CMP Associates Regulation Blog

There is only milder improvement in total private hiring shown in Chart 8 also anticipated here from the text. HP rose in 2011 but appears to have become stationary again in recent months.

Chart 8, US, Total Private Hiring Month SA 2011-2011

Source: US Bureau of Labor Statistics

Chart 10 also anticipated from the text shows monthly job openings rising from the trough in 2009 to a high in the beginning of 2010. Job openings then stabilized into 2011.

Chart 10, US Job Openings, Thousands NSA

Source: US Bureau of Labor Statistics

Chart 16 also anticipated from the text provides U6 on a monthly basis from 2001 to 2011. There was a steep climb from 2007 into 2009 and then this measure of unemployment and underemployment stabilized at that high level.

Chart 16, US, U6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons % LF plus all marginally attached workers as % of Labor Force, Month, SA,

Source: US Bureau of Labor Statistics

One of the dramas of the current job market of the US consists of millions of people working part-time for economic reasons, or the failure to find full-time employment. Chart 17 also anticipated from the text shows the jump of numbers of people working part-time for economic reasons from 2007 and subsequent stabilization at a very high level.

Chart 17, US, Working Part-time for Economic Reasons

Thousands, Month SA 2001-2011

Sources: US Bureau of Labor Statistics

The New York State Comptroller Thomas P. DiNapoli explains vividly the worrisome state of the securities industry (http://www.osc.state.ny.us/press/releases/oct11/101111.htm):

“The securities industry had a strong start to 2011, but its prospects have cooled considerably for the second half of this year,’ DiNapoli said. ‘It now seems likely that profits will fall sharply, job losses will continue, and bonuses will be smaller than last year. These developments will have a rippling effect through the economy and adversely impact State and City tax collections. As we know, when Wall Street slows, New York City and New York State’s budgets feel the impact and that is a concern.”

The report of the New York State Comptroller elaborates the impact of the loss of employment to New York City and New York State (http://www.osc.state.ny.us/press/releases/oct11/101111.htm):

“The economies and budgets of New York City and New York State are very dependent on the securities industry. According to the Office of the State Comptroller, last year securities-related activities accounted for 14 percent of New York State’s tax revenues and almost 7 percent of New York City’s. In addition, one in 8 jobs in New York City and 1 in 13 jobs in New York State are linked to the securities industry. Given the current weakness, tax collections are likely to fall short of City and State targets in their current fiscal years and may decline by more the following year.

DiNapoli’s analysis also found that:

The member firms of the New York Stock Exchange earned $9.3 billion in the first quarter of 2011 (almost half of the City’s $20 billion target for the entire year), but profits declined sharply in the second quarter. The Office of the State Comptroller forecasts that profits are unlikely to reach $18 billion for all of 2011, which is one-third less than in 2010.
After adding 9,900 jobs between January 2010 and April 2011, the securities industry has lost 4,100 jobs through August 2011. Job losses are likely to continue given declines in profitability and recent layoff announcements. OSC estimates that the securities industry could lose nearly 10,000 additional jobs by the end of 2012, which would bring total industry job losses to 32,000 since January 2008.
Cash bonuses are likely to be smaller in 2011, the second year in a row in which they have declined.
The average salary in the securities industry in 2010 grew by 16.1 percent to $361,330, 5.5 times higher than the average salary in the private sector of $66,120. The disparity between average salaries in the securities industry and the rest of the private sector narrowed in 2008 and 2009, but widened in 2010.
In 2010, the securities industry accounted for 23.5 percent of all wages paid in the private sector despite accounting for only 5.3 percent of all private sector jobs.
The State Comptroller’s Office estimates that each job gained (or lost) in the securities industry leads to the creation (or loss) of almost two additional jobs in other industries in the New York City and another job elsewhere in New York State.“

This may be the beginning of the loss of jobs and business to the US because of the erosion of the country’s competitiveness. Erosion of the competitiveness of the US in capital markets had even begun earlier (see Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 168-179).

I United States Hiring Collapse. An important characteristic of the current fractured labor market of the US is the closing of the avenue for exiting unemployment and underemployment normally available through dynamic hiring. Another avenue that is closed is the opportunity for advancement in moving to new jobs that pay better salaries and benefits again because of the collapse of hiring in the United States. Those who are unemployed or underemployed cannot find a new job even accepting lower wages and no benefits. The employed cannot escape declining inflation-adjusted earnings because there is no hiring. The objective of this section is to analyze hiring and labor underutilization in the United States.

An appropriate measure of job stress is considered by Blanchard and Katz (1997, 53):

“The right measure of the state of the labor market is the exit rate from unemployment, defined as the number of hires divided by the number unemployed, rather than the unemployment rate itself. What matters to the unemployed is not how many of them there are, but how many of them there are in relation to the number of hires by firms.”

The natural rate of unemployment and the similar NAIRU are quite difficult to estimate in practice (Ibid; see Ball and Mankiw 2002).

The Bureau of Labor Statistics (BLS) created the Job Openings and Labor Turnover Survey (JOLTS) with the purpose that (http://www.bls.gov/jlt/jltover.htm#purpose):

“These data serve as demand-side indicators of labor shortages at the national level. Prior to JOLTS, there was no economic indicator of the unmet demand for labor with which to assess the presence or extent of labor shortages in the United States. The availability of unfilled jobs—the jobs opening rate—is an important measure of tightness of job markets, parallel to existing measures of unemployment.”

The BLS collects data from about 16,000 US business establishments in nonagricultural industries through the 50 states and DC. The data are released monthly and constitute an important complement to other data provided by the BLS.

Hiring in the nonfarm sector (HNF) has declined from 64.9 million in 2006 to 47.2 million in 2010 or by 17.7 million while hiring in the private sector (HP) has declined from 60.4 million in 2006 to 43.3 million in 2010 or by 17.1 million, as shown in Table 1. The ratio of nonfarm hiring to unemployment (RNF) has fallen from 47.7 in 2006 to 36.4 in 2010 and in the private sector (RHP) from 52.9 in 2006 to 40.3 in 2010 (http://cmpassocregulationblog.blogspot.com/2011/03/slow-growth-inflation-unemployment-and.html).

Table 1, US, Annual Total Nonfarm Hiring (HNF) and Total Private Hiring (HP) in the US and Percentage of Total Employment

	HNF	Rate RNF	HP	Rate HP
2001	63,766	48.4	59,374	53.6
2002	59,797	45.9	55,665	51.1
2003	57,787	44.5	54,082	49.9
2004	61,624	46.9	57,534	52.4
2005	64,498	48.2	60,444	54.0
2006	64,870	47.7	60,419	52.9
2007	63,326	46.0	58,760	50.9
2008	53,986	39.5	50,286	44.0
2009	45,372	34.7	41,966	38.8
2010	47,234	36.4	43,299	40.3

Source: http://www.bls.gov/jlt/data.htm

Chart 1 provides the yearly levels of total nonfarm hiring (NFH) in Table 1. The fall of hiring during the contraction of 2007 to 2009 was much stronger than in the shallow contraction of 2001 with GDP contraction of only 0.4 percent from Mar 2001 (IQ2001) to Dec 2011 (IVQ 2001) compared with 5.1 percent contraction in the much longer recession of Dec 2007 (IVQ2007) to Jun 2009 (IIQ2009) (http://www.nber.org/cycles.html).

Chart 1, US, Total Nonfarm Hiring (HNF), Yearly, 2001-2010

Source: US Bureau of Labor Statistics

Chart 2 shows the ratio or rate of nonfarm hiring to unemployment (RNF) that also fell much more in the recession of 2007 to 2009 than in the shallow recession of 2001.

Chart 2, US, Rate Total Nonfarm Hiring (HNF), Yearly, 2001-2010

Source: US Bureau of Labor Statistics

Total nonfarm hiring (HNF) yearly percentage changes are provided in Table 2. There were much milder declines in 2002 of 6.2 percent and 3.4 percent in 2003 followed by strong rebounds of 6.6 percent in 2004 and 4.7 percent in 2005. In contrast, the contractions of nonfarm hiring in the recession after 2007 were much sharper in percentage points: 2.4 in 2007, 14.7 in 2008 and 16 percent in 2009. On a yearly basis, nonfarm hiring grew 4.1 percent in 2010 relative to 2009.

Table 2, US, Annual Total Nonfarm Hiring (HNF), Yearly Percentage Change, 2001-2010

Year	Annual
2002	-6.2
2003	-3.4
2004	6.6
2005	4.7
2006	0.6
2007	-2.4
2008	-14.7
2009	-16.0
2010	4.1

Source: US Bureau of Labor Statistics

Chart 3 plots yearly percentage changes of nonfarm hiring. Percentage declines after 2007 were quite sharp.

Chart 3, US, Annual Total Nonfarm Hiring (HNF), Yearly Percentage Change, 2001-2010

Source: US Bureau of Labor Statistics

Total private hiring (HP) yearly data are provided in Chart 4. There has been sharp contraction of total private hiring in the US and only mild recovery in 2010.

Chart 4, US, Total Private Hiring, Yearly, 2001-2011

Source:

US Bureau of Labor Statistics

Chart 5 plots the rate of total private hiring relative to unemployment (RHP). The rate collapsed during the global recession after 2007.

Chart 5, US, Rate Total Private Hiring, Yearly, 2001-2011

Source:

US Bureau of Labor Statistics

Total nonfarm hiring (HNF), total private hiring (HP) and their respective rates are provided for the month of Aug in the years from 2001 to 2011 in Table 3. There is some recovery in HNF from 4121 in Aug 2009 to 4317 in Aug 2010 and 4462 in Aug 2011 for cumulative gain of 8.3 percent. HP rose from 3675 in Aug 2009 to 4026 in Aug 2011 for cumulative gain of 9.6 percent. HNF has fallen from 6014 in Aug 2005 to 4462 in Aug 2011 or by 25.8 percent. HP has fallen from 5487 in Aug 2005 to 4026 in Aug 2011 or by 26.2 percent. The labor market continues to be fractured, failing to provide an opportunity to exit from unemployment/underemployment or to find an opportunity for advancement away from declining inflation-adjusted earnings.

Table 3, US, Total Nonfarm Hiring (HNF) and Total Private Hiring (HP) in the US in Thousands and in Percentage of Total Employment Not Seasonally Adjusted

	HNF	Rate RNF	HP	Rate HP
2001 Aug	5503	4.2	4927	4.4
2002 Aug	5306	4.1	4757	4.3
2003 Aug	5062	3.9	4690	4.3
2004 Aug	5606	4.3	5110	4.6
2005 Aug	6014	4.5	5487	4.8
2006 Aug	5874	4.3	5249	4.6
2007 Aug	5746	4.2	5068	4.4
2008 Aug	4982	3.6	4445	3.9
2009 Aug	4121	3.2	3675	3.4
2010 Aug	4317	3.3	3890	3.6
2011 Aug	4462	3.4	4026	3.7

Source: US Bureau of Labor Statistics

Chart 6 provides total nonfarm hiring on a monthly basis from 2001 to 2011. Hiring rebounded in early 2010 but then fell and stabilized at a lower level than the early peak in 2010.

Chart 6, US, Total Nonfarm Hiring (HNF), 2001-2011 Month SA

Source: US Bureau of Labor Statistics

Similar behavior occurs in the rate of nonfarm hiring plot in Chart 7. Recovery in early 2010 was followed by decline and stabilization at the lower level.

Chart 7, US, Rate Total Nonfarm Hiring, Monthly 2001-2011 Month SA

Source: US Bureau of Labor Statistics

There is only milder improvement in total private hiring shown in Chart 8. HP rose in 2011 but appears to have become stationary again in recent months.

Chart 8, US, Total Private Hiring Month SA 2011-2011

Source: US Bureau of Labor Statistics

Chart 9 shows similar behavior in the rate of private hiring. The rate appears to have stabilized at a low level.

Chart 9, US, Rate Total Private Hiring Month SA 2011-2011

Source: US Bureau of Labor Statistics

The JOLTS report of the Bureau of Labor Statistics also provide total nonfarm job openings (TNF JOB), TNF JOB rate and TNF LO (layoffs and discharges) shown in Table 4 for the month of Aug from 2001 to 2011. The final column provides TNF LO for the years from 2001 to 2011. Nonfarm job openings fell from a peak of 4701 in Aug 2007 to 3158 in Aug 2011 or by 32.8 percent while the rate dropped from 3.3 to 2.2. Nonfarm layoffs and discharges (TNF LO) rose from 1748 in Aug 2006 to 2238 in Aug 2008 or by 28 percent. The yearly data show layoffs and discharges rising from 21.5 million in 2006 to 26.3 million in 2009 or by 22.3 percent.

Table 4, US, Job Openings and Total Separations, Thousands NSA

	TNF JOB	TNF JOB Rate	TNF LO	TNF LO Year
Aug 2001	4331	3.2	1857	24351
Aug 2002	3518	2.6	1870	23325
Aug 2003	3229	2.4	2072	23959
Aug 2004	3761	2.8	2080	23389
Aug 2005	4152	3.0	1976	22774
Aug 2006	4634	3.3	1748	21468
Aug 2007	4701	3.3	1951	22577
Aug 2008	3651	2.6	2238	23737
Aug 2009	2287	1.7	2208	26318
Aug 2010	2954	2.2	1947	21243
Aug 2011	3158	2.4	1744

Notes: TNF JOB: Total Nonfarm Job Openings; LO: Layoffs and Discharges

Source: US Bureau of Labor Statistics

Chart 10 shows monthly job openings rising from the trough in 2009 to a high in the beginning of 2010. Job openings then stabilized into 2011.

Chart 10, US Job Openings, Thousands NSA

Source: US Bureau of Labor Statistics

The rate of job openings in Chart 11 shows similar behavior. The rate rises from 2009 into the initial part of 2010 and then stabilizes into 2011.

Chart 11, US, Rate of Job Openings, Thousands NSA

Source: US Bureau of Labor Statistics

Chart 12 shows total separations in the JOLTS report on a monthly basis. Total separations collapsed during the global recession and then stabilized.

Chart 12, US, Total Separations, Month SA 2001-2011

Source: US Bureau of Labor Statistics

Yearly total separations are shown in Chart 13. Separations are some 20 million lower in 2010 than before the global recession.

Chart 13, US, Total Separations, Yearly 2001-2010

Source: US Bureau of Labor Statistics

Monthly data of layoffs and discharges reach a peak in early 2009, as shown in Chart 14. Layoffs and discharges dropped sharply with the recovery of the economy in 2010 and 2011.

Chart 14, US, Layoffs and Discharges, Monthly 2011-2011

Source: US Bureau of Labor Statistics

Layoffs and discharges in Chart 15 rose sharply to a peak in 2009. There was pronounced drop into 2010.

Chart 15, US, Layoffs and Discharges, Yearly 2011-2011

Source: US Bureau of Labor Statistics

The Bureau of Labor Statistics also provides alternative measures of labor underutilization shown in Table 5. The most comprehensive measure is U6 that consists of total unemployed plus total employed part time for economic reasons plus all marginally attached workers as percent of the labor force. U6 not seasonally annualized has risen from 5.6 percent in 2006 to 15.7 in Sep 2011.

Table 5, US, Alternative Measures of Labor Underutilization %

	U1	U2	U3	U4	U5	U6
Sep 2011 NSA	5.2	5.0	8.8	9.4	10.2	15.7
Sep 2010 NSA	5.3	5.6	9.2	9.9	10.7	16.2
Aug 2011 NSA	5.2	5.1	9.1	9.6	10.6	16.7
Aug 2010 NSA	5.3	5.7	9.5	10.2	10.9	16.4
Jul 2011 NSA	5.2	5.2	9.3	10.0	10.9	16.3
Jul 2010 NSA	5.5	5.8	9.7	10.4	11.2	16.8
2010	5.7	6.0	9.6	10.3	11.1	16.7
2009	4.7	5.9	9.3	9.7	10.5	16.2
2008	2.1	3.1	5.8	6.1	6.8	10.5
2007	1.5	2.3	4.6	4.9	5.5	8.3
2006	1.5	2.2	4.6	4.9	5.5	5.6

Note: LF: labor force; U1, persons unemployed 15 weeks % LF; U2, job losers and persons who completed temporary jobs %LF; U3, total unemployed % LF; U4, total unemployed plus discouraged workers, plus all other marginally attached workers; % LF plus discouraged workers; U5, total unemployed, plus discouraged workers, plus all other marginally attached workers % LF plus all marginally attached workers; U6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons % LF plus all marginally attached workers

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

Monthly seasonally adjusted measures of labor underutilization are provided in Table 6. U6 has been climbing from 15.9 percent in Apr 2011 to 16.5 percent in Sep 2011. Unemployment is an inaccurate measure of the stress in US job markets. A different calculation in this blog is provided by using the participation rate in the labor force before the global recession. This calculation shows 29.4 million in job stress of unemployment/underemployment in Sep 2011, not seasonally adjusted, corresponding to 18.5 percent of the labor force (http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html).

Table 6, US, Alternative Measures of Labor Underutilization SA %

	Sep 2011	Aug 2011	Jul 2011	Jun 2011	May 2011	Apr 2011
U1	5.4	5.4	5.3	5.3	5.3	5.1
U2	5.3	5.3	5.4	5.4	5.4	5.3
U3	9.1	9.1	9.1	9.2	9.1	9.0
U4	9.7	9.7	9.8	9.8	9.5	9.5
U5	10.5	10.6	10.7	10.7	10.3	10.4
U6	16.5	16.2	16.1	16.2	15.8	15.9

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

Chart 16 provides U6 on a monthly basis from 2001 to 2011. There was a steep climb from 2007 into 2009 and then this measure of unemployment and underemployment stabilized at that high level.

Chart 16, US, U6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons % LF plus all marginally attached workers as % of Labor Force, Month, SA,

Source: US Bureau of Labor Statistics

One of the dramas of the current job market of the US consists of millions of people working part-time for economic reasons, or the failure to find full-time employment. Chart 17 shows the jump of numbers of people working part-time for economic reasons from 2007 and subsequent stabilization at a very high level.

Chart 17, US, Working Part-time for Economic Reasons

Thousands, Month SA 2001-2011

Sources: US Bureau of Labor Statistics

People lose their marketable job skills after prolonged unemployment and find increasing difficulty in finding another job. Chart 18 shows the sharp rise in unemployed over 27 weeks and stabilization at an extremely high level.

Chart 18, US, Number Unemployed for 27 Weeks or Over, Thousands SA Month 2001-2011

Sources: http://www.bls.gov/cps/data.htm

Another segment of U6 consists of people marginally attached to the labor force who continue to seek employment but less frequently. Chart 19 shows the sharp rise in people marginally attached to the labor force after 2007 and subsequent stabilization.

