CMP Associates Regulation Blog: Twenty Nine Million Unemployed or Underemployed, Stagnating Real Wages, Collapse of United States Dynamism of Income Growth and Employment Creation and World Financial Turbulence and Economic Slowdown with Global Recession Risk: Part II

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Twenty Nine Million Unemployed or Underemployed, Stagnating Real Wages, Collapse of United States Dynamism of Income Growth and Employment Creation and World Financial Turbulence and Economic Slowdown with Global Recession Risk

Carlos M. Pelaez

Executive Summary

I Twenty Nine Million Unemployed or Underemployed

IA1 Summary of the Employment Situation

IA2 Number of People in Job Stress

IA3 Long-term and Cyclical Comparison of Employment

IA4 Job Creation

IIA Stagnating Real Wages

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

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

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

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IIIGA Monetary Policy with Deficit Financing of Economic Growth

IIIGB Adjustment during the Debt Crisis of the 1980s

III World Financial Turbulence. Financial markets are being shocked by multiple factors including (1) world economic slowdown; (2) slowing growth in China with political development and slowing growth in Japan and world trade; (3) slow growth propelled by savings reduction in the US with high unemployment/underemployment, falling wages and hiring collapse; and (3) the outcome of the sovereign debt crisis in Europe. This section provides current data and analysis. Subsection IIIA Financial Risks provides analysis of the evolution of valuations of risk financial assets during the week. There are various appendixes for convenience of reference of material related to the euro area debt crisis. Some of this material is updated in Subsection IIIA when new data are available and then maintained in the appendixes for future reference until updated again in Subsection IIIA. Subsection IIIB Appendix on Safe Haven Currencies discusses arguments and measures of currency intervention and is available in the Appendixes section at the end of the blog comment. Subsection IIIC Appendix on Fiscal Compact provides analysis of the restructuring of the fiscal affairs of the European Union in the agreement of European leaders reached on Dec 9, 2011 and is available in the Appendixes section at the end of the blog comment. Subsection IIID Appendix on European Central Bank Large Scale Lender of Last Resort considers the policies of the European Central Bank and is available in the Appendixes section at the end of the blog comment. Appendix IIIE Euro Zone Survival Risk analyzes the threats to survival of the European Monetary Union and is available following Subsection IIIA. Subsection IIIF Appendix on Sovereign Bond Valuation provides more technical analysis and is available following Subsection IIIA. Subsection IIIG Appendix on Deficit Financing of Growth and the Debt Crisis provides analysis of proposals to finance growth with budget deficits together with experience of the economic history of Brazil and is available in the Appendixes section at the end of the blog comment.

IIIA Financial Risks. The past half year has been characterized by financial turbulence, attaining unusual magnitude in recent months. Table III-1, updated with every comment in this blog, provides beginning values on Fr Sep 28 and daily values throughout the week ending on Oct 5 of various financial assets. Section VI Valuation of Risk Financial Assets provides a set of more complete values. All data are for New York time at 5 PM. The first column provides the value on Fri Sep 28 and the percentage change in that prior week below the label of the financial risk asset. For example, the first column “Fri Sep 28, 2012”, first row “USD/EUR 1.2859 0.9 %,” provides the information that the US dollar (USD) appreciated 0.9 percent to USD 1.2859/EUR in the week ending on Fri Sep 28 relative to the exchange rate on Fri Sep 21. The first five asset rows provide five key exchange rates versus the dollar and the percentage cumulative appreciation (positive change or no sign) or depreciation (negative change or negative sign). Positive changes constitute appreciation of the relevant exchange rate and negative changes depreciation. Financial turbulence has been dominated by reactions to the new program for Greece (see section IB in http://cmpassocregulationblog.blogspot.com/2011/07/debt-and-financial-risk-aversion-and.html), modifications and new approach adopted in the Euro Summit of Oct 26 (European Commission 2011Oct26SS, 2011Oct26MRES), doubts on the larger countries in the euro zone with sovereign risks such as Spain and Italy but expanding into possibly France and Germany, the growth standstill recession and long-term unsustainable government debt in the US, worldwide deceleration of economic growth and continuing waves of inflation. The most important current shock is that resulting from the agreement by European leaders at their meeting on Dec 9 (European Council 2911Dec9), which is analyzed in IIIC Appendix on Fiscal Compact. European leaders reached a new agreement on Jan 30 (http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/127631.pdf) and another agreement on Jun 29, 2012 (http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131388.pdf).

The dollar/euro rate is quoted as number of US dollars USD per one euro EUR, USD 1.2859/EUR in the first row, first column in the block for currencies in Table III-1 for Fri Sep 28, depreciating to USD 1.2887/EUR on Mon Oct, or by 0.2 percent. The dollar depreciated because more dollars, $1.2887, were required on Mon Oct 1 to buy one euro than $1.2859 on Sep 28. Table III-1 defines a country’s exchange rate as number of units of domestic currency per unit of foreign currency. USD/EUR would be the definition of the exchange rate of the US and the inverse [1/(USD/EUR)] is the definition in this convention of the rate of exchange of the euro zone, EUR/USD. A convention used throughout this blog is required to maintain consistency in characterizing movements of the exchange rate such as in Table III-1 as appreciation and depreciation. The first row for each of the currencies shows the exchange rate at 5 PM New York time, such as USD 1.2859/EUR on Sep 28; the second row provides the cumulative percentage appreciation or depreciation of the exchange rate from the rate on the last business day of the prior week, in this case Fri Sep 28, to the last business day of the current week, in this case Fri Oct 5, such as depreciation by 1.4 percent to USD 1.3036/EUR by Oct 5; and the third row provides the percentage change from the prior business day to the current business day. For example, the USD depreciated (denoted by negative sign) by 1.4 percent from the rate of USD 1.2859/EUR on Fri Sep 28 to the rate of USD 1.3036/EUR on Fri Oct 5 {[(1.3036/1.2859) – 1]100 = 1.4%} and depreciated (denoted by negative sign) by 0.1 percent from the rate of USD 1.3018 on Thu Oct 4 to USD 1.3036/EUR on Fri Oct 5 {[(1.3036/1.3018) -1]100 = 0.1%}. Other factors constant, appreciation of the dollar relative to the euro is caused by increasing risk aversion, with rising uncertainty on European sovereign risks increasing dollar-denominated assets with sales of risk financial investments. Funds move away from higher yielding risk financial assets to the safety of dollar investments. When risk aversion declines, funds have been moving away from safe assets in dollars to risk financial assets, depreciating the dollar.

Table III-I, Weekly Financial Risk Assets Oct 1 to Oct 5, 2012

Fri Sep 28, 2012

M 1

Tue 2

W 3

Thu 4

Fr 5

USD/EUR

1.2859

0.9%

1.2887

-0.2%

1.2916

-0.4%

-0.2%

1.2903

-0.3%

0.1%

1.3018

-1.2%

-0.9%

1.3036

-1.4%

-0.1%

JPY/ USD

77.93

0.3%

77.99

-0.1%

78.16

-0.3%

-0.2%

78.51

-0.7%

-0.4%

78.50

-0.7%

0.0%

78.67

-0.9%

-0.2%

CHF/ USD

0.9398

-0.7%

0.9381

0.2%

0.9367

0.3%

0.1%

0.9387

0.1%

-0.2%

0.9306

1.0%

0.9%

0.9298

1.1%

0.1%

CHF/ EUR

1.2086

0.2%

1.2091

0.0%

1.2098

-0.1%

1.2112

-0.2%

-0.1%

1.2114

-0.2%

0.0%

1.2122

-0.3%

-0.1%

USD/ AUD

1.0379

0.9635

-0.7%

1.0365

0.9648

-0.1%

1.0265

0.9742

-1.1%

-1.0%

1.0214

0.9790

-1.6%

-0.5%

1.0241

0.9765

-1.3%

0.3%

1.0185

0.9818

-1.9%

-0.5%

10 Year T Note

1.631

1.62

1.61

1.68

1.737

2 Year T Note

0.236

0.23

0.25

0.26

German Bond

2Y 0.02 10Y 1.44

2Y 0.05 10Y 1.45

2Y 0.04 10Y 1.46

2Y 0.03 10Y 1.45

2Y 0.04 10Y 1.45

2Y 0.06 10Y 1.52

DJIA

13437.13

-1.0%

13515.11

0.6%

13482.36

0.3%

-0.2%

13494.61

0.4%

0.1%

13575.36

1.0%

0.6%

13610.15

1.3%

0.3%

DJ Global

1921.70

-2.6%

1935.36

0.7%

1935.47

0.7%

0.0%

1932.53

0.6%

-0.2%

1946.52

1.3%

0.7%

1957.83

1.9%

0.6%

DJ Asia Pacific

1250.32

-0.6%

1244.48

-0.5%

1245.57

-0.4%

0.1%

1239.52

-0.9%

-0.5%

1247.57

-0.2%

0.7%

1251.45

0.1%

0.3%

Nikkei

8870.16

-2.6%

8796.51

-0.8%

8786.05

-0.9%

-0.1%

8746.87

-1.4%

-0.5%

8824.59

-0.5%

0.9%

8863.30

-0.1%

0.4%

Shanghai

2086.17

2.9%

2086.17

2.9%

1.5%

2086.17

2.9%

1.5%

2086.17

2.9%

1.5%

2086.17

2.9%

1.5%

2086.17

2.9%

1.5%

DAX

7216.15

-3.2%

7326.73

1.5%

7305.86

1.2%

-0.3%

7322.08

1.5%

0.2%

7305.21

1.2%

-0.2%

7397.87

2.5%

1.3%

DJ UBS

Comm.

148.51

0.6%

149.29

0.5%

149.98

1.0%

-0.5%

147.27

-0.8

-1.8%

148.82

0.2%

1.1%

147.79

-0.5%

-0.7%

WTI $ B

92.03

-1.1%

92.29

0.3%

91.70

-0.4%

-0.6%

87.96

-4.4%

-4.1%

91.54

-0.5%

4.1%

89.89

-2.3%

-1.8%

Brent $/B

112.11

0.5%

112.15

0.0%

111.36

-0.7%

108.02

-3.6%

-3.0%

112.58

0.4%

4.2%

111.91

-0.2%

-0.6%

Gold $/OZ

1774.0

-0.1%

1777.8

0.2%

1777.2

0.2%

0.0%

1780.0

0.3%

0.2%

1793.4

1.1%

0.8%

1783.2

0.5%

-0.6%

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

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

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

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

Discussion of current and recent risk-determining events is followed below by analysis of risk-measuring yields of the US and Germany and the USD/EUR rate.

First, Risk-Determining Events. There are three critical factors influencing world financial markets. (1) Spain could request formal bailout from the European Stability Mechanism (ESM) that may also affect Italy’s international borrowing. David Roman and Jonathan House, writing on “Spain risks backlash with budget plan,” on Sep 27, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390443916104578021692765950384.html?mod=WSJ_hp_LEFTWhatsNewsCollection) analyze Spain’s proposal of reducing government expenditures by €13 billion, or around $16.7 billion, increasing taxes in 2013, establishing limits on early retirement and cutting the deficit by €65 billion through 2014. Banco de España, Bank of Spain, contracted consulting company Oliver Wyman to conduct rigorous stress tests of the resilience of its banking system. (Stress tests and their use are analyzed by Pelaez and Pelaez Globalization and the State Vol. I (2008b), 95-100, International Financial Architecture (2005) 112-6, 123-4, 130-3).) The results are available from Banco de España (http://www.bde.es/bde/en/secciones/prensa/infointeres/reestructuracion/ http://www.bde.es/f/webbde/SSICOM/20120928/informe_ow280912e.pdf). The assumptions of the adverse scenario used by Oliver Wyman are quite tough for the three-year period from 2012 to 2014: “6.5 percent cumulative decline of GDP, unemployment rising to 27.2 percent and further declines of 25 percent of house prices and 60 percent of land prices (http://www.bde.es/f/webbde/SSICOM/20120928/informe_ow280912e.pdf). Fourteen banks were stress tested with capital needs estimates of seven banks totaling €59.3 billion. The three largest banks of Spain, Banco Santander (http://www.santander.com/csgs/Satellite/CFWCSancomQP01/es_ES/Corporativo.html), BBVA (http://www.bbva.com/TLBB/tlbb/jsp/ing/home/index.jsp) and Caixabank (http://www.caixabank.com/index_en.html), with 43 percent of exposure under analysis, have excess capital of €37 billion in the adverse scenario in contradiction with theories that large, international banks are necessarily riskier. Jonathan House, writing on “Spain expects wider deficit on bank aid,” on Sep 30, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444138104578028484168511130.html?mod=WSJPRO_hpp_LEFTTopStories), analyzes the 2013 budget plan of Spain that will increase the deficit of 7.4 percent of GDP in 2012, which is above the target of 6.3 percent under commitment with the European Union. The ratio of debt to GDP will increase to 85.3 percent in 2012 and 90.5 percent in 2013 while the 27 members of the European Union have an average debt/GDP ratio of 83 percent at the end of IIQ2012. (2) Symmetric inflation targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even after the economy grows again at or close to potential output. Monetary easing by unconventional measures is now apparently open ended in perpetuity as provided in the statement of the meeting of the Federal Open Market Committee (FOMC) on Sep 13, 2012 (http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm):

“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

In fact, it is evident to the public that this policy will be abandoned if inflation costs rise. There is the concern of the production and employment costs of controlling future inflation.

(2) The European Central Bank (ECB) approved a new program of bond purchases under the name “Outright Monetary Transactions” (OMT). The ECB will purchase sovereign bonds of euro zone member countries that have a program of conditionality under the European Financial Stability Facility (EFSF) that is converting into the European Stability Mechanism (ESM). These programs provide enhancing the solvency of member countries in a transition period of structural reforms and fiscal adjustment. The purchase of bonds by the ECB would maintain debt costs of sovereigns at sufficiently low levels to permit adjustment under the EFSF/ESM programs. Purchases of bonds are not limited quantitatively with discretion by the ECB as to how much is necessary to support countries with adjustment programs. Another feature of the OMT of the ECB is sterilization of bond purchases: funds injected to pay for the bonds would be withdrawn or sterilized by ECB transactions. The statement by the European Central Bank on the program of OTM is as follows (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html):

“6 September 2012 - Technical features of Outright Monetary Transactions

As announced on 2 August 2012, the Governing Council of the European Central Bank (ECB) has today taken decisions on a number of technical features regarding the Eurosystem’s outright transactions in secondary sovereign bond markets that aim at safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy. These will be known as Outright Monetary Transactions (OMTs) and will be conducted within the following framework:

Conditionality

A necessary condition for Outright Monetary Transactions is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line), provided that they include the possibility of EFSF/ESM primary market purchases. The involvement of the IMF shall also be sought for the design of the country-specific conditionality and the monitoring of such a programme.

The Governing Council will consider Outright Monetary Transactions to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected, and terminate them once their objectives are achieved or when there is non-compliance with the macroeconomic adjustment or precautionary programme.

Following a thorough assessment, the Governing Council will decide on the start, continuation and suspension of Outright Monetary Transactions in full discretion and acting in accordance with its monetary policy mandate.

Coverage

Outright Monetary Transactions will be considered for future cases of EFSF/ESM macroeconomic adjustment programmes or precautionary programmes as specified above. They may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access.

Transactions will be focused on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between one and three years.

No ex ante quantitative limits are set on the size of Outright Monetary Transactions.

Creditor treatment

The Eurosystem intends to clarify in the legal act concerning Outright Monetary Transactions that it accepts the same (pari passu) treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through Outright Monetary Transactions, in accordance with the terms of such bonds.

Sterilisation

The liquidity created through Outright Monetary Transactions will be fully sterilised.

Transparency

Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis. Publication of the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis.

Securities Markets Programme

Following today’s decision on Outright Monetary Transactions, the Securities Markets Programme (SMP) is herewith terminated. The liquidity injected through the SMP will continue to be absorbed as in the past, and the existing securities in the SMP portfolio will be held to maturity.”

Jon Hilsenrath, writing on “Fed sets stage for stimulus,” on Aug 31, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390443864204577623220212805132.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the essay presented by Chairman Bernanke at the Jackson Hole meeting of central bankers, as defending past stimulus with unconventional measures of monetary policy that could be used to reduce extremely high unemployment. Chairman Bernanke (2012JHAug31, 18-9) does support further unconventional monetary policy impulses if required by economic conditions (http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm):

“Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

Professor John H Cochrane (2012Aug31), at the University of Chicago Booth School of Business, writing on “The Federal Reserve: from central bank to central planner,” on Aug 31, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444812704577609384030304936.html?mod=WSJ_hps_sections_opinion), analyzes that the departure of central banks from open market operations into purchase of assets with risks to taxpayers and direct allocation of credit subject to political influence has caused them to abandon their political independence and accountability. Cochrane (2012Aug31) finds a return to the proposition of Milton Friedman in the 1960s that central banks can cause inflation and macroeconomic instability.

Mario Draghi (2012Aug29), President of the European Central Bank, also reiterated the need of exceptional and unconventional central bank policies (http://www.ecb.int/press/key/date/2012/html/sp120829.en.html):

“Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools. When markets are fragmented or influenced by irrational fears, our monetary policy signals do not reach citizens evenly across the euro area. We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens. This may at times require exceptional measures. But this is our responsibility as the central bank of the euro area as a whole.

The ECB is not a political institution. But it is committed to its responsibilities as an institution of the European Union. As such, we never lose sight of our mission to guarantee a strong and stable currency. The banknotes that we issue bear the European flag and are a powerful symbol of European identity.”

Buiter (2011Oct31) analyzes that the European Financial Stability Fund (EFSF) would need a “bigger bazooka” to bail out euro members in difficulties that could possibly be provided by the ECB. Table III-7 in IIIE Appendix Euro Zone Survival Risk below provides the combined GDP in 2012 of the highly indebted euro zone members estimated in the latest World Economic Outlook of the IMF at $4167 billion or 33.1 percent of total euro zone GDP of $12,586 billion. Using the WEO of the IMF, Table III-8 in IIIE Appendix Euro Zone Survival Risk below provides debt of the highly indebted euro zone members at $3927.8 billion in 2012 that increases to $5809.9 billion when adding Germany’s debt, corresponding to 167.0 percent of Germany’s GDP. There are additional sources of debt in bailing out banks. The dimensions of the problem may require more firepower than a bazooka perhaps that of the largest conventional bomb of all times of 44,000 pounds experimentally detonated only once by the US in 1948 (http://www.airpower.au.af.mil/airchronicles/aureview/1967/mar-apr/coker.html).

