World Inflation Waves, United States Commercial Banks Assets and Liabilities, Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation, World Economic Slowdown and Global Recession Risk
Carlos M. Pelaez
© Carlos M. Pelaez, 2010, 2011, 2012, 2013
Executive Summary
I World Inflation Waves
IA Appendix: Transmission of Unconventional Monetary Policy
IA1 Theory
IA2 Policy
IA3 Evidence
IA4 Unwinding Strategy
IB United States Inflation
IC Long-term US Inflation
ID Current US Inflation
II United States Commercial Banks Assets and Liabilities
IIA1 Transmission of Monetary Policy
IIA2 Functions of Banks
IIA3 United States Commercial Banks Assets and Liabilities
IIA4 Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation
III World Financial Turbulence
IIIA Financial Risks
IIIE Appendix Euro Zone Survival Risk
IIIF Appendix on Sovereign Bond Valuation
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt Crisis
IIIGA Monetary Policy with Deficit Financing of Economic Growth
IIIGB Adjustment during the Debt Crisis of the 1980s
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/investment reduction in the US with high unemployment/underemployment, falling wages, hiring collapse, contraction of real private fixed investment, decline of wealth of households over the business cycle by 10.9 percent adjusted for inflation while growing 617.2 percent adjusted for inflation from IVQ1945 to IIIQ2012 and unsustainable fiscal deficit/debt threatening prosperity that can cause risk premium on Treasury debt with Himalayan interest rate hikes; 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 Feb 15 and daily values throughout the week ending on Feb 22, 2013 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 Feb 15 and the percentage change in that prior week below the label of the financial risk asset. For example, the first column “Fri Feb 15, 2012”, first row “USD/EUR 1.3362 0.0%,” provides the information that the US dollar (USD) changed 0.0 percent to USD 1.3362/EUR in the week ending on Fri Feb 15 relative to the exchange rate on Fri Feb 8. 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 1.3362/EUR in the first row, first column in the block for currencies in Table III-1 for Fri Feb 15, depreciating to USD 1.3389/EUR on Tue Feb 19, 2013, or by 0.2 percent. The dollar depreciated because more dollars, $1.3389, were required on Tue Feb 19 to buy one euro than $1.3362 on Feb 15. 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 1.3362/EUR on Feb 15; 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 Feb 15, to the last business day of the current week, in this case Fri Feb 22, such as appreciation to USD 1.3190/EUR by Feb 22; and the third row provides the percentage change from the prior business day to the current business day. For example, the USD appreciated (denoted by positive sign) by 1.3 percent from the rate of USD 1.3362/EUR on Fri Feb 15 to the rate of USD 1.3190/EUR on Fri Feb 22 {[(1.3190/1.3362) – 1]100 = -1.3%} and appreciated (denoted by positive sign) by 0.7 percent from the rate of USD 1.3283 on Wed Feb 20 to USD 1.3190/EUR on Thu Feb 21 {[(1.3190/1.3283) -1]100 = -0.7%}. 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 Feb 18 to Feb 22, 2013