Chart 19, US, Marginally Attached to the Labor Force, SA Month 2001-2011

Sources: US Bureau of Labor Statistics

http://www.bloomberg.com/markets/

II World Financial Turbulence. The past three months have been characterized by financial turbulence, attaining unusual magnitude in the past month. Table 7, updated with every comment in this blog, provides beginning values on Oct 10 and daily values throughout the week ending on Fr Oct 14 of several financial assets. Section V Valuation of Risk Financial Assets provides a set of more complete values. All data are for New York time at 5 PM. The first column provides the value on Fri Oct 7 and the percentage change in that prior week below the label of the financial risk asset. The first five asset rows provide five key exchange rates versus the dollar and the percentage cumulative appreciation (positive change or no sign) or depreciation (negative change or negative sign). Positive changes constitute appreciation of the relevant exchange rate and negative changes depreciation. Financial turbulence has been dominated by reactions to the new program for Greece (see section IB in http://cmpassocregulationblog.blogspot.com/2011/07/debt-and-financial-risk-aversion-and.html), doubts on the larger countries in the euro zone with sovereign risks such as Spain and Italy, the growth standstill recession and long-term unsustainable government debt in the US, worldwide deceleration of economic growth and continuing inflation. The dollar/euro rate is quoted as number of US dollars USD per one euro EUR, USD 1.338/EUR in the first row, first column in the block for currencies in Table 7 for Fri Oct 7, depreciating to USD 1.3652/EUR on Mon Oct 10, or by 2.0 percent. Table 7 defines a country’s exchange rate as number of units of domestic currency per unit of foreign currency. USD/EUR would be the definition of the exchange rate of the US and the inverse [1/(USD/EUR)] is the definition in this convention of the rate of exchange of the euro zone, EUR/USD. A convention is required to maintain consistency in characterizing movements of the exchange rate in Table 7 as appreciation and depreciation. The first row for each of the currencies shows the exchange rate at 5 PM New York time, such as USD 1.3652/EUR on Oct 10; the second row provides the cumulative percentage appreciation or depreciation of the exchange rate from the rate on the last business day of the prior week, in this case Fri Oct 7, to the last business day of the current week, in this case Fri Oct 14, such as depreciation of 3.7 percent for the dollar to USD 1.387/EUR by Oct 14; and the third row provides the percentage change from the prior business day to the current business day. For example, the USD depreciated (negative sign) by 3.7 percent from the rate of USD 1.338/EUR on Fri Oct 7 to the rate of USD 1.387/EUR on Fri Oct 14 {[(1.387/1.338) – 1]100 = 3.7%} and depreciated by 0.6 percent from the rate of USD 1.3786 on Thu Oct 13 to USD 1.387/EUR on Fri Oct 14 {[(1.387/1.3786) -1]100 = 0.6%}. The dollar depreciated during the week because more dollars, $1.387, were required to buy one euro on Fri Oct 14 than $1.338 required to buy one euro on Fri Oct 7. The depreciation of the dollar in the week was caused by diminishing risk aversion with purchases of risk financial investments by reduction of dollar-denominated assets.

Table 7, Weekly Financial Risk Assets Oct 10 to Oct 14, 2011

Oct 7, 2011

M 10

Tu 11

W 12

Th 13

Fr 14

USD/
EUR

1.338

0.1%

1.3652

-2.0%

1.3648

-2.0%

0.0%

1.3784

-3.0%

-0.9%

1.3786

3.0%

0.0%

1.387

-3.7%

-0.6%

JPY/
USD

76.709

0.4%

76.6702

0.0%

76.6687

0.0%

77.273

-0.8%

76.8705

-0.2%

0.5%

77.21

-0.7%

-0.4%

CHF/
USD

0.915

-0.8%

0.9032

1.3%

0.9076

0.8%

-0.5%

0.8953

2.2%

1.4%

0.8975

-1.9%

-0.2%

0.894

2.3%

0.4%

CHF/EUR
1.2420

-2.3%

1.2330

0.7%

1.2387

0.3%

-0.5%

1.2341

0.6%

0.4%

1.2374

0.4%

-0.3%

1.2388

0.3%

-0.1%

USD/
AUD

0.977

1.0235

0.9996

1.0004

-2.4%

0.9972

1.0028

-2.6%

-0.2%

1.0153

0.9849

-0.8%

1.8%

1.0198

0.9806

-0.4%

0.4%

1.0338

0.9673

1.0%

1.4%

10 Year
T Note

2.078

2.061

2.153

2.208

2.178

2.251

2 Year T Note
0.292

0.284

0.304

0.281

0.269

German Bond

2Y 0.60 10Y 2.00

2Y 0.65 10Y 2.08

2Y0.65 10Y 2.09

2Y 0.70 10Y 2.19

2Y 0.62

10Y 2.11

2Y 0.66 10Y 2.20

DJIA

11103.12

1.7%

11433.18

2.9%

11416.3

2.8%

-0.2%

11518.85

3.7%

0.9%

11478.13

3.4%

-0.4%

11644.49

4.9%

1.5%

DJ Global

1756.93

1.8%

1803.73

2.7%

1809.96

3.0%

0.4%

1838.39

4.7%

1.6%

1825.99

3.9%

-0.7%

1845.80

5.1%

1.1%

DJ Asia Pacific

1160.75

-0.4%

1168.89

0.7%

1188.59

2.4%

1.7%

1193.95

2.9%

0.5%

1208.58

4.1%

1.2%

1199.34

3.3%

-0.8%

Nikkei
8605.62

-1.1%

8605.62

0.0%

8773.68

1.9%

8738.90

1.5%

-0.4%

8823.25

2.5%

0.9%

8747.96

1.7%

-0.9%

Shanghai

2359.22

-3.0%

2344.79

-0.6%

2348.52

-0.5%

0.2%

2420.00

2.6%

3.0%

2438.79

3.4%

0.8%

2431.37

3.1%

-0.3%

DAX
5675.70

3.2%

5847.29

3.0%

5865.01

3.3%

0.3%

5994.47

5.6%

2.2%

5914.84

4.2%

-1.3%

5967.20

5.1%

0.9%

BOVESPA
51243.62

-2.1

53273.11

3.9%

53838.47

1.1%

53838.47

1.1%

54601.07

6.6%

1.4%

55030.45

7.4%

0.8%

DJ UBS Comm.

141.8

1.1%

144.32

1.8%

145.90

2.9%

1.1%

146.07

3.0%

0.1%

145.57

2.7%

-0.3%

148.21

4.5%

1.8%

WTI $ B
82.98

5.5%

85.75

3.3%

85.31

2.8%

-0.5%

84.75

2.1%

-0.7%

84.44

1.8%

-0.4%

87.31

5.2%

3.4%

Brent $/B

106.02

3.6%

109.29

3.1%

110.50

4.2%

1.1%

110.77

4.5%

0.2%

111.29

4.9%

0.5%

112.75

6.3%

1.3%

Gold $/OZ

1640.6

1.1%

1677.3

2.2%

1667.4

1.6%

-0.6%

1678.3

2.3%

0.6%

1668.7

1.7%

-0.6%

1682.6

2.6%

0.8%

Note: USD: US dollar; JPY: Japanese Yen; CHF: Swiss

Franc; AUD: Australian dollar; Comm.: commodities; OZ: ounce

Sources:

http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata

There was again turbulence in financial assets but of different direction in flight from safe havens and return to risk financial assets during the week of Oct 10. Risk appetite is present in the depreciation of the USD by 3.7 percent. Continuing strength of the Japanese yen suggests remaining risk aversion because of nil depreciation of the yen by 0.7 percent in the week. Exchange rate controls by the Swiss National Bank (SNB) fixing the rate at a minimum of CHF 1.20/EUR (http://www.snb.ch/en/mmr/reference/pre_20110906/source/pre_20110906.en.pdf) has prevented flight of capital into the Swiss franc. The Swiss franc appreciated 2.3 percent relative to the USD and 0.3 percent relative to the euro also suggesting remaining risk aversion. Another symptom of risk appetite is the appreciation of the Australian dollar by 1.0 percent in new carry trades from zero interest rates in the US and Japan into high yielding currencies such as in Australia (see Pelaez and Pelaez, Globalization and the State, Vol. II (2008b), 202-4, Pelaez and Pelaez, Government Intervention in Globalization (2008c), 70-4).

Risk aversion is also captured by decline of the yield of the 10-year Treasury note to 1.912 percent on Sep 30, increasing to 2.078 percent by Fri Oct 7 but still at a level well below consumer price inflation of 3.8 percent in the 12 months ending in Aug (http://www.bls.gov/cpi/). Treasury securities continue to be safe haven for investors fearing risk but with concentration in shorter maturities such as the two-year Treasury with relatively stable yield of 0.269 percent on Oct 14 while the ten-year Treasury yield has risen to 2.251 percent by Oct 14 because of duration risk. Rising yields of longer term securities can cause higher capital losses. Investors are willing to sacrifice yield relative to inflation in defensive actions to avoid turbulence in valuations of risk financial assets but may be managing duration more carefully. During the financial panic of Sep 2008, funds moved away from risk exposures to government securities. A similar risk aversion phenomenon occurs in Europe with low levels of the yield of the 10-year government bond on Fri Oct 7 at 0.60 percent for the two-year maturity and 2.00 percent for the 10-year maturity while the flash euro zone CPI inflation for Sep is at 3.0 percent (http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-30092011-AP/EN/2-30092011-AP-EN.PDF) and the final report confirming that higher level (http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-14102011-BP/EN/2-14102011-BP-EN.PDF). Safety overrides inflation-adjusted yield but there could be duration aversion.

There were substantial gains in equity indexes in Europe and the US in Table 7 in the week of Fri Oct 14 because of the commitment by France and Germany of a new plan to be released in a few weeks to solve the sovereign risk financial crisis. The Dow Asia Pacific gained 3.3 percent and the Nikkei Average 1.7 percent in the week. Gains throughout the week were driven by optimism of a solution to the European sovereign risk dilemma by means of recapitalization of banks.

Commodities roughly tracked other risk financial assets. All three indexes commodity prices in Table 7 rose in the week of Oct 14 and the DJ UBS Commodity Index rose 4.5 percent in the week. In the absence of risk aversion, risk financial assets tend to increase in value because of the carry trade from zero interest rates. Exposures are reduced because of risk aversion, causing collapse of valuations of risk financial assets.

There are three factors dominating valuations of risk financial assets that are systematically discussed in this blog.

1. Euro zone survival risk. The fundamental issue of sovereign risks in the euro zone is whether the group of countries with euro as common currency and unified monetary policy through the European Central Bank will (i) continue to exist; (ii) downsize to a limited number of countries with the same currency; or (iii) revert to the prior system of individual national currencies.

2. United States Growth, Employment and Fiscal Soundness. Recent posts of this blog analyze the mediocre rate of growth of the US in contrast with V-shaped recovery in all expansions following recessions since World War II, deterioration of social and economic indicators, unemployment and underemployment of 30 million, decline of yearly hiring by 17 million, falling real wages and unsustainable central government or Treasury debt (http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html).

3. World Economic Slowdown. Careful, detailed analysis of the slowdown of the world economy is provided in Section IV World Economic Slowdown. Data and analysis are provided for regions and countries that jointly account for about three quarters of world output.

The issue of rescuing sovereigns in difficulty is increasingly becoming the issue of survival of the euro. Cochrane (2011Sep28), writing in the Wall Street Journal on Sep 28, argues, contrary to official doctrine and rescue efforts, that survival of the euro requires allowing sovereigns to default and maintaining the European Central Bank (ECB) isolated from the defaults. The practical problem in the bailouts of sovereigns is that the bailout fund has been approved for €440 billion while several trillion euro are required if there are difficulties with the larger sovereigns such as Italy and Spain. A proposal consists of leveraging by using the €440 billion to borrow the trillions of dollars of euro. Davies (2011Sep28) finds two options for the borrowing, both involving “other people’s money.” (1) The rescue fund would receive loans from the ECB; and (2) the rescue fund would receive loans from sovereign wealth funds of emerging markets with large reserves. Cochrane (2011Sep28) argues correctly, as it occurred with credit-risk transfer products, that the risk does not disappear but is just merely transferred. The risk would end up with the lenders such as the ECB and would deteriorate the reserves of emerging markets. Cochrane (2011Sep28) finds resemblance with the purchase of bonds before the financial crisis to increase leverage while writing CDS (credit default swaps). The ECB would find significant deterioration of its already high subprime collateral. Davies (2011Sep28) finds that the ECB would become a gigantic collateralized debt obligation (CDO). The bailout fund would issue notes for the more than one trillion euro required in the bailout that would be insured by the €440 billion, increasing the possibility of raising the loans because of the AAA rating of a few core sovereigns, in particular, Germany. The trillions of euro loans from the ECB or emerging markets could be used to acquire subprime sovereign debt and recapitalize European banks that also own some of that debt. The credit risk would be transferred almost entirely to Germany and its taxpayers who effectively guarantee the loans. Germany would be faced with the same issue as unsustainable reparations from World War II only in that in this case Germany did not provoke a war (see the classic treatment by Keynes (1929, 1929R and Ohlin 1929; see also Samuelson 1952, Johnson 1975, Darity and Frank 2003 and Lane and Milessi-Ferretti 2004).

The G20 meeting of finance ministers and governors of central banks issued in Paris on Oct 15 the following statement (http://www.g20.utoronto.ca/2011/2011-finance-111015-en.html ) but little hope of other people’s money to solve the European sovereign risk crisis:

“We have progressed in delivering the commitments we made three weeks ago in Washington DC. In particular, we welcome the adoption of the ambitious reform of the European economic governance. We also welcome the completion by Euro area countries of the actions necessary to implement the decisions taken by Euro area Leaders on 21 July 2011 to increase the capacity and the flexibility of the EFSF. We look forward to further work to maximize the impact of the EFSF in order to avoid contagion, and to the outcome of the European Council on October 23 to decisively address the current challenges through a comprehensive plan. We made progress on our action plan of coordinated policies for consideration by our Leaders at the Cannes Summit. This action plan will encompass a set of measures to address immediate vulnerabilities and strengthen the foundations for a strong, sustainable and balanced growth whereby:

· Advanced economies, taking into account different national circumstances, will adopt policies to build confidence and support growth, and implement clear, credible and specific measures to achieve fiscal consolidation. Those with large current account surpluses will also implement policies to shift to growth based more on domestic demand. Those with large current account deficits will implement policies to increase national savings;

· Emerging market economies will adjust macroeconomic policies, where needed, to maintain growth momentum in the face of downside risks, contain inflationary pressures and endeavor to enhance resilience in the face of volatile capital flows; Surplus emerging market economies will accelerate the implementation of structural reforms to rebalance demand toward more domestic consumption, supported by continued efforts to move toward more marketdetermined exchange rate systems and achieve greater exchange rate flexibility to reflect economic fundamentals;

· All countries will undertake further structural reforms to raise potential growth;

· In all of our actions we will strive to foster growth, job creation and promote social inclusion.

We remain committed to take all necessary actions to preserve the stability of banking systems and financial markets. We will ensure that banks are adequately capitalized and have sufficient access to funding to deal with current risks. Central banks have recently taken decisive actions to this end and will continue to stand ready to provide liquidity to banks as required. Monetary policies will maintain price stability and continue to support economic recovery.”

The commitment of the Jul 21, 2011 agreement is only €440 billion (see section IB in http://cmpassocregulationblog.blogspot.com/2011/07/debt-and-financial-risk-aversion-and.html). The actual amount required maybe in excess of a trillion or two of euro. One possibility that is being explored is to increase haircuts to debt holders such as banks and investors. Banks are required by regulation to increase their common equity capital while their balance sheets are hit by draconian regulation. The New York State Comptroller Thomas P. DiNapoli explains vividly the consequences of regulation on the securities industry (http://www.osc.state.ny.us/press/releases/oct11/101111.htm):

“’The securities industry had a strong start to 2011, but its prospects have cooled considerably for the second half of this year,’ DiNapoli said. ‘It now seems likely that profits will fall sharply, job losses will continue, and bonuses will be smaller than last year. These developments will have a rippling effect through the economy and adversely impact State and City tax collections. As we know, when Wall Street slows, New York City and New York State’s budgets feel the impact and that is a concern.’

The economies and budgets of New York City and New York State are very dependent on the securities industry. According to the Office of the State Comptroller, last year securities-related activities accounted for 14 percent of New York State’s tax revenues and almost 7 percent of New York City’s. In addition, one in 8 jobs in New York City and 1 in 13 jobs in New York State are linked to the securities industry. Given the current weakness, tax collections are likely to fall short of City and State targets in their current fiscal years and may decline by more the following year.

DiNapoli’s analysis also found that:

The member firms of the New York Stock Exchange earned $9.3 billion in the first quarter of 2011 (almost half of the City’s $20 billion target for the entire year), but profits declined sharply in the second quarter. The Office of the State Comptroller forecasts that profits are unlikely to reach $18 billion for all of 2011, which is one-third less than in 2010.
After adding 9,900 jobs between January 2010 and April 2011, the securities industry has lost 4,100 jobs through August 2011. Job losses are likely to continue given declines in profitability and recent layoff announcements. OSC estimates that the securities industry could lose nearly 10,000 additional jobs by the end of 2012, which would bring total industry job losses to 32,000 since January 2008.
Cash bonuses are likely to be smaller in 2011, the second year in a row in which they have declined.
The average salary in the securities industry in 2010 grew by 16.1 percent to $361,330, 5.5 times higher than the average salary in the private sector of $66,120. The disparity between average salaries in the securities industry and the rest of the private sector narrowed in 2008 and 2009, but widened in 2010.
In 2010, the securities industry accounted for 23.5 percent of all wages paid in the private sector despite accounting for only 5.3 percent of all private sector jobs.
The State Comptroller’s Office estimates that each job gained (or lost) in the securities industry leads to the creation (or loss) of almost two additional jobs in other industries in the New York City and another job elsewhere in New York State.“

This may be the beginning of the loss of jobs and business to the US because of the erosion of the country’s competitiveness by recession-inspired regulatory fervor. Regulatory erosion of the competitiveness of the US in capital markets had even begun earlier (see Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 168-179).

Raising capital at currently depressed prices of bank shares for regulatory purposes and to absorb haircuts is extremely expensive. Patrick Jenkins, Brooke Masters and Alex Barker, writing on Oct 12, 2011, on “EU banks could shrink to hit capital rules,” published by the Financial Times (http://www.ft.com/intl/cms/s/0/f2e62f82-f4f2-11e0-9023-00144feab49a.html#axzz1aeiD8tdo), analyze the solution to increasing capital needs: some banks are planning to sell assets. The sale of assets reduces the balance sheet to existing capital. Shrinking assets is equal to reduction of loans. Disintermediation of banking harms economic growth as found in extensive scholarly literature (see Pelaez and Pelaez, Regulation of Banks and Finance (2009a), 22-6, Financial Regulation after the Global Recession (2009b), 37-44). Large financial centers in Europe will experience the same downsizing and job losses as New York City. Peter Spiegel, writing on Oct 14, 2011, on “Investor threat to second Greek bail-out,” published in the Financial Times (http://www.ft.com/intl/cms/s/0/3be6b6aa-f676-11e0-86dc-00144feab49a.html#axzz1atpiPINZ), finds that investors on Greek debt are unwilling to increase the haircut above the 21 percent agreed on Jul 21 (see section IB in http://cmpassocregulationblog.blogspot.com/2011/07/debt-and-financial-risk-aversion-and.html). With little prospects of other people’s money the solution turns again to taxpayers in Germany and possibly France with equally dark prospects. The economic issue is not whether Germany should, which would be decided in elections, but whether Germany can pay alone for the profligacy of other sovereigns in the European Monetary Union. The Wriston “doctrine” on sovereign lending was predicated on the argument that countries do not bankrupt (Wriston 1982). Another Wriston idea was that the old Citibank should be more valuable dead than alive: if Citibank followed the model of the old Merrill Lynch and sold the individual components or franchises the value would be higher than that of the unbroken Citibank. There was a rise in leveraged buy outs (LBO) in the 1980s that has been extensively analyzed in academic literature (see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 159-66). The debt crisis of the 1980s and many other episodes in history actually proved that a country can bankrupt and that many countries can bankrupt simultaneously.