Second, Risk-Measuring Yields and Exchange Rate. The ten-year government bond of Spain was quoted at 6.868 percent on Aug 10, declining to 6.447 percent on Aug 17 and 6.403 percent on Aug 24, and the ten-year government bond of Italy fell from 5.894 percent on Aug 10 to 5.709 percent on Aug 17 and 5.618 percent on Aug 24. On Aug 31, the yield of the 10-year sovereign bond of Italy rose to 5.787 percent and that of Spain to 6.832 percent. The announcement of the OMT of bond-buying by the ECB together with weak employment creation in the US created risk appetite with the yield of the ten-year government bond of Spain collapsing to 5.708 percent on Sep 7 and the yield of the ten-year government bond of Italy to 5.008 percent (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). The yield of the ten-year government bond of Spain traded at 5.770 percent on Sep 14 and at 5.739 percent on Sep 21 and ten-year government of Italy traded at 4.953 percent on Sep 14 and 4.982 on Sep 21. The imminence of a bailout of Spain drove the yield of the ten-year sovereign bond of Spain to 5.979 percent on Fri Sep 28 and that of Italy to 5.031 percent but both traded higher during the day. Sovereign yields continued to decline by Oct 5 with the yield of the ten-year sovereign bond of Spain trading at 5.663 percent and that of Italy at 4.922 percent. Risk aversion is captured by flight of investors from risk financial assets to the government securities of the US and Germany. Diminishing aversion is captured by increase of the yield of the two- and ten-year Treasury notes and the two- and ten-year government bonds of Germany. Table III-1A provides yields of US and German governments bonds and the rate of USD/EUR. Yields of US and German government bonds decline during shocks of risk aversion and the dollar strengthens in the form of fewer dollars required to buy one euro. The yield of the US ten-year Treasury note fell from 2.202 percent on Aug 26, 2011 to 1.459 percent on Jul 20, 2012, reminiscent of experience during the Treasury-Fed accord of the 1940s that placed a ceiling on long-term Treasury debt (Hetzel and Leach 2001), while the yield of the ten-year government bond of Germany fell from 2.16 percent to 1.17 percent. Under increasing risk appetite, the yield of the ten-year Treasury rose to 1.544 on Jul 27, 2012 and 1.569 percent on Aug 3, 2012, while the yield of the ten-year Government bond of Germany rose to 1.40 percent on Jul 27 and 1.42 percent on Aug 3. Yields moved on an increasing trend with the US ten-year note at 1.814 percent on Aug 17 and the German ten-year bond at 1.50 percent with sharp decline on Aug 24 to 1.684 percent for the yield of the US ten-year note and 1.35 for the yield of the German ten-year bond. The trend was interrupted with decline of the yield of the ten-year Treasury note to 1.543 percent on Aug 31, 2012, and of the ten-year German bond to 1.33 percent. The US dollar strengthened significantly from USD 1.450/EUR on Aug 26, 2011, to USD 1.2158 on Jul 20, 2012, or by 16.2 percent, but depreciated to USD 1.2320/EUR on Jul 27, 2012 and 1.2387 on Aug 3, 2012 in expectation of massive support of highly indebted euro zone members. Doubts returned at the end of the week of Aug 10, 2012 with appreciation to USD 1.2290/EUR and decline of the yields of the two-year government bond of Germany to -0.07 percent and of the ten-year to 1.38 percent. On Aug 17, the US dollar depreciated by 0.4 percent to USD 1.2335/EUR and the ten-year bond of Germany yielded -0.04 percent. Risk appetite returned in the week of Aug 24 with depreciation by 1.4 percent to USD 1.2512/EUR and lower yield of the German two-year bond to -0.01 percent and of the US two-year note to 0.266 percent. Further risk aversion is captured by decline of yield of the two-year Treasury note to 0.225 percent on Aug 31, 2012, and to -0.03 percent for the two-year sovereign bond of Germany while the USD moved in opposite direction, depreciating to USD 1.2575/EUR. The almost simultaneous announcement of the bond-buying OMT of the ECB on Sep 6 and the weak employment report on Sep 7 suggesting further easing by the FOMC caused risk appetite shown by the increase in yields of government bonds of the US on Sep 7 to 1.668 percent for the ten-year note and 0.252 percent for the two-year while the two-year yield of Germany rose from -0.03 percent to 0.03 percent and the ten-year yield from 1.33 percent to 1.52 percent. Risk aversion retreated again on Sep 14, 2012 because of the open-ended monetary policy of the FOMC with the dollar devaluing to USD 1.3130 and the ten-year yield of the US Treasury note increasing to 1.863 percent (also in part because of bond buying by the Fed at shorter maturities) and the yield of the ten-year German bond increasing to 1.71 percent. Risk aversions returned because of weak flash purchasing managers indices with appreciation to USD1.2981 in the week of Sep 21 and declines of the yield of the ten-year Treasury note to 1.753 percent and of the yield of the ten-year government bond to 1.60 percent. Risk aversion because of the potential bailout of Spain drove down the US ten-year yield to 1.631 and the ten-year yield of Germany to 1.44 percent while the dollar appreciated to USD 1.2859/EUR. Increasing risk appetite drove the yield of the ten-year Treasury to 1.737 percent on Oct 5, 2012 and depreciated the dollar to USD 1.3036 with more muted response in the yield of the ten-year bond of Germany rising to 1.52 percent and the two-year yield to 0.06 percent. Under zero interest rates for the monetary policy rate of the US, or fed funds rate, carry trades ensure devaluation of the dollar if there is no risk aversion but the dollar appreciates in flight to safe haven during episodes of risk aversion. Unconventional monetary policy induces significant global financial instability, excessive risks and low liquidity. The ten-year Treasury yield is still around consumer price inflation of 1.7 percent in the 12 months ending in Aug (see subsection IIB United States Inflation http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html) and the expectation of higher inflation if risk aversion diminishes. Treasury securities continue to be safe haven for investors fearing risk but with concentration in shorter maturities such as the two-year Treasury. The lower part of Table III-1A provides the same flight to government securities of the US and Germany and the USD during the financial crisis and global recession and the beginning of the European debt crisis in the spring of 2010 with the USD trading at USD 1.192/EUR on Jun 7, 2010.

Table III-1A, Two- and Ten-Year Yields of Government Bonds of the US and Germany and US Dollar/EUR Exchange rate

	US 2Y	US 10Y	DE 2Y	DE 10Y	USD/ EUR
10/5/12	0.26	1.737	0.06	1.52	1.3036
9/28/12	0.236	1.631	0.02	1.44	1.2859
9/21/12	0.26	1.753	0.04	1.60	1.2981
9/14/12	0.252	1.863	0.10	1.71	1.3130
9/7/12	0.252	1.668	0.03	1.52	1.2816
8/31/12	0.225	1.543	-0.03	1.33	1.2575
8/24/12	0.266	1.684	-0.01	1.35	1.2512
8/17/12	0.288	1.814	-0.04	1.50	1.2335
8/10/12	0.267	1.658	-0.07	1.38	1.2290
8/3/12	0.242	1.569	-0.02	1.42	1.2387
7/27/12	0.244	1.544	-0.03	1.40	1.2320
7/20/12	0.207	1.459	-0.07	1.17	1.2158
7/13/12	0.24	1.49	-0.04	1.26	1.2248
7/6/12	0.272	1.548	-0.01	1.33	1.2288
6/29/12	0.305	1.648	0.12	1.58	1.2661
6/22/12	0.309	1.676	0.14	1.58	1.2570
6/15/12	0.272	1.584	0.07	1.44	1.2640
6/8/12	0.268	1.635	0.04	1.33	1.2517
6/1/12	0.248	1.454	0.01	1.17	1.2435
5/25/12	0.291	1.738	0.05	1.37	1.2518
5/18/12	0.292	1.714	0.05	1.43	1.2780
5/11/12	0.248	1.845	0.09	1.52	1.2917
5/4/12	0.256	1.876	0.08	1.58	1.3084
4/6/12	0.31	2.058	0.14	1.74	1.3096
3/30/12	0.335	2.214	0.21	1.79	1.3340
3/2/12	0.29	1.977	0.16	1.80	1.3190
2/24/12	0.307	1.977	0.24	1.88	1.3449
1/6/12	0.256	1.957	0.17	1.85	1.2720
12/30/11	0.239	1.871	0.14	1.83	1.2944
8/26/11	0.20	2.202	0.65	2.16	1.450
8/19/11	0.192	2.066	0.65	2.11	1.4390
6/7/10	0.74	3.17	0.49	2.56	1.192
3/5/09	0.89	2.83	1.19	3.01	1.254
12/17/08	0.73	2.20	1.94	3.00	1.442
10/27/08	1.57	3.79	2.61	3.76	1.246
7/14/08	2.47	3.88	4.38	4.40	1.5914
6/26/03	1.41	3.55	NA	3.62	1.1423

Note: DE: Germany

Source:

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

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

http://www.federalreserve.gov/releases/h15/data.htm

http://www.bundesbank.de/Navigation/EN/Statistics/Time_series_databases/Macro_economic_time_series/macro_economic_time_series_node.html?anker=GELDZINS

http://www.ecb.int/stats/money/long/html/index.en.html

Chart III-1A of the Board of Governors of the Federal Reserve System provides the ten-year and two-year Treasury constant maturity yields. The combination of zero fed funds rate and quantitative easing caused sharp decline of the yields from 2008 and 2009. Yield declines have also occurred during periods of financial risk aversion, including the current one of stress of financial markets in Europe.

Chart III-1A, US, Ten-Year and Two-Year Treasury Constant Maturity Yields Jul 31, 2001-Oct 4, 2012

Note: US Recessions in shaded areas

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/h15/update/

Equity indexes in Table III-1 strengthened in the week ending on Oct, 2012. DJIA increased 0.3 percent on Oct 5 and 1.3 percent in the week. Germany’s Dax increased 1.3 percent on Fri Oct 5 and increased 2.5 percent in the week. Dow Global increased 0.6 percent on Oct 5 and 1.9 percent in the week. Japan’s Nikkei Average increased 0.4 percent on Fri Oct 5 and decreased 0.1 percent in the week. Dow Asia Pacific TSM increased 0.3 percent on Oct 5 and increased 0.1 percent in the week while Shanghai Composite was closed during the week because of China’s holiday. There is evident trend of deceleration of the world economy that could affect corporate revenue and equity valuations.

Commodities were mixed in the week of Oct, 2012. The DJ UBS Commodities Index decreased 0.7 percent on Fri Oct 5 and decreased 0.5 percent in the week, as shown in Table III-1. WTI decreased 2.3 percent in the week of Oct 5 while Brent decreased 0.5 percent in the week. Gold decreased 0.6 percent on Fri Oct 5 and increased 0.5 percent in the week.

Table III-2 provides an update of the consolidated financial statement of the Eurosystem. The balance sheet has swollen with the long-term refinancing operations (LTROs). Line 5 “Lending to Euro Area Credit Institutions Related to Monetary Policy” increased from €546,747 million on Dec 31, 2010, to €879,130 million on Dec 28, 2011 and €1,178,184 million on Sep 28, 2012. The sum of line 5 and line 7 (“Securities of Euro Area Residents Denominated in Euro”) has increased to €1,775,839 million in the statement of Sep 28. There is high credit risk in these transactions with capital of only €85,551 million as analyzed by Cochrane (2012Aug31).

Table III-2, Consolidated Financial Statement of the Eurosystem, Million EUR

	Dec 31, 2010	Dec 28, 2011	Sep 28, 2012
1 Gold and other Receivables	367,402	419,822	479,292
2 Claims on Non Euro Area Residents Denominated in Foreign Currency	223,995	236,826	256,413
3 Claims on Euro Area Residents Denominated in Foreign Currency	26,941	95,355	39,858
4 Claims on Non-Euro Area Residents Denominated in Euro	22,592	25,982	16,512
5 Lending to Euro Area Credit Institutions Related to Monetary Policy Operations Denominated in Euro	546,747	879,130	1,178,184
6 Other Claims on Euro Area Credit Institutions Denominated in Euro	45,654	94,989	212,652
7 Securities of Euro Area Residents Denominated in Euro	457,427	610,629	597,655
8 General Government Debt Denominated in Euro	34,954	33,928	30,010
9 Other Assets	278,719	336,574	271,857
TOTAL ASSETS	2,004, 432	2,733,235	3,082,432
Memo Items
Sum of 5 and 7	1,004,174	1,489,759	1,775,839
Capital and Reserves	78,143	85,748	85,551

Source: European Central Bank

http://www.ecb.int/press/pr/wfs/2011/html/fs110105.en.html

http://www.ecb.int/press/pr/wfs/2011/html/fs111228.en.html

http://www.ecb.int/press/pr/wfs/2012/html/fs121003.en.html

IIIE Appendix Euro Zone survival risk. European sovereign crisis with survival of the euro area would require success in the restructuring of Italy. That success would be assured with growth of the Italian economy. A critical problem is that the common euro currency prevents Italy from devaluing the exchange rate to parity or the exchange rate that would permit export growth to promote internal economic activity, which could generate fiscal revenues for primary fiscal surplus that ensure creditworthiness. Fiscal consolidation and restructuring are important but of long-term gestation. Immediate growth of the Italian economy would consolidate the resolution of the sovereign debt crisis. Professors Ricardo Caballero and Francesco Giavazzi (2012Jan15) find that the resolution of the European sovereign crisis with survival of the euro area would require success in the restructuring of Italy. That success would be assured with growth of the Italian economy. A critical problem is that the common euro currency prevents Italy from devaluing the exchange rate to parity or the exchange rate that would permit export growth to promote internal economic activity, which could generate fiscal revenues for primary fiscal surplus that ensure creditworthiness. Fiscal consolidation and restructuring are important but of long-term gestation. Immediate growth of the Italian economy would consolidate the resolution of the sovereign debt crisis. Caballero and Giavazzi (2012Jan15) argue that 55 percent of the exports of Italy are to countries outside the euro area such that devaluation of 15 percent would be effective in increasing export revenue. Newly available data in Table III-3 providing Italy’s trade with regions and countries supports the argument of Caballero and Giavazzi (2012Jan15). Italy’s exports to the European Monetary Union (EMU) are only 42.7 percent of the total. Exports to the non-European Union area are growing at 9.8 percent in Jan-Jul 2012 relative to Jan-Jul 2011 while those to EMU are falling at 1.2 percent.

Table III-3, Italy, Exports and Imports by Regions and Countries, % Share and 12-Month ∆%

Jul 2012	Exports % Share	∆% Jan-Jul 2012/ Jan-Jul 2011	Imports % Share	Imports ∆% Jan-Jul 2012/ Jan-Jul 2011
EU	56.0	0.0	53.3	-7.0
EMU 17	42.7	-1.2	43.2	-6.6
France	11.6	0.1	8.3	-4.5
Germany	13.1	0.9	15.6	-10.5
Spain	5.3	-8.6	4.5	-7.2
UK	4.7	10.3	2.7	-13.7
Non EU	44.0	9.8	46.7	-3.9
Europe non EU	13.3	11.0	11.1	-6.8
USA	6.1	18.7	3.3	3.4
China	2.7	-12.4	7.3	-15.4
OPEC	4.7	23.5	8.6	24.9
Total	100.0	4.2	100.0	-5.6

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

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/70437

Table III-4 provides Italy’s trade balance by regions and countries. Italy had trade surplus of €910 million with the 17 countries of the euro zone (EMU 17) in Jul 2012 and deficit of €711 million in Jan-Jul 2012. Depreciation to parity could permit greater competitiveness in improving the trade surpluses of €6594 million in Jan-Jul with Europe non European Union and of €8071 million with the US. There is significant rigidity in the trade deficits in Jan-Jul of €10,032 million with China and €12,672 million with members of the Organization of Petroleum Exporting Countries (OPEC). Higher exports could drive economic growth in the economy of Italy that would permit less onerous adjustment of the country’s fiscal imbalances, raising the country’s credit rating.

Table III-4, Italy, Trade Balance by Regions and Countries, Millions of Euro

Regions and Countries	Trade Balance Jul 2012 Millions of Euro	Trade Balance Cumulative Jan-Jul 2012 Millions of Euro
EU	2,653	7,782
EMU 17	910	-711
France	1,385	7,286
Germany	19	-3,151
Spain	211	1,162
UK	1,035	5,612
Non EU	1,836	-3,379
Europe non EU	1,630	6,594
USA	1,461	8,071
China	-1,728	-10,032
OPEC	-1,596	-12,672
Total	4.490	4,403

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

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/70437

Growth rates of Italy’s trade and major products are provided in Table III-5 for the period Jan-Jul 2012 relative to Jan-Jul 2011. Growth rates of imports are negative with the exception of energy. The higher rate of growth of exports of 5.5 percent in Jan-Jul 2012/Jan-Jul 2011 relative to imports of minus 2.5 percent may reflect weak demand in Italy with GDP declining during four consecutive quarters from IIIQ2011 through IIQ2012.

Table III-5, Italy, Exports and Imports % Share of Products in Total and ∆%

	Exports Share %	Exports ∆% Jan-Jul 2012/ Jan-Jul 2011	Imports Share %	Imports ∆% Jan-Jul 2012/ Jan-Jul 2011
Consumer Goods	28.9	5.5	25.0	-2.5
Durable	5.9	1.5	3.0	-7.2
Non Durable	23.0	6.6	22.0	-1.9
Capital Goods	32.2	2.7	20.8	-11.5
Inter- mediate Goods	34.3	2.8	34.5	-11.6
Energy	4.7	17.8	19.7	8.6
Total ex Energy	95.3	3.5	80.3	-8.9
Total	100.0	4.2	100.0	-4.3

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/70437

Table III-6 provides Italy’s trade balance by product categories in Jul 2012 and cumulative Jan-Jul 2012. Italy’s trade balance excluding energy generated surplus of €9335 million in Jul 2012 and €41,928 million in Jan-Jul 2012 but the energy trade balance created deficit of €4845 million in Jul 2012 and €37,525 million in Jan-Jul 2012. The overall surplus in Jul 2012 was €4403 million and €4403 million in Jan-Jul 2012. Italy has significant competitiveness in various economic activities in contrast with some other countries with debt difficulties.

Table III-6, Italy, Trade Balance by Product Categories, € Millions

	Jul 2012	Cumulative Jan-Jul 2012
Consumer Goods	2,654	9,670
Durable	1,242	6,843
Nondurable	1,411	2,827
Capital Goods	5,459	28,954
Intermediate Goods	1,222	3,304
Energy	-4,845	-37,525
Total ex Energy	9,335	41,928
Total	4,490	4,403

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/70437

Brazil’s terms of trade, export prices relative to import prices, deteriorated 47 percent and 36 percent excluding oil (Pelaez 1987, 176-79; Pelaez 1986, 37-66; see Pelaez and Pelaez, The Global Recession Risk (2007), 178-87). Brazil had accumulated unsustainable foreign debt by borrowing to finance balance of payments deficits during the 1970s. Foreign lending virtually stopped. The German mark devalued strongly relative to the dollar such that Brazil’s products lost competitiveness in Germany and in multiple markets in competition with Germany. The resolution of the crisis was devaluation of the Brazilian currency by 30 percent relative to the dollar and subsequent maintenance of parity by monthly devaluation equal to inflation and indexing that resulted in financial stability by parity in external and internal interest rates avoiding capital flight. With a combination of declining imports, domestic import substitution and export growth, Brazil followed rapid growth in the US and grew out of the crisis with surprising GDP growth of 4.5 percent in 1984.

The euro zone faces a critical survival risk because several of its members may default on their sovereign obligations if not bailed out by the other members. The valuation equation of bonds is essential to understanding the stability of the euro area. An explanation is provided in this paragraph and readers interested in technical details are referred to the following Subsection IIID Appendix on Sovereign Bond Valuation. Contrary to the Wriston doctrine, investing in sovereign obligations is a credit decision. The value of a bond today is equal to the discounted value of future obligations of interest and principal until maturity. On Dec 30 the yield of the 2-year bond of the government of Greece was quoted around 100 percent. In contrast, the 2-year US Treasury note traded at 0.239 percent and the 10-year at 2.871 percent while the comparable 2-year government bond of Germany traded at 0.14 percent and the 10-year government bond of Germany traded at 1.83 percent. There is no need for sovereign ratings: the perceptions of investors are of relatively higher probability of default by Greece, defying Wriston (1982), and nil probability of default of the US Treasury and the German government. The essence of the sovereign credit decision is whether the sovereign will be able to finance new debt and refinance existing debt without interrupting service of interest and principal. Prices of sovereign bonds incorporate multiple anticipations such as inflation and liquidity premiums of long-term relative to short-term debt but also risk premiums on whether the sovereign’s debt can be managed as it increases without bound. The austerity measures of Italy are designed to increase the primary surplus, or government revenues less expenditures excluding interest, to ensure investors that Italy will have the fiscal strength to manage its debt of 120 percent of GDP, which is the third largest in the world after the US and Japan. Appendix IIIE links the expectations on the primary surplus to the real current value of government monetary and fiscal obligations. As Blanchard (2011SepWEO) analyzes, fiscal consolidation to increase the primary surplus is facilitated by growth of the economy. Italy and the other indebted sovereigns in Europe face the dual challenge of increasing primary surpluses while maintaining growth of the economy (for the experience of Brazil in the debt crisis of 1982 see Pelaez 1986, 1987).

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

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

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

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

The prospects of survival of the euro zone are dire. Table III-7 is constructed with IMF World Economic Outlook database (http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx) for GDP in USD billions, primary net lending/borrowing as percent of GDP and general government debt as

Table III-7, World and Selected Regional and Country GDP and Fiscal Situation

	GDP 2012 USD Billions	Primary Net Lending Borrowing % GDP 2012	General Government Net Debt % GDP 2012
World	69,660
Euro Zone	12,586	-0.5	70.3
Portugal	221	0.1	110.9
Ireland	210	-4.4	102.9
Greece	271	-1.0	153.2
Spain	1,398	-3.6	67.0
Major Advanced Economies G7	34,106	-4.8	88.3
United States	15,610	-6.1	83.7
UK	2,453	-5.3	84.2
Germany	3,479	1.0	54.1
France	2,712.0	-2.2	83.2
Japan	5,981	-8.9	135.2
Canada	1,805	-3.1	35.4
Italy	2,067	2.9	102.3
China	7992	-1.3*	22.0**

*Net Lending/borrowing**Gross Debt

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

The data in Table III-7 are used for some very simple calculations in Table III-8. The column “Net Debt USD Billions” in Table III-8 is generated by applying the percentage in Table III-7 column “General Government Net Debt % GDP 2010” to the column “GDP USD Billions.” The total debt of France and Germany in 2012 is $4138.5 billion, as shown in row “B+C” in column “Net Debt USD Billions” The sum of the debt of Italy, Spain, Portugal, Greece and Ireland is $3927.8 billion, adding rows D+E+F+G+H in column “Net Debt USD billions.” There is some simple “unpleasant bond arithmetic” in the two final columns of Table III-8. Suppose the entire debt burdens of the five countries with probability of default were to be guaranteed by France and Germany, which de facto would be required by continuing the euro zone. The sum of the total debt of these five countries and the debt of France and Germany is shown in column “Debt as % of Germany plus France GDP” to reach $8066.3 billion, which would be equivalent to 130.3 percent of their combined GDP in 2012. Under this arrangement the entire debt of the euro zone including debt of France and Germany would not have nil probability of default. The final column provides “Debt as % of Germany GDP” that would exceed 231.9 percent if including debt of France and 167.0 percent of German GDP if excluding French debt. The unpleasant bond arithmetic illustrates that there is a limit as to how far Germany and France can go in bailing out the countries with unsustainable sovereign debt without incurring severe pains of their own such as downgrades of their sovereign credit ratings. A central bank is not typically engaged in direct credit because of remembrance of inflation and abuse in the past. There is also a limit to operations of the European Central Bank in doubtful credit obligations. Wriston (1982) would prove to be wrong again that countries do not bankrupt but would have a consolation prize that similar to LBOs the sum of the individual values of euro zone members outside the current agreement exceeds the value of the whole euro zone. Internal rescues of French and German banks may be less costly than bailing out other euro zone countries so that they do not default on French and German banks.

