.0	0.5	100.0	-6.3

Note: % Share for 2012 total trade.

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/93481

Table VG-4 provides Italy’s trade balance by product categories in Apr 2013 and cumulative Jan-Apr 2013. Italy’s trade balance excluding energy generated surplus of €6467 million in Apr 2013 and €23,446 million cumulative in Jan-Apr 2013 but the energy trade balance created deficit of €4559 million in Apr 2013 and cumulative €18,820 million in Jan-Apr 2013. The overall surplus in Apr 2013 was €1907 million with cumulative surplus of €4626 million in Jan-Apr 2013. 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

	Apr 2013	Cumulative Jan-Apr 2013
Consumer Goods	1,483	6,530
Durable	1,003	4,044
Nondurable	480	2,487
Capital Goods	4,385	15,274
Intermediate Goods	599	1,642
Energy	-4,559	-18,820
Total ex Energy	6,467	23,446
Total	1,907	4,626

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/93481

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. Growth of the Italian economy would ensure that success. 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 surpluses 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), or euro area, are only 40.5 percent of the total. Exports to the non-European Union area with share of 46.3 percent in Italy’s total exports are growing at 5.3 percent in Jan-Apr 2013 relative to Jan-Apr 2012 while those to EMU are growing at minus 3.8 percent.

Table VG-5, Italy, Exports and Imports by Regions and Countries, % Share and 12-Month ∆%

Apr 2013	Exports % Share	∆% Jan-Apr 2013/ Jan-Apr 2012	Imports % Share	∆% Jan-Apr 2013/ Jan-Apr 2012
EU	53.7	-3.2	52.9	-2.2
EMU 17	40.5	-3.8	42.7	-2.1
France	11.1	-2.1	8.3	-4.5
Germany	12.5	-4.6	14.6	-6.0
Spain	4.7	-9.0	4.4	-1.2
UK	4.9	-0.2	2.5	-0.9
Non EU	46.3	5.3	47.1	-10.8
Europe non EU	13.9	3.0	11.3	8.0
USA	6.8	0.3	3.3	-21.0
China	2.3	3.4	6.5	-5.7
OPEC	5.7	14.7	10.8	-23.8
Total	100.0	0.5	100.0	-6.3

Notes: EU: European Union; EMU: European Monetary Union (euro zone)

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/93481

Table VG-6 provides Italy’s trade balance by regions and countries. Italy had trade deficit of €570 million with the 17 countries of the euro zone (EMU 17) in Apr 2013 and cumulative deficit of €1726 million in Jan-Apr 2013. Depreciation to parity could permit greater competitiveness in improving the trade surplus of €1948 million in Jan-Apr 2013 with Europe non European Union, the trade surplus of €4443 million with the US and trade surplus with non-European Union of €2521 million in Jan-Apr 2013. There is significant rigidity in the trade deficits in Jan-Apr 2013 of €4705 million with China and €3619 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 Apr 2013 Millions of Euro	Trade Balance Cumulative Jan-Apr 2013 Millions of Euro
EU	441	2,105
EMU 17	-570	-1,726
France	853	3,973
Germany	-282	-1,708
Spain	8	316
UK	805	2,836
Non EU	1,466	2,521
Europe non EU	780	1,948
USA	1,213	4,443
China	-913	-4,705
OPEC	-520	-3,619
Total	1,907	4,626

Notes: EU: European Union; EMU: European Monetary Union (euro zone)

Source: Istituto Nazionale di Statistica

http://www.istat.it/it/archivio/93481

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 1.0 percent in 2011 and 0.3 percent in 2012. The bottom part of Table VH-UK provides average growth rates of UK GDP since 1948. The UK economy grew at 2.6 percent on average between 1948 and 2012, 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 1.0 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	1.0
2012	0.3
Average ∆% per Year
1948-2012	2.6
1948-1959	2.9
1960-1969	3.3
1970-1979	2.5
1980-1989	3.2
1990-1999	2.6
2000-2012	1.6
2000-2007	3.0
2009-2012	1.0

Source: UK Office for National Statistics Statistics http://www.ons.gov.uk/ons/rel/naa2/second-estimate-of-gdp/q1-2013/index.html