| Fri Feb 15, 2013 | M 18 | Tue 19 | W 20 | Thu 21 | Fr 22 |
| USD/EUR 1.3362 0.0% | 1.3351 0.1% 0.1% | 1.3389 -0.2% -0.3% | 1.3283 0.6% 0.8% | 1.3190 1.3% 0.7% | 1.3190 1.3% 0.0% |
| JPY/ USD 93.51 -0.9% | 93.96 -0.5% -0.5% | 93.57 -0.1% 0.4% | 93.56 -0.1% 0.0% | 93.11 0.4% 0.5% | 93.41 0.1% -0.3% |
| CHF/ USD 0.9218 -0.5% | 0.9234 -0.2% -0.2% | 0.9226 -0.1% 0.1% | 0.9270 -0.6% -0.5% | 0.9310 -1.0% -0.4% | 0.9296 -0.8% 0.2% |
| CHF/ EUR 1.2316 -0.4% | 1.2329 -0.1% -0.1% | 1.2352 -0.3% -0.2% | 1.2313 0.0% 0.3% | 1.2278 0.3% 0.3% | 1.2259 0.5% 0.2% |
| USD/ AUD 1.0305 0.9704 -0.1% | 1.0306 0.9703 0.0% 0.0% | 1.0356 0.9656 0.5% 0.5% | 1.0257 0.9749 -0.5% -1.0% | 1.0246 0.9760 -0.6% -0.1% | 1.0321 0.9689 0.2% 0.7% |
| 10 Year T Note 2.007 | 2.00 | 2.021 | 2.006 | 1.971 | 1.967 |
| 2 Year T Note 0.268 | 0.27 | 0.276 | 0.26 | 0.252 | 0.252 |
| German Bond 2Y 0.19 10Y 1.65 | 2Y 0.18 10Y 1.63 | 2Y 0.18 10Y 1.62 | 2Y 0.20 10Y 1.65 | 2Y 0.17 10Y 1.57 | 2Y 0.13 10Y 1.57 |
| DJIA 13981.76 -0.1% | 13981.76 0.0% 0.0% | 14035.67 0.4% 0.4% | 13927.54 -0.4% -0.8% | 13880.62 -0.7% -0.3% | 14000.57 0.1% 0.9% |
| DJ Global 2097.77 -0.7% | 2102.04 0.2% 0.2% | 2116.89 0.9% 0.7% | 2117.27 0.9% 0.0% | 2073.07 -1.2% -2.1% | 2086.01 -0.6% 0.6% |
| DJ Asia Pacific 1349.95 -0.3% | 1359.55 0.7% 0.7% | 1363.16 1.0% 0.3% | 1373.42 1.7% 0.8% | 1357.53 0.6% -1.2% | 1358.81 0.7% 0.1% |
| Nikkei 11173.83 0.2% | 11407.87 2.1% 2.1% | 11372.34 1.8% -0.3% | 11468.28 2.6% 0.8% | 11309.13 1.2% -1.4% | 11385.94 1.9% 0.7% |
| Shanghai 2432.40 0.0% | 2421.56 -0.4% -0.4% | 2382.91 -2.0% -1.6% | 2397.18 -1.4% 0.6% | 2325.95 -4.4% -3.0% | 2314.16 -4.9% -0.5% |
| DAX 7593.51 -0.8% | 7628.73 0.5% 0.5% | 7752.45 2.1% 1.6% | 7728.90 1.8% -0.3% | 7583.57 -0.1% -1.9% | 7661.91 0.9% 1.0% |
| DJ UBS Comm. 139.20 -1.4% | 139.20 0.0% 0.0% | 139.24 0.0% 0.0% | 138.41 -0.6% -0.6% | 136.83 -1.7% -1.1% | 136.69 -1.8% -0.1% |
| WTI $ B 95.94 0.2% | 95.55 -0.4% -0.4% | 96.68 0.8% 1.2% | 94.46 -1.5% -2.3% | 92.97 -3.1% -1.6% | 93.38 -2.7% 0.4% |
| Brent $/B 117.85 -0.9% | 117.43 -0.4% -0.4% | 117.32 -0.4% -0.1% | 115.15 -2.3% -1.8% | 113.71 -3.5% -1.3% | 114.26 -3.0% 0.5% |
| Gold $/OZ 1608.1 -3.5% | 1609.50 0.1% 0.1% | 1604.10 -0.2% -0.3% | 1562.10 -2.9% -2.6% | 1575.20 -2.0% 0.8% | 1579.80 -1.8% 0.3% |
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. The overwhelming risk factor is the unsustainable Treasury deficit/debt of the United States (http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html). Another rising risk is division within the Federal Open Market Committee (FOMC) on risks and benefits of current policies as expressed in the minutes of the meeting held on Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):
“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy.
Jon Hilsenrath and Victoria McGrane, writing on “Fed slip over how long to keep cash spigot open,” published on Feb 20, 2013 in the Wall street Journal (http://professional.wsj.com/article/SB10001424127887323511804578298121033876536.html), analyze the minutes of the Fed, comments by members of the FOMC and data showing increase in holdings of riskier debt by investors, record issuance of junk bonds, mortgage securities and corporate loans.