Welfare economics considers the desirability of alternative states, which in this case would be evaluating the “value” of Germany (1) within and (2) outside the euro zone. Is the sum of the wealth of euro zone countries outside of the euro zone higher than the wealth of these countries maintaining the euro zone? On the choice of indicator of welfare, Hicks (1975, 324) argues:

“Partly as a result of the Keynesian revolution, but more (perhaps) because of statistical labours that were initially quite independent of it, the Social Product has now come right back into its old place. Modern economics—especially modern applied economics—is centered upon the Social Product, the Wealth of Nations, as it was in the days of Smith and Ricardo, but as it was not in the time that came between. So if modern theory is to be effective, if it is to deal with the questions which we in our time want to have answered, the size and growth of the Social Product are among the chief things with which it must concern itself. It is of course the objective Social Product on which attention must be fixed. We have indexes of production; we do not have—it is clear we cannot have—an Index of Welfare.”

If the burden of the debt of the euro zone falls on Germany and France or only on Germany, is the wealth of Germany and France or only Germany higher after breakup of the euro zone or if maintaining the euro zone? In practice, political realities will determine the decision through elections.

The euro zone faces a critical survival risk because several of its members may default on their sovereign obligations if not bailed out by a few of the other members. Contrary to the Wriston doctrine, investing in sovereign obligations is a credit decision. The value of a bond today is equal to the discounted value of future obligations of interest and principal until maturity. On Oct 14, the yield of the 2-year bond of the government of Greece was quoted above 58 percent and the 10-year bond yield traded at over 24 percent. In contrast, the 2-year US Treasury note traded at 0.269 percent and the 10-year at 2.251 percent while the comparable 2-year government bond of Germany traded at 0.66 percent and the 10-year government bond of Germany traded at 2.20 percent (see Table 7). There is no need for sovereign ratings: the perceptions of investors are of relatively higher probability of default by Greece, defying Wriston (1982), and nil probability of default of the US Treasury and the German government. The essence of the sovereign credit decision is whether the sovereign will be able to finance new debt and refinance existing debt without interrupting service of interest and principal. Prices of sovereign bonds incorporate multiple anticipations such as inflation and liquidity premiums of long-term relative to short-term debt but also risk premiums on whether the sovereign’s debt can be managed as it increases without bound or close to the maximum desired by investors.

Much of the analysis and concern over the euro zone centers on the default risk of the debt of a few countries while there is little if any risk of default of the debt of the euro zone as a whole. In practice, there is convergence in valuations and concerns toward the fact that there may not be survival of the euro zone as a whole. The fluctuations of financial risk assets of members of the euro zone move together with risk aversion toward the countries with nil default probability. This movement raises the need to consider analytically sovereign debt valuation of the euro zone as a whole in the essential analysis of whether the single-currency will (or should) survive without major changes.

The prospects of survival of the euro zone are dire. Table 8 is constructed with IMF World Economic Outlook database released during the prior week for GDP in USD billions, primary net lending/borrowing as percent of GDP and general government debt as percent of GDP for selected regions and countries in 2010.

Table 8, World and Selected Regional and Country GDP and Fiscal Situation

	GDP 2010 USD Billions	Primary Net Lending Borrowing % GDP 2010	General Government Net Debt % GDP 2010
World	62,911.2
Euro Zone	12,167.8	-3.6	65.9
Portugal	229.2	-6.3	88.7
Ireland	206.9	-28.9	78.0
Greece	305.4	-4.9	142.8
Spain	1,409.9	-7.8	48.8
Major Advanced Economies G7	31,716.9	-6.5	76.5
United States	14,526.6	-8.4	68.3
UK	2,250.2	-7.7	67.7
Germany	3,286.5	-1.2	57.6
France	2,562.7	-4.9	76.5
Japan	5,458.8	-8.1	117.2
Canada	1,577.0	-4.9	32.2
Italy	2,055.1	-0.3	99.4
China	5,878.3	-2.3	33.8*
Cyprus	23.2	-5.3	61.6

*Gross Debt

Source: http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx

The data in Table 8 are used for some very simple calculations in Table 9. The column “Net Debt USD Billions” in Table 9 is generated by applying the percentage in Table 8 column “General Government Net Debt % GDP 2010” to the column “GDP USD Billions.” The total debt of France and Germany in 2010 is $3853.5 billion, as shown in row “B+C” in column “Net Debt USD Billions” The sum of the debt of Italy, Spain, Portugal, Greece and Ireland is $3531.6 billion. There is some simple “unpleasant bond arithmetic” in the two final columns of Table 9. Suppose the entire debt burdens of the five countries with probability of default were to be guaranteed by France and Germany, which de facto would be required by continuing the euro zone. The sum of the total debt of these five countries and the debt of France and Germany is shown in column “Debt as % of Germany plus France GDP” to reach $7385.1 billion, which would be equivalent to 126.3 percent of their combined GDP in 2010. Under this arrangement the entire debt of the euro zone including debt of France and Germany would not have nil probability of default. The final column provides “Debt as % of Germany GDP” that would exceed 224 percent if including debt of France and 165 percent of German GDP if excluding French debt. The unpleasant bond arithmetic illustrates that there is a limit as to how far Germany and France can go in bailing out the countries with unsustainable sovereign debt without incurring severe pains of their own such as downgrades of their sovereign credit ratings. A central bank is not typically engaged in direct credit because of remembrance of inflation and abuse in the past. There is also a limit to operations of the European Central Bank in doubtful credit obligations. Wriston (1982) would prove to be wrong again that countries do not bankrupt but would have a consolation prize that similar to LBOs the sum of the individual values of euro zone members outside the current agreement exceeds the value of the whole. Internal rescues of French and German banks may be less costly than bailing out other euro zone countries so that they do not default on French and German banks.

Table 9, Guarantees of Debt of Sovereigns in Euro Area as Percent of GDP of Germany and France, USD Billions and %

	Net Debt USD Billions	Debt as % of Germany Plus France GDP	Debt as % of Germany GDP
A Euro Area	8,018.6
B Germany	1,893.0		$7385.1 as % of $3286.5 =224.7% $5424.6 as % of $3286.5 =165.1%
C France	1,960.5
B+C	3,853.5	GDP $5849.2 Total Debt $7385.1 Debt/GDP: 126.3%
D Italy	2,042.8
E Spain	688.0
F Portugal	203.3
G Greece	436.1
H Ireland	161.4
Subtotal D+E+F+G+H	3,531.6

Source: calculation with IMF data http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx

There is extremely important information in Table 51 anticipated here from subsection IVE Germany for the current sovereign risk crisis in the euro zone. Table 51 provides the structure of regional and country relations of Germany’s exports and imports. German exports to other European Union members are 57.1 percent of total exports in Aug and 59.7 percent in Jan-Aug. Exports to the euro area are 36.9 percent in Aug and 40.1 percent in Jan-Aug. Exports to third countries are only 42.9 percent of the total in Aug and 40.2 percent in Jan-Aug. There is similar distribution for imports. Economic performance in Germany is closed related to its high competitiveness in world markets. Weakness in the euro zone and the European Union in general could affect the German economy.

Table 51, Germany, Structure of Exports and Imports by Region, € Billions and ∆%

	Aug 2011 € Billions	12 Months ∆%	Jan-Aug 2011 € Billions	Jan-Aug 2011/ Jan-Jul 2010 ∆%
Total Exports	85.3	14.6	696.8	14.0
A. EU Members	48.7 % 57.1	12.7	415.8 % 59.7	13.3
Euro Area	31.5 % 36.9	11.5	279.5 % 40.1	11.9
Non-euro Area	17.1 % 20.0	15.1	136.3 % 19.6	16.5
B. Third Countries	36.6 % 42.9	17.1	281.0 % 40.3	15.1
Total Imports	73.5	12.6	595.3	16.1
C. EU Members	44.8 % 60.9	12.4	376.4 % 63.2	16.6
Euro Area	31.3 % 42.6	13.0	265.4 % 44.6	15.9
Non-euro Area	13.5	11.0	111.0	18.5
D. Third Countries	28.7 % 39.1	12.8	218.9 % 36.8	15.1

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

Source: http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2011/10/PE11__373__51,templateId=renderPrint.psml

IV Global Inflation. There is inflation everywhere in the world economy, with slow growth and persistently high unemployment in advanced economies. Table 10 updated with every post, 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 the sovereign risk issues (http://www.ft.com/cms/s/0/55eaf350-4a8b-11e0-82ab-00144feab49a.html#axzz1G67TzFqs). Newly available data on inflation is considered below in this section. The data in Table 10 for the euro zone and its members is updated from information provided by Eurostat but individual country information is provided in this section as soon as available, following Table 10. Data for other countries in Table 10 is also updated with reports from their statistical agencies. Economic data for major regions and countries is considered in Section IV World Economic Slowdown following individual country and regional data tables.

Table 10, GDP Growth, Inflation and Unemployment in Selected Countries, Percentage Annual Rates

	GDP	CPI	PPI	UNE
US	1.6	3.8	6.5	9.1
Japan	-1.1	0.2	2.5	4.4
China	9.6	6.1	6.5
UK	1.8	4.5* RPI 5.2	6.3* output 17.5* input 13.3**	8.1
Euro Zone	1.6	3.0	5.9	10.0
Germany	2.8	2.9	5.4	6.0
France	1.6	2.4	6.3	9.9
Nether-lands	1.5	3.0	7.7	4.4
Finland	2.7	3.5	7.5	7.8
Belgium	2.5	3.4	7.1	6.8
Portugal	-0.9	3.5	5.5	12.3
Ireland	-1.0	1.3	4.7	14.6
Italy	0.8	3.6	4.8	7.9
Greece	-4.8	2.9	7.4	15.1
Spain	0.7	3.0	7.1	21.2

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

PPI http://www.ons.gov.uk/ons/dcp171778_233900.pdf

CPI http://www.statistics.gov.uk/pdfdir/cpi0611.pdf

** Excluding food, beverage, tobacco and petroleum

Source: EUROSTAT; country statistical sources http://www.census.gov/aboutus/stat_int.html

Table 11 provides the forecasts of the Federal Reserve Board Members and Federal Reserve Bank Presidents for the FOMC meeting in Jun. There are lags in effect of monetary policy (Batini and Nelson 2002, Culbertson 1960, 1961, Friedman 1961, Romer and Romer 2004). Central banks forecast inflation in the effort to program monetary policy to attain effects at the correct timing of need by taking into account lags in effects of policy (Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 99-116). Inflation by the price index of personal consumption expenditures (PCE) was forecast for 2011 in the Apr meeting of the FOMC between 2.1 to 2.8 percent. Table 11 shows that the interval has narrowed to PCE (personal consumption expenditures) headline inflation of between 2.3 and 2.5 percent. The FOMC focuses on core PCE inflation, which excludes food and energy. The Apr forecast of core PCE inflation was an interval between 1.3 and 1.6 percent. Table 11 shows the revision of this forecast in Jun to a higher interval between 1.5 and 1.8 percent. A new forecast with significant changes will be provided in Nov.

Table 11, Forecasts of PCE Inflation and Core PCE Inflation by the FOMC, %

	PCE Inflation	Core PCE Inflation
2011	2.3 to 2.5	1.5 to 1.8
2012	1.5 to 2.0	1.4 to 2.0
2013	1.5 to 2.0	1.4 to 2.0
Longer Run	1.7 to 2.0

Source: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20110622.pdf

In testimony to the Joint Economic Committee of the US Congress, Chairman Bernanke (2011Oct4, 6) provides more current evaluation of the inflation outlook:

“As the FOMC anticipated, however, inflation has begun to moderate as these transitory influences wane. In particular, the prices of oil and many other commodities have either leveled off or have come down from their highs, and the step-up in automobile production has started to reduce pressures on the prices of cars and light trucks. Importantly, the higher rate of inflation experienced so far this year does not appear to have become ingrained in the economy. Longer-term inflation expectations have remained stable according to surveys of households and economic forecasters, and the five-year-forward measure of inflation compensation derived from yields on nominal and inflation-protected Treasury securities suggests that inflation expectations among investors may have moved lower recently. In addition to the stability of longer-term inflation expectations, the substantial amount of resource slack in U.S. labor and product markets should continue to restrain inflationary pressures.”

The measures taken by the Federal Open Market Committee (FOMC) are described by Chairman Bernanke (2011Oct4, 6-7) as follows:

“In view of the deterioration in the economic outlook over the summer and the subdued inflation picture over the medium run, the FOMC has taken several steps recently to provide additional policy accommodation. At the August meeting, the Committee provided greater clarity about its outlook for the level of short-term interest rates by noting that economic conditions were likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. And at our meeting in September, the Committee announced that it intends to increase the average maturity of the securities in the Federal Reserve’s portfolio. Specifically, it intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less, leaving the size of our balance sheet approximately unchanged. This maturity extension program should put downward pressure on longer-term interest rates and help make broader financial conditions more supportive of economic growth than they would otherwise have been. The Committee also announced in September that it will begin reinvesting principal payments on its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities rather than in longer-term Treasury securities. By helping to support mortgage markets, this action too should contribute to a stronger economic recovery.”

Three distinguished economists have analyzed current monetary policy from different perspectives. These contributions are considered in turn.

First, Professor Alan S. Blinder (2011Sep28) of Princeton University, former Vice Chairman of the Board of Governors of the Federal Reserve System, writing on “Ben Bernanke deserves a break,” on Sep 28, 2011, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052970204422404576594682273860392.html?mod=WSJ_hps_sections_opinion), analyzes the need and possible effects of “let’s twist again” monetary policy: (1) weak US economic growth is insufficient to reduce high unemployment; (2) political division prevents further fiscal stimulus; (3) financial markets anticipated “let’s twist again” monetary policy and could downtrend in the absence of any measure; and (4) with policy interest rates mear zero there are not many additional tools of monetary policy. Blinder (2011Sep28) finds that policy action was needed. The first round of quantitative easing attempted to reduce the spread between Treasury securities and mortgage-backed securities with the objective of stimulating the real estate sector. An added advantage of “let’s twist again” is that it provides for the reinvestment of principal and interest of the Fed’s portfolio of mortgage-backed securities into mortgage-backed securities and not in Treasury securities. Blinder (2011Sep28) also ponders if future quantitative easing could focus on corporate bonds, syndicated loans, consumer receivables and similar private-sector instruments.

Second, Professor Charles I. Plosser (2011Sep29), currently President and CEO of the Federal Reserve Bank of Philadelphia, analyzes the economic outlook and the reasons for his dissenting votes in two successive meetings of the Federal Open Market Committee (FOMC). An important constraint of policy is that deflation was a risk when quantitative easing two was deliberated and implemented on Nov 3, 2010. The environment of inflation has changed according to Plosser (2011Sep29, 5):

“Thus, with inflation higher and unemployment lower, it is appropriate to ask what criteria we are using to justify further accommodation. In this environment, I think it is very important that we refrain from actions that risk fueling a steady rise in inflation or inflation expectations over the medium term. We must not become too sanguine that high unemployment will lead to low inflation. The lesson of the 1970s is clear – high unemployment or low resource utilization is not sufficient to prevent high rates of inflation. The current environment in the U.K. should also be a warning. The unemployment rate in Britain is near 8 percent, having risen sharply during its recession, yet inflation is now approaching 5 percent and has been steadily rising for nearly two years.”

Monetary policy, according to Plosser (2011Sep29, 6) should be decided on the basis of cost and benefit analysis and not merely on just doing something. Quantitative easing two and the original Operation Twist reduced yields of long-term Treasury securities by 20 basis points or less. The problem is that “the pass-through to the rates at which consumers and businesses actually borrow is likely to be much less” (Plosser 2011Sep29, 6). Unconventional policies in high doses may also have high potential costs as analyzed by Plosser (2011Sep29, 6):

“We have provided a great deal of monetary accommodation to the economy, and given the stubbornness of the unemployment rate in responding to these efforts, we should be cautious and vigilant that our previous accommodative policies do not translate into a steady rise in inflation over the medium term even while the unemployment rate remains elevated. Creating an environment of stagflation, reminiscent of the 1970s, will not help businesses, the unemployed, or the consumer. It is an outcome we must carefully guard against.”

Third, Professor Ronald McKinnon (2011Sep30) of Stanford University, writing on “Where are the bond vigilantes?” on Sep 30, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424053111904332804576538363789127084.html?mod=WSJ_hps_sections_opinion), analyzes how unconventional monetary policy has removed fiscal discipline imposed by Treasury bond yields while also disrupting the functioning of financial markets. In historical episodes of proposed high fiscal deficits, bond yields surged in anticipation of unsustainable debt that helped to elicit agreements among politicians to control deficits and debt. McKinnon (2011Sep30) finds two conditions for “bond vigilantes” to impose fiscal discipline by increases in Treasury yields. (1) Treasury securities must be held by institutions that are sensitive to changes in yields, meaning that they worry about future inflation and risk premiums on government debt resulting from uncontrolled fiscal deficits. (2) Private holders of Treasury securities must have expectations that decreases in short-term interest rates toward zero are only temporary, meaning that the FOMC is not committed to maintaining interest rates at zero forever. Long-term interest rates are viewed as expected future short-term interest rates plus the liquidity premium required in holding securities with higher duration. These two conditions have disappeared. (1) Near zero interest rates during almost all of the past decade or the threat of such rates as policy is dominated by unconventional monetary policy has caused a global hunt for yields that bloated assets in emerging markets. As a result of hot money capital flows, foreign monetary authorities are major holders of Treasury securities and are less concerned about yields. (2) The various rounds of quantitative easing have converted the Fed in holder of large part of Treasury debt and the Fed is yield conscious in the opposite direction of near zero interest rates.

