Sunday, June 10, 2012

Rules versus Discretionary Authorities in Monetary Policy, United States Trade, World Financial Turbulence and Economic Slowdown: Part II

 

Rules versus Discretionary Authorities in Monetary Policy, United States Trade, World Financial Turbulence and Economic Slowdown

Carlos M. Pelaez

© Carlos M. Pelaez, 2010, 2011, 2012

Executive Summary

I Rules versus Discretionary Authorities in Monetary Policy

IA Monetary Policy Rules

IA1 Origins of Rules versus Discretion

IA2 Monetary Policy Rules

IA3 The Taylor Rule

IB Unconventional Monetary Policy

II United States Trade

III World Financial Turbulence

IIIA Financial Risks

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IIIGA Monetary Policy with Deficit Financing of Economic Growth

IIIGB Adjustment during the Debt Crisis of the 1980s

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

 

V World Economic Slowdown. Table V-1 is constructed with the database of the IMF (http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx) to show GDP in dollars in 2010 and the growth rate of real GDP of the world and selected regional countries from 2011 to 2014. The data illustrate the concept often repeated of “two-speed recovery” of the world economy from the recession of 2007 to 2009. The IMF has lowered its forecast of the world economy to 3.5 percent in 2012 but accelerating to 4.1 percent in 2013, 4.4 percent in 2014 and 4.5 percent in 2015. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $33,670 billion of world output of $69,660 billion, or 48.3 percent, but are projected to grow at much lower rates than world output, 2.1 percent on average from 2012 to 2015 in contrast with 4.1 percent for the world as a whole. While the world would grow 17.6 percent in the four years from 2012 to 2015, the G7 as a whole would grow 8.5 percent. The difference in dollars of 2011 is rather high: growing by 17.6 percent would add $12.3 trillion of output to the world economy, or roughly two times the output of the economy of Japan of $5,869 but growing by 8.5 percent would add $5.9 trillion of output to the world, or about the output of Japan in 2011. The “two speed” concept is in reference to the growth of the 150 countries labeled as emerging and developing economies (EMDE) with joint output in 2011 of $25,237 billion, or 36.2 percent of world output. The EMDEs would grow cumulatively 26.5 percent or at the average yearly rate of 6.1 percent, contributing $6.7 trillion from 2012 to 2015 or the equivalent of somewhat less than the GDP of $7,298 billion of China in 2011. The final four countries in Table 1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output adds to $13,317 billion, or 19.1 percent of world output, which is equivalent to 39.6 percent of the combined output of the major advanced economies of the G7.

Table V-1, IMF World Economic Outlook Database Projections of Real GDP Growth

 

GDP USD 2011

Real GDP ∆%
2012

Real GDP ∆%
2013

Real GDP ∆%
2014

Real GDP ∆%
2015

World

69,660

3.5

4.1

4.4

4.5

G7

33,670

1.5

1.9

2.3

2.5

Canada

1,737

2.1

2.2

2.4

2.4

France

2,776

0.5

1.1

1.9

1.9

DE

3,577

0.6

1.5

1.3

1.3

Italy

2,199

-1.9

-0.3

0.5

1.0

Japan

5,869

2.0

1.7

1.5

1.3

UK

2,418

0.8

2.0

2.5

2.6

US

15,094

2.1

2.4

2.9

3.3

Euro Area

13,115

-0.3

0.9

1.4

1.6

DE

3,577

0.6

1.5

1.3

1.3

France

2,776

0.5

1.1

1.9

1.9

Italy

2,199

-1.9

-0.3

0.5

1.0

POT

239

-3.3

0.3

2.1

1.9

Ireland

218

0.5

2.1

2.5

2.8

Greece

303

-4.7

0.0

2.5

3.1

Spain

1,494

-1.8

0.1

1.6

1.6

EMDE

25,237

5.7

6.0

6.2

6.3

Brazil

2,493

3.0

4.2

4.0

4.1

Russia

1,850

4.0

3.9

3.9

3.9

India

1,676

6.9

7.3

7.5

7.7

China

7,298

8.2

8.8

8.7

8.7

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

Source: IMF World Economic Outlook databank

http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx

Table V-2 is constructed with the WEO database to provide rates of unemployment from 2011 to 2015 for major countries and regions. In fact, unemployment rates for 2011 in Table ESV-2 are high for all countries: unusually high for countries with high rates most of the time and unusually high for countries with low rates most of the time. The rates of unemployment are particularly high for the countries with sovereign debt difficulties in Europe: 12.7 percent for Portugal (POT), 14.4 percent for Ireland, 17.3 percent for Greece, 21.6 percent for Spain and 8.4 percent for Italy, which is lower but still high. The G7 rate of unemployment is 7.7 percent. Unemployment rates are not likely to decrease substantially if slow growth persists in advanced economies.

Table V-2, IMF World Economic Outlook Database Projections of Unemployment Rate as Percent of Labor Force

 

% Labor Force 2011

% Labor Force 2012

% Labor Force 2013

% Labor Force 2014

% Labor Force 2015

World

NA

NA

NA

NA

NA

G7

7.7

7.4

7.3

7.0

6.7

Canada

7.5

7.4

7.3

7.1

6.9

France

9.7

9.9

10.1

9.8

9.4

DE

6.0

5.6

5.5

5.3

5.3

Italy

8.4

9.5

9.7

9.8

9.5

Japan

4.5

4.5

4.4

4.3

4.2

UK

8.0

8.3

8.2

7.8

7.4

US

8.9

8.2

7.9

7.5

6.9

Euro Area

10.1

10.9

10.8

10.5

10.1

DE

6.0

5.6

5.5

5.3

5.3

France

9.7

9.9

10.1

9.8

9.4

Italy

8.4

9.5

9.7

9.8

9.5

POT

12.7

14.3

13.9

13.2

12.4

Ireland

14.4

14.5

13.8

12.9

12.0

Greece

17.3

19.4

19.4

18.2

16.8

Spain

21.6

24.2

23.9

22.8

21.9

EMDE

NA

NA

NA

NA

NA

Brazil

6.0

6.0

6.5

7.0

7.0

Russia

7.5

6.5

6.0

6.0

6.0

India

NA

NA

NA

NA

NA

China

4.1

4.0

4.0

4.0

4.0

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

Source: IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weoselgr.aspx

Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog. Growth is weak throughout most of the world. Japan’s GDP increased 1.2 percent in IQ2012 and 2.8 percent relative to a year earlier but part of the jump could be the low level a year earlier because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan is experiencing difficulties with the overvalued yen because of worldwide capital flight originating in zero interest rates with risk aversion in an environment of softer growth of world trade. China grew at 1.8 percent in IQ2012, which annualizes to 7.4 percent. Xinhuanet informs that Premier Wen Jiabao considers the need for macroeconomic stimulus, arguing that “we should continue to implement proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm). Premier Wen elaborates that “the country should properly handle the relationship between maintaining growth, adjusting economic structures and managing inflationary expectations” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm). GDP was flat in the euro area in IQ2012 and fell 0.1 percent relative to a year earlier. Germany’s GDP increased 0.5 percent in IQ2012 and 1.7 percent relative to a year earlier. US GDP increased 0.5 percent in IQ2012 and 2.0 percent relative to a year earlier (http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html) but with substantial underemployment and underemployment (http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html) and weak hiring (http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million.html).

Table V-3, Percentage Changes of GDP Quarter on Prior Quarter and on Same Quarter Year Earlier, ∆%

 

IQ2012/IVQ2011

IQ2012/IQ2011

United States

0.5

2.0

Japan

1.2

2.8

China

1.8

8.1

Euro Area

0.0

-0.1

Germany

0.5

1.7

France

0.0

0.0

Italy

-0.8

-1.3

United Kingdom

-0.3

-0.1

Source: Country Statistical Agencies

http://www.bea.gov/national/index.htm#gdp http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html http://www.stats.gov.cn/enGliSH/ http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html http://www.insee.fr/en/ http://www.istat.it/en/ http://www.ons.gov.uk/ons/rel/naa2/second-estimate-of-gdp/q1-2012/index.html

The JP Morgan Global All-Industry Output Index of the JP Morgan Manufacturing and Services PMI, produced by JP Morgan and Markit in association with ISM and IFPSM, with high association with world GDP, was virtually unchanged at 52.1 in May relative to 52.3 in Apr, which is the lowest reading which is the lowest reading since Nov 2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9664). This index has remained above the contraction territory of 50.0 during 34 months. Slower manufacturing growth was compensated by sharper activity in services. David Hensley, Director of Global Economic Coordination at JP Morgan, finds that the PMI data suggest world GDP growth easing into the middle of 2012, with manufacturing output growing at the weakest pace in five months while services activity maintaining strength (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9664). The JP Morgan Global Manufacturing PMI, produced by JP Morgan and Markit in association with ISM and IFPSM, fell marginally from 51.4 in Apr to 50.6 in Mar, for the weakest level in five months; manufacturing has been growing during six consecutive months but at the weakest pace in May even as cost inflation moderated significantly because of decline of commodity prices (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9650). David Hensley, Director of Global Economics Coordination at JPMorgan, finds weak growth in orders together decline in international trade as factors of slowdown in manufacturing growth (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9650).

The Brazil Composite Output Index of the HSBC Brazil Services PMI with Composite PMI data, compiled by Markit, fell from 52.7 in Apr to 49.6 in May, suggesting marginal decline in output of the private sector in the first reading below 50 since Sep 2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9647). Andre Loes, Chief Economist, Brazil, at HSBC, finds that the HSBC Services PMI Business Activity Index dropped from 54.4 in Apr to 49.7 in May but there is need for more observations to determine if weakness in manufacturing is spreading to services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9647). The HSBC Brazil Purchasing Managers’ IndexTM (PMI) was unchanged at 49.3 in both Apr and May, indicating modest business conditions in Brazilian manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9631). Andre Loes, Chief Economist, Brazil at HSBC, finds that the manufacturing index fell below 50 during two consecutive months after remaining above 50.0 during IQ2012 under cost pressures and competition by imports with hopes that depreciation of the exchange rate may bring about some improvement (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9631).

VA United States. The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business® fell 1.3 percentage points from 54.8 in Apr to 53.5 in May, indicating slower growth in 34 months of expansion (http://www.ism.ws/ISMReport/MfgROB.cfm). The index of new orders increased 1.9 percentage points from 58.2 in Apr to 60.1 in May, indicating growth in 37 months at a faster rate. The Non-Manufacturing ISM Report on Business® PMI increased 0.2 percentage points from 53.5 in Apr to 53.7 in May while the index of new orders increased 2.0 percentage points from 53.5 in Apr to 55.5 in May (http://www.ism.ws/ISMReport/NonMfgROB.cfm). Table USA provides the data table for the US.

Table USA, US Economic Indicators

Consumer Price Index

Apr 12 months NSA ∆%: 2.3; ex food and energy ∆%: 2.3 Apr month ∆%: 0.0; ex food and energy ∆%: 0.2
Blog 5/20/12

Producer Price Index

Apr 12-month NSA ∆%: 1.9; ex food and energy ∆% 2.7
Apr month SA ∆% = -0.2; ex food and energy ∆%: 0.2
Blog 5/13/12 5/20/12

PCE Inflation

Apr 12-month NSA ∆%: headline 1.8; ex food and energy ∆% 1.9
Blog 6/3/12

Employment Situation

Household Survey: May Unemployment Rate SA 8.2%
Blog calculation People in Job Stress May: 28.4 million NSA
Establishment Survey:
May Nonfarm Jobs +69,000; Private +82,000 jobs created 
Apr 12-month Average Hourly Earnings Inflation Adjusted ∆%: 0.5%
Blog 6/3/12

Nonfarm Hiring

Nonfarm Hiring fell from 69.4 million in 2004 to 50.1 million in 2011 or by 19.3 million
Private-Sector Hiring Mar 2012 3.900 million lower by 0.873 million than 4.773 million in Mar 2006
Blog 5/13/12

GDP Growth

BEA Revised National Income Accounts back to 2003
IQ2011 SAAR ∆%: 0.4
IIQ2011 SAAR ∆%: 1.3

IIIQ2011 SAAR ∆%: 1.8

IVQ2011 ∆%: 3.0

IQ2012 SAAR ∆%: 1.9

IQ2012/IQ2011 ∆%: 2.0
Blog 6/3/12

Personal Income and Consumption

Apr month ∆% SA Real Disposable Personal Income (RDPI) 0.2 Mar month SA ∆% 0.2
Real Personal Consumption Expenditures (RPCE): 0.3
12-month Apr NSA ∆%:
RDPI: 0.6; RPCE ∆%: 2.1
Blog 6/3/2012

Quarterly Services Report

IQ12/IQ11 SA ∆%:
Information 3.8
Professional 10.3
Administrative 4.9
Hospitals 5.2
Blog 6/10/12

Employment Cost Index

IQ2012 SA ∆%: 0.4
Mar 12 months ∆%: 1.9
Blog 4/29/12

Industrial Production

Apr month SA ∆%: 1.1
Apr 12 months SA ∆%: 5.2

Manufacturing Apr SA ∆% 0.6 Apr 12 months SA ∆% 5.8, NSA 5.6
Capacity Utilization: 79.2
Blog 5/20/12

Productivity and Costs

Nonfarm Business Productivity IQ2012∆% SAAE -0.9; IQ2012/IQ2011 ∆% 0.4; Unit Labor Costs SAAE IQ2012 ∆% 1.3; IQ2012/IQ2011 ∆%: 0.9

Blog 6/10/2012

New York Fed Manufacturing Index

General Business Conditions From Apr 6.56 to May 17.09
New Orders: From Apr 6.84 to May 8.32
Blog 5/20/12

Philadelphia Fed Business Outlook Index

General Index from Apr 8.5 to May minus 5.8
New Orders from Apr 2.7 to May minus 1.2
Blog 5/20/12

Manufacturing Shipments and Orders

Apr New Orders SA ∆%: -0.6; ex transport ∆%: -1.1
Jan-Apr New Orders NSA ∆%: 6.6; ex transport ∆% 6.2
Blog 6/10/12

Durable Goods

Apr New Orders SA ∆%: 0.2; ex transport ∆%: minus 0.6
Jan-Apr 12/Jan-Apr 11 NSA New Orders ∆%: 8.6; ex transport ∆% : 8.3
Blog 5/27/12

Sales of New Motor Vehicles

May 2012 5,986,605; May 2011 5,279,318. May SAAR 13.78 million, Apr SAAR 14.42 million, May 2011 SAAR 11.73 million

Blog 6/3/12

Sales of Merchant Wholesalers

Jan-Apr 2012/Jan-Apr 2011 NSA ∆%: Total 8.4; Durable Goods: 10.3; Nondurable
Goods 7.0
Blog 6/10/12

Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers

Mar 12/Mar 11 NSA ∆%: Sales Total Business 4.9; Manufacturers 4.1
Retailers 7.2; Merchant Wholesalers 3.9
Blog 5/20/12

Sales for Retail and Food Services

Jan-Apr 2012/Jan-Apr 2011 ∆%: Retail and Food Services 7.2; Retail ∆% 7.0
Blog 5/20/12

Value of Construction Put in Place

Apr SAAR month SA ∆%: 0.3 Apr 12-month NSA: 6,8
Blog 6/3/12

Case-Shiller Home Prices

Mar 2012/Mar 2011 ∆% NSA: 10 Cities minus 2.8; 20 Cities: minus 2.6
∆% Mar SA: 10 Cities 0.1 ; 20 Cities: 0.1
Blog 6/3/12

FHFA House Price Index Purchases Only

Mar SA ∆% 1.8;
12 month ∆%: 2.7
Blog 5/27/12

New House Sales

Apr 2012 month SAAR ∆%:
+3.3
Jan-Apr 2012/Jan-Apr 2011 NSA ∆%: 15.8
Blog 5/27/12

Housing Starts and Permits

Apr Starts month SA ∆%:

2.6; Permits ∆%: minus 7.0
Jan-Apr 2012/Jan-Apr 2011 NSA ∆% Starts 25.2; Permits  ∆% 29.6
Blog 5/20/12

Trade Balance

Balance Apr SA -$50,062 million versus Mar -$52617 million
Exports Mar SA ∆%: 0.8 Imports Mar SA ∆%: -1.7
Goods Exports Jan-Apr 2012/2011 NSA ∆%: 7.0
Goods Imports Jan-Apr 2011/2011 NSA ∆%: 7.9
Blog 6/10/12

Export and Import Prices

Apr 12-month NSA ∆%: Imports 0.5; Exports 0.7
Blog 5/13/12

Consumer Credit

Apr ∆% annual rate: 3.1
Blog 6/10/12

Net Foreign Purchases of Long-term Treasury Securities

Mar Net Foreign Purchases of Long-term Treasury Securities: $36.2 billion
Major Holders of Treasury Securities: China $1170 billion; Japan $1083 billion; Total Foreign US Treasury Holdings Mar $5118 billion
Blog 5/20/12

Treasury Budget

Fiscal Year Oct-Apr 2012/2011 ∆%: Receipts 5.6; Outlays -3.5; Individual Income Taxes 5.0
Deficit Fiscal Year 2011 $1,296 billion

Deficit Fiscal Year 2012 Oct-Apr $719,859 million
Blog 03/18/12

CBO Forecast 2012FY Deficit $1.079 trillion

Blog 5/13/2012

Flow of Funds

IVQ2011 ∆ since 2007

Assets -$7315B

Real estate -$5183B

Financial -$2507

Net Worth -$6743

Blog 03/11/12

Current Account Balance of Payments

IVQ2011 -$124B

%GDP 3.2

Blog 03/18/12

Links to blog comments in Table USA:

6/3/12 http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs_04.html

5/27/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-financial-turbulence-global_27.html

5/20/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy_20.html

5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html

5/6/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-jobs-twenty-eight_06.html

4/29/12 http://cmpassocregulationblog.blogspot.com/2012/04/mediocre-growth-with-high-unemployment_29.html

3/18/12 http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk_18.html

3/11/12 http://cmpassocregulationblog.blogspot.com/2012/03/thirty-million-unemployed-or_11.html

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 VA-1 provides revised data for nonfarm business sector productivity and unit labor costs for the final two quarters of 2011 and the first quarter of 2012 in seasonally adjusted annual equivalent (SAAE) rate and the percentage change from the same quarter a year earlier. Reflecting increases in output of 2.4 percent and of 3.3 percent in hours worked, nonfarm business sector labor productivity fell at a SAAE rate of 0.9 percent in IQ2012, as shown in column 2 “IQ2012 SAEE.” The increase of labor productivity from IQ2011 to IQ2012 was 0.4 percent, reflecting increases in output of 2.7 percent and of hours worked of 2.2 percent, as shown in column 3 “IQ2012 YoY.” Hours worked increased from 2.4 percent in IVQ2011 in SAAE to 3.3 percent in IQ2012 but output fell from 3.7 percent in IVQ2011 to 2.4 percent in IQ2012 because of the weakening economy. 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 increased at the SAAE rate of 1.3 percent in IQ2012 and rose 0.9 percent in IQ2012 relative to IQ2011. Hourly compensation in IQ2012 increased at the SAAE rate of 0.4 percent, which deflating by the estimated consumer price increase SAAE rate in IQ2012 results in decrease of real hourly compensation by 2.0 percent. Real hourly compensation decreased 1.5 percent in IQ2012 relative to IQ2011.

Table VA-1, US, Nonfarm Business Sector Productivity and Costs %

 

IQ 2012 SAAE

IQ 2012 YoY

IVQ 2011 SAAE

IVQ 2011 YoY

IIIQ
2011
SAAE

IIIQ
2011
YoY

Productivity

-0.9

0.4

1.2

0.4

1.8

0.5

Output

2.4

2.7

3.7

2.4

2.8

2.3

Hours

3.3

2.2

2.4

1.9

1.0

1.8

Hourly
Comp.

0.4

1.3

-0.4

2.2

5.7

2.6

Real Hourly Comp.

-2.0

-1.5

-1.6

-0.9

2.5

-1.2

Unit Labor Costs

1.3

0.9

-1.5

1.8

3.9

2.0

Unit Nonlabor Payments

2.0

3.3

4.0

2.6

0.5

2.6

Implicit Price Deflator

1.6

1.9

0.8

2.1

2.5

2.2

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

Source: US Bureau of Labor Statistics http://www.bls.gov/news.release/pdf/prod2.pdf

The revised increases in productivity in Table VA-2 of 4.0 percent in the 2010 annual average and 2.3 percent in the 2009 annual average were facilitated by reductions in hours worked of 0.0 percent in 2010 and 7.2 percent in 2009. The contraction period and the recovery period have been characterized by savings of labor inputs. Hours worked increased 1.9 percent in 2011 but output rose only 2.4 percent such that the increase in productivity was only 0.4 percent. Real hourly compensation fell 0.9 percent in 2011, interrupting increases of 2.1 percent in 2009 and 0.3 percent in 2010.

Table VA-2, US, Revised Nonfarm Business Sector Productivity and Costs Annual Average, ∆% Annual Average 

 

2011 ∆%

2010 ∆%

2009 ∆%

2008  ∆%   

2007 ∆%

Productivity

0.4

4.0

2.3

0.6

1.5

Output

2.4

4.0

-5.1

-1.5

2.1

Hours

1.9

0.0

-7.2

-2.1

0.5

Hourly
Comp.

2.2

1.9

1.7

3.4

4.0

Real Hourly Compensation

-0.9

0.3

2.1

-0.4

1.1

Unit Labor Costs

2.0

-2.0

-0.7

2.8

2.4

Notes: SAAE: seasonally adjusted annual equivalent

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 VA-3 provides quarter on quarter and annual percentage changes in nonfarm business output per hour, or productivity, from 1999 to 2012. 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 from IIQ2009 to IQ2010, trended lower and collapsed in 2011 and 2012.

Table VA-3, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2012

Year

Qtr1

Qtr2

Qtr3

Qtr4

Annual

1999

3.9

0.3

3.3

7.1

3.3

2000

-1.5

9.4

0.1

4.0

3.4

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

-0.2

3.4

4.8

1.9

1.5

2008

-2.6

2.4

-0.8

-3.4

0.6

2009

1.3

8.3

6.4

5.3

2.3

2010

4.5

1.2

1.8

1.8

4.0

2011

-1.0

-0.3

1.8

1.2

0.4

2012

-0.9

       

Source: US Bureau of Labor Statistics

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

Chart VA-1 of the Bureau of Labor Statistics (BLS) provides SAAE rates of nonfarm business productivity from 1999 to 2012. 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. Productivity rose briefly in the expansion after 2009 but then collapsed and moved to negative change.

clip_image002

Chart VA-1, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2012

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 VA-4. 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 VA-4 shows continuing subdued sharper increases in unit labor costs in 2011 and 2012.