A competing event is the high level of valuations of risk financial assets (http://cmpassocregulationblog.blogspot.com/2013/01/peaking-valuation-of-risk-financial.html). The DJIA fell 0.8 percent on Feb 20, 2013, when the minutes of the FOMC were released at 2:00 PM but recovered to 14,000.57 at the closing on Feb 22, 2013. The DJIA closed at 14,018.70 on Tue Feb 12 and at 13981.76 on Fri Feb 15. The DJIA closed at 14009.79 on Fri Feb 1, which is the first valuation above 14,000 since Oct 2007 when the DJIA reached historical highs. The DJIA closed at 14,018.70 on Tue Feb 12, which is only 0.9 percent from the value of 14,157.38 reached on Oct 15, 2007.
Matt Jarzemsky, writing on “S&P 500 closes above 1500,” on Jan 25, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887323539804578263331715973390.html?mod=WSJ_hp_LEFTWhatsNewsCollection), finds that the DJIA closed on Fri Jun 25, 2013 at 13,895.98, or 1.9 percent below its record high of 14,164.53 in Oct 2007 while S&P 500 closed at 1502.96. DJIA closed at 13,984.80 on Oct 15, 2007, or only 0.6 percent higher than 13,895.98 at the close of markets on Jan 25, 2013, reaching a high of 14,157.38 on Oct 15, 2007, which is only 1.9 percent higher than 13,895.98 at the close on Jan 25, 2013 (using interactive chart data at http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). The S&P 500 closed at 1502.96 on Jan 25, 2013, which is only 3.0 percent from the close at 1458.71 on Oct 15, 2007, and 4.1 percent from the high at 1564.74 on Oct 15, 2007 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). Rita Nazareth and Sarah Pringle, writing on “Dow Average rises to 5-year high amid debt-ceiling talks,” on Jan 18, 2012, published in Bloomberg (http://www.bloomberg.com/news/2013-01-18/u-s-stock-futures-little-changed-before-earnings-data.html), find that the DJIA reached on Jan 18, 2012, the highest level in five years at 13,649.70 with volume of 6.6 billion shares in US exchanges, which is higher by 6.9 percent than the average in three months. Vito J. Bacanelli, writing on “GOP proposal lifts Dow to five-year high,” on Jan 19, 2013, published by Barron’s (http://online.barrons.com/article/SB50001424052748703596604578235762819811322.html?mod=BOL_hpp_mag#articleTabs_article%3D1), finds that the closing level of 13,649.70 on Jan 18, 2013, is the highest close since Dec 10, 2007, only 4 percent lower than the all-time high and the best start for a year since 1997. The Wall Street Journal finds a 52-week high of 13661.87 on Oct 5, 2012 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). The S&P 500 at 1485.98 is 5 percent below its all time high of 1565 in 2007. An important risk event is the reduction of growth prospects in the euro zone discussed by European Central Bank President Mario Draghi in “Introductory statement to the press conference,” on Dec 6, 2012 (http://www.ecb.int/press/pressconf/2012/html/is121206.en.html):
“This assessment is reflected in the December 2012 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between -0.6% and -0.4% for 2012, between -0.9% and 0.3% for 2013 and between 0.2% and 2.2% for 2014. Compared with the September 2012 ECB staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.
The Governing Council continues to see downside risks to the economic outlook for the euro area. These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area, geopolitical issues and fiscal policy decisions in the United States possibly dampening sentiment for longer than currently assumed and delaying further the recovery of private investment, employment and consumption.”
Reuters, writing on “Bundesbank cuts German growth forecast,” on Dec 7, 2012, published in the Financial Times (http://www.ft.com/intl/cms/s/0/8e845114-4045-11e2-8f90-00144feabdc0.html#axzz2EMQxzs3u), informs that the central bank of Germany, Deutsche Bundesbank reduced its forecast of growth for the economy of Germany to 0.7 percent in 2012 from an earlier forecast of 1.0 percent in Jun and to 0.4 percent in 2012 from an earlier forecast of 1.6 percent while the forecast for 2014 is at 1.9 percent.
