Twenty Nine Million Unemployed or Underemployed, Falling Real Wages, World Financial Turbulence and Global Economic Slowdown

 

Twenty Nine Million Unemployed or Underemployed, Falling Real Wages, World Financial Turbulence and Global Economic Slowdown

Carlos M. Pelaez

© Carlos M. Pelaez, 2010, 2011

Executive Summary

I Twenty Nine Million Unemployed or Underemployed

II Falling Real Wages

III Labor Productivity, Unit Labor Costs and Real Hourly Compensation

IV World Financial Turbulence

V Global Inflation

VI World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VII Valuation of Risk Financial Assets

VIII Economic Indicators

IX Interest Rates

X Conclusion

References

Appendix I The Great Inflation

Executive Summary

The monthly employment situation report of the Bureau of Labor Statistics (BLS) is rich in useful information on the state of the economy. Table ES1 summarizes the report released on Nov 4. Nonfarm payroll jobs in the survey of employing establishments registered an increase in Oct in total nonfarm new jobs of 80,000 and of 104,000 in private jobs. There were significant upward revisions in job creation for Sep and Aug. The earlier report provided joint nonfarm job creation in Sep and Aug of 160,000, which has now been revised to 262,000 or a gain of 102,000. Revised data for Sep and Aug show combined private job creation of 263,000 compared with 179,000 in the earlier report for a revised gain of 84,000 jobs. The establishment survey also provides average hourly earnings and average weekly hours worked. Average hourly earnings (AHE) without adjustment for inflation rose 1.8 percent in Oct 2011 relative to Oct 2010 and 0.2 percent relative to Sep 2011. Table ES1 also provides the BLS calculation of AHEs in constant dollars, or adjusted for inflation, which fell 1.8 percent in Sep 2011 relative to Sep 2010. Inflation is not yet available for Oct. Average weekly hours were 34.3 in both Oct and Sep. The wage bill or number of hours worked times average hourly earnings fell in real terms. The remuneration to labor is falling after adjusting for inflation. The BLS also conducts a survey of households that provides the rate of unemployment, or unemployed as percent of the labor force, which was 9.0 percent in Oct and 9.1 percent in Aug. The rate of job creation would have to exceed around 125,000 per month of new entrants in the labor force to reduce the rate of unemployment. This blog provides with release of every employment situation report an estimate of the number in job stress, which is 28.8 million in Oct and 29.4 million in Aug. The number of people in job stress as percent of the labor force is estimated at 18.1 percent in Oct 2011 and 18.5 percent in Aug 2011. The average rate of 2.5 percent seasonally-adjusted average rate (SAAR) of economic growth in the current recovery is mediocre relative to 6.2 percent average GDP SAARs in past recoveries (http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html). As a result there are more than 29 million people unemployed, working part-time for economic reasons because they cannot find full-time employment or marginally attached to the labor force. The rate of economic growth in the first three quarters of 2011 is equivalent to 1.4 percent for a full year. The fractured job market of the US is not improving.

Table ES1, US, Summary of the Employment Situation Report SA

	Oct 2011	Sep 2011
New Nonfarm Payroll Jobs	80,000	158,000
New Private Payroll Jobs	104,000	191,000
Average Hourly Earnings	$23.19 ∆% Oct11/Oct 10: 1.8 ∆% Oct 11/Sep 11: 0.2	$23.14 ∆% Sep11/Sep 10:  1.9 ∆% Sep11/Aug11: 0.3
Average Hourly Earnings in Constant Dollars	NA	$10.20 ∆% Sep 11/Sep 10: –1.8% ∆% Sep 11/Aug 11: 0.0
Average Weekly Hours	34.3	34.3
Unemployment Rate Household Survey % of Labor Force	9.0	9.1
Number in Job Stress Unemployed and Underemployed Blog Calculation	28.8 million NSA	29.4 million NSA
In Job Stress as % Labor Force	18.1	18.5

Source: Tables 2, 3, 4, 8 and 10.

The civilian labor force participation rate, or labor force as percent of population, is provided in Chart ES1 for the period from 1948 to 2011. The labor force participation rate is influenced by numerous factors such as the age of the population. There is no comparable episode in the postwar economy to the sharp collapse of the labor force participation rate in Chart ES1 during the contraction and subsequent expansion after 2007. Aging can reduce the labor force participation rate as many people retire but many may have decided to work longer as their wealth and savings have been significantly reduced. There is an important effect of many people just exiting the labor force because they belief there is no job available for them.

Chart ES1, US, Civilian Labor Force Participation Rate, 1948-2011, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number of unemployed in the US jumped from 5.8 million in May 1979 to 12.1 million in Dec 1982, by 6.3 million, or 108.6 percent. The number of unemployed jumped from 6.7 million in Mar 2007 to 15.6 million in Oct 2009, by 8.9 million, or 132.8 percent. These are the two episodes with steepest increase in the level of unemployment in Chart ES2.

Chart ES2, US, Unemployed, 1948-2011, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Chart ES3 provides the rate of unemployment of the US from 1948 to 2011. The peak of the series is 10.8 percent in both Nov and Dec 1982. The second highest rates are 10.1 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009.

Chart ES3, US, Unemployment Rate, 1948-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number unemployed for 27 weeks and over jumped from 510,000 in Dec 1978 to 2.9 million in Jun 1983, by 2.4 million, or 480 percent. The number of unemployed 27 weeks or over jumped from 1.1 million in May 2007 to 6.7 million in Jun 2010, by 5.6 million, or 509 percent. These are the two peaks in Chart ES4.

Chart ES4, US, Unemployed for 27 Weeks or More, 1948-2011, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The employment-population ratio in Chart ES5 is an important indicator of wellbeing in labor markets, measuring the number of people with jobs. The US employment-population ratio fell from 63.4 in Dec 2006 to 58.1 in Jul 2011. There is no comparable decline during an expansion in Chart ES5.

Chart ES5, US, Employment-Population Ratio, 1948-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number of people at work part-time for economic reasons because they cannot find full-time employment is provided in Chart ES6. The number of people at work part-time for economic reasons jumped from 4.1 million in Sep 2006 to a high of 9.5 million in Sep 2010 and 9.3 million in Sep 2011, or by 5.2 million, or 127 percent. Earlier increases in the 1980s and after the tough recession of 1991 were followed by rapid decrease that is still absent in the current expansion.

Chart ES6, US, Part-Time for Economic Reasons, 1948-2011, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

There is a socio-economic disaster in the US. The economy did not grow in the early phase of expansion after the contraction at the high average rate of 6.2 percent of past contractions but rather at only 2.5 percent on average in the nine consecutive quarters of growth beginning in IIIQ2009. As a result, unemployment and underemployment have remained at extremely high levels with some 29 million people in job stress. The fractured labor market has also resulted in fewer opportunities to escape declining earnings after inflation and taxes.

I Twenty Nine Million Unemployed or Underemployed. The Bureau of Labor Statistics (BLS) of the Department of Labor released two critically important reports on US labor markets: the employment situation report (http://www.bls.gov/news.release/empsit.toc.htm) and the report on labor productivity and costs (http://www.bls.gov/lpc/). Section I Twenty Nine Million Unemployed or Underemployed analyzes employment and unemployment in the household and establishment surveys. Section II Falling Real Wages provides data and analysis on hours worked and earnings from the establishment survey. The quarterly report on labor productivity and costs is analyzed in Section III Labor Productivity, Unit Labor Costs and Real Hourly Compensation.

The monthly employment situation report of the BLS is rich in useful information on the state of the economy. Table 1 summarizes the report released on Nov 4. Nonfarm payroll jobs in the survey of employing establishments registered an increase in Oct in total nonfarm new jobs of 80,000 and of 104,000 in private jobs. There were significant upward revisions in job creation for Sep and Aug. The earlier report provided joint nonfarm job creation in Sep and Aug of 160,000, which has now been revised to 262,000 or a gain of 102,000. Revised data for Sep and Aug show combined private job creation of 263,000 compared with 179,000 in the earlier report for a revised gain of 84,000 jobs. The establishment survey also provides average hourly earnings and average weekly hours worked. Average hourly earnings (AHE) without adjustment for inflation rose 1.8 percent in Oct 2011 relative to Oct 2010 and 0.2 percent relative to Sep 2011. Table 1 also provides the BLS calculation of AHEs in constant dollars, or adjusted for inflation, which fell 1.8 percent in Sep 2011 relative to Sep 2010. Inflation is not yet available for Oct. Average weekly hours were 34.3 in both Oct and Sep. The wage bill or number of hours worked times average hourly earnings fell in real terms. The remuneration to labor is falling after adjusting for inflation. The BLS also conducts a survey of households that provides the rate of unemployment, or unemployed as percent of the labor force, which was 9.0 percent in Oct and 9.1 percent in Aug. The rate of job creation would have to exceed around 125,000 per month of new entrants in the labor force to reduce the rate of unemployment. This blog provides with release of every employment situation report an estimate of the number in job stress, which is 28.8 million in Oct and 29.4 million in Aug. The number of people in job stress as percent of the labor force is estimated at 18.1 percent in Oct 2011 and 18.5 percent in Aug 2011. The average rate of 2.5 percent seasonally-adjusted average rate (SAAR) of economic growth in the current recovery is mediocre relative to 6.2 percent average GDP SAARs in past recoveries (http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html). As a result there are more than 29 million people unemployed, working part-time for economic reasons because they cannot find full-time employment or marginally attached to the labor force. The rate of economic growth in the first three quarters of 2011 is equivalent to 1.4 percent for a full year. The fractured job market of the US is not improving.

Table 1, US, Summary of the Employment Situation Report SA

	Oct 2011	Sep 2011
New Nonfarm Payroll Jobs	80,000	158,000
New Private Payroll Jobs	104,000	191,000
Average Hourly Earnings	$23.19 ∆% Oct11/Oct 10: 1.8 ∆% Oct 11/Sep 11: 0.2	$23.14 ∆% Sep11/Sep 10:  1.9 ∆% Sep11/Aug11: 0.3
Average Hourly Earnings in Constant Dollars	NA	$10.20 ∆% Sep 11/Sep 10: –1.8% ∆% Sep 11/Aug 11: 0.0
Average Weekly Hours	34.3	34.3
Unemployment Rate Household Survey % of Labor Force	9.0	9.1
Number in Job Stress Unemployed and Underemployed Blog Calculation	28.8 million NSA	29.4 million NSA
In Job Stress as % Labor Force	18.1	18.5

Source: Tables 2, 3, 4, 8 and 10.

The BLS released the employment situation report on Fri Nov 4 showing reduction of the seasonally adjusted rate of unemployment, or unemployed as percent of the labor force, to 9.0 percent in Oct 2011, which is lower than 9.1 percent in Sep (http://www.bls.gov/news.release/pdf/empsit.pdf). There are two approaches to calculating the number of people in job stress. The first approach of calculating the number of people in job stress unemployed or underemployed in Table 2 is 25.3 million seasonally-adjusted in Oct, compared with 25.8 million in Sep and 25.4 million in Aug. The number in job stress unemployed or underemployed of 25.3 million in Oct is composed of 13.9 million unemployed (of whom 5.9 million, or 42.2 percent, unemployed for 27 weeks or more) compared with 13.9 million unemployed in Sep (of whom 6.2 million, or 44.6 percent, unemployed for 27 weeks or more), 8.9 million employed part-time for economic reasons in Oct (who suffered reductions in their work hours or could not find full-time employment) compared with 9.2 million in Aug and 2.6 million who were marginally attached to the labor force in Sep (who were not in the labor force but wanted and were available for work) compared with 2.5 million in Aug.

Table 2, US, People in Job Stress, Millions and % SA

	Oct	Sep	Aug
Unemployed Millions	13.897	13.992	13.967
Unemployed ≥27 weeks Millions	5.876	6.242	6.034
Unemployed ≥27 weeks %	42.2	44.6	43.2
Part Time Economic Reasons Millions ∆% Sep/Aug: +440 thousand	8.896	9.270	8.826
Marginally Attached to Labor Force Millions ∆% Sep/Aug: -64 thousand	2.555	2.511	2.575
Job Stress Millions ∆% Sep/Aug: +405 thousand	25.348	25.773	25.368
Unemploy- ment Rate	9.0	9.1	9.1

Job Stress = Unemployed + Part Time Economic Reasons + Marginally Attached Labor Force

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

Additional information provides deeper insight on the fractured job market of the US. Table 3 consists of data and additional calculations using the BLS household survey, illustrating the possibility that the actual rate of unemployment could be 11.6 percent and the number of people in job stress could be 29 to 30 million, which is 18.1 to 18.6 percent of the labor force. The first column provides for 2006 the yearly average population (POP), labor force (LF), participation rate or labor force as percent of population (PART %), employment (EMP), employment population ratio (EMP/POP %), unemployment (UEM), the unemployment rate as percent of labor force (UEM/LF Rate %) and the number of people not in the labor force (NLF). The numbers in column 2006 are averages in millions while the monthly numbers for Oct 2010 and Oct and Sep 2011 are in thousands, not seasonally adjusted. The average yearly participation rate of the population in the labor force was in the range of 62.0 percent minimum to 67.1 percent maximum between 2000 and 2006 with the average of 66.4 percent (ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf). The objective of Table 3 is to assess how many people could have left the labor force because they do not think they can find another job. Row “LF PART 66.2 %” applies the participation rate of 2006, almost equal to the rates for 2000 to 2006, to the population in Oct 2010 and Oct and Sep 2011 to obtain what would be the labor force of the US if the participation rate had not changed. In fact, the participation rate fell to 64.4 percent by Oct 2010 and was 64.2 percent in Sep 2011 and 64.1 percent in Oct 2011, suggesting that many people simply gave up on finding another job. Row “∆ NLF UEM” calculates the number of people not counted in the labor force because they could have given up on finding another job by subtracting from the labor force with participation rate of 66.2 percent (row “LF PART 66.2%”) the labor force estimated in the household survey (row “LF”). Total unemployed (row “Total UEM”) is obtained by adding unemployed in row “∆NLF UEM” to the unemployed of the household survey in row “UEM.” The row “Total UEM%” is the effective total unemployed “Total UEM” as percent of the effective labor force in row “LF PART 66.2%.” The results are that: (1) there are an estimated 4.970 million unemployed who are not counted because they left the labor force on their belief they could not find another job (∆NLF UEM); (2) the total number of unemployed is effectively 18.072 million (Total UEM) and not 13.102 million (UEM) of whom many have been unemployed long term; (3) the rate of unemployment is 11.6 percent (Total UEM%) and not 8.5 percent, not seasonally adjusted, or 9.0 percent seasonally adjusted; and (4) the number of people in job stress is close to 30 million by adding the 4.905 million leaving the labor force because they believe they could not find another job. The row “In Job Stress” in Table 3 provides the number of people in job stress not seasonally adjusted at 28.778 million in Sep 2011, adding the total number of unemployed (“Total UEM”), plus those involuntarily in part-time jobs because they cannot find anything else (“Part Time Economic Reasons”) and the marginally attached to the labor force (“Marginally attached to LF”). The final row of Table 3 shows that the number of people in job stress is equivalent to 18.1 percent of the labor force. The employment population ratio “EMP/POP %” dropped from 62.9 percent on average in 2006 to 58.6 percent in Oct 2010, 58.5 percent in Sep 2011 and 58.7 percent in Oct 2011 and the number employed (EMP) dropped from 144 million to 141 million. What really matters for labor input in production and wellbeing is the number of people with jobs or the employment/population ratio, which has declined and does not show signs of increasing. There are almost four million fewer people working in 2011 than in 2006 and the number employed is not increasing. The number of hiring relative to the number unemployed measures the chances of becoming employed. The number of hiring in the US economy has declined by 17 million and does not show signs of increasing (http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html http://cmpassocregulationblog.blogspot.com/2011/03/slow-growth-inflation-unemployment-and.html see section IV Hiring Collapse in http://cmpassocregulationblog.blogspot.com/2011/08/world-financial-turbulence-global.html http://cmpassocregulationblog.blogspot.com/2011/06/increasing-risk-aversion-analysis-of.html).

Table 3, US, Population, Labor Force and Unemployment, NSA

	2006	Oct 2010	Sep 2011	Oct 2011
POP	229	238,530	240,071	240,269
LF	151	153,652	154,022	154,088
PART%	66.2	64.4	64.2	64.1
EMP	144	139,749	140,502	140,987
EMP/POP%	62.9	58.6	58.5	58.7
UEM	7	13,903	13,520	13,102
UEM/LF Rate%	4.6	9.0	8.8	8.5
NLF	77	84,878	86,049	86,181
LF PART 66.2%		157,907	158,927	159,058
∆NLF UEM		4,255	4,905	4,970
Total UEM		18,158	18,425	18,072
Total UEM%		11.4	11.6	11.6
Part Time Economic Reasons		8,279	8,423	8,151
Marginally Attached to LF		2,602	2,511	2,555
In Job Stress		29,039	29,359	28,778
People in Job Stress as % Labor Force		18.4	18.5	18.1

Pop: population; LF: labor force; PART: participation; EMP: employed; UEM: unemployed; NLF: not in labor force; ∆NLF UEM: additional unemployed; Total UEM is UEM + ∆NLF UEM; Total UEM% is Total UEM as percent of LF PART 66.2%; In Job Stress = Total UEM + Part Time Economic Reasons + Marginally Attached to LF

Note: the first column for 2006 is in average millions; the remaining columns are in thousands; NSA: not seasonally adjusted

The labor force participation rate of 66.2% in 2006 is applied to current population to obtain LF PART 66.2%; ∆NLF UEM is obtained by subtracting the labor force with participation of 66.2 percent from the household survey labor force LF; Total UEM is household data unemployment plus ∆NLF UEM; and total UEM% is total UEM divided by LF PART 66.2%

Sources:

ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf

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

Growth and employment creation have been mediocre in the expansion beginning in Jul IIIQ2009 from the contraction between Dec IVQ2007 and Jun IIQ2009 (http://www.nber.org/cycles.html). A series of charts from the database of the Bureau of Labor Statistics (BLS) provides significant insight. Chart 1 provides the monthly employment level of the US from 1948 to 2011. The number of people employed has trebled. There are multiple contractions throughout the more than six decades but followed by resumption of the strong upward trend. The contraction after 2007 is deeper and followed by a flatter curve of job creation. Much lower average economic growth in the current expansion of 2.5 percent relative to average 6.2 percent in earlier contractions (http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html) explains the fractured labor market.

Chart 1, US, Employment Level, Thousands, 1948-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The steep and consistent curve of growth of the US labor force is shown in Chart 2. The contraction beginning in Dec 2007 flattened the path of the US civilian labor force and is now followed by a flatter curve during the expansion.

Chart 2, US, Civilian Labor Force, 1948-2011, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The civilian labor force participation rate, or labor force as percent of population, is provided in Chart 3 for the period from 1948 to 2011. The labor force participation rate is influenced by numerous factors such as the age of the population. There is no comparable episode in the postwar economy to the sharp collapse of the labor force participation rate in Chart 3 during the contraction and subsequent expansion after 2007. Aging can reduce the labor force participation rate as many people retire but many may have decided to work longer as their wealth and savings have been significantly reduced. There is an important effect of many people just exiting the labor force because they belief there is no job available for them.

Chart 3, US, Civilian Labor Force Participation Rate, 1948-2011, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number of unemployed in the US jumped from 5.8 million in May 1979 to 12.1 million in Dec 1982, by 6.3 million, or 108.6 percent. The number of unemployed jumped from 6.7 million in Mar 2007 to 15.6 million in Oct 2009, by 8.9 million, or 132.8 percent. These are the two episodes with steepest increase in the level of unemployment in Chart 4.

Chart 4, US, Unemployed, 1948-2011, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Chart 5 provides the rate of unemployment of the US from 1948 to 2011. The peak of the series is 10.8 percent in both Nov and Dec 1982. The second highest rates are 10.1 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009.

Chart 5, US, Unemployment Rate, 1948-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number unemployed for 27 weeks and over jumped from 510,000 in Dec 1978 to 2.9 million in Jun 1983, by 2.4 million, or 480 percent. The number of unemployed 27 weeks or over jumped from 1.1 million in May 2007 to 6.7 million in Jun 2010, by 5.6 million, or 509 percent. These are the two peaks in Chart 6.

Chart 6, US, Unemployed for 27 Weeks or More, 1948-2011, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The employment-population ratio in Chart 7 is an important indicator of wellbeing in labor markets, measuring the number of people with jobs. The US employment-population ratio fell from 63.4 in Dec 2006 to 58.1 in Jul 2011. There is no comparable decline during an expansion in Chart 7.

Chart 7, US, Employment-Population Ratio, 1948-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number of people at work part-time for economic reasons because they cannot find full-time employment is provided in Chart 8. The number of people at work part-time for economic reasons jumped from 4.1 million in Sep 2006 to a high of 9.5 million in Sep 2010 and 9.3 million in Sep 2011, or by 5.2 million, or 127 percent. Earlier increases in the 1980s and after the tough recession of 1991 were followed by rapid decrease that is still absent in the current expansion.

Chart 8, US, Part-Time for Economic Reasons, 1948-2011, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

These eight charts confirm the view that the comparison of the current expansion should be with that in the 1980s because of similar dimensions. Chart 9 provides the level of employment in the US between 1979 and 1989. Employment surged after the contraction and grew rapidly during the decade.

Chart 9, US, Employed, Thousands, 1979-1989

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number employed in the US fell from 146.584 million in Nov 2007 to 140.302 million in Oct 2011, by 6.282 million, or 4.3 percent. Chart 10 shows tepid recovery early in 2010 followed by near stagnation.

Chart 10, US, Employed, Thousands, 2001-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

There was a steady upward trend in growth of the civilian labor force between 1979 and 1989 as shown in Chart 11. There were fluctuations but strong long-term dynamism over an entire decade.

Chart 11, US, Civilian Labor Force, Thousands, 1979-1989

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The civilian labor force in Chart 12 grew steadily on an upward trend in the 2000s until it contracted together with the economy after 2007. There has not been recovery during the expansion but rather decline.

Chart 12, US, Civilian Labor Force, Thousands, 2001-2011

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The rate of participation of the labor force in population stagnated during the stagflation and conquest of inflation in the late 1970s and early 1980s, as shown in Chart 13. Recovery was vigorous during the expansion and lasted through the remainder of the decade.

Chart 13, US, Civilian Labor Force Participation Rate, 1979-1989, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The rate of participation in the labor force declined after the recession of 2001 and stagnated until 2007, as shown in Chart 14. The rate of participation in the labor force continued to decline both during the contraction after 2007 and the expansion after 2009.

Chart 14, US, Civilian Labor Force Participation Rate, 2001-2011, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The rate of unemployment peaked at 10.8 percent in Nov-Dec 1983, as shown in Chart 15. The rate of unemployment dropped sharply during the expansion after 1984 and continued to decline during the rest of the decade.

Chart 15, US, Unemployment Rate, 1979-1989, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The rate of unemployment in the US jumped from 4.4 percent in May 2007 to 10.1 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009, as shown in Chart 16. The rate of unemployment has fluctuated at around 9.0 percent in 2011.

Chart 16, US, Unemployment Rate, 2001-2011, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The employment population ratio fell from around 60 in 1979 to around 57 in 1983, as shown in Chart 17. The employment population ratio rose back to 60 in 1984 and reached 63 later in the decade.

Chart 17, US, Employment Population Ratio, 1979-1989, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The US employment-population ratio has fallen from 62.6 in 2006 to 58.1 in Oct 2011, as shown in Chart 18. The employment population-ratio has stagnated during the expansion.

Chart 18, US, Employment Population Ratio, 2001-2011, %

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number unemployed for 27 weeks or over peaked in 1984 as shown in Chart 19. The number unemployed for 27 weeks or over fell sharply during the expansion and continued to decline throughout the 1980s.

Chart 19, US, Number Unemployed for 27 Weeks or More 1979-1989, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number unemployed for 27 weeks or over rose sharply during the contraction as shown in Chart 20. The number of unemployed for 27 weeks remained at around 6 million during the expansion compared with somewhat above 1 million before the contraction.

Chart 20, US, Number Unemployed for 27 Weeks or More, 2001-2011, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number of persons working part-time for economic reasons because they cannot find full-time work peaked during the contraction in 1983, as shown in Chart 21. The number of persons at work part-time for economic reasons fell sharply during the expansion and continued to fall throughout the decade.

Chart 21, US, Part-Time for Economic Reasons, 1979-1989, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

The number of people working part-time because they cannot find full-time employment rose sharply during the contraction as shown in Chart 22. The number of people working part-time because of failure to find an alternative occupation stagnated at a very high level during the expansion.