McKinnon (2011Sep30) considers three adverse effects of unconventional monetary policy besides eroding imposition of fiscal discipline by rising bond yields in the presence of uncontrolled deficits and unsustainable debt. (1) In past monetary policy, borrowers believed temporarily short-term interest rates would be eventually reversed such that they took advantage of low borrowing costs. This is no longer true as the FOMC decided on Aug 9, 2011, to leave fed fund rates at 0 to ¼ percent for years in advance (http://www.federalreserve.gov/newsevents/press/monetary/20110809a.htm): “The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.” Why borrow to invest or consume now when rates are going to be almost zero indefinitely? (2) Quantitative easing is financed by creating bank reserves that banks prefer to leave deposited at the Federal Reserve System remunerated at 0.25 percent but without risk instead of lending them at near zero interest rates with risk in the interbank market. (3) Maintaining short-term interest rates creates major disruptions of many financial institutions such as pension funds. McKinnon (2011Sep30) provides the example of calculations by pension actuaries that California pension funds require a yield of 7.5 percent to break even in honoring their annuities. A review of arguments of Professor McKinnon is in http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html

The Board of Governors of the Federal Reserve System, the staff of Federal Reserve System and the members of the Federal Open Market Committee (FOMC) include highly qualified individuals who have access to the frontier of knowledge in economics. The difficulty in finding common ground on policy, typical of economics, is found in the multiple views on what to do with quantitative easing revealed in the minutes of the FOMC of the meeting on Sep 20-1, 2011 (pages 2-3 in http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20110921.pdf):

“Meeting participants expressed a range of views on the potential efficacy of policy tools tied to the size and composition of the Federal Reserve’s balance sheet. Many judged that these policies could provide additional monetary policy accommodation by lowering longer-term interest rates and easing financial conditions at a time when further reductions in the federal funds rate are infeasible. However, a number saw the potential effects on real economic activity as limited or only transitory, particularly in the current environment of balance sheet deleveraging, credit constraints, and household and business uncertainty about the economic outlook. Participants noted that a SOMA maturity extension program would not expand the Federal Reserve’s balance sheet or the level of reserve balances, and that the scale of such a program was necessarily limited by the size of the Federal Reserve’s holdings of shorter-term securities so that it could not be repeated to provide further stimulus. A number of participants saw large-scale asset purchases as potentially a more potent tool that should be retained as an option in the event that further policy action to support a stronger economic recovery was warranted. Some judged that large-scale asset purchases and the resulting expansion of the Federal Reserve’s balance sheet would be more likely to raise inflation and inflation expectations than to stimulate economic activity and argued that such tools should be reserved for circumstances in which the risk of deflation was elevated. In commenting on the implications of a maturity extension program or another large-scale asset purchase program, several participants noted that the System should avoid holding a very large proportion of the outstanding stock of longer-term Treasury securities in its portfolio because the result could be a deterioration in market functioning. A number of participants suggested directing some purchases or reinvestments into agency MBS; however, a couple of participants saw such actions as unlikely to have benefits, or as a form of credit allocation.”

Unconventional monetary policy of near zero interest rates and quantitative easing has been successful mainly in promoting the carry trade from near zero interest rates to leveraged positions in risk financial assets, in particular commodity futures. Chart 20 of the Food and Agriculture Organization (FAO) shows the Food Price Index that trended down during the recession of 2001. An upward trend was promoted by unconventional monetary policy of 1 percent fed funds rate together with the suspension of the auction of the 30-year Treasury bond to lower mortgage rates, encouraging refinancing that was more important in cash infusion of households than tax rebates. Food prices trended upward and with sharp reductions of monetary policy rates peaked in a big jump to more than $140/barrel in 2008 during a global recession. The flight out of risk financial assets after the announcement of the Troubled Asset Relief Program (TARP) (see Cochrane and Zingales 2009) is shown in Chart 20 in a collapse of the Food Price Index of FAO. With zero interest rates after the FOMC meeting on Dec 16, 2008 (http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm) and realization in early 2009 that bank assets were not as worrisome as argued for approval of TARP, food prices jumped again to even higher levels.

Chart 20, Food and Agriculture Organization Food Price Index 1990-2011

Source: UN Food and Agriculture Organization (FAO)

http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/

Chart 21 of the US Energy Information Administration shows exactly the same behavior of the price of crude oil. There is the same decline after the 2001 recession that was confused as global deflation. Oil prices trend upward with the near zero interest rates and suspension of the auction of the 30-year Treasury, which was quantitative easing by reduction of supply in a desired segment of the yield curve. There is the same jump of oil prices in 2008 in the midst of sharp global contraction and vertical drop in the flight to safety away from risk financial assets. A new upward trend was promoted by the carry trade from zero interest rates after Dec 16, 2008 (http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm) and the return of risk appetite in early 2009. Prices have dropped recently because of risk aversion resulting from the European sovereign risk crisis and growth slowdown in the US and the world. The success of unconventional monetary policy of zero interest rates and quantitative easing is in promoting carry trades from zero interest rates into risk financial assets such as equities, emerging markets, currencies and commodities’ futures.

Chart 21, Crude Oil Cushing, OK, Contract 1

Source: US Energy Information Administration

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

Inflation in advanced economies has been moderating at the producer price level with moderation of the commodity price shock. Table 12 provides the month and 12 months rates of inflation of Japan’s corporate goods price index (CGPI). Inflation measured by the CGPI fell 0.1 percent in Sep and increased 2.5 percent in 12 months. Measured by 12 months rates, CGPI inflation has increased from minus 0.2 percent in Jul 2010 to a high of 2.8 percent in Jul and now 2.5 percent in Sep. At the margin, annual equivalent inflation in the quarter Jul to Sep 2011 is 0 percent compared with annual equivalent inflation in Jan-Set 2011 of 2.7 percent. Moderation of commodity price increases after May 2011, influenced by risk aversion, has caused collapse of monthly inflation toward zero.

Table 12, Japan Corporate Goods Price Index (CGPI) ∆%

	Month	Year
Sep 2011	-0.1	2.5
Aug	-0.2	2.6
Jul	0.2	2.8
AE ∆% Jul-Aug	0.0
Jun	0.0	2.5
May	-0.2	2.2
Apr	1.0	2.6
Mar	0.6	2.0
Feb	0.1	1.7
Jan	0.6	1.6
AE ∆% Jan-Set	2.7
Dec 2010	0.4	1.2
Nov	0.0	0.9
Oct	0.2	0.9
Sep	0.0	-0.1
Aug	0.0	0.0
Jul	-0.1	-0.2

AE: annual equivalent

Source: http://www.boj.or.jp/en/statistics/pi/cgpi_release/cgpi1109.pdf

Further insight into inflation of the corporate goods price index (CGPI) of Japan is provided in Table 13. Manufactured products accounting for 92.8 percent of the products in the index fell 0.2 percent in Sep and increased 2.5 percent in 12 months. Petroleum and coal with weight of 5.4 percent fell 1.2 percent in Sep but increased 17.2 percent in 12 months. Japan exports manufactured products and imports raw materials and commodities such that the country’s terms of trade, or export prices relative to import prices, deteriorate during commodity price increases. In contrast, machinery and equipment rose 0.1 percent in Sep and 0.0 percent in 12 months. In general, most manufactured products experienced mild increases in prices while inflation rates were high in 12 months for products originating in raw materials and commodities. Ironically, unconventional monetary policy of zero interest rates and quantitative easing deteriorated the terms of trade of advanced economies.

Table 13, Japan, Corporate Goods Prices and Selected Components, % Weights, Month and 12 Months ∆%

Sep 2011	Weight	Month ∆%	12 Month ∆%
Total	100.0	-0.1	2.5
Mfg	92.8	-0.2	2.5
Processed Food	11.5	0.5	4.2
Petroleum & Coal	5.4	-1.2	17.2
Machinery & Equipment	10.8	0.1	0.0
Electric & Electronic	12.9	-0.1	-3.6
Electric Power, Gas & Water	4.7	1.2	5.2
Iron & Steel	5.3	0.2	4.3
Chemicals	8.5	-0.2	5.4
Transport Equipment	12.5	0.1	0.2

Source: http://www.boj.or.jp/en/statistics/pi/cgpi_release/cgpi1109.pdf

Percentage point contributions to change of the corporate goods price index (CGPI) are provided in Table 14 divided into the domestic, export and import segments. Petroleum and coal contributed minus 0.16 percentage points to the fall of the domestic CGPI of Japan of 0.1 percent in Sep. Nonferrous metals contributed minus 0.07 percentage points. The most important source of increase was positive contributions by electric power, gas and water of 0.06 percentage points with processed foodstuffs also contributing 0.06 percentage points. The exports CGPI fell 0.2 percent on the basis of the contract currency and 1.0 percent on the basis of the yen with negative contributions of 0.11 percentage points by metals and related products and 0.10 percentage points by chemicals and related products. The imports CGPI fell 1.2 percent on the contract currency basis and 1.7 percent on the yen basis. The most important contributions were minus 0.88 percentage points by petroleum, coal and natural gas and minus 0.30 percent by metals and related products.

Table14, Japan, Percentage Point Contributions to Change of Corporate Goods Price Index

Groups Sep 2011	Contribution to Change Percentage Points
A. Domestic Corporate Goods Price Index	Monthly Change: -0.1%
Petroleum & Coal	-0.16
Nonferrous Metals	-0.07
Agriculture, Forestry & Fishery	-0.03
Information & Telecommunication Equipment	-0.02
Chemicals & Related Products	-0.01
Electric Power, Gas & Water	0.06
Processed Foodstuffs	0.06
Iron & Steel	0.01
B. Export Price Index	Monthly Change: -0.2% contract currency basis -1.0% yen basis
Metals & Related Products	-0.11
Chemicals & Related Products	-0.10
C. Import Price Index	Monthly Change: -1.2% contract currency basis -1.7% yen basis
Petroleum, Coal & Natural Gas	-0.88
Metals & Related Products	-0.30
Foodstuffs & Feedstuffs	-0.07
Wood, Lumber & Related Products	-0.03
Transportation Equipment	0.06

Source: http://www.boj.or.jp/en/statistics/pi/cgpi_release/cgpi1109.pdf

China is experiencing the same inflation behavior as the advanced economies, as shown in Table 15. Sep inflation of the price indexes for industry is 0 but 12 months inflation is 6.5 percent and inflation in Jan/Sep 2011 relative to the same period in 2010 is 7.0 percent. With the exception of food, increasing 0.6 percent in Sep, 8.2 percent in 12 months and 8.0 percent in the first nine months relative to a year earlier, drivers of past inflation were subdued in Sep. This is the case of prices of raw materials which are flat in Sep after increasing 10.6 percent in 12 months and 10.7 percent in the first nine months. Mining fell 0.1 percent in Sep after increasing 17.2 percent in 12 months and 16.7 percent in the first nine months relative to a year earlier. The various categories of inputs in the purchaser price index show inflation of only 0.1 percent in Sep after increasing 10.0 percent in 12 months and 10.4 in the first nine months relative to a year earlier.

Table 15, China, Price Indexes for Industry ∆%

	Month Sep ∆%	12 Months Sep ∆%	Jan-Sep 2011/ Jan-Sep 2010 ∆%
I Producer Price Indexes	0.0	6.5	7.0
Means of Production	-0.1	7.1	7.8
Mining	-0.1	17.2	16.7
Raw Materials	0.0	10.6	10.7
Processing	-0.1	4.6	5.7
Consumer Goods	0.3	4.6	4.5
Food	0.6	8.2	8.0
Clothing	0.3	4.5	4.3
Daily Use Articles	0.2	4.4	4.4
Durable Consumer Goods	-0.2	-0.6	-0.6
II Purchaser Price Indexes	0.1	10.0	10.4
Nonferrous Metals	-0.4	14.7	15.1
Fuel and Power	-0.1	12.3	11.2
Ferrous Metals	0.2	8.8	11.3
Raw Chemical Materials	0.3	12.7	12.3

Source: http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20111014_402759197.htm

http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20111014_402759197.htm

Producer price inflation in China was 0.0 percent in Sep and 6.5 percent in 12 months, as shown in Table 16. In the quarter Jul-Sep 2011 annual equivalent inflation is only 0.4 percent. In contrast, in the first half of the year annual equivalent inflation was 20.4 percent.

Table 16, China, Month and 12 Months Rate of Change of Producer Price Index, ∆%

	12 Month ∆%	Month ∆%
Sep 2011	6.5	0.0
Aug	7.3	0.1
Jul	7.5	0.0
AE ∆% Jul-Sep
Jun	7.1	0.0
May	6.8	0.3
Apr	6.8	0.5
Mar	7.3	0.6
Feb	7.2	0.8
Jan	6.6	0.9
AE ∆% Jan-Jun		20.4
Dec 2010	5.9	0.7

Source:

http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20111014_402759197.htm

Chart 22 of the National Bureau of Statistics of China provides monthly and 12 months rates of inflation of the price indexes for the industrial sector. The fall of the monthly rates eventually pulled down the 12 months rates. At the margin since Jun inflation has been almost zero.

Chart 22, China, Producer Prices for the Industrial Sector Month and 12 months ∆%

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20111014_402759197.htm

China is highly conscious of food price inflation because of its high weight in the basket of consumption of the population. Consumer price inflation in China in Sep was 0.5 percent, 6.1 percent in 12 months and 5.7 percent in Jan-Sep 2011 relative to Jan-Sep 2010, as shown in Table 17. By far the highest increase occurred in food with 1.1 percent in Sep, 13.4 percent in Sep and 12.5 percent in the first nine months relative to a year earlier. Another area of concern is housing with price inflation of 0.2 percent in Sep, 5.1 percent in 12 months and 6.0 percent in the first nine months relative to a year earlier. Prices of services rose 0.2 percent in Sep, 3.4 percent in 12 months and 3.9 percent in the first nine months relative to a year earlier. In contrast with producer prices, there were increases in all components with the exception of transport and communications and recreation and education.

Table 17, China, Consumer Price Index

	Sep Month ∆%	Sep 12 Month ∆%	Jan/Sep 2011/ Jan/Sep 2010
Consumer Prices	0.5	6.1	5.7
Urban	0.4	5.9	5.5
Rural	0.6	6.6	6.2
Food	1.1	13.4	12.5
Non-food	0.2	3.0	2.8
Consumer Goods	0.7	7.3	6.4
Services	0.2	3.4	3.9
Commodity Categories:
Food	1.1	13.4	12.5
Tobacco, Liquor	0.6	3.4	2.5
Clothing	0.9	3.2	1.6
Household	0.1	3.0	2.2
Healthcare and Personal	0.2	4.1	3.4
Transport Comm.	-0.1	1.0	0.5
Recreation, Education	-0.3	0.0	0.5
Housing	0.2	5.1	6.0

Source: http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20111014_402759206.htm

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

Month and 12 months rates of change of consumer prices are provided in Table 18. In contrast with producer prices, the annual equivalent rate of consumer price inflation rose from 2.0 percent in Apr to Jun to 5.3 percent in Jul to Sep. At the marginal monthly level, consumer prices are increasing at a relatively high rate of 5.3 percent even if lower than 8.3 percent in annual equivalent in Jan-Mar.

Table 18, China, Month and 12 Months Rates of Change of Consumer Price Index ∆%

	12 Month ∆%	Month ∆%
Sep 2011	6.1	0.5
Aug	6.2	0.3
Jul	6.5	0.5
AE ∆% Jul to Sep	5.3
Jun	6.4	0.3
May	5.5	0.1
Apr	5.3	0.1
AE ∆% Apr to Jun	2.0
Mar	5.4	-0.2
Feb	4.9	1.2
Jan	4.9	1.0
AE ∆% Jan to Mar	8.3
Dec 2010	4.6	0.5

AE: Annual Equivalent

Source: http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20110909_402753248.htm

http://www.stats.gov.cn/english/newsandcomingevents/index.htm

Chart 23 of the National Bureau of Statistics of China provides monthly and 12 months rates of consumer price inflation. In contrast with producer prices, consumer prices have not moderated at the monthly marginal rates.

Chart 23, China, Consumer Prices ∆% Month and 12 Months Aug 2010 to Aug 2011

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20110909_402753248.htm

http://www.stats.gov.cn/english/newsandcomingevents/index.htm

Inflation accelerated in the euro zone in Sep with 0.8 percent in the month and 3.0 percent in 12 months, as shown in Table 19. The annual equivalent rate in Jul-Aug 2011 of 1.6 is somewhat lower than 1.9 percent annual equivalent in Jan-Sep. Monthly rates have been subdued since the moderation of the commodity price shock beginning in May with only two positive rates of 0.2 percent in Aug and 0.8 percent in Sep. Excluding the high rate of 0.8 percent in Sep, the cumulative monthly rate from May to Aug is negative by 0.4 percent.

Table 19, Euro Area Harmonized Index of Consumer Prices Month and 12 Months ∆%

	Month ∆%	12 Months ∆%
Sep 2011	0.8	3.0
Aug	0.2	2.5
Jul	-0.6	2.5
AE ∆% Jul-Aug	1.6
Jun	0.0	2.7
May	0.0	2.7
Apr	0.6	2.8
Mar	1.4	2.7
Feb	0.4	2.4
Jan	-0.7	2.3
AE ∆% Jan-Sep	1.9
Dec 2010	0.6	2.2

AE: annual equivalent

Source: http://epp.eurostat.ec.europa.eu/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=teicp000&language=en

Eurostat provides the decomposition in percentage point contributions of the rate of inflation in 12 months in Sep 2011 relative to Sep 2010 shown in Table 20. Energy-rich components account for the 12 month rate of inflation with percentage point contributions: 0.55 by fuel for transport, 0.19 by heating oil and 0.12 by electricity. Table 20 only lists highest magnitudes of positive and negative contributions.

Table 20, Euro Area, Harmonized Index of Consumer Prices Sub-Indices with Most Important Impact %

Sep 2011/ Sep 2010	Weight 2011 %	Rate ∆%	Impact Percentage Points PP
Positive Contribution
Fuel for Transport	46.9	14.7	0.55
Heating Oil	9.5	23.9	0.19
Electricity	24.5	7.7	0.12
Gas	16.7	8.4	0.09
Tobacco	24.8	5.4	0.06
Jewelry & Watches	5.3	12.3	0.05
Negative Contribution
Restaurants & Cafés	70.1	2.1	-0.07
IT Equipment	5.0	-12.3	-0.08
Cars	39.3	0.9	-0.08
Rents	59.8	1.4	-0.10
Vegetables	15.8	-4.4	-0.11
Telecom	30.1	-2.1	-0.16

PP: percentage points

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-14102011-BP/EN/2-14102011-BP-EN.PDF

Eurostat also provides the highest positive and negative contributions in percentage points to the monthly rate of inflation in Sep, shown in Table 21. The highest contributions were 0.64 percentage points by garments and 0.16 percentage points by footwear. These appear to be seasonal price increases and may not be sustained in coming months.

Table 21, Euro Area, Harmonized Index of Consumer Prices Sub-Indices with Most Important Impact %

Sep 2011/ Aug 2011	Weight 2011 %	Rate ∆%	Impact Percentage Points
Positive
Garments	49.5	15.0	0.64
Footwear	13.8	14.0	0.16
Fuels for Transport	46.9	1.3	0.03
Heating Oil	9.5	2.2	0.01
Other Personal Effects	4.3	3.6	0.01
Household Textiles	4.9	2.6	0.01
Negative
Telecom	30.1	-0.3	-0.03
Restaurants & Cafés	70.1	0.3	-0.03
Rents	59.8	-0.3	-0.07
Air Transport	5.8	-11.6	-0.09
Accomm. Services	15.7	-6.1	-0.12
Package Holidays	15.1	-8.9	-0.15

Acomm: accommodation

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-14102011-BP/EN/2-14102011-BP-EN.PDF

Consumer price inflation in Germany in Sep was 0.1 percent and 2.6 percent in 12 months, as sown in Table 22. Most of the inflation in Germany in 2011 has concentrated in three months: 0.4 percent in Jul, 0.5 percent in Mar and 0.5 percent in Feb. A quarter composed of those three months repeated for an entire year would result in annual equivalent inflation of 5.8 percent. Annual equivalent inflation in the quarter Jul-Sep was at the annual equivalent rate of 2.0 percent, which is lower than the 2.6 percent 12 months rate in Sep.