The major risk event during earlier weeks was sharp decline of sovereign yields with the yield on the ten-year bond of Spain falling to 5.309 percent and that of the ten-year bond of Italy falling to 4.473 percent on Fri Nov 30, 2012 and 5.366 percent for the ten-year of Spain and 4.527 percent for the ten-year of Italy on Fri Nov 14, 2012 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). Vanessa Mock and Frances Robinson, writing on “EU approves Spanish bank’s restructuring plans,” on Nov 28, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887323751104578146520774638316.html?mod=WSJ_hp_LEFTWhatsNewsCollection), inform that the European Union regulators approved restructuring of four Spanish banks (Bankia, NCG Banco, Catalunya Banc and Banco de Valencia), which helped to calm sovereign debt markets. Harriet Torry and James Angelo, writing on “Germany approves Greek aid,” on Nov 30, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887323751104578150532603095790.html?mod=WSJ_hp_LEFTWhatsNewsCollection), inform that the German parliament approved the plan to provide Greece a tranche of €44 billion in promised financial support, which is subject to sustainability analysis of the bond repurchase program later in Dec 2012. A hurdle for sustainability of repurchasing debt is that Greece’s sovereign bonds have appreciated significantly from around 24 percent for the bond maturing in 21 years and 20 percent for the bond maturing in 31 years in Aug 2012 to around 17 percent for the 21-year maturity and 15 percent for the 31-year maturing in Nov 2012. Declining years are equivalent to increasing prices, making the repurchase more expensive. Debt repurchase is intended to reduce bonds in circulation, turning Greek debt more manageable. Ben McLannahan, writing on “Japan unveils $11bn stimulus package,” on Nov 30, 2012, published in the Financial Times (http://www.ft.com/intl/cms/s/0/adc0569a-3aa5-11e2-baac-00144feabdc0.html#axzz2DibFFquN
), informs that the cabinet in Japan approved another stimulus program of $11 billion, which is twice larger than another stimulus plan in late Oct and close to elections in Dec. Henry Sender, writing on “Tokyo faces weak yen and high bond yields,” published on Nov 29, 2012 in the Financial Times (http://www.ft.com/intl/cms/s/0/9a7178d0-393d-11e2-afa8-00144feabdc0.html#axzz2DibFFquN), analyzes concerns of regulators on duration of bond holdings in an environment of likelihood of increasing yields and yen depreciation.
First, Risk-Determining Events. The European Council statement on Nov 23, 2012 asked the President of the European Commission “to continue the work and pursue consultations in the coming weeks to find a consensus among the 27 over the Union’s Multiannual Financial Framework for the period 2014-2020” (http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/133723.pdf) Discussions will continue in the effort to reach agreement on a budget: “A European budget is important for the cohesion of the Union and for jobs and growth in all our countries” (http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/133723.pdf). There is disagreement between the group of countries requiring financial assistance and those providing bailout funds. Gabrielle Steinhauser and Costas Paris, writing on “Greek bond rally puts buyback in doubt,” on Nov 23, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324352004578136362599130992.html?mg=reno64-wsj) find a new hurdle in rising prices of Greek sovereign debt that may make more difficult buybacks of debt held by investors. European finance ministers continue their efforts to reach an agreement for Greece that meets with approval of the European Central Bank and the IMF. The European Council (2012Oct19 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/133004.pdf ) reached conclusions on strengthening the euro area and providing unified financial supervision:
“The European Council called for work to proceed on the proposals on the Single Supervisory Mechanism as a matter of priority with the objective of agreeing on the legislative framework by 1st January 2013 and agreed on a number of orientations to that end. It also took note of issues relating to the integrated budgetary and economic policy frameworks and democratic legitimacy and accountability which should be further explored. It agreed that the process towards deeper economic and monetary union should build on the EU's institutional and legal framework and be characterised by openness and transparency towards non-euro area Member States and respect for the integrity of the Single Market. It looked forward to a specific and time-bound roadmap to be presented at its December 2012 meeting, so that it can move ahead on all essential building blocks on which a genuine EMU should be based.”
Buiter (2012Oct15) finds that resolution of the euro crisis requires full banking union together with restructuring the sovereign debt of at least four and possibly total seven European countries. The Bank of Spain released new data on doubtful debtors in Spain’s credit institutions (http://www.bde.es/bde/en/secciones/prensa/Agenda/Datos_de_credit_a6cd708c59cf931.html). In 2006, the value of doubtful credits reached €10,859 million or 0.7 percent of total credit of €1,508,626 million. In Aug 2012, doubtful credit reached €178,579 million or 10.5 percent of total credit of €1,698,714 million.
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.