Table VA-4, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2012

Year

Qtr1

Qtr2

Qtr3

Qtr4

Annual

1999

3.0

0.5

0.1

1.6

0.9

2000

17.4

-7.4

8.6

-1.6

3.9

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

-1.8

-1.9

4.3

2.4

2008

8.7

-3.4

4.3

5.7

2.8

2009

-4.0

-1.1

-4.0

-4.1

-0.7

2010

-3.1

1.4

-0.2

-1.7

-2.0

2011

6.2

-0.1

3.9

-1.5

1.8

2012

1.3

       

Source: US Bureau of Labor Statistics

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

Chart VA-2 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, 3.9 percent in IIIQ2011, 1.4 percent in IIQ2010 and 1.3 percent in IQ2012, changes in nonfarm business unit labor costs have been negative.

clip_image004

Chart VA-2, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2011

Source: US Bureau of Labor Statistics

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

Table VA-5 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. Real hourly compensation increased at the rate of 0.5 percent in IQ2011 but fell at annual rates of 4.7 percent in IIQ2011, 1.6 percent in IVQ2011 and at 2.0 percent in IQ2012. In 2011, real hourly compensation fell 0.9 percent.

Table VA-5, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 1999-2012

Year

Qtr1

Qtr2

Qtr3

Qtr4

Annual

1999

5.4

-2.0

0.2

5.6

2.2

2000

11.4

-1.8

4.7

-0.4

4.0

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

-0.2

-3.0

0.3

1.3

1.1

2008

1.4

-6.1

-2.8

12.2

-0.4

2009

-0.3

5.2

-1.4

-2.0

2.1

2010

0.4

3.0

0.2

-2.8

0.3

2011

0.5

-4.7

2.5

-1.6

-0.9

2012

-2.0

       

Source: US Bureau of Labor Statistics

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

Chart VA-3 provides percentage change from prior quarter at annual rate of nonfarm business real hourly compensation from 1999 to 2012. There are significant fluctuations in quarterly percentage changes oscillating between positive and negative. There is no clear pattern in the two contractions in the 2000s.

clip_image006

Chart VA-3, US, 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 VA-4 provides percentage change from prior quarter at annual rate for nonfarm business output per hour from 1947 to 2012. 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.

clip_image008

Chart VA-4, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate 1947-2012

Source: US Bureau of Labor Statistics

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

Chart VA-5 provides percentage changes from prior quarter at annual rate for US nonfarm business unit labor costs from 1947 to 2012. 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.

clip_image010

Chart VA-5, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1947-2012

Source: US bureau of Labor Statistics

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

Chart VA-6 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 and pronounced in the 2000s than during the Great Inflation of the 1970s.

clip_image012

Chart VA-6, US, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate 1947-2012

Source: US Bureau of Labor Statistics

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

Table VA-6 provides the quarterly services report of the US Bureau of the Census of the Department of Commerce. Data are adjusted for seasonality but not for price changes. Fourth quarter growth of revenue was 0.7 for information services, 2.9 percent for professional, scientific and technical services, 1.6 percent for administrative services and support and 3.5 percent for hospitals. Growth of revenue in IQ2012 relative to IQ2011 was still high: 3.8 percent for information services, 10.3 percent for professional, scientific and technical services, 4.9 percent for administrative services and support and 5.2 percent for hospitals. Growth of revenue in IVQ2011 relative to IVQ2010 was still high: 3.3 percent for information services, 7.2 percent for professional, scientific and technical services, 4.3 percent administrative services and support and 3.7 percent for hospitals. There is again the difficulty in separating price and quantity changes.

Table VA-6, US, Selected Services, Estimates of Quarterly Revenue for Employer Firms, SA Millions of USD and ∆%

 

INFO

PROF

ADMIN

HOSP

IQ2012

293,058

359,033

159,115

223,148

∆% IQ2012/ IVQ2011

0.7

2.9

1.6

1.3

∆% IQ2012/ IQ2011

3.8

10.3

4.9

5.2

IVQ2011

290,892

348,989

156,548

220,268

∆% IVQ2011/ IIIQ2011

0.7

2.2

-0.8

3.7

∆% IVQ2011/ IVQ2010

3.3

7.2

4.3

3.7

IIIQ2011

288,959

341,430

157,881

212,388

∆% IIIQ2011/IIQ2011

0.5

1.9

1.7

-1.5

IIQ2011

287,475

335,017

155,262

215,685

∆% IIQ2011/
IQ2011

1.8

3.0

2.4

1.7

IQ2011

282,334

325,402

151,633

212,114

∆% IQ2011/
IVQ2010

0.2

-0.1

1.3

-0.1

IVQ2010

281,730

325,608

151,633

212,348

∆% IVQ2011/
IVQ2010

3.2

6.9

4.3

3.5

IIIQ2010

279,074

321,596

150,114

207,853

IIIQ2011/ IIIQ2010
∆%

3.5

6.0

6.4

2.2

Note: INFO: Information; PROF: Professional, Scientific and Technical Services; ADMIN: Administrative and Support and Waste Management and Remediation Services; HOSP: Hospitals

Source: http://www2.census.gov/services/qss/qss-current.pdf

Chart VA-7 of the US Census Bureau of the Department of Commerce provides the quarterly service report SA from IVQ2003 to IQ2012. Services revenue contracted during the recession from IVQ2007 (December) to IIQ2009 (June) (http://wwwdev.nber.org/cycles/cyclesmain.html) but there appears to be continuing growth especially for professional, scientific and technical services with steeper slope from IVQ2010 through IQ2012.

clip_image014

Chart VA-7, US, Quarterly Revenue for Selected Services, SA $ Billions

Source: US Census Bureau

http://www2.census.gov/services/qss/qss.gif

Manufacturers’ shipments fell 0.3 percent in Apr after increasing 0.1 percent in Mar. New orders fell 0.6 percent in Apr following decline by 2.1 percent in Mar, as shown in Table VA-7. These data are very volatile. Volatility is illustrated by increase of 88.1 percent of new orders of nondefense aircraft in Nov and revised 21.0 percent in Dec followed by decline of 17.2 percent in Jan and revised increase by 2.7 percent in Feb but sharp decline of 46.6 percent in Mar with increase of 7.2 percent in Apr. New orders excluding transportation equipment fell 1.1 percent in Apr and 0.7 percent in Mar. Capital goods new orders, indicating investment, fell 2.7 percent in Apr and 8.4 percent in Mar after increasing 3.1 percent in Feb but decreasing 3.4 percent in Jan. New orders of nondefense capital goods fell 0.4 percent in Apr and 12.2 percent in Mar after increasing 1.9 percent in Feb but declining 5.0 percent in Jan and increasing 6.9 percent in Dec. Excluding more volatile aircraft, capital goods orders fell 2.1 percent in Apr and 2.3 percent in Mar after increasing revised 2.9 percent in Feb, declining 3.4 percent in Jan but increasing 3.5 percent in Dec.

Table VA-7, US, Value of Manufacturers’ Shipments and New Orders, SA, Month ∆%

 

Apr 2012 
∆%

Mar 2012 
∆%

Feb 2012
∆%

Total

     

   S

-0.3

0.1

0.4

   NO

-0.6

-2.1

1.5

Excluding
Transport

     

    S

-0.8

-0.3

0.9

    NO

-1.1

-0.7

1.4

Excluding
Defense

     

     S

-0.1

-0.1

0.6

     NO

-0.2

-2.1

1.2

Durable Goods

     

      S

0.6

0.9

-0.5

      NO

0.0

-3.7

2.0

Machinery

     

      S

-2.6

4.8

2.9

      NO

-2.9

-5.1

5.8

Computers & Electronic Products

     

      S

0.8

-2.5

0.9

      NO

-0.8

-0.8

4.2

Computers

     

      S

-2.2

-10.8

-2.9

      NO

-5.9

-5.6

-2.2

Transport
Equipment

     

      S

3.1

2.4

-2.8

      NO

2.2

-10.5

2.6

Automobiles

     

      S

7.9

2.8

4.4

Motor Vehicles

     

      S

-0.3

2.3

-2.9

      NO

-0.5

2.0

-1.6

Nondefense
Aircraft

     

      S

5.1

-2.7

-6.7

      NO

7.2

-46.6

2.7

Capital Goods

     

      S

-1.5

2.0

-0.5

      NO

-2.7

-10.7

3.1

Nondefense Capital Goods

     

      S

-0.6

1.3

0.3

      NO

-0.4

-12.2

1.9

Capital Goods ex Aircraft

     

       S

-1.5

1.8

1.4

       NO

-2.1

-2.3

2.9

Nondurable Goods

     

       S

-1.1

-0.7

1.1

       NO

-1.1

-0.7

1.1

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

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

Chart VA-8 of the US Census Bureau 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.

clip_image016

Chart VA-8, US, Manufacturers’ New Orders 2010-2011 Seasonally Adjusted, Month ∆%

Source: US Census Bureau

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

Additional perspective on manufacturers’ shipments and new orders is provided by Table VA-8. Values are cumulative millions of dollars in Jan-Apr 2012 not seasonally adjusted (NSA). Shipments of all manufacturing industries in Jan-Apr 2012 total $1870.4 billion and new orders total $1874.9 billion, growing respectively by 6.9 percent and 6.6 percent relative to the same period in 2011. Excluding transportation equipment, shipments grew 6.4 percent and new orders increased 6.2 percent. Excluding defense, shipments grew 7.3 percent and new orders grew 7.5 percent. Durable goods shipments reached $871.3 billion in Jan-Apr 2012, or 46.6 percent of the total, growing by 9.1 percent, and new orders $875.8 billion, or 46.7 percent of the total, growing by 8.5 percent. Important information in Table VA-8 is the large share of nondurable goods: with shipments of $999.1 billion or 53.4 percent of the total, growing by 5.0 percent, and new orders also of $991.1 billion or 53.3 percent of the total. Capital goods have relatively high value of $301.9 billion for shipments, growing 7.5 percent, and new orders $327.7 billion, growing 6.6 percent, which could be a favorable sign of future investment. Excluding aircraft, capital goods shipments reached $247.9 billion, growing by 8.7 percent, and new orders $261.7 billion, growing 7.7 percent. There is no suggestion in these data that the US economy is close to recession.

Table VA-8, US, Value of Manufacturers’ Shipments and New Orders, NSA, Millions of Dollars 

Jan-Apr 2012

Shipments

∆% 2012/
2011

New Orders

∆% 2012/
2011

Total

1,870,390

6.9

1,874,929

6.6

Excluding Transport

1,623,968

6.4

1,619,157

6.2

Excluding Defense

1,829,379

7.3

1,831,964

7.5

Durable Goods

871.276

9.1

875,815

8.5

Machinery

125,206

11.6

132,021

4.3

Computers & Electronic Products

108,077

-1.1

87,695

5.1

Computers & Related Products

4,709

-10.4

4,678

-9.5

Transport Equipment

246,422

10.1

255,772

9.3

Automobiles

33,279

23.1

   

Motor Vehicles

75,115

5.5

75,039

5.3

Nondefense Aircraft

34,781

25.6

45,796

41.8

Capital Goods

301,872

7.5

327,723

6.6

Nondefense Capital Goods

269,966

10.8

294,296

12.4

Capital Goods ex Aircraft

247,924

8.7

261,747

7.7

Nondurable Goods

999,114

5.0

999,114

5.0

Food Products

236,278

4.3

   

Petroleum Refineries

268,829

9.0

   

Chemical Products

257,279

2.5

   

Note: Transport: transportation

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

Sales and inventories of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-9 for Apr 2012 and percentage changes from the prior month and for Jan-Apr 2012 relative to Jan-Apr 2011. These data are volatile aggregating diverse categories of durable and nondurable goods without adjustment for price changes. Total sales for the US rose 8.4 percent in Jan-Apr 2012 relative to Jan-Apr 2011 and increased 1.1 percent in Apr 2012 relative to Mar 2012. The value of total sales is quite high at $1608.7 billion, exceeding four trillion dollars in a year. Value in the breakdown is useful in identifying relative importance of individual categories. Sales of durable goods in Jan-Apr 2012 reached $715.7 billion, over two trillion for a year, increasing 0.1 percent in Apr relative to Mar and increasing 10.3 percent in Jan-Apr 2012 relative to Jan-Apr 2011. Sales of automotive products reached $130.1 billion in Jan-Apr 2012, increasing 3.8 percent in the month and increasing 24.8 percent relative to a year earlier. There is strong performance of 18.0 percent in machinery and 3.7 percent in electrical products. Sales of nondurable goods rose 7.0 percent. The influence of commodity prices moderated as shown by decrease of 6.9 percent in farm products and increase of only 10.8 percent in petroleum products even with increase of 4.8 percent in Apr alone. The final three columns in Table VA-9 provide the value of inventories and percentage changes from the prior month and relative to the same month a year earlier. US total inventories of wholesalers increased 0.6 percent in Apr and increased 8.3 percent relative to a year earlier. Inventories of durable goods of $283.5 billion are 58.6 percent of total inventories of $483.1 billion and rose 11.4 percent relative to a year earlier. Automotive inventories jumped 21.7 percent relative to a year earlier. Machinery inventories of $76.2 billion rose 17.7 percent relative to a year earlier. Inventories of nondurable goods of $199.7 billion are 41.3 percent of the total and increased 4.1 percent relative to a year earlier. Inventories of farm products decreased 1.0 percent in Apr relative to Mar and declined 13.1 percent relative to a year earlier. Inventories of petroleum products increased 2.0 percent in Apr and increased 7.3 percent relative to a year earlier.

Table VA-9, US, Sales and Inventories of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, Month ∆%

2012

Sales $ Billions Jan-Apr 2012
NSA

Sales Apr ∆% SA

Sales∆% Jan-Apr 2012 from Jan-Apr 2011  NSA

INV $ Billions Apr 2012 NSA

INV  Apr ∆% SA

INV  ∆% Apr 2012 from Apr 2011 NSA

US Total

1608.7

1.1

8.4

483.1

0.6

8.3

Durable

715.7

0.1

10.3

283.5

1.1

11.4

Automotive

130.1

3.8

24.8

44.6

1.7

21.7

Prof. Equip.

121.8

0.6

2.9

32.1

1.4

5.4

Computer Equipment

61.5

0.5

0.3

11.8

0.8

3.1

Electrical

119.7

0.1

3.7

40.5

0.5

5.1

Machinery

125.8

-1.0

18.0

76.2

2.4

17.7

Not Durable

892.9

1.9

7.0

199.7

-0.1

4.1

Drugs

143.1

0.3

5.0

33.5

-2.4

4.1

Apparel

44.8

3.8

4.4

20.6

0.5

8.1

Groceries

189.6

-0.7

10.1

33.2

-1.0

6.2

Farm Products

72.9

4.2

-6.9

21.3

-1.0

-13.1

Petroleum

260.4

4.8

10.8

29.5

2.0

7.3

Note: INV: inventories

Source: US Census Bureau http://www2.census.gov/wholesale/pdf/mwts/currentwhl.pdf

Inventory/sales ratios of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-10. The total for the US has remained almost unaltered at 1.17 in Mar-Apr 2012 and 1.15 in Apr 2011. Inventory/sales ratios are higher in durable goods industries but still remain relatively stable with 1.54 in Apr 2012 relative to 1.53 in Mar 2012 and 1.50 in Apr 2011. Computer equipment operates with low inventory/sales ratios of 0.73 in Apr 2012 relative to 0.70 in Apr 2011 because of the capacity to fill orders on demand. As expected because of perishable nature, nondurable inventory/sales ratios are quite low with 0.86 in Apr 2012, which is almost equal to 0.88 in Mar 2012 and 0.88 in Apr 2011. There are exceptions such as 1.85 in Apr 2012 in apparel that is lower than 1.91 in Mar 2012 and higher than 1.82 in Apr 2011 perhaps because of the expectation of stronger spring and summer sales.

Table VA-10, Inventory/Sales Ratios of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, % SA

 

Apr 2012

Mar 2012

Apr 2011

US Total

1.17

1.17

1.15

Durable

1.54

1.53

1.50

Automotive

1.36

1.39

1.41

Prof. Equip.

1.00

1.00

0.99

Comp. Equip.

0.73

0.72

0.70

Electrical

1.33

1.32

1.27

Machinery

2.36

2.28

2.25

Not Durable

0.86

0.88

0.88

Drugs

0.93

0.95

0.92

Apparel

1.85

1.91

1.82

Groceries

0.72

0.72

0.72

Farm Products

1.14

1.20

1.29

Petroleum

0.41

0.42

0.42

Sources: http://www2.census.gov/wholesale/pdf/mwts/currentwhl.pdf

Chart VA-9 provides the chart of the US Census Bureau with inventories/sales ratios of merchant wholesalers from 2002 to 2012 seasonally adjusted. Inventory/sales ratios rise during contractions as merchants are caught with increasing inventories because of weak sales and fall during expansions as merchants attempt to fill sales with existing stocks.

clip_image018

Chart VA-9, US, Monthly Inventories/Sales Ratios of Merchant Wholesalers, SA, 2002-2011

Source: US Census Bureau

http://www2.census.gov/wholesale/img/mwtsbrf.jpg

The report of consumer credit outstanding of the Board of Governors of the Federal Reserve System is provided in Table VA-10. The data are in seasonally-adjusted annual rates both percentage changes and billions of dollars. The estimate of consumer credit “covers most short- and intermediate-term credit extended to individuals, excluding loans secured by real estate (http://www.federalreserve.gov/releases/g19/current/default.htm). Consumer credit is divided into two categories. (1) Revolving consumer credit (REV in Table VA-10) consists mainly of unsecured credit cards. (2) Non-revolving consumer credit (NREV in Table VA-10) “includes automobile loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers or vacations” (http://www.federalreserve.gov/releases/g19/current/default.htm). In Apr 2012, revolving credit was $862 billion, or 33.8 percent of total consumer credit of $2551 billion, and non-revolving credit was $1689 billion, or 66.2 percent of total consumer credit outstanding. Consumer credit grew at relatively high rates before the recession beginning in IVQ2007 and extending to IIQ2009 as dated by the National Bureau of Economic Research or NBER (http://www.nber.org/cycles/cyclesmain.html). Percentage changes of consumer credit outstanding fell already in 2008. Rates were still negative in 2010 with decline of 1.3 percent in annual data and sharp decline of 7.4 percent in revolving credit. There was a sharp jump in consumer credit outstanding in Feb 2012: 4.0 percent total, flat in revolving and 6.1 percent non-revolving. Growth continued in Mar 2012 with 5.9 percent in total, 5.1 percent in revolving and 6.2 percent in non-revolving. Consumer credit increased 3.1 percent in Apr 2012 with decline of revolving credit by 4.8 percent but growth of non-revolving credit by 7.1 percent.

Table VA-10, US, Consumer Credit Outstanding, SA, Annual Rate and Billions of Dollars

 

Total ∆%

REV ∆%

NRV ∆%

Total $B

REV $B

NREV $B

2012

           

Apr

3.1

-4.8

7.1

2551

862

1689

Mar

5.9

5.1

6.2

2544

866

1679

Feb

4.0

0.0

6.1

2532

862

1670

IQ

5.8

0.0

8.6

2544

866

1679

2011

           

IVQ

6.7

3.2

8.6

2508

865

1643

IIIQ

2.3

0.0

3.7

2467

858

1609

IIQ

3.4

0.9

4.7

2453

859

1594

IQ

3.5

0.0

5.5

2433

857

1576

2011

4.0

0.9

5.7

2508

865

1643

2010

-1.3

-7.4

2.5

2412

857

1554

2009

-4.5

-8.8

-1.8

2439

922

1517

2008

0.8

0.0

1.2

2549

1010

1538

2007

5.9

8.5

4.3

2529

1008

1520

Note: REV: Revolving; NREV: Non-revolving; ∆%: simple annual rate from unrounded data; Total may not add exactly because of rounding

Source: Board of Governors of the Federal Reserve System http://www.federalreserve.gov/releases/g19/current/default.htm

Chart VA-10 of the Board of Governors of the Federal Reserve System provides percentage changes of total consumer credit outstanding in the US since 1972. The shaded bars are the cyclical contraction dates of the National Bureau of Economic Research. Consumer credit is cyclical, declining during contractions as shown by negative percentage changes during economic contractions. There is clear upward trend in 2012 but with significant fluctuations.

clip_image020

Chart VA-10, US, Consumer Credit Outstanding Seasonally Adjusted Annual Percentage Rate

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/DataDownload/Chart.aspx?rel=G19&series=e6e9c89642790566d37b8c2d61793359&lastObs=&from=&to=&filetype=csv&label=include&layout=seriescolumn&type=package&pp=Download

VB Japan. Table VB-BOJF provides the forecasts of economic activity and inflation in Japan by the majority of members of the Policy Board of the Bank of Japan, which is part of their Outlook for Economic Activity and Prices (http://www.boj.or.jp/en/mopo/outlook/gor1204a.pdf

http://www.boj.or.jp/en/mopo/outlook/gor1204b.pdf). For fiscal 2012, the forecast is of growth of GDP between 2.1 and 2.4 percent, with domestic producer price inflation (Corporate Goods Price Index, CGPI) in the range of 0.4 to 0.7 percent and the all items CPI less fresh food of 0.1 to 0.4 percent.

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

Fiscal Year
Date of Forecast

Real GDP

Domestic CGPI

CPI All Items Less Fresh Food

2011

     

Apr 2012

-0.2 to –0.2
[-0.2]

+1.7

0.0

Jan 2012

-0.4 to –0.3
[-0.4]

+1.8 to +1.9
[+1.8]

-0.1 to 0.0
[-0.1]

2012

     

Apr 2012

+2.1 to +2.4
[+2.3]

+0.4 to +0.7
[+0.6]

+0.1 to +0.4
[+0.3]

Jan 2012

+1.8 to +2.1
[+2.0]

-0.1 to +0.2
[+0.1]

0.0 to +0.2
[+0.1]

2013

     

Apr 2012

+1.6 to +1.8
[+1.7]

+0.7 to +0.9
[+0.8]

+0.5 to +0.7
[+0.7]

Jan 2012

+1.4 to +1.7
[+1.6]

+0.6 to 1.0
[+0.8]

+0.4 to +0.5
[+0.5]

Figures in brackets are the median of forecasts of Policy Board members

Source: Policy Board, Bank of Japan

http://www.boj.or.jp/en/mopo/outlook/gor1204a.pdf

http://www.boj.or.jp/en/mopo/outlook/gor1204b.pdf

Private-sector activity in Japan expanded at lower pace with the Markit Composite Output PMI Index declining from 51.3 in Apr to 50.1 in May (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9619). Alex Hamilton, economist at Markit and author of the report, finds softer conditions in Japan relative to Apr with the survey’s index suggesting movement toward stagnation (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9619). The Markit Business Activity Index of Services decreased from 51.0 in Apr to 49.8 in May, also showing slower pace and the first reading below 50.0 in six months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9619). The Markit/JMMA Purchasing Managers’ Index, seasonally adjusted, registered 50.7 in May, indicating marginal improvement in manufacturing in Japan (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9457). Alex Hamilton, economist at Markit and author of the report, finds output and new business growing at marginal rate with the impulse originating in investment goods while consumer and intermediate goods contracted (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9457). Table JPY provides the country data table for Japan.