Table III-8, Guarantees of Debt of Sovereigns in Euro Area as Percent of GDP of Germany and France, USD Billions and %

	Net Debt USD Billions	Debt as % of Germany Plus France GDP	Debt as % of Germany GDP
A Euro Area	8,847.9
B Germany	1,882.1		$8066.3 as % of $3479 =231.9% $5809.9 as % of $3479 =167.0%
C France	2,256.4
B+C	4,138.5	GDP $6,191.0 Total Debt $8066.3 Debt/GDP: 130.3%
D Italy	2,114.5
E Spain	936.7
F Portugal	245.3
G Greece	415.2
H Ireland	216.1
Subtotal D+E+F+G+H	3,927.8

Source: calculation with IMF data http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx

There is extremely important information in Table III-9 for the current sovereign risk crisis in the euro zone. Table III-9 provides the structure of regional and country relations of Germany’s exports and imports with newly available data for Jul 2012. German exports to other European Union (EU) members are 55.3 percent of total exports in Jul 2012 and 57.6 percent in Jan-Jul 2012. Exports to the euro area are 36.4 percent in Jul and 38.2 percent in Jan-Jul. Exports to third countries are 44.7 percent of the total in Jul and 42.4 percent in Jan-Jul. There is similar distribution for imports. Exports to non-euro countries are growing at 6.9 percent in Jul 2012 and 4.8 percent in Jan-Jul 2012 while exports to the euro area are growing 3.2 percent in Jul and decreasing 0.6 percent in Jan-Jul 2012. Price competitiveness through devaluation could improve export performance and growth. 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 III-9, Germany, Structure of Exports and Imports by Region, € Billions and ∆%

	Jul 2012 € Billions	Jul 12-Month ∆%	Jan–Jul 2012 € Billions	Jan-Jul 2012/ Jan-Jul 2011 ∆%
Total Exports	93.6	9.2	644.1	5.4
A. EU Members	51.8 % 55.3	4.4	370.9 % 57.6	1.2
Euro Area	34.1 % 36.4	3.2	246.0 % 38.2	-0.6
Non-euro Area	17.6 % 18.8	6.9	124.9 % 19.4	4.8
B. Third Countries	41.8 % 44.7	15.9	273.2 % 42.4	11.8
Total Imports	76.7	1.9	533.8	2.3
C. EU Members	49.3 % 64.3	5.6	340.0 % 63.7	2.5
Euro Area	34.7 % 45.2	6.7	239.5 % 44.9	2.2
Non-euro Area	14.6 % 19.0	3.3	100.5 % 18.8	3.3
D. Third Countries	27.4 % 35.7	-4.2	193.8 % 36.3	1.9

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

Source:

Statistisches Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2012/09/PE12_303_51.html;jsessionid=807581660CF67FED0FC729A83F38D5FB.cae2 https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

IIIF Appendix on Sovereign Bond Valuation. There are two approaches to government finance and their implications: (1) simple unpleasant monetarist arithmetic; and (2) simple unpleasant fiscal arithmetic. Both approaches illustrate how sovereign debt can be perceived riskier under profligacy.

First, Unpleasant Monetarist Arithmetic. Fiscal policy is described by Sargent and Wallace (1981, 3, equation 1) as a time sequence of D(t), t = 1, 2,…t, …, where D is real government expenditures, excluding interest on government debt, less real tax receipts. D(t) is the real deficit excluding real interest payments measured in real time t goods. Monetary policy is described by a time sequence of H(t), t=1,2,…t, …, with H(t) being the stock of base money at time t. In order to simplify analysis, all government debt is considered as being only for one time period, in the form of a one-period bond B(t), issued at time t-1 and maturing at time t. Denote by R(t-1) the real rate of interest on the one-period bond B(t) between t-1 and t. The measurement of B(t-1) is in terms of t-1 goods and [1+R(t-1)] “is measured in time t goods per unit of time t-1 goods” (Sargent and Wallace 1981, 3). Thus, B(t-1)[1+R(t-1)] brings B(t-1) to maturing time t. B(t) represents borrowing by the government from the private sector from t to t+1 in terms of time t goods. The price level at t is denoted by p(t). The budget constraint of Sargent and Wallace (1981, 3, equation 1) is:

D(t) = {[H(t) – H(t-1)]/p(t)} + {B(t) – B(t-1)[1 + R(t-1)]} (1)

Equation (1) states that the government finances its real deficits into two portions. The first portion, {[H(t) – H(t-1)]/p(t)}, is seigniorage, or “printing money.” The second part,

{B(t) – B(t-1)[1 + R(t-1)]}, is borrowing from the public by issue of interest-bearing securities. Denote population at time t by N(t) and growing by assumption at the constant rate of n, such that:

N(t+1) = (1+n)N(t), n>-1 (2)

The per capita form of the budget constraint is obtained by dividing (1) by N(t) and rearranging:

B(t)/N(t) = {[1+R(t-1)]/(1+n)}x[B(t-1)/N(t-1)]+[D(t)/N(t)] – {[H(t)-H(t-1)]/[N(t)p(t)]} (3)

On the basis of the assumptions of equal constant rate of growth of population and real income, n, constant real rate of return on government securities exceeding growth of economic activity and quantity theory equation of demand for base money, Sargent and Wallace (1981) find that “tighter current monetary policy implies higher future inflation” under fiscal policy dominance of monetary policy. That is, the monetary authority does not permanently influence inflation, lowering inflation now with tighter policy but experiencing higher inflation in the future.

Second, Unpleasant Fiscal Arithmetic. The tool of analysis of Cochrane (2011Jan, 27, equation (16)) is the government debt valuation equation:

(M_t + B_t)/P_t = E_t∫(1/R_t_{, t+τ})s_t_+τdτ (4)

Equation (4) expresses the monetary, M_t, and debt, B_t, liabilities of the government, divided by the price level, P_t, in terms of the expected value discounted by the ex-post rate on government debt, R_t_{, t+τ}, of the future primary surpluses s_t_+τ, which are equal to T_t_+τ – G_t_+τ 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 R_t_{, t+τ}. The second equation of Cochrane (2011Jan, 5) is:

M_tV(i_t, ·) = P_tY_t (5)

Conventional analysis of monetary policy contends that fiscal authorities simply adjust primary surpluses, s, to sanction the price level determined by the monetary authority through equation (5), which deprives the debt valuation equation (4) of any role in price level determination. The simple explanation is (Cochrane 2011Jan, 5):

“We are here to think about what happens when [4] exerts more force on the price level. This change may happen by force, when debt, deficits and distorting taxes become large so the Treasury is unable or refuses to follow. Then [4] determines the price level; monetary policy must follow the fiscal lead and ‘passively’ adjust M to satisfy [5]. This change may also happen by choice; monetary policies may be deliberately passive, in which case there is nothing for the Treasury to follow and [4] determines the price level.”

An intuitive interpretation by Cochrane (2011Jan 4) is that when the current real value of government debt exceeds expected future surpluses, economic agents unload government debt to purchase private assets and goods, resulting in inflation. If the risk premium on government debt declines, government debt becomes more valuable, causing a deflationary effect. If the risk premium on government debt increases, government debt becomes less valuable, causing an inflationary effect.

There are multiple conclusions by Cochrane (2011Jan) on the debt/dollar crisis and Global recession, among which the following three:

(1) The flight to quality that magnified the recession was not from goods into money but from private-sector securities into government debt because of the risk premium on private-sector securities; monetary policy consisted of providing liquidity in private-sector markets suffering stress

(2) Increases in liquidity by open-market operations with short-term securities have no impact; quantitative easing can affect the timing but not the rate of inflation; and purchase of private debt can reverse part of the flight to quality

(3) The debt valuation equation has a similar role as the expectation shifting the Phillips curve such that a fiscal inflation can generate stagflation effects similar to those occurring from a loss of anchoring expectations.

IV Global Inflation. There is inflation everywhere in the world economy, with slow growth and persistently high unemployment in advanced economies. Table IV-1, updated with every blog comment, provides the latest annual data for GDP, consumer price index (CPI) inflation, producer price index (PPI) inflation and unemployment (UNE) for the advanced economies, China and the highly-indebted European countries with sovereign risk issues. The table now includes the Netherlands and Finland that with Germany make up the set of northern countries in the euro zone that hold key votes in the enhancement of the mechanism for solution of sovereign risk issues (Peter Spiegel and Quentin Peel, “Europe: Northern Exposures,” Financial Times, Mar 9, 2011 http://www.ft.com/intl/cms/s/0/55eaf350-4a8b-11e0-82ab-00144feab49a.html#axzz1gAlaswcW). Newly available data on inflation is considered below in this section. Data in Table IV-1 for the euro zone and its members are updated from information provided by Eurostat but individual country information is provided in this section as soon as available, following Table IV-1. Data for other countries in Table IV-1 are also updated with reports from their statistical agencies. Economic data for major regions and countries is considered in Section V World Economic Slowdown following with individual country and regional data tables.

Table IV-1, GDP Growth, Inflation and Unemployment in Selected Countries, Percentage Annual Rates

	GDP	CPI	PPI	UNE
US	2.3	1.7	2.0	7.8
Japan	3.5	-0.4	-1.8	4.2
China	8.9	2.0	-3.5
UK	-0.5	2.5* RPI 2.9	2.2* output 1.2** input 1.4*	8.1
Euro Zone	-0.4	2.6	2.7	11.4
Germany	1.0 CA	2.2	1.6	5.5
France	0.3	2.4	2.5	10.6
Nether-lands	-0.5	2.5	4.1	5.3
Finland	0.1	3.3	2.6	7.9
Belgium	-0.3	2.6	3.3	7.4
Portugal	-3.3	3.2	4.0	15.9
Ireland	-0.5	2.6	2.4	15.0
Italy	-2.6	3.3	3.0	10.7
Greece	NA	1.2	6.8	NA
Spain	-1.3	2.7	4.1	25.1

Notes: GDP: rate of growth of GDP; CPI: change in consumer price inflation; PPI: producer price inflation; UNE: rate of unemployment; all rates relative to year earlier

*Office for National Statistics http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/august-2012/index.html **Core

PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/august-2012/index.html Source: EUROSTAT; country statistical sources http://www.census.gov/aboutus/stat_int.html

In the effort to increase transparency, the Federal Open Market Committee (FOMC) provides both economic projections of its participants and views on future paths of the policy rate that in the US is the federal funds rate or interest on interbank lending of reserves deposited at Federal Reserve Banks. These projections and views are discussed initially followed with appropriate analysis.

Jon Hilsenrath, writing on “Bernanke letter defends Fed actions,” on Aug 24, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444358404577609231770784446.html?mod=WSJ_hp_LEFTWhatsNewsCollection#project%3Dissaletter082412%26articleTabs%3Darticle), finds support for FOMC policies and possible further actions in a letter by Chairman Bernanke (2012Aug22) in reply to inquiry by Representative Darrell Issa (2012Aug1), which were obtained and published by the WSJ on Aug 22, 2012 (http://online.wsj.com/public/resources/documents/Bernankeletter0812.pdf http://s3.documentcloud.org/documents/413447/issaletter0812.pdf). Issa (2012Aug1) inquired from Chairman Bernanke about analysis of monetary policy of various types, including by distinguished Professor Allan Meltzer (http://www.amazon.com/Allan-H.-Meltzer/e/B001H6MWPC/ref=ntt_dp_epwbk_0), the author of three scholarly analytical volumes on the history of the Federal Reserve (Meltzer 2004, 2010a, 2010b), who has emphasized the short-term nature of economic policy that could be more effective if focused on the long term. Chairman Bernanke (2012Aug22), who is also an eminent scholar, provided detailed answers to the queries by Issa (2012Aug1). The first sentence of the reply ignited positive risk taking in financial markets operating with low holiday volumes: “There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery.”

The statement of the FOMC at the conclusion of its meeting on Sep 13, 2012, revealed the following policy intentions (http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm):

“Release Date: September 13, 2012

Longer Run

Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.”

There are several important issues in this statement.

1. Mandate. The FOMC pursues a policy of attaining its “dual mandate” of (http://www.federalreserve.gov/aboutthefed/mission.htm):

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

2. Open-ended Quantitative Easing or QE_∞. Earlier programs are continued with an additional open-ended $40 billion of bond purchases per months: “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

3. Advance Guidance on Accommodative Policy after Recovery Strengthening. Policy will be accommodative even after the economy recovers satisfactorily: “To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.”

4. Monitoring and Policy Focus on Jobs. The FOMC reconsiders its policy continuously in accordance with available information: “The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”

Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output (http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm): “The [Federal Open Market] Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the recovery strengthens.” The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest during nearly a decade and programmed in monetary policy statements until 2015 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted. If economic perspectives are doomed until 2015 such as to warrant zero interest rates and open-ended bond-buying by “printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html), rational investors and consumers will not invest and consume until just before interest rates are likely to increase. Monetary policy statements on intentions of zero interest rates for another three years or now virtually forever discourage investment and consumption or aggregate demand that can increase economic growth and generate more hiring and opportunities to increase wages and salaries. The doom scenario used to justify monetary policy accentuates adverse expectations on discounted future cash flows of potential economic projects that can revive the economy and create jobs. If it were possible to project the future with the central tendency of the monetary policy scenario and monetary policy tools do exist to reverse this adversity, why the tools have not worked before and even prevented the financial crisis? If there is such thing as “monetary policy science”, why it has such poor record and current inability to reverse production and employment adversity? There is no excuse of arguing that additional fiscal measures are needed because they were deployed simultaneously with similar ineffectiveness.

Table IV-2 provides economic projections of governors of the Board of Governors of the Federal Reserve and regional presidents of Federal Reserve Banks released at the meeting of Sep 13, 2012. The Fed releases the data with careful explanations (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf). Columns “∆% GDP,” “∆% PCE Inflation” and “∆% Core PCE Inflation” are changes “from the fourth quarter of the previous year to the fourth quarter of the year indicated.” The GDP report for IIQ2012 is analyzed in I Mediocre and Decelerating United States Economic Growth at http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html and earlier (http://cmpassocregulationblog.blogspot.com/2012/07/decelerating-united-states-recovery.html) and the PCE inflation data from the report on personal income and outlays (Section IV at http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real_09.html). The Bureau of Economic Analysis (BEA) provides the third estimate of IIQ2012 GDP with the first estimate of IIIQ2012 to be released on Oct 26 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm). PCE inflation is the index of personal consumption expenditures (PCE) of the report of the Bureau of Economic Analysis (BEA) on “Personal Income and Outlays” (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm), which is analyzed in sections IB and IV in this blog for Aug 2012 (http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html). The next report on “Personal Income and Outlays” for Sep will be released at 8:30 AM on Oct 29, 2012 (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm). PCE core inflation consists of PCE inflation excluding food and energy. Column “UNEMP %” is the rate of unemployment measured as the average civilian unemployment rate in the fourth quarter of the year. The Bureau of Labor Statistics (BLS) provides the Employment Situation Report with the civilian unemployment rate in the first Friday of every month, which is analyzed in this blog (the Sep report is analyzed in this blog, the Aug report is in Section I at http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or.html and the Jul report is analyzed at http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html). The report for Oct will be released on Fri Nov 2, 2012 (http://www.bls.gov/ces/). “Longer term projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy” (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf).

It is instructive to focus on 2012 and 2013 as 2014 and 2015 and longer term are too far away, and there is not much information even on what will happen in 2013 and beyond. The central tendency should provide reasonable approximation of the view of the majority of members of the FOMC but the second block of numbers provides the range of projections by FOMC participants. The first row for each year shows the projection introduced after the meeting of Sep 13, 2012 and the second row “PR” the projection of the Jun 20, 2012 meeting. There are three major changes in the view.

1. Growth “∆% GDP.” The FOMC has reduced the forecast of GDP growth in 2012 from 3.3 to 3.7 percent in Jun 2011 to 2.5 to 2.9 percent in Nov 2011 and 2.2 to 2.7 percent at the Jan 25 meeting but increased it to 2.4 to 2.9 percent at the Apr 25, 2012 meeting, reducing it to 1.9 to 2.4 percent at the Jun 20, 2012 meeting and further to 1.7 to 2.0 percent at the Sep 13, 2012 meeting. GDP growth in 2013 has been increased to 2.5 to 3.0 percent at the meeting on Sep 13

2012 from 2.2 to 2.8 percent at the meeting on Jun 20, 2012. Rate of Unemployment “UNEM%.” The FOMC increased the rate of unemployment from 7.8 to 8.2 percent in Jun 2011 to 8.5 to 8.7 percent in Nov 2011 but has reduced it to 8.2 to 8.5 percent at the Jan 25 meeting and further down to 7.8 to 8.0 percent at the Apr 25, 2012 meeting but increased it to 8.0 to 8.2 percent at the Jun 20, 2012 meeting and did not change it at 8.0 to 8.2 at the meeting on Sep 13, 2012. The rate of unemployment for 2013 has been changed to 7.6 to 7.9 percent at the Sep 13 meeting compared with 7.5 to 8.0 percent at the Jun 20 meeting.

3. Inflation “∆% PCE Inflation.” The FOMC changed the forecast of personal consumption expenditures (PCE) inflation from 1.5 to 2.0 percent in Jun 2011 to virtually the same of 1.4 to 2.0 percent in Nov 2011 but has reduced it to 1.4 to 1.8 percent at the Jan 25 meeting but increased it to 1.9 to 2.0 percent at the Apr 25, 2012 meeting, reducing it to 1.2 to 1.7 percent at the Jun 20, 2012 meeting. The interval was increased to 1.7 to 1.8 percent at the Sep 13, 2012 meeting.

4. Core Inflation “∆% Core PCE Inflation.” Core inflation is PCE inflation excluding food and energy. There is again not much of a difference of the projection for 2012 in Jun 2011 of 1.4 to 2.0 percent and the Nov 2011 projection of 1.5 to 2.0 percent, which has been reduced slightly to 1.5 to 1.8 percent at the Jan 25 meeting but increased to 1.8 to 2.0 percent at the Apr 25, 2012 meeting, reducing it to 1.7 to 2.0 percent at the Jun 20, 2012 meeting. The projection was virtually unchanged at 1.7 to 1.9 percent at the Sep 13 meeting. For 2013, the projection for core inflation was changed from 1.6 to 2.0 percent at the Jun 20, 2012 meeting to 1.7 to 2.0 percent at the Sep 13, 2012 meeting.

Table IV-2, US, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents in FOMC, June 2012 and Sep 2012

	∆% GDP	UNEM %	∆% PCE Inflation	∆% Core PCE Inflation
Central Tendency
2012 Jun PR	1.7 to 2.0 1.9 to 2.4	8.0 to 8.2 8.0 to 8.2	1.7 to 1.8 1.2 to 1.7	1.7 to 1.9 1.7 to 2.0
2013 Jun PR	2.5 to 3.0 2.2 to 2.8	7.6 to 7.9 7.5 to 8.0	1.6 to 2.0 1.5 to 2.0	1.7 to 2.0 1.6 to 2.0
2014 Jun PR	3.0 to 3.8 3.0 to 3.5	6.7 to 7.3 7.0 to 7.7	1.6 to 2.0 1.5 to 2.0	1.8 to 2.0 1.6 to 2.0
2015 Jun	3.0 to 3.8 NA	6.0 to 6.8 NA	1.8 to 2.0 NA	1.9 to 2.0 NA
Longer Run Jun PR	2.3 to 2.5 2.3 to 2.5	5.2 to 6.0 5.2 to 6.0	2.0 2.0
Range
2012 Jun PR	1.6 to 2.0 1.6 to 2.5	8.0 to 8.3 7.8 to 8.4	1.5 to 1.9 1.2 to 2.0	1.6 to 2.0 1.7 to 2.0
2013 Jun PR	2.3 to 3.5 2.2 to 3.5	7.0 to 8.1 7.0 to 8.1	1.5 to 2.1 1.5 to 2.1	1.6 to 2.0 1.4 to 2.1
2014 Jun PR	2.7 to 4.1 2.8 to 4.0	6.3 to 7.5 6.3 to 7.7	1.6 to 2.2 1.5 to 2.2	1.6 to 2.2 1.5 to 2.2
2015 Jun PR	2.5 to 4.2 NA	5.7 to 6.9 NA	1.8 to 2.3 NA	1.8 to 2.3 NA
Longer Run Jun PR	2.2 to 3.0 2.2 to 3.0	5.0 to 6.3 4.9 to 6.3	2.0 2.0

Notes: UEM: unemployment; PR: Projection

Source:

http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf

Another important decision at the FOMC meeting on Jan 25, 2012, is formal specification of the goal of inflation of 2 percent per year but without specific goal for unemployment (http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm):

“Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.