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 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. Buiter (2012Oct15) finds that resolution of the euro crisis requires full banking union together with restructuring the sovereign debt of at least four and possibly total seven European countries. 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, 2012, declining to 6.447 percent on Aug 17 and 6.403 percent on Aug 24, 2012, and the ten-year government bond of Italy fell from 5.894 percent on Aug 10, 2012 to 5.709 percent on Aug 17 and 5.618 percent on Aug 24, 2012. The yield of the ten-year sovereign bond of Spain traded at 5.143 percent on Feb 22, 2012 and that of the ten-year sovereign bond of Italy at 4.400 percent (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). 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. In the week of Feb 22, 2013, the yield of the two-year Treasury decreased to 0.252 percent and that of the ten-year Treasury decreased to 1.967 percent while the two-year bond of Germany increased to 0.13 percent and the ten-year increased to 1.57; and the dollar appreciated to USD 1.3190/EUR. The 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 about equal to consumer price inflation of 1.6 percent in the 12 months ending in Jan 2013 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/01/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 | |
| 2/22/13 | 0.252 | 1.967 | 0.13 | 1.57 | 1.3190 |
| 2/15/13 | 0.268 | 2.007 | 0.19 | 1.65 | 1.3362 |
| 2/8/13 | 0.252 | 1.949 | 0.18 | 1.61 | 1.3365 |
| 2/1/13 | 0.26 | 2.024 | 0.25 | 1.67 | 1.3642 |
| 1/25/13 | 0.278 | 1.947 | 0.26 | 1.64 | 1.3459 |
| 1/18/13 | 0.252 | 1.84 | 0.18 | 1.56 | 1.3321 |
| 1/11/13 | 0.247 | 1.862 | 0.13 | 1.58 | 1.3343 |
| 1/4/13 | 0.262 | 1.898 | 0.08 | 1.54 | 1.3069 |
| 12/28/12 | 0.252 | 1.699 | -0.01 | 1.31 | 1.3218 |
| 12/21/12 | 0.272 | 1.77 | -0.01 | 1.38 | 1.3189 |
| 12/14/12 | 0.232 | 1.704 | -0.04 | 1.35 | 1.3162 |
| 12/7/12 | 0.256 | 1.625 | -0.08 | 1.30 | 1.2926 |
| 11/30/12 | 0.248 | 1.612 | 0.01 | 1.39 | 1.2987 |
| 11/23/12 | 0.273 | 1.691 | 0.00 | 1.44 | 1.2975 |
| 11/16/12 | 0.24 | 1.584 | -0.03 | 1.33 | 1.2743 |
| 11/9/12 | 0.256 | 1.614 | -0.03 | 1.35 | 1.2711 |
| 11/2/12 | 0.274 | 1.715 | 0.01 | 1.45 | 1.2838 |
| 10/26/12 | 0.299 | 1.748 | 0.05 | 1.54 | 1.2942 |
| 10/19/12 | 0.296 | 1.766 | 0.11 | 1.59 | 1.3023 |
| 10/12/12 | 0.264 | 1.663 | 0.04 | 1.45 | 1.2953 |
| 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.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, two-year and one-month Treasury constant maturity yields together with the yield of the corporate bond with Moody’s rating of Baa. The riskier yield of the Baa corporate bond exceeds the relatively riskless yields of the Treasury securities. The beginning yields in Chart III-1A for July 31, 2001, are 3.67 percent for one month, 3.79 percent for two years, 5.07 percent for ten years and 7.85 percent for the Baa corporate bond. On July 30, 2007, yields inverted with the one month at 4.95 percent, the two-year at 4.59 percent and the ten year at 5.82 percent with the yield of the Baa corporate bond at 6.70 percent. Another interesting point is for Oct 31, 2008, with the yield of the Baa jumping to 9.54 percent and the Treasury yields declining: one month 0.12 percent, two years 1.56 percent and ten years 4.01 percent during a flight to the dollar and government securities analyzed by Cochrane and Zingales (2009). Another spike in the series is for Apr 4, 2006 with the yield of the corporate Baa bond at 8.63 and the Treasury yields of 0.12 percent for one month, 0.94 for two years and 2.95 percent for ten years. During the beginning of the flight from risk financial assets to US government securities (see Cochrane and Zingales 2009), the one-month yield was 0.07 percent, the two-year yield 1.64 percent and the ten-year yield 3.41. 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. The final point of Chart III1-A is for Feb 21, 2013, with the one-month yield at 0.12 percent, the two-year at 0.26 percent, the ten-year at 1.99 percent and the corporate Baa bond at 4.86 percent.