Table 22, Germany, Consumer Price Index ∆%

	12 Months ∆%	Month ∆%
Sep 2011	2.6	0.1
Aug	2.4	0.0
Jul	2.4	0.4
AE ∆% Jul-Sep		2.0
Jun	2.3	0.1
May	2.3	0.0
Apr	2.4	0.2
Mar	2.1	0.5
Feb	2.1	0.5
Jan	2.0	-0.4
AE ∆% Jan-Sep		1.9
Dec 2010	1.7	1.0
Nov	1.5	0.1
Oct	1.3	0.1
Sep	1.3	-0.1
Aug	1.0	0.0
Annual Average ∆%
2010	1.1
2009	0.4
2008	2.6

Source: http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2011/10/PE11__380__611,templateId=renderPrint.psml

Table 23 provides the monthly and 12 months rate of inflation for segments of the consumer price index. Inflation excluding energy fell 0.1 percent in Sep and rose 1.5 percent in 12 months. Excluding household energy inflation was flat in Sep and rose 2.1 percent in 12 months. High increases in Germany’s consumer prices in Sep were 0.9 percent in total goods, 2.8 percent in motor fuels, 0.9 percent in household energy and 3.6 percent in heating oil.

Table 23, Germany, Consumer Price Index ∆%

Sep 2011	12 Months ∆%	Month ∆%
Total	2.6	0.1
Excluding heating oil and motor fuels	1.9	-0.1
Excluding household energy	2.1	0.0
Excluding Energy	1.5	-0.1
Total Goods	3.8	0.9
Nondurable Consumer Goods	5.2	0.6
Medium-Term Life Consumer Goods	2.0	2.6
Durable Consumer Goods	-0.1	0.0
Energy Components
Motor Fuels	13.9	2.8
Household Energy	9.8	0.9
Heating Oil	23.8	3.6
Food	2.5	-0.1

Source: http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2011/10/PE11__380__611,templateId=renderPrint.psml

Consumer price inflation is more moderate in France. Table 24 provides monthly and 12 months rates of consumer price inflation in France in 2010 and 2011. The 12 months rate of inflation of consumer prices in France has risen from 1.1 percent in Jan 2010 to 2.2 percent in Sep 2011. The big jump occurred in the quarter of Feb to Apr with monthly rates of 0.5 percent in Feb, 0.8 percent in Mar and 0.3 percent in Apr, equivalent to 6.6 percent per year. With the exception of 0.5 percent in Aug, inflation has been moderate in France in recent months.

Table 24, France, Consumer Price Index, Month and 12 Months ∆%

	Month	12 Months
Sep	-0.1	2.2
Aug	0.5	2.2
Jul	-0.5	1.9
Jun	0.1	2.1
May	0.1	2.0
Apr	0.3	2.1
Mar	0.8	2.0
Feb	0.5	1.6
Jan	-0.2	1.8
Dec 2010	0.4	1.8
Nov	0.1	1.6
Oct	0.1	1.6
Sep	-0.1	1.5
Aug	0.2	1.4
Jul	-0.3	1.7
Jun	0.0	1.5
May	0.1	1.6
Apr	0.3	1.7
Mar	0.5	1.6
Feb	0.6	1.3
Jan	-0.3	1.1

Source: http://www.bdm.insee.fr/bdm2/choixCriteres.action?request_locale=en&codeGroupe=142

Chart 24 of the Institut National de la Statistique et des Études Économiques of France shows the headline and core consumption price inflation of France. Inflation rose during the commodity price shock of unconventional monetary policy. Risk aversion in late 2008 and 2009 caused collapse of valuation of commodity futures with resulting decline in inflation. Unconventional monetary policy with alternations of risk aversion resulted in higher inflation in France that has stabilized in recent months.

Chart 24, France, Consumer Price Index (IPC) and Core Consumer Price Index (ISJ) 12 Months Rates of Change

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=29&date=20110913

Inflation has been subdued in France since 1999 with the exception of the commodity shock in 2008 as shown in Table 25. The increase in inflation to 2.8 percent in 2008 in the middle of a global recession can be explained only by the carry trade from interest rates collapsing toward zero to valuation of commodity futures contracts.

Table 25, France, Consumer Price Index, ∆%

	CPI ∆%
2010	1.5
2009	0.1
2008	2.8
2007	1.5
2006	1.6
2005	1.8
2004	2.1
2003	2.1
2002	1.9
2001	1.7
2000	1.7
1999	0.5

Source: http://www.bdm.insee.fr/bdm2/choixCriteres.action?request_locale=en&codeGroupe=142

Monthly and 12 months rate of consumer price inflation in Italy are provided in Table 26. Consumer price inflation in Italy rose from the 12 month rate of 1.9 percent in Dec 2010 to 3.0 percent in Sep 2011. Monthly rates moderated to 0.1 percent in May and 0.1 percent in Jun but rose again to 0.3 percent in both Jul and Aug then to decline to zero in Sep. The annual equivalent rate in Jul-Sep is 2.4 percent, which is lower than 3.7 percent annual equivalent in Jan-Sep. The bottom part of Table 26 provides annual inflation in Italy from 2005 to 2010. Unconventional monetary policy of rates collapsing toward zero caused increases in valuation of commodity futures that inflated prices worldwide. Italy was another victim with inflation of 3.3 percent in 2008 during a global recession.

Table 26, Italy, Consumer Price Index, ∆%

	Month ∆%	12 Months ∆%
Sep 2011	0.0	3.0
Aug	0.3	2.8
Jul	03	2.7
AE ∆% Jul-Sep	2.4
Jun	0.1	2.7
May	0.1	2.6
Apr	0.5	2.6
Mar	0.4	2.5
Feb	0.3	2.4
Jan	0.4	2.1
AE ∆% Jan-Sep	3.7
Dec 2010	0.4	1.9
Year
2010		1.5
2009		0.8
2008		3.3
2007		1.8
2006		2.1
2005		1.9

Source: http://www.istat.it/it/archivio/42529

Chart 25 of the Istituto Nazionale di Statistica of Italy captures the increase in 12 months rates of inflation in Italy. The slope becomes more pronounced in the final months of 2010 and into 2011, then flattens and increases again in Aug and Sep.

Chart 25, Italy, Consumer Price Index, 12 Months ∆%

Source: Istituto Nazionale di Statistica of Italy

http://www.istat.it/it/archivio/42529

Month and 12 months rate of inflation for components of the consumer price index of Italy are provided in Table 27. As in Germany, there is the same likely seasonal increase of prices of clothing and footwear by 0.8 percent in Sep but only 2.0 percent in 12 months. The highest increase in 12 months is by transport, 6.7 percent, which declined 2.0 percent in Sep.

Table 27, Italy, Consumer Price Index by Components, ∆%

	Month ∆%	12 Months ∆%
All Items	0.0	3.0
Food and Non-alcoholic Beverages	0.3	2.3
Alcoholic Beverages	0.0	3.8
Clothing & Footwear	0.8	2.0
Residential Water, Electricity, Gas, Fuel	0.1	5.2
Household Goods	0.2	1.8
Health	0.1	0.6
Transport	-2.0	6.7
Communications	-0.3	-1.6
Recreation & Culture	0.2	1.4
Education	1.0	2.2
Hotels, Cafes and Restaurants	1.0	2.7
Miscellaneous	0.7	3.6

Source: http://www.istat.it/it/archivio/42529

IV World Economic Slowdown. The JP Morgan Global Manufacturing & Services PMI^™ produced by JP Morgan and Markit in association with ISM and IFPSM finds that growth of the world economy accelerated toward the end of IIIQ2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8672). The JP Morgan all-industry, manufacturing and services, PMI seasonally adjusted diffusion index is closely associated with the seasonally-adjusted annual equivalent rate of global GDP. The JP Morgan global all-industry output index registered 52.0 in Sep, which is slightly higher than 51.4 in Aug that was a low in 25 months. The rate of growth in IIIQ2011 was the weakest since IIIQ2009, falling significantly lower than that in IQ2011, which was close to a five-year high. US growth of all-industry output was the driver of global acceleration with industry reaching a six-month high. Additional dynamism was contributed by China and the UK. While global new business showed an enhanced trend in Sep, the growth rate was lower than at the turn of the year. David Hensley, Director of Global Economics Coordination at JP Morgan finds that in Sep global output and new orders grew at relatively higher rates. The implicit growth rate is still quite weak with manufacturing slowing to standstill and services performing below expectations. The adverse impact of world growth slowdown on labor markets could restrict future growth. The JP Morgan Global Manufacturing PMI^™ fell from 50.2 in Aug to 49.9 in Sep for the first time below the contraction frontier of 50 since Jun 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8648). David Hensley, Director of Global Economics Coordination at JP Morgan finds stagnating PMI out in the past few months with declining trend of new orders fed by falling flows of international trade. The information in the index suggests declining monthly world industrial production in future months. The table of world manufacturing purchasing managers’ indexes of Real Time Economics the Wall Street Journal (http://blogs.wsj.com/economics/2011/10/03/world-wide-factory-activity-by-country-18/tab/interactive/) shows indexes below 50 for the euro zone (France, Greece, Ireland, Italy, Spain), Netherlands, Australia, Brazil and Taiwan. Most other indexes are slightly above 50.

3. Labor Markets. Advanced economies continue to be plagued by fractured labor markets without improving perspectives

IVA United States. Bradley J. Holcomb, chair of the Institute for Supply Management^™ (ISM) Manufacturing Business Committee, summarizes the Manufacturing ISM Report on Business^® (http://www.ism.ws/ISMReport/MfgROB.cfm):

"The PMI registered 51.6 percent, an increase of 1 percentage point from August, indicating expansion in the manufacturing sector for the 26th consecutive month, at a slightly higher rate. The Production Index registered 51.2 percent, indicating a return to growth after contracting in August for the first time since May of 2009. The New Orders Index remained unchanged from August at 49.6 percent, indicating contraction for the third consecutive month. The Backlog of Orders Index decreased 4.5 percentage points to 41.5 percent, contracting for the fourth consecutive month and reaching its lowest level since April 2009, when it registered 40.5 percent. Comments from respondents generally reflect concern over the sluggish economy, political and policy uncertainty in Washington, and forecasts of ongoing high unemployment that will continue to put pressure on demand for manufactured products."

The Sep report shows that the manufacturing sector continues producing at 51.2, which is above the contraction frontier of 50. New orders deteriorated marginally with the Sep index at 49.6, which is slight below the contraction frontier of 50 and equal to the Aug index of also 49.6. The backlog of orders contracted 4.5 percentage points to 41.5 percent that indicates contraction and is the lowest number since 2009 when it registered 40.5 points. Important information in the report is the increase in the price segment from 55.6 in Aug to 56.0 in Sep. The export index rose from 50.5 in Aug to 53.5 in Sep. The overall Manufacturing ISM Report on Business^® rose by one percentage point, from 50.6 in Aug to 51.6 in Sep, indicating that manufacturing is growing at a higher rate in 26 months of expansion.

The Sep 2011 Non-manufacturing ISM Report on Business^® registered 53.0 in Sep, which was lower by 0.3 percentage points than 53.3 in Aug, which indicates growth at a slightly slower pace (http://www.ism.ws/ISMReport/NonMfgROB.cfm). This is by far compensated by the increase of 3.7 percentage points in the index of new orders from 52.8 in Aug to 56.5 in Sep. Employment was lower by 2.9 percentage points declining from 53.0 in Aug to 49.5, reversing direction to contraction. Another favorable aspect of the report is the decline in the price segment by 2.3 percentage points from 64.2 in Aug to 61.9, indicating increasing prices at slower pace.

Table USA provides the summary indicators of the US economy and where to locate them in the blog. Indicators released in the week of Sep 30 are discussed after Table USA

Table USA, US Economic Indicators

Consumer Price Index	Aug 12 months NSA ∆%: 3.8; ex food and energy ∆%: 2.0 Aug month ∆%: 0.4; ex food and energy ∆%: 0.2 Blog 09/18/11
Producer Price Index	Jun 12 months NSA ∆%: 6.5; ex food and energy ∆% 2.4 Aug month SA ∆% 0.2; ex food and energy∆%: 0.1 Blog 09/18/11
PCE Inflation	Jul 12 months NSA ∆%: headline 2.8; ex food and energy ∆% 1.6 Blog 09/04/11
Employment Situation	Household Survey: Aug Unemployment Rate SA 9.1% Blog calculation People in Job Stress Aug: 29.9 million NSA Establishment Survey: Aug Nonfarm Jobs 0 (zero jobs created); Private +17,000 job created Jul 12 months Average Hourly Earnings Inflation Adjusted ∆%: minus 1.3% Blog 09/04/11
Nonfarm Hiring	Nonfarm Hiring fell from 64.9 million in 2006 to 47.2 million in 2010 or by 17.7 million Private-Sector Hiring Jul 2011 3.985 million lower by 1.393 million than 5.378 million during contraction in Jul 2001 Blog 09/11/11
GDP Growth	BEA Revised National Income Accounts back to 2003 IQ2011 SAAR ∆%: 0.4 IIQ2011 SAAR ∆%: 1.3 First semester 2011 AE ∆% 0.8 Blog 09/02/11
Personal Income and Consumption	Jul month ∆% SA Real Disposable Personal Income (RDPI) -0.1 Jul month SA ∆% Real Personal Consumption Expenditures (RPCE): 0.5 12 months NSA ∆%: RDPI: 1.2; RPCE ∆%: 1.6 Blog 09/04/11
Quarterly Services Report	IIQ11/IQII SA ∆%: Information 2.0 Professional 1.6 Administrative 2.1 Hospitals 1.8 Blog 09/11/11
Employment Cost Index	IIQ2011 SA ∆%: 0.7 Jun 12 months ∆%: 3.4 Blog 08/07/11
Industrial Production	Aug month SA ∆%: 0.2 Aug 12 months NSA ∆%: 3.4 Capacity Utilization: 77.4 Blog 09/18/11
Productivity and Costs	Nonfarm Business Productivity IIQ2011∆% SAAE -0.7; IIQ2011/IIQ2010 ∆% minus 0.7; Unit Labor Costs IIQ2011 ∆% 3.3; IIQ2011/IIQ2010 ∆%: 1.9 Blog 09/04/11
New York Fed Manufacturing Index	General Business Conditions From -7.72 Aug to Sep: –8.82 New Orders: From -7.82 Aug to –8.0 Blog 09/18/11
Philadelphia Fed Business Outlook Index	General Index from -30.7 Aug to -17.5 Sep New Orders from Aug -26.8 to -11.3 Sep Blog 09/18/11
Manufacturing Shipments and Orders	Jul/Aug New Orders SA ∆%: minus 0.2; ex transport ∆%: minus 0.2 12 months Jan-Aug NSA ∆%: 13.0; ex transport ∆% 13.0 Blog 10/09/11
Durable Goods	Aug New Orders SA ∆%: -0.1; ex transport ∆%: -0.1 Aug 12 months NSA New Orders ∆%: 10.1; ex transport ∆% : 9.3 Blog 10/02/11
Sales of Merchant Wholesalers	Jan-Aug 2011/2010 ∆%: Total 15.1; Durable Goods: 12.3; Nondurable Goods 17.4 Blog 10/09/11
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Aug 11/Aug 10 NSA ∆%: Total Business 13.7; Manufacturers 13.4 Retailers 9.3; Merchant Wholesalers 18.2 Blog 10/16/11
Sales for Retail and Food Services	Sep 12 months ∆%: Retail and Food Services: 8.1; Retail ∆% 7.6 Blog 10/16/11
Value of Construction Put in Place	Aug SAAR month SA ∆%: 1.4 Aug 12 months NSA: 1.4 Blog 10/09/11
Case-Shiller Home Prices	Jul 2011/Jun 2010 ∆% NSA: 10 Cities –3.7; 20 Cities: –4.1 ∆% Jul SA: 10 Cities -0.1 ; 20 Cities: 0.1 Blog 10/02/11
FHFA House Price Index Purchases Only	Jul SA ∆% 0.8; 12 month ∆%: minus 3.2 Blog 09/25/11
New House Sales	Aug month SAAR ∆%: -2.3 Jan/Aug 2011/2010 NSA ∆%: minus 8.3 Blog 10/02/11
Housing Starts and Permits	Aug Starts month SA ∆%: -5.0; Permits ∆%: 3.2 Jan/Jul 2011/2010 NSA ∆% Starts -3.8; Permits ∆% –2.8 Blog 09/25/11
Trade Balance	Balance Aug SA -$45,608 million versus Jul -$45,625 million Exports Aug SA ∆%: -0.1 Imports Aug SA ∆%: -0.1 Exports Jan-Aug 2011/2010 NSA ∆%: 18.0 Imports Jan-Aug 2011/2010 NSA ∆%: 17.0 Blog 10/16/11
Export and Import Prices	Sep 12 months NSA ∆%: Imports 13.4; Exports 9.5 Blog 10/16/11
Consumer Credit	Aug ∆% annual rate: 5 minus 4.6% Blog 10/09/11
Net Foreign Purchases of Long-term Treasury Securities	Jul Net Foreign Purchases of Long-term Treasury Securities: $9.5 billion Jul versus Jun $3.4 billion Major Holders of Treasury Securities: China $1173 billion; Japan $915 billion Blog 09/11/11
Treasury Budget	Fiscal Year 2011/2010 ∆%: Receipts 6.5; Outlays 4.2; Individual Income Taxes 21.5 Deficit Fiscal Year 2011 $1,298,614 million Blog 10/16/11
Flow of Funds	IIQ2011 ∆ since 2007 Assets -$6311B Real estate -$5111B Financial -$1490 Net Worth -$5802 Blog 09/18/11
Current Account Balance of Payments	IIQ2011 -121B %GDP 3.2 Blog 09/18/11

Links to blog comments in Table USA: 10/09/11 http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html

10/02/11 http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html

09/25/11 http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html

09/18/11 http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html

09/11/11 http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html

09/05/11 http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html

There was mild improvement in the balance of international trade in goods and services of the US in Aug declining from deficit of $45,625 in Jul to deficit of $45,608 in Aug, as shown in Table 28. Exports and imports declined by the same 0.1 percent. In Jul, exports rose 3.4 percent with almost unchanged imports for a reduction of the monthly trade deficit from $51,570 million in Jun to $45,625 in Jul. The trade balance deteriorated from cumulative deficit of $337,265 million in Jan-Aug 2010 to deficit of $376,199 million in Jan-Aug 2011.

Table 28, US, Trade Balance of Goods and Services Seasonally Adjusted Millions of Dollars

	Trade Balance	Exports	Imports
Aug 2011	-45,608	177,611	223,220
∆%		-0.1	-0.05
Jul	-45,625	177,706	223,331
∆%		3.4	-0.02
Jun	-51,570	171,802	223,372
∆%		-2.2	-1.1
May	-50,182	175,673	225,855
∆%		-0.3	2.9
Apr	-43,242	176,267	219,509
∆%		1.3	-0.4
Mar	-46,397	173,981	220,378
∆%		4.9	4.2
Feb	-45,718	165,727	211,444
∆%		-1.3	-1.9
Jan	-47,858	167,849	215,707
∆%		2.3	5.5
Dec 2010	-40,454	164,006	204,459
Jan-Aug 2011	-376,199	1,386,617	1,762,816
Jan-Aug 2010	-337,265	1,197,178	1,534,443

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

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

Chart 26 of the US Bureau of the Census of the Department of Commerce shows that the trade deficit fell during the economic contraction after 2007 but has grown again during the expansion. There has been a slight improvement in the margin in Jul and Aug.