The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.

Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals.

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances.

The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants' estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC's Summary of Economic Projections. For example, in the most recent projections, FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent, roughly unchanged from last January but substantially higher than the corresponding interval several years earlier.

In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. ”

The probable intention of this specific inflation goal is to “anchor” inflationary expectations. Massive doses of monetary policy of promoting growth to reduce unemployment could conflict with inflation control. Economic agents could incorporate inflationary expectations in their decisions. As a result, the rate of unemployment could remain the same but with much higher rate of inflation (see Kydland and Prescott 1977 and Barro and Gordon 1983; http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html). Strong commitment to maintaining inflation at 2 percent could control expectations of inflation.

The FOMC continues its efforts of increasing transparency that can improve the credibility of its firmness in implementing its dual mandate. Table IV-3 provides the views by participants of the FOMC of the levels at which they expect the fed funds rate in 2012, 2013, 2014 and the in the longer term. Table IV-3 is inferred from a chart provided by the FOMC with the number of participants expecting the target of fed funds rate (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf). There are 18 participants expecting the rate to remain at 0 to ¼ percent in 2012 and only one to be higher. Not much change is expected in 2013 either with 15 participants anticipating the rate at the current target of 0 to ¼ percent and only four expecting higher rates. The rate would still remain at 0 to ¼ percent in 2014 for 13 participants with four expecting the rate to be in the range of 1.0 to 2.0 percent and two participants expecting rates from 2.0 to 3.0. This table is consistent with the guidance statement of the FOMC that rates will remain at low levels until late in 2014. For 2015, ten participants expect rates to be below 1.0 percent while four expect rates from 3.0 to 4.5 percent. In the long-run, all 19 participants expect rates to be between 3.0 and 4.5 percent.

Table IV-3, US, Views of Target Federal Funds Rate at Year-End of Federal Reserve Board Members and Federal Reserve Bank Presidents Participating in FOMC, June 20, 2012

Source:

http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf

Additional information is provided in Table IV-4 with the number of participants expecting increasing interest rates in the years from 2012 to 2015. It is evident from Table IV-4 that the prevailing view in the FOMC is for interest rates to continue at low levels in future years. This view is consistent with the economic projections of low economic growth, relatively high unemployment and subdued inflation provided in Table IV-2.

Table IV-4, US, Views of Appropriate Year of Increasing Target Federal Funds Rate of Federal Reserve Board Members and Federal Reserve Bank Presidents Participating in FOMC, June 20, 2012

Appropriate Year of Increasing Target Fed Funds Rate	Number of Participants
2012	1
2013	3
2014	2
2015	12
2016	1

Source:

http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf

The producer price index of the euro zone increased 0.9 percent in Aug 2012 after increasing 0.4 percent in Aug and falling 0.5 percent in both Jun and May 2012, as shown in Table IV-5. In Jan-Mar, producer prices increased cumulatively 2.0 percent or at annual equivalent rate of 8.3 percent. Energy inflation has oscillated with the shocks of risk aversion that cause unwinding of carry trade positions from zero interest rates to commodity futures. Energy prices increased 2.4 percent in Aug 2012 and 1.3 percent in Jul 2012. Energy prices increased 5.2 percent cumulatively in Jan-Mar 2012 or at the annual equivalent rate of 22.4 percent. During periods of relaxed risk aversion, carry trades from zero interest rates to commodity exposures drive high inflation waves. Prices of capital goods have barely moved. Prices of durable consumer goods accelerated at annual equivalent rate of 3.3 percent in Jan-Mar 2012 but were flat in every month from Apr to Jun 2012, increasing 0.1 percent in both Aug and Jul 2012. Purchasing managers’ indexes worldwide reflect increasing prices of inputs for business while sales prices are stagnant or declining. Unconventional monetary policy causes uncertainty in business decisions with shocks of declining net revenue margins during worldwide inflation waves.

Table IV-5, Euro Zone, Industrial Producer Prices Month ∆%

	Aug 2012	Jul 2012	Jun 2012	May 2012	Apr 2012	Mar 2012	Feb 2012
Industry ex Construction	0.9	0.3	-0.5	-0.5	0.0	0.5	0.6
Industry ex Construction & Energy	0.3	-0.1	-0.1	0.0	0.2	0.2	0.3
Intermediate Goods	0.5	-0.3	-0.3	0.1	0.3	0.3	0.5
Energy	2.4	1.3	-1.8	-1.5	-0.2	1.3	1.2
Capital Goods	0.0	0.1	0.1	0.1	0.1	0.1	0.1
Durable Consumer Goods	0.1	0.1	0.0	0.0	0.0	0.1	0.3
Nondurable Consumer Goods	0.3	0.1	0.1	-0.1	0.1	0.2	0.3

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-02102012-AP/EN/4-02102012-AP-EN.PDF

Twelve-month percentage changes of industrial prices in the euro zone have moderated significantly, as shown in Table IV-6. The 12-month percentage change of industrial prices excluding construction fell from 4.3 percent in Dec 2011 to 1.6 percent in Jul 2012 but increased to 2.7 percent in Aug 2012. Energy prices increased 9.7 percent in Dec 2011 and Jan 2011 but the rate fell to 4.5 percent in the 12 months ending in Jul 2012, increasing to 7.9 percent in Dec 2012. There is major vulnerability in producer price inflation that can return together with long positions in commodity futures with carry trades from zero interest during relaxation of risk aversion. Business net revenue suffers wide oscillation preventing sound calculation of risk/returns and capital budgeting.

Table IV-6, Euro Zone, Industrial Producer Prices 12-Month ∆%

	Aug 2012	Jul 2012	Jun 2012	May 2012	Apr 2012	Mar 2012	Feb 2012
Industry ex Construction	2.7	1.6	1.8	2.3	2.6	3.5	3.7
Industry ex Construction & Energy	1.0	0.8	0.9	1.1	1.3	1.6	1.7
Intermediate Goods	0.3	-0.2	0.1	0.5	0.6	0.9	1.1
Energy	7.9	4.5	4.7	6.3	6.7	9.0	9.9
Capital Goods	0.9	1.1	1.1	1.2	1.2	1.2	1.2
Durable Consumer Goods	1.6	1.8	1.9	1.9	2.0	2.3	2.4
Nondurable Consumer Goods	2.1	2.0	1.9	1.9	2.3	2.8	3.0

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-02102012-AP/EN/4-02102012-AP-EN.PDF

Industrial producer prices in the euro area are following similar inflation waves as in the rest of the world (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html), as shown in Table IV-7. In the first wave in Jan-Apr 2011, annual equivalent producer price inflation was 12.0 percent driven by carry trades from zero interest rates into commodity futures. In the second wave in May-Jun 2011, annual equivalent producer price inflation declined at minus 1.2 percent. In the third wave in Jul-Sep 2011, annual equivalent inflation increased at 2.0 percent. In the third wave in Oct-Dec 2011, risk aversion originating in the European sovereign debt crisis interrupted commodity carry trades, resulting in annual equivalent inflation of only 0.8 percent. In the fifth wave in Jan-Mar 2012, annual equivalent inflation jumped to 8.3 percent with a high annual equivalent rate of 9.4 percent in Jan-Feb 2012. In the sixth wave, risk aversion from the European sovereign debt event caused reversal commodity carry trades with equivalent annual inflation of minus 3.9 percent in Apr-Jun 2012. In the seventh wave, annual equivalent inflation jumped to 7.4 percent. The bottom part of Table IV-7 provides 12-month percentage changes from 1999 to 2010. The final row of Table IV-10 provides the average annual rate of producer-price inflation in the euro area at 2.6 percent in Dec from 1999 to 2011.

Table IV-7, Euro Area, Industrial Producer Prices Excluding Construction, Month and 12-Month ∆%

	Month ∆%	12-Month ∆%
Aug 2012	0.9	2.7
Jul 2012	0.3	1.6
AE ∆% Jul-Aug	7.4
Jun	-0.5	1.8
May	-0.5	2.3
Apr	0.0	2.6
AE ∆% Apr-Jun	-3.9
Mar	0.5	3.5
Feb	0.6	3.7
Jan	0.9	3.9
AE ∆% Jan-Mar	8.3
Dec 2011	-0.2	4.3
Nov	0.3	5.4
Oct	0.1	5.5
AE ∆% Oct-Dec	0.8
Sep	0.3	5.8
Aug	-0.2	5.8
Jul	0.4	6.1
AE ∆% Jul-Sep	2.0
Jun	0.0	5.9
May	-0.2	6.2
AE ∆% May-Jun	-1.2
Apr	0.9	6.8
Mar	0.8	6.8
Feb	0.8	6.6
Jan	1.3	5.9
AE ∆% Jan-Apr	12.0
Dec 2010	0.8	5.4
Dec 2009		-2.9
Dec 2008		1.1
Dec 2007		4.7
Dec 2006		3.8
Dec 2005		4.5
Dec 2004		3.8
Dec 2003		0.8
Dec 2002		1.5
Dec 2001		-0.6
Dec 2000		4.6
Dec 1999		2.6
Average ∆% 1999-2011		2.6

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

V World Economic Slowdown. Table V-1 is constructed with the database of the IMF (http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx) to show GDP in dollars in 2010 and the growth rate of real GDP of the world and selected regional countries from 2011 to 2014. The IMF revised some of the projections in its World Economic Outlook Update released on Jul 16, 2012 (http://www.imf.org/external/pubs/ft/weo/2012/update/02/index.htm). Table V-1 incorporates these revisions with lines “Rev” where appropriate. The data illustrate the concept often repeated of “two-speed recovery” of the world economy from the recession of 2007 to 2009. The IMF has lowered its forecast of the world economy to 3.5 percent in 2012 but accelerating to 3.9 percent in 2013 instead of 4.1 percent in the earlier projection, 4.4 percent in 2014 and 4.5 percent in 2015. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $33,670 billion of world output of $69,660 billion, or 48.3 percent, but are projected to grow at much lower rates than world output, 2.0 percent on average from 2012 to 2015 in contrast with 4.1 percent for the world as a whole, incorporating the revisions. While the world would grow 17.3 percent in the four years from 2012 to 2015, the G7 as a whole would grow 8.4 percent. The difference in dollars of 2011 is rather high: growing by 17.3 percent would add $12.1 trillion of output to the world economy, or roughly two times the output of the economy of Japan of $5,869 but growing by 8.4 percent would add $5.9 trillion of output to the world, or about the output of Japan in 2011. The “two speed” concept is in reference to the growth of the 150 countries labeled as emerging and developing economies (EMDE) with joint output in 2011 of $25,237 billion, or 36.2 percent of world output. The EMDEs would grow cumulatively 26.3 percent or at the average yearly rate of 6.0 percent, contributing $6.6 trillion from 2012 to 2015 or the equivalent of somewhat less than the GDP of $7,298 billion of China in 2011. The final four countries in Table 1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output adds to $13,317 billion, or 19.1 percent of world output, which is equivalent to 39.6 percent of the combined output of the major advanced economies of the G7.

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

	GDP USD 2011	Real GDP ∆% 2012	Real GDP ∆% 2013	Real GDP ∆% 2014	Real GDP ∆% 2015
World Rev	69,660	3.5	4.1 3.9	4.4	4.5
G7 Rev	33,670	1.5 1.4	1.9 1.9	2.3	2.5
Canada	1,737	2.1	2.2	2.4	2.4
France Rev	2,776	0.5 0.3	1.1 0.8	1.9	1.9
DE Rev	3,577	0.6 1.0	1.5 1.4	1.3	1.3
Italy	2,199	-1.9	-0.3	0.5	1.0
Japan Rev	5,869	2.0 2.4	1.7 1.5	1.5	1.3
UK	2,418	0.8	2.0	2.5	2.6
US Rev	15,094	2.1 0.2	2.4 1.4	2.9	3.3
Euro Area Rev	13,115	-0.3	0.9 0.7	1.4	1.6
DE Rev	3,577	0.6 1.0	1.5 1.4	1.3	1.3
France Rev	2,776	0.5 0.3	1.1 0.8	1.9	1.9
Italy	2,199	-1.9	-0.3	0.5	1.0
POT	239	-3.3	0.3	2.1	1.9
Ireland	218	0.5	2.1	2.5	2.8
Greece	303	-4.7	0.0	2.5	3.1
Spain Rev	1,494	-1.8 -1.5	0.1 -0.6	1.6	1.6
EMDE Rev	25,237	5.7 5.6	6.0 5.9	6.2	6.3
Brazil Rev	2,493	3.0 2.5	4.2 4.6	4.0	4.1
Russia	1,850	4.0	3.9	3.9	3.9
India Rev	1,676	6.9 6.1	7.3 6.5	7.5	7.7
China Rev	7,298	8.2 8.0	8.8 8.5	8.7	8.7

Notes: Rev: Revision of July 19, 2012; DE: Germany; EMDE: Emerging and Developing Economies (150 countries); POT: Portugal

Source: IMF World Economic Outlook databank

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

http://www.imf.org/external/pubs/ft/weo/2012/update/02/index.htm

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

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

	% Labor Force 2011	% Labor Force 2012	% Labor Force 2013	% Labor Force 2014	% Labor Force 2015
World	NA	NA	NA	NA	NA
G7	7.7	7.4	7.3	7.0	6.7
Canada	7.5	7.4	7.3	7.1	6.9
France	9.7	9.9	10.1	9.8	9.4
DE	6.0	5.6	5.5	5.3	5.3
Italy	8.4	9.5	9.7	9.8	9.5
Japan	4.5	4.5	4.4	4.3	4.2
UK	8.0	8.3	8.2	7.8	7.4
US	8.9	8.2	7.9	7.5	6.9
Euro Area	10.1	10.9	10.8	10.5	10.1
DE	6.0	5.6	5.5	5.3	5.3
France	9.7	9.9	10.1	9.8	9.4
Italy	8.4	9.5	9.7	9.8	9.5
POT	12.7	14.3	13.9	13.2	12.4
Ireland	14.4	14.5	13.8	12.9	12.0
Greece	17.3	19.4	19.4	18.2	16.8
Spain	21.6	24.2	23.9	22.8	21.9
EMDE	NA	NA	NA	NA	NA
Brazil	6.0	6.0	6.5	7.0	7.0
Russia	7.5	6.5	6.0	6.0	6.0
India	NA	NA	NA	NA	NA
China	4.1	4.0	4.0	4.0	4.0

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

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

Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog for IQ2012 and IIQ2012. Growth is weak throughout most of the world. Japan’s GDP increased 1.3 percent in IQ2012 and 2.9 percent relative to a year earlier but part of the jump could be the low level a year earlier because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan is experiencing difficulties with the overvalued yen because of worldwide capital flight originating in zero interest rates with risk aversion in an environment of softer growth of world trade. Japan’s GDP grew 0.2 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of 0.7 percent, which is much lower than 5.3 percent in IQ2012. Growth of 3.2 percent in IIQ2012 in Japan relative to IIQ2011 has effects of the low level of output because of Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. China grew at 1.8 percent in IIQ2012, which annualizes to 7.4 percent. Xinhuanet informs that Premier Wen Jiabao considers the need for macroeconomic stimulus, arguing that “we should continue to implement proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm). Premier Wen elaborates that “the country should properly handle the relationship between maintaining growth, adjusting economic structures and managing inflationary expectations” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm). China’s GDP grew 7.6 percent in IIQ2012 relative to IIQ2011. Growth rates of GDP of China in a quarter relative to the same quarter a year earlier have been declining from 2011 to 2012. China’s GDP grew 8.1 percent in IQ2012 relative to a year earlier but only 7.6 percent in IIQ2012 relative to a year earlier. GDP was flat in the euro area in IQ2012 and also in IQ2012 relative to a year earlier. Euro area GDP contracted 0.2 percent IIQ2012 and fell 0.4 percent relative to a year earlier. Germany’s GDP increased 0.5 percent in IQ2012 and 1.7 percent relative to a year earlier. In IIQ2012, Germany’s GDP increased 0.3 percent and 0.5 percent relative to a year earlier but 1.0 percent relative to a year earlier when adjusted for calendar (CA) effects. Growth of US GDP in IQ2012 was 0.5 percent, at SAAR of 2.0 percent and higher by 2.4 percent relative to IQ2011. US GDP increased 0.3 percent in IIQ2012, 1.3 percent at SAAR and 2.1 percent relative to a year earlier (Section IA Mediocre and Decelerating United States Economic Growth at http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html) but with substantial unemployment and underemployment (Section I and earlier http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real.html) and weak hiring (Section I http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2012/08/recovery-without-hiring-ten-million.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-hiring-ten-million.html). UK GDP fell 0.4 percent in IIQ2012, declining 0.5 percent relative to IIQ2011. In IQ2011, UK GDP fell 0.3 percent, declining 0.1 percent relative to a year earlier. UK GDP fell 0.5 percent in IIQ2012 and 0.5 percent relative to a year earlier. Italy has experienced decline of GDP in four consecutive quarters from IIIQ2011 to IIQ2012. Italy’s GDP fell 0.8 percent in IIQ2012 and declined 2.6 percent relative to IIQ2011. France’s GDP stagnated in both IQ2012 and IIQ2012 and increased 0.3 percent relative to a year earlier in IIQ2012.

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

	IQ2012/IVQ2011	IQ2012/IQ2011
United States	QOQ: 0.5 SAAR: 2.0	2.4
Japan	QOQ: 1.3 SAAR: 5.3	2.9
China	1.8	8.1
Euro Area	0.0	0.0
Germany	0.5	1.7
France	0.0	0.4
Italy	-0.8	-1.5
United Kingdom	-0.3	-0.1
	IIQ2012/IQ2012	IIQ2012/IIQ2011
United States	QOQ: 0.3 SAAR: 1.3	2.1
Japan	QOQ: 0.2 SAAR: 0.7	3.2
China	1.8	7.6
Euro Area	-0.2	-0.4
Germany	0.3	0.5 1.0 CA
France	0.0	0.3
Italy	-0.8	-2.6
United Kingdom	-0.4	-0.5

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

Source: Country Statistical Agencies

http://www.bea.gov/national/index.htm#gdp

There is evidence of deceleration of growth of world trade and even contraction in more recent data. Table V-4 provides two types of data: growth of exports and imports in the latest available months and in the past 12 months; and contributions of net trade (exports less imports) to growth of real GDP. Japan provides the most worrisome data (Section VB at http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-creation-of_23.html and for GDP http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html). Japan’s exports decreased 5.8 percent in the 12 months ending in Aug and 8.1 percent in 12 months ending in Jul while imports decreased 5.4 percent in the 12 months ending in Aug and increased 2.1 percent in the 12 months ending in Jul. The second part of Table V-4 shows that net trade deducted 0.3 percentage points from Japan’s growth of GDP in IIQ2012. China’s exports fell 1.8 percent in the month of Jul and increased 1.0 percent in 12 months. In Aug 2012, China’s exports increased 0.6 percent and increased 2.7 percent in 12 months. Germany’s exports increased 0.5 percent in the month of Jul and increased 9.2 percent in the 12 months ending in Jul while imports increased 0.9 percent in the month of Jul and increased 1.9 percent in the 12 months ending in Jul. Net trade contributed 1.1 percentage points to growth of Germany’s GDP in IIQ2012. The Markit/BME Germany Purchasing Managers’ Index^® (PMI^®), showing close association with Germany’s manufacturing output, increased from 44.7 in Aug to 47.3 in Sep, which is the most moderate deterioration since Mar (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10119). New export orders fell sharply but at a slower pace than in Aug when new export orders fell at a record in the past three and a half years. UK’s exports fell 4.6 percent in Jun and decreased 1.4 percent in Apr-Jun 2012 relative to Apr-Jun 2011 while imports fell 0.7 percent in Jun and increased 2.2 percent in Apr-Jun 2012 relative to Apr-Jun 2011. UK exports increased 5.2 percent in Jul and decreased 0.7 percent in May-Jul relative to a year earlier while imports fell 1.7 percent in Jul and decreased 0.4 percent in May-Jul relative to a year earlier. Net trade deducted 1.0 percentage points from UK GDP growth in IIQ2012. France’s exports increased 0.8 percent in Jul and net trade deducted 0.4 percentage points from GDP growth in IIQ2012. US exports decreased 1.0 percent in Jul 2012 and increased 6.2 percent in Jan-Jul relative to a year earlier but net trade added 0.23 percentage points to GDP growth in IIQ2012. The Markit US Manufacturing Purchasing Managers’ Index^™ (PMI^™) declined to the weakest reading in three years to 51.1 in Sep from 51.5 in Aug, indicating moderate expansion of US manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10144). The PMI reading at 51.4 is lower than 54.2 for IIQ2012. New export orders declined at the highest rate in 11 months with the index of new exports orders falling from 48.8 in Aug to 48.0 in Sep while total new orders increased from 51.9 in Aug to 52.3 in Sep because of orders from the internal market. In the six months ending in Aug, United States national industrial production accumulated decline of 0.4 percent at the annual equivalent rate of decline of 0.8 percent, which is substantially lower than 2.8 percent growth in 12 months. Capacity utilization for total industry in the United States fell 1.0 percentage point in Aug to 78.2 percent, which is 2.1 percentage points lower than the long-run average from 1972 to 2011. Manufacturing decreased 0.7 percent in Aug seasonally adjusted, increasing 4.1 percent not seasonally adjusted in 12 months, and fell 0.5 percent in the six months ending in Aug or at the annual equivalent rate of 1.0 percent (http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation_16.html). Trade values incorporate both price and quantity effects that are difficult to separate. Data do suggest that world trade slowdown is accompanying world economic slowdown.