Chart 22, US, Part-Time for Economic Reasons, 2001-2011, Thousands

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Total nonfarm payroll employment seasonally adjusted (SA) rose 80,000 in Oct and private payroll employment rose by 104,000. Table 4 provides the monthly change in jobs seasonally adjusted in the prior strong contraction of 1981-1982 and the recovery in 1983 into 1984 and in the contraction of 2008-2009 and in the recovery in 2009 to 2011. All revisions have been incorporated in Table 4. The data in the recovery periods are in relief to facilitate comparison. There is significant bias in the comparison. The average yearly civilian noninstitutional population was 174.2 million in 1983 and the civilian labor force 111.6 million, growing by 2009 to an average yearly civilian noninstitutional population of 235.8 million and civilian labor force of 154.1 million, that is, increasing by 35.4 percent and 38.1 percent, respectively (http://www.bls.gov/cps/cpsaat1.pdf). Total nonfarm payroll jobs in 1983 were 90.280 million, jumping to 94.530 million in 1984 while total nonfarm jobs in 2010 were 129.818 million declining from 130.807 million in 2009 (http://www.bls.gov/webapps/legacy/cesbtab1.htm ). What is striking about the data in Table 4 is that the numbers of monthly increases in jobs in 1983 and 1984 are several times higher than in 2010 to 2011 even with population higher by 35.4 percent and labor force higher by 38.1 percent in 2009 relative to 1983 nearly three decades ago and total number of jobs in payrolls rose by 39.5 million in 2010 relative to 1983 or by 43.8 percent.. Growth has been mediocre in the nine quarters of expansion beginning in IIIQ2009 in comparison with earlier expansions (http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/07/growth-recession-debt-financial-risk.html http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/06/financial-risk-aversion-slow-growth.html http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/05/mediocre-growth-world-inflation.html http://cmpassocregulationblog.blogspot.com/2011/03/slow-growth-inflation-unemployment-and.html http://cmpassocregulationblog.blogspot.com/2011/02/mediocre-growth-raw-materials-shock-and.html) and also in terms of what is required to reduce the job stress of at least 25 million persons but likely close to 30 million. Some of the job growth and contraction in 2010 in Table 4 is caused by the hiring and subsequent layoff of temporary workers for the 2010 census.

Table 4, US, Monthly Change in Jobs, Number SA

Month	1981	1982	1983	2008	2009	2010	Private
Jan	95	-327	225	13	-820	-39	-42
Feb	67	-6	-78	-83	-726	-35	-21
Mar	104	-129	173	-72	-796	192	144
Apr	74	-281	276	-185	-660	277	229
May	10	-45	277	-233	-386	458	48
Jun	196	-243	378	-178	-502	-192	65
Jul	112	-343	418	-231	-300	-49	93
Aug	-36	-158	-308	-267	-231	-59	110
Sep	-87	-181	1114	-434	-236	-29	109
Oct	-100	-277	271	-509	-221	171	143
Nov	-209	124	352	-802	-55	93	128
Dec	-278	-14	356	-619	-130	152	167
			1984			2011	Private
Jan			447			68	94
Feb			479			235	261
Mar			275			194	219
Apr			363			217	241
May			308			53	99
Jun			379			20	75
Jul			312			127	173
Aug			241			104	72
Sep			311			158	191
Oct			286			80	104
Nov			349
Dec			127

Source: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

http://www.bls.gov/webapps/legacy/cesbtab1.htm

http://www.bls.gov/schedule/archives/empsit_nr.htm#2010

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

Charts numbered from 23 to 26 provide a comparison of payroll survey data for the contractions and expansions in the 1980s and after 2007. Chart 23 provides total nonfarm payroll jobs from 2001 to 2011. The sharp decline in total nonfarm jobs during the contraction after 2007 has been followed by initial stagnation and then tepid growth.

Chart 23, US, Total Nonfarm Payroll Jobs SA 2001-2011

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

Total nonfarm payroll jobs grew rapidly during the expansion in 1983 and 1984 as shown in Chart 24. Nonfarm payroll jobs continued to grow at high rates during the remainder of the 1980s.

Chart 24, US, Total Nonfarm Payroll Jobs SA 1979-1989

Source: US Bureau of Labor Statistics

http://www.bls.gov/data/

Most job creation in the US is by the private sector. Chart 25 shows the sharp destruction of jobs during the contraction after 2007. There has been growth after 2010 but insufficient to recover higher levels of employment prevailing before the contraction. At current rate, recovery of employment may spread over several years in contrast with past expansions of the business cycle in the US.

Chart 25, US, Total Private Payroll Jobs SA 2001-2011

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

In contrast, growth of private payroll jobs in the US recovered vigorously during the expansion in 1983 through 1985, as shown in Chart 26. Rapid growth of creation of private jobs continued throughout the 1980s.

Chart 26, US, Total Private Payroll Jobs SA 1979-1989

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

Important aspects of growth of payroll jobs from Oct 2010 to Oct 2011, not seasonally adjusted (NSA), are provided in Table 5. Total nonfarm employment increased by 1,501,000 (row A), consisting of growth of total private employment by 1,801,000 (row B) and decline by 300,000 of government employment (row C). Monthly average growth of private payroll employment has been 150,083, which is mediocre relative to 25 to 30 million in job stress, while total nonfarm employment has grown on average by only 125,083 per month. These monthly rates of job creation are insufficient to meet the demands of new entrants in the labor force and thus perpetuate unemployment and underemployment. Manufacturing employment increased by 208,000 while private service providing employment grew by 1,456,000. The employment situation report of the Bureau of Labor Statistics informs that (http://www.bls.gov/news.release/pdf/empsit.pdf 2): “Employment in professional and business services continued to trend up in October (+32,000) and has grown by 562,000 over the past 12 months. Within the industry, there have been modest job gains in recent months in temporary help services and in management and technical consulting services.” An important feature in Table 5 is that jobs in temporary help services increased by 195,000. This episode of jobless recovery is characterized by part-time jobs and creation of jobs that are inferior to those that have been lost. Monetary and fiscal stimuli fail to increase consumption in a fractured job market. An important characteristic is that the losses of government jobs have been high in local government, 176,000 jobs lost in that past twelve months (row C3 Local), because of the higher number of employees in local government, 14.3 million relative to 5.2 million in state jobs and 2.8 million in federal jobs.

Table 5, US, Employees in Nonfarm Payrolls Not Seasonally Adjusted in Thousands

	Oct 2010	Oct 2011	Change
A Total Nonfarm	131,071	132,572	1,501
B Total Private	108,429	110,230	1,801
B1 Goods Producing	18,103	18,408	305
B1a Manu-facturing	11,612	11,820	208
B2 Private service providing	90,326	91,822	1,496
B2a Professional and Business Services	16,950	17,490	540
B2b Temporary help services	2,912	3,107	195
C Government	22,642	22,342	-300
C1 Federal	2,850	2,813	-37
C2 State	5,297	5,210	-87
C3 Local	14,495	14,319	-176

Note: A = B+C, B = B1 + B2, C=C1 + C2 + C3

Source:

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

The NBER dates recessions in the US from peaks to troughs as: IQ80 to IIIQ80, IIIQ81 to IV82 and IVQ07 to IIQ09 (http://www.nber.org/cycles/cyclesmain.html). Table 6 provides total annual level nonfarm employment in the US for the 1980s and the 2000s, which is different from 12 months comparisons. Nonfarm jobs rose by 4.853 million in 1982 to 1984, or 5.4 percent, and continued rapid growth in the rest of the decade. In contrast, nonfarm jobs are down by 7.780 million in 2010 relative to 2007 and fell by 989,000 in 2010 relative to 2009 even after six quarters of GDP growth. Monetary and fiscal stimuli have failed in increasing growth to rates required for mitigating job stress. The initial growth impulse reflects a flatter growth curve in the current expansion.

Table 6, US, Total Nonfarm Employment in Thousands

Year	Total Nonfarm	Year	Total Nonfarm
1980	90,528	2000	131,785
1981	91,289	2001	131,826
1982	89,677	2002	130,341
1983	90,280	2003	129,999
1984	94,530	2004	131,435
1985	97,511	2005	133,703
1986	99,474	2006	136,086
1987	102,088	2007	137,598
1988	105,345	2008	136,790
1989	108,014	2009	130,807
1990	109,487	2010	129,818

Source: http://www.bls.gov/webapps/legacy/cesbtab1.htm

The highest average yearly percentage of unemployed to the labor force since 1940 was 14.6 percent in 1940 followed by 9.9 percent in 1941, 8.5 percent in 1975, 9.7 percent in 1982 and 9.6 percent in 1983 (ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf). The rate of unemployment remained at high levels in the 1930s, rising from 3.2 percent in 1929 to 22.9 percent in 1932 in one estimate and 23.6 percent in another with real wages increasing by 16.4 percent (Margo 1993, 43; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 214-5). There are alternative estimates of 17.2 percent or 9.5 percent for 1940 with real wages increasing by 44 percent. Employment declined sharply during the 1930s. The number of hours worked remained in 1939 at 29 percent below the level of 1929 (Cole and Ohanian 1999). Private hours worked fell in 1939 to 25 percent of the level in 1929. The policy of encouraging collusion through the National Industrial Recovery Act (NIRA), to maintain high prices, together with the National Labor Relations Act (NLRA), to maintain high wages, prevented the US economy from recovering employment levels until Roosevelt abandoned these policies toward the end of the 1930s (for review of the literature analyzing the Great Depression see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 198-217).

The Bureau of Labor Statistics (BLS) makes yearly revisions of its establishment survey (Harris 2011BA):

“With the release of data for January 2011, the Bureau of Labor Statistics (BLS) introduced its annual revision of national estimates of employment, hours, and earnings from the Current Employment Statistics (CES) monthly survey of nonfarm establishments.  Each year, the CES survey realigns its sample-based estimates to incorporate universe counts of employment—a process known as benchmarking.  Comprehensive counts of employment, or benchmarks, are derived primarily from unemployment insurance (UI) tax reports that nearly all employers are required to file with State Workforce Agencies.”

The number of not seasonally adjusted total private jobs in the US in Dec 2010 is 108.464 million, declining to 106.079 million in Jan 2011, or by 2.385 million, because of the adjustment of a different benchmark and not actual job losses. The not seasonally adjusted number of total private jobs in Dec 1984 is 80.250 million, declining to 78.704 million in Jan 1985, or by 1.546 million for the similar adjustment. Table 7 attempts to measure job losses and gains in the recessions and expansions of 1981-1985 and 2007-2011. The final ten rows provide job creation from May 1983 to May 1984 and from May 2010 to May 2011, that is, at equivalent stages of the recovery from two comparable strong recessions. The row “Change ∆%” for May 1983 to May 1984 shows an increase of total nonfarm jobs by 4.9 percent and of 5.9 percent for total private jobs. The row “Change ∆%” for May 2010 to May 2011 shows an increase of total nonfarm jobs by 0.7 percent and of 1.7 percent for total private jobs. The last two rows of Table 11 provide a calculation of the number of jobs that would have been created from May 2010 to May 2011 if the rate of job creation had been the same as from May 1983 to May 1984. If total nonfarm jobs had grown between May 2010 and May 2011 by 4.9 percent, as between May 1983 and May 1984, 6.409 million jobs would have been created in the past 12 months for a difference of 5.457 million more total nonfarm jobs relative to 0.952 million jobs actually created. If total private jobs had grown between May 2010 and May 2011 by 5.9 percent as between May 1983 and May 1984, 6.337 million private jobs would have been created for a difference of 4.539 million more total private jobs relative to 1.798 million jobs actually created.

Table 7, US, Total Nonfarm and Total Private Jobs Destroyed and Subsequently Created in Two Recessions IIIQ1981-IVQ1982 and IVQ2007-IIQ2009, Thousands and Percent

	Total Nonfarm Jobs	Total Private Jobs
06/1981 #	92,288	75,969
11/1982 #	89,482	73,260
Change #	-2,806	-2,709
Change ∆%	-3.0	-3.6
12/1982 #	89,383	73,185
05/1984 #	94,471	78,049
Change #	5,088	4,864
Change ∆%	5.7	6.6
11/2007 #	139,090	116,291
05/2009 #	131,626	108,601
Change %	-7,464	-7,690
Change ∆%	-5.4	-6.6
12/2009 #	130,178	107,338
05/2011 #	131,753	108,494
Change #	1,575	1,156
Change ∆%	1.2	1.1
05/1983 #	90,005	73,667
05/1984 #	94,471	78,049
Change #	4,466	4,382
Change ∆%	4.9	5.9
05/2010 #	130,801	107,405
05/2011 #	131,753	109,203
Change #	952	1,798
Change ∆%	0.7	1.7
Change # by ∆% as in 05/1984 to 05/1985	6,409*	6,337**
Difference in Jobs that Would Have Been Created	5,457 = 6,409-952	4,539 = 6,337-1,798

*[(130,801x1.049)-130,801] = 6,409 thousand

**[(107,405)x1.059 – 107,405] = 6,337 thousand

Source: http://data.bls.gov/pdq/SurveyOutputServlet

II Falling Real Wages. The wage bill is the product of average weekly hours times the earnings per hour. Table 8 provides the estimates by the BLS of earnings per hour seasonally adjusted, increasing from $22.77/hour in Oct 2010 to $23.19/hour in Oct 2011, or by 1.8 percent. There has been disappointment in valuation of stocks about the pace of wage increases because of rising food and energy costs that inhibit consumption and thus sales and similar concern about growth of consumption that accounts for 70 percent of GDP. Growth of consumption by decreasing savings may not be lasting and sound for personal finances (http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html). Average private weekly earnings increased slightly by $14.41 from $781.01 in Oct 2010 to $795.42 in Oct 2011 or by 1.8 percent. The inflation-adjusted wage bill can only be calculated for Sep, which is the most recent month for which there are estimates of the consumer price index. Earnings per hour rose from $22.70 in Sep 2010 to $23.14 in Sep 2011 or by 1.9 percent (http://www.bls.gov/data/; see Table 10 below). Average weekly hours increased from 34.2 in Sep 2010 to 34.3 in Sep 2011 or by 0.3 percent (http://www.bls.gov/data/; see Table 9 below). The wage bill rose 2.2 percent in the 12 months ending in Sep, 2011:

{[(wage bill in Sep 2011)/(wage bill in Sep 2010)]-1}100 =

{[($23.14x34.3)/($22.70x34.2)]-1]}100

= {[($793.70/$$776.34)]-1}100 = 2.2%

CPI inflation was 3.9 percent in the 12 months ending in Aug 2011 (http://www.bls.gov/news.release/cpi.nr0.htm) for an inflation-adjusted wage-bill decline of 1.6 percent :{[(1.022/1.039)-1]100}. Energy and food price increases are similar to a “silent tax” that is highly regressive, harming the most those with lowest incomes. There are concerns that the wage bill would deteriorate in purchasing power because of renewed raw materials shock in the form of increases in prices of commodities such as the 31.1 percent steady increase in the DJ-UBS Commodity Index from Jul 2, 2010 to Sep 2, 2011. The charts of four commodity price indexes by Bloomberg show steady increase since Jul 2, 2010 that was interrupted briefly only in Nov 2010 with the sovereign issues in Europe triggered by Ireland, in Mar by the earthquake and tsunami in Japan and in the beginning of May by the decline in oil prices and sovereign risk difficulties in Europe (http://www.bloomberg.com/markets/commodities/futures/). Renewed risk aversion because of the sovereign risks in Europe has reduced the rate of increase of the DJ UBS commodity index to 20.6 percent on Nov 4, 2011, relative to Jul 2, 2010.

Table 8, US, Earnings per Hour and Average Weekly Hours SA

Earnings per Hour	Oct 2010	Aug 2011	Sep 2011	Oct 2011
Total Private	$22.77	$23.08	$23.14	$23.19
Goods Producing	$24.20	$24.45	$24.52	$24.58
Service Providing	$22.43	$22.76	$22.81	$22.86
Average Weekly Earnings
Total Private	$781.01	$789.34	$793.70	$795.42
Goods Producing	$963.16	$973.11	$978.35	$983.20
Service Providing	$744.68	$753.36	$757.29	$758.95
Average Weekly Hours
Total Private	34.3	34.2	34.3	34.3
Goods Producing	39.8	39.8	39.9	40.0
Service Providing	33.2	33.1	33.2	33.2

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

Table 9 provides average weekly hours of all employees in the US from 2006 to 2011. Average weekly hours fell from 34.7 in Jun 2007 to 33.7 in Jun 2009, which was the last month of the contraction. Average weekly hours rose to 34.3 in Oct 2011.

Table 9, US, Average Weekly Hours of All Employees 2006-2011

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct
2006			34.4	34.5	34.5	34.6	34.5	34.5	34.5	34.6
2007	34.4	34.6	34.6	34.6	34.6	34.7	34.6	34.5	34.6	34.5
2008	34.5	34.6	34.6	34.5	34.5	34.6	34.5	34.5	34.4	34.4
2009	34.1	34.1	34.0	33.9	33.8	33.7	33.8	33.9	33.9	33.8
2010	34.0	34.0	34.1	34.1	34.2	34.1	34.2	34.2	34.2	34.3
2011	34.2	34.3	34.3	34.4	34.4	34.3	34.3	34.2	34.3	34.3

Source: US Bureau of Labor Statistics

http://data.bls.gov/cgi-bin/surveymost?bls

Chart 27 provides average weekly hours monthly from Mar 2006 to Oct 2011. Average weekly hours remained relatively stable in the period before the contraction and fell sharply during the contraction as business could not support lower production with the same labor input. Average weekly hours rose rapidly during the expansion but have stabilized at a level below that prevailing before the contraction.

Chart 27, US, Average Weekly Hours of All Employees 2006-2011

Source: US Bureau of Labor Statistics

http://data.bls.gov/cgi-bin/surveymost?bls

Calculations with BLS data of inflation-adjusted average hourly earnings are shown in Table 10. The final column of Table 9 (“12 Month Real ∆%”) provides inflation-adjusted average hourly earnings of all employees in the US. Average hourly earnings rose above inflation throughout the first nine months of 2007 just before the global recession that began in the final quarter of 2007 when average hourly earnings lost to inflation. In contrast, average hourly earnings of all US workers have risen less than inflation in five months in 2010 and in all but one month in 2011 and the loss has accelerated to 1.9 percent in Sep 2011, which is the most recent month for which there are consumer price index data.

Table 10, US, Average Hourly Earnings Nominal and Inflation Adjusted, Dollars and % NSA

	AHE ALL	12 Month Nominal ∆%	∆% 12 Month CPI	12 Month Real ∆%
2007
Jan*	$20.70*	4.2*	2.1	2.1*
Feb*	$20.79*	4.1*	2.4	1.7*
Mar	$20.78	3.6	2.8	0.8
Apr	$20.85	3.5	2.6	0.7
May	$20.89	3.8	2.7	1.1
Jun	$21.00	3.8	2.7	1.1
Jul	$21.04	3.7	2.4	1.3
Aug	$21.03	3.5	1.9	1.6
Sep	$21.12	3.5	2.8	0.7
Oct	$21.11	3.1	3.5	-0.4
Nov	$21.17	3.3	4.3	-0.9
Dec	$21.27	3.4	4.1	-0.7
2010
Jan	$22.44	1.9	2.6	-0.7
Feb	$22.48	1.9	2.1	-0.2
Mar	$22.48	1.8	2.3	-0.5
Apr	$22.52	1.8	2.2	-0.4
May	$22.57	1.9	2.0	-0.1
Jun	$22.57	1.8	1.1	0.7
Jul	$22.61	1.8	1.2	0.6
Aug	$22.67	1.8	1.1	0.7
Sep	$22.70	1.7	1.1	0.6
Oct	$22.77	1.9	1.2	0.7
Nov	$22.76	1.7	1.1	0.6
Dec	$22.77	1.7	1.5	0.2
2011
Jan	$22.86	1.9	1.6	0.3
Feb	$22.88	1.8	2.1	-0.3
Mar	$22.89	1.8	2.7	-0.9
Apr	$22.93	1.8	3.2	-1.4
May	$23.02	1.9	3.6	-1.6
Jun	$23.01	1.9	3.6	-1.6
Jul	$23.12	2.3	3.6	-1.3
Aug	$23.08	1.8	3.8	-1.9
Sep	$23.14	1.9	3.9	-1.9
Oct	$23.19	1.8

Note: AHE ALL: average hourly earnings of all employees; CPI: consumer price index; Real: adjusted by CPI inflation; NA: not available

*AHE of production and nonsupervisory employees because of unavailability of data for all employees

Source: http://data.bls.gov/cgi-bin/surveymost?bls

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

Average hourly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table 11. Average hourly earnings fell 1.8 percent after adjusting for inflation in the 12 months ending in Sep 2011. Table 11 confirms the trend of deterioration of purchasing power of average hourly earnings in 2011. Those who still work bring back home a paycheck that buys fewer goods than a year earlier.

Table 11, US, Average Hourly Earnings of All Employees in Constant Dollars of 1982-1984

Year	Apr	May	Jun	Jul	Aug	Sep
2006	10.04	10.00	10.02	10.00	9.97	10.06
2007	10.12	10.10	10.14	10.13	10.13	10.13
2008	10.01	10.00	9.95	9.88	9.93	9.96
2009	10.40	10.39	10.34	10.34	10.33	10.33
2010	10.35	10.39	10.41	10.39	10.40	10.39
2011	10.22	10.24	10.26	10.26	10.20	10.20
∆% 20011 /2010	-1.3	-1.4	-1.4	-1.3	-1.9	-1.8

Source: US Bureau of Labor Statistics

http://data.bls.gov/cgi-bin/surveymost?bls

The deterioration of purchasing power of the average hourly earnings of US workers is shown by Chart 28 of the US Bureau of Labor Statistics. Chart 28 plots average hourly earnings of all US employees in constant 1982-1984 dollars with evident decline from 2010 to 2011.

Chart 28, US, Average Hourly Earnings of All Employees in Constant Dollars of 1982-1984

Source: US Bureau of Labor Statistics

http://data.bls.gov/cgi-bin/surveymost?bls

Average hourly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table 11. Average hourly earnings fell 1.8 percent after adjusting for inflation in the 12 months ending in Sep 2011. Table 11 confirms the trend of deterioration of purchasing power of average hourly earnings in 2011. Those who still work bring back home a paycheck that buys fewer goods than a year earlier.

Table 11, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984

Year	Apr	May	Jun	Jul	Aug	Sep
2006	346.38	345.00	346.86	344.83	343.82	347.21
2007	350.18	349.49	351.75	350.57	349.34	350.54
2008	345.45	344.83	344.35	341.01	342.67	342.66
2009	352.54	351.20	348.43	349.52	350.14	350.21
2010	352.87	355.19	354.89	355.32	355.54	355.42
2011	351.46	352.26	351.86	351.79	348.85	349.72
∆% 20011 /2010	-0.4	-0.8	-0.9	-1.0	-1.9	-1.6

Source: US Bureau of Labor Statistics

http://data.bls.gov/cgi-bin/surveymost?bls

Chart 29 provides average weekly earnings of all employees in constant dollars of 1982-1984. The same pattern emerges of sharp decline during the contraction, followed by recovery in the expansion and continuing fall from 2010 to 2011.

Chart 29, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984

Source: US Bureau of Labor Statistics

http://data.bls.gov/cgi-bin/surveymost?bls

III Labor Productivity, Unit Labor Costs and Real Hourly Compensation. The Bureau of Labor Statistics (BLS) of the Department of Labor provides the quarterly report on productivity and costs. The operational definition of productivity used is (http://www.bls.gov/news.release/pdf/prod2.pdf 1): “Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.” The BLS has revised the estimates for productivity and unit costs. Table 13 provides the data for nonfarm business sector productivity and unit labor costs for the first three quarters of 2011 in seasonally adjusted annual equivalent (SAAE) rate and the percentage change from the same quarter a year earlier. Reflecting increases in output of 3.8 percent and of 0.6 percent in hours worked, nonfarm business sector labor productivity rose at a high SAAE rate of 3.1 percent in IIIQ2011, as shown in column 2 “IIIQ2011 SAEE.” The increase of labor productivity from IIIQ2010 to IIIQ2011 was 1.1 percent, reflecting increases in output of 2.5 percent and of hours worked of 1.4 percent, as shown in column 3 “IIIQ2011 YoY.” The BLS defines unit labor costs as (http://www.bls.gov/news.release/pdf/prod2.pdf 1): “BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.” Unit labor costs fell at 2.4 percent in IIIQ2011 and fell 1.4 percent in IIIQ2011 relative to IIIQ2010. Hourly compensation in IIIQ2011 SAAE rose at 0.6 percent, which deflating by the estimated consumer price increase SAAE rate in IIIQ2011 results in a decline of real hourly compensation by 2.4 percent. Unit labor costs and real hourly compensation are declining.