Chart 26, US Balance, Exports and Imports of Goods and Services $ Billions

Source: US Census Bureau

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

The balance of international trade in goods of the US seasonally-adjusted is shown in Table 29. The US has a dynamic surplus in services that reduces the large deficit in goods for a still very sizeable deficit in international trade of goods and services. The balance in international trade of goods deteriorated sharply from Jan-Aug 2010 to Jan-Aug 2011. Deterioration occurred both in the petroleum balance, exports less imports of petroleum, as well as in the non-petroleum balance, exports less imports of non-petroleum goods. Exports rose 18.0 percent with non-petroleum exports growing by 15.1 percent. Total imports rose by 17.0 percent with petroleum imports increasing by 30.5 percent and non-petroleum imports by 13.9 percent.

Table 29, US, International Trade in Goods Balance, Exports and Imports $ Millions and ∆% SA

	Jan-Aug 2011	Jan-Aug 2010	∆%
Total Balance	-495,350	-430,134
Petroleum	-220,156	-179,038
Non Petroleum	-268,476	-244,444
Total Exports	988,115	837,284	18.0
Petroleum	71,808	44,620	60.9
Non Petroleum	904,341	785,467	15.1
Total Imports	1,483,465	1,267,419	17.0
Petroleum	291,964	223,657	30.5
Non Petroleum	1,172,817	1,029,911	13.9

Details may not add because of rounding and seasonal adjustment

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

US exports and imports of goods not seasonally adjusted in Jan-Aug 2010 and Jan-Aug 2011 are shown in Table 30. The rate of growth of exports was 18.1 percent, which is slightly higher than 17.2 percent for imports. The US has partial hedge of commodity price increases in exports of agricultural commodities that rose 29.4 percent and of mineral fuels that increased 61.4 percent both because of higher prices of raw materials and commodities. The US exports an insignificant amount of crude oil. US exports and imports consist mostly of manufactured products, with less rapidly increasing prices. US manufactured exports rose only 11.7 percent while imports rose 14.2 percent. Significant part of the US trade imbalance originates in mineral fuels growing by 27.9 percent and crude oil increasing by 28.3 percent. The limited hedge in exports of agricultural commodities and mineral fuels compared with substantial imports of mineral fuels and crude oil results in deterioration of the terms of trade of the US, export prices relative to import prices, originating in commodity price increases caused by carry trades from zero interest rates.

Table 30, US, Exports and Imports of Goods, Not Seasonally Adjusted Millions of Dollars and %

	Jan- Aug 2011 $ Millions	Jan-Aug 2010 $ Millions	∆%
Exports	980,945	830,112	18.1
Manu- factured	636,609	569,997	11.7
Agricultural Commodities	90,224	69,720	29.4
Mineral Fuels	81,586	50,549	61.4
Crude Oil	879	1,088	-19.2
Imports	1,470,328	1,254,508	17.2
Manu- factured	1,049,374	921,912	13.8
Agricultural Commodities	65,873	54,366	21.2
Mineral Fuels	307,769	240,450	27.9
Crude Oil	225,115	175,395	28.3

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

Prices of US imports rose 13.4 percent in the 12 months ending in Sep 2011, as shown in Table 31, but increased only at the annual equivalent rate of 0.8 percent in the quarter Jul-Sep. At the margin, overall import price inflation is at a low annual equivalent rate. An important determinant of lower inflation is fuels and lubricants with share of 26.8 percent in total imports but falling at the annual equivalent rate of 4.7 percent in Jul-Sep 2011 in contrast with increase of 43.4 percent in the 12 months ending in Sep 2011. Inflation appears to have spread throughout the production chain. The index of all imports ex fuels with weight of 73.2 percent rose 5.5 percent in 12 months and 2.4 percent in annual equivalent in the quarter Jul-Sep 2011. The index of prices of consumer goods ex automotive rose 3.7 percent in the quarter Jul-Sep but only 2.4 percent in 12 months. Exports rose 2.4 percent in annual equivalent in the quarter Jul-Sep and 9.5 percent in 12 months. Agricultural exports, which are the US hedge against commodity price increases, rose 22.9 percent in 12 months but fell at the annual equivalent rate of 1.7 percent in the quarter Jul-Sep 2011. Agricultural exports are an imperfect hedge with share of only 11.4 percent in total exports. Industrial supplies and material rose a vigorous 3.7 percent in the Jul-Sep quarter and 18.9 percent in 12 months. Consumer goods ex autos rose 4.5 percent in the quarter Jul-Sep and 5.1 percent in 12 months.

Table 31, US, Prices of Exports and Imports 12 Months Growth and Annual Equivalent %

	12 Month ∆% Sep 2011	Annual ∆%Equivalent Jul-Sep 2011	% Total
Imports	13.4	0.8	100.0
Fuels & Lubricants	43.4	-4.7	26.8
All Imports ex Fuels	5.5	2.4	73.2
Capital Goods	1.3	1.2	20.8
Automotive vehicles, parts & engines	3.7	0.0	9.2
Consumer Goods Ex Automotive	2.4	3.7	24.2
Nondurable Manufactured	2.5	4.1	11.9
Durables Manufactured	1.4	1.6	11.3
Non-Manufactured Consumer Goods	11.5	10.8	1.0
Exports	9.5	2.4	100.0
Agricultural	22.9	-1.7	11.4
Non-Agricultural	8.1	3.3	88.4
Industrial Supplies and Materials	18.9	3.7	35.2
Capital Goods	1.0	-0.4	34.2
Automotive vehicles, parts & engines	2.5	4.5	6.7
Consumer Goods Excluding Autos	5.1	4.5	13.4
Nondurable Manufactured	1.6	2.0	6.7
Durables Manufactured	3.5	3.7	5.3

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

Chart 27 provides US prices of total US imports 2001-2011. Prices fell during the contraction of 2001. Import price inflation accelerated after unconventional monetary policy of near zero interest rates in 2003-2004 and quantitative easing by withdrawing supply with the suspension of 30-Treasury auctions. Slow pace of adjusting fed funds rates from 1 percent by 25 basis points increments in 17 consecutive meetings of the Federal Open Market Committee (FOMC) between Jun 2004 and Jun 2006 continued to give impetus to carry trades. The reduction of fed funds rates toward zero in 2008 fueled a spectacular hunt for yields that caused commodity price inflation in the middle of a global recession. After risk aversion in 2009 because of the announcement of TARP (Troubled Asset Relief Program) creating anxiety on “toxic assets” in bank balance sheets (see Cochrane and Zingales 2009), prices collapsed. Renewed price increases returned with zero interest rates and quantitative easing. Monetary policy impulses in massive doses have driven inflation and valuation of risk financial assets in wild fluctuations over a decade.

Chart 27, US, Prices of Total US Imports 2001-2011

Source: http://www.bls.gov/mxp/data.htm

Chart 28 provides the index of US export prices. There is not much difference in the Chart 27 and Chart 28. Import and export prices have driven by impulses of unconventional monetary policy in massive doses.

Chart 28, US, Prices of Total US Exports 2001-2011

Source: http://www.bls.gov/mxp/data.htm

Twelve months percentage rates of change of US prices of exports and imports are provided in Table 32. Import prices have been driven since 2003 by unconventional monetary policy of near zero interest rates influencing commodity prices according to moods of risk aversion. In a global recession without risk aversion until Sep, import prices rose 13.1 percent in 2008 and fell 12.0 percent when risk aversion developed until mid 2009. Import prices rose again sharply in 2011 until May in the presence of zero interest rates with relaxed mood of risk aversion. There is similar behavior of prices of imports ex fuels and export ex agricultural goods.

Table, 32, US, Twelve Months Percentage Rates of Change of Prices of Exports and Imports

	Imports	Imports Ex Fuels	Exports	Exports Non-Ag
Sep 2011	13.4	5.5	9.5	8.0
Sep 2010	3.6	2.5	4.9	4.3
Sep 2009	-12.0	-4.2	-5.6	-4.4
Sep 2008	13.1	6.1	7.0	5.8
Aug 2007	4.8	2.1	4.5	2.9
Sep 2006	1.6	2.9	3.9	3.8
Sep 2005	9.9	1.4	3.6	3.6
Sep 2004	8.2	2.8	4.0	4.3
Sep 2003	0.7	0.5	1.0	0.6
Sep 2002	-0.4	NA	-0.2	-0.6
Sep 2001	-5.6	NA	-1.4	-2.2

Source: http://www.bls.gov/mxp/data.htm#

Chart 29 shows the US monthly import price index of all commodities excluding fuels from 2010 to 2011. All curves of nominal values follow the same behavior under the influence of unconventional monetary policy. Zero interest rates without risk aversion result in jumps of nominal values and zero interest rates with strong risk aversion result in declines of nominal values.

Chart 29, US, Import Price Index All Commodities Excluding Fuels, 2001=100

Source: US Bureau of Labor Statistics

Chart 30 provides the monthly US import price index ex petroleum from 2001 to 2011. Prices including or excluding commodities follow the same fluctuations and trends originating in impulses of unconventional monetary policy of zero interest rates.

Chart 30, US, Import Price Index ex Petroleum, 2001=100

Source: US Bureau of Labor Statistics

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCESTUS1&f=W

Chart 31 of the US Energy Information Administration provides the futures prices of crude oil. Future prices were driven by unconventional monetary policy diverting carry trade toward risk financial assets such as commodity futures.

Chart 31, Daily Crude Oil Cushing OK Future Contract 1

Source: US Energy Information Administration

The price index of US imports of petroleum and petroleum products in shown in Chart 32. There is similar behavior of the curves all driven by the same impulses of monetary policy.

Chart 32, US, Import Price Index of Petroleum and Petroleum Products, 2011=100

Source: US Bureau of Labor Statistics

The US exports price index of agricultural commodities is in Chart 33. There are similar fluctuations and trends as in all other price index originating in unconventional monetary policy repeated over a decade.

Chart 33, US, Exports Price Index of Agricultural Commodities, 2001=100

Source: US Bureau of Labor Statistics

The final Chart 34 shows the export price index of nonagricultural commodities. Unconventional monetary policy of zero interest rates drove price behavior during the past decade. Policy has been based on the myth of stimulating the economy by climbing the negatively slope of an imaginary short-term Phillips curve.

Chart 34, US, Exports Price Index of Nonagricultural Commodities, 2001=100

Source: US Bureau of Labor Statistics

http://www2.census.gov/retail/releases/historical/mtis/img/mtisbrf.gif

Growth of sales of manufacturers, retailers and merchant wholesalers are provided in Table 33. Total business sales rose 0.3 percent in Aug after 0.7 percent in Jul and were up by 13.7 percent in Aug 2011 relative to Aug 2010. Sales of manufacturers fell 0.2 percent in Aug but after strong growth of 1.2 percent in Jul and rose 13.4 percent in the 12 months to Aug. Retailers experienced growth of 0.3 percent in sales in Aug and 9.3 in 12 months. Sales of merchant wholesalers rose 1.0 percent in Aug and a strong 18.2 percent in 12 months. These data are not adjusted for price changes such that they reflect increases in both quantities and prices.

Table 33, US, Percentage Changes for Sales of Manufacturers, Retailers and Merchant Wholesalers

	Aug 11/ Jul 11 ∆% SA	Jul 11/ Jun 11 ∆% SA	Aug 11/ Aug 10 ∆% NSA
Total Business	0.3	0.7	13.7
Manu- facturers	-0.2	1.2	13.4
Retailers	0.3	0.5	9.3
Merchant Whole- salers	1.0	0.3	18.2

Source: http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf

Businesses added to inventories to replenish stocks in an environment of strong sales. Retailers added 0.8 percent to inventories in Aug with growth of 4.1 percent in 12 months, as shown in Table 34. Total business increased inventories by 0.5 percent in both Aug and Jul and 10.4 percent in 12 months. Inventories sales/ratios of business continued at a level close to 1.28 under judicious management to avoid costs.

Table 34, US, Percentage Changes for Inventories of Manufacturers, Retailers and Merchant Wholesalers and Inventory/Sales Ratios

Inventory Change	Aug 11/ Jul 11 ∆% SA	Jul 11/ Jun 11 ∆% SA	Aug 11/ Aug 10 ∆% NSA
Total Business	0.5	0.5	10.4
Manu- facturers	0.4	0.6	13.0
Retailers	0.8	0.1	4.1
Merchant Wholesalers	0.4	0.8	14.0
Inventory/ Sales Ratio NSA	Aug 2011	Jul 2011	Aug 2010
Total Business	1.28	1.28	1.29
Manu- facturers	1.34	1.33	1.33
Retailers	1.34	1.34	1.39
Merchant Wholesalers	1.17	1.16	1.17

Source: http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf

Inventories follow business cycles. When recession hits sales inventories pile up, declining with expansion of the economy. In a fascinating classic opus, Lloyd Meltzer (1941, 129) concludes:

“The dynamic sequences (I) through (6) were intended to show what types of behavior are possible for a system containing a sales output lag. The following conclusions seem to be the most important:

(i) An economy in which business men attempt to recoup inventory losses will always undergo cyclical fluctuations when equilibrium is disturbed, provided the economy is stable.

This is the pure inventory cycle.

(2) The assumption of stability imposes severe limitations upon the possible size of the marginal propensity to consume, particularly if the coefficient of expectation is positive.

(3) The inventory accelerator is a more powerful de-stabilizer than the ordinary acceleration principle. The difference' in stability conditions is due to the fact that the former allows for replacement demand whereas the usual analytical formulation of the latter does not. Thus, for inventories, replacement demand acts as a de-stabilizer. Whether it does so for all types of capital goods is a moot question, but I believe cases may occur in which it does not.

(4) Investment for inventory purposes cannot alter the equilibrium of income, which depends only upon the propensity to consume and the amount of non-induced investment.

(5) The apparent instability of a system containing both an accelerator and a coefficient of expectation makes further investigation of possible stabilizers highly desirable.”

Chart 35 shows the increase in the inventory/sales ratios during the recessions of 2001 and 2007-2009. The inventory/sales ratio fell during the expansions.

Chart 35, Total Business Inventories/Sales Ratios 2002 to 2011

Source: US Census Bureau

Markets responded positively to the announcement of growth of sales of retail and food services by 1.1 percent in Sep, shown in Table 35. Sales of motor vehicles and parts rose 3.5 percent in Sep and 10.4 percent in 12 months and 0.6 per cent ex motor vehicles and parts. Gasoline station sales rose 1.2 percent in fluctuating prices of gasoline.

Table 35, US, Percentage Change in Monthly Sales for Retail and Food Services, ∆%

	Sep/Aug ∆% SA	Aug/Jul ∆% SA	12 Months Jan to Sep 2011 to Jan to Sep 2010 ∆% NSA
Retail and Food Services	1.1	0.3	8.1
Excluding Motor Vehicles and Parts	0.6	0.5	7.6
Motor Vehicles & Parts	3.6	-0.8	10.4
Retail	1.1	0.3	8.4
Building Materials	-0.1	1.2	5.8
Food and Beverage	-0.2	0.4	5.6
Grocery	-0.3	0.4	5.8
Health & Personal Care Stores	0.3	0.6	5.2
Clothing & Clothing Accessories Stores	1.3	-0.4	5.9
Gasoline Stations	1.2	0.8	19.5

Source: http://www.census.gov/retail/marts/www/marts_current.pdf

Chart 36 of the US Bureau of the Census shows percentage change of retails and food services sales. Sep was strong in multiple categories.

Chart 36, US, Advance Monthly Retail Sales Report

Source: http://www.census.gov/retail/marts/www/marts_current.pdf

Twelve months rates of growth of US sales of retail and food services in Sep from 2001 to 2011 are shown in Table 36. Nominal sales have been dynamic in 2011 and 2010 after declines in 2009 and 2008.

Table 36, US, Percentage Change in 12 Months Sales for Retail and Food Services, ∆% NSA

Sep	12 Months ∆%
2011	8.6
2010	7.6
2009	-7.2
2008	-0.8
2007	2.3
2006	3.9
2005	6.3
2004	6.7
2003	7.5
2002	4.3
2001	-2.6
2000	5.9

Source: http://www.census.gov/retail/

Treasury reported a budget deficit of $1,298,614 million in the fiscal year of 2011. This is the second highest deficit since World War II. Individual income taxes grew 21.5 percent from 2010 to 2011.

Table 37, US, Treasury Budget in Fiscal Year to Date Million Dollars

	Sep 2011	Sep 2010	∆%
Receipts	2,302,495	2,161,728	6.5
Outlays	3,601,109	3,455,931	4.2
Deficit	-1,298,614	-1,294,204	NA
Individual Income Taxes	1,091,473	898,549	21.5

Source: http://www.fms.treas.gov/mts/mts0911.pdf

An important characteristic of US Treasury debt is the large holdings by foreign countries, shown in Table 38. The US is heavily dependent on foreign savings to finance its balance of payments and fiscal deficits.

Table 38, US, Major Foreign Holders of Treasury Securities $ Billions at End of Period

	Jul 2011	Jun 2011	Dec 2010
China	1173.5	1165.5	1160.1
Japan	914.8	911.0	882.3
United Kingdom	352.5	347.8	270.4
Oil Exporters	234.3	229.6	211.9
Brazil	210.0	207.1	186.1
Taiwan	154.3	153.4	155.1
Caribbean Banking Centers	124.5	141.7	168.4
Hong Kong	111.9	118.4	134.2
Switzerland	108.4	108.0	106.8
Russia	100.2	109.8	151.0

Source: http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

IVB Japan. The strong yen and weak world economic growth are beginning to affect manufacturing in Japan. The Markit/JMMA Purchasing Managers’ Index^™ for Sep, released on Sep 30, registered a decline from 51.9 in Aug to 49.3 in Sep, which indicates that the manufacturing sector deteriorates but only marginally (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8595). The marginal contraction interrupts V-shaped recovery from the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. For the first time in four months, incoming new business contracted. Weaker demand from China partially explains the fall in demand for new export orders. The survey finds sharp increases in input prices for raw materials and fuels but falling prices for manufacturers’ finished goods. Composite data in the Markit Japan Services PMI^™ shows falling output in the private sector of the Japanese economy in Sep for a seventh consecutive month. Confidence in the service sector fell to the lowest in five months. Companies were forced to reduce their sales prices because of intensive competition. The composite index remained below 50 for the seventh consecutive month, indicating strong reduction in activity of the private sector. Alex Hamilton, economist at Markit, finds that the combination of falling manufacturing production for the first time in five months together with contraction of services indicates contraction of the private sector of the Japanese economy.

Table JPY provides the country data table for Japan followed with indicators released in the week of Oct 14.