Table V-4, Growth of Trade and Contributions of Net Trade to GDP Growth, ∆% and % Points

	Exports M ∆%	Exports 12 M ∆%	Imports M ∆%	Imports 12 M ∆%
USA	-1.0	6.2 Jan-Jul	-0.8 Jun	5.5 Jan-Jul
Japan Aug Jul		-5.8 -8.1		-5.4 2.1
China	-1.8 Jul 0.6 Aug	1.0 Jul 7.8 Jan-Jul 2.7 Aug 7.1 Jan-Aug	2.2 Jul -0.3 Aug	4.7 Jul 6.5 Jan-Jul -2.6 Aug 5.2 Jan-Aug
Euro Area	0.3 Jul	8.8 Jan-Jul	-1.0 Jul	2.5 Jan-Jul
Germany	0.5 Jul CSA	9.2 Jul	0.9 Jul CSA	1.9 Jul
France Jul	0.8	3.6	-3.5	1.9
Italy Jul	0.3	4.3	2.9	-4.3
UK	-4.6 Jun 5.2 Jul	-1.4 Apr-Jun -0.7 May-Jul	-0.7 Jun -1.7	2.2 Apr-Jun -0.4 May-Jul
Net Trade % Points GDP Growth	% Points
USA IIQ2012	0.23
Japan IIQ2012	-0.3
Germany IIQ2012	1.1
France IIQ2012	-0.4
UK IIQ2012	-1.0

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

http://www.customs.go.jp/toukei/latest/index_e.htm http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

http://english.customs.gov.cn/publish/portal191/ http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home

https://www.destatis.de/EN/PressServices/Press/pr/2012/08/PE12_287_811.html;jsessionid=A761BC574543A771416A9CF81034F7BA.cae1 http://lekiosque.finances.gouv.fr/AppChiffre/Portail_default.asp

http://www.insee.fr/en/

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

http://www.statistics.gov.uk/hub/index.html

The geographical breakdown of exports by imports of Japan with selected regions and countries is provided in Table V-5 for Aug 2012. The share of Asia in Japan’s trade is more than one half, 56.3 percent of exports and 43.6 percent of imports. Within Asia, exports to China are 19.2 percent of total exports and imports from China 20.8 percent of total imports. The second largest export market for Japan in Aug 2012 is the US with share of 17.6 percent of total exports and share of imports from the US of 8.7 percent in total imports. Western Europe has share of 9.6 percent in Japan’s exports and of 10.8 percent in imports. Rates of growth of exports of Japan in Aug are sharply negative for most countries and regions with the exception of 10.3 percent for exports to the US, 18.7 percent to Canada, 6.5 percent for exports to Mexico and 0.3 percent to Brazil. Comparisons relative to 2011 may have some bias because of the effects of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Deceleration of growth in China and the US and threat of recession in Europe can reduce world trade and economic activity, which could be part of the explanation for the decline of Japan’s exports by 5.8 percent in Aug 2012 while imports decreased by 5.4 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Aug are sharply higher with exception of declines in imports mostly of raw materials: minus 9.3 percent for Middle East, minus 13.2 percent for Australia and minus 27.3 percent for Brazil. Imports from Asia decreased 5.8 percent in the 12 months ending in Aug while imports from China decreased 7.3 percent.

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

Aug 2012	Exports Millions Yens	12 months ∆%	Imports Millions Yens	12 months ∆%
Total	5,045,868	-5.8	5,799,995	-5.4
Asia	2,839,710	-6.7	2,526,870	-5.8
China	966,299	-9.9	1,208,214	-7.3
USA	886,922	10.3	503,962	-0.1
Canada	62,393	18.7	80,017	-17.3
Brazil	42,396	0.3	67,127	-27.3
Mexico	68,528	6.5	26,944	9.1
Western Europe	484,858	-28.3	624,333	2.9
Germany	125,729	-17.8	174,050	8.7
France	36,868	-29.8	85,122	10.3
UK	72,065	-42.1	48,348	-5.1
Middle East	167,393	-1.2	1,083,162	-9.3
Australia	117,080	-1.6	408,332	-13.2

Source: http://www.customs.go.jp/toukei/latest/index_e.htm

Table V-6 of the World Trade Organization provides actual volume of world trade from 2008 to 2011 and projections of the World Trade Organization Secretariat for 2012 and 2013. Trade was weak during the global recession, increasing 2.3 percent in 2008 and decreasing 12.5 percent in 2009. Trade growth was 13.8 percent in 2010 and 5.0 percent in 2011. The World Trade Organization has reduced its projection of growth of world trade in 2012 to 2.5 percent.

Table V-6, World Trade Organization Projections of Growth of Volume of World Merchandise Trade and GDP, ∆%, 2008-2013

	2008	2009	2010	2011	2012*	2013*
World Trade Volume	2.3	-12.5	13.9	5.0	2.5	4.5
Exports
DE	0.9	-15.2	13.0	4.6	1.5	3.3
DINGE	4.3	-7.8	15.3	5.3	3.5	5.7
Imports
DE	-1.1	-14.4	11.0	2.9	0.4	3.4
DINGE	8.6	-10.5	18.3	8.3	5.4	6.1
Real GDP**	1.3	-2.4	3.8	2.4	2.1	2.4
DE	0.0	-3.8	2.7	1.5	1.2	1.5
DINGE	5.6	2.2	7.3	5.3	4.9	5.2

Notes: World Trade Volume: average of exports and imports; *Projections; **At market exchange rates; DE: Developed economies; DINGE: developing economies

Source: World Trade Organization Secretariat for trade, Consensus estimates of GDP forecasts

http://www.wto.org/english/news_e/pres12_e/pr676_e.htm

The JP Morgan Global All-Industry Output Index of the JP Morgan Manufacturing and Services PMI^™, produced by JP Morgan and Markit in association with ISM and IFPSM, with high association with world GDP, increased to 52.5 in Sep from 50.9 in Aug, indicating expansion at a moderate rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10177). This index has remained above the contraction territory of 50.0 during 36 months. Both global manufacturing and services have slowed down considerably with services increasing marginally because of activity in the US while manufacturing deepened its decline. The average of the reading in IIIQ2012 at 51.7 was almost unchanged relative to 51.6 in IIQ2012, which is a thee-year low and below the trend started with recovery in Aug 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10177). Stronger service activity in the US supported expansion of global output with increases also in the UK, Brazil, Russia and Ireland. The employment index fell from 50.9 in Aug to 49.9 in Sep under constraint by sharp increases in input prices. The JP Morgan Global Manufacturing PMI^™, produced by JP Morgan and Markit in association with ISM and IFPSM, increased to 52.8 in Sep from 48.1 in Aug, which was higher than the 38-month low in Aug and four consecutive months below 50.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10159). The PMI is at 48.5 in IIIQ2012, which is lower than 50.4 in IIQ2012 and the weakest reading since IIQ2009. New export orders declined for the fifth consecutive month. The HSBC Brazil Composite Output Index, compiled by Markit, increased away from contraction territory to 52.8 in Sep from 48.1 in Aug with stronger demand for services than for manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10159). Andre Loes, Chief Economist, Brazil, at HSBC, finds that increasing activity in services could signal the rebound of economic activity expected for the second half of 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10159). The HSBC Brazil Purchasing Managers’ Index^TM (PMI^™) increased slightly to 49.8 in Sep from 49.3 in Aug, indicating marginal deterioration of business conditions in Brazilian manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10135). Andre Loes, Chief Economist, Brazil at HSBC, finds recovery of Brazil’s manufacturing in IIIQ2012, improving the outlook for IVQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10005).

VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index^™ (PMI^™) seasonally adjusted was unchanged at 51.5 in Sep from 51.5 in Aug, indicating the third weakest reading since Oct 2009 in the beginning of the current recovery with the lowest in Dec 2010; the PMI average in the three months ending in Sep was 51.5, which is lower than 54.2 in the three months ending in Jun and the lowest quarterly reading since IIIQ2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10081). New export orders registered 47.9 in Sep still in contraction territory with 48.8 in Aug, which is the fastest decline in new export orders since Oct 2011. Chris Williams, Chief Economist at Markit, finds that manufacturing could have restrained the US economy in IIIQ2012 that could possibly result in weaker growth than 1.7 percent at seasonally-adjusted annual rate in IIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10081). The Markit US Manufacturing Purchasing Managers’ Index^™ (PMI^™) declined to the weakest reading in three years to 51.1 in Sep from 51.5 in Aug, indicating moderate expansion of US manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10144). The PMI reading at 51.4 is lower than 54.2 for IIQ2012. New export orders declined at the highest rate in 11 months with the index of new exports orders falling from 48.8 in Aug to 48.0 in Sep while total new orders increased from 51.9 in Aug to 52.3 in Sep because of orders from the internal market. Chris Williamson, Chief Economist at Markit, finds that the data suggest deterioration of manufacturing toward the end of Sep, which could result in further decline that could cause stagnation of the US economy or growth at a rate lower than 1.3 for GDP in IIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10144). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business^® increased 1.9 percentage points from 49.6 in Aug to 51.5 in Sep, (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders increased 5.2 percentage points from 47.1 in Aug to 52.3 in Sep. The index of exports increased 1.5 percentage points from 47.0 in Aug to 48.5 in Sep, remaining in mild contraction territory. The Non-Manufacturing ISM Report on Business^® PMI increased 1.4 percentage points from 53.7 in Aug to 53.7 in Sep, indicating growth during 38 consecutive months, while the index of new orders increased 4.3 percentage points from 55.6 in Aug to 59.9 in Sep (http://www.ism.ws/ISMReport/NonMfgROB.cfm?navItemNumber=12943). Table USA provides the country economic indicators for the US.

Table USA, US Economic Indicators

Consumer Price Index	Aug 12 months NSA ∆%: 1.7; ex food and energy ∆%: 1.9 Aug month ∆%: 0.6; ex food and energy ∆%: 0.1 Blog 9/16/12
Producer Price Index	Aug 12-month NSA ∆%: 2.0; ex food and energy ∆% 2.5 Aug month SA ∆% = 1.7; ex food and energy ∆%: 0.2 Blog 9/16/12
PCE Inflation	Aug 12-month NSA ∆%: headline 1.5; ex food and energy ∆% 1.6 Blog 9/30/12
Employment Situation	Household Survey: Sep Unemployment Rate SA 7.8% Blog calculation People in Job Stress Sep: 28.7 million NSA, 17.8% of Labor Force Establishment Survey: Sep Nonfarm Jobs +114,000; Private +104,000 jobs created Aug 12-month Average Hourly Earnings Inflation Adjusted ∆%: 0.1 Blog 10/7/12
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 Jul 2012 4.703 million lower by 1.266 million than 5.969 million in Jul 2006 Blog 9/16/12
GDP Growth	BEA Revised National Income Accounts IQ2012/IQ2011 ∆%: 2.4 IIQ2012/IIQ2011 2.1 IQ2012 SAAR 2.0 IIQ2012 SAAR 1.3 Blog 9/30/12
Personal Income and Consumption	Aug month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% -0.3 Real Personal Consumption Expenditures (RPCE): 0.1 12-month Aug NSA ∆%: RDPI: 1.8; RPCE ∆%: 2.0 Blog 9/30/2012
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	IIQ2012 SA ∆%: 0.5 Jun 12 months ∆%: 1.7 Blog 8/5/12
Industrial Production	Aug month SA ∆%: -1.2 Aug 12 months SA ∆%: 2.8 Manufacturing Jul SA ∆% -0.7 Aug 12 months SA ∆% 3.8, NSA 4.1 Capacity Utilization: 78.2 Blog 9/16/12
Productivity and Costs	Nonfarm Business Productivity IIQ2012∆% SAAE 2.2; IIQ2012/IIQ2011 ∆% 1.2; Unit Labor Costs SAAE IIQ2012 ∆% 1.5; IIQ2012/IIQ2011 ∆%: 0.9 Blog 9/9/2012
New York Fed Manufacturing Index	General Business Conditions From Aug -5.85 to Sep -10.41 New Orders: From Aug -5.50 to Sep -14.03 Blog 9/23/12
Philadelphia Fed Business Outlook Index	General Index from Aug minus 7.1 to Sep -1.9 New Orders from Aug minus 5.5 to Sep 1.0 Blog 9/23/12
Manufacturing Shipments and Orders	Aug New Orders SA ∆%: -5.2; ex transport ∆%: 0.7 Jan-Aug New Orders NSA ∆%: 3.7; ex transport ∆% 3.0 Blog 10/7/12
Durable Goods	Jul New Orders SA ∆%: 4.2; ex transport ∆%: -0.4 Jan-Jul 12/Jan-Jul 11 NSA New Orders ∆%: 7.5; ex transport ∆% : 5.5 Blog 9/30/12
Sales of New Motor Vehicles	Jan-Sep 2012 10,899,949; Jan-Sep 2011 9,518,172. Sep SAAR 14.94 million, Aug SAAR 14.52 million, Sep 2011 SAAR 13.4 million Blog 10/5/12
Sales of Merchant Wholesalers	Jan-Jul 2012/Jan-Jul 2011 NSA ∆%: Total 6.8; Durable Goods: 8.7; Nondurable Goods: 5.3 Blog 9/16/12
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Jul 12/Jul 11 NSA ∆%: Sales Total Business 3.7; Manufacturers 2.9 Retailers 3.0; Merchant Wholesalers 5.4 Blog 9/16/12
Sales for Retail and Food Services	Jan-Aug 2012/Jan-Aug 2011 ∆%: Retail and Food Services 5.8; Retail ∆% 5.6 Blog 9/16/12
Value of Construction Put in Place	Aug SAAR month SA ∆%: -0.6 Aug 12-month NSA: 6.5 Jan-Aug 2012 ∆% 9.0 Blog 10/7/12
Case-Shiller Home Prices	Jul 2012/Jul 2011 ∆% NSA: 10 Cities 0.6; 20 Cities: 1.2 ∆% Jul SA: 10 Cities 0.4 ; 20 Cities: 0.4 Blog 9/30/12
FHFA House Price Index Purchases Only	Jul SA ∆% 0.2; 12 month ∆%: 3.8 Blog 9/30/12
New House Sales	Aug 2012 month SAAR ∆%: -0.3 Jan-Aug 2012/Jan-Aug 2011 NSA ∆%: 21.9 Blog 9/30/12
Housing Starts and Permits	Jul Starts month SA ∆%: 2.3 ; Permits ∆%: -1.0 Jan-Aug 2012/Jan-Aug 2011 NSA ∆% Starts 25.7; Permits ∆% 30.5 Blog 9/23/12
Trade Balance	Balance Jul SA -$42002 million versus Jun -$41899 million Exports Jul SA ∆%: -1.0 Imports Jul SA ∆%: -0.8 Goods Exports Jan-Jul 2012/2011 NSA ∆%: 6.2 Goods Imports Jan-Jul 2012/2011 NSA ∆%: 5.5 Blog 9/16/12
Export and Import Prices	Aug 12-month NSA ∆%: Imports -2.2; Exports -0.9 Blog 9/16/12
Consumer Credit	Aug ∆% annual rate: 8.0 Blog 10/7/12
Net Foreign Purchases of Long-term Treasury Securities	Jul Net Foreign Purchases of Long-term Treasury Securities: $67.0 billion Major Holders of Treasury Securities: China $1164 billion; Japan $1149 billion; Total Foreign US Treasury Holdings Jun $5348 billion Blog 9/3/12
Treasury Budget	Fiscal Year Oct-Aug 2012/2011 ∆%: Receipts 6.1; Outlays 1.7; Individual Income Taxes 3.9 Deficit Fiscal Year 2011 $1,300 billion Deficit Fiscal Year 2012 Oct-Jul $973,172 million CBO Forecast 2012FY Deficit $1.171 trillion Blog 9/16/2012
CBO Budget and Economic Outlook	2012 Deficit $1128 B 7.3% GDP Debt 11,318 B 72.8% GDP 2013 Deficit $614 B, Debt 12,064 B 76.1% GDP Blog 8/26/12
Commercial Banks Assets and Liabilities	Aug 2012 SAAR ∆%: Securities 2.8 Loans 2.9 Cash Assets 30.3 Deposits 5.4 Blog 9/30/12
Flow of Funds	IIQ2012 ∆ since 2007 Assets -$4193B Real estate -$4451B Financial $-157 MM Net Worth -$3389B Blog 9/23/12
Current Account Balance of Payments	IIQ2012 -$1285 B %GDP 3.0 Blog 9/23/12

Links to blog comments in Table USA: 9/30/12 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html

9/23/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-creation-of.html

9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html

9/9/12 http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or_10.html

9/2/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html

8/26/12 http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with_26.html

8/5/12 http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html

Motor vehicle sales and production in the US have been in long-term structural change. Table VA-1 provides the data on new motor vehicle sales and domestic car production in the US from 1990 to 2010. New motor vehicle sales grew from 14,137 thousand in 1990 to the peak of 17,806 thousand in 2000 or 29.5 percent. In that same period, domestic car production fell from 6,231 thousand in 1990 to 5,542 thousand in 2000 or -11.1 percent. New motor vehicle sales fell from 17,445 thousand in 2005 to 11,772 in 2010 or 32.5 percent while domestic car production fell from 4,321 thousand in 2005 to 2,840 thousand in 2010 or 34.3 percent. In Jan-Sep 2012, light vehicle sales accumulated to 10,899,949, which is higher by 14.5 percent relative to 9,518,172 a year earlier (http://motorintelligence.com/m_frameset.html). The seasonally-adjusted annual rate of light vehicle sales in the US reached 14.94 million in Sep 2012, higher than 14.52 million in Aug 2012 and higher than 13.14 million in Sep 2011 (http://motorintelligence.com/m_frameset.html).

Table VA-1, US, New Motor Vehicle Sales and Car Production, Thousand Units

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

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

Manufacturers’ shipments decreased 0.3 percent in Aug 2012 after increasing 1.9 percent in Jul 2012 and falling 1.2 percent in Jun 2012. New orders fell 5.8 percent in Aug following increase by 2.6 percent in Jul, as shown in Table VA-2. 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 increases of 7.6 percent in May, revised increase of 32.5 percent in Jun, increase of 51.1 percent and decline of 101.8 percent in Aug. New orders excluding transportation equipment increased 0.7 percent in Aug. Capital goods new orders, indicating investment, decreased 26.3 percent in Aug after increasing 1.8 percent in Jul and 8.1 percent in Jun. New orders of nondefense capital goods decreased 24.4 percent in Aug. Excluding more volatile aircraft, capital goods orders increased 1.1 percent in Aug.

Table VA-2, US, Value of Manufacturers’ Shipments and New Orders, SA, Month ∆%

	Aug 2012 ∆%	Jul 2012 ∆%	Jun 2012 ∆%
Total
S	-0.3	1.9	-1.2
NO	-5.2	2.6	-0.5
Excluding Transport
S	1.0	0.9	-1.3
NO	0.7	0.7	-2.2
Excluding Defense
S	-0.3	2.1	-1.3
NO	-4.6	3.2	-1.6
Durable Goods
S	-2.9	1.8	0.0
NO	-13.2	3.3	1.6
Machinery
S	-0.3	-1.4	4.2
NO	-5.0	-6.1	-2.5
Computers & Electronic Products
S	-3.8	-2.0	0.2
NO	-3.4	-2.1	-4.9
Computers
S	-4.3	-13.0	-10.4
NO	11.0	-21.5	-13.0
Transport Equipment
S	-7.9	8.0	-1.0
NO	-34.9	13.2	10.8
Automobiles
S	-3.1	-3.3	-1.5
Motor Vehicles
S	-15.5	20.1	-1.6
NO	-14.9	20.5	-1.8
Nondefense Aircraft
S	-6.4	6.3	-4.9
NO	-101.8	51.1	32.5
Capital Goods
S	-1.6	-0.8	0.9
NO	-26.3	1.8	8.1
Nondefense Capital Goods
S	-1.6	-0.3	0.8
NO	-24.4	4.4	2.4
Capital Goods ex Aircraft
S	-0.7	-1.6	1.4
NO	1.1	-5.6	-2.7
Nondurable Goods
S	2.2	1.9	-2.3
NO	2.2	1.9	-2.3

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

Source: US Census Bureau http://www.census.gov/manufacturing/m3/

Chart VA-1 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.