Table 13, US, Nonfarm Business Sector Productivity and Costs %

	IIIQ 2011 SAAE	IIIQ 2011 YoY	IIQ 2011 SAAE	IIQ 2011 YoY	IQ 2011 SAAE	IQ 2011 YoY
Produc-tivity	3.1	1.1	-0.1	0.9	-0.6	1.2
Output	3.8	2.5	1.8	2.5	0.9	3.2
Hours	0.6	1.4	2.0	1.6	1.5	1.9
Hourly Comp.	0.6	2.3	2.7	2.7	5.6	2.6
Real Hourly Comp.	-2.4	-1.4	-1.3	-0.7	0.3	0.4
Unit Labor Costs	-2.4	1.2	2.8	1.8	6.2	1.4
Unit Nonlabor Payments	9.1	3.6	2.5	1.9	-3.1	2.0
Implicit Price Deflator	2.2	2.2	2.7	1.8	2.2	1.7

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

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

The revised increases in productivity in Table 14 of 4.1 percent in the 2010 annual average and 2.3 percent in the 2009 annual average were facilitated by reductions in hours worked of 0.1 percent in 2010 and 7.2 percent in 2009. The contraction period and the recovery period have been characterized by savings of labor inputs. The report on productivity and costs confirms a weak economy in IIQ2011 and losses in real hourly compensation of labor with likely adverse effects on consumption. The GDP report with growth of only 1.3 percent at SAAE rate in IIQ2011 or 0.32 percent in the quarter is consistent with these data. The economy improved in IIIQ2011 with GDP growth at the SAAE rate of 2.5 percent significantly because of consumption resulting from reducing savings (http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html). Increase in hours used at the SAAE rate of 0.6 percent with increase in output by 3.8 resulted in an increase in nonfarm business productivity of 3.1 percent.

Table 14, US, Revised Nonfarm Business Sector Productivity and Costs Annual Average ∆% Annual Average 

	2010 Annual Average ∆%	2009 Annual Average ∆%	2008 Annual Average ∆%
Productivity	4.1	2.3	0.6
Output	4.0	-5.1	-1.5
Hours	-0.1	-7.2	-2.1
Hourly Comp.	2.1	1.6	3.4
Real Hourly Comp.	0.4	2.0	-0.4
Unit Labor Costs	-2.0	-0.7	2.8
Unit Nonlabor Payments	5.7	3.8
Implicit Price Deflator	1.1	1.1

Notes: SAAE: seasonally adjusted annual equivalent; Comp.: compensation

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

Productivity jumped in the recovery after the recession from Mar IQ2001 to Nov IVQ2001 (http://www.nber.org/cycles.html). Table 15 provides quarter on quarter and annual percentage changes in nonfarm business output per hour, or productivity, from 2001 to 2011. The annual average jumped from 2.9 percent in 2001 to 4.6 percent in 2002. Nonfarm business productivity increased at the SAAE rate of 8.8 percent in the first quarter after the recession in IQ2002. Productivity increases decline later in the expansion period. Productivity increases were mediocre during the recession from Dec IVQ2007 to Jun IIQ2009 (http://www.nber.org/cycles.html) and increased during the first phase of expansion

Table 15, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 2001-2011

Year	Qtr1	Qtr2	Qtr3	Qtr4	Annual
2001	-1.3	7.4	2.5	5.8	2.9
2002	8.8	0.5	3.8	-0.2	4.6
2003	3.7	5.5	9.5	1.5	3.7
2004	0.6	3.3	0.7	0.5	2.6
2005	4.2	-0.8	3.1	-0.2	1.6
2006	2.5	0.4	-2.2	2.7	0.9
2007	-0.1	3.3	4.7	2.1	1.5
2008	-2.4	2.2	-0.7	-3.4	0.6
2009	1.3	8.0	6.5	5.5	2.3
2010	4.6	1.2	2.1	2.2	4.1
2011	-0.6	-0.1	3.1

Source: US Bureau of Labor Statistics

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

Chart 30 of the Bureau of Labor Statistics (BLS) provides SAAE rates of nonfarm business productivity from 2001 to 2011. There is a clear pattern in both episodes of economic cycles in 2001 and 2007 of rapid expansion of productivity in the transition from contraction to expansion followed by more subdued productivity expansion. Part of the explanation is the reduction in labor utilization resulting from adjustment of business to the sudden shock of collapse of sales.

Chart 30, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 2001-2011

Source: US Bureau of Labor Statistics

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

Percentage changes from prior quarter at SAAE rates and annual average percentage changes of nonfarm business unit labor costs are provided in Table 16. Unit labor costs fell during the contractions with continuing negative percentage changes in the early phases of the recovery. Weak labor markets partly explain the decline in unit labor costs. As the economy moves toward full employment, labor markets tighten with increase in unit labor costs. The expansion beginning in IIIQ2009 has been characterized by high unemployment and underemployment. Table 16 shows continuing subdued unit labor costs.

Table 16, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 2001-2011

Year	Qtr1	Qtr2	Qtr3	Qtr4	Annual
2001	10.9	-5.8	-1.1	-1.7	1.5
2002	-4.1	3.4	-1.6	2.2	-1.3
2003	2.8	1.4	-3.5	1.8	1.0
2004	-2.5	2.4	5.8	2.7	0.7
2005	-1.0	3.5	2.6	2.6	2.3
2006	2.9	1.3	3.6	6.8	2.8
2007	4.0	-1.9	-1.9	4.4	2.4
2008	8.7	-3.5	4.3	5.7	2.8
2009	-4.0	-1.2	-3.9	-4.1	-0.7
2010	-3.1	1.4	-0.2	-1.6	-2.0
2011	6.2	2.8	-2.4

Source: US Bureau of Labor Statistics

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

Chart 31 provides percentage changes quarter on quarter at SAAE rates of nonfarm business unit labor costs. With the exception of a jump of 6.2 percent in IQ2011, 2.8 percent in IIQ2011 and 1.4 percent in IIQ2010, changes in nonfarm business unit labor costs have been negative.

Chart 31, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 2001-2011

Source: US Bureau of Labor Statistics

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

Table 17 provides percentage change from prior quarter at annual rates for nonfarm business real hourly worker compensation. The expansion after the contraction of 2001 was followed by strong recovery of real hourly compensation.

Table 17, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 2001-2011

Year	Qtr1	Qtr2	Qtr3	Qtr4	Annual
2001	5.4	-1.5	0.2	4.5	1.6
2002	2.8	0.6	0.0	-0.6	1.5
2003	2.4	7.7	2.5	1.8	2.4
2004	-5.2	2.6	3.7	-1.1	0.6
2005	1.3	-0.1	-0.3	-1.3	0.6
2006	3.1	-1.8	-2.6	11.6	0.5
2007	0.0	-3.3	0.2	1.6	1.1
2008	1.4	-6.3	-2.7	12.5	-0.4
2009	-0.4	4.7	-1.3	-1.5	2.0
2010	0.2	3.1	0.4	-2.1	0.4
2011	0.3	-1.3	-2.4

Source: US Bureau of Labor Statistics

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

Chart 32 provides percentage change from prior quarter at annual rate of nonfarm business real hourly compensation from 2001 to 2011. There are significant fluctuations in quarterly percentage changes oscillating between positive and negative. There is not a clear pattern in the two contractions in the 2000s.

Chart 32, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 2001-2011

Source: US Bureau of Labor Statistics

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

Chart 33 provides percentage change from prior quarter at annual rate for nonfarm business output per hour from 1947 to 2011. The average would be represented by a horizontal line above zero. There is an increase in the rate of improvement of productivity in the 1990s that was not continued into the 2000s.

Chart 33, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate 1947-2011

Source: US Bureau of Labor Statistics http://www.bls.gov/lpc/home.htm

Chart 34 provides percentage changes from prior quarter at annual rate for US nonfarm business unit labor costs from 1947 to 2011. The most remarkable period is the 1970s in which stagflation occurred in fluctuating but high positive percentage changes of unit labor costs. There was significant moderation of increases in unit labor costs in the 1980s. Fluctuation has characterized the 2000s.

Chart 34, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1947-2011

Source: US bureau of Labor Statistics

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

Chart 35 provides percentage changes from the prior quarter at annual rate of nonfarm business real hourly compensation from 1947 to 2011. Negative changes have occurred more frequently in the 2000s than during the Great Inflation of the 1970s.

Chart 35, US, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 1947-2011

Source: US Bureau of Labor Statistics

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

IV World Financial Turbulence. The past three months have been characterized by financial turbulence, attaining unusual magnitude in the past few weeks. Table 18, updated with every comment in this blog, provides beginning values on Oct 31 and daily values throughout the week ending on Fr Nov 4 of several financial assets. Section VII 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 28 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), modifications and new approach adopted in the Euro Summit of Oct 26 (European Commission 2011Oct26SS, 2011Oct26MRES), 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 1.415/EUR in the first row, first column in the block for currencies in Table 18 for Fri Oct 28, appreciating to USD 1.3843/EUR on Mon Oct 31, or by 2.2 percent. Table 18 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 18 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 1.3843/EUR on Oct 31; 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 28, to the last business day of the current week, in this case Fri Nov 4, such as appreciation of 2.5 percent for the dollar to USD 1.379/EUR by Nov 4; and the third row provides the percentage change from the prior business day to the current business day. For example, the USD appreciated (positive sign) by 2.5 percent from the rate of USD 1.415/EUR on Fri Oct 28 to the rate of USD 1.379/EUR on Fri Nov 4 {[(1.379/1.415) – 1]100 = -2.5%} and appreciated by 0.2 percent from the rate of USD 1.3822 on Thu Nov 3 to USD 1.379/EUR on Fri Nov 4 {[(1.379/1.3822) -1]100 = -0.2%}. The dollar appreciated during the week because fewer dollars, $1.379, were required to buy one euro on Fri Nov 4 than $1.415 required to buy one euro on Fri Oct 28. The depreciation of the dollar in the week was caused by increasing risk aversion, largely resulting with the uncertainty on European sovereign risks, with purchases of risk financial investments by reduction of dollar-denominated assets.

Table 18, Weekly Financial Risk Assets Oct 31 to Nov 4, 2011

Oct 28, 2011	M 31	Tu 1	W 2	Th 3	Fr 4
USD/ EUR 1.415 -1.9%	1.3843 2.2% 2.2%	1.3701 3.2% 1.1%	1.3741 2.9% -0.3%	1.3822 2.3% -0.6%	1.379 2.5% 0.2%
JPY/ USD 75.812 0.6%	78.1902 -3.1% -3.1%	78.3217 -3.3% -0.2%	78.0440 -2.9% 0.4%	78.0065 -2.9% 0.0%	78.2125 -3.2% -0.3%
CHF/ USD 0.8862 -0.4%	0.8774 1.0% 1.0%	0.8869 -0.1% -1.1%	0.8841 0.2% 0.3%	0.8782 0.9% 0.7%	0.888 -0.2% -1.1%
CHF/EUR 1.2207 0.5%	1.2147 0.5% 0.5%	1.2151 0.5% 0.0%	1.2149 0.5% 0.0%	1.2139 0.6% 0.1%	1.2204 0.0% -0.5%
USD/ AUD 1.0710 0.9337 3.1%	1.0535 0.9492 -1.7% -1.7%	1.0344 0.9667 -3.5% -1.8%	1.0339 0.9672 -3.6% -0.1%	1.0427 0.9591 -2.7% 0.8%	1.037 0.9643 -3.3% -0.6%
10 Year T Note 2.326	2.125	1.98	1.99	2.08	2.066
2 Year T Note 0.293	0.250	0.23	0.23	0.24	0.234
Germany Bond 2Y 0.60 10Y 2.18	2Y 0.54 10Y 2.02	2Y 0.41 10Y 1.77	2Y 0.42 10Y 1.83	2Y 0.40 10Y 1.91	2Y 0.40 10Y 1.82
DJIA 12231.11 3.6%	-2.3% -2.3%	-4.7% -2.5%	-3.2% 1.5%	-1.5% 1.8%	-2.0% -0.5%
DJ Global 1964.49 6.4%	-3.4% -3.4%	-7.1% -3.9%	-6.1% 1.1%	-5.0% 1.1%	-5.3% -0.3%
DJ Asia Pacific 1274.32 7.1%	-2.3% -2.3%	-4.4% -2.1%	-4.8% -0.5%	-5.5% -0.6%	-3.5% 2.1%
Nikkei 9050.47 4.3%	-0.7% -0.7%	-2.4% -1.7%	-4.5% -2.2%	-4.5% -2.2%	-2.8% 1.9%
Shanghai 2473.41 6.7%	-0.2% -0.2%	-0.1% 0.1%	1.2% 1.4%	1.4% 0.2%	2.2% 0.8%
DAX 6346.19 6.3%	-2.5% -2.5%	-8.0% -5.7%	-6.1% 2.0%	-3.4% 2.9%	-5.9% -2.5%
DJ UBS Commodities 150.87 4.1%	-0.9% -0.9%	-2.4% -1.5%	-2.2% 0.2%	-0.9% 1.3%	-0.9% 0.0%
WTI $ B 93.46 6.9%	92.67 -0.8% -0.8%	91.46 -2.1% -1.3%	92.41 -1.1% 1.0%	93.96 0.5% 1.7%	94.53 1.1% 0.6%
Brent $/B 110.01 0.4%	109.34 -0.6% -0.6%	108.9 -1.0% -0.4%	109.25 -0.7% 0.3%	110.83 0.7% 1.4%	112.32 2.1% 1.3%
Gold $/OZ 1747.2 6.8%	1720.4 -1.5% -1.5%	1721.4 -1.5% 0.1%	1736.8 -0.6% 0.9%	1758.7 0.7% 1.3%	1756.7 0.5% -0.1%

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

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

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

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

Risk aversion returned in the week of Nov 4 because of the uncertainties on rapidly moving political development in Greece and lack of substantive measures at the G20 meeting. Most currency movements in Table 18 reflect risk aversion. The dollar appreciated 2.5 percent relative to the euro. Safe-haven currencies, such as the Swiss franc (CHF) and the Japanese yen (JPY) were again under threat of appreciation. A characteristic of the global recession would be struggle for maintaining competitiveness by policies of regulation, trade and devaluation (Pelaez and Pelaez, Government Intervention in Globalization: Regulation, Trade and Devaluation War (2008c)). Appreciation of the exchange rate causes two major effects on Japan.

1. Trade. Consider an example with actual data (Pelaez and Pelaez, Government Intervention in Globalization: Regulation, Trade and Devaluation Wars (2008c), 70-72). The yen traded at JPY 117.69/USD on Apr 2, 2007 and at JPY 102.77/USD on Apr 2, 2008, or appreciation of 12.7 percent. This meant that an export of JPY 10,000 to the US sold at USD 84.97 on Apr 2, 2007 [(JPY 10,000)/(USD 117.69/USD)], rising to USD 97.30 on Apr 2, 2008 [(JPY 10,000)/(JPY 102.77)]. If the goods sold by Japan were invoiced worldwide in dollars, Japanese’s companies would suffer a reduction in profit margins of 12.7 percent required to maintain the same dollar price. An export at cost of JPY 10,000 would only bring JPY 8,732 when converted at JPY 102.77 to maintain the price of USD 84.97 (USD 84.97 x JPY 102.77/USD). If profit margins were already tight, Japan would be uncompetitive and lose revenue and market share. The pain of Japan from dollar devaluation is illustrated by Table 56 in the Oct 30 comment of this blog (http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html): The yen traded at JPY 110.19/USD on Aug 18, 2008 and at JPY 75.812/USD on Oct 28, 2011, for cumulative appreciation of 31.2 percent. Cumulative appreciation from Sep 15, 2010 (JPY 83.07/USD) to Oct 28, 2011 (JPY 75.812) was 31.2 percent.

2. Foreign Earnings and Investment. Consider the case of a Japanese company receiving earnings from investment overseas. Accounting the earnings and investment in the books in Japan would also result in a loss of 12.7 percent. Accounting would show fewer yen for investment and earnings overseas.

There is a point of explosion of patience with dollar devaluation and domestic currency appreciation. Andrew Monahan, writing on “Japan intervenes on yen to cap sharp rise,” on Oct 31, 2011, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052970204528204577009152325076454.html?mod=WSJPRO_hpp_MIDDLETopStories), analyzes the intervention of the Bank of Japan, at request of the Ministry of Finance, on Oct 31, 2011. Traders consulted by Monahan estimate that the Bank of Japan sold JPY 7 trillion, about $92.31 billion, against the dollar, exceeding the JPY 4.5 trillion on Aug 4, 2011. The intervention caused an increase of the yen rate to JPY 79.55/USD relative to earlier trading at a low of JPY 75.31/USD. The yen depreciated 3.1 percent on Oct 31 to JPY 78.1902/USD, as shown in Table 18. Historically, interventions in yen currency markets have been unsuccessful (Pelaez and Pelaez, The Global Recession Risk (2007), 107-109). Interventions are even more difficult currently with daily trading of some $4 trillion in world currency markets.

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 depreciated 0.2 percent relative to the USD but remained unchanged to the euro also suggesting remaining aversion on European risk. Risk aversion is evident in the depreciation of the Australian dollar by cumulative 3.3 percent on Fr Nov 4. Risk appetite would be revealed by carry trades from zero interest rates in the US and Japan into high yielding currencies such as in Australia with appreciation of the Australian dollar (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 captured by flight of investors from risk financial assets to the government securities of the US and Germany. Increasing risk aversion is captured by decrease of the yield of the 10-year Treasury note from 2.326 percent on Oct 28 to 2.066 percent on Fri Nov 4. The 10-year Treasury yield is still at a level well below consumer price inflation of 3.9 percent in the 12 months ending in Sep and 0.3 percent in Sep relative to 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 declining yield of 0.234 percent on Nov 4 from 0.293 percent on Oct 28. 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 lower levels of the yield of the 10-year government bond of Germany on Fri Nov 4 at 0.40 percent for the two-year maturity from 0.60 percent on Fri Oct 28 and 1.82 percent percent for the 10-year maturity on Fri Nov 4 from 2.18 percent on Fri Oct 28 while the final estimate of euro zone CPI inflation for Sep is at 3.0 percent (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.

World equity markets traded cautiously during the week in the uncertainty of the details and implementation of the deal of the European bank and sovereign debt deal and rapidly moving political development in Greece. The DJIA oscillated during the week but ended with cumulative loss for the week of 2.0 percent because of the combination of weak labor markets in the US and sovereign risks in Europe. Recession is nowhere in short-term indicators of the overall US economy and companies are supporting earnings with continuing cost restraint. The DJ Global dropped 5.3 percent in the week concentrated mostly on Mon Oct 31 and Tue Nov 1 and Germany Dax dropped 5.4 percent in the week with major selloff on Tue Nov 1 that caused decline of 8.0 percent. China’s Shanghai Composite rose 2.2 percent in the week. The Nikkei Average fell 2.8 percent in the week and the DJ Asia Pacific lost 3.5 percent.

Commodities fluctuated but ended with gains in the week of Nov 4. The DJ UBS Commodities index dropped 0.9 percent cumulatively in the week. WTI rose 1.1 percent but Brent gained 2.1 percent in the week. Gold gained 0.5 percent in the week, reflecting ambivalence of investors on the implementation of the European plan and political uncertainty in Greece.

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/slow-growth-driven-by-reducing-savings.html 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 VI World Economic Slowdown. Data and analysis are provided for regions and countries that jointly account for about three quarters of world output.

The new President of the European Central Brank, Mario Drahi, provided the following assessment of the outlook of the euro zone in announcing the decision of the ECB to lower policy interest rates by 25 basis points (http://www.ecb.int/press/pressconf/2011/html/is111103.en.html):

“Based on its regular economic and monetary analyses, the Governing Council decided to reduce the key ECB interest rates by 25 basis points. While inflation has remained elevated and is likely to stay above 2% for some months to come, inflation rates are expected to decline further in the course of 2012 to below 2%. At the same time, the underlying pace of monetary expansion continues to be moderate. After today’s decision, inflation should remain in line with price stability over the policy-relevant horizon. Owing to their unfavourable effects on financing conditions and confidence, the ongoing tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half of this year and beyond. The economic outlook continues to be subject to particularly high uncertainty and intensified downside risks. Some of these risks have been materialising, which makes a significant downward revision to forecasts and projections for average real GDP growth in 2012 very likely. In such an environment, price, cost and wage pressures in the euro area should also moderate; today’s decision takes this into account. Overall, it remains essential for monetary policy to maintain price stability over the medium term, thereby ensuring a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area.”

Fiscal consolidation is facilitated by higher rates of economic growth as analyzed by Blanchard (2011WEOSep). The President of the ECB finds difficult environment for economic growth in the euro zone that was important in reaching the decision to lower the ECB’s policy rate (http://www.ecb.int/press/pressconf/2011/html/is111103.en.html):

“Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP growth in the euro area, which slowed in the second quarter of 2011 to 0.2% quarter on quarter, is expected to be very moderate in the second half of this year. There are signs that previously identified downside risks have been materialising, as reflected in unfavourable evidence from survey data. Looking forward, a number of factors seem to be dampening the underlying growth momentum in the euro area, including a moderation in the pace of global demand and unfavourable effects on overall financing conditions and on confidence resulting from ongoing tensions in a number of euro area sovereign debt markets. At the same time, we continue to expect euro area economic activity to benefit from continued positive economic growth in the emerging market economies, as well as from the low short-term interest rates and the various measures taken to support the functioning of the financial sector.”

The G20 (2011Nov) meeting in Cannes did not live to the expectations of providing a solution to the sovereign risk crisis in Europe and containing its impact on the international financial system and the world economy. There are no specific or even general measures in the final statement or even anything concrete on an enlarged role of the IMF (G20 2011Nov):

“Strengthening our capacity to cope with crises

14. As a contribution to a more structured approach, we agreed to further strengthen global financial safety nets in which national governments, central banks, regional financial arrangements and international financial institutions will each play a role according to and within their respective mandate. We agreed to continue these efforts to this end. We recognize that central banks play a major role in addressing liquidity shocks at a global and regional level, as shown by the recent improvements in regional swap lines such as in East Asia. We agreed on common principles for cooperation between the IMF and Regional Financial Arrangements, which will strengthen crisis prevention and resolution efforts.

15. As a contribution to this structured approach and building on existing instruments and facilities, we support the IMF in putting forward the new Precautionary and Liquidity Line (PLL). This would enable the provision, on a case by case basis, of increased and more flexible short-term liquidity to countries with strong policies and fundamentals facing exogenous, including systemic, shocks. We also support the IMF in putting forward a single emergency facility to provide non-concessional financing for emergency needs such as natural disasters, emergency situations in fragile and post-conflict states, and also other disruptive events. We call on the IMF to expeditiously discuss and finalize both proposals.

16. We welcome the euro area's comprehensive plan and urge rapid elaboration and implementation, including of country reforms. We welcome the euro area's determination to bring its full resources and entire institutional capacity to bear in restoring confidence and financial stability, and in ensuring the proper functioning of money and financial markets.

We will ensure the IMF continues to have resources to play its systemic role to the benefit of its whole membership, building on the substantial resources we have already mobilized since London in 2009. We stand ready to ensure additional resources could be mobilised in a timely manner and ask our finance ministers by their next meeting to work on deploying a range of various options including bilateral contributions to the IMF, SDRs, and voluntary contributions to an IMF special structure such as an administered account. We will expeditiously implement in full the 2010 quota and governance reform of the IMF.”

Willem Buiter (2011Oct 31) writing on “EFSF needs bigger bazooka to maximize its firepower,” published on Oct 31 in the Financial Times (http://www.ft.com/intl/cms/s/0/c4886f7a-03d3-11e1-bbc5-00144feabdc0.html#axzz1cMoq63R5) provides tough but enlightened analysis of the needs for resolving the European sovereign risk crisis and the resources committed in the agreement of Oct 26 (European Commission 2011Oct26SS, 2011Oct26MRES). According to Buiter (2011Oct31) the Oct 26 only provided temporary and incomplete solutions to the three problems of (1) restructuring of insolvent sovereigns; (2) recapitalizing of multiple European banks; and (3) maintaining market access of sovereigns such as Spain and Italy. Buiter (2011Oct31) find that the “fire power” or “bazooka” of the European Financial Stability Facility (EFSF) (http://www.efsf.europa.eu/about/index.htm) must be somewhere between €2500 and €3000 billion to prevent an assault on Spain and Italy. The crisis is likely to worsen. The ultimate solution may be only through the financing in sale and repurchase agreements (SRP) with the European Central Bank of sovereign debt acquired by the EFSF. The showdown, according to Buiter (2011Oct31), will occur in choosing between the end of the euro area and the fiscal use of the European Central Bank.