Table JPY, Japan, Economic Indicators

Historical GDP and CPI

1981-2010 Real GDP Growth and CPI Inflation 1981-2010
Blog 7/31/11

Corporate Goods Prices

Apr ∆% 0.3
12 months ∆% minus 0.2
Blog 5/20/12

Consumer Price Index

Apr NSA ∆% 0.1
Apr 12 months NSA ∆% 0.4
Blog 5/27/12

Real GDP Growth

IQ2012 ∆%: 1.2 on IVQ2011;  IQ2012 SAAR 4.7;
∆% from quarter a year earlier: 2.8 %
Blog 6/10/12

Employment Report

Apr Unemployed 3.15 million

Change in unemployed since last year: minus 140 thousand
Unemployment rate: 4.6%
Blog 6/3/12

All Industry Indices

Mar month SA ∆% minus 0.3
12-month NSA ∆% 5.5

Blog 5/27/12

Industrial Production

Apr SA month ∆%: 0.2
12-month NSA ∆% 13.4
Blog 6/3/12

Machine Orders

Total Mar ∆% 4.1

Private ∆%: -4.3
Mar ∆% Excluding Volatile Orders -2.8
Blog 5/20/12

Tertiary Index

Mar month SA ∆% -0.6
Mar 12 months NSA ∆% 4.2
Blog 5/20/12

Wholesale and Retail Sales

Apr 12 months:
Total ∆%: +1.8
Wholesale ∆%: +0.3
Retail ∆%: +5.8
Blog 6/3/12

Family Income and Expenditure Survey

Apr 12-month ∆% total nominal consumption 3.2, real 2.6 Blog 6/3/12

Trade Balance

Exports Apr 12 months ∆%: +7.9 Imports Apr 12 months ∆% +8.0 Blog 5/27/12

Links to blog comments in Table JPY: 6/3/12 http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs_04.html

5/27/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-financial-turbulence-global_27.html

5/20/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy_20.html

7/31/11: http://cmpassocregulationblog.blogspot.com/2011/07/growth-recession-debt-financial-risk.html

The second estimate of the national accounts of Japan is encouraging. Japan’s GDP increased 1.2 percent in IQ2012 relative to IVQ2011, seasonally adjusted, as shown in Table VB-1 that incorporates the latest revisions. IIIQ2011 GDP growth was revised upward to 1.9 percent and IQ2011 was revised downward to minus 2.0 percent. The economy of Japan had already weakened in IVQ2010 when GDP was flat. As in other advanced economies, Japan’s recovery from the global recession has not been robust. GDP fell in IQ2011 by 2.0 percent and fell again 0.4 percent in IIQ2011 as a result of the disruption of the tragic Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Recovery was robust in the first two quarters of 2010. The deepest quarterly contractions in the recession were 3.2 percent in IVQ2008 and 3.9 percent in IQ2009.

Table VB-1, Japan, Real GDP ∆% Changes from the Previous Quarter Seasonally Adjusted ∆%

 

IQ

IIQ

IIIQ

IVQ

2012

1.2

     

2011

-2.0

-0.4

1.9

0.0

2010

1.3

1.2

0.8

0.0

2009

-3.9

1.6

0.0

1.9

2008

0.7

-1.3

-1.1

-3.2

2007

1.1

0.0

-0.4

1.0

2006

0.5

0.4

-0.1

1.3

2005

0.2

1.3

0.3

0.2

2004

1.0

0.0

0.1

-0.2

2003

-0.5

1.2

0.4

1.1

2002

-0.2

1.0

0.7

0.4

2001

0.7

-0.2

-1.1

-0.2

2000

1.7

0.1

-0.2

0.6

1999

-0.9

0.4

-0.1

0.4

Source: http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

Table VB-2 provides contributions to real GDP at seasonally-adjusted annual rates (SAAR). The SAAR of GDP in IQ2012 was 4.7 percent: 2.9 percentage points from growth of personal consumption expenditures (PC) less 0.6 percentage points from gross fixed capital formation (GFCF) plus 0.6 percentage points from government consumption (GOVC) plus net trade (exports less imports) of 0.5 percentage points plus 1.3 percentage point of private inventory change. The SAAR of GDP in IIIQ2011 was revised to a high 7.8 percent. Net trade deducted from GDP growth in three quarters of 2011 and provided the growth impulse of 3.1 percentage points in IIIQ2011. Growth in 2011 and IQ2012 has been driven by personal consumption expenditures.

Table VB-2, Japan, Contributions to Changes in Real GDP, Seasonally Adjusted Annual Rates (SAAR), %

 

GDP

PC

GFCF

Trade

PINV

GOVC

2012

           

I

4.7

2.9

-0.6

0.5

1.3

0.6

2011

           

I

-7.7

-3.5

-0.7

-0.9

-2.9

0.3

II

-1.7

1.4

0.8

-4.0

-0.5

0.6

III

7.8

2.6

0.4

3.1

1.4

0.2

IV

0.1

1.7

2.5

-2.9

-1.5

0.3

2010

           

I

5.3

1.4

0.3

2.2

1.9

-0.4

II

4.8

0.7

1.2

0.2

1.5

1.3

III

3.1

1.0

0.6

0.0

1.4

0.2

IV

-0.1

0.5

-1.0

-0.2

0.2

0.3

2009

           

I

-14.9

-2.1

-2.0

-4.3

-7.3

0.9

II

6.4

4.0

-3.1

7.3

-2.3

0.5

III

0.0

0.2

-1.4

1.8

-1.5

0.9

IV

8.0

3.5

0.2

3.0

0.8

0.4

2008

           

I

2.9

1.3

0.4

1.4

-0.3

0.0

II

-5.2

-3.4

-2.3

0.2

1.1

-0.9

III

-4.2

-0.1

-1.0

-0.2

-2.8

-0.1

IV

-12.0

-2.8

-4.5

-11.1

5.8

0.4

2007

           

I

4.3

0.8

0.5

1.3

1.3

0.4

II

0.1

0.4

-1.5

0.5

0.1

0.5

III

-1.6

-0.7

-1.7

1.8

-0.9

-0.2

IV

4.0

0.3

0.3

1.7

1.1

0.6

Note: PC: Private Consumption; GFCF: Gross Fixed Capital Formation; PINV: Private Inventory; Trade: Net Exports; GOVC: Government Consumption

Source: http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

Japan’s quarterly growth of GDP not seasonally-adjusted relative to the same quarter a year earlier is shown in Table VB-3. Contraction of GDP extended over seven quarters from IIQ2008 through IVQ2009. Contraction was sharpest in IQ2009 with output declining 9.3 percent relative to a year earlier. Yearly quarterly rates of growth of Japan were relatively high for a mature economy through the decade with the exception of the contractions in 2001-2002 and after 2007. The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 caused decline of GDP in IQ2011 of 0.2 percent relative to the same quarter a year earlier and decline of 1.8 percent in IIQ2011. GDP fell 0.5 percent in IIIQ2011 relative to a year earlier and fell 0.6 percent in IVQ2011 relative to a year earlier. Growth resumed with 2.8 percent in IQ2012 relative to a year earlier. Japan faces the challenge of recovery from the devastation of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 in an environment of declining world trade and bouts of risk aversion that cause appreciation of the Japanese yen that erode the country’s competitiveness in world markets.

Table VB-3, Japan, Real GDP ∆% Changes from Same Quarter Year Earlier, NSA ∆%

 

IQ

IIQ

IIIQ

IVQ

2012

2.8

     

2011

-0.2

-1.8

-0.5

-0.6

2010

4.9

4.4

5.5

3.1

2009

-9.3

-6.6

-5.6

-0.5

2008

1.4

-0.1

-0.6

-4.7

2007

2.8

2.3

2.0

1.6

2006

2.6

1.3

0.9

2.0

2005

0.4

1.4

1.5

1.9

2004

4.0

2.6

2.2

0.7

2003

1.7

1.8

1.5

1.8

2002

-1.6

-0.2

1.4

1.6

2001

1.6

0.9

0.0

-1.0

2000

2.7

2.4

2.2

1.8

1999

-0.3

0.1

-0.1

-0.5

Source: http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

VC China. China estimates an index of nonmanufacturing purchasing managers on the basis of a sample of 1200 nonmanufacturing enterprises across the country (http://www.stats.gov.cn/english/pressrelease/t20120605_402810072.htm). Table CIPMS provides this index and components from Jan to May 2012. The index fell from 57.3 in Mar to 55.2 in May and is now lower than 55.7 in Jan but still remains above the threshold of contraction of 50.0.

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

 

Total Index

New Orders

Interm.
Input Prices

Subs Prices

Exp

May

55.2

52.5

53.6

48.5

65.4

Apr

56.1

52.7

57.9

50.3

66.1

Mar

58.0

53.5

60.2

52.0

66.6

Feb

57.3

52.7

59.0

51.2

63.8

Jan

55.7

52.2

58.2

51.1

65.3

Notes: Interm.: Intermediate; Subs: Subscription; Exp: Business Expectations

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/pressrelease/t20120605_402810072.htm

Chart CIPMS provides China’s nonmanufacturing purchasing managers’ index from May 2011 to May 2012. There was slowing of the general index in Apr 2012 after the increase in Jan-Mar 2012 and further decline to 55.2 in May 2012, which is the lowest level since May 2011.

clip_image021

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

Source: National Bureau of Statistics of China

China estimates a manufacturing index of purchasing managers on the basis of a sample of 820 enterprises (http://www.stats.gov.cn/english/pressrelease/t20120605_402810071.htm). Chart CIPMM provides the index from May 2011 to May 2012. There is deceleration from 52.0 in May 2011 to marginal contraction at 49.0 in Nov 2011. Manufacturing activity recovered to 53.3 in Apr 2012 but then declined to 50.4 in May 2012, which is the second lowest level in a year, lower than 49.0 in Nov 2011 and equal to 50.4 in Oct 2011, and close to the contraction zone at 50.0.

clip_image022

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

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/pressrelease/t20120605_402810071.htm

The HSBC China Services PMI, compiled by Markit, improving business activity in China with the HSBC Composite Output, combining manufacturing and services, increasing from 51.4 in Apr to 51.9 in May for a second consecutive month above 50.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9620). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds improving activity in services resulting from continuing gains in new business (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9620

).The HSBC Purchasing Managers’ Index (PMI), compiled by Markit, fell slightly to 48.4 in May from 49.3 in Feb, in a seventh consecutive month of declining conditions in manufacturing in China but at a marginal rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9613). The index for the first quarter of 2012 was the weakest since IQ2009. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds continuing slowdown in China’s economy into IIQ2012, which requires further reduction of bank reserve requirements and the policy interest rate together with fiscal measures (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9613).

Wang Xiaotian, writing on China Daily, on “China cuts its reserve ratio again,” published by Xinhuanet on May 13, 2012 (http://news.xinhuanet.com/english/china/2012-05/13/c_131584252.htm), informs that the People’s Bank of China (PBC) (http://www.pbc.gov.cn/publish/english/963/index.html) reduced the reserve requirement imposed on Chinese lenders by 50 basis points with the objective of injecting liquidity to strengthen the economy. This is the second such reduction of reserve requirements in 2012. The reduction is estimated to release CNY 400 in China’s money market. The reserve requirement will be 20 percent for larger banks and 16.5 percent for smaller banks. On Jun 8, 2012, the People’s Bank of China lowered the one year benchmark deposit and loan interest rates by 25 basis points (http://www.pbc.gov.cn/publish/english/955/2012/20120608171005950734495/20120608171005950734495_.html). The measures are intended to strengthen the economy. Table CNY provides the country data table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry

Apr 12-month ∆%: minus 0.7

Apr month ∆%: 0.2
Blog 5/13/12

Consumer Price Index

Apr month ∆%: -0.1 Apr 12 month ∆%: 3.4
Blog 5/13/12

Value Added of Industry

Mar month ∆%: 0.93

Jan-Apr 2012/Jan-Apr 2011 ∆%: 11.0
Blog 5/20/12

GDP Growth Rate

Year IQ2012 ∆%: 8.1
Quarter IQ2012 ∆%: 1.8
Blog 4/15/12

Investment in Fixed Assets

Total Jan-Apr 2012 ∆%: 20.2

Real estate development: 18.7
Blog 5/20/12

Retail Sales

Apr month ∆%: 1.1
Apr 12 month ∆%: 14.1

Jan-Apr ∆%: 14.7
Blog 5/20/12

Trade Balance

Apr balance $18.42 billion
Exports ∆% 4.9
Imports ∆% 0.3

Cumulative Apr: $19.3 billion
Blog 5/13/12

Links to blog comments in Table CNY:

5/20/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy_20.html

5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html

4/15/12 http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring_15.html

VD Euro Area. Table VD-EUR provides inflation, unemployment and real GDP growth in the euro area yearly from 1999 to 2011 together with growth forecasts of EUROSTAT for 2012 and 2013. Inflation in the euro zone remained subdued around 2 percent in the first five years of the euro zone from 1999 to 2004, as shown in Table VD-EUR. Inflation climbed above 2.0 percent after 2005, peaking at 3.3 percent in 2008 with the surge in commodity prices but falling to 0.3 percent in 2009 with the collapse of commodity prices. Inflation climbed back to 1.6 percent in 2010 and 2.7 percent in 2011. Under the regime of zero interest rates inflation returns worldwide during relaxation of risk aversion. The rate of unemployment increased in 2011 while the rate of GDP growth fell. EUROSTAT forecasts slightly negative growth of 0.3 percent in 2012 and growth of 1.0 percent in 2013.

Table VD-EUR, Euro Area, Yearly Percentage Change of Harmonized Index of Consumer Prices, and GDP ∆% and Unemployment Rate

Year

HICP ∆%

Unemployment
%

GDP ∆%

1999

1.2

9.6

2.9

2000

2.2

8.7

3.8

2001

2.4

8.1

2.0

2002

2.3

8.5

0.9

2003

2.1

9.0

0.7

2004

2.2

9.3

2.2

2005

2.2

9.2

1.7

2006

2.2

8.5

3.3

2007

2.1

7.6

3.0

2008

3.3

7.6

0.4

2009

0.3

9.6

-4.4

2010

1.6

10.1

2.0

2011

2.7

10.2

1.5

2012*

   

-0.3

2013*

   

1.0

*EUROSTAT forecast

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

The Markit Eurozone PMI® Composite Output Index, combining services and manufacturing activity with close association with GDP, fell from 46.7 in Apr to 46.0 in May (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9638) in the deepest contraction since the Jun 2009. Chris Williamson, Chief Economist at Markit, finds that the data are consistent with decline of GDP at a quarterly rate of 0.5 percent IIQ2012 but even higher depending on data for Jun, which could result in the third consecutive quarterly contraction of euro area GDP (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9638). The Markit Eurozone Manufacturing PMI® declined close to a three-year low at 45.1 in May from 45.9 in Apr in ten consecutive monthly readings of contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9460). Chris Williamson, Chief Economist at Markit, finds that the index suggests manufacturing in the euro area in May declined at a quarterly rate of about 1 percent, exerting pressure on GDP in IIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9460). Table EUR provides the regional data table for the euro area.

Table EUR, Euro Area Economic Indicators

GDP

IQ2012 ∆% 0.0; IQ2012/IQ2011 ∆% -0.1 Blog 6/10/12

Unemployment 

Apr 2012: 11.0% unemployment rate

Apr 2012: 17.405 million unemployed

Blog 6/3/12

HICP

Apr month ∆%: 0.5

12 months Apr ∆%: 2.6
Blog 5/20/12

Producer Prices

Euro Zone industrial producer prices Apr ∆%: 0.0
Apr 12-month ∆%: 2.6
Blog 6/3/12

Industrial Production

Mar month ∆%: -0.3; Mar 12 months ∆%: -2.2
Blog 5/20/12

Retail Sales

Apr month ∆%: -1.0
Apr 12 months ∆%: -2.5
Blog 6/10/12

Confidence and Economic Sentiment Indicator

Sentiment 90.6 May 2012

Confidence minus 19.3 May 2012

Blog 6/3/12

Trade

Jan-Mar 2012/Jan-Mar 2011 Exports ∆%: 8.5
Imports ∆%: 3.4

Mar 2012 12-month Exports ∆% 4.4 Imports ∆% -0.4
Blog 5/20/12

HICP, Rate of Unemployment and GDP

Historical from 1999 to 2011 Blog 5/20/12

Links to blog comments in Table EUR:

6/3/12 http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs_04.html

5/20/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy_20.html

Table VD-1 provides yearly growth rates of the combined GDP of the members of the European Monetary Union (EMU) or euro area since 1996. Growth was very strong at 3.3 percent in 2006 and 3.0 percent in 2007. The global recession had strong impact with growth of only 0.4 percent in 2008 and decline of 4.4 percent in 2009. Recovery was at lower growth rates of 2.0 percent in 2010 and 1.5 percent in 2011. EUROSTAT forecasts growth of GDP of the euro area of minus 0.3 percent in 2012 but growth of 1.0 percent in 2013.

Table VD-1, Euro Area, Real GDP Growth Rate

Year

∆%

2013 EUROSTAT Forecast

1.0

2012 EUROSTAT Forecast

-0.3

2011

1.5

2010

2.0

2009

-4.4

2008

0.4

2007

3.0

2006

3.3

2005

1.7

2004

2.2

2003

0.7

2002

0.9

2001

2.0

2000

3.8

1999

2.9

1998

2.8

1997

2.6

1996

1.5

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tsieb020

Table VD-2 provides GDP growth in IVQ2011 and relative to the same quarter a year earlier for the euro zone, European Union, Japan and the US. Both the euro zone and the European Union experienced flat growth of GDP in IQ2012 relative to IVQ2011 and flat growth in IQ2012 relative to IQ2011 for the euro area and minus 0.1 percent for the European Union. Growth in IVQ2011 and IQ2012 was weak worldwide with somewhat stronger performance by the US but still insufficient to reduce unemployment and underemployment (http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html) with depressed hiring (http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million.html).

Table VD-2, Euro Zone, European Union, Japan and USA, Real GDP Growth

 

∆% IQ2012/ IVQ2011

∆% IQ2012/ IQ2011

Euro Zone

0.0

-0.1

European Union

0.0

0.1

Germany

0.5

1.2

France

0.0

0.3

Netherlands

-0.2

-1.3

Finland

0.8

1.7

Belgium

0.3

0.5

Portugal

-0.1

-2.2

Ireland

NA

NA

Italy

-0.8

-1.3

Greece

NA

-6.2

Spain

-0.3

-0.4

United Kingdom

0.3

-0.1

Japan

1.0

2.6

USA

0.5

2.0

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-06062012-AP/EN/2-06062012-AP-EN.PDF

Chart VD-1 of EUROSTAT provides growth rates for the euro zone and European Union. There are significant differences in growth experience. Countries in need of fiscal adjustment are growing slowly or contracting.

clip_image023

Chart VD-1, Euro Zone, European Union, Real GDP Growth ∆% on Previous Year

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/tgm/graph.do?tab=graph&plugin=1&pcode=tsieb020&language=en&toolbox=type

Table VD-3 provides growth rates for the euro zone and European Union estimated by EUROSTAT. There is deterioration in the quarterly rates with equal declines of 0.3 percent in IVQ2011 and flat performance in IQ2012. The euro area experienced GDP decline of 0.1 percent in IQ2012 relative to IQ2011 while the European Union grew 0.1 percent.

Table VD-3, Euro Area and European Union, Growth of Real GDP

 

IIQ2011

IIIQ2011

IVQ2011

IQ2012

∆% from Prior Quarter

       

EA 17

0.1

0.1

-0.3

0.0

EU 27

0.2

0.3

-0.3

0.0

∆% from Same Quarter Year Earlier

       

EA 17

1.6

1.3

0.7

-0.1

EA 27

1.7

1.4

0.8

0.1

Notes: EA: Euro Area; EU: European Union

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-06062012-AP/EN/2-06062012-AP-EN.PDF

Advanced economies are experiencing weak demand. Table VD-4 provides month and 12-month percentage changes of the volume of retail sales in the euro zone from Jan 2011 to Apr 2012. Retail sales increased revised 0.3 percent in Mar 2012 and fell 0.2 percent in the 12 months ending in Mar 2012 but fell 1.0 percent in Apr, increasing the rate of decline in 12 months to 2.5 percent. The 12-month rates of growth have become negative since Mar 2011 with exception of 1.0 percent in Apr and stability in Aug. The lower part of Table VD-4 provides annual percentage changes of inflation-adjusted retail sales in the euro zone since 1990. Retail sales fell 2.4 percent in 2009 after falling 0.8 percent in 2008 and fell again by 0.6 percent in 2011. The average yearly rate of increase of retail sales from 1999 to 2007 was 2.0 percent but growth has not recovered. The average yearly rate of increase for the entire period 1999 to 2011 is lower at 1.1 percent.

Table VD-4, Euro Zone, Volume of Retail Sales, Deflated ∆%

 

Month ∆%

12-Month ∆%

Apr 2012

-1.0

-2.5

Mar

0.3

-0.2

Feb

-0.2

-2.0

Jan

1.1

-1.1

Dec 2011

-1.3

-1.7

Nov

-0.3

-1.3

Oct

-0.1

-0.7

Sep

-0.6

-1.1

Aug

-0.1

0.0

Jul

0.5

-0.4

Jun

0.9

-0.8

May

-1.5

-1.8

Apr

1.0

1.0

Mar

-1.1

-1.4

Feb

0.3

1.1

Jan

0.3

0.9

Annual ∆%

   

2011

 

-0.6

2010

 

0.9

2009

 

-2.4

2008

 

-0.8

2007

 

1.6

2006

 

2.2

2005

 

2.0

2004

 

1.5

2003

 

0.9

2002

 

1.2

2001

 

2.1

2000

 

2.5

1999

 

2.3

Average ∆% 1999-2007

 

2.0

Average ∆% 1999-2011

 

1.1

Source:

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

Growth rates of retail sales of the euro zone by major segments are in Table VD-5. Total sales fell 1.0 percent in Apr 2012 and declined 2.5 percent in the 12 months ending in Apr 2012. The 12-month percentage change for food, drinks and tobacco is positive by 0.3 percent in the month of Apr and nonfood products excluding automotive fuel fell 1.4 percent. All 12-month percentage changes are negative by more than 2 percent.

Table VD-5, Euro Zone, Volume of Retail Sales by Products, ∆%

Apr 2012

Month ∆%

12-Month ∆%

Total

-1.0

-2.5

Food, Drinks, Tobacco

0.3

-2.3

Nonfood Products ex Automotive Fuel

-1.4

-2.1

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05062012-AP/EN/4-05062012-AP-EN.PDF

Month and 12-month percentage rates of change of retail sales by member countries of the euro zone are shown in Table VD-6 for Apr 2012. Retail sales are weak throughout the euro zone. The 12-month percentage changes are negative for all members in Table VD-4 with the exception of 1.3 percent for Germany. The 12-month percentage change for the UK, which is not a member of the euro zone, was 0.3 percent. The European Union’s 12-month percentage change was also negative by 1.9 percent.