Chart VA-1, US, Manufacturers’ New Orders 2010-2011 Seasonally Adjusted, Month ∆%

Source: US Census Bureau

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

Chart VA-2 of the US Bureau of the Census provides total value of manufacturers’ new orders, seasonally adjusted, from 1992 to 2012. Seasonal adjustment reduces sharp oscillations. The series dropped nearly vertically during the global recession but rose along a path even steeper than in the high-growth period before the recession. The final segment suggests deceleration but similar segments are found in earlier periods followed with continuing growth interrupted by the 5.2 percent drop in Aug.

Chart VA-2, US, Value of Total Manufacturers’ New Orders, Seasonally Adjusted, 1992-2012

Source: US Census Bureau

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

Additional perspective on manufacturers’ shipments and new orders is provided by Table VA-3. Values are cumulative millions of dollars in Jan-Aug 2012 not seasonally adjusted (NSA). Shipments of all manufacturing industries in Jan-Aug 2012 total $3809.9 billion and new orders total $3758.8 billion, growing respectively by 4.9 percent and 3.7 percent relative to the same period in 2011. Excluding transportation equipment, shipments grew 4.0 percent and new orders increased 3.0 percent. Excluding defense, shipments grew 5.2 percent and new orders grew 4.2 percent. Durable goods shipments reached $1784.9 billion in Jan-Aug 2012, or 46.9 percent of the total, growing by 8.2 percent, and new orders $1733.8 billion, or 46.1 percent of the total, growing by 5.5 percent. Important information in Table VA-3 is the large share of nondurable goods: with shipments of $2024.9 billion or 53.2 percent of the total, growing by 2.2 percent. Capital goods have relatively high value of $617.7 billion for shipments, growing 6.5 percent, and new orders $627.9 billion, growing 1.0 percent, which could be an indicator of future investment. Excluding aircraft, capital goods shipments reached $505.6 billion, growing by 6.7 percent, and new orders $507.7 billion, growing 2.3 percent. There is no suggestion in these data that the US economy is close to recession but manufacturing accounts for 11.0 percent of US national income in IQ2012 (see Table I-11).

Table VA-3, US, Value of Manufacturers’ Shipments and New Orders, NSA, Millions of Dollars

Jan-Aug 2012	Shipments	∆% 2012/ 2011	New Orders	∆% 2012/ 2011
Total	3,809,902	4.9	3,758,783	3.7
Excluding Transport	3,305,502	4.0	3,250,589	3.0
Excluding Defense	3,725,699	5.2	3,676,447	4.2
Durable Goods	1,784,966	8.2	1,733,847	5.5
Machinery	258,013	10.5	252,452	-2.0
Computers & Electronic Products	221,437	-0.3	170,602	2.5
Computers	8,941	-22.3	8,948	-21.5
Transport Equipment	504,700	11.5	508,194	8.2
Automobiles	69,242	26.1
Motor Vehicles	150,953	5.6	149,632	5.1
Nondefense Aircraft	72,216	22.6	82,919	11.9
Capital Goods	617,696	6.5	627,959	1.0
Nondefense Capital Goods	552,472	8.7	563,933	3.9
Capital Goods ex Aircraft	505,594	6.7	507,725	2.3
Nondurable Goods	2,024,936	2.2	2,024,936	2.2
Food Products	476,887	3.1
Petroleum Refineries	545,793	4.1
Chemical Products	511,594	-1.1

Note: Transport: transportation Source: US Census Bureau http://www.census.gov/manufacturing/m3/

Chart VA-3 of the US Census Bureau provides value of manufacturer’s new orders not seasonally adjusted from Jan 1992 to Jul 2012. Fluctuations are evident that are smoothed by seasonal adjustment in the earlier Chart VA-2. The series drops nearly vertically during the global contraction and then resumes growth in a steep upward trend, flattening recently.

Chart VA-3, US, Value of Total Manufacturers’ New Orders, Not Seasonally Adjusted, 1992-2012

Source: US Census Bureau

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

Construction spending at seasonally-adjusted annualized rate (SAAR) reached $837.1 billion in Aug, which was lower by 0.6 percent than in the prior month of Jul, as shown in Table VA-4. Residential investment, with $279.9 billion accounting for 33.4 percent of total value of construction, increased 0.9 percent in Aug and nonresidential investment, with $557.2 billion accounting for 66.6 percent of the total, fell 1.3. Public construction fell 0.8 percent while private construction fell 0.5 percent. Data in Table VA-4 show that nonresidential construction at $557.2 billion is much higher in value than residential construction at $279.9 billion while total private construction at $562.2 billion is much higher than public construction at $274.9 billion, all in SAAR. Residential and nonresidential construction contributed positively to growth of GDP in the US in IQ2012 and IIQ2012 (http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html).

Table VA-4, US, Value of Construction Put in Place in the United States Seasonally Adjusted Annual Rate Billion Dollars and Month and 12-Month ∆%

	Aug 2012 SAAR $ Millions	Month ∆%	12-Month ∆%
Total	837,089	-0.6	6.5
Residential	279,865	0.9	16.1
Nonresidential	557,224	-1.3	2.2
Total Private	562,201	-0.5	12.1
Private Residential	273,470	0.9	17.8
New Single Family	131,173	2.8	20.8
New Multi-Family	23,072	3.7	44.8
Private Nonresidential	288,731	-1.7	7.2
Total Public	274,888	-0.8	-3.5
Public Residential	6,395	1.2	-27.7
Public Nonresidential	268,493	-0.9	-2.7

SAAR: seasonally adjusted annual rate; B: billions

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

Further information on construction spending is provided in Table VA-5. The original monthly estimates not-seasonally adjusted (NSA) and their 12-month rates of change are provided in the first two columns while the SAAR and their monthly changes are provided in the final two columns. There has been improvement in construction in the US in 2011 but another bump in early 2012. On a monthly basis, construction fell three consecutive months from Dec 2010 to Feb 2011, increasing in ten of the eleven months from Mar 2011 to Jan 2012, with sole decline of 3.0 percent in Jul 2011. Improvement was interrupted in 2012 with decline of 0.5 percent in Feb 2012, further decline of 0.3 percent in Mar and recovery of 0.9 percent in Apr, 1.7 percent in May and 0.8 percent in Jun but declining 0.4 percent in Jul 2012 and 0.6 percent in Aug 2012. The 12 months rates of change improved from minus 8.6 percent in Apr 2011 to the first positive 12-month percentage change of 0.7 percent in Nov and further improvement with 10.9 percent in Jul 2012 and 6.5 percent in Aug 2012 after consecutive monthly declines in Jul and Aug 2012.

Table VA-5, US, Value and Percentage Change in Value of Construction Put in Place, Dollars Millions and ∆%

	Value NSA Month $ Millions	12-Month ∆% NSA	Value SAAR $ Millions	Month ∆% SA*
Aug 2012	79,662	6.5	837,089	-0.6
Jul	77,588	10.9	842,019	-0.4
Jun	76,491	7.3	845,072	0.8
May	71,635	8.8	838,778	1.7
Apr	66,201	9.1	825,133	0.9
Mar	60,939	8.6	817,842	-0.3
Feb	56,108	11.8	820,677	-0.5
Jan	56,535	10.9	824,687	0.5
Dec 2011	62,825	4.4	820,614	2.1
Nov	68,476	0.7	804,046	1.0
Oct	73,282	-0.3	795,733	0.7
Sep	73,515	-1.7	790,294	0.5
Aug	75,101	-1.0	786,308	3.0
Jul	69,929	-4.3	763,468	-3.0
Jun	71,297	-3.7	786,784	1.4
May	65,845	-4.4	775,837	2.7
Apr	60,682	-8.6	755,420	0.3
Mar	56,130	-6.8	753,433	1.0
Feb	50,184	-7.1	746,056	-0.9
Jan	50,971	-8.3	752,638	-3.5
Dec 2010	60,202	-6.1	779,895	-2.3

SAAR: Seasonally-adjusted Annual Rate

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

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

The strong contraction of the value of construction in the US is revealed by Table VA-6. Construction spending in Jan-Aug 2012, not seasonally adjusted, reached $545.2 billion, which is higher by 9.0 percent than $500.1 billion in the same period in 2011. The depth of the contraction is shown by the decline of construction spending from $794.0 billion in Jan-Aug 2006 to only $545.2 billion in the same period in 2012, or decline by minus 31.3 percent. The comparable decline from Jan-Aug 2005 to Jan-Aug 2012 is minus 26.3 percent. Construction spending in Jan-Aug 2012 fell by 7.8 percent relative to the same period in 2003. Construction spending is lower by 10.3 percent in Jan-Aug 2012 relative to the same period in 2009. Construction has been weaker than the economy as a whole.

Table VA-6, US, Value of Construction Put in Place in the United States, Not Seasonally Adjusted, $ Millions and ∆%

Jan-Aug 2012 $ MM	545,160
Jan-Aug 2011 $ MM	500,139
∆% to 2012	9.0
Jan-Aug 2010 $ MM	527,344
∆% to 2012	3.4
Jan-Aug 2009 $MM	607,520
∆% to 2012	-10.3
Jan-Aug 2006 $ MM	794,039
∆% to 2012	-31.3
Jan-Aug 2005 $ MM	739,877
∆% to 2012	-26.3
Jan-Aug 2003 $ MM	591,213
∆% to 2012	-7.8

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

Chart VA-4 of the US Census Bureau provides value of construction spending in the US not seasonally adjusted from Jan 2002 to Aug 2012. There are wide oscillations requiring seasonal adjustment to compare adjacent data. There was sharp decline during the global recession followed in recent periods by a stationary series that may be moving upward again.

Chart VA-4, Value of Construction Spending not Seasonally Adjusted, Millions of Dollars, 2002-2012

Source: US Census Bureau

http://www.census.gov/construction/c30/c30index.html

Monthly construction spending in the US in the seven months Jan-Jul not seasonally adjusted is shown in Table VA- for the years between 2002 and 2012. The values of $79.7 billion in Aug 2012, $75.1 billion in Aug 2011 and $75.8 billion in Aug 2010 are lower than $79.5 billion in Aug 2002 with only marginally higher value for Aug 2012. Construction in Aug 2012 fell by 27.8 percent from the peak of $110.4 billion Aug 2006 to $79.7 billion in Aug 2012. The data are not adjusted for inflation or changes in quality.

Table VA-7, US, Value of Construction Spending Not Seasonally Adjusted Annual Rate Millions of Dollars

Year	Feb	Mar	Apr	May	Jun	Jul	Aug
2002	58,588	63,782	69,504	73,384	77,182	78,863	79,460
2003	58,526	64,506	69,638	74,473	80,377	82,971	85,191
2004	64,138	73,238	78,354	83,736	89,932	93,614	96,164
2005	72,048	81,345	85,485	92,959	99,632	103,158	106,706
2006	81,478	92,855	95,324	102,495	107,607	108,423	110,434
2007	79,177	88,905	93,375	100,534	105,399	107,090	110,430
2008	77,227	82,779	87,743	92,781	96,338	98,483	99,786
2009	66,296	71,624	75,187	76,808	81,429	83,379	84,368
2010	54,019	60,228	66,422	68,906	74,035	73,077	75,834
2011	50,184	56,130	60,682	65,845	71,297	69,929	75,101
2012	56,108	60,939	66,201	71,635	76,491	77,588	79,662

Source: US Census Bureau

http://www.census.gov/construction/c30/c30index.html

Chart VA-8 of the US Census Bureau shows SAARs of construction spending for the US since 1993. Construction spending surged in nearly vertical slope after the stimulus of 2003 combining near zero interest rates and subsequent slow adjustment in 17 doses of increases by 25 basis points between Jun 2004 and Jun 2006 together with other housing subsidies. Construction spending collapsed after subprime mortgages defaulted with the fed funds rate increasing from 1.00 percent in Jun 2004 to 5.25 percent in Jun 2006. Subprime mortgages were programmed for refinancing in two years after increases in homeowner equity in the assumption that fed funds rates would remain low forever or increase in small increments (Gorton 2009EFM see http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Price declines of houses or even uncertainty prevented refinancing of subprime mortgages that defaulted, causing the financial crisis that eventually triggered the global recession. Chart VA-8 shows a trend of increase in the final segment but it is difficult to assess if it will be sustained.

Chart VA-5, US, Construction Expenditures SAAR 1993-2012

Source: US Census Bureau

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

Construction spending at SAARs in the five months Apr to Jul is shown in Table VA-8 for the years between 2002 and 2012. There is a peak in 2005 to 2006 with subsequent collapse of SAARs and rebound in 2012.

Table VA-8, US, Value of Construction Spending SAAR Millions of Dollars

Year	May	Jun	Jul	Aug
2002	850,935	846,777	847,129	839,008
2003	866,814	880,865	891,264	901,839
2004	974,158	983,072	1,006,119	1,013,724
2005	1,078,586	1,089,505	1,109,691	1,119,782
2006	1,180,059	1,172,932	1,165,093	1,158,193
2007	1,168,195	1,166,892	1,154,018	1,160,593
2008	1,091,008	1,074,637	1,066,919	1,057,459
2009	911,241	901,987	899,601	889,643
2010	816,318	816,302	788,524	791,653
2011	775,837	786,784	763,468	786,308
2012	838,778	845,072	842,019	837,089

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

Chart VA-6 of the US Census Bureau provides SAARs of value of construction from Jan 2002 to Aug 2012. There is clear acceleration after 2003 when fed funds rates were fixed in Jun 1.0 percent until Jun 2004. Construction peaked in 2005-2006, stabilizing in 2007 at a lower level and then collapsed in a nearly vertical drop until 2011 with increases into 2012.

Chart VA-6, US, Construction Expenditures SAAR 2002-2012

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

Annual available data for the value of construction put in place in the US between 1993 and 2011 are provided in Table VA-9. Data from 1993 to 2001 are available for public and private construction with breakdown in residential and nonresidential only for private construction. Data beginning in 2002 provide aggregate residential and nonresidential values. Total construction value put in place in the US increased 60.3 percent between 1993 and 2011 but most of the growth, 65.3 percent, was concentrated in 1993 to 2000 with decline of 3.1 percent between 2000 and 2011. Total value of construction fell 8.2 percent between 2002 and 2011 with value of nonresidential construction increasing 19.4 percent while value of residential construction fell 38.9 percent. Value of total construction fell 31.7 percent between 2005 and 2011, with value of residential construction declining 60.2 percent while value of nonresidential construction rose 9.4 percent. Value of total construction fell 33.3 percent between 2006 and 2011, with value of nonresidential construction decreasing 2.7 percent while value of residential construction fell 60.4 percent. In 2002, nonresidential construction had a share of 52.6 percent in total construction while the share of residential construction was 47.4 percent. In 2011, the share of nonresidential construction in total value rose to 68.4 percent while that of residential construction fell to 31.6 percent.

Table VA-9, Annual Value of Construction Put in Place 1993-2011, Millions of Dollars and ∆%

	Total	Private Nonresidential	Private Residential
1993	485,548	150,006	208,180
1994	531,892	160,438	241,033
1995	548,666	180,534	228,121
1996	599,693	195,523	257,495
1997	631,853	213,720	264,696
1998	688,515	237,394	296,343
1999	744,551	249,167	326,302
2000	802,756	275,293	346,138
2001	840,249	273,922	364,414
	Total	Total Nonresidential	Total Private Residential
2002	847,874	445,914	401,960
2003	891,497	440,246	451,251
2004	991,356	452,948	538,408
2005	1,140,136	486,629	617,507
2006	1,167,222	547,408	619,814
2007	1,152,351	651,883	500,468
2008	1,067,564	709,818	357,746
2009	903,201	649,273	253,928
2010	804,561	555,449	249,112
2011	778,238	532,552	245,686
∆% 1993-2011	60.3
∆% 1993-2000	65.3
∆% 2000-2011	-3.1
∆% 2002-2011	-8.2	19.4	-38.9
∆% 2005-2011	-31.7	9.4	-60.2
∆% 2006-2011	-33.3	-2.7	-60.4

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

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 Aug 2012, revolving credit was $855 billion, or 31.4 percent of total consumer credit of $2726 billion, and non-revolving credit was $1871 billion, or 68.6 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 2009. Rates were still negative in 2010 with decline of 1.2 percent in annual data and sharp decline of 7.4 percent in revolving credit. Consumer credit increased 6.0 percent in Jun 2012 with decrease of revolving credit at 4.6 percent and growth of non-revolving credit at 10.9 percent. Consumer credit fell at 1.1 percent in Jul 2012 with sharp decline of revolving credit at 6.7 percent and meager increase of non-revolving credit at 1.5 percent. Consumer credit rebounded in Aug 2012 with increase of total consumer credit at 8.0 percent, revolving credit at 5.9 percent and non-revolving credit at 9.0 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
Aug	8.0	5.9	9.0	2726	855	1871
Jul	-1.1	-6.7	1.5	2708	851	1857
Jun	6.0	-4.6	10.9	2710	856	1854
IIQ	6.5	1.3	8.9	2710	856	1854
IQ	5.7	0.6	8.1	2669	853	1816
2011
IVQ	5.9	1.8	7.8	2632	851	1780
IIIQ	1.9	-1.2	3.4	2594	848	1746
IIQ	3.1	0.9	4.1	2582	850	1731
2011	3.4	0.2	5.0	2632	851	1780
2010	-1.2	-7.4	2.5	2545	850	1695
2009	-4.5	-8.8	-1.8	2439	922	1517
2008	0.8	0.2	1.2	2549	1010	1539
2007	5.9	8.5	4.3	2529	1008	1521

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-7 of the Board of Governors of the Federal Reserve System total consumer credit outstanding in millions of dollars measured in the right axis and the finance rate on consumer installment loans at commercial banks, new autos 48 month loans, not seasonally adjusted. There was sharp decline of total consumer loans outstanding during the global recession followed by strong recovery. There is long-term decline of the financing rate.

Chart VA-7, US, Total Consumer Credit Owned and Securitized SA and Financing Rate on Consumer Installment Loans at Commercial Banks NSA, Millions of Dollars and Percent, 1972-2008

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

Chart VA-8 of the Board of Governors of the Federal Reserve System provides percentage changes of total consumer credit outstanding in the US and the financing rate on consumer installment loans at commercial banks, new autos 48 month loan, since 1972. The shaded bars are the cyclical contraction dates of the National Bureau of Economic Research (http://www.nber.org/cycles/cyclesmain.html). 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.

Chart VA-8, US, Percent Change of Total Consumer Credit, Seasonally Adjusted at an Annual Rate and Finance Rate on Consumer Installment Loans at Commercial Banks NSA, Feb 1972-Jun 2012

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

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

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

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

Fiscal Year 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

http://www.boj.or.jp/en/mopo/outlook/index.htm/

Private-sector activity in Japan contracted at a moderate rate with the Markit Composite Output PMI^™ Index decreasing from 48.6 in Aug to 48.4 in Sep, which is still below 50 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10143). Paul Smith, economist at Markit and author of the report, finds that manufacturing and services data suggest stagnation of GDP in Japan in IIIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10143). The Markit Business Activity Index of Services decreased from 49.3 in Aug to 48.9 in Sep, also showing contraction at slower pace, also declining in IIIQ2012 to the lowest level in a year (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10143). The Markit/JMMA Purchasing Managers’ Index^™ (PMI™), seasonally adjusted, increased from 47.7 in Aug to 48.0 in Aug, for more moderate contraction than in Aug, which registered the weakest private-sector manufacturing activity in 16 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10087). Paul Smith, economist at Markit and author of the report, finds the data consistent with quarterly contraction of industrial production with the significant weakness in export demand because of the slowing global economy and strength of the yen (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10087).Table JPY provides the country data table for Japan.