Even with leverage of the EFSF, which Buiter (2011Oct 31 finds unfeasible), the solution turns again to taxpayers in Germany and possibly France with tough dimensions of needs versus feasible availability and political restraints. Those same taxpayers would have to recapitalize the European Central Bank if fiscal use of the euro zone central bank is opted versus collapse of the euro zone. 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 Nov 3 and Nov 4, the yield of the 2-year bond of the government of Greece was quoted around 80 percent and the 10-year bond yield traded at around 33 percent, reflecting insolvency. In contrast, the 2-year US Treasury note traded at 0.234 percent and the 10-year at 2.066 percent while the comparable 2-year government bond of Germany traded at 0.40 percent and the 10-year government bond of Germany traded at 1.82 percent (see Table 18). 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 19 is constructed with current IMF World Economic Outlook database 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 19, 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 19 are used for some very simple calculations in Table 20. The column “Net Debt USD Billions” in Table 20 is generated by applying the percentage in Table 19 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 20. 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 euro zone. 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 20, 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 21 for the current sovereign risk crisis in the euro zone. Table 21 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 closely related to its high competitiveness in world markets. Weakness in the euro zone and the European Union in general could affect the German economy. This may be the major reason for choosing the fiscal abuse of the European Central Bank considered by Buiter (2011Oct31) over the breakdown of the euro zone.

Table 21, 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

V Global Inflation. There is inflation everywhere in the world economy, with slow growth and persistently high unemployment in advanced economies. Table 22 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 22 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 22. Data for other countries in Table 22 is also updated with reports from their statistical agencies. Economic data for major regions and countries is considered in Section VI World Economic Slowdown following with individual country and regional data tables.

Table 22, GDP Growth, Inflation and Unemployment in Selected Countries, Percentage Annual Rates

	GDP	CPI	PPI	UNE
US	1.6	3.9	6.9	9.1
Japan	-1.1	0.0	2.3	4.2
China	9.1	6.1	6.5
UK	0.5	5.2* RPI 5.6	6.3* output 17.5* input 13.3**	8.1
Euro Zone	1.6	3.0	5.8	10.2
Germany	2.8	2.9	5.5	5.2
France	1.6	2.4	6.0	9.9
Nether-lands	1.5	3.0	7.5	4.5
Finland	2.7	3.5	6.2	7.8
Belgium	2.5	3.4	6.9	6.7
Portugal	-0.9	3.5	5.5	12.5
Ireland	-1.0	1.3	4.2	14.2
Italy	0.8	3.6	4.7	8.3
Greece	-4.8	2.9	8.1	17.6
Spain	0.7	3.0	7.1	22.6

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.ons.gov.uk/ons/rel/cpi/consumer-price-indices/september-2011/index.html

** Excluding food, beverage, tobacco and petroleum

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

Table 22 shows the simultaneous occurrence of low growth, inflation and unemployment in advanced economies. The US grew at 1.6 percent in IIIQ2011 relative to IIIQ2010 (Table 8, p 11 in http://www.bea.gov/newsreleases/national/gdp/2011/pdf/gdp2q11_3rd.pdf); Japan’s GDP contracted 1.1 percent in IIQ2011 relative to IIQ2010 because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 but growth has been at low rates; the UK grew at 1.8 percent in IIQ2011 relative to IIQ2010; and the Euro Zone grew at 1.6 percent in IIQ2011 relative to IIQ2010. These are stagnating or growth recession rates. The rates of unemployment are quite high: 9.0 percent in the US but 18.1 percent for unemployment/underemployment (see Table 3 in this comment and http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html), 4.2 percent for Japan, 8.1 percent for the UK and 10.2 percent in the Euro Zone. Twelve months rates of inflation have been quite high, even when some are moderating at the margin: 3.9 percent in the US, 0.0 percent for Japan and 3.0 percent for the Euro Zone also in the Oct flash estimate (http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-31102011-AP/EN/2-31102011-AP-EN.PDF). Stagflation is still an unknown event but the risk is sufficiently high to be worthy of consideration (see http://cmpassocregulationblog.blogspot.com/2011/06/risk-aversion-and-stagflation.html). The analysis of stagflation also permits the identification of important policy issues in solving vulnerabilities that have high impact on global financial risks. There are six key interrelated vulnerabilities in the world economy that have been causing global financial turbulence: (1) sovereign risk issues in Europe resulting from countries in need of fiscal consolidation and enhancement of their sovereign risk ratings (see Section IV http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html World Financial Turbulence in this post, http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/08/world-financial-turbulence-global.html http://cmpassocregulationblog.blogspot.com/2011/08/global-growth-recession-25-to-30.html section II in http://cmpassocregulationblog.blogspot.com/2011/08/global-growth-recession-25-to-30.html http://cmpassocregulationblog.blogspot.com/2011/07/twenty-five-to-thirty-million.html http://cmpassocregulationblog.blogspot.com/2011/06/risk-aversion-and-stagflation.html and Section I Increasing Risk Aversion in http://cmpassocregulationblog.blogspot.com/2011/06/increasing-risk-aversion-analysis-of.html and section IV in http://cmpassocregulationblog.blogspot.com/2011/04/budget-quagmire-fed-commodities_10.html); (2) the tradeoff of growth and inflation in China; (3) slow growth (see I Slow Growth by Reducing Savings in http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html http://cmpassocregulationblog.blogspot.com/2011/10/us-growth-standstill-at-08-percent.html http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/08/global-growth-recession-25-to-30.html http://cmpassocregulationblog.blogspot.com/2011/07/growth-recession-debt-financial-risk.html http://cmpassocregulationblog.blogspot.com/2011/06/financial-risk-aversion-slow-growth.html http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/05/mediocre-growth-world-inflation.html http://cmpassocregulationblog.blogspot.com/2011_03_01_archive.html http://cmpassocregulationblog.blogspot.com/2011/02/mediocre-growth-raw-materials-shock-and.html), weak hiring (see Section I United States Hiring Collapse in http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html, http://cmpassocregulationblog.blogspot.com/2011/09/financial-turbulence-wriston-doctrine.html http://cmpassocregulationblog.blogspot.com/2011/08/world-financial-turbulence-global.html and section III Hiring Collapse in http://cmpassocregulationblog.blogspot.com/2011/04/fed-commodities-price-shocks-global.html ) and continuing job stress of 24 to 30 million people in the US and stagnant wages in a fractured job market (see Section I Twenty Nine Million Unemployed or Underemployed in this post http://cmpassocregulationblog.blogspot.com/2011/10/twenty-nine-million-unemployedunderempl.html http://cmpassocregulationblog.blogspot.com/2011/09/global-growth-standstill-recession.html http://cmpassocregulationblog.blogspot.com/2011/07/twenty-five-to-thirty-million.html http://cmpassocregulationblog.blogspot.com/2011/05/job-stress-of-24-to-30-million-falling.html http://cmpassocregulationblog.blogspot.com/2011/04/twenty-four-to-thirty-million-in-job_03.html http://cmpassocregulationblog.blogspot.com/2011/03/unemployment-and-undermployment.html); (4) the timing, dose, impact and instruments of normalizing monetary and fiscal policies (see II Budget/Debt Quagmire in http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2011/03/global-financial-risks-and-fed.html http://cmpassocregulationblog.blogspot.com/2011/02/policy-inflation-growth-unemployment.html) in advanced and emerging economies; (5) the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 that had repercussions throughout the world economy because of Japan’s share of about 9 percent in world output, role as entry point for business in Asia, key supplier of advanced components and other inputs as well as major role in finance and multiple economic activities (http://professional.wsj.com/article/SB10001424052748704461304576216950927404360.html?mod=WSJ_business_AsiaNewsBucket&mg=reno-wsj); and (6) the geopolitical events in the Middle East.

There were no changes of course in the meeting of the Federal Open Market Committee (FOMC) from Nov 1 to Nov 2, 2011. The FOMC released the statement as follows (http://www.federalreserve.gov/newsevents/press/monetary/20111102a.htm):

“For immediate release

Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.”

The FOMC also released the economic projections of governors of the Board of Governors of the Federal Reserve and Federal Reserve Banks presidents shown in Table 23. It is instructive to focus on 2012, as 2011 is almost gone, and there is not much information on what will happen in 2013 and beyond. The central tendency should provide reasonable approximation of the view of the majority of members of the FOMC. The first row for each year shows the projection introduced after the meeting of Nov 2 and the second row “Jun PR” the projection of the Jun meeting. There are three major changes in the view.

1. Growth “GDP ∆.” The FOMC has reduced the forecast of GDP growth in 2012 from 3.3 to 3.7 percent in Jun to 2.5 to 2.9 percent in Nov.

2. Rate of Unemployment “UNEM%.” The FOMC increased the rate of unemployment from 7.8 to 8.2 percent in Jun to 8.5 to 8.7 percent in Nov.

3. Inflation “∆% PCE Inflation.” The FOMC changed the forecast of personal consumption expenditures (PCE) inflation from 1.5 to 2.0 percent in Jun to virtually the same of 1.4 to 2.0 percent in Nov.

4. Core Inflation “∆% Core PCE Inflation.” Core inflation is PCE inflation excluding food and energy. There is again not much of a difference of the projection for 2012 in Jun of 1.4 to 2.0 percent and the Nov projection of 1.5 to 2.0 percent.

Table 23, US, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, November 2011

	∆% GDP	UNEM %	∆% PCE Inflation	∆% Core PCE Inflation
Central Tendency
2011 Jun PR	1.6 – 1.7 2.7 – 2.9	9.0 – 9.1 8.6 – 8.9	2.7 – 2.9 2.3 – 2.5	1.8 – 1.9 1.5 – 1.8
2012 Jun PR	2.5 – 2.9 3.3 – 3.7	8.5 – 8.7 7.8 – 8.2	1.4 – 2.0 1.5 – 2.0	1.5 – 2.0 1.4 – 2.0
2013 Jun PR	3.0 – 3.5 3.5 – 4.2	7.8 – 8.2 7.0 – 7.5	1.5 – 2.0 1.5 – 2.0	1.4 – 1.9 1.4 – 2.0
2014 Jun PR	3.0 – 3.9 NA	6.8 – 7.7 NA	1.5 – 2.0 NA	1.5 – 2.0 NA
Longer Run	2.4 – 2.7 2.5 – 2.8	5.2 – 6.0 5.2 – 5.6	1.7 – 2.0 1.7 – 2.0
Range
2011 Jun PR	1.6 – 1.8 2.5 – 3.0	8.9 – 9.1 8.4 – 9.1	2.5 – 3.3 2.1 – 3.5	1.7 – 2.0 1.5 – 2.3
2012 Jun PR	2.3 – 3.5 2.2 – 4.0	8.1 – 8.9 7.5 – 8.7	1.4 – 2.8 1.2 – 2.8	1.3 – 2.1 1.2 – 2.5
2013 Jun PR	2.7 – 4.0 3.0 – 4.5	7.5 – 8.4 6.5 – 8.3	1.4 – 2.5 1.3 – 2.5	1.4 – 2.1 1.3 – 2.5
2014 Jun PR	2.7 – 4.5 NA	6.5 – 8.0 NA	1.5 – 2.4 NA	1.4 – 2.2 NA
Longer Run	2.2 – 3.0 2.4 – 3.0	5.0 – 6.0 5.0 – 6.0	1.5 – 2.0 1.5 – 2.0

Notes: UEM: unemployment; PR: Projection

Source: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20111102.pdf

An old advice of business economists recommends: “Do not forecast but if you must forecast then forecast often.” The FOMC actually forecasts infrequently or at least reveals forecasts with long lags. Indicators followed by the comments in this blog do show strengthening growth from 0.8 percent at annual equivalent for the first half of 2011 to 1.4 percent for the first three quarters of 2011 (http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html). Recent recovery has been driven by decline in the savings rate from 5.1 percent to 4.1 percent while real disposable income has fallen by 1.7 percent. Labor markets continue to be fractured with unemployment or underemployment of 29 million, weak hiring and falling real wages. Inflation has been moving on waves with acceleration in the quarter Jul-Sep of the headline consumer price index (http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html). The translation of current trends or appearance of trends into forecasts with statistical predictive value is very difficult or nearly impossible. FOMC policy in the statement is to increase economic growth to reduce the rate of unemployment in accordance with its statutory dual mandate (http://www.federalreserve.gov/aboutthefed/mission.htm):

“The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.

Today, the Federal Reserve's duties fall into four general areas:

· conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates

· supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers

· maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

· providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system”

The key phrase in this mission is: “influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.”

The Board of Governors of the Federal Reserve and the Federal Reserve Banks has competence at the frontiers of knowledge to develop optimum projections based on the state of the art. The need for projections originates in the belief in lags in effect of monetary policy based on technical research (see Culbertson 1960, 1961, Friedman 1961, Batini and Nelson 2002, Romer and Romer 2004). Innovative research by Romer and Romer (2004, 1081) concludes:

“Estimates of the effects of policy using the new shock series indicates that monetary policy has large and statistically significant effects on real output. In our baseline specification, a shock of one percentage point starts to reduce industrial production after five months, with a maximum fall of 4.3 percent after two years. The peak effect is highly statistically significant. For prices, we find that the one-percentage point shock has little effect for almost two years, but then lowers the inflation rate by 2 to 3 percentage points. As a result, the price level is about 6 percent lower after four years. This estimate is overwhelmingly significant. The most important uncertainty concerns the lag in the impact of policy on prices: in some specifications, the price level begins falling within six months after the policy shock, while in others it is unchanged for as much as 22 months.”

In short, a monetary policy impulse implemented currently has effects in the future. Thus, monetary policy has to anticipate economic conditions in the future to determine doses and timing of policy impulses. Policy is actually based on “projections” such as those in Table 23 (on central banking see Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 69-90, Regulation of Banks of Finance (2009b), 99-116).

There have been fluctuations in producer price inflation in France for the French market as shown in Table 24. There was a wave of sharply increasing inflation in the first four months of 2011 originating in the surge of commodity prices driven by carry trade from zero interest rates to commodity futures risk positions. Producer price inflation in the first four months of 2011 was at the annual equivalent rate of 11.4 percent. Producer prices fell 0.5 percent in May and another 0.1 percent in Jun. In the quarter Jul-Sep, annual equivalent producer price inflation was 2.4 percent. The bottom part of Table 10 shows producer price inflation at 6.4 percent in the 12 months ending in Dec 2005 and again at 5.2 percent in the 12 months ending in Dec 2007. Producer prices fell in 2008 and 2009 during the global contraction and decline of commodity prices but returned at 5.4 percent in the 12 months ending in Dec 2010.

Table 24, France, Producer Price Index for the French Market, ∆%

	Month	12 Months
Sep 2011	0.2	6.1
Aug	0.0	6.2
Jul	0.4	6.3
AE ∆% Jul-Sep	2.4
Jun	-0.1	6.1
May	-0.5	6.2
Apr	1.0	6.7
Mar	0.9	6.7
Feb	0.8	6.3
Jan	0.9	5.6
AE ∆% Jan-Apr	11.4
Dec 2010	0.8	5.4
Dec 2009	0.1	-2.9
Dec 2008	-1.5	-0.2
Dec 2007	0.6	5.2
Dec 2006	-0.2	2.9
Dec 2005	0.2	6.4

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20111031

Chart 36 of the Institut National de la Statistique et des Études Économiques of France provides the behavior of the producer price index of France for the various segments: import prices, foreign markets, domestic market and all markets. All the components exhibit the rise to the peak in 2008 driven by carry trades from zero interest rates of unconventional monetary policy that was of such an impulse as to drive increases in commodity prices during the global recession. Prices collapsed with the flight out of financial risk assets such as commodity positions to government obligations. Commodity price increases returned with zero interest rates and subdued risk aversion. The shock of confidence of the current European sovereign risk moderated exposures to financial risk that influenced the flatter curve of France’s producer prices.

Chart 36, France, Producer Price Index (PPI)

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20111031

France’s producer price index for the domestic market is shown in Table 25 for Sep 2011. The segment of coke and refined petroleum increased 2.2 percent in Sep and 28.7 percent in 12 months. Manufacturing, with the highest weight in the index, rose 0.2 percent in the month and 5.9 percent in 12 months. Mining increased 0.5 percent in the month and 7.1 percent in 12 months.

Table 25, France, Producer Price Index for the Domestic Market, %

Sep 2011	Weight	Month ∆%	12 Months ∆%
Total	1000	0.2	6.1
Mining	130	0.5	7.1
Mfg	870	0.2	5.9
Food	188	-0.2	5.8
Coke, Refined Petroleum	70	2.2	28.7
Electrical, Electronic	92	0.2	2.0
Transport	79	0.0	2.4
Other Mfg	441	-0.1	3.4

Source:  Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20111031

Italy’s producer price inflation in Table 26 also has the same waves in 2011 observed for many countries. The annual equivalent producer price inflation in Jan-Apr was 10.7 percent as driven by increases in commodity prices resulting from the carry trades from zero interest rates to financial risk assets, in particular leveraged positions in commodities. Producer price inflation was 0.2 percent in Sep and 4.7 percent in 12 months. Producer price inflation moderated with decline by 0.2 percent in May and zero change in Jun. Annual equivalent consumer price inflation was 2.4 percent in Jul-Sep.

Table 26, Italy, Industrial Prices, Internal Market

	Month ∆%	12 Months ∆%
Sep	0.2	4.7
Aug	0.1	4.8
Jul	0.3	4.9
AE ∆% Jul-Sep	2.4
Jun	0.0	4.6
May	-0.2	4.8
Apr	0.7	5.6
Mar	0.8	6.2
Feb	0.7	5.8
Jan	1.2	5.3
AE ∆% Jan-Apr	10.7
Dec 2010	0.7	4.7
Year
2010		3.0
2009		-5.4
2008		5.9
2007		3.3
2006		5.2
2005		4.0
2004		2.7
2003		1.6
2002		0.2
2001		1.9

Source:

http://www.istat.it/it/archivio/43892

Chart 37 of the Istituto Nazionale di Statistica of Italy shows percentage changes in 12 months of Italy’s consumer price index. The commodity shock accelerated 12 months inflation rates that peaked in Mar.

Chart 37, Italy, Producer Prices for the Internal Market 12 Months ∆%

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

Monthly and 12 month inflation of the producer price index of Italy and individual components is provided in Table 27. Energy increased 0.7 percent in Sep and 9.0 percent in 12 months.

Table 27, Italy, Industrial Prices, Internal Market, ∆%

	Sep 2011/   Aug 2011	Sep 2011/   Sep 2010
Total	0.2	4.7
Consumer Goods	0.4	3.5
Durable Goods	0.4	2.7
Nondurable	0.3	3.8
Intermediate	0.0	5.2
Energy	0.7	9.0

Source: http://www.istat.it/it/archivio/43892

The wave of commodity price increases in the first four months of 2011 also influenced the surge of consumer price inflation in Italy shown in Table 28. Annual equivalent inflation in the first four months of 2011 was 4.9 percent. The crisis of confidence or risk aversion resulted in reversal of carry trades on commodity positions. Consumer price inflation in Italy was subdued in Jun and May at 0.1 percent. Annual equivalent inflation in the four months Jul-Oct jumped again to 3.7 percent.

Table 28, Italy, Consumer Price Index

	Month	12 Months
Oct 2011	0.6	3.4
Sep	0.0	3.0
Aug	0.3	2.8
Jul	03	2.7
AE ∆% Jul-Oct	3.7
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-Apr	4.9
Dec 2010	0.4	1.9

Source: http://www.istat.it/it/archivio/43878

Chart 38 of the Istituto Nazionale di Statistica of Italy shows 12 months percentage change of the consumer price index of Italy. The 12 month rates of consumer price inflation also show the acceleration in the beginning of 2011 followed by more moderate inflation and the resurgence after Jul.

Chart 38, Italy, Consumer Prices 12 Months ∆%

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

V World Economic Slowdown. The JP Morgan Global Manufacturing & Services PMI^™ produced by JP Morgan and Markit in association with ISM and IFPSM finds that output and new business growth of the world private sector grew at the slowest pace since the expansion began in Aug 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8791). 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 51.4 in Oct, which is slightly lower than 52.0 in Sep.

VA. United States. The Manufacturing ISM Report on Business^® purchasing managers’ index fell 0.8 percentage points from 51.6 in Sep to 50.8 in Oct, indicating continuing growth for 27 consecutive months but at slower rate of change (http://www.ism.ws/ISMReport/MfgROB.cfm). New orders, which are an indicator of future business, rose 2.8 percentage points, from 49.6 in Sep to 52.4 in Oct, indicating change from contracting (reading below 50) to growth (reading above 50). The reading of new orders in Oct is the first above 50 or growth after three consecutive months of readings below 50 or contraction. The employment index fell slightly by 0.3 percentage points from 53.8 in Sep to 53.5 in Oct, indicating growth at slower rate of change. Prices paid or costs of inputs fell 15 percentage points from 56.0 in Sep to 41.0 in Oct, which is the first reading below 50 since May.

The ISM Non-Manufacturing Report on Business^® shows mixed results (http://www.ism.ws/ISMReport/NonMfgROB.cfm). The overall index for Oct was virtually unchanged, falling 0.1 percentage points from 53.0 in Sep to 52.9 in Oct. The unfavorable events were decline of business activity/production by 3.3 percentage points from 57.1 in Sep to 53.8 in Oct and more worrisome the decline by 4.1 percentage points of new orders from 56.5 in Sep to 52.4 in Oct. A positive development was the increase in employment by 4.7 percentage points from contraction territory of 48.7 percent in Sep to expansion at 52.0 in Oct. Prices fell 4.8 percentage points from 61.9 in Sep to 47.0 in Oct.

Table USA provides the summary indicators of the US economy and where to locate them in the blog. Indicators released in the week of Nov 4 are discussed after Table USA.

Table USA, US Economic Indicators

Consumer Price Index	Sep 12 months NSA ∆%: 3.9; ex food and energy ∆%: 2.0 Sep month ∆%: 0.3; ex food and energy ∆%: 0.1 Blog 10/23/11
Producer Price Index	Jun 12 months NSA ∆%: 6.9; ex food and energy ∆% 2.5 Sep month SA ∆% 0.8; ex food and energy∆%: 0.2 Blog 10/23/11
PCE Inflation	Sep 12 months NSA ∆%: headline 2.9; ex food and energy ∆% 1.6 Blog 10/30/11
Employment Situation	Household Survey: Oct Unemployment Rate SA 9.0% Blog calculation People in Job Stress Oct: 28.8 million NSA Establishment Survey: Oct Nonfarm Jobs 80,000; Private +104,000 jobs created  Sep 12 months Average Hourly Earnings Inflation Adjusted ∆%: minus 1.8% Blog 11/04/11
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 Aug 2011 4.026 million lower by 1.461 million than 5.487 million in Aug 2005 Blog 10/11/11
GDP Growth	BEA Revised National Income Accounts back to 2003 IQ2011 SAAR ∆%: 0.4 IIQ2011 SAAR ∆%: 1.3 IIIQ2011 SAAR ∆%: 2.5 First three quarters AE ∆% 1.4  Blog 10/30/11
Personal Income and Consumption	Sep month ∆% SA Real Disposable Personal Income (RDPI) 0.1 Sep month SA ∆% Real Personal Consumption Expenditures (RPCE): 0.5 12 months NSA ∆%: RDPI: 0.2; RPCE ∆%: 2.2 Blog 10/30/11
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	IIIQ2011 SA ∆%: 0.3 Sep 12 months ∆%: 2.0 Blog 10/30/11
Industrial Production	Sep month SA ∆%: 0.2 Sep 12 months NSA ∆%: 3.2 Capacity Utilization: 77.4 Blog 10/23/11
Productivity and Costs	Nonfarm Business Productivity IIIQ2011∆% SAAE 3.1; IIIQ2011/IIIQ2010 ∆% 1.1; Unit Labor Costs IIIQ2011 ∆% -2.4; IIIQ2011/IIIQ2010 ∆%: 1.2 Blog 11/04/11
New York Fed Manufacturing Index	General Business Conditions From -8.82 Sep to Oct –8.48 New Orders: From -8.0 Sep to 0.16 Oct Blog 10/23/11
Philadelphia Fed Business Outlook Index	General Index from -17.5 Sep to 9.7 Oct New Orders from Sep -11.3 to 7.9 Oct Blog 10/23/11
Manufacturing Shipments and Orders	Sep/Aug New Orders SA ∆%: minus 0.3; ex transport ∆%: 1.3 12 months Jan-Aug NSA ∆%: 12.6; ex transport ∆% 12.9 Blog 11/04/11
Durable Goods	Sep New Orders SA ∆%: -0.8; ex transport ∆%: 1.7 Sep 12 months NSA New Orders ∆%: 7.7; ex transport ∆% : 9.4 Blog 10/30/11
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	Sep SAAR month SA ∆%: 0.2 Sep 12 months NSA: -2.0 Blog 11/04/11
Case-Shiller Home Prices	Aug 2011/Aug 2010 ∆% NSA: 10 Cities minus 3.5; 20 Cities: minus 3.8 ∆% Aug SA: 10 Cities minus 0.2 ; 20 Cities: minus 0.05 Blog 10/30/11
FHFA House Price Index Purchases Only	Aug SA ∆% minus 0.1; 12 month ∆%: minus 4.0 Blog 10/30/11
New House Sales	Sep month SAAR ∆%: 5.7 Jan/Sep 2011/2010 NSA ∆%: minus 7.9 Blog 10/30/11
Housing Starts and Permits	Sep Starts month SA ∆%: 15.0; Permits ∆%: -5.0 Jan/Sep 2011/2010 NSA ∆% Starts -1.5; Permits  ∆% –1.5 Blog 10/23/11
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	Aug Net Foreign Purchases of Long-term Treasury Securities: $57.9 billion Aug versus Jul $9.1 billion Major Holders of Treasury Securities: China $1137 billion; Japan $936.6 billion  Blog 10/23/11
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: 10/30/11 http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html

10/23/11 http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html

10/16/11 http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html

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

Motor vehicle sales and production in the US have been in long-term structural change. Table 29 provides the data on new motor vehicle sales and domestic car production in the US from 1990 to 2010. New motor vehicle sales grew from 14,137 thousand in 1990 to the peak of 17,806 thousand in 2000 or 29.5 percent. In that same period, domestic car production fell from 6,231 thousand in 1990 to 5,542 thousand in 2000 or -11.1 percent. New motor vehicle sales fell from 17,445 thousand in 2005 to 11,772 in 2010 or 32.5 percent while domestic car production fell from 4,321 thousand in 2005 to 2,840 thousand in 2010 or 34.3 percent. Domestic car production fell from 6,231 thousand in 1990 to 2,840 thousand in 2010 or 54.4 percent. In the first ten months of 2011, light vehicle deliveries accumulated to 10.539 million, which is higher by 10.1 percent relative to 9.570 million a year earlier (http://motorintelligence.com/m_frameset.html). The seasonally-adjusted annual rate of light vehicle sales in the US reached 13.26 million in Oct 2011 relative to 12.18 million in Sep 2010 (http://motorintelligence.com/m_frameset.html).