Table VD-6, Euro Zone, Volume of Retail Sales by Member Countries, ∆%

Mar 2012

Month ∆%

12-Month ∆%

Euro Zone

-1.0

-2.5

Germany

0.6

1.3

France

-1.5

0.6

Netherlands

NA

NA

Finland

-2.7

-0.7

Belgium

-1.2

-4.5

Portugal

-2.1

-9.3

Ireland

-1.8

-3.3

Italy

NA

NA

Greece

NA

NA

Spain

-2.4

-9.6

UK

-1.8

-0.3

European Union

-1.1

-1.9

Source: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05062012-AP/EN/4-05062012-AP-EN.PDF

VE Germany. Table VE-DE provides yearly growth rates of the German economy from 1992 to 2011, price adjusted chain-linked and price and calendar-adjusted chain-linked. Germany’s GDP fell 5.1 percent in 2009 after growing below trend at 1.1 percent in 2008. Recovery has been robust in contrast with other advanced economy. The German economy grew at 3.7 percent in 2010 and at 3.0 percent in 2011. Growth slowed in 2011 from 1.3 percent in IQ2011, 0.3 percent in IIQ2011 and 0.6 percent in IIIQ2011 to decline of 0.2 percent in IVQ2011 and growth of 0.5 percent in IQ2012. The Federal Statistical Agency of Germany analyzes the fall and recovery of the German economy (http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/Aktuell,templateId=renderPrint.psml):

“The German economy again grew strongly in 2011. The price-adjusted gross domestic product (GDP) increased by 3.0% compared with the previous year. Accordingly, the catching-up process of the German economy continued during the second year after the economic crisis. In the course of 2011, the price-adjusted GDP again exceeded its pre-crisis level. The economic recovery occurred mainly in the first half of 2011. In 2009, Germany experienced the most serious post-war recession, when GDP suffered a historic decline of 5.1%. The year 2010 was characterised by a rapid economic recovery (+3.7%).”

Table VE-DE, Germany, GDP Year ∆%

 

Price Adjusted Chain-Linked

Price- and Calendar-Adjusted Chain Linked

2011

3.0

3.1

2010

3.7

3.6

2009

-5.1

-5.1

2008

1.1

0.8

2007

3.3

3.4

2006

3.7

3.9

2005

0.7

0.8

2004

1.2

0.7

2003

-0.4

-0.4

2002

0.0

0.0

2001

1.5

1.6

2000

3.1

3.3

1999

1.9

1.8

1998

1.9

1.7

1997

1.7

1.8

1996

0.8

0.8

1995

1.7

1.8

1994

2.5

2.5

1993

-1.0

-1.0

1992

1.9

1.5

Source: Statistiche Bundesamt Deutschland

https://www.destatis.de/EN/PressServices/Press/pr/2012/05/PE12_178_811.html

The Markit Germany Composite Output Index of the Markit Germany Services PMI®, combining manufacturing and services with close association with Germany’s GDP, fell from 50.5 in Apr to 49.3 in May, indicating marginal deterioration in private sector output for the first time in six months and the deepest since Jul 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9659). Tim Moore, Senior Economist at Markit and author of the report, finds that the index suggests flat GDP in Germany in IIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9659). The Markit/BME Germany Purchasing Managers’ Index® (PMI®), showing close association with Germany’s manufacturing output, fell from 46.2 in Apr to 45.2 in May, indicating the sharpest decline of manufacturing conditions since Jun 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9626). Tim Moore, Senior Economist at Markit and author of the report, finds that Germany’s manufacturing output is showing the sharpest drop in about three years with contracting orders from export markets (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9626). Table DE provides the country data table for Germany.

Table DE, Germany, Economic Indicators

GDP

IQ2012 0.5 ∆%; I/Q2012/IQ2011 ∆% 1.7

2011/2010: 3.0%

GDP ∆% 1992-2011

Blog 5/27/12

Consumer Price Index

May month SA ∆%: -0.2
May 12-month ∆%: 1.9
Blog 6/3/12

Producer Price Index

Apr month ∆%: 0.2
12-month NSA ∆%: 2.4
Blog 5/20/12

Industrial Production

Mfg Apr month SA ∆%: -0.9
12-month NSA: -2.3
Blog 6/10/12

Machine Orders

Apr month ∆%: -3.7
Apr 12-month ∆%: -1.9
Blog 6/10/12

Retail Sales

Apr Month ∆% 0.6

12-Month ∆% minus 3.8

Blog 6/3/12

Employment Report

Unemployment Rate Mar 5.2%
Blog 6/3/12

Trade Balance

Exports Apr 12-month NSA ∆%: 3.4
Imports Apr 12 months NSA ∆%: -1.0
Exports Apr month SA ∆%: -1.7; Imports Apr month SA -4.8

Blog 6/10/12

Links to blog comments in Table DE:

6/3/12 http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs_04.html

5/27/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-financial-turbulence-global_27.html

5/20/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy_20.html

The production industries index of Germany in Table VE-1 shows decrease of 2.2 percent in Apr and decrease of 0.7 percent in the 12 months ending in Apr 2012. Germany’s production industries suffered decline of 7.3 percent in Dec 2008 relative to Dec 2007 and decline of 2.3 percent in 2009. Recovery was vigorous with 14.2 percent in the 12 months ending in Dec 2010. The first quarter of 2011 was quite strong when the German economy outperformed the other advanced economies. The performance of Germany’s production industries from 2003 to 2006 was vigorous with average rate of 4.4 percent. Data for the production industries index of Germany fluctuate sharply from month to month and also in 12-month rates.

Table VE-1, Germany, Production Industries, Month and 12-Month ∆%

 

12-Month ∆% NSA

Month ∆% Calendar SA

Apr 2012

-0.7

-2.2

Mar

-0.7

2.2

Feb

2.2

-0.4

Jan

4.6

0.8

Dec 2011

1.2

-2.0

Nov

4.6

0.1

Oct

0.4

0.5

Sep

5.5

-2.2

Aug

11.3

-0.3

Jul

6.5

3.0

Jun

0.0

-1.0

May

18.9

1.0

Apr

5.8

-0.3

Mar

10.3

0.0

Feb

16.4

1.2

Jan

16.0

0.7

Dec 2010

14.2

 

Dec 2009

-2.3

 

Dec 2008

-7.3

 

Dec 2007

-0.1

 

Dec 2006

2.5

 

Dec 2005

4.9

 

Dec 2004

5.3

 

Dec 2003

5.1

 

Dec 2002

2.0

 

Average ∆% 2003-2006

4.4

 

Source: Statistiche Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Table VE-2 provides monthly percentage changes of the German production industries index by components from Sep 2011 to Apr 2012. There were three sharp declines in the monthly production industries of 2.2 percent in Sep 2011, 2.0 percent in Dec and 2.4 percent in Apr 2012 with much milder recoveries in the other months. The declines of investment or capital goods were quite sharp with 4.0 percent in Sep 2011 and 3.6 percent in Apr 2012. Durable goods and nondurable goods fell in five of the eight months from Sep 2011 to Apr 2012.

Table VE-2, Germany, Production Industries, Industry and Components, Month ∆%

 

Apr

Mar

Feb

Jan

Dec

Nov

Oct

Sep

Production
Industries

-2.2

2.2

-0.4

0.8

-2.0

0.1

0.5

-2.2

Industry

-2.4

1.1

0.2

0.6

-1.5

-0.3

0.5

-2.3

Mfg

-2.3

1.1

0.3

0.7

-1.5

-0.3

0.5

-2.3

Intermediate Goods

-0.4

0.2

-0.1

0.9

-1.8

-0.3

-0.2

-1.9

Investment
Goods

-3.6

1.6

1.0

0.7

-1.4

-0.2

1.4

-4.0

Durable Goods

-1.6

0.4

-1.4

1.2

-1.7

-1.9

1.4

-0.2

Nondurable Goods

-4.1

2.6

-1.2

-0.6

-0.7

0.0

-0.2

1.3

Energy

2.4

-2.0

6.7

1.1

-6.8

1.6

1.5

-2.2

Seasonally Calendar Adjusted

Source: Statistiche Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Table VE-3 provides 12-month unadjusted percentage changes of industry and components in Germany. Although there are sharp fluctuations in the data there is suggestion of deceleration that would be expected from much higher earlier rates. The deceleration is quite evident in single-digit percentage changes in the quarter Sep 2011 to Mar 2012 relative to high double-digit percentage changes in Jan-Mar 2011. Growth rates in the recovery from the global recession from IVQ2007 to IIQ2009 were initially very vigorous in comparison with the growth rates before the contraction that are shown in the bottom part of Table VE-3.

Table VE-3, Germany, Industry and Components, 12-Month ∆% Unadjusted

 

IND

MFG

INTG

INVG

DG

NDG

EN

2012

             

Apr

-1.1

-0.9

-1.3

1.3

-5.9

-6.1

-3.4

Mar

-0.2

-0.2

-2.0

2,9

-6.5

-3.2

-6.3

Feb

3.5

3.6

1.8

7.4

-0.7

-2.0

0.0

Jan

6.2

6.1

4.6

9.7

4.3

1.4

-12.0

2011

             

Dec

1.4

1.4

2.5

1.0

-0.4

0.2

-16.4

Nov

4.9

5.1

3.9

7.9

1.9

0.0

-4.0

Oct

1.1

1.2

0.4

3.6

-2.7

-2.8

-7.2

Sep

6.4

6.5

6.4

8.9

3.6

0.2

-6.3

Aug

12.8

12.6

10.8

20.2

4.5

1.2

-3.5

Jul

8.0

8.1

6.5

13.1

7.7

-0.5

-8.1

Jun

0.9

0.9

1.6

2.0

-10.5

-2.0

-7.4

May

21.4

21.4

17.7

28.3

21.7

13.4

-12.0

Apr

7.4

7.5

5.9

11.1

4.9

2.2

-8.2

Mar

10.7

10.9

10.0

14.9

8.5

2.1

1.2

Feb

16.8

17.0

16.1

22.4

11.0

6.1

-2.2

Jan

16.8

17.1

16.7

23.2

11.2

4.2

-1.8

2010

             

Dec

17.5

17.6

14.5

26.3

9.1

2.9

4.8

Nov

13.8

13.8

13.1

19.0

7.9

3.6

2.9

Oct

9.9

10.1

10.1

13.9

6.5

0.9

0.2

Sep

9.5

9.3

12.1

10.0

7.9

1.7

-2.4

Aug

17.2

17.2

19.0

20.3

19.5

6.9

-2.1

Jul

9.1

8.8

12.7

8.7

7.2

0.9

-0.2

Jun

16.2

16.1

20.5

16.0

20.5

5.3

-2.5

May

13.3

13.3

20.2

11.6

10.7

1.7

12.8

Apr

14.9

14.8

21.8

15.3

8.5

0.0

9.9

Mar

14.2

14.5

20.4

11.7

11.8

6.4

7.2

Feb

7.1

7.5

10.8

7.0

7.4

-1.2

5.4

Jan

0.6

0.9

6.7

-3.4

-0.4

-3.9

3.3

Dec 2010

17.5

17.6

14.5

26.3

9.1

2.9

4.8

Dec 2009

-3.3

-3.2

3.3

-9.9

-0.1

1.1

3.8

Dec 2008

-7.6

-7.4

-14.4

-5.5

-11.2

3.7

-9.0

Dec 2007

0.1

-0.3

-0.6

2.5

-10.0

-2.6

1.7

Dec 2006

3.1

3.1

5.2

2.3

8.7

-1.0

-5.4

Dec 2005

5.8

5.8

3.5

8.9

3.2

2.2

0.6

Dec 2004

5.2

5.6

7.6

3.4

0.9

5.7

9.6

Dec 2003

5.5

5.3

5.6

6.3

1.6

4.6

0.3

Dec 2002

3.7

3.4

5.3

3.4

-5.9

2.2

-2.6

Note: IND: Industry; MFG: Manufacturing; INTG: Intermediate Goods; INVG: Investment Goods; DG: Durable Goods; NDG: Nondurable Goods; EN: Energy

Source:  Statistiche Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Broader perspective since 2002 is provided by Chart VE-1 of the Statistiche Bundesamt Deutschland, Federal Statistical Agency of Germany. The index rises by more than one third between 2003 and 2008 with sharp fluctuations and then collapses during the global recession in 2008. Recovery has been in a steep upward trajectory that has recovered at the more recent peaks the losses during the contraction. Recovery was reversed by the drop in Dec with strong rebound into 2012 and another sharp drop in Apr 2012.

clip_image025

Chart VE-1, Germany, Production Industries, Not Adjusted, 2005=100

Source: Statistiche Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

More detail is provided by Chart VE-2 of the Statistiche Bundesamt Deutschland, or Federal Statistical Agency of Germany, with the unadjusted production industries index and trend from 2007 to 2012. There could be some flattening in recent months as depicted by trend.

clip_image027

Chart VE-2, Germany, Production Index, Production Industries, Not Adjusted Index and Trend, 2005=100

Source: Statistiche Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Table VE-4 provides month and 12-month rates of growth of manufacturing in Germany in 2011 and Jan-Apr 2012. There are fluctuations in both monthly rates and in the past 12 months. Recovery is strong in Jan-Mar 2012 with cumulative growth of 2.1 percent at the high annual equivalent rate of 8.7 percent but the drop in Apr 2012 of 2.3 percent results in decline of 0.2 percent in the first four months of 2012 that pulls down the 12-month rate of Apr 2012 to minus 0.9 percent.

Table VE-4, Germany, Manufacturing Month and 12-Month ∆%

 

12-Month ∆% NSA

Month ∆% SA and Calendar Adjusted

Apr 2012

-0.9

-2.3

Mar

-0.2

1.1

Feb

3.6

0.3

Jan

6.1

0.7

Dec 2011

1.4

-1.5

Nov

5.1

-0.3

Oct

1.2

0.5

Sep

6.5

-2.3

Aug

12.6

-0.3

Jul

8.1

3.2

Jun

0.9

-1.1

May

21.4

1.3

Apr

7.5

0.4

Mar

10.9

0.7

Feb

17.0

1.4

Jan

17.1

-0.5

Dec

17.6

1.9

Source: Statistiche Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Chart VE-3 of the Statistiche Bundesamt Deutschland, or Federal Statistical Office of Germany, provides the manufacturing index of Germany from 2007 to 2012. Manufacturing was already flattening in 2007 and fell sharply in 2008 to the beginning of 2010. Manufacturing grew sharply in the initial phase of recovery but has flattened in recent months as revealed by the trend.

clip_image029

Chart VE-3, Germany, Manufacturing Index, Not Adjusted Index and Trend, 2005=100

Source: Statistiche Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Several tables and charts facilitate analysis of machinery orders in Germany. Table VE-5 reveals strong fluctuations in an evident deceleration of total orders for industry of Germany. The same behavior is observed for total, foreign and domestic orders with decline in 12-month rates from two-digit levels to single digits and some negative changes. 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. Total orders fell 1.9 percent in Apr 2012 with increase of 0.4 percent in domestic orders and sharp decrease of 3.6 percent of foreign orders. In contrast, there was strength in Mar 2012 with increases of total orders by 3.2 percent, domestic orders by 1.8 percent and foreign orders by 4.4 percent. As in other countries, data on orders for manufacturing are highly volatile. All 12-month percentage changes from Feb 2012 to Apr 2012 in Table VE-5 are negative.

Table VE-5, 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

2012

           

Apr

-3.7

-1.9

-4.6

-3.6

-2.6

0.4

Mar

-2.9

3.2

-0.9

4.4

-3.3

1.8

Feb

-4.5

0.6

-4.9

1.7

-3.9

-0.8

Jan

-3.1

-1.4

-5.7

-3.8

0.1

1.7

2011

           

Dec

-0.2

0.7

-0.8

3.7

0.6

-2.9

Nov

-4.2

-2.8

-7.6

-4.4

0.0

-0.7

Oct

0.6

2.7

2.2

4.7

-1.3

0.6

Sep

2.4

-4.6

1.2

-6.2

3.8

-2.8

Aug

6.8

-0.4

4.3

0.3

10.1

-1.3

Jul

5.6

-3.2

5.7

-7.5

5.6

2.6

Jun

3.8

1.0

8.0

10.8

-1.6

-9.7

May

22.7

2.5

16.2

-3.3

30.2

9.7

Apr

6.9

1.7

9.9

1.7

3.4

1.7

Mar

9.1

-2.5

11.9

-2.3

5.8

-2.8

Feb

21.5

0.6

24.8

-0.3

17.8

1.9

Jan

22.4

4.3

26.5

3.4

17.6

5.6

2010

           

Dec

22.2

-3.4

27.3

-3.5

15.8

-3.3

Nov

21.5

5.6

26.8

8.8

15.6

1.8

Oct

14.1

1.3

17.7

0.9

10.4

1.8

Sep

13.9

-2.8

16.0

-5.3

11.6

0.4

Aug

23.5

3.5

31.9

6.1

14.4

0.3

Jul

14.2

-2.2

21.7

-3.2

6.3

-1.2

Jun

28.5

4.0

32.0

6.3

24.3

1.5

May

24.4

-0.1

28.9

0.3

19.9

-0.7

Apr

29.3

2.1

33.0

2.1

25.2

2.2

Mar

29.4

6.1

32.3

6.9

26.4

5.3

Feb

23.4

-0.3

27.6

-0.2

18.6

-0.4

Jan

16.7

4.6

23.6

4.2

9.7

5.0

Dec 2009

9.2

-2.5

10.6

-2.7

7.4

-2.1

Dec 2008

-28.2

-7.2

-31.5

-9.7

-23.7

-4.2

Dec 2007

7.1

-1.9

9.1

-2.9

4.5

-0.7

Dec 2006

2.9

0.3

3.4

0.3

2.2

0.3

Dec 2005

4.9

-0.5

10.5

-0.8

-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

Average ∆% 2003-2007

6.8

 

8.9

 

4.4

 

Average ∆% 2003-2011

2.8

 

3.8

 

1.6

 

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

Source: Statistisches Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Orders for investment goods of Germany are shown in Table VE-6. Total investment goods orders fell 3.3 percent in Apr 2012 with foreign orders falling 5.8 percent and domestic orders increasing 0.9 percent. There has been evident deceleration from 2010 and early 2011 with growth rates falling from two digit levels to single digits and multiple negative changes. An important aspect of Germany’s economy shown in Tables VE-5 and VE-6 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 VE-6, Germany, Volume of Orders Received of Investment Goods Industries, Total, Foreign and Domestic, ∆%

 

Total 12 M

Total M

Foreign 12 M

Foreign M

Domestic 12 M

Domestic M

2012

           

Apr

-2.7

-3.3

-4.3

-5.8

-0.2

0.9

Mar

1.9

5.8

3.8

9.8

-1.1

-0.2

Feb

-5.9

1.3

-7.4

1.0

-3.6

1.8

Jan

-3.6

-4.4

-6.0

-5.2

0.6

-3.2

2011

           

Dec

1.6

2.8

0.5

4.0

3.5

1.0

Nov

-5.9

-3.6

-9.4

-6.2

-0.1

0.6

Oct

3.6

5.0

7.5

7.9

-2.3

0.6

Sep

2.9

-5.5

1.8

-6.9

4.9

-3.3

Aug

6.3

0.6

3.5

1.8

11.1

-1.2

Jul

7.7

-8.1

6.9

-13.7

8.9

2.0

Jun

8.9

3.4

13.6

17.5

1.0

-15.1

May

26.8

4.4

18.0

-4.6

40.3

19.1

Apr

11.3

3.1

14.7

3.8

6.2

1.8

Mar

11.0

-5.0

13.7

-4.1

7.0

-6.4

Feb

29.4

2.5

33.1

1.2

23.9

4.8

Jan

26.4

3.2

32.4

3.2

17.5

2.9

2010

           

Dec

27.3

-4.9

31.0

-6.2

21.3

-2.7

Nov

30.1

9.4

35.9

14.3

21.5

2.2

Oct

20.6

1.2

23.9

-0.6

16.0

4.1

Sep

18.1

-4.6

20.4

-7.2

14.6

-0.1

Aug

29.3

6.8

42.8

9.7

12.0

2.3

Jul

14.1

-4.7

28.4

-6.3

-2.3

-2.1

Jun

33.5

6.4

41.3

10.3

22.2

0.4

May

25.9

1.3

35.6

0.6

13.6

2.6

Apr

30.1

1.3

40.1

1.7

17.4

0.6

Mar

26.2

8.4

33.8

10.2

16.1

5.6

Feb

20.3

-1.3

30.3

-0.3

8.1

-2.5

Jan

16.9

4.3

29.5

2.2

2.5

7.2

Dec 2009

8.1

-1.4

13.6

-1.6

0.5

-1.2

Dec 2008

-32.2

-7.2

-36.7

-9.9

-24.4

-3.5

Dec 2007

9.6

-1.2

11.6

-3.3

6.3

2.2

Dec 2006

3.6

2.2

3.8

2.7

3.1

1.4

Dec 2005

1.9

-1.9

9.8

-2.1

-8.5

-1.6

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

Average ∆% 2003-2007

8.4

 

10.8

 

4.8

 

Average ∆% 2003-2011

3.4

 

4.5

 

1.8

 

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

Source: Statistisches Bundesamt Deutschland

Chart VE-4 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 beginning in the final months of 2011 and what could be stationary series from late 2011 into 2012.

clip_image031

Chart VE-4, Germany, Volume of Total Orders in Manufacturing, Non-Adjusted, 2005=100

Source:  Statistisches Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Chart VE-5 of the German Statistisches Bundesamt Deutschland provides unadjusted volume of total orders in manufacturing and a trend curve. The final segment on the right could be the beginning of flattening or even decline of the trend curve but it is early to reach conclusions.

clip_image033

Chart VE-5, Germany, Volume of Total Orders in Manufacturing and Trend, Non-Adjusted, 2005=100

Source: Statistisches Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Twelve-month rates of growth Germany’s exports and imports are shown in Table VE-7. There was sharp decline in the rates in Jun and Jul 2011 to single-digit levels especially for exports. In the 12 months ending in Aug, exports rose 14.4 percent and imports 13.2 percent. In Sep, exports grew 10.5 percent relative to a year earlier and imports grew 12.0 percent. Growth rates in 12 months ending in Oct fell significantly to 3.7 percent for exports and 8.9 percent for imports. Lower prices may explain part of the decline in nominal values. Exports grew 3.4 percent in 12 months ending in Apr 2012 and imports fell 1.0 percent. Growth had been much stronger in the recovery during 2010 and 2011 from the fall from 2007 to 2009. Germany’s trade grew at high rates in 2006 and 2005.