The Business Activity Index of the Markit/CIPS UK Services PMI^® increased from 52.9 in Apr to 54.9 in May, indicating increase in activity in every month since the beginning of 2013 and at the fastest rate since Mar 2012 (http://www.markiteconomics.com/Survey/PressRelease.mvc/9fbd7a9c2e7042f4b2b9eb9c479673c8). Chris Williamson, Chief Economist at Markit, finds continuing improvement in the UK’s economy that depending on Jun could result in growth of GDP of 0.5 percent in IIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/9fbd7a9c2e7042f4b2b9eb9c479673c8). The Markit/CIPS UK Manufacturing Purchasing Managers’ Index^® (PMI^®) increased from 50.2 in Apr to 51.3 in May, which is the highest reading since Mar 2012 (http://www.markiteconomics.com/Survey/PressRelease.mvc/ff4aa4ed5e41429c86b62108fe19555d). Rob Dobson, Senior Economist at Markit that compiles the Markit/CIPS Manufacturing PMI^®, finds manufacturing improving throughout all segments with the impulse originating in the internal market but increases in demand from Asia, North America and some countries in the euro area such as Germany (http://www.markiteconomics.com/Survey/PressRelease.mvc/ff4aa4ed5e41429c86b62108fe19555d). Table UK provides the economic indicators for the United Kingdom.

Table UK, UK Economic Indicators


CPI	May month ∆%: 0.2 May 12-month ∆%: 2.7 Blog 6/23/13
Output/Input Prices	Output Prices: May 12-month NSA ∆%: 1.2; excluding food, petroleum ∆%: 0.8 Input Prices: May 12-month NSA ∆%: 2.2 Excluding ∆%: 1.9 Blog 6/23/13
GDP Growth	IQ2013 prior quarter ∆% 0.3; year earlier same quarter ∆%: 0.6 Blog 3/31/13 4/28/13 5/26/13
Industrial Production	Apr 2013/Apr 2012 ∆%: Production Industries minus 0.6; Manufacturing minus 0.5 Blog 5/12/13
Retail Sales	May month ∆%: 2.1 May 12-month ∆%: 1.9 Blog 6/23/13
Labor Market	Feb-Apr Unemployment Rate: 7.8%; Claimant Count 4.5%; Earnings Growth 1.3% Blog 6/16/13
Trade Balance	Balance Apr minus ₤2579 million Exports Apr ∆%: -1.3; Feb-Apr ∆%: 0.3 Imports Apr ∆%: -2.7 Feb-Apr ∆%: -0.9 Blog 6/9/13

Links to blog comments in Table UK:

6/16/13 http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html

6/9/13 http://cmpassocregulationblog.blogspot.com/2013/06/twenty-eight-million-unemployed-or.html

5/26/13 http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html

5/12/13 http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html

4/28/13 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html

03/31/13 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html

The volume of retail sales in the UK increased 2.1 percent in May 2013 and increased 1.9 percent in the 12 months ending in May 2013, as shown in Table VH-1. Percentage changes of retail sales in 12 months had been positive in several months since Sep 2011 with exceptions such as decline of 2.3 percent in Apr 2012, 0.8 percent in Jan 2013, 0.5 percent in Mar 2013 and 1.1 percent in May 2013.

Table VH-1, UK, Volume of Retail Sales ∆%

	Month ∆%	12-Month ∆%
May 2013	2.1	1.9
Apr	-1.1	0.8
Mar	-0.5	-0.4
Feb	2.2	2.4
Jan	-0.8	-0.7
Dec 2012	-0.2	0.3
Nov	0.1	0.7
Oct	-0.8	0.5
Sep	0.5	2.3
Aug	-0.1	2.4
Jul	0.1	2.0
Jun	0.4	2.1
May	1.0	1.7
Apr	-2.3	-1.6
Mar	2.4	2.9
Feb	-1.0	0.4
Jan	0.3	0.6
Dec 2011	0.2	2.5
Nov	-0.1	0.2
Oct	0.9	0.7
Sep	0.6	0.3
Aug	-0.5	-1.2
Jul	0.3	-0.9
Jun	0.0	-0.8
May	-2.3	-0.9
Apr	2.1	2.2
Mar	-0.1	0.1
Feb	-0.8	0.0
Jan	2.2	3.5