Table 29, US, New Motor Vehicle Sales and Car Production, Thousand Units

	New Motor Vehicle Sales	New Car Sales and Leases	New Truck Sales and Leases	Domestic Car Production
1990	14,137	9,300	4,837	6,231
1991	12,725	8,589	4,136	5,454
1992	13,093	8,215	4,878	5,979
1993	14,172	8,518	5,654	5,979
1994	15,397	8,990	6,407	6,614
1995	15,106	8,536	6,470	6,340
1996	15,449	8,527	6,922	6,081
1997	15,490	8,273	7,218	5,934
1998	15,958	8,142	7,816	5,554
1999	17,401	8,697	8,704	5,638
2000	17,806	8,852	8,954	5,542
2001	17,468	8,422	9,046	4,878
2002	17,144	8,109	9,036	5,019
2003	16,968	7,611	9,357	4,510
2004	17,298	7,545	9,753	4,230
2005	17,445	7,720	9,725	4,321
2006	17,049	7,821	9,228	4,367
2007	16,460	7,618	8,683	3,924
2008	13,494	6,814	6.680	3,777
2009	10,601	5,456	5,154	2,247
2010	11,772	5,729	6,044	2,840

Source: US Census Bureau http://www.census.gov/compendia/statab/cats/wholesale_retail_trade/motor_vehicle_sales.html

Both manufacturers’ shipments and new orders fell 0.2 percent in Aug relative to Jul, as shown in Table 30. These data are very volatile. Both new orders and shipments rose 0.3 percent in Sep. Automobile shipments fell 0.7 percent in Sep after falling 5.5 percent in Aug. Volatility is illustrated by decline of 25.0 percent of nondefense aircraft in Sep following growth of 26.2 percent in Aug and 49.9 percent in Jul but decline of 24.0 percent in Jun. Capital goods new orders, indicating investment, rose 3.0 percent in Aug after growing 3.1 percent in Jul but fell 0.8 percent in Sep. New orders of nondefense capital goods rose 5.4 percent in Aug after strong growth of 4.2 percent in Jul but fell 1.8 percent in Sep. Excluding more volatile aircraft, capital goods orders still grew 2.9 percent.

Table 30, US, Value of Manufacturers’ Shipments and New Orders, SA, %

2011	Sep/Aug ∆%	Aug/Jul ∆%	Jul/Jun ∆%	Jun/May  ∆%
All Mfg Industries
S	0.3	0.1	1.2	0.6
NO	0.3	0.1	2.1	-0.4
Excluding Transport
S	0.6	0.7	0.5	0.6
NO	1.3	-0.1	0.6	0.4
Excluding Defense
S	0.3	0.0	1.3	0.6
NO	0.2	0.0	2.3	-0.2
Durable Goods
S	-0.6	0.1	2.1	1.1
NO	-0.6	0.1	4.2	-1.1
Machinery
S	-1.2	5.8	0.7	4.2
NO	1.9	-1.9	1.9	-1.4
Computers & Electronic Products
S	-1.2	0.6	1.7	-1.2
NO	1.8	1.4	-3.5	0.9
Computers
S	-0.7	-4.7	4.6	3.6
NO	5.5	2.5	-6.3	2.6
Transport Equipment
S	-2.4	-4.9	7.0	0.3
NO	-7.1	0.8	15.0	-6.6
Automobiles
S	-0.7	-5.5	3.0	1.2
Motor Vehicles
S	-1.8	-5.6	8.1	-2.6
NO	-2.1	-5.4	8.5	-2.0
Nondefense Aircraft
S	2.3	3.4	8.8	3.2
NO	-25.0	26.2	49.9	-24.0
Capital Goods
S	-0.8	3.0	0.7	1.7
NO	-0.8	4.7	3.1	-2.4
Nondefense Capital Goods
S	-1.0	3.0	1.4	2.1
NO	-1.8	5.4	4.2	-2.4
Capital Goods ex Aircraft
S	-0.9	3.1	0.3	2.0
NO	2.9	0.9	-0.3	0.8
Nondurable Goods
S NO	1.0	0.0	0.4	0.2

Note:Mfg: manufacturing; S: shipments; NO: new orders; Transport: transportation

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

Chart 39 of the US Bureau of the Census shows monthly changes in manufacturers’ new orders in the past 12 months. Trends are difficult to discern for these data because of the significant volatility.

Chart 39, US, Manufacturers’ New Orders 2010-2011 Seasonally Adjusted, Month ∆%

Source: US Bureau of the Census

http://www.census.gov/briefrm/esbr/www/esbr022.html

Additional perspective on manufacturers’ shipments and new orders is provided by Table 31 with. Values are cumulative millions of dollars in Jan-Sep 2011 not seasonally adjusted (NSA). Shipments of all manufacturing industries in the first nine months of 2011 total $4.0 trillion and new orders total $3.9 trillion, growing respectively by 12.6 percent and 12.9 percent. Excluding transportation equipment, shipments grew 12.8 percent and new orders increased 12.9 percent. Excluding defense shipments grew 12.7 percent and new orders grew 13.3 percent. Important information in Table 31 is the large share of nondurable goods: with shipments of $2.2 trillion, growing by 15.2 percent, and new orders of $2.2 trillion, growing by 15.2 percent, in part driven by higher prices for food and energy. Durable goods are lower in value, with shipments of $1.8 trillion, growing by 7.7 percent, and new orders of $1.8 trillion, growing by 9.5 percent. Capital goods have relatively high value of $677 billion for shipments, growing 5.4 percent, and new orders, new orders $719 billion, growing 10.2 percent, which could be a favorable sign of future investment. Excluding aircraft, capital goods shipments reached $571 billion, growing by 9.7 percent, and new orders $592 billion, growing 11.4 percent. Automobile shipments reached only $46 billion, growing by 3.6 percent. There is no suggestion in these data that the US economy is close to recession.

Table 31, US, Value of Manufacturers’ Shipments and New Orders, NSA, Millions of Dollars 

Jan-Sep 2011	Shipments	∆% 2011/ 2010	New Orders	∆% 2011/ 2010
All Manufacturing Industries	4,008,352	11.8	3,999,637	12.6
Excluding Transport	3,592,035	12.8	3,564,699	12.9
Excluding Defense	3,918,756	12.7	3,903,804	13.3
Durable Goods	1,772,044	7.7	1,763,329	9.5
Machinery	263,356	12.2	285,250	15.5
Computers & Electronic Products	214,251	-0.9	214,251	-0.9
Computers	36,08	10.8	35,957	10.3
Transport Equipment	416,317	3.7	434,938	10.7
Automobiles	46,181	3.6	NA	NA
Motor vehicles	129,133	6.7	128,824	7.6
Nondefense Aircraft	63,325	8.5	79,992	32.5
Capital Goods	677,163	5.4	719,802	10.2
Nondefense Capital Goods	607,029	9.4	643,492	13.3
Capital Goods ex Aircraft	570,868	9.7	592,434	11.4
Nondurable Goods	2,236,308	15.2	2,236,308	15.2

Note: Transport: transportation

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

Manufacturers’ new orders in Jul-Sep not seasonally adjusted are provided in Table 32 from 1992 to 2011. The level in Sep 2011 of $465,343 million is above the level of $454,199 million in 2007. The comparison is somewhat distorted by inflation in the latter years.

Table 32, US, Manufacturers’ New Orders NSA Millions of Dollars

Year	Jul	Aug	Sep
1992	215,164	229,877	251,642
1993	220,405	243,322	259,484
1994	236,055	270,302	285,477
1995	248,729	286,806	307,951
1996	269,015	292,389	317,268
1997	285,899	314,060	339,406
1998	279,252	314,606	339,286
1999	295,583	333,204	353,716
2000	307,154	345,644	370,860
2001	287,643	328,140	320,269
2002	295,235	331,164	330,911
2003	304,858	331,444	349,325
2004	331,980	363,225	373,947
2005	359,737	415,196	418,386
2006	393,887	436,602	445,135
2007	432,166	468,853	454,199
2008	472,098	475,880	462,904
2009	346,391	363,361	375,249
2010	382,296	406,032	423,825
2011	433,515	469,793	465,343

Source: US Bureau of the Census

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

Sep was a second good month in a row for construction spending in the US, as shown in Table 33. Construction spending at seasonally-adjusted annualized rate (SAAR) reached $787.2 billion in Sep, which was higher by 0.2 percent than in the prior month of Aug. Residential investment gained 0.7 percent in the month and nonresidential investment fell slightly by 0.1 percent. Public construction fell 9.2 percent while private construction grew 3.9 percent. Data in Table 1 show that nonresidential construction at $550.9 billion is much higher in value than residential construction at $236.3 billion while total private construction at $501.8 billion is much higher than public construction at $285.4 billion, all in SAAR.

Table 33, US, Value of Construction Put in Place in the United States Billion Dollars and Month and 12 Months ∆%  

	Sep 2011 SAAR $ Billions	Month ∆%	12 Month ∆%
Total	787.2	0.2	-1.3
Residential	236.3	0.7	-1.1
Nonresidential	550.9	-0.1	-1.3
Total Private	501.8	0.6	3.9
Total Public	285.4	-0.6	-9.2

SAAR: seasonally adjusted annual rate; B: billions

Source: http://www.census.gov/const/C30/release.pdf

Further information on construction spending is provided in Table 34. The original monthly estimates not-seasonally adjusted and their 12 months rates of change are provided in the first two columns while the SAAR and their monthly changes are provided in the final two columns. There has been improvement in construction in the US in 2011. On a monthly basis, construction fell four consecutive months from Dec 2010 to Mar 2011, increasing in five of the six months from Apr to Sep, with decline of 3.3 percent in Jul. The 12 months rates of change improved from minus 6.9 percent in Apr to positive minus 2.0 percent in Aug.

Table 34, US, Value and Percentage Change in Value of Construction Put in Place, Dollars Millions and ∆%

	Value NSA Month $ Millions	12 Months ∆% NSA	Value SAAR $ Millions	Month ∆% SA*
Sep 2011	73,158	-2.0	787,211	0.2
Aug	75,295	-1.1	786,024	1.6
Jul	70,562	-3.8	773,296	-3.3
Jun	72,357	1.5	799,568	1.5
May	67,296	-1.8	787,396	2.5
Apr	61,817	-6.9	768,226	0.7
Mar	56,731	-6.1	762,557	-0.2
Feb	51,412	-4.5	764,198	-1.0
Jan	52,578	-5.6	771,982	-1.4
AE ∆%				0.6
Dec 2010	60,066	-6.3	782,880	-2.5

*Percentages are calculated with values without numbers and may differ from rounded numbers

Source: http://www.census.gov/const/www/c30index.html

The strong contraction of the value of construction in the US is revealed by Table 35. Construction spending in the first nine months of 2011, not seasonally adjusted, reached $580.9 billion, which is lower by 3.5 percent than $602.0 billion in the same period in 2010. The depth of the contraction is shown by the decline of construction spending of $900.9 billion in the first nine months of 2006 to only $580.9 billion in the same period in 2011, or fall by minus 35.5 percent. The comparable decline from Jan-Sep 2005 to Jan-Sep 2011 is minus 31.4 percent. Construction spending in the first nine months of 2011 fell by 14.3 percent relative to the same period in 2003. Construction spending is lower by 15.8 percent in the first nine months of 2011 relative to the same period in 2009. Construction has been weaker than the economy as a whole.

Table 35, US, Value of Construction Put in Place in the United States, Not Seasonally Adjusted, $ Billions and ∆%

Jan-Sep 2011 $ B	580.9
Jan-Sep 2010 $ B	602.0
∆% to 2011	-3.5
Jan-Sep 2009	689.9
∆% to 2011	-15.8
Jan-Sep 2006 $ B	900.9
∆% to 2011	-35.5
Jan-Sep 2005 $ B	847.1
∆% to 2011	-31.4
Jan-Sep 2003	677.8
∆% to 2011	-14.3

Source: http://www.census.gov/const/C30/release.pdf

http://www.census.gov/const/C30/pr201009.pdf

http://www.census.gov/const/C30/pr200709.pdf

http://www.census.gov/const/C30/pr200609.pdf

http://www.census.gov/const/C30/pr200409.pdf

Monthly construction spending in the US in the month of Sep not seasonally adjusted is shown in Table 36 for the years between 2002 and 2011. The values of $74.7 billion in 2010 and $73.3 billion in 2011 are lower than $76.5 billion in 2002.

Table 36, US, Value of Construction Spending NSA Millions of Dollars

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sep 76,542 83,841 92,538 103,269 104,191 105,150 96,755 81,213 74,669 73,158

Source: http://www.census.gov/const/www/c30index.html

Chart 40 of the US Bureau of the Census shows SAARs of construction spending for the US since 1993. Construction spending surged in nearly vertical slope after the stimulus of 2003 combining near zero interest rates and subsequent slow adjustment in 17 doses of increases by 25 basis points between Jun 2004 and Jun 2006 together with other housing subsidies. Construction spending collapsed after subprime mortgages became unviable with the fed funds rate increasing from 1.00 percent in Jun 2004 to 5.25 percent in Jun 2006. Subprime mortgages were programmed for refinancing in two years after increases in homeowner equity in the assumption that fed funds rates would remain low forever or increase in small increments (Gorton 2009EFM see http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Price declines of houses or even uncertainty prevented refinancing of subprime mortgages that defaulted, causing the financial crisis that eventually triggered the global recession.

Chart 40, US, Construction Expenditures SAAR 1993-2011

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr050.html

Construction spending at SAARs in the quarter Jul to Sep is shown in Table 37 for the years between 2002 and 2011. There is a peak in 2006 to 2007 with subsequent collapse of SAARs.

Table 37, US, Value of Construction Spending Seasonally Adjusted Annual Rate Millions of Dollars

Year	Sep	Aug	Jul
2002	832,134	839,008	847,129
2003	911,589	901,839	891,264
2004	1,012,290	1,013,724	1,006,119
2005	1,31,739	1,119,782	1,109,691
2006	1,151,104	1,158,193	1,165,093
2007	1,165,162	1,160,593	1,154,018
2008	1,056,666	1,057,459	1,066,919
2009	880,259	889,643	899,601
2010	797,259	791,749	788,993
2011	787,211	786,024	773,296

Source: http://www.census.gov/const/www/c30index.html

Annual available data for the value of construction put in place in the US between 1993 and 2010 are provided in Table 38. Data from 1993 to 2001 are available for public and private construction with breakdown in residential and nonresidential only for private construction. Data beginning in 2002 provide aggregate residential and nonresidential values. Total construction value put in place in the US increased 65.5 percent between 1993 and 2010 but most of the growth, 65.3 percent, concentrated in 1993 to 2000 with growth of only 0.1 percent between 2000 and 2010. Total value of construction fell 5.2 percent between 2002 and 2010 with value of nonresidential construction increasing 24.4 percent while value of residential construction fell 38.1 percent. Value of total construction fell 29.5 percent between 2005 and 2010, with value of residential construction declining 38.1 percent while value of nonresidential construction rose 14.0 percent. Value of total construction fell 31.2 percent between 2006 and 2010, with value of nonresidential construction increasing 1.4 percent while value of residential construction fell 59.9 percent. In 2002, nonresidential construction had a share of 52.6 percent in total construction while the share of residential construction was 47.4 percent. In 2010, the share of nonresidential construction in total value rose to 69.1 percent while that of residential construction fell to 30.9 percent

Table 38, Annual Value of Construction Put in Place 1993-2010, Millions of Dollars and ∆% 

	Total	Private Nonresidential	Private Residential
1993	485,548	150,006	208,180
1994	531,892	160,438	241,033
1995	548,666	180,534	228,121
1996	599,693	195,523	257,495
1997	631,853	213,720	264,696
1998	688,515	237,394	296,343
1999	744,551	249,167	326,302
2000	802,756	275,293	346,138
2001	840,249	273,922	364,414
	Total	Total Nonresidential	Total Private Residential
2002	847,874	445,914	401,960
2003	891,497	440,246	451,251
2004	991,356	452,948	538,408
2005	1,140,136	486,629	617,507
2006	1,167,222	547,408	619,814
2007	1,152,351	651,883	500,468
2008	1,067,564	709,818	357,746
2009	903,201	649,273	253,928
2010	803,621	554,915	248,706
∆% 1993-2010	65.5
∆% 1993-2000	65.3
∆% 2000-2010	0.1
∆% 2002-2010	-5.2	24.4	-38.1
∆% 2005-2010	-29.5	14.0	-59.7
∆% 2006-2010	-31.2	1.4	-59.9

Source: http://www.census.gov/const/www/c30index.html

VB Japan. The strong yen and weak world economic growth are beginning to affect manufacturing in Japan. The Markit/JMMA Purchasing Managers’ Index^™ for Oct, released on Nov 3, registered an increase in the Composite Output Index from 47.0 in Sep to 52.4 in Oct, which is the highest reading since beginning of data gathering in Sep 2007 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8788). The V-shaped recovery from the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 is continuing. Alex Hamilton, economist at Markit and author of the report, find new growth in Japan’s private sector in Oct, reversing seven months of reduction. There is expansion of both manufacturing and services.

Table JPY provides the country data table for Japan followed with any indicators released in the week of Nov 4.

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 ∆% 0.0 12 months ∆% 0.0 Blog 10/30/11
Consumer Price Index	Sep SA ∆% 0.0 Sep 12 months NSA ∆% 0.0 Blog 10/30/11
Real GDP Growth	IIQ2011 ∆%: –0.5 on IQ2011;  ∆% from quarter a year earlier: –1.1% Blog 09/11/11
Employment Report	Sep Unemployed 2.75 million Change in unemployed since last year: minus 650 thousand Unemployment rate: 4.2% Blog 10/30/11
All Industry Index	Aug month SA ∆% -0.5 12 months NSA ∆% 0.0 Blog 10/23/11
Industrial Production	Sep SA month ∆%: -4.0 12 months NSA ∆% -4.0 Blog 10/30/11
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	Sep 12 months: Total ∆%: 0.1 Wholesale ∆%: 0.6 Retail ∆%: -1.2 Blog 10/30/11
Family Income and Expenditure Survey	Sep 12 months ∆% total nominal consumption minus 1.9, real minus 1.9 Blog 10/30/11
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: 10/23/11 http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html

10/16/11 http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html

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

VC China. The HSBC China PMI^™ Composite Output Index registered 52.5 in Oct from 52.6 in Sep, which is the highest since May (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8774). Hongbin Qu, Chief Economist, China & Co-head of Asian Economic Research at HSBC, finds strength in the Chinese economy with the second consecutive month of growth resulting from new orders. Manufacturing strength is likely to be complemented with policy measures to promote growth of services by reduction of value added taxes. 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	Sep 12 month ∆%: 13.8 Sep 2011/Sep 2010 ∆%: 13.8 Blog 10/23/11
GDP Growth Rate	Year IIIQ2011 ∆%: 9.1 Quarter IIQ2011 ∆%: 2.2 Blog 10/23/11
Investment in Fixed Assets	Total Jan-Sep ∆%: 24.9 Jan-Sep ∆% real estate development: 32.0 Blog 10/23/11
Retail Sales	Sep month ∆%: 1.3 Sep 12 month ∆%: 17.7 Jan-Sep ∆%: 17.0 Blog 10/23/11
Trade Balance	Sep balance $14.51 billion Exports ∆% 17.1 Imports ∆% 30.9 Blog 10/16/11

Links to blog comments in Table CNY: 10/23 http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html

10/16 http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html

VD Euro Area. The Markit Eurozone PMI^® Composite Output Index of Manufacturing and Services, which is closely associated with euro zone GDP, fell further into contraction territory in Oct to 46.5 from 49.1 in Sep with the highest percentage point drop of 2.6 percent since Nov 2008 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8764). Chris Williamson, Chief Economist at Markit, finds increasing risk of a new recession in the euro zone in the fourth quarter if there is no increase in new business in Nov (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8764). Germany is showing signs of stagnation. France, Italy and Spain are showing output decline. The data for Italy suggest GDP contraction in Oct at the quarterly rate in excess of 1.0 percent with France declining at 0.7 percent and Spain at 0.3 percent. Table EUR provides the regional data table for the euro area.

Table EUR, Euro Area Economic Indicators

GDP	IIQ2011 ∆% 0.2; IIQ2011/IIQ2010 ∆% 1.6 Blog 09/11/11
Unemployment	Sep 2011: 10.2% unemployment rate Sep 2011: 16.198 million unemployed Blog 11/04/11
HICP	Sep month ∆%: 0.8 12 months Sep ∆%: 3.0 Blog 10/16/11
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 94.8 Oct 2011 down from 107 in Dec 2010 Confidence minus 19.9 Oct 2011 down from minus 11 in Dec 2010 Blog 10/30/11
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: 10/30 http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html

10/23/11 http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html

10/16/11 http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html

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

Eurostat reported an increase of the rate of unemployment in the euro area of 10.2 percent in Sep as shown in Table 39. The number of unemployed was 16.198 million in Sep, which is higher by 329,000 than in Sep 2010.

Table 39, Euro Area, Unemployment Rate and Number of Unemployed, % and Millions

	Unemployment Rate %	Number Unemployed Millions
Sep 2011	10.2	16.198
Aug	10.1	15.739
Jul	10.1	15.777
Jun	10.0	15.696
May	10.0	15.672
Apr	9.9	15.608
Mar	10.0	15.653
Feb	10.0	15.665
Jan	10.0	15.704
Sep 2010	10.1	15.869

Source: 

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-31102011-BP/EN/3-31102011-BP-EN.PDF

Table 40 provides the euro area harmonized index of consumer prices, rate of unemployment and GDP growth from 1999 to 2011. The gains in reducing the rate of unemployment to 7.6 percent by 2007 were eroded by the global recession with increase of the rate of unemployment to more than 10.0 percent. GDP growth is stalling at the margin with significant differences in the economies of member countries.