Table JPY, Japan, Economic Indicators

Historical GDP and CPI	1981-2010 Real GDP Growth and CPI Inflation 1981-2010 Blog 07/31/11
Corporate Goods Prices	Sep ∆% -0.2 12 months ∆% 2.5 Blog 10/16/11
Consumer Price Index	Jul SA ∆% 0.0 Jul 12 months NSA ∆% 0.2 Blog 08/28/11
Real GDP Growth	IIQ2011 ∆%: –0.5 on IQ2011; ∆% from quarter a year earlier: –1.1% Blog 09/11/11
Employment Report	Aug Unemployed 2.76 million Change in unemployed since last year: minus 450 thousand Unemployment rate: 4.4% Blog 10/02/11
All Industry Index	Jul month SA ∆% 0.4 12 months NSA ∆% minus 0.8 Blog 09/25/11
Industrial Production	Aug SA month ∆%: 0.8 12 months NSA ∆% 0.6 Blog 10/02/11
Machine Orders	Total Aug ∆% 6.5 Private Aug ∆%: -3.6 Aug ∆% Excluding Volatile Orders -3.6 Blog 10/16/2011
Tertiary Index	Aug month SA ∆% -0.2 Aug 12 months NSA ∆% 0.2 Blog 10/16/2011
Wholesale and Retail Sales	Aug 12 months: Total ∆%: 3.3 Wholesale ∆%: 5.6 Retail ∆%: -2.6 Blog 10/02/11
Family Income and Expenditure Survey	Aug 12 months ∆% total nominal consumption minus 3.9, real minus 4.1 Blog 10/02/11
Trade Balance	Exports Aug 12 months ∆%: 2.8 Imports Aug 12 months ∆% 19.2 Blog 09/25/11

Links to blog comments in Table JPY:

10/09/11 http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html

10/02/11 http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html

09/25/11 http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html

09/25/11 http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html

09/11/11 http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html

09/04/11 http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html

08/28/11 http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html

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

Japan’s machinery orders in Table 39 enjoyed a good month in Aug. Total orders rose 6.5 percent. Private-sector orders excluding volatile orders, which are closely watched, rose 11.0 percent. Orders for manufacturing increased 5.5 percent and overseas orders rose 32.3 percent.

Table 39, Japan, Machinery Orders, Month ∆%

	Aug	Jul	Jun	May
Total	6.5	-11.3	5.6	-2.3
Private Sector	-3.6	-15.9	19.4	4.9
Excluding Volatile Orders	11.0	-8.2	7.7	3.0
Mfg	13.7	-5.2	9.3	-1.4
Non Mfg	-6.1	-1.4	15.7	-5.4
Gvt	-5.5	-1.7	-3.2	10.7
From Overseas	32.3	-9.8	-5.9	-6.6
Through Agencies	-0.2	-1.5	-6.6	-22.4

Note: Mfg: manufacturing; Gvt: government

Source: http://www.esri.cao.go.jp/en/stat/juchu/1108juchu-e.html

Total orders for machinery and total private-sector orders excluding volatile orders for Japan are shown in Chart 37 of Japan’s Economic and Social Research Institute at the Cabinet Office. The trend of private-sector orders excluding volatile orders is increasing smoothly. There could be reversal of the trend of decline in total orders.

Chart 37, Japan, Machinery Orders

Source: Japan Economic and Social Research Institute, Cabinet Office

http://www.esri.cao.go.jp/en/stat/juchu/1108juchu-e.html

The value of machinery orders in Japan in Aug 2011 expressed in million yen and the 12 months rates of growth in Aug 2011 and in Dec for the years from 2006 to 2010 are provided in Table 40. The important segment of private-sector orders excluding volatile orders grew at 2.2 percent in the 12 months ending in Aug 2011. Machinery orders for Japan fell 25.6 percent in 2008. Overseas orders fell 28.2 percent in 2008 but rose 10.8 percent in the 12 months ending in Aug 2011.

Table 40, Japan, Machinery Orders, 12 Months ∆% and Million Yen

	Total	Overseas	Domestic	Private ex Volatile
Value Aug 2011	1,983,385	933,877	1,165,961	804,877
% Total	100.0	47.1	58.8	40.6
Aug 2011	-3.6	10.8	-11.7	2.2
Dec 2010	9.0	3.5	13.6	-0.4
Dec 2009	1.7	1.8	2.6	-1.2
Dec 2008	-25.6	-28.2	-18.1	-24.2
Dec 2007	4.5	12.6	-4.9	-6.0
Dec 2006	-2.7	1.1	-0.4	0.1

Note: Value in first row does not add to the other columns

Source: http://www.esri.cao.go.jp/en/stat/juchu/1108juchu-e.html

The tertiary activity index of Japan fell 0.2 percent in Aug but rose 0.2 percent in 12 months, as shown in Table 41. There was strong impact from the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 in the decline of the tertiary activity index by 5.9 percent in Mar and 3.1 percent in 12 months. Monthly rates in Aug and Jul have been negative by 0.2 percent and 0.2 percent respectively.

Table 41, Japan, Tertiary Activity Index ∆%

	Month ∆% SA	12 Months ∆% NSA
Aug 2011	-0.2	0.2
Jul	-0.3	-0.3
Jun	1.9	0.9
May	0.9	-0.2
Apr	2.7	-2.3
Mar	-5.9	-3.1
Feb	0.8	2.0
Jan	-0.1	1.1
Dec 2010	-0.2	1.8
Nov	0.6	2.5
Oct	0.2	0.5
Sep	-0.4	1.3
Aug	0.1	2.3
Jul	0.7	1.6
Jun	0.1	1.0
May	-0.3	1.2

Source: http://www.meti.go.jp/statistics/tyo/sanzi/result/pdf/hv37903_201108j.pdf

Month and 12 months rates of growth of the tertiary activity index of Japan and components in Aug are provided in Table 42. Electricity, gas and water fell 9.2 percent in 12 months and 1.1 percent in Aug. There is weakness in the index and in components.

Table 42, Japan, Tertiary Index and Components, Month and 12 Months Rates of Change ∆%

Aug 2011	12 Months ∆%	Month ∆%
Tertiary Index	0.2	-0.2
Electricity, Gas, & Water	-9.3	-1.1
Information & Communications	-0.8	-0.1
Wholesale & Retail Trade	1.4	-1.1
Finance & Insurance	1.2	-1.8
Real Estate & Goods Rental & Leasing	-1.4	0.1
Scientific Research, Professional & Technical Services	2.2	-0.3
Accommodations, Eating, Drinking	-1.1	0.2
Living-Related, Personal, Amusement Services	-2.7	1.6
Learning Support	-2.3	0.3
Medical, Health Care, Welfare	3.8	0.1
Miscellaneous ex Government	3.1	0.4

Source: http://www.meti.go.jp/statistics/tyo/sanzi/result/pdf/hv37903_201108j.pdf

IVC China. The seasonally-adjusted HSBC Purchasing Managers’ Index^™ compiled by Markit was unchanged at 49.9 in Sep, indicating marginal deterioration of overall manufacturing in China (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8596). The quarterly average of the index is the lowest since IQ2009. Hongbin Qu, Chief Economist, China & Co-head of Asian Economic Research at HSBC does not find that the data suggest sharp slowing of manufacturing and that the results of the survey indicate continuing economic growth at 8.5 percent to 9 percent in the future years. The composite output index of manufacturing and services of the HSBC China Services PMI^™ compiled by Markit rose to 51.5 in Sep, moving away from near stagnation in Aug (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8635). The index is below the long-run average of the series of 54.6 and its level is the lowest since IQ2009. The improvement was caused by an increase in the activity of the services sector with the index climbing to 53.0 in Sep from 50.6 in Aug. Performance is still substandard relative to historical data. Inflation of input prices registered the highest in four months. Table CNY provides the country data table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry	Sep 12 months ∆%: 6.5 Jan-Sep ∆%: 7.0 Sep month ∆%: 0.0 Blog 10/16/11
Consumer Price Index	Sep month ∆%: 0.5 Sep 12 month ∆%: 6.1 Jan-Sep ∆%: 5.7 Blog 10/16/11
Value Added of Industry	Aug 12 month ∆%: 13.5 Jan-Aug 2011/Jan-Aug 2010 ∆%: 14.2 Blog 09/11/11
GDP Growth Rate	Year IIQ2011 ∆%: 9.6 Quarter IIQ2011 ∆%: 2.2 Blog 08/14/11
Investment in Fixed Assets	Total Jan-Aug ∆%: 25.0 Jan-Aug ∆% real estate development: 33.2 Blog 09/11/11
Retail Sales	Aug month ∆%: 1.4 Aug 12 month ∆%: 17.0 Jan-Aug ∆%: 16.9 Blog 09/11/11
Trade Balance	Sep balance $14.51 billion Exports ∆% 17.1 Imports ∆% 30.9 Blog 10/16/11

Links to blog comments in Table CNY:

10/09/11 http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html

09/11/11 http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html

09/04/11 http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html

08/14/11 (08/9): http://cmpassocregulationblog.blogspot.com/2011/08/turbulence-in-world-financial-markets.html

China’s exports and imports and their 12 months rates of growth together with the trade balance in Sep are shown in Table 43. The 12 months rate of growth of exports fell from 24.5 percent in Aug to 17.1 percent in Sep and the 12 months rates of growth of imports fell from 30.2 percent in Aug to 20.9 percent in Sep. Growth is still extremely high and in comparison with trade data for other countries. The Dow Jones Newswires informs on Oct 15 that the premier of China Wen Jiabao announced that the Chinese yuan will not be further appreciated to prevent adverse effects on exports (http://professional.wsj.com/article/SB10001424052970203914304576632790881396896.html?mod=WSJ_hp_LEFTWhatsNewsCollection). It is difficult to separate various possibilities from the Senate bill designed to curb imports from China in the US such as weakening international trade.

Table 43, China, Exports, Imports and Trade Balance USD Billion and ∆%

	Exports USD Billion	∆% Relative Year Earlier	Imports USD Billion	∆% Relative Year Earlier	Balance USD Billion
Sep 2011	169.67	17.1	155.16	20.9	14.51
Aug	173.31	24.5	155.56	30.2	17.75
Jul	175.13	20.4	143.64	22.9	31.49
Jun	161.98	17.9	139.71	19.3	22.27
May	157.16	19.4	144.11	28.4	13.05
Apr	155.69	29.9	144.26	21.8	11.43
Mar	152.2	35.8	152.06	27.3	0.14
Feb	96.74	2.4	104.04	19.4	-7.3
Jan	150.73	37.7	144.27	51.0	6.46
Dec 2010	154.15	17.9	141.07	25.6	13.08

Source: http://english.customs.gov.cn/publish/portal191/

http://english.mofcom.gov.cn/static/column/statistic/BriefStatistics.html/1

Table 44 provides China’s cumulative exports and imports and their yearly growth rates together with the trade balance. China is still enjoying strong trade growth.

Table 44, China, Year to Date Exports, Imports and Trade Balance USD Billion and ∆%

	Exports USD Billion	∆% Relative Year Earlier	Imports USD Billion	∆% Relative Year Earlier	Balance USD Billion
Sep 2011	1,391.7	22.7	1,285.2	26.8	107.1
Aug	1,222	23.6	1,130	27.5	92.7
Jul	1,049.4	23.4	973.2	26.9	76.2
Jun	874.3	24.0	829.4	27.6	44.9
May	712.4	25.5	689.4	29.4	23.0
Apr	555.3	27.4	545.0	29.6	10.3
Mar	399.6	26.5	400.7	32.6	-1.1
Feb	247.47	21.3	248.36	36.0	-0.9
Jan	150.7	37.7	144.3	51.0	6.4
Dec 2010	1577.9	31.3	1394.8	38.7	183.1

Source: http://english.mofcom.gov.cn/static/column/statistic/BriefStatistics.html/1

IVD Euro Area. The Markit Eurozone Manufacturing PMI^® registered the weakest reading in 24 months of 48.5 in Sep (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8611). New orders fell at the highest rate in more than two years. The indexes for Italy (48.3), France (48.2), Ireland (47.3) and Spain (43.7) are the lows in 24 to 26 months while that of Greece (43.2) fell to a 7-month low. Chris Williamson, Chief Economist at Markit, finds that manufacturers face the weakest business environment in more than two years because of the joint occurrence of mediocre internal demand and declining export demand. The prospects are for further drop in production in coming months because of the acceleration of decline of new orders. The Markit Eurozone PMI^® Composite Output Index fell to 49.1 in Sep from 50.7 in Aug for the first decline in private sector activity in the euro area since Jul 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8613). The index average for IIIQ2011 registered 50.3, indicating stagnation of private-sector activity, falling below 55.6 in IIQ2011 and 57.6 in IQ2011. Chris Williamson, Chief Economist at Markit finds that the PMI reading for Sep shows the euro zone economy at standstill. The contraction of output in Sep suggests stagnation for the entire third quarter. The sharp decline in new business indicates possible contraction of GDP in the final quarter of 2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8613). Table EUR provides the data table for the euro zone.

Table EUR, Euro Area Economic Indicators

GDP	IIQ2011 ∆% 0.2; IIQ2011/IIQ2010 ∆% 1.6 Blog 09/11/11
Unemployment	Aug 2011: 10.0% unemployment rate Aug 2011: 15.739 million unemployed Blog 10/02/11
HICP	Sep month ∆%: 0.8 12 months Sep ∆%: 3.0 Blog 010/16/11
Producer Prices	Euro Zone industrial producer prices Aug 12 months ∆%: 5.9 Blog 10/09/11
Industrial Production	Aug month ∆%: 1.2 Aug 12 months ∆%: 5.3 Blog 10/16/11
Industrial New Orders	Jul month ∆%: minus 2.1 Jul 12 months ∆%: 8.5 Blog 09/25/11
Construction Output	Jul month ∆%: 1.4 Jul 12 months ∆%: 1.2 Blog 09/25/11
Retail Sales	Aug month ∆%: minus 0.3 Aug 12 months ∆%: minus 1.0 Blog 10/09/11
Confidence and Economic Sentiment Indicator	Sentiment 95.0 Sep 2011 down from 107 in Dec 2010 Confidence minus 19.1 Sep 2011 down from minus 11 in Dec 2010 Blog 10/02/11
Trade	Jan-Aug 2011/2010 Exports ∆%: 15.2 Imports ∆%: 15.8 Blog 10/16/11
HICP, Rate of Unemployment and GDP	Historical from 1999 to 2011 Blog 09/04/11

Links to blog comments in Table EUR:

10/09/11 http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html

10/02/11 http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html

09/25/11 http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html

09/18/11 http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html

09/11/11 http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html

09/04/11 http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html

After weakness from Mar to Jun, euro zone industrial production rebounded with growth of 1.2 percent in Aug after 1.1 percent in Jul, as shown in Table 45. Capital goods surged by 3.2 percent in Jul and 2.1 in Aug after much weaker performance in Mar to Jun.

Table 45, Euro Zone, Industrial Production Month ∆%

2011	Aug	Jul	Jun	May	Apr	Mar	Feb	Jan
Total	1.2	1.1	-0.6	0.2	0.4	0.0	0.5	0.1
Inter-mediate	1.7	0.7	-0.6	0.1	0.1	0.0	0.5	2.3
Energy	0.0	0.1	1.1	0.3	-3.7	-0.3	-1.3	-4.7
Capital Goods	2.1	3.2	-1.4	1.2	0.9	-0.6	2.2	-1.8
Durable	0.0	3.7	-2.4	-0.5	1.1	0.0	0.9	1.1
Non Durable	1.1	-0.7	-0.6	-0.1	0.4	0.4	0.9	-0.1

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-12102011-AP/EN/4-12102011-AP-EN.PDF

Table 46 provides 12 months rate of growth of industrial production in the euro zone. Rates fell to lower levels of 4.3 percent in May and Jun but rose to 5.3 in the 12 months ending in Aug.

Table 46, Euro Zone, Industrial Production 12 Months ∆%

2011	Aug	Jul	Jun	May	Apr	Mar	Feb	Jan
Total	5.3	4.4	2.8	4.3	5.4	5.7	7.8	6.2
Inter-mediate	5.3	4.2	3.1	4.5	5.4	7.5	10.0	9.5
Energy	-3.5	-4.2	-3.6	-7.2	-5.3	-2.1	-2.8	-1.9
Capital Goods	12.2	11.9	6.8	10.7	10.7	11.5	15.1	13.0
Durable	2.8	4.3	-2.4	1.3	4.9	2.5	3.5	2.0
Non Durable	1.9	-0.7	1.0	2.7	3.7	0.7	2.6	0.5

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-12082011-AP/EN/4-12082011-AP-EN.PDF

Euro zone trade growth continues to be strong as shown in Table 47. Exports grew at 15.2 percent and imports at 15.8 percent in the first eight months of 2011 relative to 2010. The 12 months rates of growth of exports were 14.3 percent in Aug and 11.3 percent for imports.

Table 47, Euro Zone, Exports, Imports and Trade Balance, Billions of Euros and Percent, NSA

	Exports	Imports
Jan-Aug 2011	1130.9	1154.8
Jan-Aug 2010	981.8	997.0
∆%	15.2	15.8
Aug 2011	137.8	141.2
Aug 2010	120.6	126.9
∆%	14.3	11.3
Trade Balance	Jan-Aug 2011	Jan-Aug 2010
€ Billions	-23.9	-15.3

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-14102011-AP/EN/6-14102011-AP-EN.PDF

The structure of trade of the euro zone in Jan-Jul is provided in Table 48. Data are still not available for trade structure for Aug. Manufactured exports grew 13.9 percent in Jan-Jul 2011 relative to Jan-Jul 2010 while imports grew 12.3 percent.

Table 48, Euro Zone, Structure of Exports, Imports and Trade Balance, € Billions, ∆%

	Primary	Manu- factured	Other	Total
Exports
Jan-Jul 2011 € B	149.6	817.0	26.5	993.1
Jan-Jul 2010 € B	119.1	717.3	24.8	861.2
∆%	25.6	13.9	6.9	15.3
Imports Jan-Jul 2011 € B	354.8	642.9	15.8	1013.6
Imports Jan-Jul 2010 € B	280.3	572.6	17.3	870.2
∆%	26.6	12.3	-8.7	16.5
Trade Balance Jan-Jul 2011	-205.2	174.2.0	10.6	-20.4
Trade Balance Jan-Jul 2010	-161.2	144.7	7.5	-9.0

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-14102011-AP/EN/6-14102011-AP-EN.PDF

IVE Germany. The Markit/BME Germany Manufacturing PMI^® registered the lowest reading in two years at 50.3 in Sep, which is slightly lower than 50.9 in Aug (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8632). Tim Moore, Senior Economist at Markit, finds that manufacturing recovery in Germany is at standstill. There is support for the observation that growth may have peaked early in 2011 with weak prospects for the coming months because of the decline of new orders at the highest rate since the middle of 2009 particularly accentuated by weak export demand. The Germany Composite Output Index of the Markit Germany Services PMI^® fell from 51.3 in Aug to 50.5 in Sep. Manufacturing supported the composite index as the Germany Services Business Activity index fell from 51.1 in Aug to 49.7 in Sep (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8668). Tim Moore, Senior Economist at Markit, finds that Germany’s private sector experienced slowing activity in IIIQ2011 that is consistent with GDP stagnation. There is concern about the final quarter of 2011 because of the lack of drivers of economic activity. Table DE provides the data table for Germany.