Dec 2010	-2.0	-2.2

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/rsi/retail-sales/may-2013/index.html

Retail sales in the UK struggle with oscillating and 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 0.9 percent in the 12 months ending in May 2013 while that of sales excluding auto fuel increased 1.4 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 0.3 percent in Dec 2012 and minus 0.2 percent in Jan 2013 but decreased 2.2 percent in May 2013. The percentage change of the implied deflator of sales of food stores at 3.5 percent in May 2013 is 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-15. 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 Fuel	Food Stores	Non- Food	Auto Fuel
May 2013	0.9	1.4	3.5	-0.2	-2.2
Apr	0.5	0.9	3.4	-0.8	-2.9
Mar	0.7	1.0	3.0	-0.8	0.6
Feb	0.7	0.8	3.2	-0.9	1.2
Jan	0.8	1.2	3.7	-0.9	-0.2
Dec 2012	0.6	0.8	3.0	-0.5	0.3
Nov	0.4	0.5	3.0	-1.2	1.4
Oct	0.9	0.8	2.7	-0.7	2.6
Sep	0.7	0.5	2.0	-0.7	2.9
Aug	0.3	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	2.7	2.3	4.0	0.7	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	3.0	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/may-2013/index.html

UK monthly retail volume of sales is quite volatile, as shown in Table VH-3. Total volume of sales decreased 1.1 percent in Apr 2013 and increased 2.1 percent in May 2013. There was increase of 1.4 percent in retail sales excluding auto fuels in May 2013 and increase of 3.5 percent in food stores, increase of 0.7 percent in nonfood stores and increase of 1.7 percent in auto fuel stores. Multiple positive and negative variations and changes in magnitudes confirm high volatility.

VH-3, UK, Growth of Retail Sales Volume by Component Groups Month SA ∆%

		All Retail	Ex Auto Fuel	Food Stores	Non-Food	Auto Fuel
2011	Jan	2.2	1.4	0.7	2.0	10.4
	Feb	-0.8	-0.9	-0.4	-1.4	-0.3
	Mar	-0.1	0.0	0.7	-0.3	-0.9
	Apr	2.1	2.2	3.8	0.6	1.8
	May	-2.3	-2.5	-4.4	-1.1	-0.3
	Jun	0.0	0.0	-0.3	-0.4	0.3

	Jul	0.3	0.3	1.0	0.1	-0.2
	Aug	-0.5	-0.4	-0.1	-1.2	-0.6
	Sep	0.6	0.7	0.1	1.3	0.3
	Oct	0.9	0.8	0.8	1.1	1.1
	Nov	-0.1	-0.4	-0.5	-1.1	3.0
	Dec	0.2	0.3	-0.1	1.1	-0.9

2012	Jan	0.3	0.3	0.3	0.2	0.0
	Feb	-1.0	-0.8	-0.2	-1.4	-2.4
	Mar	2.4	2.0	-0.3	4.3	5.6
	Apr	-2.3	-1.2	0.1	-2.8	-12.5
	May	1.0	0.6	0.2	1.0	5.2
	Jun	0.4	0.7	0.1	1.3	-2.5

	Jul	0.1	-0.2	0.3	-0.9	2.6
	Aug	-0.1	-0.1	0.1	0.4	0.4
	Sep	0.5	0.5	-0.1	0.5	0.8
	Oct	-0.8	-0.6	-0.9	-0.7	-3.3
	Nov	0.1	0.2	-0.3	0.6	-1.8
	Dec	-0.2	-0.5	0.1	-1.4	2.9

2013	Jan	-0.8	-0.5	-1.1	-0.4	-3.6
	Feb	2.2	2.1	0.6	3.3	2.8
	Mar	-0.5	-0.6	1.5	-3.3	0.6
	Apr	-1.1	-1.2	-4.1	2.3	-0.4
	May	2.1	2.1	3.5	0.7	1.7

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/rsi/retail-sales/may-2013/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 1.9 percent in the 12 months ending in May 2013 with increase of 2.1 percent in sales excluding auto fuel. Sales of food stores decreased 0.5 percent in the 12 months ending in May 2013 while sales of nonfood stores increased 2.2 percent and sales of auto fuel stores increased 0.1 percent.