Table 40, Euro Area, HICP, Rate of Unemployment and GDP

	Harmonized Index of Consumer Prices ∆%	Rate of Unemployment %	GDP ∆%
2011	3.0	10.2	1.6*
2010	1.6	10.1	1.8
2009	0.3	9.6	-4.1
2008	3.3	7.6	0.4
2007	2.1	7.6	2.8
2006	2.2	8.5	3.1
2005	2.2	9.2	1.7
2004	2.2	9.0	2.2
2003	2.1	8.9	0.8
2002	2.3	8.5	0.9
2001	2.4	8.1	1.9
2000	2.2	8.5
1999	1.2	9.4

*EUROSTAT Forecast; HICP flash for Oct 2011

Source: http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-31102011-AP/EN/2-31102011-AP-EN.PDF

VE Germany. The Markit Germany PMI^® Composite Output Index, which is closely associated with German GDP, fell to 50.3 in Oct from 50.5 in Sep (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8751). Growth of the Composite Output Index is the weakest since beginning of the recovery in Aug 2009. Tim Moore, Senior Economist at Markit and author of the report (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8751), finds output close to stagnation. If decline in new orders continues, the economy could ease into contraction. Table DE provides the country 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
Producer Price Index	Sep month ∆%: 0.4 12 months NSA ∆%: 5.5 Blog 10/23/11
Industrial Production	Aug month SA ∆%: minus 1.0 12 months NSA: 12.2 Blog 10/09/11
Machine Orders	Sep month ∆%: -4.3 Sep 12 months ∆%: 2.4 Blog 11/04/11
Retail Sales	Sep Month ∆% 0.3 12 Months ∆% 0.4 Blog 11/04/11
Employment Report	Employment Accounts: Sep Employed 12 months NSA ∆%: 1.1 Labor Force Survey: Aug Unemployment Rate: 5.2% Blog 11/04/11
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: 10/30/11 http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html

10/16/11 http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html

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

Germany has been successful in increasing the number of people employed as shown in the employment accounts in Table 41. Increase in employment has been flat in Aug and Sep after increasing at the rate of 0.1 percent in every month since Dec. Without seasonal adjustment, employment has been increasing above 1 per cent relative to the same month a year earlier.

Table 41, Germany, People Employed, whose Place of Residence is in Germany, Employment Accounts

	# Employed NSA Millions	∆% 12 months	# Employed SA Millions	∆% Month/ Prior Month
Sep 2011	41.311	1.1	41.074	0.0
Aug 2011	41.042	1.2	41.065	0.0
Jul	40.995	1.3	41.064	0.1
Jun	40.994	1.3	41.031	0.1
May	40.939	1.3	40.983	0.1
Apr	40.838	1.4	40.945	0.1
Mar	40.649	1.4	40.891	0.1
Feb	40.546	1.5	40.858	0.1
Jan	40.494	1.3	40.820	0.1
Dec 2010	40.891	1.1	40.742	0.1
Dec 2009	40.447	-0.2	40.301	0.0
Jan 2009	40.111	-1.0	40.403	0.1

Note: “Results of employment accounts as part of national accounting: persons in employment whose place of residence is in Germany (resident concept).”

Source: Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2011/11/PE11__405__132,templateId=renderPrint.psml

Employment creation fluctuated without a trend between 2003 and 2006, as shown in Chart 41 of the Statistiche Bundesamt Deutschland, which is the Federal Statistical Agency of Germany. There was a sharp upward trend in 2007 and 2008 interrupted by the global recession in 2009. The sharp upward trend resumed throughout the current recovery.

Chart 41, Germany, People Employed, Unadjusted, Millions

Source: Statistisches Bundesamt Deutschland

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

Chart 42 of the Statistiche Bundesamt Deutschland, which is the Federal Statistical Agency of Germany, provides unadjusted employment and trend. There is a clear upward trend before the recession followed by stability and then resumption of the upward trend as Germany rips benefits of increasing productivity.

Chart 42, Germany, Persons Engaged in Economic Activity, Thousands, Nonadjusted Value and Trend

Source: Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/LabourMarket/Content100/karb811graf0.psml

Data from the labor force survey of Germany are in Table 42. Unemployment fell 11,2 percent from 2.50 million in Aug 2011 to 2.22 million in Sep 2011, which is lower by 18.9 percent than 2.74 million unemployed in Sep 2010. The rate of unemployment fell from 5.9 percent in Aug 2011 to 5.2 percent in Sep, which is significantly lower than 6.6 percent in Sep 2010. The employment rate rose from 61.8 percent of the population in Sep 2010 to 64 percent in Sep 2011. Seasonally adjusted, the rate of unemployment fell from 5.9 percent in Aug 2011 to 5.8 percent in Sep 2011, much lower than 6.8 percent a year earlier in Sep 2010.

Table 42, Germany, Unemployment Labor Force Survey

	Sep 2011	Aug 2011	Sep 2010
NSA
Number Unemployed Millions	2.22 ∆% Aug 2011: -11.2 ∆% Sep 2010: –18.9	2.50	2.74
% Rate Unemployed	5.2	5.9	6.6
Persons in Employment	40.28 ∆% Sep 2011: 1.5 ∆% Sep 2010: 3.4	39.70	38.96
Employment Rate	64.0 ∆% Aug 2011 1.6 ∆ Sep 2010 3.6	63.0	61.8
SA
Number Unemployed Millions	2.44 ∆% Aug 2011: –1.2 ∆% Sep 2010: –13.5	2.47	2.82
% Rate Unemployed	5.8	5.9	6.8
Persons in Employment	39.73 ∆% Aug 2011: 0.2 ∆% Sep 2010: 2.3	39.67	38.71

NSA: not seasonally adjusted; SA: seasonally adjusted

Source: Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/press/pr/2011/11/PE11__405__132,templateId=renderPrint.psml

Several tables and charts facilitate analysis of machinery orders in Germany. Table 43 reveals strong fluctuations in an evident deceleration of total orders for industry of Germany. The same behavior is observed for foreign and domestic orders. An important aspect of Germany is that the bulk of orders is domestic or from other European countries while foreign orders have been growing rapidly.

Table 43, Germany, Volume of Orders Received in Manufacturing, Total, Domestic and Foreign, ∆%

	Total 12 M	Total M	Foreign 12 M	Foreign M	Home 12 M	Home M
2011
Sep	2.4	-4.3	1.4	-5.4	3.5	-3.0
Aug	6.5	-1.4	4.3	0.3	9.3	-3.2
Jul	5.7	-2.4	5.3	-7.0	6.1	3.7
Jun	2.9	0.8	6.2	11.0	-1.2	-10.1
May	22.5	1.9	15.7	-6.0	30.5	10.7
Apr	7.3	2.9	10.5	3.5	3.4	2.2
Mar	8.8	-2.7	11.6	-2.8	5.5	-2.6
Feb	21.1	1.8	24.8	1.6	16.9	2.1
Jan	20.1	2.4	23.6	0.9	16.0	4.3
AE ∆%
2010
Dec	22.2	-2.9	27.3	-3.0	15.8	-2.9
Nov	21.5	4.9	26.8	7.6	15.6	1.7
Oct	14.1	1.7	17.7	1.4	10.4	2.0
Sep	13.9	-2.8	16.0	-4.9	11.6	-0.2
Aug	23.5	3.3	31.9	6.5	14.4	-0.5
Jul	14.2	-1.9	21.7	-3.4	6.3	-0.2
Jun	28.5	3.3	32.0	5.4	24.3	0.9
May	24.4	0.5	28.9	1.0	19.9	-0.1
Apr	29.3	2.7	33.0	2.7	25.2	2.5
Mar	29.4	5.6	32.3	6.2	26.4	5.0
Feb	23.4	-0.7	27.6	-0.7	18.6	-0.8
Jan	16.7	4.7	23.6	4.4	9.7	5.2
Dec 2009	9.2	-2.1	10.6	-2.4	7.4	-1.7
Dec 2008	-28.2	-7.2	-31.5	-9.8	-23.7	-4.0
Dec 2007	7.1	-1.5	9.1	-2.4	4.5	-0.5
Dec 2006	2.9	0.3	3.4	0.0	2.2	0.5
Dec 2005	4.9	-0.9	10.5	-1.6	-1.5	0.0
Dec 2004	12.7	6.6	12.9	8.4	12.7	4.9
Dec 2003	10.7	2.4	16.4	5.4	5.1	-0.8
Dec 2002	-0.2	-3.4	-0.8	-6.6	0.2	-0.3

Notes: AE: Annual Equivalent; M: Month; M: Calendar and seasonally-adjusted; 12 M: Non-adjusted

Source:

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

Orders for investment goods of Germany are shown in Table 44. The same behavior as for total orders is observed in the form of declining orders from all sources. Domestic orders fell 3.7 percent in Aug and another 2.9 percent in Sep. Foreign orders fell 5.6 in Sep and total orders fell 4.6 percent. An important aspect of Germany’s economy shown in Tables 43 and 44 is the success in increasing the competitiveness of its economic activities as shown by rapid growth of orders for industry after the recession of 2001 in the period before the global recession beginning in late 2007.

Table 44, Germany, Volume of Orders Received of Investment Goods Industries, Total, Foreign and Domestic, ∆%

	Total 12 M	Total M	Foreign 12 M	Foreign M	Home 12 M	Home M
2011
Sep	2.8	-4.6	1.9	-5.6	4.6	-2.9
Aug	6.0	-1.1	3.1	0.4	10.2	-3.7
Jul	8.5	-6.3	7.7	-12.3	9.6	3.6
Jun	7.1	3.1	10.6	20.6	1.2	-14.8
May	26.8	2.8	17.9	-8.3	40.4	19.0
Apr	11.8	5.0	15.6	6.6	6.3	2.2
Mar	10.7	-5.3	13.7	-4.9	6.5	-6.1
Feb	28.9	3.5	32.8	3.4	23.1	3.8
Jan	24.3	1.4	28.6	0.9	17.9	2.6
2010
Dec	27.3	-4.6	31.0	-6.2	21.3	-2.1
Nov	30.1	8.1	35.9	11.7	21.5	2.2
Oct	20.6	1.7	23.9	1.0	16.0	4.0
Sep	18.1	-3.9	20.4	-8.1	14.6	-0.2
Aug	29.3	6.8	42.8	11.4	12.0	1.4
Jul	14.1	-4.7	28.4	-7.4	-2.3	-1.3
Jun	33.5	5.6	41.3	10.8	22.2	0.7
May	25.9	2.0	35.6	1.4	13.6	2.5
Apr	30.1	2.2	40.1	3.0	17.4	0.6
Mar	26.2	7.5	33.8	8.4	16.1	5.7
Feb	20.3	-1.9	30.3	-1.5	8.1	-2.5
Jan	16.9	4.6	29.5	3.7	2.5	6.6
Dec 2009	8.1	-1.4	13.6	-1.8	0.5	-0.8
Dec 2008	-32.2	-7.6	-36.7	-10.7	-24.4	-3.1
Dec 2007	9.6	-0.6	11.6	-2.0	6.3	2.7
Dec 2006	3.6	1.8	3.8	2.3	3.1	1.9
Dec 2005	1.9	-2.8	9.8	-3.6	-8.5	-1.3
Dec 2004	19.4	11.2	18.6	12.2	20.5	9.8
Dec 2003	11.7	2.1	17.2	5.0	5.4	-1.6
Dec 2002	-2.8	-4.3	-3.7	-8.1	-1.8	0.2

Notes: AE: Annual Equivalent; M: Month; M: Calendar and seasonally-adjusted; 12 M: Non-adjusted

Source:

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

Chart 43 of the German Statistisches Bundesamt Deutschland shows the sharp upward trend of total orders in manufacturing before the global recession. There is also an obvious upward trend in the recovery from the recession with Germany’s economy being among the most dynamic in the advanced economies until the slowdown in 2011.

Chart 43, Germany, Volume of Total Orders in Manufacturing, Non-Adjusted, 2005=100

Source: Statistisches Bundesamt Deutschland

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

Chart 44 of the German Statistisches Bundesamt Deutschland provides a trend curve. The final segment on the right could be the beginning of flattening of the trend curve but it is early to reach conclusions.

Chart 44, Germany, Volume of Total Orders in Manufacturing and Trend, Non-Adjusted, 2005=100

Source: Statistisches Bundesamt Deutschland

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/OrdersRecieved/Content100/kae211graf0.psml

Finally, Table 45 provides the volume of orders in manufacturing in the 12 months ending in Sep in the years from 2002 to 2011. The data show the dynamism of Germany under a new competitiveness strategy in the years before the global recession. Germany recovered sharply from the global recession also enjoying sound fiscal management. The global slowdown and the sovereign problems in the euro area are now challenging that dynamism.

Table 45, Germany, Volume of Total Orders Received in Manufacturing, ∆%

	12 Months ∆% Non-adjusted	Month ∆% Seasonally and Calendar Adjusted
Sep 2011	2.4	-4.3
Sep 2010	13.9	-2.8
Sep 2009	-12.5	2.5
Sep 2008	-4.0	-7.4
Sep 2007	3.0	-0.3
Sep 2006	5.2	-1.9
Sep 2005	7.5	3.0
Sep 2004	5.5	1.8
Sep 2003	4.4	2.0
Sep 2002	7.4	-1.4

Source:

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

Retail sales in Germany adjusted for inflation are provided in Table 46. There have been sharp fluctuations in monthly and 12 months percentage changes. Retail sales dropped 2.7 percent in Aug, increasing 0.4 percent in Sep 2011, rising 0.3 percent over Sep 2010.

Table 46, Retail Sales in Germany Adjusted for Inflation

	12 Months ∆%	Month ∆%
Sep	0.3	0.4
Aug	2.5	-2.7
Jul	-1.8	0.3
Jun	-2.3	3.9
May	4.7	-1.7
Apr	5.0	0.3
Mar	-2.6	-1.1
Feb	2.5	-0.3
Jan	3.0	1.5
Dec 2010	0.5	0.7
Dec 2009	-2.2
Dec 2008	3.3
Dec 2007	-6.2
Dec 2006	1.3

Source: Statistiche Bundesamt Deutschland, Federal Statistical Office of Germany

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/RetailTrade/Content100/kums331x12,templateId=renderPrint.psml

Chart 45 of the Statistiche Bundesamt Deutschland, Federal Statistical Office of Germany, provides 12 months percentage changes of real retail sales in Germany from 2007 to 2011. Sharp declines occurred during the global recession between 2007 and 2009. Sales rebounded in 2010 and have increased in 2011 but with some declines in individual months.

Chart 45, Germany, Percentage Change of Retail Sales at Constant Prices from the Same Month a Year Earlier

Source: Statistiche Bundesamt Deutschland, Federal Statistical Office of Germany

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/TimeSeries/EconomicIndicators/RetailTrade/Content100/kums331graf6.psml

VF France. The Markit France PMI^® Composite Output Index registered the deepest contraction in 30 months, falling from 50.2 in Sep to 45.6 in Oct (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8775). Jack Kennedy, Senior Economist at Markit and author of the report (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8775), finds that activity of the private sector in France fell for the first time since Jul 2009 as a result of declining demand and effects of the sovereign debt crisis. The economy could be moving toward contraction. Table FR provides the country data table for France.

Table FR, France, Economic Indicators

CPI	Sep month ∆% -0.1 12 months ∆%: 2.2 10/16/11
PPI	Sep month ∆%: 0.2 Sep 12 months ∆%: 6.1 Blog 11/04/11
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
Industrial New Orders	Mfg Aug/Jul ∆% 0.6 YOY ∆% 10.7 Blog 10/23/11
Consumer Spending	Sep Manufactured Goods ∆%: minus 0.2 Sep 12 Months Manufactured Goods ∆%: minus 1.0 Blog 10/30/11
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 Oct: France 95 Mfg Business Climate 97 Retail Trade 94 Services 94 Building 99 Blog 10/23/11

Links to blog comments in Table FR: 10/30 http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html

10/23/11 http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html

10/16/11 http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html

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

VG Italy. The seasonally adjusted Markit/ADACI Business Activity Index of the Markit/ADACI Italy Services PMI^® fell from 45.8 in Sep to 43.9 in Oct for the fifth consecutive month of decline (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8785). Phil Smith, economist at Markit and author of the report (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8785), finds confirmation in the index of optimism in expectation for a year forward that coincide with the measurement in official data. 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	Oct month ∆%: 0.6 Oct 12 months ∆%: 3.4 Blog 11/04/11
Producer Price Index	Sep month ∆%: 0.2 Sep 12 months ∆%: 4.7 Blog 11/04/11
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	Aug month ∆%: 0.0 Aug 12 months ∆%: minus 0.3 Blog 10/30/11
Business Confidence	Mfg Oct 94.0, Jun 100.1 Construction Sep 78.6, Jun 74.5 Blog 10/30/11
Consumer Confidence	Consumer Confidence Oct 92.9, Jun 102.0 Economy Aug 75.6, Jun 92.3 Blog 10/30/11
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: 10/30 http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html

10/23/11 http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html

10/16/11 http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html

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

VH United Kingdom. The Markit/CIPS UK Services PMI^® Business Activity Index fell from 52.9 in Sep to 51.3 in Oct, indicating continuing expansion at slower pace (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=8777). Chris Williamson, Chief Economist at Markit, finds that growth is weak in the services sector, which generates two-thirds of economic activity in the United Kingdom. The risk of recession in the UK originates in contraction in manufacturing with weakness in services. Table UK provides the data table for the United Kingdom.

Table UK, UK Economic Indicators

CPI	Sep month ∆%: 0.6 Sep 12 months ∆%: 5.2 Blog 10/23/11
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	IIIQ2011 prior quarter ∆% 05; year earlier same quarter ∆%: 0.5 Blog 11/04/11
Industrial Production	Aug 2011/Aug 2010 NSA ∆%: Industrial Production -1.0; Manufacturing 1.5 Blog 10/16/11
Retail Sales	Sep month SA ∆%: 0.6 Sep 12 months ∆%: 0.6 Blog 10/23/11
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: 10/30 http://cmpassocregulationblog.blogspot.com/2011/10/slow-growth-driven-by-reducing-savings.html

10/23/11 http://cmpassocregulationblog.blogspot.com/2011/10/properity-without-inflation-world.html

10/16/11 http://cmpassocregulationblog.blogspot.com/2011/10/odds-of-slowdown-or-recession-united.html

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

The UK Office for National Statistics has revised the national accounts since 1998 (http://www.ons.gov.uk/ons/rel/naa2/quarterly-national-accounts/impact-of-changes-in-national-accounts-and-economic-commentary-for-q2-2011/index.html). The new data are analyzed here. Table 47 provides quarter on quarter chained value measures of GDP since 2001. Growth in IIQ2011 was reduced to 0.1 percent. The advance estimate for IIIQ2011 is higher at 0.5 percent. Recovery in the UK has been subdued relative to the rates prevailing before the global recession. Most advanced economies are underperforming relative to the period before the global recession.

Table 47, UK, Percentage Change of GDP from Prior Quarter, Chained Value Measures ∆%

	IQ	IIQ	IIIQ	IV
2011	0.4	0.1	0.5
2010	0.2	1.1	0.6	-0.5
2009	-1.6	-0.2	0.2	0.7
2008	0.0	-1.3	-2.0	-2.3
2007	1.1	1.2	1.2	0.6
2006	0.8	0.4	0.2	0.7
2005	0.3	0.8	0.8	0.8
2004	0.8	0.4	0.1	0.5
2003	0.7	1.2	1.0	1.2
2002	0.8	0.7	0.8	0.7
2001	1.4	0.4	0.7	0.4
2000	1.4	1.1	0.4	0.7

Source: http://www.ons.gov.uk/ons/rel/naa2/quarterly-national-accounts/q2-2011/tsd-qna-2011-q2.html

http://www.ons.gov.uk/ons/dcp171778_238651.pdf

Revised annual data in Table 48 show the strong impact of the global recession in the UK with decline of GDP of 4.4 percent in 2009 after dropping 1.1 percent in 2008. Recovery of 1.8 percent is relatively low compared to annual growth rates in 2007 and earlier years.

Table 48, UK, Revised National Accounts GDP Growth ∆%

	∆% on Prior Year
1998	3.8
1999	3.7
2000	4.5
2001	3.2
2002	2.7
2003	3.5
2004	3.0
2005	2.1
2006	2.6
2007	3.5
2008	-1.1
2009	-4.4
2010	1.8

Source: http://www.ons.gov.uk/ons/rel/naa2/quarterly-national-accounts/impact-of-changes-in-national-accounts-and-economic-commentary-for-q2-2011/index.html

Table 49 provides percentage changes from the prior quarter of UK GDP and gross value added by components. Total indices of production grew at high rates of 1.2 percent in IIQ2010 and 1.3 percent in IQ2010 but there were declines of 1.2 percent in IIQ2011 and 0.1 percent in IQ2011. Services have grown somewhat more consistently, providing an important cushion for generation of economic activity in the UK.

Table 49, UK, GDP and Gross Value Added by Components, ∆% on Prior Quarter 

	GDP	Total Production	CONS	Services
IIIQ11	0.5	0.5	-0.6	0.7
IIQ11	0.1	-1.2	1.1	0.2
IQ11	0.4	-0.1	-2.7	0.7
IVQ10	-0.5	0.1	-1.8	-0.4
IIIQ10	0.6	0.3	3.2	0.4
IIQ10	1.1	1.2	8.2	0.4
IQ10	0.2	1.3	0.9	-0.1

Note: CONS: construction

Source: http://www.ons.gov.uk/ons/dcp171778_238651.pdf

Chart 46 of the UK Office for National Statistics provides output indices chained value measures (CVM). The contraction in manufacturing was much stronger than in services that softened the impact on overall output.

Chart 46, UK, Output Indices

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/naa2/quarterly-national-accounts/q2-2011/index.html

The breakdown of growth of production and services in IIIQ2011 in the UK relative to the prior quarter and to the same quarter a year earlier is provided in Table 50. While agriculture, forestry and fishing fell 0.5 percent in IIIQ2011 relative to IIIQ2010 and mining and quarrying fell 14.6 percent, manufacturing increased 2.1 percent. There was growth in all categories of services relative to the earlier quarter and to the same quarter a year earlier. While total indices of production fell 0.7 percent in IIIQ2011 relative to IIIQ2010 and construction fell 4.0 percent, services increased 1.2 percent.

Table 50, UK, Gross Domestic Product by Gross Value Added, Chained Volume Measures of Industry Output at Basic Prices, ∆%

IIIQ2011	∆% on Prior Quarter	∆% on Same Quarter Year Earlier
Agriculture, Forestry & Fishing	0.4	-0.5
Mining & Quarrying	0.9	-14.6
Manufacturing	0.2	2.1
Electricity, Gas, Steam & Air	2.3	0.7
Water Supply, Sewerage, etc.	-0.3	1.1
TOTAL INDICES OF PRODUCTION	0.5	-0.7
CONSTRUCTION	-0.6	-4.0
Distribution, Hotels & Restaurants	0.4	0.8
Transport, Storage & Communications	0.9	1.9
Business Services & Finance	0.8	1.0
Government & Other Services	0.5	1.4
TOTAL SERVICES	0.7	1.2
GDP	0.5	0.5

Source: http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-236742

GDP uses at chained value measures at provided in Table 51. The UK is experiencing weak internal demand as in most advanced economies. While gross fixed capital formation has fluctuated with some good quarters, household expenditure has been negative in four consecutive quarters.

Table 51, UK, GDP Uses at Chained Volume Measures ∆%

	GDP	Household Expenditure	Gross Fixed Capital Formation
IIQ2011	0.1	-0.8	1.7
IQ2011	0.4	-0.6	-2.8
IVQ2010	-0.5	-0.1	-0.5
IIIQ2010	0.6	-0.2	1.1
IIQ2010	1.1	0.6	-2.1
IQ2010	0.2	0.0	4.3

Source: http://www.ons.gov.uk/ons/rel/naa2/quarterly-national-accounts/q2-2011/index.html

Growth of UK GDP from the same quarter a year earlier at chained value measures in shown in Table 52. Growth in IIQ2011 relative to IIQ2010 was only 0.6 percent. The rates of growth during the recovery in 2010 and 2011 have been much lower than rates of growth in 2007 and earlier years.