Chart III-1A, US, Ten-Year, Two-Year and One-Month Treasury Constant Maturity Yields and Yield of Moody’s Baa Corporate Bond, Jul 31, 2001-Feb 21, 2013
Note: US Recessions in shaded areas
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/h15/update/
Kate Linebaugh, writing on “Falling revenue dings stocks,” on Oct 20, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444592704578066933466076070.html?mod=WSJPRO_hpp_LEFTTopStories), identifies a key financial vulnerability: falling revenues across markets for United States reporting companies. Global economic slowdown is reducing corporate sales and squeezing corporate strategies. Linebaugh quotes data from Thomson Reuters that 100 companies of the S&P 500 index have reported declining revenue only 1 percent higher in Jun-Sep 2012 relative to Jun-Sep 2011 but about 60 percent of the companies are reporting lower sales than expected by analysts with expectation that revenue for the S&P 500 will be lower in Jun-Sep 2012 for the entities represented in the index. Results of US companies are likely repeated worldwide. The basic valuation equation that is also used in capital budgeting postulates that the value of stocks or of an investment project is given by:
Where Rτ is expected revenue in the time horizon from τ =1 to T; Cτ denotes costs; and ρ is an appropriate rate of discount. In words, the value today of a stock or investment project is the net revenue, or revenue less costs, in the investment period from τ =1 to T discounted to the present by an appropriate rate of discount. In the current weak economy, revenues have been increasing more slowly than anticipated in investment plans. An increase in interest rates would affect discount rates used in calculations of present value, resulting in frustration of investment decisions. If V represents value of the stock or investment project, as ρ → ∞, meaning that interest rates increase without bound, then V → 0, or
![clip_image004[1]](http://lh3.ggpht.com/-A4uAjTr2Nbc/USuKWB_fogI/AAAAAAAARqg/1unU4DeY4HY/s1600-h/clip_image004%25255B1%25255D%25255B2%25255D.gif "clip_image004[1]"){kind=small}
declines.
There was mixed performance in equity indexes with many indexes gaining in Table III-1 in the week ending on Feb 22, 2013. Stagnating revenues are causing reevaluation of discounted net earnings with deteriorating views on the world economy and United States fiscal sustainability but investors have been driving indexes higher. DJIA increased 0.9 percent on Feb 22, increasing 0.1 percent in the week. Germany’s Dax increased 1.0 percent on Fri Feb 22 and increased 0.9 percent in the week. Dow Global increased 0.6 percent on Feb 22 and decreased 0.6 percent in the week. Japan’s Nikkei Average increased 0.7 percent on Fri Feb 22 and increased 1.9 percent in the week as the yen continues to be oscillating but relatively weaker and the stock market gains in expectations of fiscal stimulus by a new administration. Dow Asia Pacific TSM increased 0.1 percent on Feb 22 and increased 0.7 percent in the week while Shanghai Composite that was closed in the week of Feb 15, 2013 because of the Chinese New Year decreased 0.5 percent on Feb 22 and decreased 4.9 percent in the week of Feb 22, falling below 2000 to close at 1980.13 on Fri Nov 30 but closing at 2314.60 on Fri Feb 22. There is evident trend of deceleration of the world economy that could affect corporate revenue and equity valuations, causing oscillation in equity markets with increases during favorable risk appetite.
Commodities were weaker in the week of Feb 22, 2013. The DJ UBS Commodities Index decreased 0.1 percent on Fri Feb 22 and decreased 1.8 percent in the week, as shown in Table III-1. WTI decreased 2.7 percent in the week of Feb 22 while Brent decreased 3.0 percent in the week. Gold increased 0.3 percent on Fri Feb 22 and decreased 1.8 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 €1,010,614 million on Feb 15, 2013. The sum of line 5 and line 7 (“Securities of Euro Area Residents Denominated in Euro”) has increased to €1,617,671 million in the statement of Feb 15, 2013. There is high credit risk in these transactions with capital of only €86,035 million as analyzed by Cochrane (2012Aug31).