Table JPY, Japan, Economic Indicators

Historical GDP and CPI	1981-2010 Real GDP Growth and CPI Inflation 1981-2010 Blog 8/9/11 Table 26
Corporate Goods Prices	Aug ∆% +0.3 12 months ∆% minus 1.8 Blog 9/16/12
Consumer Price Index	Aug NSA ∆% 0.1; Aug 12 months NSA ∆% -0.4 Blog 9/30/12
Real GDP Growth	IIQ2012 ∆%: 0.3 on IQ2012; IIQ2012 SAAR 0.7; ∆% from quarter a year earlier: 3.2 % Blog 9/16/12
Employment Report	Aug Unemployed 2.77 million Change in unemployed since last year: minus 180 thousand Unemployment rate: 4.2% Blog 9/30/12
All Industry Indices	Jul month SA ∆% -0.6 12-month NSA ∆% 0.5 Blog 9/23/12
Industrial Production	Aug SA month ∆%: -1.3 12-month NSA ∆% -4.3 Blog 9/30/12
Machine Orders	Total Jul ∆% -2.6 Private ∆%: 4.3 Jul ∆% Excluding Volatile Orders 4.6 Blog 9/16/12
Tertiary Index	Jul month SA ∆% -0.8 Jul 12 months NSA ∆% 0.8 Blog 9/16/12
Wholesale and Retail Sales	Aug 12 months: Total ∆%: -2.7 Wholesale ∆%: -4.3 Retail ∆%: 1.8 Blog 9/30/12
Family Income and Expenditure Survey	Aug 12-month ∆% total nominal consumption 1.4, real 1.8 Blog 9/30/12
Trade Balance	Exports Aug 12 months ∆%: -5.8 Imports Aug 12 months ∆% -5.4 Blog 9/23/12

Links to blog comments in Table JPY:

9/30/12 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html

9/23/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-creation-of.html

9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html

8/9/11 http://cmpassocregulationblog.blogspot.com/2011/08/turbulence-in-world-financial-markets.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/t20120904_402833237.htm). Table CIPMNM provides this index and components from Jan to Aug 2012. The index fell from 58.0 in Mar to 55.2 in May but climbed to 56.7 in Jun, which is lower than 58.0 in Mar and 57.3 in Feb but higher than in any other of the months in 2012. In Jul 2012 the index fell marginally to 55.6 and then to 56.3 in Aug.

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

2012	Total Index	New Orders	Interm. Input Prices	Subs Prices	Exp
Aug	56.3	52.7	57.6	51.2	63.2
Jul	55.6	53.2	49.7	48.7	63.9
Jun	56.7	53.7	52.1	48.6	65.5
May	55.2	52.5	53.6	48.5	65.4
Apr	56.1	52.7	57.9	50.3	66.1
Mar	58.0	53.5	60.2	52.0	66.6
Feb	57.3	52.7	59.0	51.2	63.8
Jan	55.7	52.2	58.2	51.1	65.3

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

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/pressrelease/t20120904_402833237.htm

Chart CIPMNM provides China’s nonmanufacturing purchasing managers’ index from Aug 2011 to Aug 2012. There was slowing of the general index in Apr 2012 after the increase in Jan-Mar 2012 and further decline to 55.2 in May 2012 but increase to 56.7 in Jun 2012 with marginal decline to 55.6 in Jul 2012 and 56.3 in Aug 2012.

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

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/pressrelease/t20120904_402833237.htm

Table CIPMNMFG provides the index of purchasing managers of manufacturing seasonally adjusted of the National Bureau of Statistics of China. The general index (IPM) rose from 50.5 in Jan 2012 to 53.3 in Apr and declined to 50.1 in Jul and to the contraction zone at 49.2 in Aug. The index of new orders (NOI) fell from 54.5 in Apr 2012 to 49.0 in Jul and 48.7 in Aug. The index of employment also fell from 51.0 in Apr to 49.1 in Aug.

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

2012	IPM	PI	NOI	INV	EMP	SDEL
Aug	49.2	50.9	48.7	45.1	49.1	50.0
Jul	50.1	51.8	49.0	48.5	49.5	49.0
Jun	50.2	52.0	49.2	48.2	49.7	49.1
May	50.4	52.9	49.8	45.1	50.5	49.0
Apr	53.3	57.2	54.5	48.5	51.0	49.6
Mar	53.1	55.2	55.1	49.5	51.0	48.9
Feb	51.0	53.8	51.0	48.8	49.5	50.3
Jan	50.5	53.6	50.4	49.7	47.1	49.7

IPM: Index of Purchasing Managers; PI: Production Index; NOI: New Orders Index; EMP: Employed Person Index; SDEL: Supplier Delivery Time Index

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/pressrelease/t20120904_402833158.htm

China estimates the manufacturing index of purchasing managers on the basis of a sample of 820 enterprises (http://www.stats.gov.cn/english/pressrelease/t20120904_402833158.htm). Chart CIPMM provides the index from Aug 2011 to Aug 2012. There is deceleration from 51.2 in Sep 2011 to marginal contraction at 49.0 in Nov 2011. Manufacturing activity recovered to 53.3 in Apr 2012 but then declined to 50.4 in May 2012 and 50.1 in Jun 2012, which is the lowest in a year with exception of contraction at 49.0 in Nov 2011. The index then fell to contraction at 49.2 in Aug 2012.

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

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/pressrelease/t20120904_402833158.htm

The HSBC Flash China Manufacturing Purchasing Managers’ Index^™ (PMI^™) compiled by Markit (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10082 ) is mixed. The overall Flash China Manufacturing PMI^™ increased marginally from 47.6 in Aug to 47.8 in Sep for a two-month high while the Flash China Manufacturing Output Index decreased from 48.2 in Aug to 47.0 in Sep, at a ten-month low and in contraction territory below 50.0. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that new easing policies implemented in recent weeks should help in improving the economy beginning in IVQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10082).The HSBC China Services PMI^™, compiled by Markit, shows improving business activity in China with the HSBC Composite Output, combining manufacturing and services, increasing from 50.6 in Jun to 51.9 in Jul with both manufacturing and services growing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9920). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds stabilizing economy in China, suggesting that with lower inflation there is room for further stimulus (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9920). The HSBC Business Activity index increased from 52.3 in Jun to 53.1 with improving activity in services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9920). The HSBC Purchasing Managers’ Index^™ (PMI^™), compiled by Markit, increased to 47.9 in Sep from 47.6 in Aug, indicating moderate reduction of activity and the eleventh monthly deterioration of the index (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10116). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that accelerating contraction of export orders with pressure on employment suggest that China still requires further easing of policy (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10116).

Wang Xiaotian, writing on China Daily, on “China cuts its reserve ratio again,” published by Xinhuanet on May 13, 2012 (http://news.xinhuanet.com/english/china/2012-05/13/c_131584252.htm), informs that the People’s Bank of China (PBC) (http://www.pbc.gov.cn/publish/english/963/index.html) reduced the reserve requirement imposed on Chinese lenders by 50 basis points with the objective of injecting liquidity to strengthen the economy. This is the second such reduction of reserve requirements in 2012. The reduction is estimated to release CNY 400 in China’s money market. The reserve requirement will be 20 percent for larger banks and 16.5 percent for smaller banks. The measures are intended to strengthen the economy. Xinhuanet, writing on “China announces surprise rate cuts amid economic downshift,” on Jun 5, 2012 (http://news.xinhuanet.com/english/china/2012-07/05/c_131697843.htm), informs that the central bank of China People’s Bank of China reduced the one year deposit rate by 25 basis points and the one year lending rate by 31 basis points effective Jun 6, 2012. The People’s Bank of China posts the new rates (http://www.pbc.gov.cn/publish/english/955/2012/20120608171005950734495/20120608171005950734495_.html). Table CNY provides the country data table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry	Aug 12-month ∆%: minus 3.5 Aug month ∆%: minus 0.5 Blog 9/16/12
Consumer Price Index	Aug month ∆%: 0.6 Aug 12 months ∆%: 2.0 Blog 9/16/12
Value Added of Industry	Aug month ∆%: 0.69 Jan-Aug 2012/Jan-Aug 2011 ∆%: 10.1 Blog 9/16/12
GDP Growth Rate	Year IIQ2012 ∆%: 7.6 Quarter IIQ2012 ∆%: 1.8 Blog 7/15/12
Investment in Fixed Assets	Aug month ∆%: 1.33 Total Jan-Aug 2012 ∆%: 20.2 Real estate development: 15.6 Blog 9/16/12
Retail Sales	Aug month ∆%: 1.28 Aug 12 month ∆%: 13.2 Jan-Aug ∆%: 14.1 Blog 9/16/12
Trade Balance	Aug balance $26.66 billion Exports ∆% 2.7 Imports ∆% -2.6 Cumulative Aug: $120.76 billion Blog 9/16/12

Links to blog comments in Table CNY:

9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html

7/15/12 http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-hiring-ten-million_15.html

VD Euro Area. Table VD-EUR provides yearly growth rates of the combined GDP of the members of the European Monetary Union (EMU) or euro area since 1996. Growth was very strong at 3.2 percent in 2006 and 3.0 percent in 2007. The global recession had strong impact with growth of only 0.4 percent in 2008 and decline of 4.4 percent in 2009. Recovery was at lower growth rates of 2.0 percent in 2010 and 1.4 percent in 2011. EUROSTAT forecasts growth of GDP of the euro area of minus 0.3 percent in 2012 but growth of 1.0 percent in 2013.

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

Year	HICP ∆%	Unemployment %	GDP ∆%
1999	1.2	9.6	2.9
2000	2.2	8.7	3.8
2001	2.4	8.1	2.0
2002	2.3	8.5	0.9
2003	2.1	9.0	0.7
2004	2.2	9.3	2.2
2005	2.2	9.2	1.7
2006	2.2	8.5	3.2
2007	2.1	7.6	3.0
2008	3.3	7.6	0.4
2009	0.3	9.6	-4.4
2010	1.6	10.1	2.0
2011	2.7	10.1	1.4
2012*			-0.3
2013*			1.0

*EUROSTAT forecast 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, decreased from 46.3 in Aug to 46.1 in Sep, which is the eighth consecutive contraction; the index average of 46.3 in IIIQ2012 is lower than 46.4 in IIQ2012 and the lowest reading since IIQ2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10168). Chris Williamson, Chief Economist at Markit, finds that the data are consistent with likely decline of GDP at a higher rate in IIIQ2012 with the euro area falling again into recession (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10168). The Markit Eurozone Services Business Activity Index declined from 47.2 in Aug to 46.1 in Sep, which is the lowest reading since Jul 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10168). The Markit Eurozone Manufacturing PMI^® rose to 46.1 in Sep from 45.1 in Aug (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10110). The average PMI for IIIQ2012 was 45.1, which was the weakest reading since IIQ2009 and below 45.4 in IIQ2012. New export orders declined in Sep for a fifteenth consecutive month, with decline for all countries in the index, with the sharpest contractions in Greece, Austria and Germany. Chris Williamson, Chief Economist at Markit, finds that the index suggests manufacturing in the euro area declined at a quarterly rate of possibly as high as 1 percent, exerting pressure on GDP and employment with the euro area falling into recession in IIIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10110). Table EUR provides the regional data table for the euro area.

Table EUR, Euro Area Economic Indicators

GDP	IIQ2012 ∆% -0.2; IIQ2012/IIQ2011 ∆% -0.4 Blog 10/7/12
Unemployment	Aug 2012: 11.4% unemployment rate Aug 2012: 18.196 million unemployed Blog 10/7/12
HICP	Aug month ∆%: 0.4 12 months Jul ∆%: 2.6 Blog 9/16/12
Producer Prices	Euro Zone industrial producer prices Aug ∆%: 0.9 Aug 12-month ∆%: 2.7 Blog 10/7/12
Industrial Production	Jul month ∆%: 0.6; Jul 12 months ∆%: -2.3 Blog 9/16/12
Retail Sales	Aug month ∆%: 0.1 Aug 12 months ∆%: -1.3 Blog 10/7/12
Confidence and Economic Sentiment Indicator	Sentiment 85.0 Sep 2012 Confidence minus 25.9 Sep 2012 Blog 9/30/12
Trade	Jan-Jul 2012/Jan-Jul 2011 Exports ∆%: 8.8 Imports ∆%: 2.5 Jul 2012 12-month Exports ∆% 11.2 Imports ∆% 2.1 Blog 9/23/12

Links to blog comments in Table EUR:

9/30/12 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html

9/23/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-creation-of.html

9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.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 3.2 percent in 2006 and 3.0 percent in 2007. The global recession had strong impact with growth of only 0.4 percent in 2008 and decline of 4.4 percent in 2009. Recovery was at lower growth rates of 2.0 percent in 2010 and 1.4 percent in 2011. EUROSTAT forecasts growth of GDP of the euro area of minus 0.3 percent in 2012 but growth of 1.0 percent in 2013.

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

Year	∆%
2013 EUROSTAT Forecast	1.0
2012 EUROSTAT Forecast	-0.3
2011	1.4
2010	2.0
2009	-4.4
2008	0.4
2007	3.0
2006	3.2
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/portal/page/portal/statistics/search_database

Table VD-2 provides percentage changes of euro area real GDP in a quarter relative to the prior quarter. Real GDP fell 0.3 percent in IVQ2011, remained unchanged in IQ2012 and fell 0.2 percent in IIQ2012. The global recession manifested in the euro area in five consecutive quarterly declines from IIQ2008 to IIQ2009. The strongest impact was contraction of 2.8 percent in IQ2009. Recovery began in IIIQ2009 with cumulative growth of 3.7 percent to IQ2011 or at the annual equivalent rate of 2.1 percent. Growth was much more vigorous from IVQ2003 to IQ2008.

Table VD-2, Euro Area, Real GDP, Percentage Change from Prior Quarter, ∆%

	IQ	IIQ	IIIQ	IVQ
2012	0.0	-0.2
2011	0.6	0.2	0.1	-0.3
2010	0.5	1.0	0.4	0.3
2009	-2.8	-0.3	0.4	0.4
2008	0.5	-0.4	-0.6	-1.7
2007	0.8	0.5	0.6	0.4
2006	0.9	1.1	0.7	1.0
2005	0.2	0.7	0.6	0.6
2004	0.5	0.5	0.4	0.3
2003	0.0	0.1	0.5	0.7
2002	0.2	0.6	0.3	0.0
2001	0.9	0.1	0.1	0.2
2000	1.3	0.9	0.4	0.6

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

Table VD-3 provides percentage change in real GDP in the euro area in a quarter relative to the same quarter a year earlier. Growth rates were quite strong from 2004 to 2007. There were five consecutive quarters of sharp declines in GDP in a quarter relative to the same quarter a year earlier with contractions of 5.4 percent in IQ2009, 5.3 percent in IIQ2009 and 4.4 percent in IIIQ2009. Growth rates decline in magnitude with 1.3 percent in IIIQ2011, 0.6 percent in IVQ211 and 0.0 percent in IQ2012 with contraction of 0.4 percent in IIQ2012.

Table VD-3, Euro Area, Real GDP Percentage Change in a Quarter Relative to Same Quarter a Year Earlier, ∆%

	IQ	IIQ	IIIQ	IV
2012	0.0	-0.4
2011	2.4	1.6	1.3	0.6
2010	1.0	2.3	2.3	2.2
2009	-5.4	-5.3	-4.4	-2.3
2008	2.0	1.2	0.0	-2.1
2007	3.7	3.0	3.0	2.3
2006	3.3	3.4	3.8	3.7
2005	1.6	1.9	2.2	3.0
2004	2.2	2.2	1.8	1.5
2003	0.9	0.4	0.5	1.2
2002	0.5	1.0	1.2	1.1
2001	2.9	2.1	1.7	1.2
2000	4.3	4.4	3.8	3.3

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

Table VD-2 provides GDP growth in IIQ2012 and relative to the same quarter a year earlier for the euro zone, European Union, Japan and the US. The GDP of the euro zone fell 0.2 percent in IIQ2012 in IIQ2012 and declined 0.4 percent relative to a year earlier while the GDP of the European Union fell 0.2 percent in IIQ2012 and declined 0.3 percent relative to a year earlier. Growth in IIQ2012 was weak worldwide with somewhat stronger performance by the US but still insufficient to reduce unemployment and underemployment (Section I and earlier http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2012/08/twenty-nine-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2012/07/decelerating-united-states-recovery.html) with depressed hiring http://cmpassocregulationblog.blogspot.com/2012/08/recovery-without-hiring-ten-million.html).

Table VD-4, Euro Zone, European Union, Japan and USA, Real GDP Growth

	∆% IIQ2012/ IQ2012	∆% IIQ2012/ IIQ2011
Euro Zone	-0.2	-0.4
European Union	-0.2	-0.3
Germany	0.3	1.0*
France	0.0	0.3
Netherlands	0.2	-0.5
Finland	-1.1	0.1
Belgium	-0.5	-0.3
Portugal	-1.2	-3.3
Ireland	0.0	-0.5
Italy	-0.8	-2.6
Greece	NA	NA
Spain	-0.4	-1.3
United Kingdom	-0.4	-0.5
Japan	0.2	3.3
USA	0.3	2.1

*Calendar adjusted.

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

Chart VD-1 of EUROSTAT provides growth in 2011 relative to 2010 for a large variety of countries. There have been diverging experiences in growth in the world economy.

Chart VD-1, Euro Zone, European Union, Real GDP Growth 2011 ∆% on Previous Year

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/tgm/graph.do?tab=graph&plugin=1&pcode=tec00115&language=en&toolbox=type

EUROSTAT estimates the rate of unemployment in the euro area as 11.4 percent in Aug 2012, as shown in Table VD-5. The number of unemployed in Aug 2012 was 18.196 million, which was 2.144 million higher than 16.052 million in Aug 2011. The rate of unemployment jumped from 10.2 percent in Aug 2011 to 11.4 percent in Aug 2012.

Table VD-5, Euro Area, Unemployment Rate and Number of Unemployed, % and Millions, SA

	Unemployment Rate %	Number Unemployed Millions
Aug 2012	11.4	18.196
Jul	11.4	18.162
Jun	11.4	18.076
May	11.3	17.891
Apr	11.2	17.709
Mar	11.0	17.478
Feb	10.9	17.243
Jan	10.8	17.071
Dec 2011	10.7	16.898
Nov	10.6	16.812
Oct	10.5	16.552
Sep	10.3	16.327
Aug	10.2	16.052
Jul	10.1	15.919
Jun	10.0	15.742
May	9.9	15.665
Apr	9.9	15.555
Mar	9.9	15.555
Feb	9.9	15.626
Jan	10.0	15.696
Dec 2010	10.0	15.798

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

Table VD-6 shows the disparity in rates of unemployment in the euro area with 11.4 percent for the region as a whole and 18.196 million unemployed but 5.5 percent in Germany and 2.313 million unemployed. At the other extreme is Spain with rate of unemployment of 25.1 percent and 5.765 million unemployed. The rate of unemployment of the European Union in Aug is 10.5 percent with 25.466 million unemployed.

Table VD-6, Unemployed and Unemployment Rate in Countries and Regions, Millions and %

Jul 2012	Unemployment Rate %	Unemployed Millions
Euro Zone	11.4	18.196
Germany	5.5	2.313
France	10.6	3.135
Netherlands	5.3	0.468
Finland	7.9	0.213
Portugal	15.9	0.861
Ireland	15.0	0.312
Italy	10.7	2.744
Greece	NA	NA
Spain	25.1	5.765
Belgium	7.4	0.358
European Union	10.5	25.466

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

Chart VD-1 provides Eurosat estimates of unemployment rates in the European Union. There is significant diversity in the rates of unemployment in members of the euro zone and the European Union.

Chart VD-2, Unemployment Rate in Various Countries and Regions

Source: EUROSTAT

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

Advanced economies are experiencing weak demand. Table VD-7 provides month and 12-month percentage changes of the volume of retail sales in the euro zone from Jan 2011 to Aug 2012. Retail sales increased 0.1 percent in Aug 2012 and fell 1.3 percent in 12 months. The 12-month rates of growth have become negative since Mar 2011 with exception of 1.0 percent in Apr 2011 and stability in Aug 2011. The lower part of Table VD-7 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-7, Euro Zone, Volume of Retail Sales, Deflated ∆%

	Month ∆%	12-Month ∆%
Aug 2012	0.1	-1.3
Jul	0.1	-1.4
Jun	0.1	-0.8
May	0.9	-0.7
Apr	-1.3	-3.5
Mar	0.2	0.0
Feb	-0.1	-2.1
Jan	1.2	-1.2
Dec 2011	-1.3	-1.9
Nov	-0.4	-1.5
Oct	-0.1	-0.7
Sep	-0.5	-1.1
Aug	0.1	0.0
Jul	0.2	-0.4
Jun	0.9	-0.8
May	-1.5	-1.8
Apr	1.0	1.0
Mar	-1.3	-1.4
Feb	0.5	1.1
Jan	0.2	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: EUROSTAT 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-8. Total sales increased 0.1 percent in Aug 2012 and declined 1.3 percent in the 12 months ending in Aug 2012. All 12-month percentage changes are negative. Total sales and sales of food, drinks and tobacco increased 0.1 percent in Aug but sales of nonfood products excluding automotive fuels fell 0.7 percent in Aug and sales of automotive fuel in specialized stores fell 0.7 percent.