Table 52, UK, Percentage Change of GDP from Same Quarter a Year Earlier, Chained Value Measures ∆%

	IQ	IIQ	IIIQ	IV
2011	1.6	0.6	0.5
2010	0.9	2.2	2.6	1.3
2009	-6.9	-5.9	-3.8	-0.8
2008	3.1	0.6	-2.6	-5.4
2007	2.4	3.2	4.2	4.1
2006	3.3	2.9	2.2	2.1
2005	1.3	1.7	2.5	2.8
2004	4.3	3.4	2.5	1.7
2003	2.9	3.4	3.6	4.2
2002	2.3	2.6	2.7	3.0
2001	3.6	2.9	3.2	2.9
2000	4.7	5.2	4.2	3.7

Source: http://www.ons.gov.uk/ons/rel/naa2/quarterly-national-accounts/q2-2011/tsd-qna-2011-q2.html

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

Table 53 shows the phenomenal impulse to valuations of risk financial assets originating in the initial shock of near zero interest rates in 2003-2004 with the fed funds rate at 1 percent, in fear of deflation that never materialized, and quantitative easing in the form of suspension of the auction of 30-year Treasury bonds to lower mortgage rates. World financial markets were dominated by monetary and housing policies in the US. Between 2002 and 2008, the DJ UBS Commodity Index rose 165.5 percent largely because of the unconventional monetary policy encouraging carry trade from low US interest rates to long leveraged positions in commodities, exchange rates and other risk financial assets. The charts of risk financial assets show sharp increase in valuations leading to the financial crisis and then profound drops that are captured in Table 53 by percentage changes of peaks and troughs. The first round of quantitative easing and near zero interest rates depreciated the dollar relative to the euro by 39.3 percent between 2003 and 2008, with revaluation of the dollar by 25.1 percent from 2008 to 2010 in the flight to dollar-denominated assets in fear of world financial risks and then devaluation of the dollar by 15.7 percent by Fri Nov 4, 2011. Dollar devaluation is a major vehicle of monetary policy in reducing the output gap that is implemented in the probably erroneous belief that devaluation will not accelerate inflation, misallocating resources toward less productive economic activities and disrupting financial markets. The last row of Table 53 shows CPI inflation in the US rising from 1.9 percent in 2003 to 4.1 percent in 2007 even as monetary policy increased the fed funds rate from 1 percent in Jun 2004 to 5.25 percent in Jun 2006.

Table 53, Volatility of Assets

DJIA	10/08/02-10/01/07	10/01/07-3/4/09	3/4/09- 4/6/10
∆%	87.8	-51.2	60.3
NYSE Financial	1/15/04- 6/13/07	6/13/07- 3/4/09	3/4/09- 4/16/07
∆%	42.3	-75.9	121.1
Shanghai Composite	6/10/05- 10/15/07	10/15/07- 10/30/08	10/30/08- 7/30/09
∆%	444.2	-70.8	85.3
STOXX EUROPE 50	3/10/03- 7/25/07	7/25/07- 3/9/09	3/9/09- 4/21/10
∆%	93.5	-57.9	64.3
UBS Com.	1/23/02- 7/1/08	7/1/08- 2/23/09	2/23/09- 1/6/10
∆%	165.5	-56.4	41.4
10-Year Treasury	6/10/03	6/12/07	12/31/08	4/5/10
%	3.112	5.297	2.247	3.986
USD/EUR	6/26/03	7/14/08	6/07/10	11/04  /2011
Rate	1.1423	1.5914	1.192	1.379
CNY/USD	01/03 2000	07/21 2005	7/15 2008	11/04 2011
Rate	8.2798	8.2765	6.8211	6.341
New House	1963	1977	2005	2009
Sales 1000s	560	819	1283	375
New House	2000	2007	2009	2010
Median Price $1000	169	247	217	203
	2003	2005	2007	2010
CPI	1.9	3.4	4.1	1.5

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

http://www.census.gov/const/www/newressalesindex_excel.html

http://federalreserve.gov/releases/h10/Hist/dat00_eu.htm

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

http://federalreserve.gov/releases/h10/Hist/dat00_ch.htm

Table 54 extracts four rows of Table 53 with the Dollar/Euro (USD/EUR) exchange rate and Chinese Yuan/Dollar (CNY/USD) exchange rate that reveal pursuit of exchange rate policies resulting from monetary policy in the US and capital control/exchange rate policy in China. The ultimate intentions are the same: promoting internal economic activity at the expense of the rest of the world. The easy money policy of the US was deliberately or not but effectively to devalue the dollar from USD 1.1423/EUR on Jun 26, 2003 to USD 1.5914/EUR on Jul 14, 2008, or by 39.3 percent. The flight into dollar assets after the global recession caused revaluation to USD 1.192/EUR on Jun 7, 2010, or by 25.1 percent. After the temporary interruption of the sovereign risk issues in Europe from Apr to Jul, 2010, shown in Table 56 below, the dollar has devalued again to USD 1.415/EUR or by 15.7 percent. Yellen (2011AS, 6) admits that Fed monetary policy results in dollar devaluation with the objective of increasing net exports, which was the policy that Joan Robinson (1947) labeled as “beggar-my-neighbor” remedies for unemployment. China fixed the CNY to the dollar for a long period at a highly undervalued level of around CNY 8.2765/USD until it revalued to CNY 6.8211/USD until Jun 7, 2010, or by 17.6 percent and after fixing it again to the dollar, revalued to CNY 6.341/USD on Fri Nov 4, 2011, or by an additional 7.0 percent, for cumulative revaluation of 23.4 percent. The Dow Jones Newswires informs on Oct 15 that the premier of China Wen Jiabao announced that the Chinese yuan will not be further appreciated to prevent adverse effects on exports (http://professional.wsj.com/article/SB10001424052970203914304576632790881396896.html?mod=WSJ_hp_LEFTWhatsNewsCollection). The policy appeared to be implemented because the rate of CNY 6.3838/USD on Oct 21, 2011, amounts to a small depreciation of 0.1 percent relative to the rate of CNY 6.379/USD a week earlier on Oct 14, 2011. The rate of CNY 6.341/USD on Fri Nov 4 amounts to appreciation of 0.3 percent in the week, which could signal continuation of the policy of appreciation. Meanwhile, the Senate of the US is proceeding with a bill on China’s trade that could create a confrontation but may not be approved by the entire Congress.

Table 54, Dollar/Euro (USD/EUR) Exchange Rate and Chinese Yuan/Dollar (CNY/USD) Exchange Rate

USD/EUR	6/26/03	7/14/08	6/07/10	11/04  /2011
Rate	1.1423	1.5914	1.192	1.379
CNY/USD	01/03 2000	07/21 2005	7/15 2008	11/04 2011
Rate	8.2798	8.2765	6.8211	6.341

Source: Table 53.

Dollar devaluation did not eliminate the US current account deficit, which is projected by the International Monetary Fund (IMF) with the new database of Sep 2011 at 3.1 percent of GDP in 2011 and at 2.2 percent of GDP in 2015, as shown in Table 55. Revaluation of the CNY has not reduced the current account surplus of China, which is projected by the IMF to increase from 5.2 percent of GDP in 2011 to 7.0 percent of GDP in 2015.

Table 55, Fiscal Deficit, Current Account Deficit and Government Debt as % of GDP and 2011 Dollar GDP

	GDP $B 2011	FD %GDP 2011	CAD %GDP 2011	Debt %GDP 2011	FD%GDP 2015	CAD%GDP 2015	Debt %GDP 2015
US	15065	-7.9	-3.1	72.6	-3.1	-2.2	86.7
Japan	5855	-8.9	2.5	130.5	-8.4	2.4	160.0
UK	2481	-5.7	-2.7	72.9	0.4	-0.9	75.2
Euro	13355	-1.5	0.1	68.6	1.5	0.5	69.3
Ger	3629	0.4	5.0	56.9	2.1	4.7	55.3
France	2808	-3.4	-2.7	80.9	-2.5	0.6	83.9
Italy	2246	0.5	-3.5	100.4	4.5	-2.0	96.7
Can	1759	-3.7	-3.3	34.9	0.3	-2.6	35.1
China	6988	-1.6	5.2	22.2	0.1	7.0	12.9
Brazil	2518	3.2	-2.3	38.6	2.9	-3.2	34.1

Note: GER = Germany; Can = Canada; FD = fiscal deficit; CAD = current account deficit

FD is primary except total for China; Debt is net except gross for China

Source: http://www.imf.org/external/pubs/ft/weo/2011/02/weodata/index.aspx

There is a new carry trade that learned from the losses after the crisis of 2007 or learned from the crisis how to avoid losses. The sharp rise in valuations of risk financial assets shown in Table 53 above after the first policy round of near zero fed funds and quantitative easing by the equivalent of withdrawing supply with the suspension of the 30-year Treasury auction was on a smooth trend with relatively subdued fluctuations. The credit crisis and global recession have been followed by significant fluctuations originating in sovereign risk issues in Europe, doubts of continuing high growth and accelerating inflation in China, events such as in the Middle East and Japan and legislative restructuring, regulation, insufficient growth, falling real wages, depressed hiring and high job stress of unemployment and underemployment in the US now with realization of growth standstill recession. The “trend is your friend” motto of traders has been replaced with a “hit and realize profit” approach of managing positions to realize profits without sitting on positions. There is a trend of valuation of risk financial assets driven by the carry trade from zero interest rates with fluctuations provoked by events of risk aversion. Table 56, which is updated for every comment of this blog, shows the deep contraction of valuations of risk financial assets after the Apr 2010 sovereign risk issues in the fourth column “∆% to Trough.” There was sharp recovery after around Jul 2010 in the last column “∆% Trough to 11/04/11,” which has been recently stalling or reversing amidst profound risk aversion. “Let’s twist again” monetary policy during the week of Sep 23 caused deep worldwide risk aversion and selloff of risk financial assets. Monetary policy was designed to increase risk appetite but instead suffocated risk exposures. Recovering risk financial assets in column “∆% Trough to 11/04/11” are in the range from 5.3 percent for Germany’s Dax and 23.7 percent for the DJIA. Michael Mackenzie and Robin Wigglesworth, writing on Oct 21, 2011, on “Us earnings tell story of resilience,” published in the Financial Times (http://www.ft.com/intl/cms/s/0/c44187d4-fb1f-11e0-bebe-00144feab49a.html#axzz1bVlVmY6d), analyze the strong earnings performance of US companies that explains the recovery of the DJIA by 23.7 percent from the trough and of the S&P 500 by 22.6 percent. Mackenzie and Wigglesworth quote S&P Capital IQ that a blended average of actual and forecast earnings on IIIQ2011 relative to IIIQ2010 could show growth of 14.6 percent. The carry trade from zero interest rates to leveraged positions in risk financial assets had proved strongest for commodity exposures but US equities have regained leadership. Before the current round of risk aversion, all assets in the column “∆% Trough to 11/04/11” had double digit gains relative to the trough around Jul 2, 2010. There are now several valuations with recovery of less than 10 percent from the trough around Jul 2: European stocks index STOXX 50 is now 0.7 percent below the trough on Jul 2, 2010; China’s Shanghai Composite is 6.1 percent above the trough; the NYSE Financial Index is 1.7 percent below the trough on Jul 2, 2010; Japan’s Nikkei Average is 0.3 percent below the trough on Aug 31, 2010 and 22.7 percent below the peak on Apr 5, 2010; Germany’s Dax is 5.3 percent above the trough on May 25, 2010; Dow Asia Pacific is 7.5 percent above the trough on Jul 2; and Dow Global is 9.2 percent above the trough on Jul 2. The Nikkei Average closed at 8801.40 on Fri Nov 4, which is 14.2 percent below 10,254.43 on Mar 11 on the date of the Great East Japan Earthquake/tsunami. Global risk aversion erased the earlier gains of the Nikkei. Germany’s DAX is 5.3 percent above the trough on Apr 25, 2010. The dollar depreciated by 15.7 percent relative to the euro and even higher before the new bout of sovereign risk issues in Europe. The column “∆% week to 11/04/2011” shows losses for all risk financial assets in Table 56 with the exception of a gain of 2.2 percent for the Shanghai Composite. There are still high uncertainties on European sovereign risks, US and world growth recession and China’s growth and inflation tradeoff. Sovereign problems in the “periphery” of Europe and fears of slower growth in Asia and the US cause risk aversion with trading caution instead of more aggressive risk exposures. There is a fundamental change in Table 56 from the relatively upward trend with oscillations since the sovereign risk event of Apr-Jul 2010. Performance is best assessed in the column “∆% Peak to 11/04/11” that provides the percentage change from the peak in Apr 2010 before the sovereign risk event to Nov 04, 2011. Most risk financial assets had gained not only relative to the trough as shown in column “∆% Trough to 11/04/11” but also relative to the peak in column “∆% Peak to 11/04/11.” There are now still only three indexes above the peak: DJIA by 6.9 percent, S&P 500 by 2.9 percent and DJ UBS Commodities Index by 3.1 percent. There are several indexes well below the peak: NYSE Financial Index (http://www.nyse.com/about/listed/nykid.shtml) by 21.7 percent, Nikkei Average by 22.7 percent, Shanghai Composite by 20.1 percent, STOXX 50 by 15.8 percent, Dow Global by 10.9 percent and Dow Asia Pacific by 5.9 percent. The factors of risk aversion have adversely affected the performance of risk financial assets. The performance relative to the peak in Apr 2010 is more important than the performance relative to the trough around early Jul because improvement could signal that conditions have returned to normal levels before European sovereign doubts in Apr 2010. The situation of risk financial assets has worsened.

Table 56, Stock Indexes, Commodities, Dollar and 10-Year Treasury  

	Peak	Trough	∆% to Trough	∆% Peak to 11/04 /11	∆% Week 11/ 04/11	∆% Trough to 11/ 04/11
DJIA	4/26/ 10	7/2/10	-13.6	6.9	-2.0	23.7
S&P 500	4/23/ 10	7/20/ 10	-16.0	2.9	-2.5	22.6
NYSE Finance	4/15/ 10	7/2/10	-20.3	-21.7	-5.8	-1.7
Dow Global	4/15/ 10	7/2/10	-18.4	-10.9	-5.3	9.2
Asia Pacific	4/15/ 10	7/2/10	-12.5	-5.9	-3.5	7.5
Japan Nikkei Aver.	4/05/ 10	8/31/ 10	-22.5	-22.7	-2.8	-0.3
China Shang.	4/15/ 10	7/02 /10	-24.7	-20.1	2.2	6.1
STOXX 50	4/15/10	7/2/10	-15.3	-15.8	-3.4	-0.7
DAX	4/26/ 10	5/25/ 10	-10.5	-5.7	-5.9	5.3
Dollar Euro	11/25 2009	6/7 2010	21.2	8.9	2.5	-15.7
DJ UBS Comm.	1/6/ 10	7/2/10	-14.5	3.1	-0.9	20.6
10-Year Tre.	4/5/ 10	4/6/10	3.986	2.066

T: trough; Dollar: positive sign appreciation relative to euro (less dollars paid per euro), negative sign depreciation relative to euro (more dollars paid per euro)

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

Bernanke (2010WP) and Yellen (2011AS) reveal the emphasis of monetary policy on the impact of the rise of stock market valuations in stimulating consumption by wealth effects on household confidence. Table 57 shows a gain by Apr 29, 2011 in the DJIA of 14.3 percent and of the S&P 500 of 12.5 percent since Apr 26, 2010, around the time when sovereign risk issues in Europe began to be acknowledged in financial risk asset valuations. The last row of Table 57 for Nov 4 shows that the S&P 500 is now 3.4 percent above the Apr 26, 2010 level and the DJIA is 6.9 percent above the level on Apr 26, 2010. Multiple rounds of risk aversion eroded the earlier gains, showing that risk aversion can destroy market value even with zero interest rates. Much the same as zero interest rates and quantitative easing have not had any effects in recovering economic activity while distorting financial markets and resource allocation.

Table 57, Percentage Changes of DJIA and S&P 500 in Selected Dates

2010	∆% DJIA from  prior date	∆% DJIA from Apr 26	∆% S&P 500 from prior date	∆% S&P 500 from Apr 26
Apr 26
May 6	-6.1	-6.1	-6.9	-6.9
May 26	-5.2	-10.9	-5.4	-11.9
Jun 8	-1.2	-11.3	2.1	-12.4
Jul 2	-2.6	-13.6	-3.8	-15.7
Aug 9	10.5	-4.3	10.3	-7.0
Aug 31	-6.4	-10.6	-6.9	-13.4
Nov 5	14.2	2.1	16.8	1.0
Nov 30	-3.8	-3.8	-3.7	-2.6
Dec 17	4.4	2.5	5.3	2.6
Dec 23	0.7	3.3	1.0	3.7
Dec 31	0.03	3.3	0.07	3.8
Jan 7	0.8	4.2	1.1	4.9
Jan 14	0.9	5.2	1.7	6.7
Jan 21	0.7	5.9	-0.8	5.9
Jan 28	-0.4	5.5	-0.5	5.3
Feb 4	2.3	7.9	2.7	8.1
Feb 11	1.5	9.5	1.4	9.7
Feb 18	0.9	10.6	1.0	10.8
Feb 25	-2.1	8.3	-1.7	8.9
Mar 4	0.3	8.6	0.1	9.0
Mar 11	-1.0	7.5	-1.3	7.6
Mar 18	-1.5	5.8	-1.9	5.5
Mar 25	3.1	9.1	2.7	8.4
Apr 1	1.3	10.5	1.4	9.9
Apr 8	0.03	10.5	-0.3	9.6
Apr 15	-0.3	10.1	-0.6	8.9
Apr 22	1.3	11.6	1.3	10.3
Apr 29	2.4	14.3	1.9	12.5
May 6	-1.3	12.8	-1.7	10.6
May 13	-0.3	12.4	-0.2	10.4
May 20	-0.7	11.7	-0.3	10.0
May 27	-0.6	11.0	-0.2	9.8
Jun 3	-2.3	8.4	-2.3	7.3
Jun 10	-1.6	6.7	-2.2	4.9
Jun 17	0.4	7.1	0.04	4.9
Jun 24	-0.6	6.5	-0.2	4.6
Jul 1	5.4	12.3	5.6	10.5
Jul 8	0.6	12.9	0.3	10.9
Jul 15	-1.4	11.4	-2.1	8.6
Jul 22	1.6	13.2	2.2	10.9
Jul 29	-4.2	8.4	-3.9	6.6
Aug 05	-5.8	2.1	-7.2	-1.0
Aug 12	-1.5	0.6	-1.7	-2.7
Aug 19	-4.0	-3.5	-4.7	-7.3
Aug 26	4.3	0.7	4.7	-2.9
Sep 02	-0.4	0.3	-0.2	-3.1
Sep 09	-2.2	-1.9	-1.7	-4.8
Sep 16	4.7	2.7	5.4	0.3
Sep 23	-6.4	-3.9	-6.5	-6.2
Sep 30	1.3	-2.6	-0.4	-6.7
Oct 7	1.7	-0.9	2.1	-4.7
Oct 14	4.9	3.9	5.9	1.0
Oct 21	1.4	5.4	1.1	2.2
Oct 28	3.6	9.2	3.8	6.0
Nov 04	-2.0	6.9	-2.5	3.4

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

Table 58, updated with every post, shows that exchange rate valuations affect a large variety of countries, in fact, almost the entire world, in magnitudes that cause major problems for domestic monetary policy and trade flows. Dollar devaluation is expected to continue because of zero fed funds rate, expectations of rising inflation, large budget deficit of the federal government (http://professional.wsj.com/article/SB10001424052748703907004576279321350926848.html?mod=WSJ_hp_LEFTWhatsNewsCollection) and now zero interest rates indefinitely but with interruptions caused by risk aversion events. Such an event actually occurred in the week of Sep 23 reversing the devaluation of the dollar in the form of sharp appreciation of the dollar relative to other currencies from all over the world including the offshore Chinese yuan market. Column “Peak” in Table 58 shows exchange rates during the crisis year of 2008. There was a flight to safety in dollar-denominated government assets as a result of the arguments in favor of TARP (Cochrane and Zingales 2009). This is evident in various exchange rates that depreciated sharply against the dollar such as the South African rand (ZAR) at the peak of depreciation of ZAR 11.578/USD on Oct 22, 2008, subsequently appreciating to the trough of ZAR 7.238/USD by Aug 15, 2010 but now depreciating by 9.0 percent to ZAR 7.892/USD on Nov, which is still 31.8 percent stronger than on Oct 22, 2008. An example from Asia is the Singapore Dollar (SGD) highly depreciated at the peak of SGD 1.553/USD on Mar 3, 2009 but subsequently appreciating by 13.2 percent to the trough of SGD 1.348/USD on Aug 9, 2010 but is now only 6.2 percent stronger at SGD 1.265/USD on Nov 4 relative to the trough of depreciation but still stronger by 18.5 percent relative to the peak of depreciation on Mar 3, 2009. Another example is the Brazilian real (BRL) that depreciated at the peak to BRL 2.43 on Dec 5, 2008 but appreciated to the trough at BRL 1.737/USD on Apr 30, 2010, showing depreciation of 0.9 percent relative to the trough to BRL 1.7525/USD on Nov 4 but still stronger by 27.9 percent relative to the peak on Dec 5, 2008. At one point in 2011 the Brazilian real traded at BRL 1.55/USD and in the week of Sep 23 surpassed BRL 1.90/USD in intraday trading for depreciation of more than 20 percent. The monetary policy committee (COPOM) of the Banco Central do Brasil, Brazil’s central bank, lowered the policy rate by another 50 basis points on Oct 19, 2011 (http://www.bcb.gov.br/textonoticia.asp?codigo=3268&IDPAI=NEWS):

“Brasília - Continuing the process of adjustment of monetary conditions, the Copom unanimously decided to reduce the Selic rate to 11.50 percent, without bias. The Copom understands that, by promptly mitigating the effects stemming from a more restrictive global environment, a moderate adjustment in the basic rate level is consistent with the scenario of convergence to inflation to the target in 2012.”

Unconventional monetary policy of zero interest rates and quantitative easing creates trends such as the depreciation of the dollar followed by Table 58 but with abrupt reversals during risk aversion. The main effects of unconventional monetary policy are on valuations of risk financial assets and not necessarily on consumption and investment or aggregate demand.

Table 58, Exchange Rates

	Peak	Trough	∆% P/T	Nov 04, 2011	∆T Nov 04  2011	∆P Nov 04 2011
EUR USD	7/15 2008	6/7 2010		11/04 2011
Rate	1.59	1.192		1.379
∆%			-33.4		13.6	-15.3
JPY USD	8/18 2008	9/15 2010		11/04 2011
Rate	110.19	83.07		78.21
∆%			24.6		5.9	29.0
CHF USD	11/21 2008	12/8 2009		11/04 2011
Rate	1.225	1.025		0.888
∆%			16.3		13.4	27.5
USD GBP	7/15 2008	1/2/ 2009		11/04 2011
Rate	2.006	1.388		1.603
∆%			-44.5		13.4	-25.1
USD AUD	7/15 2008	10/27 2008		11/04 2011
Rate	1.0215	1.6639		1.037
∆%			-62.9		42.0	5.6
ZAR USD	10/22 2008	8/15 2010		11/04 2011
Rate	11.578	7.238		7.892
∆%			37.5		-9.0	31.8
SGD USD	3/3 2009	8/9 2010		11/04 2011
Rate	1.553	1.348		1.265
∆%			13.2		6.2	18.5
HKD USD	8/15 2008	12/14 2009		11/04 2011
Rate	7.813	7.752		7.767
∆%			0.8		-0.2	0.6
BRL USD	12/5 2008	4/30 2010		11/04 2011
Rate	2.43	1.737		1.7525
∆%			28.5		-0.9	27.9
CZK USD	2/13 2009	8/6 2010		11/04 2011
Rate	22.19	18.693		18.065
∆%			15.7		3.4	18.6
SEK USD	3/4 2009	8/9 2010		11/04 2011
Rate	9.313	7.108		6.575
∆%			23.7		7.5	29.4
CNY USD	7/20 2005	7/15 2008		11/04 2011
Rate	8.2765	6.8211		6.341
∆%			17.6		7.0	23.4

Symbols: USD: US dollar; EUR: euro; JPY: Japanese yen; CHF: Swiss franc; GBP: UK pound; AUD: Australian dollar; ZAR: South African rand; SGD: Singapore dollar; HKD: Hong Kong dollar; BRL: Brazil real; CZK: Czech koruna; SEK: Swedish krona; CNY: Chinese yuan; P: peak; T: trough

Note: percentages calculated with currencies expressed in units of domestic currency per dollar; negative sign means devaluation and no sign appreciation

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

http://federalreserve.gov/releases/h10/Hist/dat00_ch.htm

Table 59, updated with every blog comment, provides in the second column the yield at the close of market of the 10-year Treasury note on the date in the first column. The price in the third column is calculated with the coupon of 2.625 percent of the 10-year note current at the time of the second round of quantitative easing after Nov 3, 2010 and the final column “∆% 11/04/10” calculates the percentage change of the price on the date relative to that of 101.2573 at the close of market on Nov 4, 2010, one day after the decision on quantitative easing by the Fed on Nov 3, 2010. Prices with new coupons such as 3.63 percent in recent auctions (http://www.treasurydirect.gov/instit/annceresult/press/preanre/2011/2011.htm) are not comparable to prices in Table 57. The highest yield in the decade was 5.510 percent on May 1, 2001 that would result in a loss of principal of 22.9 percent relative to the price on Nov 4. Monetary policy has created a “duration trap” of bond prices. Duration is the percentage change in bond price resulting from a percentage change in yield or what economists call the yield elasticity of bond price. Duration is higher the lower the bond coupon and yield, all other things constant. This means that the price loss in a yield rise from low coupons and yields is much higher than with high coupons and yields. Intuitively, the higher coupon payments offset part of the price loss. Prices/yields of Treasury securities were affected by the combination of Fed purchases for its program of quantitative easing and also by the flight to dollar-denominated assets because of geopolitical risks in the Middle East, subsequently by the tragic Great East Japan Earthquake and Tsunami and now again by the sovereign risk doubts in Europe and the growth recession in the US and the world. The yield of 2.066 percent at the close of market on Fr Nov 04, 2011 would be equivalent to price of 105.0270 in a hypothetical bond maturing in 10 years with coupon of 2.625 percent for price gain of 3.7 percent relative to the price on Nov 4, 2010, one day after the decision on the second program of quantitative easing. If inflation accelerates, yields of Treasury securities may rise sharply. Yields are not observed without special yield-lowering effects such as the flight into dollars caused by the events in the Middle East, continuing purchases of Treasury securities by the Fed, the tragic Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 affecting Japan, recurring fears on European sovereign credit issues and worldwide risk aversion in the week of Sep 30 caused by “let’s twist again” monetary policy. The realization of a growth standstill recession is also influencing yields. Important causes of the earlier rise in yields shown in Table 59 are expectations of rising inflation and US government debt estimated to exceed 70 percent of GDP in 2012 (http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/02/policy-inflation-growth-unemployment.html http://cmpassocregulationblog.blogspot.com/2011/04/budget-quagmire-fed-commodities_10.html), rising from 40.8 percent of GDP in 2008, 53.5 percent in 2009 (Table 2 in http://cmpassocregulationblog.blogspot.com/2011/04/budget-quagmire-fed-commodities_10.html) and 69 percent in 2011. On Nov 2, 2011, the line “Reserve Bank credit” in the Fed balance sheet stood at $2805 billion, or $2.8 trillion, with portfolio of long-term securities of $2583 billion, or $2.5 trillion, consisting of $1558 billion Treasury nominal notes and bonds, $68 billion of notes and bonds inflation-indexed, $108 billion Federal agency debt securities and $849 billion mortgage-backed securities; reserve balances deposited with Federal Reserve Banks reached $1519 billion or $1.5 trillion (http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1). There is no simple exit of this trap created by the highest monetary policy accommodation in US history together with the highest deficits and debt in percent of GDP since World War II. Risk aversion from various sources, discussed in section IV World Financial Turbulence, has been affecting financial markets for several weeks. The risk is that in a reversal of risk aversion that has been typical in this cyclical expansion of the economy yields of Treasury securities may back up sharply.