Table VE-7, Germany, Exports and Imports NSA Euro Billions and 12-Month ∆%

 

Exports

EURO Billions

12- Month
∆%

Imports
EURO
Billions

12-Month
∆%

Apr 2012

87.1

3.4

72.7

-1.0

Mar

98.8

0.6

81.4

2.5

Feb

91.2

8.5

76.3

5.8

Jan

86.0

9.3

72.8

6.2

Dec 2011

85.0

4.9

72.1

5.4

Nov

94.8

8.2

78.9

7.0

Oct

89.2

3.7

77.9

8.9

Sep

95.0

10.5

77.8

12.0

Aug

85.1

14.4

73.5

13.2

Jul

85.7

5.3

75.3

10.0

Jun

88.1

3.3

75.6

6.2

May

92.0

20.8

77.4

17.2

Apr

84.3

12.1

73.4

18.1

Mar

98.2

14.7

79.4

14.5

Feb

84.1

20.1

72.1

27.1

Jan

78.6

24.1

68.5

24.4

Dec 2010

81.0

20.0

68.4

24.3

Nov

87.6

21.2

73.7

30.9

Oct

86.0

18.7

71.5

19.2

Sep

86.0

21.2

69.5

17.0

Aug

74.4

23.8

64.9

27.1

Jul

81.4

15.3

68.4

24.4

Jun

85.3

27.5

71.2

33.9

May

76.2

25.6

66.0

31.2

Apr

75.2

16.7

62.2

14.5

Mar

85.6

22.0

69.3

18.0

Feb

70.0

9.7

56.8

3.2

Jan

63.4

-0.3

55.1

-1.9

Dec 2009

67.5

1.2

55.0

-7.3

Dec 2008

66.7

-8.6

59.4

-5.1

Dec 2007

73.0

-0.6

62.5

-0.1

Dec 2006

73.4

10.2

62.6

8.5

Dec 2005

66.6

11.5

57.7

18.1

Dec 2004

59.7

9.2

48.9

10.8

Dec 2003

54.7

7.6

44.1

3.9

Dec 2002

50.8

5.5

42.5

6.4

Dec 2001

48.2

-3.7

39.9

-17.5

Dec 2000

50.0

 

48.4

 

Source: Statistiche Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2012/06/PE12_195_51.html;jsessionid=9AA93AFFD978CD2C25BE7CA368BD0690.cae1 https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Table VE-8 provides monthly rates of growth of exports and imports of Germany. Exports fell 1.7 percent in Apr 2012 and imports declined 4.8 percent. Exports surged in Jan and Feb after sharp negative growth in Dec and continuing growing with exports increasing 0.8 percent in Mar and imports 0.9 percent. The increase in 12-month growth rates in Apr 2012 is partly the result of decline of exports by 3.4 percent in Apr 2012 and decline of imports by 0.9 percent. The decline in 12-month growth rates in Mar 2012 is explained by the jump of 5.6 percent in exports in Mar 2011 and 2.5 percent in imports. Export growth and import growth were vigorous in Jan-Mar 2011 when Germany’s economy outperformed most advanced economies but less dynamic and consistently in following months.

Table VE-8, Germany, Exports and Imports Month ∆% Calendar and Seasonally Adjusted 

 

Exports

Imports

Apr 2012

-1.7

-4.8

Mar

0.8

0.9

Feb

1.5

2.9

Jan

2.4

2.8

Dec 2011

-3.1

-3.9

Nov

2.2

-0.2

Oct

-2.7

0.1

Sep

0.7

-0.9

Aug

3.2

-0.1

Jul

-1.0

0.5

Jun

-0.6

-0.1

May

2.3

2.4

Apr

-3.4

-0.9

Mar

5.6

2.5

Feb

1.7

2.6

Jan

0.2

4.0

Dec 2010

-1.0

-2.6

Source: Statistiche Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2012/06/PE12_195_51.html;jsessionid=9AA93AFFD978CD2C25BE7CA368BD0690.cae1 https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Chart VE-6 of the Statistisches Bundesamt Deutschland shows exports and trend of German exports. Growth has been with fluctuations around a strong upward trend.

clip_image035

Chart VE-6, Germany, Exports Original Value and Trend 2007-2011

Source: Statistisches Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Chart VE-7 of the Statistisches Bundesamt Deutschland provides German imports and trend. Imports also fell sharply and have been recovering with fluctuations around a strong upward trend that could be flattening.

clip_image037

Chart VE-7, Germany, Imports Original Value and Trend 2007-2012

Source: Statistisches Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Chart VE-8 of the Statistisches Bundesamt Deutschland shows the trade balance of Germany since 2007. There was sharp decline during the global recession and fluctuations around a mild upward trend during the recovery with stabilization followed by stronger trend in recent months.

clip_image039

Chart VE-8, Germany, Trade Balance Original and Trend 2007-2012

Source: Statistisches Bundesamt Deutschland

https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

There is extremely important information in Table III-1C for the current sovereign risk crisis in the euro zone. Table VE-9 provides the structure of regional and country relations of Germany’s exports and imports with newly available data for Apr 2012. German exports to other European Union (EU) members are 57.9 percent of total exports in Apr 2012 and 58.3 percent in Jan-Apr 2012. Exports to the euro area are 38.0 percent in Apr and 38.8 percent in Jan-Apr. Exports to third countries are 42.1 percent of the total in Apr and 41.7 percent in Jan-Mar. 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. There is a tough analytical, empirical and forecasting doubt of growth and trade in the euro zone and the world with or without maintenance of the European Monetary Union (EMU) or euro zone. Germany could benefit from depreciation of the euro because of its high share in exports to countries not in the euro zone but breakdown of the euro zone raises doubts on the region’s economic growth that could affect German exports to other member states.

Table VE-9, Germany, Structure of Exports and Imports by Region, € Billions and ∆%

 

Apr 2012 
€ Billions

Apr 12-Month
∆%

Jan–Apr 2012 € Billions

Jan-Apr 2012/
Jan-Apr 2011 ∆%

Total
Exports

87.1

3.4

363.1

5.2

A. EU
Members

50.5

% 57.9

-1.1

211.6

% 58.3

1.4

Euro Area

33.1

% 38.0

-3.6

140.7

% 38.8

-0.1

Non-euro Area

17.3

% 19.9

4.1

70.9

% 19.5

4.6

B. Third Countries

36.7

% 42.1

10.3

151.4

% 41.7

11.0

Total Imports

72.7

-1.0

303.2

3.3

C. EU Members

46.3

% 63.7

-1.1

192.0

% 63.3

3.4

Euro Area

32.8

% 45.1

-0.6

135.1

% 44.6

3.3

Non-euro Area

13.5

% 18.6

-2.3

56.9

% 18.8

3.7

D. Third Countries

26.5

% 36.5

-0.7

113.3

% 37.4

3.1

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

Source:

Statistiche Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2012/06/PE12_195_51.html;jsessionid=9AA93AFFD978CD2C25BE7CA368BD0690.cae1

VF France. The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, fell from 45.9 in Apr to 44.6 in May, which is the lowest reading in 37 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9630). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI®, finds that weak services and manufacturing survey data suggest contraction of GDP in IIQ2012 after no growth in IQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9630).The Markit France Manufacturing Purchasing Managers’ Index® fell to 44.7 in May from 46.9 in Apr for the sharpest decline of the manufacturing economy in three years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9629). Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI®, finds continuing deterioration in manufacturing with the sharpest contraction of new orders since Apr 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9629). Table FR provides the country data table for France.

Table FR, France, Economic Indicators

CPI

Apr month ∆% 0.1
12 months ∆%: 2.1
5/20/12

PPI

Apr month ∆%: 0.0
Apr 12 months ∆%: 2.7

Blog 6/3/12

GDP Growth

IQ2012/IVQ2011 ∆%: 0.0
IQ2012/IQ2011 ∆%: 0.0
Blog 5/20/12

Industrial Production

Mar SA ∆%:
Industrial Production -0.9;
Manufacturing +1.4
Feb YOY NSA ∆%:
Industrial Production -1.4;
Manufacturing -1.7
Blog 5/13/12

Consumer Spending

Apr Manufactured Goods
∆%: minus 1.3 Apr 12-Month Manufactured Goods
∆%: minus 1.6
Blog 6/3/12

Employment

IQ2012 Unemployed 2.746 million
Unemployment Rate: 9.6%
Employment Rate: 63.8%
Blog 6/10/12

Trade Balance

Apr Exports ∆%: month 1.8, 12 months 7.4

Apr Imports ∆%: month 2.1, 12 months 3.4

Blog 6/10/12

Confidence Indicators

Historical averages 100

May Mfg Business Climate 93

Blog 5/27/12

Links to blog comments in Table FR:

6/3/12 http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs_04.html

5/27/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-financial-turbulence-global_27.html

5/20/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy_20.html

5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html

The number of unemployed in France rose from 2.074 million in IV2007, for a rate of unemployment of 7.4 percent, to 2.746 million in IQ2012, for a rate of unemployment of 9.6 percent, as shown in Table VF-1. At the same time, the rate of employment fell from 64.6 percent in IV2007 to 63.8 percent in IQ2012. 

Table VF-1, France, Metropolitan France, Employment Rate, Unemployed and Unemployment Rate, Millions and %

 

Unemployed
Millions

Unemployed Percent

Employment Rate

IQ2012

2.746

9.6

63.8

IVQ2011

2.660

9.3

63.9

IIIQ2011

2.614

9.2

63.8

IIQ2011

2.580

9.1

63.9

IQ2011

2.609

9.2

63.9

IVQ2010

2.607

9.2

63.8

IIIQ2010

2.633

9.3

63.9

IIQ2010

2.643

9.3

63.9

IQ2010

2.686

9.5

63.9

IVQ2009

2.689

9.5

63.7

IIIQ2009

2.593

9.2

63.9

IIQ2009

2.607

9.2

64.1

IQ2009

2.428

8.6

64.4

IVQ2008

2.161

7.7

64.8

IIIQ2008

2.073

7.4

64.8

IIQ2008

2.040

7.3

64.8

IQ2008

1.991

7.1

64.9

IV2007

2.074

7.4

64.6

IIIQ2007

2.224

8.0

64.3

IIQ2007

2.259

8.1

64.1

IQ2007

2.343

8.5

63.9

IVQ2006

2.306

8.4

63.9

IVQ2005

2.477

9.0

63.5

IVQ2004

2.421

8.9

63.7

IVQ2003

2.364

8.7

63.7

IVQ2002

2.148

8.0

 

IVQ2001

2.022

7.6

 

IVQ2000

2.133

8.1

 

IVQ1999

2.479

9.5

 

IVQ1995

2.583

10.1

 

IVQ1990

1.975

7.9

 

IVQ1985

2.263

9.2

 

IVQ1980

1.391

5.8

 

IVQ1975

0.841

3.7

 

Source: http://www.insee.fr/en/themes/info-rapide.asp?id=14&date=20120607

Chart VF-1 of the Institut National de la Statistique et des Études Économiques provides an excellent view of the unemployment rate in France. The rate of unemployment rose from 2003 to 2006 and then fell sharply in 2007. The global recession caused sharp increase in the French rate of unemployment that has declined from the peak, stabilized at a high level and is climbing again.

clip_image041

Chart VF-1, France, Unemployment Rate International Labor Organization Criterion, Seasonally Adjusted Average over Quarter, Percent

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=14&date=20120607

France has been running a trade deficit fluctuating around €6,000 million, as shown in Table VF-2. Exports increased 1.8 percent in Apr while imports increased 2.1 percent, resulting in increase of the trade deficit from revised €5572 million in Mar to €5801 million in Apr.

Table VF-2, France, Exports, Imports and Trade Balance, € Millions 

 

Exports

Imports

Trade Balance

Apr 2012

37,043

42,844

-5,801

Mar

36,391

41,963

-5,572

Feb

36,969

43,337

-6,368

Jan

36,729

43,155

-5,426

Dec 2011

36,153

41,416

-5,263

Nov

37,163

41,492

-4,329

Oct

35,830

41,711

-5,881

Sep

35,695

42,079

-6,384

Aug

37,593

42,137

-4,544

Jul

34,940

41,418

-6,478

Jun

34,799

40,031

-5,232

May

34,804

41,482

-6,678

Apr

34,484

41,447

-6,963

Mar

35,188

41,398

-6,210

Feb

34,687

41,026

-6,339

Jan

34,304

40,880

-6,576

Dec 2010

33,985

39,496

-5,511

Source: http://lekiosque.finances.gouv.fr/AppChiffre/nationales/surcadre_nationales.asp?TF=revue

Monthly and 12-month rates of growth of exports and imports of France are provided in Table VF-3. Exports increased 1.8 percent in Apr and 7.4 percent in the 12 months ending in Apr. Imports increased 2.1 percent in Apr and 3.4 percent in12 months. Growth of exports and imports has fluctuated in 2011 as a result of price surges of commodities and raw materials.

Table VF-3, France, Exports and Imports, Month and 12-Month ∆%

 

Exports
Month ∆%

Exports
12-Month ∆%

Imports
Month ∆%

Imports 12-Month ∆%

Apr 2012

1.8

7.4

2.1

3.4

Mar

-1.6

3.4

-3.2

1.4

Feb

0.7

6.6

2.8

5.6

Jan

1.6

7.1

1.8

3.1

Dec 2011

-2.7

6.4

-0.2

4.9

Nov

3.7

7.5

-0.5

4.5

Oct

0.4

8.6

-0.9

14.4

Sep

-5.0

7.6

-0.1

10.8

Aug

7.6

10.9

1.7

8.5

Jul

0.4

1.8

3.5

8.7

Jun

0.0

3.6

-3.5

8.1

May

0.9

15.4

0.1

16.3

Apr

-2.0

7.6

0.1

14.4

Mar

1.4

11.6

0.9

15.0

Feb

1.1

13.9

0.4

21.7

Jan

0.9

13.8

3.5

20.4

Dec 2011

 

6.4

 

4.9

Dec 2010

 

14.4

 

15.0

Dec 2009

 

-9.8

 

-1.8

Dec 2008

 

-7.3

 

-11.3

Dec 2007

 

6.1

 

8.3

Dec 2006

 

7.3

 

6.7

Dec 2005

 

11.2

 

15.1

Dec 2004

 

-3.5

 

6.0

Dec 2003

 

7.1

 

1.6

Source: http://lekiosque.finances.gouv.fr/AppChiffre/nationales/surcadre_nationales.asp?TF=revue

Annual data for France’s exports, imports and trade balance are provided in Table VF-4. France’s trade balance deteriorated sharply from 2007 to 2011 with the deficit increasing from €42,494 million in 2007 to €70,604 million in 2011. Annual growth rates of exports have not been sufficiently high to compensate for growth of imports driven in part by commodity price increases.

Table VF-4, France, Exports, Imports and Balance Year € Millions and ∆%

 

Exports € Millions

∆%

Imports € Millions

∆%

Balance € Millions

Apr 2012 12 Months

433,876

 

502,177

 

-68,301

Year

         

2011

427,121

8.3

497,725

11.5

-70,604

2010

394,334

13.9

446,525

14.0

-52,191

2009

346,306

-17.1

391,635

-17.4

-45,329

2008

417,634

2.7

473,853

5.5

-56,219

2007

406,487

3.0

448,981

5.8

-42,494

2006

394,621

9.5

424,549

10.4

-29,928

2005

360,376

4.4

384,588

9.6

-24,212

2004

345,256

5.4

350,996

7.0

-5,740

2003

327,653

 

327,884

 

-231

Source: http://lekiosque.finances.gouv.fr/AppChiffre/nationales/surcadre_nationales.asp?TF=revue

VG Italy. The Markit/ADACI Business Activity Index increased from 42.3 in Apr to 42.8 in May, indicating sharp contraction of output of Italy’s services sector in 12 consecutive months of contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9651). Phil Smith, economist at Markit and author of the Italy Services PMI®, finds that the combined manufacturing and services indexes suggest continuing recession into IIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9651). The Markit/ADACI Purchasing Managers’ Index® (PMI®), increased from 43.8 in Apr to 44.8 in May for a tenth consecutive month of contraction of Italy’s manufacturing and the sharpest since Oct (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9615). Phil Smith, economist at Markit and author of the Italian Manufacturing PMI®, finds continuing sharp contraction of new orders of manufacturing in Italy (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9615). Table IT provides the country data table for Italy.

Table IT, Italy, Economic Indicators

Consumer Price Index

May month ∆%: 0.0
May 12-month ∆%: 3.2
Blog 6/3/12

Producer Price Index

Apr month ∆%: 0.3
Apr 12-month ∆%: 2.5

Blog 6/3/12

GDP Growth

IQ2012/IVQ2011 SA ∆%: minus 0.8
IQ2012/IQ2011 NSA ∆%: minus 1.3
Blog 5/20/12

Labor Report

Apr 2012

Participation rate 63.4%

Employment ratio 57.0%

Unemployment rate 10.2%

Blog 6/3/12

Industrial Production

Apr month ∆%: -1.9
12 months ∆%: minus 9.2
Blog 6/10/12

Retail Sales

Mar month ∆%: -0.2

Mar 12-month ∆%: 1.7

Blog 5/27/12

Business Confidence

Mfg May 86.2, Jan 91.3

Construction Apr 81.9, Jan 82.8

Blog 6/3/12

Consumer Confidence

Consumer Confidence May 86.5, Apr 88.8

Economy May 64.4, Apr 71.6

Blog 5/27/12

Trade Balance

Balance Mar SA €718 million versus Feb -€440
Exports Mar month SA ∆%: 1.7; Imports Mar month ∆%: -1.9
Exports 12 months NSA ∆%: +4.9 Imports 12 months NSA ∆%: minus 10.9
Blog 5/20/12

Links to blog comments in Table IT:

6/3/12 http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs_04.html

5/27/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-financial-turbulence-global_27.html

5/20/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy_20.html

Italy’s industrial production fell 1.9 percent in Apr 2012, pulling down the 12-month rate of growth to minus 9.2 percent, as shown in Table VG-1. There have been negative changes with oscillations in monthly industrial production. Industrial production fell 18.8 percent in 2009 after falling 3.2 percent in 2008.

Table VG-1, Italy, Industrial Production ∆% 

 

Month ∆% SA

12-Month ∆% Calendar Adjusted

Apr 2012

-1.9

-9.2

Mar

0.6

-5.6

Feb

-0.8

-6.9

Jan

-2.7

-4.8

Dec 2011

1.2

-1.7

Nov

0.1

-4.1

Oct

-0.9

-3.8

Sep

-4.9

-2.6

Aug

3.5

4.8

Jul

-0.9

-1.1

Jun

-0.9

0.4

May

-1.2

2.1

Apr

1.6

4.0

Mar

-0.2

3.3

Feb

1.5

2.5

Jan

-0.8

0.2

Dec 2010

-0.6

6.7

Nov

0.7

5.5

Oct

0.0

4.1

Sep

0.3

5.8

Aug

-0.7

11.4

Jul

0.6

7.5

Jun

0.7

9.9

May

0.9

8.9

Apr

0.9

9.5

Mar

-0.2

8.5

Feb

-0.3

4.5

Jan

4.0

0.6

Dec 2009

-1.3

-6.6

Year

   

2011

 

0.1

2010

 

6.8

2009

 

-18.8

2008

 

-3.2

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/64424

Chart VG-1 of Italy’s 12-month percentage changes of Italy’s industrial production are provided in Chart VG-1 of Istituto Nazionale di Statistica. There is trend of deterioration after Aug 2011, sharply deteriorating after Dec 2011 into 2012.

clip_image042

Chart VG-1, Italy, Industrial Production, 12-Month Percentage Changes

Source: Istituto Nazionale di Statistica

http://www.istat.it/en

Month and 12-month rates of growth of Italy’s industrial production and major categories are provided in Table VG-2 for Apr 2012. All growth rates in 12 months are sharply negative with four segments declining by more than 10 percent. Durable goods output increased 1.6 percent in Apr 2012 but is down 12.3 percent relative to a year earlier

Table VG-2, Italy, Industrial Production Rate of Change ∆%

Apr 2012

Month ∆%

12-Month ∆%

Total

-1.9

-9.2

Consumer Goods

-0.2

-7.9

   Durable

1.6

-12.3

   Nondurable

-0.5

-6.9

Capital Goods

-2.0

-6.2

Intermediate Goods

-2.6

-12.8

Energy

1.9

-3.8

Source:

Istituto Nazionale di Statistica http://www.istat.it/it/archivio/64424

VH United Kingdom. Revised annual data in Table VH-UK show the strong impact of the global recession in the UK with decline of GDP of revised 4.4 percent in 2009 after dropping revised 1.1 percent in 2008. Recovery of 2.1 percent in 2010 is relatively low compared to annual growth rates in 2007 and earlier years. Growth was only 0.7 percent in 2011. The bottom part of Table VH-1 provides average growth rates of UK GDP since 1948. The UK economy grew at 2.4 percent on average between 1948 and 2011, which is relatively high for an advanced economy. The growth rate of GDP between 2000 and 2007 is higher at 2.9 percent. Growth in the current cyclical expansion has been only at 1.4 percent as advanced economies struggle with weak internal demand and world trade.

Table VH-UK, UK, Gross Domestic Product, ∆%

 

∆% on Prior Year

1998

3.8

1999

3.7

2000

4.6

2001

3.1

2002

2.6

2003

3.5

2004

2.9

2005

2.0

2006

2.6

2007

3.5

2008

-1.1

2009

-4.4

2010

2.1

2011

0.7

Average ∆% per Year

 

1948-2011

2.4

1948-1959

2.5

1960-1969

2.9

1970-1979

2.4

1980-1989

2.9

1990-1999

2.4

2000-2011

1.5

2000-2007

2.9

2009-2011

1.4

Source: UK Office for National Statistics

http://www.ons.gov.uk/ons/rel/naa2/second-estimate-of-gdp/q1-2012/index.html

The Business Activity Index of the Markit/CIPS UK Services PMI® was unchanged at 53.3 in May for 17 consecutive monthly increases but the slowest growth since Nov (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9666). Chris Williamson, Chief Economist at Markit, finds that services continue to expand with encouragement from growth of new business (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9666). The Markit/CIPS UK Manufacturing Purchasing Managers’ Index® (PMI®) fell sharply from 50.2 in Apr to 45.9 in Apr, which is the lowest level in three years and in contraction territory below 50 for the first month since Nov (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9618). The decline of 4.3 points in May is the second sharpest decline in the history of 20 years of the index. Rob Dobson, Senior Economist at Markit and author of the Markit/CIPS Manufacturing PMI®, finds that output contraction originated in sharp decline of new business with developing weakness in the internal market and not only in the euro area (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9618).Table UK provides the country data table for the UK.