Table VD-8, Euro Zone, Volume of Retail Sales by Products, ∆%

Aug 2012	Month ∆%	12-Month ∆%
Total	0.1	-1.3
Food, Drinks, Tobacco	0.1	-0.9
Nonfood Products ex Automotive Fuel	-0.7	-1.5
Automotive Fuel in Specialized Stores	-0.7	-4.0

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-03102012-AP/EN/4-03102012-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-9 for Aug 2012. Retail sales are weak throughout the euro zone. The 12-month percentage changes are negative for all members in Table VD-9 with the exception of 0.3 percent for France, 0.9 percent for Finland and 0.7 percent for Ireland. The 12-month percentage change for the UK, which is not a member of the euro zone, was 4.5 percent. The European Union’s 12-month percentage change was unchanged.

Table VD-9, Euro Zone, Volume of Retail Sales by Member Countries, ∆%

Aug 2012	Month ∆%	12-Month ∆%
Euro Zone	0.1	-1.3
Germany	0.3	-0.8
France	-0.8	0.3
Netherlands	NA	NA
Finland	0.4	0.9
Belgium	0.0	-1.4
Portugal	2.8	-6.0
Ireland	-0.3	0.7
Italy	NA	NA
Greece	NA	NA
Spain	2.1	-2.1
UK	-0.4	4.5
European Union	-0.1	0.0

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-03102012-AP/EN/4-03102012-AP-EN.PDF

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

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

Table VE-DE, Germany, GDP Annual ∆%

	Price Adjusted Chain-Linked	Price- and Calendar-Adjusted Chain Linked
2011	3.0	3.1
2010	4.2	4.0
2009	-5.1	-5.1
2008	1.1	0.8
2007	3.3	3.4
2006	3.7	3.9
2005	0.7	0.8
2004	1.2	0.7
2003	-0.4	-0.4
2002	0.0	0.0
2001	1.5	1.6
2000	3.1	3.3
1999	1.9	1.8
1998	1.9	1.7
1997	1.7	1.8
1996	0.8	0.8
1995	1.7	1.8
1994	2.5	2.5
1993	-1.0	-1.0
1992	1.9	1.5

Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2012/08/PE12_287_811.html;jsessionid=A761BC574543A771416A9CF81034F7BA.cae1

The Markit Germany Composite Output Index of the Markit Germany Services PMI^®, combining manufacturing and services with close association with Germany’s GDP, increased from 47.0 in Aug to 49.2 in Sep, indicating only moderate reduction in output (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10171). Tim Moore, Senior Economist at Markit and author of the report, finds that the economy of Germany stabilized after moderate contraction in prior months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10171). There was marginal improvement in the Germany Services Business Activity Index from 48.3 in Aug to 49.7 in Sep, which is the second worst reading in a year and significantly lower than the long-term average of 53.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10171). The Markit/BME Germany Purchasing Managers’ Index^® (PMI^®), showing close association with Germany’s manufacturing output, increased from 44.7 in Aug to 47.3 in Sep, which is the most moderate deterioration since Mar (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10119). New export orders fell sharply but at a slower pace than in Aug when new export orders fell at a record in the past three and a half years. Tim Moore, Senior Economist at Markit and author of the report, finds that Germany’s manufacturing output and new orders supported the PMI index, suggesting that the bottom may have been reached (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10119).Table DE provides the country data table for Germany.

Table DE, Germany, Economic Indicators

GDP	IIQ2012 0.3 ∆%; II/Q2012/IIQ2011 ∆% 0.5 1.0 CA 2011/2010: 3.0% GDP ∆% 1992-2011 Blog 8/26/12 5/27/12
Consumer Price Index	Aug month NSA ∆%: 0.4 Aug 12-month NSA ∆%: 2.1 Blog 9/16/12
Producer Price Index	Aug month ∆%: 0.5 CSA, 0.6 NSA 12-month NSA ∆%: 1.6 Blog 9/23/12
Industrial Production	Mfg Jul month CSA ∆%: 1.8 12-month NSA: 1.8 Blog 9/9/12
Machine Orders	MFG Aug month ∆%: -1.3 Aug 12-month ∆%: -4.8 Blog 10/7/12
Retail Sales	Aug Month ∆% -0.8 12-Month ∆% 0.3 Blog 9/30/12
Employment Report	Unemployment Rate Jul 5.4% Blog 9/30/12
Trade Balance	Exports Jul 12-month NSA ∆%: 9.2 Imports Jul 12 months NSA ∆%: 1.9 Exports Jul month SA ∆%: 0.5; Imports Jul month SA 0.9 Blog 9/9/12

Links to blog comments in Table DE:

9/30/12 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html

9/23/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-creation-of.html

9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html

9/9/12 http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or_10.html

8/26/12 http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with_26.html

Several tables and charts facilitate analysis of machinery orders in Germany. Table VE-1 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 decreased 1.3 percent in Aug 2012 with decrease of 3.0 percent in domestic orders and increase of 0.0 percent of foreign orders. As in other countries, data on orders for manufacturing are highly volatile. All 12-month percentage changes from Jan 2012 to Aug 2012 in Table VE-1, with exception of 0.1 percent for Jan 2012 for domestic orders, are negative largely because of the unusual strength of the Germany economy in the beginning of 2011 but with slowing world economy in 2012.

Table VE-1, 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
Aug	-4.8	-1.3	-1.9	0.0	-8.1	-3.0
Jul	-1.9	0.3	-0.6	0.0	-3.4	0.8
Jun	-5.0	-1.6	-7.1	-1.5	-1.9	-1.8
May	-10.5	0.8	-3.1	2.6	-18.4	-1.4
Apr	-3.4	-1.2	-4.0	-2.7	-2.5	0.6
Mar	-2.0	2.7	-0.9	3.7	-3.3	1.3
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	0.8	-0.8	3.9	0.6	-2.8
Nov	-4.2	-3.1	-7.6	-5.0	0.0	-0.7
Oct	0.6	2.8	2.2	4.9	-1.3	0.5
Sep	2.4	-4.4	1.2	-5.8	3.8	-2.7
Aug	6.8	-0.9	4.3	-0.6	10.1	-1.3
Jul	5.6	-2.6	5.7	-6.5	5.6	2.6
Jun	3.8	1.0	8.0	11.0	-1.6	-9.9
May	22.7	2.6	16.2	-3.5	30.2	10.2
Apr	6.9	2.0	9.9	2.2	3.4	1.8
Mar	9.1	-3.1	11.9	-3.1	5.8	-3.2
Feb	21.5	0.5	24.8	-0.5	17.8	1.9
Jan	22.4	4.5	26.5	3.7	17.6	5.5
2010
Dec	22.2	-3.3	27.3	-3.4	15.8	-3.2
Nov	21.5	5.4	26.8	8.4	15.6	1.8
Oct	14.1	1.2	17.7	0.8	10.4	1.8
Sep	13.9	-2.6	16.0	-5.1	11.6	0.4
Aug	23.5	3.2	31.9	5.7	14.4	0.2
Jul	14.2	-1.8	21.7	-2.2	6.3	-1.1
Jun	28.5	3.6	32.0	5.8	24.3	1.2
May	24.4	0.5	28.9	0.9	19.9	-0.1
Apr	29.3	2.3	33.0	2.3	25.2	2.2
Mar	29.4	5.6	32.3	6.1	26.4	5.0
Feb	23.4	-0.4	27.6	-0.4	18.6	-0.4
Jan	16.7	4.5	23.6	4.4	9.7	4.8
Dec 2009	9.2	-2.3	10.6	-2.6	7.4	-1.9
Dec 2008	-28.2	-7.1	-31.5	-9.6	-23.7	-4.1
Dec 2007	7.1	-1.7	9.1	-2.5	4.5	-0.6
Dec 2006	2.9	0.4	3.4	0.4	2.2	0.5
Dec 2005	4.9	-0.5	10.5	-0.9	-1.5	0.1
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	7.6		10.4		4.5
Average ∆% 2003-2011	3.6		5.1		1.9

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 capital goods of Germany are shown in Table VE-2. Total capital goods orders fell 3.0 percent in Aug 2012 with foreign orders decreasing 0.7 percent and domestic orders decreasing 6.8 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-1 and VE-2 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. Germany adopted fiscal and labor market reforms to increase productivity.

Table VE-2, Germany, Volume of Orders Received of Capital Goods Industries, Total, Foreign and Domestic, ∆%

	Total 12 M	Total M	Foreign 12 M	Foreign M	Domestic 12 M	Domestic M
2012
Aug	-5.2	-3.0	-1.9	-0.7	-10.2	-6.8
Jul	0.0	0.2	1.0	-0.5	-1.5	1.5
Jun	-7.5	-0.8	-10.9	-0.7	-1.1	-1.2
May	-11.1	0.5	-1.9	2.1	-22.9	-2.1
Apr	-2.3	-2.5	-3.7	-4.5	0.0	1.1
Mar	1.9	5.0	3.8	8.4	-1.1	-0.2
Feb	-5.9	1.4	-7.4	1.1	-3.6	1.8
Jan	-3.6	-4.6	-6.0	-5.3	0.6	-3.2
2011
Dec	1.6	3.0	0.5	4.4	3.5	1.0
Nov	-5.9	-4.1	-9.4	-7.1	-0.1	0.6
Oct	3.6	5.1	7.5	8.1	-2.3	0.6
Sep	2.9	-5.3	1.8	-6.5	4.9	-3.3
Aug	6.3	-0.2	3.5	0.4	11.1	-1.2
Jul	7.7	-7.2	6.9	-12.2	8.9	2.0
Jun	8.9	3.7	13.6	18.1	1.0	-15.1
May	26.8	4.0	18.0	-5.1	40.3	19.1
Apr	11.3	3.6	14.7	4.7	6.2	1.8
Mar	11.0	-5.7	13.7	-5.4	7.0	-6.4
Feb	29.4	2.5	33.1	1.0	23.9	4.8
Jan	26.4	3.3	32.4	3.5	17.5	2.9
2010
Dec	27.3	-4.8	31.0	-6.0	21.3	-2.7
Nov	30.1	9.0	35.9	13.5	21.5	2.2
Oct	20.6	1.2	23.9	-0.5	16.0	4.1
Sep	18.1	-4.5	20.4	-7.0	14.6	-0.1
Aug	29.3	6.3	42.8	8.8	12.0	2.3
Jul	14.1	-3.7	28.4	-4.8	-2.3	-2.1
Jun	33.5	5.8	41.3	9.5	22.2	0.4
May	25.9	1.9	35.6	1.4	13.6	2.6
Apr	30.1	1.5	40.1	2.3	17.4	0.6
Mar	26.2	7.5	33.8	8.6	16.1	5.6
Feb	20.3	-1.5	30.3	-0.6	8.1	-2.5
Jan	16.9	4.6	29.5	2.8	2.5	7.2
Dec 2009	8.1	-1.4	13.6	-1.5	0.5	-1.2
Dec 2008	-32.2	-7.2	-36.7	-9.8	-24.4	-3.5
Dec 2007	9.6	-0.8	11.6	-2.6	6.3	2.2
Dec 2006	3.6	2.3	3.8	2.8	3.1	1.4
Dec 2005	1.9	-2.1	9.8	-2.4	-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	9.1		12.1		4.9
Average ∆% 2003-2011	4.3		5.9		2.2

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

Chart VE-1 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.

Chart VE-1, 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-2 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.

Chart VE-2, 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

VF France. Table VF-FR provides growth rates of GDP of France with the estimates of Institut National de la Statistique et des Études Économiques (INSEE). The long-term rate of GDP growth of France from IIQ1949 to IIQ2012 is quite high at 3.3 percent. France’s growth rates were quite high in the four decades of the 1950s, 1960, 1970s and 1980s with an average growth rate of 4.1 percent compounding the average rates in the decades and discounting to one decade. The growth impulse diminished with 1.8 percent in the 1990s and 1.7 percent from 2000 to 2007. The average growth rate from 2000 to 2012, using second quarter data, is 1.1 percent because of the sharp impact of the global recession from IVQ2007 to IIQ2009. Cobet and Wilson (2002) provide estimates of output per hour and unit labor costs in national currency and US dollars for the US, Japan and Germany from 1950 to 2000 (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). The average yearly rate of productivity change from 1950 to 2000 was 2.9 percent in the US, 6.3 percent for Japan and 4.7 percent for Germany while unit labor costs in USD increased at 2.6 percent in the US, 4.7 percent in Japan and 4.3 percent in Germany. From 1995 to 2000, output per hour increased at the average yearly rate of 4.6 percent in the US, 3.9 percent in Japan and 2.6 percent in Germany while unit labor costs in US fell at minus 0.7 percent in the US, 4.3 percent in Japan and 7.5 percent in Germany. There was increase in productivity growth in the G7 in Japan and France in the second half of the 1990s but significantly lower than the acceleration of 1.3 percentage points per year in the US. Lucas (2011May) compares growth of the G7 economies (US, UK, Japan, Germany, France, Italy and Canada) and Spain, finding that catch-up growth with earlier rates for the US and UK stalled in the 1970s.

Table VF-FR, France, Average Growth Rates of GDP Fourth Quarter, 1949-2012

Period	Average ∆%
1949-2012*	3.3
2000-2012*	1.1
2000-2011	1.1
2000-2007	1.7
1990-1999	1.9
1980-1989	2.6
1970-1979	3.8
1960-1969	5.7
1950-1959	4.2

*Second Quarter on Second Quarter

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

The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, decreased from 48.0 in Aug to 43.2 in Sep, indicating significant contraction of private sector activity at the highest rate since mar 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10156). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI^®, finds that combined manufacturing and services weakness suggests that the French GDP may have contracted in IIIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10156). The Markit France Services Activity index fell from 49.2 in Aug to 45.0 in Sep for the lowest reading in eleven months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10156). The Markit France Manufacturing Purchasing Managers’ Index^® fell to 42.7 in Sep from 46.0 in Aug, which was the sharpest decline of the manufacturing economy since Apr 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10129). Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI^®, finds continuing deterioration in manufacturing with weakening new orders in home and foreign markets, indicating that manufacturing deducted from GDP growth (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10129). Table FR provides the country data table for France.

Table FR, France, Economic Indicators

CPI	Aug month ∆% 0.7 12 months ∆%: 2.1 9/16/12
PPI	Aug month ∆%: 1.2 Jun 12 months ∆%: 2.5 Blog 9/30/12
GDP Growth	IIQ2012/IQ2012 ∆%: 0.0 IIQ2012/IIQ2011 ∆%: 0.3 Blog 9/30/12
Industrial Production	Jul SA ∆%: Manufacturing 0.9 YOY NSA ∆%: Manufacturing -2.8 Blog 9/16/12
Consumer Spending	Aug Manufactured Goods ∆%: -1.0 Aug 12-Month Manufactured Goods ∆%: -0.9 Blog 9/30/12
Employment	IIQ2012 Unemployed 2.785 million Unemployment Rate: 9.7% Employment Rate: 63.9% Blog 9/9/12
Trade Balance	Jul Exports ∆%: month 0.8, 12 months 3.6 Jul Imports ∆%: month -3.5, 12 months -1.9 Blog 9/9/12
Confidence Indicators	Historical averages 100 Sep Mfg Business Climate 90 Blog 9/30/12

Links to blog comments in Table FR:

9/30/12 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html

9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html

9/9/12 http://cmpassocregulationblog.blogspot.com/2012/09/twenty-eight-million-unemployed-or_10.html

VG Italy. The Markit/ADACI Business Activity Index increased from 44.0 in Aug to 44.5 in Sep, indicating sharp contraction of output of Italy’s services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10167). Phil Smith, economist at Markit and author of the Italy Services PMI^®, finds that the data suggest contraction of GDP in Italy in IIIQ2012 at a rate close to the contraction in IIQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10167). The Markit/ADACI Purchasing Managers’ Index^® (PMI^®), increased from 43.6 in Aug to 45.7 in Sep for 12 consecutive months of contraction of Italy’s manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10122). There was more moderate decline in new foreign orders than sharper decline in domestic new orders. Phil Smith, economist at Markit and author of the Italian Manufacturing PMI^®, finds slower contraction of employment, new orders and output, suggesting slower pace of deterioration of manufacturing in Italy (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10122). Table IT provides the country data table for Italy.

Table IT, Italy, Economic Indicators

Consumer Price Index	Sep month ∆%: 0.0 Sep 12-month ∆%: 3.2 Blog 9/30/12
Producer Price Index	Aug month ∆%: 0.8 Aug 12-month ∆%: 3.0 Blog 9/30/12
GDP Growth	IIQ2012/IQ2012 SA ∆%: minus 0.8 IIQ2012/IIQ2011 NSA ∆%: minus 2.6 Blog 9/16/12
Labor Report	Jul 2012 Participation rate 64.0% Employment ratio 57.1% Unemployment rate 10.7% Blog 9/2/12
Industrial Production	Jul month ∆%: -0.2 12 months ∆%: minus 7.3 Blog 9/16/12
Retail Sales	Jul month ∆%: -0.2 Jul 12-month ∆%: -3.2 Blog 9/30/12
Business Confidence	Mfg Sep 88.3, May 86.5 Construction Sep 86.5, May 82.2 Blog 9/30/12
Trade Balance	Balance Jul SA €1607 million versus Jun €801 Exports Jul month SA ∆%: 0.3; Imports Jul month ∆%: 2.9 Exports 12 months Jul NSA ∆%: +4.3 Imports 12 months NSA ∆%: minus 4.3 Blog 9/23/12

Links to blog comments in Table IT:

9/30/12 http://cmpassocregulationblog.blogspot.com/2012/09/historically-sharper-recoveries-from.html

9/23/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-creation-of.html

9/16/12 http://cmpassocregulationblog.blogspot.com/2012/09/recovery-without-hiring-world-inflation.html

9/2/12 http://cmpassocregulationblog.blogspot.com/2012/09/collapse-of-united-states-dynamism-of_2.html

VH United Kingdom. Annual data in Table VH-UK show the strong impact of the global recession in the UK with decline of GDP of 4.0 percent in 2009 after dropping 1.0 percent in 2008. Recovery of 1.8 percent in 2010 is relatively low compared to annual growth rates in 2007 and earlier years. Growth was only 0.9 percent in 2011. The bottom part of Table VH-UK provides average growth rates of UK GDP since 1948. The UK economy grew at 2.7 percent on average between 1948 and 2011, which is relatively high for an advanced economy. The growth rate of GDP between 2000 and 2007 is higher at 3.0 percent. Growth in the current cyclical expansion has been only at 1.3 percent as advanced economies struggle with weak internal demand and world trade.

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

	∆% on Prior Year
1998	3.5
1999	3.2
2000	4.2
2001	2.9
2002	2.4
2003	3.8
2004	2.9
2005	2.8
2006	2.6
2007	3.6
2008	-1.0
2009	-4.0
2010	1.8
2011	0.9
Average ∆% per Year
1948-2011	2.7
1948-1959	2.9
1960-1969	3.3
1970-1979	2.5
1980-1989	3.2
1990-1999	2.6
2000-2011	1.7
2000-2007	3.0
2009-2011	1.3

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/naa2/quarterly-national-accounts/q2-2012/index.html

The Business Activity Index of the Markit/CIPS UK Services PMI^® decreased from 53.7 in Aug to 52.2 in Sep with growth during 21 consecutive months, decreasing at the margin (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10162). Chris Williamson, Chief Economist at Markit, finds that the UK economy could have grown at 0.1 in IIIQ2012 with moderate growth of services but marginal decline in construction and sharp decline in manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10162). The Markit/CIPS UK Manufacturing Purchasing Managers’ Index^® (PMI^®) decreased from 49.6 in Aug to 48.4 in Sep (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10013). The PMI registered average 47.7 in IIIQ2012, which is the lowest reading since IIQ2009. New export orders fell for a sixth consecutive month with slowing demand from the European Union and Asia. Chris Williamson, Chief Economist at Markit and author of the Markit/CIPS Manufacturing PMI^®, finds that the PMI data suggest contraction of manufacturing output in the UK at a quarterly rate higher than 1 percent that could restrain growth, maintaining the economy in recession (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10125).

Table UK, UK Economic Indicators


CPI	Aug month ∆%: 0.5 Aug 12-month ∆%: 2.5 Blog 9/23/12
Output/Input Prices	Output Prices: Jul 12-month NSA ∆%: 1.7; excluding food, petroleum ∆%: 1.3 Input Prices: Jul 12-month NSA ∆%: -2.4 Excluding ∆%: -1.5 Blog 9/9/12
GDP Growth	IIQ2012 prior quarter ∆% minus 0.4; year earlier same quarter ∆%: minus 0.5 Blog 9/30/12
Industrial Production	Jul 2012/Jul 2011 NSA ∆%: Production Industries minus 0.8; Manufacturing minus 0.5 Blog 9/9/12
Retail Sales	Aug month ∆%: -0.2 Aug 12-month ∆%: +2.7 Blog 9/23/12
Labor Market	May-Jul Unemployment Rate: 8.1%; Claimant Count 4.8%; Earnings Growth 1.5% Blog 9/16/12
Trade Balance	Balance Jul minus ₤1517 million Exports Jul ∆%: 5.2; May-Jul ∆%: -0.7 Imports Jul ∆%: -1.7 May-Jul ∆%: -0.4 Blog 9/16/12