Table 59, Yield, Price and Percentage Change to November 4, 2010 of Ten-Year Treasury Note

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

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

Source:

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

VIII Economic Indicators. Crude oil input in refineries fell to 14,575 thousand barrels per day on average in the four weeks ending on Oct 28 from 14,678 thousand barrels per day in the four weeks ending on Oct 21, as shown in Table 60. The rate of capacity utilization in refineries continues at a relatively high level of 84.3 percent on Oct 28, 2011, which is slightly higher than on Oct 29, 2010 at 82.5 percent but slightly lower than 85.0 on Oct 21, 2011. Imports of crude oil rose from 8,734 thousand barrels per day on average to 8,798 thousand barrels per day. Decreasing utilization in refineries with decreasing imports resulted in increase of commercial crude oil stocks by 1.9 million barrels from 337.6 million barrels on Oct 21 to 339.5 million barrels on Oct 28. Gasoline stocks increased 1.4 million barrels and stocks of fuel oil fell 3.6 million barrels. Supply of gasoline fell from 9,019 thousand barrels per day on Oct 29, 2010, to 8,657 thousand barrels per day on Oct 28, 2011, or by 4.0 percent, while fuel oil supply rose 6.6 percent. Part of the fall in consumption of gasoline is due to higher prices and part to the growth recession. Table 60 also shows increase in the world price of crude oil by 36.9 percent from Oct 29, 2010 to Oct 28, 2011. Gasoline prices rose 23.0 percent from Nov 1, 2010 to Oct 31, 2011. Increases in prices of crude oil and gasoline relative to a year earlier are moderating because year earlier prices are already reflecting the commodity price surge and commodity prices have been declining recently during worldwide risk aversion.

Table 60, US, Energy Information Administration Weekly Petroleum Status Report

Four Weeks Ending Thousand Barrels/Day	10/28/11	10/21/11	10/29/10
Crude Oil Refineries Input	14,575	14,678	14,983
Refinery Capacity Utilization %	84.3	85.0	82.5
Motor Gasoline Production	9,061	9,112	8,992
Distillate Fuel Oil Production	4,462	4,466	4,278
Crude Oil Imports	8,798	8,734	8,569
Motor Gasoline Supplied	8,657 ∆% 2011/2010= –4.0%	8,767	9,019
Distillate Fuel Oil Supplied	4,219 ∆% 2011/2010 = 6.6%	4,150	3,957
	10/28/11	10/21/11	10/29/10
Crude Oil Stocks Million B	339.5 ∆= 1.9 MB	337.6	368.2
Motor Gasoline Million B	206.3      ∆= 1.4 MB	204.9	212.3
Distillate Fuel Oil Million B	141.9 ∆= -3.6 MB	145.5	164.9
World Crude Oil Price $/B	108.89 ∆% 2011/2010 36.9	108.84	79.54
	10/31/11	10/24/11	11/01/10
Regular Motor Gasoline $/G	3.452 ∆% 2011/2010 23.0	3.462	2.806

B: barrels; G: gallon

Source:

http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf

Chart 47 of the US Energy Information Administration shows the commercial stocks of crude oil of the US. There have been fluctuations around an upward trend since 2005. Crude oil stocks trended downwardly during a few weeks but have increased in the past two weeks.

Chart 47, US, Weekly Crude Oil Ending Stocks

Source: US Energy Information Administration

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

Chart 48 of the US Energy Information Administration provides closer view of US crude oil stocks since Dec 2009. Crude oil stocks rose in a clear trend throughout 2010 but began to drop on a downward trend since May 2011. There is less need to stock oil after May with declining prices if it is anticipated that prices in future months may be lower. Chart 5 shows increases in crude oil stocks in the past two weeks.

Chart 48, US, Crude Oil Stocks

Source: US Energy Information Administration

http://www.eia.gov/petroleum/

Chart 49 of the US Energy Information Administration shows the price of WTI crude oil since the 1980s. Chart 6 captures commodity price shocks during the past decade. The costly mirage of deflation was caused by the decline in oil prices resulting from the recession of 2001. The upward trend after 2003 was promoted by the carry trade from near zero interest rates. The jump above $140/barrel during the global recession in 2008 can only be explained by the carry trade promoted by monetary policy of zero fed funds rate. After moderation of risk aversion, the carry trade returned with resulting sharp upward trend of crude prices.

Chart 49, US, Crude Oil Futures Contract

Source: US Energy Information Administration

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

There is no significant difference between initial claims for unemployment insurance adjusted and not adjusted for seasonality provided in Table 61. Seasonally adjusted claims fell 9000 from 406,000 on Oct 22 to 397,000 on Oct 29. Claims not adjusted for seasonality fell 10,433 from 377,356 on Oct 22 to 366,923 on Oct 29.

Table 61, US, Initial Claims for Unemployment Insurance

2011	SA	NSA	4-week MA SA
Oct 29	397,000	366,923	404,500
Oct 22	406,000	377,356	406,500
Change	-9,000	-10,433	-2,000
Oct 15	404,000	357,562	403,750
Prior Year	454,000	421,097	451,000

Note: SA: seasonally adjusted; NSA: not seasonally adjusted; MA: moving average

Source:

http://www.dol.gov/opa/media/press/eta/ui/current.htm

Table 62 provides seasonally and not seasonally adjusted claims in the comparable week for the years from 2000 to 2011. Seasonally adjusted claims typically exceed claims not adjusted for seasonality. Claims not seasonally adjusted have declined from 487,714 on Oct 24, 2009 to 366,923 on Oct 29, 2011 but are much higher than 294,375 on October 29, 2005.

Table 62, US, Unemployment Insurance Weekly Claims

	Not Seasonally Adjusted Claims	Seasonally Adjusted Claims
Oct 28, 2000	269,489	301,000
Oct 27, 2001	436,901	483,000
Oct 26, 2002	375,591	409,000
Nov 01, 2003	345,573	363,000
Oct 23, 2004	305,546	332,000
Oct 29, 2005	294,376	322,000
Oct 21, 2006	301,079	328,000
Oct 27 2007	303,357	328,000
Nov 1, 2008	466,373	490,000
Oct 24, 2009	487,714	523,000
Oct 30, 2010	421,097	454,000
Oct 29, 2011	366,923	397,000

Source

http://workforcesecurity.doleta.gov/unemploy/finance.asp

IX Interest Rates. It is quite difficult to measure inflationary expectations because they tend to break abruptly from past inflation. There could still be an influence of past and current inflation in the calculation of future inflation by economic agents. Table 63 provides inflation of the CPI. In Jan-Sep 2011, CPI inflation for all items seasonally adjusted was 4.1 percent in annual equivalent, that is, compounding inflation in the first nine months and assuming it would be repeated during the remainder of 2011. In the 12 months ending in Sep, CPI inflation of all items not seasonally adjusted was 3.9 percent. The second row provides the same measurements for the CPI of all items excluding food and energy: 2.4 percent annual equivalent in Jan-Sep and 2.0 percent in 12 months. Bloomberg provides the yield curve of US Treasury securities (http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/). The lowest yield is 0.00 percent for three months or virtually zero, 0.03 percent for six months, 0.08 percent for 12 months, 0.22 percent for two years, 0.37 percent for three years, 0.88 percent for five years, 1.47 percent for seven years, 2.05 percent for ten years and 3.12 percent for 30 years. The Irving Fisher definition of real interest rates is approximately the difference between nominal interest rates, which are those estimated by Bloomberg, and the rate of inflation expected in the term of the security, which could behave as in Table 63. Real interest rates in the US have been negative during substantial periods in the past decade while monetary policy pursues a policy of attaining its “dual mandate” of (http://www.federalreserve.gov/aboutthefed/mission.htm):

“Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates”

Negative real rates of interest distort calculations of risk and returns from capital budgeting by firms, through lending by financial intermediaries to decisions on savings, housing and purchases of households. Inflation on near zero interest rates misallocates resources away from their most productive uses and creates uncertainty of the future path of adjustment to higher interest rates that inhibit sound decisions.

Table 63, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%

	∆% 12 Months Sep 2011/Aug 2010 NSA	∆% Annual Equivalent Jan-Sep 2011 SA
CPI All Items	3.9	4.1
CPI ex Food and Energy	2.0	2.4

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

X Conclusion. The US economy is in growth standstill at an annual equivalent rate in the first three quarters of 1.4 percent primarily driven by drawing on savings. Real disposable income is falling. There are around 29 million people in the US unemployed or underemployed. Real wages are falling. There is no exit from unemployment, underemployment and falling real wages because of the collapse of hiring. The euro is fighting for survival. The crucial issue of “let’s twist again “monetary policy is if lowering the yields of long-term Treasury securities would have any impact on investment and consumption or aggregate demand. The decline of long-term yields of Treasury securities would have to cause decline of yields of asset-backed securities used to securitize loans for investment by firms and purchase of durable goods by consumers. The decline in costs of investment and consumption of durable goods would ultimately have to result in higher investment and consumption. It is possible that the decline in yields captured by event studies is ephemeral. The decline in yields just after “let’s twist again” monetary policy was caused by the flight out of risk financial assets into Treasury securities, which is the opposite of the desired effect of encouraging risk-taking in asset-backed securities and lending. The yield curve edged upwardly in spite of “let’s twist again monetary policy” (Go to http://cmpassocregulationblog.blogspot.com/ http://sites.google.com/site/economicregulation/carlos-m-pelaez)

http://www.amazon.com/Carlos-Manuel-Pel%C3%A1ez/e/B001HCUT10).

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Blanchard, Olivier. 2011WEOSep. Foreword to IMF 2011WEOSep: XIII-XIV.

Buiter, Willem. 2011Oct31. EFSF needs bigger bazooka to maximize its firepower. Financial Times, Oct 31 http://www.ft.com/intl/cms/s/0/c4886f7a-03d3-11e1-bbc5-00144feabdc0.html#axzz1cMoq63R5

Cochrane, John H. 2011Jan. Understanding policy in the great recession: some unpleasant fiscal arithmetic. European Economic Review 55 (1, Jan): 2-30.

Cochrane, John H. 2011Sep28. Last chance to save the euro. Wall Street Journal, Sep 28 http://professional.wsj.com/article/SB10001424052970204422404576594971418554358.html?mod=WSJ_hps_sections_opinion

Cochrane, John H. and Luigi Zingales. 2009. Lehman and the financial crisis. Wall Street Journal, Sep 15.

Cole, Harold L. and Lee E. Ohanian. 1999. The Great Depression in the United States from a neoclassical perspective. Federal Reserve Bank of Minneapolis Quarterly Review 23 (1, Winter): 2-24.

Culbertson, J. M. 1961. The lag in effect of monetary policy: reply. Journal of Political Economy 69 (5, Oct): 467-77.

De Long, J. Bradford. 1997. America’s peacetime inflation: the 1970s. In Christina D. Romer and David H. Romer, eds. Reducing inflation: motivation and strategy. Chicago: University of Chicago Press, 1997.

European Commission. 2011Oct26SS. Euro summit statement. Brussels, European Commission, Oct 26 http://ec.europa.eu/news/economy/111027_en.htm

European Commission. 2011Oct26MRES. Main results of Euro Summit. Brussels, European Commission, Oct 26 http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/125645.pdf

Friedman, Milton. 1961. The lag in effect of monetary policy. Journal of Political Economy 69 (5, Oct): 447-66.

G20. 2011Nov4. Cannes Summit Final declaration—Building our common future: renewed collective action for the benefit of all. Cannes, France, Nov 4 http://www.g20.utoronto.ca/2011/2011-cannes-declaration-111104-en.html

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Margo, Robert A. 1993. Employment and unemployment in the 1930s. Journal of Economic Perspectives 7 (2, Sep): 41-59.

Meltzer, Allan H. 2005. Origins of the Great Inflation. Federal Reserve Bank of St. Louis Review 87 (2, Part 2, Mar/Apr): 145-72.

Meltzer, Allan H. 2010a. A history of the Federal Reserve, Volume 2, Book 1, 1951-1969. Chicago: University of Chicago Press.

Meltzer, Allan H. 2010b. A history of the Federal Reserve, Volume 2, Book 2, 1970-1986. Chicago: University of Chicago Press.

Pelaez, Carlos M. and Carlos A. Pelaez. 2005. International Financial Architecture. Basingstoke: Palgrave Macmillan. http://us.macmillan.com/QuickSearchResults.aspx?search=pelaez%2C+carlos&ctl00%24ctl00%24cphContent%24ucAdvSearch%24imgGo.x=26&ctl00%24ctl00%24cphContent%24ucAdvSearch%24imgGo.y=14 http://www.amazon.com/Carlos-Manuel-Pel%C3%A1ez/e/B001HCUT10

Pelaez, Carlos M. and Carlos A. Pelaez. 2007. The Global Recession Risk. Basingstoke: Palgrave Macmillan. http://www.amazon.com/Carlos-Manuel-Pel%C3%A1ez/e/B001HCUT10

Pelaez, Carlos M. and Carlos A. Pelaez. 2008a. Globalization and the State: Vol. I. Basingstoke: Palgrave Macmillan. http://www.amazon.com/Carlos-Manuel-Pel%C3%A1ez/e/B001HCUT10

Pelaez, Carlos M. and Carlos A. Pelaez. 2008b. Globalization and the State: Vol. II. Basingstoke: Palgrave Macmillan.

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Pelaez, Carlos M. and Carlos A. Pelaez. 2009b. Regulation of Banks and Finance. Basingstoke: Palgrave Macmillan.http://www.amazon.com/Carlos-Manuel-Pel%C3%A1ez/e/B001HCUT10

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© Carlos M. Pelaez, 2010, 2011

Appendix I. The Great Inflation

Inflation and unemployment in the period 1966 to 1985 is analyzed by Cochrane (2011Jan, 23) by means of a Phillips circuit joining points of inflation and unemployment. Chart I1 for Brazil in Pelaez (1986, 94-5) was reprinted in The Economist in the issue of Jan 17-23, 1987 as updated by the author. Cochrane (2011Jan, 23) argues that the Phillips circuit shows the weakness in Phillips curve correlation. The explanation is by a shift in aggregate supply, rise in inflation expectations or loss of anchoring. The case of Brazil in Chart I1 cannot be explained without taking into account the increase in the fed funds rate that reached 22.36 percent on Jul 22, 1981 (http://www.federalreserve.gov/releases/h15/data.htm) in the Volcker Fed that precipitated the stress on a foreign debt bloated by financing balance of payments deficits with bank loans in the 1970s; the loans were used in projects, many of state-owned enterprises with low present value in long gestation. The combination of the insolvency of the country because of debt higher than its ability of repayment and the huge government deficit with declining revenue as the economy contracted caused adverse expectations on inflation and the economy.  This interpretation is consistent with the case of the 24 emerging market economies analyzed by Reinhart and Rogoff (2010GTD, 4), concluding that “higher debt levels are associated with significantly higher levels of inflation in emerging markets. Median inflation more than doubles (from less than seven percent to 16 percent) as debt rises from the low (0 to 30 percent) range to above 90 percent. Fiscal dominance is a plausible interpretation of this pattern.”

The reading of the Phillips circuits of the 1970s by Cochrane (2011Jan, 25) is doubtful about the output gap and inflation expectations:

“So, inflation is caused by ‘tightness’ and deflation by ‘slack’ in the economy. This is not just a cause and forecasting variable, it is the cause, because given ‘slack’ we apparently do not have to worry about inflation from other sources, notwithstanding the weak correlation of [Phillips circuits]. These statements [by the Fed] do mention ‘stable inflation expectations. How does the Fed know expectations are ‘stable’ and would not come unglued once people look at deficit numbers? As I read Fed statements, almost all confidence in ‘stable’ or ‘anchored’ expectations comes from the fact that we have experienced a long period of low inflation (adaptive expectations). All these analyses ignore the stagflation experience in the 1970s, in which inflation was high even with ‘slack’ markets and little ‘demand, and ‘expectations’ moved quickly. They ignore the experience of hyperinflations and currency collapses, which happen in economies well below potential.”

Chart I1, Brazil, Phillips Circuit 1963-1987

©Carlos Manuel Pelaez, O cruzado e o austral. São Paulo: Editora Atlas, 1986, pages 94-5. Reprinted in: Brazil. Tomorrow’s Italy, The Economist, 17-23 January 1987, page 25.

DeLong (1997, 247-8) shows that the 1970s were the only peacetime period of inflation in the US without parallel in the prior century. The price level in the US drifted upward since 1896 with jumps resulting from the two world wars: “on this scale, the inflation of the 1970s was as large an increase in the price level relative to drift as either of this century’s major wars” (DeLong, 1997, 248). Monetary policy focused on accommodating higher inflation, with emphasis solely on the mandate of promoting employment, has been blamed as deliberate or because of model error or imperfect measurement for creating the Great Inflation (http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html). As DeLong (1997) shows, the Great Inflation began in the mid 1960s, well before the oil shocks of the 1970s (see also the comment to DeLong 1997 by Taylor 1997, 276-7). TableI1 provides the change in GDP, CPI and the rate of unemployment from 1960 to 1990. There are three waves of inflation (1) in the second half of the 1960s; (2) from 1973 to 1975; and (3) from 1978 to 1981. In one of his multiple important contributions to understanding the Great Inflation, Meltzer (2005) distinguishes between one-time price jumps, such as by oil shocks, and a “maintained” inflation rate. Meltzer (2005) uses a dummy variable to extract the one-time oil price changes, resulting in a maintained inflation rate that was never higher than 8 to 10 percent in the 1970s. There is revealing analysis of the Great Inflation and its reversal by Meltzer (2005, 2010a, 2010b).

Table I1, US Annual Rate of Growth of GDP and CPI and Unemployment Rate 1960-1982

	∆% GDP	∆% CPI	UNE
1960	2.5	1.4	6.6
1961	2.3	0.7	6.0
1962	6.1	1.3	5.5
1963	4.4	1.6	5.5
1964	5.8	1.0	5.0
1965	6.4	1.9	4.0
1966	6.5	3.5	3.8
1967	2.5	3.0	3.8
1968	4.8	4.7	3.4
1969	3.1	6.2	3.5
1970	0.2	5.6	6.1
1971	3.4	3.3	6.0
1972	5.3	3.4	5.2
1973	5.8	8.7	4.9
1974	-0.6	12.3	7.2
1975	-0.2	6.9	8.2
1976	5.4	4.9	7.8
1977	4.6	6.7	6.4
1978	5.6	9.0	6.0
1979	3.1	13.3	6.0
1980	-0.3	12.5	7.2
1981	2.5	8.9	8.5
1982	-1.9	3.8	10.8
1983	4.5	3.8	8.3
1984	7.2	3.9	7.3
1985	4.1	3.8	7.0
1986	3.5	1.1	6.6
1987	3.2	4.4	5.7
1988	4.1	4.4	5,3
1989	3.6	4.6	5.4
1990	1.9	6.1	6.3

Note: GDP: Gross Domestic Product; CPI: consumer price index; UNE: rate of unemployment; CPI and UNE are at year end instead of average to obtain a complete series

Source: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=2&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=2009&LastYear=2010&3Place=N&Update=Update&JavaBox=no

http://www.bls.gov/web/empsit/cpseea01.htm

http://data.bls.gov/pdq/SurveyOutputServlet

There is a false impression of the existence of a monetary policy “science,” measurements and forecasting with which to steer the economy into “prosperity without inflation.” Market participants are remembering the Great Bond Crash of 1994 shown in Table I2 when monetary policy pursued nonexistent inflation, causing trillions of dollars of losses in fixed income worldwide while increasing the fed funds rate from 3 percent in Jan 1994 to 6 percent in Dec. The exercise in Table I2 shows a drop of the price of the 30-year bond by 18.1 percent and of the 10-year bond by 14.1 percent. CPI inflation remained almost the same and there is no valid counterfactual that inflation would have been higher without monetary policy tightening because of the long lag in effect of monetary policy on inflation (see Culbertson 1960, 1961, Friedman 1961, Batini and Nelson 2002, Romer and Romer 2004). The pursuit of nonexistent deflation during the past ten years has resulted in the largest monetary policy accommodation in history that created the 2007 financial market crash and global recession and is currently preventing smoother recovery while creating another financial crash in the future. The issue is not whether there should be a central bank and monetary policy but rather whether policy accommodation in doses from zero interest rates to trillions of dollars in the fed balance sheet endangers economic stability.

Table I2, Fed Funds Rates, Thirty and Ten Year Treasury Yields and Prices, 30-Year Mortgage Rates and 12-month CPI Inflation 1994

1994	FF	30Y	30P	10Y	10P	MOR	CPI
Jan	3.00	6.29	100	5.75	100	7.06	2.52
Feb	3.25	6.49	97.37	5.97	98.36	7.15	2.51
Mar	3.50	6.91	92.19	6.48	94.69	7.68	2.51
Apr	3.75	7.27	88.10	6.97	91.32	8.32	2.36
May	4.25	7.41	86.59	7.18	88.93	8.60	2.29
Jun	4.25	7.40	86.69	7.10	90.45	8.40	2.49
Jul	4.25	7.58	84.81	7.30	89.14	8.61	2.77
Aug	4.75	7.49	85.74	7.24	89.53	8.51	2.69
Sep	4.75	7.71	83.49	7.46	88.10	8.64	2.96
Oct	4.75	7.94	81.23	7.74	86.33	8.93	2.61
Nov	5.50	8.08	79.90	7.96	84.96	9.17	2.67
Dec	6.00	7.87	81.91	7.81	85.89	9.20	2.67

Notes: FF: fed funds rate; 30Y: yield of 30-year Treasury; 30P: price of 30-year Treasury assuming coupon equal to 6.29 percent and maturity in exactly 30 years; 10Y: yield of 10-year Treasury; 10P: price of 10-year Treasury assuming coupon equal to 5.75 percent and maturity in exactly 10 years; MOR: 30-year mortgage; CPI: percent change of CPI in 12 months

Sources: yields and mortgage rates http://www.federalreserve.gov/releases/h15/data.htm CPI ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.t

© Carlos M. Pelaez, 2010, 2011