Table UK, UK Economic Indicators

   

CPI

Apr month ∆%: 0.6
Apr 12-month ∆%: 3.0
Blog 5/27/12

Output/Input Prices

Output Prices:
Apr 12-month NSA ∆%: 2.8; excluding food, petroleum ∆%: 2.1
Input Prices:
May 12-month NSA
∆%: 0.1
Excluding ∆%: 1.1
Blog 6/10/12

GDP Growth

IQ2012 prior quarter ∆% minus 0.3; year earlier same quarter ∆%: minus 0.1
Blog 5/27/12

Industrial Production

Mar 2012/Mar 2011 NSA ∆%: Production Industries minus 2.6; Manufacturing minus 0.9
Blog 5/13/12

Retail Sales

Apr month SA ∆%: minus 2.3
Apr 12-month NSA ∆%: minus 2.1
Blog 5/27/12

Labor Market

Jan-Mar Unemployment Rate: 8.2%; Claimant Count 4.9%; Earnings Growth 0.6%
Blog 5/20/12

Trade Balance

Balance Mar minus ₤2739 million
Exports Mar ∆%: 4.1 Jan-Mar ∆%: 1.9
Imports Mar ∆%: 3.3 Jan-Mar ∆%: 4.3
Blog 5/20/12

Links to blog comments in Table UK:

5/27/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-financial-turbulence-global_27.html

5/20/12 http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy_20.html

5/13/12 http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million_13.html

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

Table VI-1 shows the phenomenal impulse to valuations of risk financial assets originating in the initial shock of near zero interest rates in 2003-2004 with the fed funds rate at 1 percent, in fear of deflation that never materialized, and quantitative easing in the form of suspension of the auction of 30-year Treasury bonds to lower mortgage rates. World financial markets were dominated by monetary and housing policies in the US. Between 2002 and 2008, the DJ UBS Commodity Index rose 165.5 percent largely because of unconventional monetary policy encouraging carry trades from low US interest rates to long leveraged positions in commodities, exchange rates and other risk financial assets. The charts of risk financial assets show sharp increase in valuations leading to the financial crisis and then profound drops that are captured in Table VI-1 by percentage changes of peaks and troughs. The first round of quantitative easing and near zero interest rates depreciated the dollar relative to the euro by 39.3 percent between 2003 and 2008, with revaluation of the dollar by 25.1 percent from 2008 to 2010 in the flight to dollar-denominated assets in fear of world financial risks and then devaluation of the dollar of 5.0 percent by Fri Jun 8, 2012. Dollar devaluation is a major vehicle of monetary policy in reducing the output gap that is implemented in the probably erroneous belief that devaluation will not accelerate inflation, misallocating resources toward less productive economic activities and disrupting financial markets. The last row of Table VI-1 shows CPI inflation in the US rising from 1.9 percent in 2003 to 4.1 percent in 2007 even as monetary policy increased the fed funds rate from 1 percent in Jun 2004 to 5.25 percent in Jun 2006.

Table VI-1, Volatility of Assets

DJIA

10/08/02-10/01/07

10/01/07-3/4/09

3/4/09- 4/6/10

 

∆%

87.8

-51.2

60.3

 

NYSE Financial

1/15/04- 6/13/07

6/13/07- 3/4/09

3/4/09- 4/16/07

 

∆%

42.3

-75.9

121.1

 

Shanghai Composite

6/10/05- 10/15/07

10/15/07- 10/30/08

10/30/08- 7/30/09

 

∆%

444.2

-70.8

85.3

 

STOXX EUROPE 50

3/10/03- 7/25/07

7/25/07- 3/9/09

3/9/09- 4/21/10

 

∆%

93.5

-57.9

64.3

 

UBS Com.

1/23/02- 7/1/08

7/1/08- 2/23/09

2/23/09- 1/6/10

 

∆%

165.5

-56.4

41.4

 

10-Year Treasury

6/10/03

6/12/07

12/31/08

4/5/10

%

3.112

5.297

2.247

3.986

USD/EUR

6/26/03

7/14/08

6/07/10

6/8/2012

Rate

1.1423

1.5914

1.192

1.2517

CNY/USD

01/03
2000

07/21
2005

7/15
2008

6/8/

2012

Rate

8.2798

8.2765

6.8211

6.3752

New House

1963

1977

2005

2009

Sales 1000s

560

819

1283

375

New House

2000

2007

2009

2010

Median Price $1000

169

247

217

203

 

2003

2005

2007

2010

CPI

1.9

3.4

4.1

1.5

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

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

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

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

Table VI-2 extracts four rows of Table VI-I with the Dollar/Euro (USD/EUR) exchange rate and Chinese Yuan/Dollar (CNY/USD) exchange rate that reveal pursuit of exchange rate policies resulting from monetary policy in the US and capital control/exchange rate policy in China. The ultimate intentions are the same: promoting internal economic activity at the expense of the rest of the world. The easy money policy of the US was deliberately or not but effectively to devalue the dollar from USD 1.1423/EUR on Jun 26, 2003 to USD 1.5914/EUR on Jul 14, 2008, or by 39.3 percent. The flight into dollar assets after the global recession caused revaluation to USD 1.192/EUR on Jun 7, 2010, or by 25.1 percent. After the temporary interruption of the sovereign risk issues in Europe from Apr to Jul, 2010, shown in Table VI-4 below, the dollar has devalued again to USD 1.2517/EUR on Jun 8, 2012 or by 5.0 percent {[(1.2517/1.192)-1]100}. Yellen (2011AS, 6) admits that Fed monetary policy results in dollar devaluation with the objective of increasing net exports, which was the policy that Joan Robinson (1947) labeled as “beggar-my-neighbor” remedies for unemployment. Risk aversion erodes devaluation of the dollar. China fixed the CNY to the dollar for a long period at a highly undervalued level of around CNY 8.2765/USD subsequently revaluing to CNY 6.8211/USD until Jun 7, 2010, or by 17.6 percent and after fixing it again to the dollar, revalued to CNY 6.3752/USD on Fri Jun 8, 2012, or by an additional 6.5 percent, for cumulative revaluation of 23.0 percent.

Table VI-2, Dollar/Euro (USD/EUR) Exchange Rate and Chinese Yuan/Dollar (CNY/USD) Exchange Rate

USD/EUR

12/26/03

7/14/08

6/07/10

6/8
/2012

Rate

1.1423

1.5914

1.192

1.2517

CNY/USD

01/03
2000

07/21
2005

7/15
2008

6/8/2012

Rate

8.2798

8.2765

6.8211

6.3752

Weekly Rates

5/18/2012

5/25/2012

6/21/2012

6/8/2012

CNY/USD

6.3260

6.3372

6.3708

6.3752

∆% from Earlier Week*

-0.2

-0.2

-0.5

-0.1

*Negative sign is depreciation, positive sign is 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

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). Table VI-2A provides the CNY/USD rate from Oct 28, 2011 to Jun 8, 2012 in selected intervals. The CNY/USD revalued by 0.9 percent from Oct 28, 2012 to Apr 27, 2012 but the magnitude of the revaluation declined to 0.3 percent by May 25, 2012. After depreciation of 0.5 percent in the week of Jun 1 and 0.1 percent in the week of Jun 8 (see Table VI-2), the CNY has depreciated 0.3 percent relative to Oct 28, 2011, as shown in Table VI-2A. Meanwhile, the Senate of the US is proceeding with a bill on China’s trade that could create a confrontation but may not be approved by the entire Congress. An important statement by the People’s Bank of China (PBC), China’s central bank, on Apr 14, 2012, announced the widening of the daily maximum band of fluctuation of the renminbi (RMB) yuan (http://www.pbc.gov.cn/publish/english/955/2012/20120414090756030448561/20120414090756030448561_.html):

“Along with the development of China’s foreign exchange market, the pricing and risk management capabilities of market participants are gradually strengthening. In order to meet market demands, promote price discovery, enhance the flexibility of RMB exchange rate in both directions, further improve the managed floating RMB exchange rate regime based on market supply and demand with reference to a basket of currencies, the People’s Bank of China has decided to enlarge the floating band of RMB’s trading prices against the US dollar and is hereby making a public announcement as follows:

Effective from April 16, 2012 onwards, the floating band of RMB’s trading prices against the US dollar in the inter-bank spot foreign exchange market is enlarged from 0.5 percent to 1 percent, i.e., on each business day, the trading prices of the RMB against the US dollar in the inter-bank spot foreign exchange market will fluctuate within a band of ±1 percent around the central parity released on the same day by the China Foreign Exchange Trade System. The spread between the RMB/USD selling and buying prices offered by the foreign exchange-designated banks to their customers shall not exceed 2 percent of the central parity, instead of 1 percent, while other provisions in the Circular of the PBC on Relevant Issues Managing the Trading Prices in the Inter-bank Foreign Exchange Market and Quoted Exchange Rates of Exchange-Designated Banks(PBC Document No.[2010]325) remain valid.

In view of the domestic and international economic and financial conditions, the People’s Bank of China will continue to fulfill its mandates in relation to the RMB exchange rate, keeping RMB exchange rate basically stable at an adaptive and equilibrium level based on market supply and demand with reference to a basket of currencies to preserve stability of the Chinese economy and financial markets.”

Table VI-2A, Renminbi Yuan US Dollar Rate

 

CNY/USD

∆% from 10/28/2011

6/8/2012

6.3752

-0.3

6/1/2012

6.3708

-0.2

4/27/2012

6.3016

0.9

3/23/2012

6.3008

0.9

2/3/2012

6.3030

0.9

12/30/2011

6.2940

1.0

11/25/2011

6.3816

-0.4

10/28/2011

6.3588

-

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

The database of the World Economic Outlook (WEO) of the IMF (http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx) is used to contract Table VI-3 with fiscal and current account imbalances projected for 2011 and 2015. The WEO finds the need to rebalance external and domestic demand (IMF 2011WEOSep xvii):

“Progress on this front has become even more important to sustain global growth. Some emerging market economies are contributing more domestic demand than is desirable (for example, several economies in Latin America); others are not contributing enough (for example, key economies in emerging Asia). The first set needs to restrain strong domestic demand by considerably reducing structural fiscal deficits and, in some cases, by further removing monetary accommodation. The second set of economies needs significant currency appreciation alongside structural reforms to reduce high surpluses of savings over investment. Such policies would help improve their resilience to shocks originating in the advanced economies as well as their medium-term growth potential.”

The IMF (2012WEOApr, XVII) explains decreasing importance of the issue of global imbalances as follows:

“The latest developments suggest that global current account imbalances are no longer expected to widen again, following their sharp reduction during the Great Recession. This is largely because the excessive consumption growth that characterized economies that ran large external deficits prior to the crisis has been wrung out and has not been offset by stronger consumption in surplus economies. Accordingly, the global economy has experienced a loss of demand and growth in all regions relative to the boom years just before the crisis. Rebalancing activity in key surplus economies toward higher consumption, supported by more market-determined exchange rates, would help strengthen their prospects as well as those of the rest of the world.”

Table VI-3, Fiscal Deficit, Current Account Deficit and Government Debt as % of GDP and 2011 Dollar GDP

 

GDP
$B

2011

FD
%GDP
2011

CAD
%GDP
2011

Debt
%GDP
2011

FD%GDP
2015

CAD%GDP
2015

Debt
%GDP
2015

US

15094

-7.3

-3.1

80.3

-2.3

-3.2

88.3

Japan

5869

-9.1

2.0

126.6

-5.8

2.4

155.0

UK

2418

-5.8

-1.9

78.3

-0.8

-0.4

88.1

Euro

13115

-1.6

0.3

68.4

1.1

1.2

71.3

Ger

3577

0.7

5.7

56.1

1.4

4.3

52.4

France

2776

-2.9

-2.2

80.4

0.3

-0.8

83.8

Italy

2199

0.8

-3.2

99.6

4.4

-1.6

101.5

Can

1737

-4.1

-2.8

33.3

-1.1

-2.5

37.4

China

7298

-1.2

2.7

25.8

-0.1

3.4

14.8

Brazil

2493

3.1

-2.1

36.4

3.1

-3.4

31.9

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

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

Source: http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weoselgr.aspx

The International Monetary Fund (IMF) provides an international safety net for prevention and resolution of international financial crises. The IMF’s Financial Sector Assessment Program (FSAP) provides analysis of the economic and financial sectors of countries (see Pelaez and Pelaez, International Financial Architecture (2005), 101-62, Globalization and the State, Vol. II (2008), 114-23). Relating economic and financial sectors is a challenging task both for theory and measurement. The IMF (2012WEOApr) provides surveillance of the world economy with its Global Economic Outlook (WEO) (http://www.imf.org/external/pubs/ft/weo/2012/01/pdf/text.pdf), of the world financial system with its Global Financial Stability Report (GFSR) (IMF 2012GFSRApr) (http://www.imf.org/external/pubs/ft/gfsr/2012/01/pdf/text.pdf) and of fiscal affairs with the Fiscal Monitor (IMF 2012FMApr) (http://www.imf.org/external/pubs/ft/fm/2012/01/pdf/fm1201.pdf). There appears to be a moment of transition in global economic and financial variables that may prove of difficult analysis and measurement. It is useful to consider global economic and financial risks, which are analyzed in the comments of this blog.

Economic risks include the following:

1. China’s Economic Growth. China is lowering its growth target to 7.5 percent per year. Lu Hui, writing on “China lowers GDP target to achieve quality economic growth, on Mar 12, 2012, published in Beijing by Xinhuanet (http://news.xinhuanet.com/english/china/2012-03/12/c_131461668.htm), informs that Premier Jiabao wrote in a government work report that the GDP growth target will be lowered to 7.5 percent to enhance the quality and level of development of China over the long term. The quarterly growth rate of GDP in IQ2012 of 1.8 percent is equivalent to 7.4 percent per year (see subsection VC at http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring_15.html). There is also ongoing political development in China during a decennial political reorganization. Xinhuanet informs that Premier Wen Jiabao considers the need for macroeconomic stimulus, arguing that “we should continue to implement proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm). Premier Wen elaborates that “the country should properly handle the relationship between maintaining growth, adjusting economic structures and managing inflationary expectations” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm).

2. United States Economic Growth, Labor Markets and Budget/Debt Quagmire. (i) The US economy grew at 1.7 percent in 2011 (Section I in http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html), 1.7 percent in annual equivalent in the five quarters from IQ2011 to IQ2012 and 2.0 percent in IQ2012 relative to IQ2011 (see Section II http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html). (ii) The labor market continues fractured with 28.4 million unemployed or underemployed (see Section I http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html). There are over 10 million fewer full-time jobs and hiring has collapsed (see Section I at http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html). (iii) There is a difficult climb from the record deficit of 9.9 percent in 2009 and cumulative deficit of $5,082 in four consecutive years of deficits exceeding one trillion dollars from 2009 to 2012 (http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html). There is no subsequent jump of debt in US peacetime history as the one from 40.5 percent of GDP in 2008 to 62.8 percent of GDP in 2011 and projected by the Congressional Budget Office (CBO 2012JanBEO) at 67.7 percent in 2012. The CBO (2012JanBEO) must use current law without any changes in the baseline scenario but also calculates another alternative scenario with different assumptions. In the alternative scenario, the debt/GDP ratio rises to 94.2 percent by 2022. The US is facing an unsustainable debt/GDP path. Feldstein (2012Mar19) finds that the most troubling uncertainty in the US is the programmed tax increases projected by the CBO (2012JanBEO) under current law with federal government revenue increasing from $2.4 trillion in fiscal year 2012 to $2.9 trillion in fiscal year 2013. The increase of $512 billion of federal revenue would be about 2.9 percent of GDP, raising the share of federal revenue in GDP from 15.8 percent in fiscal year 2012 to 18.7 percent of GDP in fiscal year 2013. In the analysis of Feldstein (2012Mar19), increasing revenue would originate in higher personal tax rates, payroll tax contributions and taxes on dividends, capital gains and corporate income tax. The share of federal revenue in GDP would increase to 19.8 percent in 2014, remaining above 20 percent during the rest of the decade. Feldstein (2012Mar19) finds that such a shock of sustained tax increases would risk another recession in 2013, requiring preventive legislation to smooth tax increases

3. Economic Growth and Labor Markets in Advanced Economies. Advanced economies are growing slowly. Japan’s GDP fell 0.6 percent in IVQ2011 relative to a year earlier but grew 2.8 percent in IQ2012 relative to a year earlier and 1.2 percent in IQ2012 relative to IVQ2011. The euro zone’s GDP fell 0.3 percent in IVQ2011 and was flat in IQ2012, falling 0.1 percent relative to a year earlier in IQ2011; Germany’s GDP fell 0.2 percent in IVQ2011 but grew 0.5 percent in IQ2012; and the UK’s GDP fell 0.3 percent in IVQ2011 and 0.3 percent in IQ2012. There is still high unemployment in advanced economies

4. World Inflation Waves. Inflation continues in repetitive waves globally (see Section I Inflation Waves at http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html and http://cmpassocregulationblog.blogspot.com/2012/03/global-financial-and-economic-risk.html)

A list of financial uncertainties includes:

1. Euro Area Survival Risk. The resilience of the euro to fiscal and financial doubts on larger member countries is still an unknown risk. Adjustment programs consist of immediate adoption of economic reforms that would increase future growth permitting fiscal consolidation, which would reduce risk spreads on sovereign debt. Fiscal consolidation is challenging in an environment of weak economic growth as analyzed by Blanchard (2011WEOSep) and consolidation can restrict growth as analyzed by Blanchard (2012WEOApr). Adjustment of countries such as Italy requires depreciation of the currency to parity, as proposed by Caballero and Giavazzi (2012Jan15), but it is not workable within the common currency and zero interest rates in the US. Bailouts of euro area member countries with temporary liquidity challenges cannot be permanently provided by stronger members at the risk of impairing their own sovereign debt credibility

2. Foreign Exchange Wars. Exchange rate struggles continue as zero interest rates in advanced economies induce devaluation. After deep global recession, regulation, trade and devaluation wars were to be expected (Pelaez and Pelaez, Government Intervention in Globalization: Regulation, Trade and Devaluation Wars (2008c), 181): “There are significant grounds for concern on the basis of this experience. International economic cooperation and the international financial framework can collapse during extreme events. It is unlikely that there will be a repetition of the disaster of the Great Depression. However, a milder contraction can trigger regulatory, trade and exchange wars”

3. Valuation of Risk Financial Assets. Valuations of risk financial assets have reached extremely high levels in markets with lower volumes. For example, the DJIA has increased 29.6 percent since the trough of the sovereign debt crisis in Europe on Jul 2, 2010, and the S&P 500 has also gained 29.6 percent. It is challenging in theory and practice to assess when variables have peaked but sustained valuations to very high levels could be followed by contractions of valuations. Jonathan Cheng, writing on “Stocks add 66 points, post first-quarter record,” published on Mar 30, 2012, in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052702303816504577313123753822852.html?mod=WSJ_Markets_LEFTTopStories&mg=reno64-sec-wsj), finds that the DJIA rose 8.1 percent in IQ2012, which is the highest since 1998, while the S&P 500 gained 12 percent. Paul A. Samuelson remarked that “the stock market has predicted nine of the last five recessions.” Another version of this phrase would be that “the stock market has predicted nine of the last five economic booms.” The tool of analysis of Cochrane (2011Jan, 27, equation (16)) is the government debt valuation equation:

(Mt + Bt)/Pt = Et∫(1/Rt, t+τ)stdτ (1)

Equation (1) expresses the monetary, Mt, and debt, Bt, liabilities of the government, divided by the price level, Pt, in terms of the expected value discounted by the ex-post rate on government debt, Rt, t+τ, of the future primary surpluses st, which are equal to TtGt or difference between taxes, T, and government expenditures, G. Cochrane (2010A) provides the link to a web appendix demonstrating that it is possible to discount by the ex post Rt, t+τ. The present value of the firm can also be expressed as the discounted future value of net cash flows. Equities can inflate beyond sound values if cash flows that depend on economic activity prove to be illusory in continuing mediocre growth

4. Duration Trap of the Zero Bound. The yield of the US 10-year Treasury rose from 2.031 percent on Mar 9, 2012, to 2.294 percent on Mar 16, 2012. Considering a 10-year Treasury with coupon of 2.625 percent and maturity in exactly 10 years, the price would fall from 105.3512 corresponding to yield of 2.031 percent to 102.9428 corresponding to yield of 2.294 percent, for loss in a week of 2.3 percent but far more in a position with leverage of 10:1. Min Zeng, writing on “Treasurys fall, ending brutal quarter,” published on Mar 30, 2012, in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052702303816504577313400029412564.html?mod=WSJ_hps_sections_markets), informs that Treasury bonds maturing in more than 20 years lost 5.52 percent in the first quarter of 2012

5. Credibility and Commitment of Central Bank Policy. There is a credibility issue of the commitment of monetary policy. The Federal Open Market Committee (FOMC) advised on its Apr 25, 2012 statement that: “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels of the federal funds rate at least through late 2014” (http://www.federalreserve.gov/newsevents/press/monetary/20120425a.htm). At its meeting on Jan 25, the FOMC began to provide to the public the specific forecasts of interest rates and other economic variables by FOMC members. These forecasts are analyzed in Section IV Global Inflation. Thomas J. Sargent and William L. Silber, writing on “The challenges of the Fed’s bid for transparency,” on Mar 20, published in the Financial Times (http://www.ft.com/intl/cms/s/0/778eb1ce-7288-11e1-9c23-00144feab49a.html#axzz1pexRlsiQ), analyze the costs and benefits of transparency by the Fed. In the analysis of Sargent and Silber (2012Mar20), benefits of transparency by the Fed will exceed costs if the Fed is successful in conveying to the public what policies would be implemented and how forcibly in the presence of unforeseen economic events. History has been unkind to policy commitments. The risk in this case is if the Fed would postpone adjustment because of political pressures as has occurred in the past or because of errors of evaluation and forecasting of economic and financial conditions. Both political pressures and errors abounded in the unhappy stagflation of the 1970s also known as the US Great Inflation (see http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html and Appendix I The Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB). The challenge of the Fed, in the view of Sargent and Silber 2012Mar20), is to convey to the public the need to deviate from the commitment to interest rates of zero to ¼ percent because conditions have changed instead of unwarranted inaction or policy changes. Errors have abounded such as a critical cause of the global recession pointed by Sargent and Silber (2012Mar20): “While no president is known to have explicitly pressurized Mr. Bernanke’s predecessor, Alan Greenspan, he found it easy to maintain low interest rates for too long, fuelling the credit boom and housing bubble that led to the financial crisis in 2008.” Sargent and Silber (2012Mar20) also find need of commitment of fiscal authorities to consolidation needed to attain sustainable path of debt.