Table VH-4, UK, Growth of Retail Sales Volume by Component Groups 12-Month ∆%

	Dec	-2.2	-1.6	-4.2	-0.4	9.2	-8.4

2011	Jan	3.5	3.1	-2.4	7.2	15.9	7.6
	Feb	0.0	-0.5	-2.4	-0.2	14.3	4.8
	Mar	0.1	-0.3	-1.3	-0.4	9.3	3.6
	Apr	2.2	2.0	2.4	0.5	11.9	4.0
	May	-0.9	-1.2	-3.3	-0.9	14.5	2.2
	Jun	-0.8	-1.2	-4.0	-0.8	20.0	3.2

	Jul	-0.9	-1.2	-1.1	-2.7	10.6	2.1
	Aug	-1.2	-1.5	-0.6	-3.8	10.8	2.0
	Sep	0.3	0.0	-0.3	-1.3	12.9	3.4
	Oct	0.7	0.5	0.5	-0.8	11.4	2.6
	Nov	0.2	-0.3	-1.1	-1.6	17.9	5.2
	Dec	2.5	1.4	1.0	0.7	10.1	13.9

2012	Jan	0.6	0.3	0.7	-1.1	8.7	3.1
	Feb	0.4	0.4	0.9	-1.1	8.3	1.0
	Mar	2.9	2.4	-0.1	3.4	12.9	7.6
	Apr	-1.6	-1.0	-3.6	-0.1	12.6	-7.5
	May	1.7	2.2	1.0	2.0	12.2	-2.4
	Jun	2.1	2.9	1.4	3.7	7.2	-5.1

	Jul	2.0	2.4	0.7	2.7	12.9	-2.4
	Aug	2.4	2.8	0.9	4.4	4.0	-1.4
	Sep	2.3	2.6	0.6	3.6	9.0	-0.8
	Oct	0.5	1.1	-1.1	1.8	11.8	-5.1
	Nov	0.7	1.8	-0.8	3.5	7.5	-9.6
	Dec	0.3	1.0	-0.6	0.9	13.7	-6.0

2013	Jan	-0.7	0.2	-2.0	0.3	15.7	-9.4
	Feb	2.4	3.2	-1.3	5.0	21.0	-4.5
	Mar	-0.4	0.6	0.6	-2.7	25.2	-9.1
	Apr	0.8	0.6	-3.6	2.5	15.2	3.5
	May	1.9	2.1	-0.5	2.2	19.1	0.1

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/rsi/retail-sales/may-2013/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 1.9 percent in the 12 months ending in May 2013. Sales of predominantly food stores with weight of 41.3 percent decreased 0.5 percent in the 12 months ending in May 2013, subtracting 0.2 percentage points. Mostly nonfood stores with weight of 41.6 percent increased 2.2 percent with contribution of 0.9 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 19.1 percent and positive contribution of 1.1 percentage points but automotive fuel with weight of 11.8 percent and growth of 0.1 percent added 0.1 percentage points. The value of retail sales increased 3.1 percent in the 12 months ending in May 2013. There were positive contributions: 0.9 percentage points for predominantly nonfood stores and 1.0 percentage points for non-store retailing. Automotive fuel stores deducted 0.2 percentage points while food stores added 1.4 percentage points.

Table VH-5, UK, Volume and Value of Retail Sales 12-month ∆% and Percentage Points Contributions by Sectors

May 2013	Weight % of All Retailing	Volume SA 12- Month ∆%	PP Cont. % points	Value SA 12- Month ∆%	PP Cont. % points
All Retailing	100.0	1.9		3.1
Mostly Food Stores	41.3	-0.5	-0.2	3.4	1.4
Mostly Nonfood Stores	41.6	2.2	0.9	2.0	0.9
Non-store Retailing	5.3	19.1	1.1	18.1	1.0
Automotive Fuel	11.8	0.1	0.1	-1.8	-0.2

Cont.: Contribution

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/rsi/retail-sales/may-2013/index.html

Longer Run