Table DE, Germany, Economic Indicators

GDP	IIQ2011 0.1 ∆%; II/Q2011/IIQ2010 ∆% 2.7 Blog 09/11/11
Consumer Price Index	Sep month SA ∆%: 0.1 Aug 12 months ∆%: 2.6 Blog 10/16/11
Wholesale Price Index	Aug month ∆%: 0.1 12 months NSA ∆%: 6.5 Blog 09/11/11
Industrial Production	Aug month SA ∆%: minus 1.0 12 months NSA: 12.2 Blog 10/09/11
Machine Orders	Aug month ∆%: -2.8 Aug 12 months ∆%: 5.5 Blog 10/09/11
Retail Sales	Jul Month ∆% 0.0 12 Months ∆% minus 1.6 Blog 09/04/11
Employment Report	Employment Accounts: Aug Employed 12 months NSA ∆%: 1.3 Labor Force Survey: Aug Unemployment Rate: 5.9% Blog 10/02/11
Trade Balance	Exports Jul 12 month NSA ∆%: 4.4 (versus ∆% 3.1 Jun and 19.9 May) Imports Jul 12 months NSA ∆%: 9.9 (versus ∆% 6.0 Jun and 15.7 May) Exports Jul month SA ∆%: minus 1.8 percent, versus Jun minus 1.2; Imports Jul month SA minus 0.3∆% versus Jun 0.3 Blog 09/11/11

Links to blog comments in Table DE:

10/09/11 http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html

10/02/11 http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html

09/18/11 http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html

09/11/11 http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html

09/04/11 http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html

Twelve months rates of growth Germany’s exports and imports are shown in Table 49. There was sharp decline in the rates in Jun and Jul to single-digit levels. In the 12 months ending in Aug, exports rose 14.6 percent and imports 12.6 percent. Growth had been much stronger in the recovery during 2010 and 2011 from the fall from 2007 to 2009. Germany’s trade grew at high rates in 2006 and 2005.

Table 49, Germany, Exports and Imports NSA Euro Billions and 12 Months ∆%

	Exports EURO Billions	12 Months ∆%	Imports EURO Billions	12 Months ∆%
Aug 2011	85.3	14.6	73.5	12.6
Jul	85.8	4.3	75.3	9.7
Jun	88.3	3.1	75.6	6.0
May	92.2	20.1	77.4	15.7
Apr	84.3	13.4	73.4	20.1
Mar	98.2	15.7	79.4	17.0
Feb	84.1	21.1	72.1	27.3
Jan	78.6	24.4	68.5	24.3
Dec 2010	81.7	21.0	69.6	26.4
Nov	87.2	20.6	74.1	31.6
Oct	85.9	18.5	71.6	19.3
Sep	86.1	21.4	69.2	16.5
Aug	74.5	24.0	65.3	27.8
Jul	82.2	16.5	68.6	24.8
Jun	85.6	28.0	71.3	34.1
May	76.8	26.6	66.9	32.9
Apr	74.3	15.4	61.2	12.5
Mar	84.9	21.0	67.9	15.5
Feb	69.4	8.8	56.7	3.0
Jan	63.3	-0.5	55.1	-1.8
Dec 2009	67.5	1.2	55.0	-7.3
Dec 2008	66.7	-8.6	59.4	-5.0
Dec 2007	72.9	-0.6	62.5	-0.1
Dec 2006	73.4	10.2	62.6	8.5
Dec 2005	66.6	11.5	57.7	18.1
Dec 2004	59.7	9.2	48.9	10.8
Dec 2003	54.7	7.6	44.1	3.9
Dec 2002	50.8	5.5
Dec 2001	48.2	-3.7
Dec 2000	50.0

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

Chart 38 of the Statistisches Bundesamt Deutschland shows exports and trend of German exports. Growth has been with fluctuations around a strong upward trend.

Chart 38, Germany, Exports Original Value and Trend 2007-2011

Source: Statistisches Bundesamt Deutschland

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

Chart 39 of the Statistisches Bundesamt Deutschland provides German imports and trend. Imports also fell sharply and have been recovering with fluctuations around a strong upward trend.

Chart 39, Germany, Imports Original Value and Trend 2007-2011

Source:

Statistisches Bundesamt Deutschland

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

Chart 40 of the Statistisches Bundesamt Deutschland shows the trade balance of Germany since 2003. There was sharp decline during the global recession and fluctuations around an upward trend during the recovery.

Chart 40, Germany, Trade Balance Original Value and Trend 2007-2011

Source:

Statistisches Bundesamt Deutschland

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

Table 50 provides monthly rates of growth of exports and imports of Germany. Exports surged in Aug after weak rates in Jul and Jun.

Table 50, Germany, Exports and Imports Month ∆% Calendar and Seasonally Adjusted

	Exports	Imports
Aug 2011	3.5	0.0
Jul	-1.2	0.5
Jun	-0.5	0.0
May	3.4	3.0
Apr	-4.5	-1.6
Mar	5.8	2.6
Feb	2.4	3.2
Jan	-0.5	2.8
Dec 2010	0.7	-2.1

Source: http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2011/10/PE11__373__51,templateId=renderPrint.psml

There is extremely important information in Table 51 for the current sovereign risk crisis in the euro zone. Table 51 provides the structure of regional and country relations of Germany’s exports and imports. German exports to other European Union members are 57.1 percent of total exports in Aug and 59.7 percent in Jan-Aug. Exports to the euro area are 36.9 percent in Aug and 40.1 percent in Jan-Aug. Exports to third countries are only 42.9 percent of the total in Aug and 40.2 percent in Jan-Aug. There is similar distribution for imports. Economic performance in Germany is closed related to its competitiveness in world markets and weakness in the euro zone and the European Union in general could affect the German economy.

Table 51, Germany, Structure of Exports and Imports by Region, € Billions and ∆%

	Aug 2011 € Billions	12 Months ∆%	Jan-Aug 2011 € Billions	Jan-Aug 2011/ Jan-Jul 2010 ∆%
Total Exports	85.3	14.6	696.8	14.0
A. EU Members	48.7 % 57.1	12.7	415.8 % 59.7	13.3
Euro Area	31.5 % 36.9	11.5	279.5 % 40.1	11.9
Non-euro Area	17.1 % 20.0	15.1	136.3 % 19.6	16.5
B. Third Countries	36.6 % 42.9	17.1	281.0 % 40.3	15.1
Total Imports	73.5	12.6	595.3	16.1
C. EU Members	44.8 % 60.9	12.4	376.4 % 63.2	16.6
Euro Area	31.3 % 42.6	13.0	265.4 % 44.6	15.9
Non-euro Area	13.5	11.0	111.0	18.5
D. Third Countries	28.7 % 39.1	12.8	218.9 % 36.8	15.1

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

Source: http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2011/10/PE11__373__51,templateId=renderPrint.psml

IVF France. The Markit France Composite Output Index of the Markit France Services PMI^® fell from 53.7 in Aug to a 26 month low while the Markit France Services Activity Index fell from 56.8 in Aug to 51.5 in Sep for a 25-month low (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8666). Jack Kennedy, Senior Economist at Markit, finds that output of the private sector of France moved close to stagnation in Sep. Manufacturing continued in contraction while the strength of services disappeared. The sovereign crisis in the euro zone and slowing world growth are eroding optimism that registered the lowest reading since Apr 2009. Table FR provides the data table for France.

Table FR, France, Economic Indicators

CPI	Sep month ∆% -0.1 12 months ∆%: 2.2 10/16/11
PPI	Aug month ∆%: 0.0 Aug 12 months ∆%: 6.3 Blog 10/02/11
GDP Growth	IIQ2011/IQ2011 ∆%: 0.0 IIQ2011/IIQ2010 ∆%: 1.6 Blog 10/02/11
Industrial Production	Aug/Jul SA ∆%: Industrial Production 0.5; Manufacturing 0.7 Aug 12 months NSA ∆%: Industrial Production 3.5; Manufacturing 4.2 Blog 10/16/11
Consumer Spending	Aug Manufactured Goods ∆%: 0.1 Jun Manufactured Goods ∆%: 0.4 Blog 10/02/11
Employment	IIQ2011 Unemployed 2.580 million Unemployment Rate: 9.1% Employment Rate: 63.9% Blog 09/04/11
Trade Balance	Aug Exports ∆%: month 6.1, 12 months 10.4 Aug Imports ∆%: month 1.8, 12 months 8.4 Blog 10/09/11
Confidence Indicators	Historical averages 100 Mfg Business Climate 99 Household Confidence 80 Wholesale Trade 99 Blog 9/25/11

Links to blog comments in Table FR:

10/09/11 http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html

10/02/11 http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html

09/25/11 http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html

09/18/11 http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html

09/11/11 http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html

09/04/11 http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html

France’s industrial production by segments is provided in Table 52. Manufacturing grew 1.8 percent in Jul and 0.5 percent in Aug. Manufacturing increased 4.2 percent in Aug relative to a year earlier.

Table 52, France, Industrial Production ∆%

	Aug/Jul	Jul/Jun	QOQ	YOY
Industry	0.5	1.8	1.0	3.5
Manufac- turing	0.7	1.8	0.5	4.2
Mining	2.2	0.7	3.5	-5.9
Construc- ion	3.2	0.3	-0.5	-0.1

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

Source: http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20111010

Chart 41 of France’s Institut National de la Statistique et des Études Économiques shows indices of manufacturing in France from 2007 to 2011. Manufacturing, which is CZ in the chart, fell deeply in 2008 and part of 2009. All curves of industrial indices tend to flatten recently.

Chart 41, France, Industrial Production Indices 2007-2011

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

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20111010

IVG Italy. The seasonally adjusted Markit/ADACI Business Activity Index of the Markit/ADACI Italy Services PMI^® fell from 48.4 in Aug to 45.8 in Sep for the fourth consecutive month of decline (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8670). Phil Smith, economist at Markit, finds that the quarterly average of the index is the lowest in the 13 years of the survey. The impact of the euro zone sovereign crisis and new austerity measures restricted business inflows. Table IT provides the data table for Italy.

Table IT, Italy, Economic Indicators

Consumer Price Index	Sep month ∆%: 0.0 Sep 12 months ∆%: 3.0 Blog 10/16/11
Producer Price Index	Jul month ∆%: 0.0 Aug 12 months ∆%: 4.5 Blog 10/02/11
GDP Growth	IIQ2011/IIQ2010 SA ∆%: 0.8 IIQ2011/IQ2011 NSA ∆%: 0.3 Blog 09/11/11
Labor Report	Jul 2011 Participation rate 62% Employment ratio 56.9% Unemployment rate 8.0% Blog 09/04/11
Industrial Production	Aug month ∆%: 4.3 12 months ∆%: 4.7 Blog 10/16/11
Retail Sales	Jul month ∆%: -0.1 Jul 12 months ∆%: -2.4 Blog 09/25/11
Business Confidence	Mfg Aug 99.9, Apr 102.6 Construction Jul 75.8, Apr 73.1 Blog 09/04/11
Consumer Confidence	Consumer Confidence Aug 100.3, Apr 103.7 Economy Aug 70.0, Apr 72.8 Blog 09/04/11
Trade Balance	Balance Aug SA -€ 2707 million versus Jul -€ 2440 Exports Aug month SA ∆%: 0.1; Imports Aug month SA ∆%: 0.9 Exports 12 months NSA ∆%: 16.2 Imports 12 months NSA ∆%: 12.5 Blog 10/16/11

Links to blog comments in Table IT: 10/09/11 Table UK, UK Economic Indicators


CPI	Aug month ∆%: 0.6 Aug 12 months ∆%: 4.5 Blog 09/18/11
Output/Input Prices	Output Prices: Sep 12 months NSA ∆%: 6.3; excluding food, petroleum ∆%: 3.8 Input Prices: Sep 12 months NSA ∆%: 17.5 Excluding ∆%: 13.3 Blog 10/09/11
GDP Growth	IIQ2011 prior quarter ∆% 01; year earlier same quarter ∆%: 0.6 Blog 10/09/11
Industrial Production	Aug 2011/Aug 2010 NSA ∆%: Industrial Production -1.0; Manufacturing 1.5 Blog 10/16/11
Retail Sales	Aug month SA ∆%: 0.0 Jul 12 months ∆%: 4.7 Blog 09/18/11
Labor Market	May-Jul Unemployment Rate: 8.1% Blog 10/16/11
Trade Balance	Balance Aug -₤1,877 million Exports Aug ∆%: 0.5 Jun/Aug ∆%: 9.8 Imports Aug ∆%: -0.5 Jun/Aug ∆%: 6.4 Blog 10/16/11

Links to blog comments in Table UK:

10/09/11 http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html

10/02/11 http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html

09/25/11 http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html

09/18/11 http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html

09/11/11 http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html

09/04/11 http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html

09/25/11 http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html

09/18/22 http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html

09/11/11 http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html

09/04/11 http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html

Italy’s industrial production rebounded in Aug with monthly growth of 4.3 percent and 12-month growth of 4.7 percent, as shown in Table 53. The annual equivalent rate in the first eight months of 2011 is 6.8 percent. Industrial production fell 18.8 percent in 2009 after falling 3.5 percent in 2008.

Table 53, Italy, Industrial Production ∆%

	Month ∆%	12 Months ∆%
Aug 2011	4.3	4.7
Jul	-0.3	-1.1
Jun	-0.6	0.1
May	-0.4	1.8
Apr	1.0	3.9
Mar	0.7	3.5
Feb	1.5	2.4
Jan	-1.7	0.4
Jan-Aug Annual Equivalent	6.8
Dec 2010	0.1	6.3
Nov	1.3	5.2
Oct	-0.3	3.8
Sep	-1.6	5.5
Aug	-0.2	11.0
Jul	0.7	7.0
Jun	1.0	9.6
May	1.4	8.4
Apr	0.8	9.1
Mar	-0.2	7.8
Feb	-0.5	4.2
Jan	3.9	0.7
Dec 2009	-1.1	-6.6
Year
2010		6.4
2009		-18.8
2008		-3.5

Source: http://www.istat.it/en/archive/41898

Chart 42 of the Istituto Nazionale di Statistica of Italy captures the fluctuations in 12 months rates of growth.

Chart 42, Italy, Industrial Production

Source: Istituto Nazionale di Statistica

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

Month and 12 months growth rates of industrial production in Italy by components are shown in Table 54. There was very strong performance throughout all segments of industrial production in Italy in Aug.

Table 54, Italy, Industrial Production Rate of Change ∆%

Aug 2011	Month ∆%	12 Months ∆%
Total	4.3	4.7
Consumer Goods	4.2	0.6
Durable	2.8	17.3
Nondurable	4.6	-0.7
Construction Goods	4.0	6.9
Intermediate Goods	2.7	8.3
Energy	3.3	3.5

Source: http://www.istat.it/en/archive/41898

Exports and imports of Italy and monthly growth rates are provided in Table 55. There have been significant fluctuations. Exports grew 1.0 percent in Jul and imports 1.9 percent. In Aug, exports rose 0.1 percent and imports 0.9 percent.

Table 55, Italy, Exports, Imports and Trade Balance SA Million Euros and Month SA ∆%

	Exports € M	Exports Month ∆%	Imports € M	Imports Month ∆%	Balance € M
Aug	31,376	0.1	34,083	0.9	-2,707
Jul	31,354	1.0	33,794	1.9	-2,440
Jun	31,031	-0.8	33,172	-3.9	-2,141
May	31,291	0.0	34,533	-1.0	-3,242
Apr	31,296	0.7	34,895	-0.1	-3,599
Mar	31,089	1.6	34,940	3.5	-3,851
Feb	30,614	-1.5	33,767	-0.6	-3,153
Jan	31,090	4.1	33,954	2.5	-2,864
AE ∆%
Dec 2010	29,852	0.6	33,121	0.3	-3,269

AE: annual equivalent

Italy’s trade not seasonally adjusted is provided in Table 56. Values are different because the data are original and not adjusted. Twelve months rates of growth picked up again in Aug with 16.2 percent for exports and 12.5 percent for imports. Exports fell 20.9 percent and imports 22.1 percent during the global recession in 2009.

Table 56, Italy, Exports, Imports and Trade Balance NSA Million Euros and 12 Month ∆%

	Exports € M	Exports 12 Months ∆%	Imports € M	Imports 12 Months ∆%	Balance € M
Aug	24,501	16.2	27,653	12.5	-3,152
Jul	35,131	5.4	33,696	6.1	1,435
Jun	32,696	8.1	34,445	3.0	-1,749
May	33,612	19.9	36,014	18.9	-2,402
Apr	31,220	12.8	34,987	20.7	-3,767
Mar	34,454	14.1	38,392	20.4	-3,938
Feb	29,825	18.4	33,467	19.4	-3,642
Jan	26,163	24.5	32,762	30.6	-6,599
Dec 2010	29,792	20.5	32,511	30.8	-2,719
Year
2010	337,810	15.8	367,122	23.4	-29,312
2009	291,733	-20.9	297,609	-22.1	-5,876
2008	369,016	1.2	382,050	2.3	-13,034

Growth rates of Italy’s trade and major products are provided in Table 57 for the period Jan-Aug 2011 relative to Jan-Aug 2010. Growth rates are high for the total and all segments with the exception of a decline in imports of consumer durables.

Table 57, Italy, Exports and Imports % Share of Products in Total and ∆%

	Exports Share %	Exports ∆% Jan-Aug 2011/ Jan-Aug 2010	Imports Share %	Imports ∆% Jan-Aug 2011/ Jan-Aug 2010
Consumer Goods	29.4	10.2	25.2	9.2
Durable	6.3	6.8	3.5	-5.0
Non Durable	23.1	11.1	21.8	11.4
Capital Goods	32.3	14.1	22.1	4.7
Inter- mediate Goods	33.4	16.9	33.8	24.9
Energy	4.8	21.0	18.9	23.0
Total ex Energy	95.2	13.9	81.1	14.3
Total	100.0	14.2	100.0	16.0

Italy’s structure of regional trade in Jan-Aug 2011 and growth rates is in Table 58. Exports to members of the European Union are 57.3 percent of the total. Exports to the euro zone or European Monetary Union (EMU) are 43.5 percent. Imports to members of the European Union account for 54.9 percent of the total and imports from members of EMU are 44.1 percent of the total. After years of integration, members of EMU are dependent on each other such that the end of the common currency could be disruptive.

Table 58, Italy, Exports and Imports by Regions and Countries, % Share and 12 Months ∆%

	Exports % Share	∆% Jan-Aug 2011/ Jan-Aug 2010	Imports % Share	Imports ∆% Jan-Aug 2011/ Jan-Aug 2010
EU	57.3	12.5	54.9	11.9
EMU	43.5	12.4	44.1	11.2
France	11.6	13.3	8.3	8.4
Germany	13.0	17.2	15.9	12.8
Spain	5.8	4.9	4.5	12.6
UK	5.3	3.1	3.3	22.9
Non EU	42.7	16.5	45.1	20.8
Europe non EU	12.1	25.2	10.3	22.5
USA	6.0	14.2	3.0	22.0
China	2.5	18.8	7.8	18.3
OPEC	5.3	-0.6	9.4	5.2
Total	100.0	14.2	100.0	16.0

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