The analysis by Kydland and Prescott (1977, 447-80, equation 5) uses the “expectation augmented” Phillips curve with the natural rate of unemployment of Friedman (1968) and Phelps (1968), which in the notation of Barro and Gordon (1983, 592, equation 1) is:

Ut = Unt – α(πtπe) α > 0 (1)

Where Ut is the rate of unemployment at current time t, Unt is the natural rate of unemployment, πt is the current rate of inflation and πe is the expected rate of inflation by economic agents based on current information. Equation (1) expresses unemployment net of the natural rate of unemployment as a decreasing function of the gap between actual and expected rates of inflation. The system is completed by a social objective function, W, depending on inflation, π, and unemployment, U:

W = W(πt, Ut) (2)

The policymaker maximizes the preferences of the public, (2), subject to the constraint of the tradeoff of inflation and unemployment, (1). The total differential of W set equal to zero provides an indifference map in the Cartesian plane with ordered pairs (πt, Ut - Un) such that the consistent equilibrium is found at the tangency of an indifference curve and the Phillips curve in (1). The indifference curves are concave to the origin. The consistent policy is not optimal. Policymakers without discretionary powers following a rule of price stability would attain equilibrium with unemployment not higher than with the consistent policy. The optimal outcome is obtained by the rule of price stability, or zero inflation, and no more unemployment than under the consistent policy with nonzero inflation and the same unemployment. Taylor (1998LB) attributes the sustained boom of the US economy after the stagflation of the 1970s to following a monetary policy rule instead of discretion (see Taylor 1993, 1999).

6. Carry Trades. Commodity prices driven by zero interest rates have resumed their increasing path. Some analytical aspects of the carry trade are instructive (Pelaez and Pelaez, Globalization and the State, Vol. I (2008a), 101-5, Pelaez and Pelaez, Globalization and the State, Vol. II (2008b), 202-4), Government Intervention in Globalization: Regulation, Trade and Devaluation Wars (2008c), 70-4). Consider the following symbols: Rt is the exchange rate of a country receiving carry trade denoted in units of domestic currency per dollars at time t of initiation of the carry trade; Rt+τ is the exchange of the country receiving carry trade denoted in units of domestic currency per dollars at time t+τ when the carry trade is unwound; if is the domestic interest rate of the high-yielding country where investment will be made; iusd is the interest rate on short-term dollar debt assumed to be 0.5 percent per year; if >iusd, which expresses the fact that the interest rate on the foreign country is much higher than that in short-term USD (US dollars); St is the dollar value of the investment principal; and π is the dollar profit from the carry trade. The investment of the principal St in the local currency debt of the foreign country provides a profit of:

π = (1 + if)(RtSt)(1/Rt+τ) – (1 + iusd)St (3)

The profit from the carry trade, π, is nonnegative when:

(1 + if)/ (1 + iusd) ≥ Rt+τ/Rt (4)

In words, the difference in interest rate differentials, left-hand side of inequality (4), must exceed the percentage devaluation of the currency of the host country of the carry trade, right hand side of inequality (4). The carry trade must earn enough in the host-country interest rate to compensate for depreciation of the host-country at the time of return to USD. A simple example explains the vulnerability of the carry trade in fixed-income. Let if be 0.10 (10 percent), iusd 0.005 (0.5 percent), St USD100 and Rt CUR 1.00/USD. Adopt the fixed-income rule of months of 30 days and years of 360 days. Consider a strategy of investing USD 100 at 10 percent for 30 days with borrowing of USD 100 at 0.5 percent for 30 days. At time t, the USD 100 are converted into CUR 100 and invested at [(30/360)10] equal to 0.833 percent for thirty days. At the end of the 30 days, assume that the rate Rt+30 is still CUR 1/USD such that the return amount from the carry trade is USD 0.833. There is still a loan to be paid [(0.005)(30/360)USD100] equal to USD 0.042. The investor receives the net amount of USD 0.833 minus USD 0.042 or US 0.791. The rate of return on the investment of the USD 100 is 0.791 percent, which is equivalent to the annual rate of return of 9.49 percent {(0.791)(360/30)}. This is incomparably better than earning 0.5 percent. There are alternatives of hedging by buying forward the exchange for conversion back into USD.

Research by the Federal Reserve Bank of St. Louis finds that the dollar declined on average by 6.56 percent in the events of quantitative easing, ranging from depreciation of 10.8 percent relative to the Japanese yen to 3.6 percent relative to the pound sterling (http://research.stlouisfed.org/wp/2010/2010-018.pdf). A critical assumption of Rudiger Dornbusch (1976) in his celebrated analysis of overshooting (Rogoff 2002MF http://www.imf.org/external/np/speeches/2001/kr/112901.pdf) is “that exchange rates and asset markets adjust fast relative to goods markets” (Rudiger Dornbusch 1976, 1162). The market response of a monetary expansion is “to induce an immediate depreciation in the exchange rate and accounts therefore for fluctuations in the exchange rate and the terms of trade. During the adjustment process, rising prices may be accompanied by an appreciating exchange rate so that the trend behavior of exchange rates stands potentially in strong contrast with the cyclical behavior of exchange rates and prices” (Dornbusch 1976, 1162). The volatility of the exchange rate “is needed to temporarily equilibrate the system in response to monetary shocks, because underlying national prices adjust so slowly” (Rogoff 2002MF http://www.imf.org/external/np/speeches/2001/kr/112901.pdf 3). The exchange rate “is identified as a critical channel for the transmission of monetary policy to aggregate demand for domestic output” (Dornbusch 1976, 1162).

In a world of exchange wars, depreciation of the host-country currency can move even faster such that the profits from the carry trade may become major losses. Depreciation is the percentage change in instants against which the interest rate of a day is in the example [(10)(1/360)] or 0.03 percent. Exchange rates move much faster in the real world as in the overshooting model of Dornbusch (1976). Profits in carry trades have greater risks but equally greater returns when the short position in zero interest rates, or borrowing, and on the dollar, are matched with truly agile financial risk assets such as commodities and equities. A simplified analysis could consider the portfolio balance equations Aij = f(r, x) where Aij is the demand for i = 1,2,∙∙∙n assets from j = 1,2, ∙∙∙m sectors, r the 1xn vector of rates of return, ri, of n assets and x a vector of other relevant variables. Tobin (1969) and Brunner and Meltzer (1973) assume imperfect substitution among capital assets such that the own first derivatives of Aij are positive, demand for an asset increases if its rate of return (interest plus capital gains) is higher, and cross first derivatives are negative, demand for an asset decreases if the rate of return of alternative assets increases. Theoretical purity would require the estimation of the complete model with all rates of return. In practice, it may be impossible to observe all rates of return such as in the critique of Roll (1976). Policy proposals and measures by the Fed have been focused on the likely impact of withdrawals of stocks of securities in specific segments, that is, of effects of one or several specific rates of return among the n possible rates. In fact, the central bank cannot influence investors and arbitrageurs to allocate funds to assets of desired categories such as asset-backed securities that would lower the costs of borrowing for mortgages and consumer loans. Floods of cheap money may simply induce carry trades in arbitrage of opportunities in fast moving assets such as currencies, commodities and equities instead of much lower returns in fixed income securities (see http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html).

It is in this context of economic and financial uncertainties that decisions on portfolio choices of risk financial assets must be made. There is a new carry trade that learned from the losses after the crisis of 2007 or learned from the crisis how to avoid losses. The sharp rise in valuations of risk financial assets shown in Table VI-1 after the first policy round of near zero fed funds and quantitative easing by the equivalent of withdrawing supply with the suspension of the 30-year Treasury auction was on a smooth trend with relatively subdued fluctuations. The credit crisis and global recession have been followed by significant fluctuations originating in sovereign risk issues in Europe, doubts of continuing high growth and accelerating inflation in China now complicated by political developments, events such as in the Middle East and Japan and legislative restructuring, regulation, insufficient growth, falling real wages, depressed hiring and high job stress of unemployment and underemployment in the US now with realization of growth standstill. The “trend is your friend” motto of traders has been replaced with a “hit and realize profit” approach of managing positions to realize profits without sitting on positions. There is a trend of valuation of risk financial assets driven by the carry trade from zero interest rates with fluctuations provoked by events of risk aversion or the “sharp shifts in risk appetite” of Blanchard (2012WEOApr, XIII). Table VI-4, which is updated for every comment of this blog, shows the deep contraction of valuations of risk financial assets after the Apr 2010 sovereign risk issues in the fourth column “∆% to Trough.” There was sharp recovery after around Jul 2010 in the last column “∆% Trough to 6/8/12,” which has been recently stalling or reversing amidst profound risk aversion. “Let’s twist again” monetary policy during the week of Sep 23 caused deep worldwide risk aversion and selloff of risk financial assets (http://cmpassocregulationblog.blogspot.com/2011/09/imf-view-of-world-economy-and-finance.html http://cmpassocregulationblog.blogspot.com/2011/09/collapse-of-household-income-and-wealth.html). Monetary policy was designed to increase risk appetite but instead suffocated risk exposures. There has been rollercoaster fluctuation in risk aversion and financial risk asset valuations: surge in the week of Dec 2, mixed performance of markets in the week of Dec 9, renewed risk aversion in the week of Dec 16, end-of-the-year relaxed risk aversion in thin markets in the weeks of Dec 23 and Dec 30, mixed sentiment in the weeks of Jan 6 and Jan 13 2012 and strength in the weeks of Jan 20, Jan 27 and Feb 3 followed by weakness in the week of Feb 10 but strength in the weeks of Feb 17 and 24 followed by uncertainty on financial counterparty risk in the weeks of Mar 2 and Mar 9. All financial values have fluctuated with events such as the surge in the week of Mar 16 on favorable news of Greece’s bailout even with new risk issues arising in the week of Mar 23 but renewed risk appetite in the week of Mar 30 because of the end of the quarter and the increase in the firewall of support of sovereign debts in the euro area. New risks developed in the week of Apr 6 with increase of yields of sovereign bonds of Spain and Italy, doubts on Fed policy and weak employment report. Asia and financial entities are experiencing their own risk environments. Financial markets were under stress in the week of Apr 13 because of the large exposure of Spanish banks to lending by the European Central Bank and the annual equivalent growth rate of China’s GDP of 7.4 percent in IQ2012 [(1.018)4]. There was strength again in the week of Apr 20 because of the enhanced IMF firewall and Spain placement of debt, continuing into the week of Apr 27. Risk aversion returned in the week of May 4 because of the expectation of elections in Europe and the new trend of deterioration of job creation in the US. Europe’s sovereign debt crisis and the fractured US job market continued to influence risk aversion in the week of May 11. Politics in Greece and banking issues in Spain were important factors of sharper risk aversion in the week of May 18. Risk aversion continued during the week of May 25 and exploded in the week of Jun 1. Expectations of stimulus by central banks caused valuation of risk financial assets in the week of Jun 8. The highest valuations in column “∆% Trough to 6/8/12” are by US equities indexes: DJIA 29.6 percent and S&P 500 29.6 percent, driven by stronger earnings and economy in the US than in other advanced economies but with doubts on the relation of business revenue to the weakening economy and fractured job market. The DJIA reached 13,331.77 in intraday trading on Mar 16, which is the highest level in 52 weeks (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). The carry trade from zero interest rates to leveraged positions in risk financial assets had proved strongest for commodity exposures but US equities have regained leadership. Before the current round of risk aversion, almost all assets in the column “∆% Trough to 6/8/12” had double digit gains relative to the trough around Jul 2, 2010 but now most valuations of equity indexes show increase of less than 10 percent: China’s Shanghai Composite is 4.3 percent below the trough; STOXX 50 of Europe is 0.7 percent below the trough; Japan’s Nikkei Average is 4.1 percent below the trough; DJ Asia Pacific TSM is 0.4 percent below the trough; Dow Global is 3.3 percent above the trough; and NYSE Financial is 0.6 percent above the trough. DJ UBS Commodities is 3.9 percent above the trough. DAX is 8.1 percent above the trough. Japan’s Nikkei Average is 4.1 percent below the trough on Aug 31, 2010 and 25.8 percent below the peak on Apr 5, 2010. The Nikkei Average closed at 8459.26 on Fri Jun 8, 2012 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata), which is 17.5 percent lower than 10,254.43 on Mar 11, 2011, on the date of the Tōhoku or Great East Japan Earthquake/tsunami. Global risk aversion erased the earlier gains of the Nikkei. The dollar depreciated by 5.0 percent relative to the euro and even higher before the new bout of sovereign risk issues in Europe. The column “∆% week to 6/8/12” in Table VI-4 shows that there were increases of several valuations of risk financial assets in the week of Jun 8, 2012 such as 0.1 percent for DJ Asia Pacific, 0.2 percent for Nikkei Average, 2.6 percent for STOXX 50 and 1.6 percent for DJ UBS Commodities. Other valuations also increased such as 3.6 percent for DJIA, 3.7 percent for S&P 500, 4.9 percent for NYSE Financial, 3.0 percent for Dow Global and 1.3 percent for Dax. The only decline is 3.9 percent for the Shanghai Composite. There are still high uncertainties on European sovereign risks, US and world growth slowdown and China’s growth tradeoffs. Sovereign problems in the “periphery” of Europe and fears of slower growth in Asia and the US cause risk aversion with trading caution instead of more aggressive risk exposures. There is a fundamental change in Table VI-4 from the relatively upward trend with oscillations since the sovereign risk event of Apr-Jul 2010. Performance is best assessed in the column “∆% Peak to 6/8/12” that provides the percentage change from the peak in Apr 2010 before the sovereign risk event to Jun 8, 2012. Most risk financial assets had gained not only relative to the trough as shown in column “∆% Trough to 6/8/12” but also relative to the peak in column “∆% Peak to 6/8/12.” There are now only two equity indexes above the peak in Table VI-4: DJIA 12.0 percent and S&P 500 8.9 percent. There are several indexes below the peak: NYSE Financial Index (http://www.nyse.com/about/listed/nykid.shtml) by 19.8 percent, Nikkei Average by 25.8 percent, Shanghai Composite by 27.9 percent, DJ Asia Pacific by 12.8 percent, STOXX 50 by 15.9 percent, Dax by 3.2 percent and Dow Global by 15.7 percent. DJ UBS Commodities Index is now 11.2 percent below the peak. The factors of risk aversion have adversely affected the performance of risk financial assets. The performance relative to the peak in Apr 2010 is more important than the performance relative to the trough around early Jul 2010 because improvement could signal that conditions have returned to normal levels before European sovereign doubts in Apr 2010. An intriguing issue is the difference in performance of valuations of risk financial assets and economic growth and employment. Paul A. Samuelson (http://www.nobelprize.org/nobel_prizes/economics/laureates/1970/samuelson-bio.html) popularized the view of the elusive relation between stock markets and economic activity in an often-quoted phrase “the stock market has predicted nine of the last five recessions.” In the presence of zero interest rates forever, valuations of risk financial assets are likely to differ from the performance of the overall economy. The interrelations of financial and economic variables prove difficult to analyze and measure.

Table VI-4, Stock Indexes, Commodities, Dollar and 10-Year Treasury  

 

Peak

Trough

∆% to Trough

∆% Peak to 6/8

/12

∆% Week 6/8/ 12

∆% Trough to 6/8

12

DJIA

4/26/
10

7/2/10

-13.6

12.0

3.6

29.6

S&P 500

4/23/
10

7/20/
10

-16.0

8.9

3.7

29.6

NYSE Finance

4/15/
10

7/2/10

-20.3

-19.8

4.9

0.6

Dow Global

4/15/
10

7/2/10

-18.4

-15.7

3.0

3.3

Asia Pacific

4/15/
10

7/2/10

-12.5

-12.8

0.1

-0.4

Japan Nikkei Aver.

4/05/
10

8/31/
10

-22.5

-25.8

0.2

-4.1

China Shang.

4/15/
10

7/02
/10

-24.7

-27.9

-3.9

-4.3

STOXX 50

4/15/10

7/2/10

-15.3

-15.9

2.6

-0.7

DAX

4/26/
10

5/25/
10

-10.5

-3.2

1.3

8.1

Dollar
Euro

11/25 2009

6/7
2010

21.2

17.3

-0.7

-5.0

DJ UBS Comm.

1/6/
10

7/2/10

-14.5

-11.2

1.6

3.9

10-Year T Note

4/5/
10

4/6/10

3.986

1.635

   

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

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

Bernanke (2010WP) and Yellen (2011AS) reveal the emphasis of monetary policy on the impact of the rise of stock market valuations in stimulating consumption by wealth effects on household confidence. Table VI-5 shows a gain by Apr 29, 2011 in the DJIA of 14.3 percent and of the S&P 500 of 12.5 percent since Apr 26, 2010, around the time when sovereign risk issues in Europe began to be acknowledged in financial risk asset valuations. The last row of Table VI-5 for Jun 8, 2012, shows that the S&P 500 is now 9.4 percent above the Apr 26, 2010 level and the DJIA is 12.0 percent above the level on Apr 26, 2010. Multiple rounds of risk aversion eroded earlier gains, showing that risk aversion can destroy market value even with zero interest rates. Relaxed risk aversion has contributed to recovery of valuations. Much the same as zero interest rates and quantitative easing have not had any effects in recovering economic activity while distorting financial markets and resource allocation.

Table VI-5, Percentage Changes of DJIA and S&P 500 in Selected Dates

2010

∆% DJIA from  prior date

∆% DJIA from
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

Nov 11

1.4

8.5

0.8

4.3

Nov 18

-2.9

5.3

-3.8

0.3

Nov 25

-4.8

0.2

-4.7

-4.4

Dec 02

7.0

7.3

7.4

2.7

Dec 09

1.4

8.7

0.9

3.6

Dec 16

-2.6

5.9

-2.8

0.6

Dec 23

3.6

9.7

3.7

4.4

Dec 30

-0.6

9.0

-0.6

3.8

Jan 6 2012

1.2

10.3

1.6

5.4

Jan 13

0.5

10.9

0.9

6.4

Jan 20

2.4

13.5

2.0

8.5

Jan 27

-0.5

13.0

0.1

8.6

Feb 3

1.6

14.8

2.2

11.0

Feb 10

-0.5

14.2

-0.2

10.8

Feb 17

1.2

15.6

1.4

12.3

Feb 24

0.3

15.9

0.3

12.7

Mar 2

0.0

15.8

0.3

13.0

Mar 9

-0.4

15.3

0.1

13.1

Mar 16

2.4

18.1

2.4

15.9

Mar 23

-1.1

16.7

-0.5

15.3

Mar 30

1.0

17.9

0.8

16.2

Apr 6

-1.1

16.6

-0.7

15.3

Apr 13

-1.6

14.7

-2.0

13.1

Apr 20

1.4

16.3

0.6

13.7

Apr 27

1.5

18.1

1.8

15.8

May 4

-1.4

16.4

-2.3

12.9

May 11

-1.7

14.4

-1.1

11.7

May 18

-3.5

10.4

-4.3

6.4

May 25

0.7

11.2

1.7

8.7

Jun 1

-2.7

8.2

-3.0

5.4

Jun 8

3.6

12.0

3.7

9.4

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

Table VI-6, updated with every blog comment, shows that exchange rate valuations affect a large variety of countries, in fact, almost the entire world, in magnitudes that cause major problems for domestic monetary policy and trade flows. Dollar devaluation is expected to continue because of zero fed funds rate, expectations of rising inflation, large budget deficit of the federal government (http://professional.wsj.com/article/SB10001424052748703907004576279321350926848.html?mod=WSJ_hp_LEFTWhatsNewsCollection) and now zero interest rates indefinitely but with interruptions caused by risk aversion events. Such an event actually occurred in the week of Sep 23 reversing the devaluation of the dollar in the form of sharp appreciation of the dollar relative to other currencies from all over the world including the offshore Chinese yuan market. Column “Peak” in Table VI-6 shows exchange rates during the crisis year of 2008. There was a flight to safety in dollar-denominated government assets as a result of the arguments in favor of TARP (Cochrane and Zingales 2009). This is evident in various exchange rates that depreciated sharply against the dollar such as the South African rand (ZAR) at the peak of depreciation of ZAR 11.578/USD on Oct 22, 2008, subsequently appreciating to the trough of ZAR 7.238/USD by Aug 15, 2010 but now depreciating by 15.9 percent to ZAR 8.3866/USD on Jun 8, 2012, which is still 27.6 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 4.8 percent stronger at SGD 1.2832/USD on Jun 8, 2012 relative to the trough of depreciation but still stronger by 17.4 percent relative to the peak of depreciation on Mar 3, 2009. Another example is the Brazilian real (BRL) that depreciated at the peak to BRL 2.43/USD on Dec 5, 2008 but appreciated 28.5 percent to the trough at BRL 1.737/USD on Apr 30, 2010, showing depreciation of 16.5 percent relative to the trough to BRL 2.0230/USD on Jun 8, 2012 but still stronger by 16.7 percent relative to the peak on Dec 5, 2008. At one point in 2011 the Brazilian real traded at BRL 1.55/USD and in the week of Sep 23 surpassed BRL 1.90/USD in intraday trading for depreciation of more than 20 percent. The Banco Central do Brasil, Brazil’s central bank, lowered its policy rate SELIC by 50 basis points for the sixth consecutive meeting of its monetary policy committee, COPOM (http://www.bcb.gov.br/textonoticia.asp?codigo=3554&IDPAI=NEWS):

“Copom reduces the Selic rate to 8.5 percent

30/05/2012 8:04:00 PM

Brasília - Continuing the adjustment process of monetary conditions, the Copom unanimously decided to reduce the Selic rate to 8.50 percent.”

Jeffrey T. Lewis, writing on “Brazil steps up battle to curb real’s rise,” on Mar 1, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424052970203986604577255793224099580.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes new measures by Brazil to prevent further appreciation of its currency, including the extension of the tax on foreign capital for three years terms, subsequently broadened to five years, and intervention in the foreign exchange market by the central bank. Unconventional monetary policy of zero interest rates and quantitative easing creates trends such as the depreciation of the dollar followed by Table VI-6 but with abrupt reversals during risk aversion. The main effects of unconventional monetary policy are on valuations of risk financial assets and not necessarily on consumption and investment or aggregate demand.

Table VI-6, Exchange Rates

 

Peak

Trough

∆% P/T

Jun 8, 2012

∆% T

Jun 8, 2012

∆% P

Jun 8,

2012

EUR USD

7/15
2008

6/7 2010

 

6/8

2012

   

Rate

1.59

1.192

 

1.2517

   

∆%

   

-33.4

 

4.8

-27.0

JPY USD

8/18
2008

9/15
2010

 

6/8

2012

   

Rate

110.19

83.07

 

79.48

   

∆%

   

24.6

 

4.3

27.9

CHF USD

11/21 2008

12/8 2009

 

6/8

2012

   

Rate

1.225

1.025

 

0.9596

   

∆%

   

16.3

 

6.4

21.7

USD GBP

7/15
2008

1/2/ 2009

 

6/8 2012

   

Rate

2.006

1.388

 

1.5472

   

∆%

   

-44.5

 

10.3

-29.6

USD AUD

7/15 2008

10/27 2008

 

6/8
2012

   

Rate

1.0215

1.6639

 

0.9916

   

∆%

   

-62.9

 

39.4

-1.3

ZAR USD

10/22 2008

8/15
2010

 

6/8 2012

   

Rate

11.578

7.238

 

8.3866

   

∆%

   

37.5

 

-15.9

27.6

SGD USD

3/3
2009

8/9
2010

 

6/8
2012

   

Rate

1.553

1.348

 

1.2832

   

∆%

   

13.2

 

4.8

17.4

HKD USD

8/15 2008

12/14 2009

 

6/8
2012

   

Rate

7.813

7.752

 

7.7584

   

∆%

   

0.8

 

-0.1

0.7

BRL USD

12/5 2008

4/30 2010

 

6/8

2012

   

Rate

2.43

1.737

 

2.0230

   

∆%

   

28.5

 

-16.5

16.7

CZK USD

2/13 2009

8/6 2010

 

6/8
2012

   

Rate

22.19

18.693

 

20.304

   

∆%

   

15.7

 

-8.6

8.5

SEK USD

3/4 2009

8/9 2010

 

6/8

2012

   

Rate

9.313

7.108

 

7.1272

   

∆%

   

23.7

 

-0.3

23.5

CNY USD

7/20 2005

7/15
2008

 

6/8
2012

   

Rate

8.2765

6.8211

 

6.3752

   

∆%

   

17.6

 

6.5

23.0

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

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

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

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

Chart VI-1 of the Board of Governors of the Federal Reserve System provides indexes of the dollar from 2010 to 2012. The dollar depreciates during episodes of risk appetite but appreciate during risk aversion as funds seek dollar-denominated assets in avoiding financial risk.

clip_image044

Chart VI-1, US Dollar Currency Indexes

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/DataDownload/Chart.aspx?rel=H10&series=122e3bcb627e8e53f1bf72a1a09cfb81&lastObs=260&from=&to=&filetype=csv&label=include&layout=seriescolumn&pp=Download&names=%7bH10/H10/JRXWTFB_N.B,H10/H10/JRXWTFN_N.B,H10/H10/JRXWTFO_N.B%7d

Chart VI-2 of the Board of Governors of the Federal Reserve System provides the exchange rate of the US relative to the euro, or USD/EUR. During maintenance of the policy of zero fed funds rates the dollar appreciates during periods of significant risk aversion such as the flight into US government obligations in late 2008 and early 2009 and during the various fears generated by the European sovereign debt crisis.

clip_image046

Chart VI-2, US Dollars per Euro, 2009-2012

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/DataDownload/Chart.aspx?rel=H10&series=e85cfb140ce469e13bec458013262fa1&lastObs=780&from=&to=&filetype=csv&label=include&layout=seriescolumn&pp=Download&names=%7bH10/H10/RXI$US_N.B.EU%7d

Table VI-7, updated with every blog comment, provides in the second column the yield at the close of market of the 10-year Treasury note on the date in the first column. The price in the third column is calculated with the coupon of 2.625 percent of the 10-year note current at the time of the second round of quantitative easing after Nov 3, 2010 and the final column “∆% 11/04/10” calculates the percentage change of the price on the date relative to that of 101.2573 at the close of market on Nov 4, 2010, one day after the decision on quantitative easing by the Fed on Nov 3, 2010. Prices with new coupons such as 2.0 percent in recent auctions (http://www.treasurydirect.gov/RI/OFAuctions?form=extended&cusip=912828RR3) are not comparable to prices in Table VI-7. The highest yield in the decade was 5.510 percent on May 1, 2001 that would result in a loss of principal of 22.9 percent relative to the price on Nov 4. Monetary policy has created a “duration trap” of bond prices. Duration is the percentage change in bond price resulting from a percentage change in yield or what economists call the yield elasticity of bond price. Duration is higher the lower the bond coupon and yield, all other things constant. This means that the price loss in a yield rise from low coupons and yields is much higher than with high coupons and yields. Intuitively, the higher coupon payments offset part of the price loss. Prices/yields of Treasury securities were affected by the combination of Fed purchases for its program of quantitative easing and also by the flight to dollar-denominated assets because of geopolitical risks in the Middle East, subsequently by the tragic Great East Japan Earthquake and Tsunami and now again by the sovereign risk doubts in Europe and the growth recession in the US and the world. The yield of 1.635 percent at the close of market on Fri Jun 8, 2012 would be equivalent to price of 109.0989 in a hypothetical bond maturing in 10 years with coupon of 2.625 percent for price gain of 7.7 percent relative to the price on Nov 4, 2010, one day after the decision on the second program of quantitative easing, as shown in the first to the last row of Table VI-7. The price loss between Jun 1, 2012 and Jun 8, 2012 would have been 1.6 percent, in just a week, and much higher with leverage of 10:1 as typical in Treasury positions. The price loss between Mar 9, 2012 and Mar 16, 2012 is 2.3 percent but much higher when using common leverage of 10:1. These losses defy annualizing. If inflation accelerates, yields of Treasury securities may rise sharply. Yields are not observed without special yield-lowering effects such as the flight into dollars caused by the events in the Middle East, continuing purchases of Treasury securities by the Fed, the tragic Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 affecting Japan, recurring fears on European sovereign credit issues and worldwide risk aversion in the week of Sep 30 caused by “let’s twist again” monetary policy. The realization of a growth standstill recession is also influencing yields. Important causes of the earlier rise in yields shown in Table VI-7 are expectations of rising inflation and US government debt estimated to be around 70 percent of GDP in 2012 (http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/02/policy-inflation-growth-unemployment.html http://cmpassocregulationblog.blogspot.com/2011/04/budget-quagmire-fed-commodities_10.html), rising from 40.5 percent of GDP in 2008, 54.1 percent in 2009 (Table IV-1 at http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html and Table 2 in http://cmpassocregulationblog.blogspot.com/2011/04/budget-quagmire-fed-commodities_10.html) and 67.7 percent in 2011. On Jun 6, 2012, the line “Reserve Bank credit” in the Fed balance sheet stood at $2835 billion, or $2.8 trillion, with portfolio of long-term securities of $2581billion, or $2.6 trillion, consisting of $1568 billion Treasury nominal notes and bonds, $68 billion of notes and bonds inflation-indexed, $93 billion Federal agency debt securities and $852 billion mortgage-backed securities; reserve balances deposited with Federal Reserve Banks reached $1545 billion or $1.5 trillion (http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1). There is no simple exit of this trap created by the highest monetary policy accommodation in US history together with the highest deficits and debt in percent of GDP since World War II. Risk aversion from various sources, discussed in section III World Financial Turbulence, has been affecting financial markets for several months. The risk is that in a reversal of risk aversion that has been typical in this cyclical expansion of the economy yields of Treasury securities may back up sharply.

Table VI-7, Yield, Price and Percentage Change to November 4, 2010 of Ten-Year Treasury Note

Date

Yield

Price

∆% 11/04/10

05/01/01

5.510

78.0582

-22.9

06/10/03

3.112

95.8452

-5.3

06/12/07

5.297

79.4747

-21.5

12/19/08

2.213

104.4981

3.2

12/31/08

2.240

103.4295

2.1

03/19/09

2.605

100.1748

-1.1

06/09/09

3.862

89.8257

-11.3

10/07/09

3.182

95.2643

-5.9

11/27/09

3.197

95.1403

-6.0

12/31/09

3.835

90.0347

-11.1

02/09/10

3.646

91.5239

-9.6

03/04/10

3.605

91.8384

-9.3

04/05/10

3.986

88.8726

-12.2

08/31/10

2.473

101.3338

0.08

10/07/10

2.385

102.1224

0.8

10/28/10

2.658

99.7119

-1.5

11/04/10

2.481

101.2573

-

11/15/10

2.964

97.0867

-4.1

11/26/10

2.869

97.8932

-3.3

12/03/10

3.007

96.7241

-4.5

12/10/10

3.324

94.0982

-7.1

12/15/10

3.517

92.5427

-8.6

12/17/10

3.338

93.9842

-7.2

12/23/10

3.397

93.5051

-7.7

12/31/10

3.228

94.3923

-6.7

01/07/11

3.322

94.1146

-7.1

01/14/11

3.323

94.1064

-7.1

01/21/11

3.414

93.4687

-7.7

01/28/11

3.323

94.1064

-7.1

02/04/11

3.640

91.750

-9.4

02/11/11

3.643

91.5319

-9.6

02/18/11

3.582

92.0157

-9.1

02/25/11

3.414

93.3676

-7.8

03/04/11

3.494

92.7235

-8.4

03/11/11

3.401

93.4727

-7.7

03/18/11

3.273

94.5115

-6.7

03/25/11

3.435

93.1935

-7.9

04/01/11

3.445

93.1129

-8.0

04/08/11

3.576

92.0635

-9.1

04/15/11

3.411

93.3874

-7.8

04/22/11

3.402

93.4646

-7.7

04/29/11

3.290

94.3759

-6.8

05/06/11

3.147

95.5542

-5.6

05/13/11

3.173

95.3387

-5.8

05/20/11

3.146

95.5625

-5.6

05/27/11

3.068

96.2089

-4.9

06/03/11

2.990

96.8672

-4.3

06/10/11

2.973

97.0106

-4.2

06/17/11

2.937

97.3134

-3.9

06/24/11

2.872

97.8662

-3.3

07/01/11

3.186

95.2281

-5.9

07/08/11

3.022

96.5957

-4.6

07/15/11

2.905

97.5851

-3.6

07/22/11

2.964

97.0847

-4.1

07/29/11

2.795

98.5258

-2.7

08/05/11

2.566

100.5175

-0.7

08/12/11

2.249

103.3504

2.1

08/19/11

2.066

105.270

3.7

08/26/11

2.202

103.7781

2.5

09/02/11

1.992

105.7137

4.4

09/09/11

1.918

106.4055

5.1

09/16/11

2.053

101.5434

0.3

09/23/11

1.826

107.2727

5.9

09/30/11

1.912

106.4602

5.1

10/07/11

2.078

104.9161

3.6

10/14/11

2.251

103.3323

2.0

10/21/11

2.220

103.6141

2.3

10/28/11

2.326

102.6540

1.4

11/04/11

2.066

105.0270

3.7

11/11/11

2.057

105.1103

3.8

11/18/11

2.003

105.6113

4.3

11/25/11

1.964

105.9749

4.7

12/02/11

2.042

105.2492

3.9

12/09/11

2.065

105.0363

3.7

12/16/11

1.847

107.0741

5.7

12/23/11

2.027

105.3883

4.1

12/30/11

1.871

106.8476

5.5

01/06/12

1.957

106.0403

4.7

01/13/12

1.869

106.8664

5.5

01/20/12

2.026

105.3976

4.1

01/27/12

1.893

106.6404

5.3

02/03/12

1.923

106.3586

5.0

02/10/12

1.974

105.8815

4.6

02/17/12

2.000

105.6392

4.3

02/24/12

1.977

105.8535

4.5

03/02/12

1.977

105.8535

4.5

03/09/12

2.031

105.3512

4.0

03/16/12

2.294

102.9428

1.7

03/23/12

2.234

103.4867

2.2

03/30/12

2.214

103.6687

2.4

04/06/12

2.058

105.1010

3.8

04/13/12

1.987

105.7603

4.4

04/20/12

1.959

106.0216

4.7

04/27/12

1.931

106.2836

5.0

05/04/12

1.876

106.8004

5.5

05/11/12

1.845

107.0930

5.8

05/18/12

1.714

108.3393

7.0

05/25/12

1.738

108.1098

6.8

06/01/12

1.454

110.8618

9.5

06/08/12

1.635

109.0989

7.7

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

VII Economic Indicators. Crude oil input in refineries increased 1.2 percent to 15,167 thousand barrels per day on average in the four weeks ending on Jun 1, 2012 from 14,986 thousand barrels per day in the four weeks ending on May 25, 2012, as shown in Table VII-1. The rate of capacity utilization in refineries continues at a relatively high level of 89.1 percent on Jun 1, 2012, which is higher than 85.7 percent on Jun 3, 2011 and higher than 88.0 percent on May 25, 2012. Imports of crude oil increased 0.0 percent from 8,833 thousand barrels per day on average in the four weeks ending on May 25 to 8,830 thousand barrels per day in the week of Jun 1. The Energy Information Administration (EIA) informs that “US crude oil imports averaged about 9.0 million barrels per day last week, down by 99 thousand barrels per day from the previous week [Jun 1]” (http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf). Increasing utilization in refineries with decreasing imports at the margin in the prior week resulted in decrease of commercial crude oil stocks by 0.1 million barrels from 384.7 million barrels on May 25 to 384.6 million barrels on Jun 1. Motor gasoline production decreased 0.1 percent to 9,063 thousand barrels per day in the week of Jun 1 from 9,071 thousand barrels per day on average in the week of May 25. Gasoline stocks increased 3.3 million barrels and stocks of fuel oil increased 2.2 million barrels. Supply of gasoline decreased from 9,167 thousand barrels per day on Jun 3, 2011, to 8,796 thousand barrels per day on Jun 1, 2012, or by 4.0 percent, while fuel oil supply decreased 4.9 percent. Part of the fall in consumption of gasoline is due to high prices and part to the growth recession. WTI crude oil price traded at $83.17/barrel on Jun 1, 2012, decreasing 17.1 percent relative to $100.28/barrel on Jun 3, 2011. Gasoline prices fell 1.6 percent from Jun 6, 2011 to Jun 4, 2012. Increases in prices of crude oil and gasoline relative to a year earlier are moderating because year earlier prices are already reflecting the commodity price surge and commodity prices have been declining recently during worldwide risk aversion. Gasoline prices had been increasing to the highest levels at this time of the year.

Table VII-1, US, Energy Information Administration Weekly Petroleum Status Report

Four Weeks Ending Thousand Barrels/Day

6/1/12

5/25/12

6/3/11

Crude Oil Refineries Input

15,167

Week       ∆%: 1.2

14,986

14,788

Refinery Capacity Utilization %

89.1

88.0

85.7

Motor Gasoline Production

9,063

Week      ∆%: -0.1

9,071

9,317

Distillate Fuel Oil Production

4,572

Week     ∆%: 1.6

4,502

4,241

Crude Oil Imports

8,830

Week        ∆%: 0.0

8,833

8,946

Motor Gasoline Supplied

8,796

∆% 2012/2011=

-4.0%

8,850

9,167

Distillate Fuel Oil Supplied

3,624

∆% 2012/2011

= -4.9%

3,768

3,813

 

6/1/12

5/25/12

6/3/11

Crude Oil Stocks
Million B

384.6     ∆= -0.1 MB

384.7

369.0

Motor Gasoline Million B

203.5  

∆= 3.3 MB

200.2

214.5

Distillate Fuel Oil Million B

120.0
∆= +2.2 MB

117.8

140.9

WTI Crude Oil Price $/B

83.17

∆% 2012/2011

-17.1

90.64

100.28

 

6/4/12

5/28/12

6/6/11

Regular Motor Gasoline $/G

3.612

∆% 2012/2011
-1.6

3.669

3.781

B: barrels; G: gallon

Source: US Energy Information Administration http://www.eia.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/highlights.pdf

Chart VII-1 of the US Energy Information Administration shows commercial stocks of crude oil of the US. There have been fluctuations around an upward trend since 2005. Crude oil stocks trended downwardly during a few weeks but with fluctuations followed by several sharp weekly increases.

clip_image048

Chart VII-1, US, Weekly Crude Oil Ending Stocks

Source: US Energy Information Administration

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

Chart VII-2 provides the evolution of motor gasoline stocks in the US. After prolonged decline, there is an upward change in weekly stocks for Jun 1, 2012.

clip_image049

Chart VII-2, US, Motor Gasoline Stocks

Source: US Energy Information Administration

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

Chart VII-3 of the US Energy Information Administration shows the price of WTI crude oil since the 1980s. Chart VII-3 captures commodity price shocks during the past decade. The costly mirage of deflation was caused by the decline in oil prices during the recession of 2001. The upward trend after 2003 was promoted by the carry trade from near zero interest rates. The jump above $140/barrel during the global recession in 2008 can only be explained by the carry trade promoted by monetary policy of zero fed funds rate. After moderation of risk aversion, the carry trade returned with resulting sharp upward trend of crude prices.

clip_image051

Chart VII-3, US, Crude Oil Futures Contract

Source: US Energy Information Administration

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

There is typically significant difference between initial claims for unemployment insurance adjusted and not adjusted for seasonality provided in Table VII-2. Seasonally adjusted claims decreased 12,000 from 389,000 on May 26, 2012, to 377,000 on Jun 2. Claims not adjusted for seasonality decreased 24,376 from 346,260 on May 26, 2012 to 321,884 on Jun 2. Strong seasonality is preventing clear analysis of labor markets.

Table VII-2, US, Initial Claims for Unemployment Insurance

 

SA

NSA

4-week MA SA

June 2, 12

377,000

321,884

377,750

May 26, 12

389,000

346,260

376,000

Change

-12,000

-24,376

+1,750

May 19, 12

373,000

330,431

370,750

Prior Year

425,000

366,816

422,750

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

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

Table VII-3 provides seasonally and not seasonally adjusted claims in the comparable week for the years from 2001 to 2012. Seasonally adjusted claims typically are lower than claims not adjusted for seasonality. Claims not seasonally adjusted have declined from 500,380 on May 29, 2009 to 381,497 on May 28, 2011, and now to 321,884 on Jun 2, 2012. There is strong indication of significant decline in the level of layoffs in the US. Hiring has not recovered (see Section IA Hiring Collapse at http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/04/fractured-labor-market-with-hiring.html).

Table VII-3, US, Unemployment Insurance Weekly Claims

 

Not Seasonally Adjusted Claims

Seasonally Adjusted Claims

Jun 2, 2001

335,765

406,000

Jun 1, 2002

309,183

378,000

May 31, 2003

351,890

431,000

May 29, 2004

304,067

337,000

May 28, 2005

304,306

340,000

May 27, 2006

292,714

330,000

Jun 2, 2007

263,527

313,000

May 31, 2008

300,989

363,000

May 30, 2009

500,380

612,000

May 29, 2010

418,873

461,000

May 28, 2011

381,497

424,000

May 26, 2012

321,884

377,000

Source: http://workforcesecurity.doleta.gov/unemploy/claims.asp

VIII Interest Rates. It is quite difficult to measure inflationary expectations because they tend to break abruptly from past inflation. There could still be an influence of past and current inflation in the calculation of future inflation by economic agents. Table VIII-1 provides inflation of the CPI. In the quarter Feb to Apr 2012, CPI inflation for all items seasonally adjusted was 2.8 percent in annual equivalent, that is, compounding inflation in Feb-Apr 2012 and assuming it would be repeated for a full year. In the 12 months ending in Apr, CPI inflation of all items not seasonally adjusted was 2.3 percent. Inflation in Apr 2012 not seasonally adjusted was unchanged relative to Mar 2011 (http://www.bls.gov/cpi/), which is equivalent to 0.0 percent per year. The second row provides the same measurements for the CPI of all items excluding food and energy: 2.3 percent in 12 months and 2.0 percent in annual equivalent. Bloomberg provides the yield curve of US Treasury securities (http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/). The lowest yield is 0.08 percent for three months, 0.13 percent for six months, 0.17 percent for 12 months, 0.27 percent for two years, 0.37 percent for three years, 0.71 percent for five years, 1.09 percent for seven years, 1.64 percent for ten years and 2.75 percent for 30 years. The Irving Fisher definition of real interest rates is approximately the difference between nominal interest rates, which are those estimated by Bloomberg, and the rate of inflation expected in the term of the security, which could behave as in Table VIII-1. Real interest rates in the US have been negative during substantial periods in the past decade while monetary policy pursues a policy of attaining its “dual mandate” of (http://www.federalreserve.gov/aboutthefed/mission.htm):

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

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

Table VIII-1, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%

 

∆% 12 Months Apr 2012/Apr
2011 NSA

∆% Annual Equivalent Feb-Apr 2012 SA

CPI All Items

2.3

2.8

CPI ex Food and Energy

2.3

2.0

Source: http://www.bls.gov/cpi/

IX Conclusion. Table IX-1 provides the data required for broader comparison of the cyclical expansions of IQ1983 to IVQ1985 and the current one from 2009 to 2012. First, in the 13 quarters from IQ1983 to IVQ1985, GDP increased 19.6 percent at the annual equivalent rate of 5.7 percent; real disposable personal income (RDPI) increased 14.5 percent at the annual equivalent rate of 4.3 percent; RDPI per capita increased 11.5 percent at the annual equivalent rate of 3.4 percent; and population increased 2.7 percent at the annual equivalent rate of 0.8 percent. Second, in the 11 quarters of the current cyclical expansion from IIIQ2009 to IQ2012, GDP increased 6.7 percent at the annual equivalent rate of 2.4 percent; real disposable personal income (RDPI) increased 2.5 percent at the annual equivalent rate of 0.9 percent; RDPI per capita increased 0.3 percent at the annual equivalent rate of 0.1 percent; and population increased 2.1 percent at the annual equivalent rate of 0.8 percent. Real disposable personal income is the actual take home pay after inflation and taxes and real disposable income per capita is what is left per inhabitant. The current cyclical expansion is the worst in the period after World War II in terms of growth of economic activity and income. The United States grew during its history at high rates of per capita income that made its economy the largest in the world. That dynamism is disappearing.

Table IX-1, US, GDP, Real Disposable Personal Income, Real Disposable Income per Capita and Population in 1983-85 and 2007-2011, %

 

# Quarters

∆%

∆% Annual Equivalent

IQ1983 to IVQ1985

13

   

GDP

 

19.6

5.7

RDPI

 

14.5

4.3

RDPI Per Capita

 

11.5

3.4

Population

 

2.7

0.8

IIIQ2009 to IQ2012

11

   

GDP

 

6.7

2.4

RDPI

 

2.5

0.9

RDPI per Capita

 

0.3

0.1

Population

 

2.1

0.8

RDPI: Real Disposable Personal Income

Source: US Bureau of Economic Analysis

http://www.bea.gov/iTable/index_nipa.cfm

There are around 30 million people in the US unemployed or underemployed (http://cmpassocregulationblog.blogspot.com/2012/06/mediocre-recovery-without-jobs.html). Real wages are falling. There is no exit from unemployment, underemployment and falling real wages because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2012/05/recovery-without-hiring-ten-million.html). The euro is fighting for survival. Inflation has occurred in three waves in 2011 and now 2012 with higher inflation induced by carry trades from zero interest rates to commodity futures when there is subdued risk aversion. Inflation declines in periods of unwinding carry trades as a result of financial risk aversion originating in the sovereign debt crisis of Europe (http://cmpassocregulationblog.blogspot.com/2012/05/world-inflation-waves-monetary-policy.html). Unconventional monetary policy of zero interest rates and large-scale purchases of assets using the central bank’s balance sheet is designed to increase aggregate demand by stimulating consumption and investment. In practice, there is no control of how cheap money will be used. An alternative allocation of cheap money is through the carry trade from zero interest rates and short dollar positions to exposures in risk financial assets such as equities, commodities and so on. After a decade of unconventional monetary policy it may be prudent to return to normalcy so as to avoid adverse side effects of financial turbulence and inflation waves. Normal monetary policy would also encourage financial intermediation required for financing sound long-term projects that can stimulate economic growth and full utilization of resources.

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Appendix I. The Great Inflation

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

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

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

Chart I1, Brazil, Phillips Circuit 1963-1987

clip_image052

©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, 2012

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