Table III-2, Consolidated Financial Statement of the Eurosystem, Million EUR
| Dec 31, 2010 | Dec 28, 2011 | Feb 15, 2013 | |
| 1 Gold and other Receivables | 367,402 | 419,822 | 438,688 |
| 2 Claims on Non Euro Area Residents Denominated in Foreign Currency | 223,995 | 236,826 | 254,040 |
| 3 Claims on Euro Area Residents Denominated in Foreign Currency | 26,941 | 95,355 | 28,537 |
| 4 Claims on Non-Euro Area Residents Denominated in Euro | 22,592 | 25,982 | 19,902 |
| 5 Lending to Euro Area Credit Institutions Related to Monetary Policy Operations Denominated in Euro | 546,747 | 879,130 | 1,010,614 |
| 6 Other Claims on Euro Area Credit Institutions Denominated in Euro | 45,654 | 94,989 | 83,669 |
| 7 Securities of Euro Area Residents Denominated in Euro | 457,427 | 610,629 | 607,057 |
| 8 General Government Debt Denominated in Euro | 34,954 | 33,928 | 29,912 |
| 9 Other Assets | 278,719 | 336,574 | 283,306 |
| TOTAL ASSETS | 2,004, 432 | 2,733,235 | 2,755,725 |
| Memo Items | |||
| Sum of 5 and 7 | 1,004,174 | 1,489,759 | 1,617,671 |
| Capital and Reserves | 78,143 | 85,748 | 86,035 |
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/2013/html/fs130219.en.html
IIIE Appendix Euro Zone survival risk. 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), or euro area, are only 42.6 percent of the total. Exports to the non-European Union area with share of 44.0 percent in Italy’s total exports are growing at 9.2 percent in Jan-Dec 2012 relative to Jan-Dec 2011 while those to EMU are falling at 1.5 percent.
Table III-3, Italy, Exports and Imports by Regions and Countries, % Share and 12-Month ∆%
| Dec 2012 | Exports | ∆% Jan-Dec 2012/ Jan-Dec 2011 | Imports | Imports |
| EU | 56.0 | -0.7 | 53.7 | -7.2 |
| EMU 17 | 42.6 | -1.5 | 43.4 | -7.1 |
| France | 11.6 | -1.0 | 8.4 | -6.8 |
| Germany | 13.1 | -1.1 | 15.5 | -11.5 |
| Spain | 5.3 | -8.1 | 4.5 | -7.0 |
| UK | 4.7 | 8.0 | 2.7 | -12.8 |
| Non EU | 44.0 | 9.2 | 46.3 | -3.9 |
| Europe non EU | 13.3 | 8.4 | 10.8 | -1.0 |
| USA | 6.1 | 16.8 | 3.2 | -2.8 |
| China | 2.7 | -9.9 | 7.4 | -16.5 |
| OPEC | 4.7 | 24.6 | 8.5 | 19.7 |
| Total | 100.0 | 3.7 | 100.0 | -5.7 |
Notes: EU: European Union; EMU: European Monetary Union (euro zone)
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/82327
Table III-4 provides Italy’s trade balance by regions and countries. Italy had trade deficit of €1722 million with the 17 countries of the euro zone (EMU 17) in Dec 2012 and deficit of €3915 million in Jan-Dec 2012. Depreciation to parity could permit greater competitiveness in improving the trade surpluses of €11,495 million in Jan-Dec 2012 with Europe non European Union and of €13,990 million with the US and with non European Union of €2066 million in Jan-Dec 2012. There is significant rigidity in the trade deficits in Jan-Dec of €15,692 million with China and €19,003 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 Dec 2012 Millions of Euro | Trade Balance Cumulative Jan-Dec 2012 Millions of Euro |
| EU | -1,155 | 8,956 |
| EMU 17 | -1,722 | -3,915 |
| France | 582 | 11,845 |
| Germany | -1,029 | -6,501 |
| Spain | -71 | 1,443 |
| UK | 562 | 9,404 |
| Non EU | 3,317 | 2,066 |
| Europe non EU | 908 | 11,495 |
| USA | 1,275 | 13,990 |
| China | -687 | -15,692 |
| OPEC | -795 | -19,003 |
| Total | 2,162 | 11,022 |
Notes: EU: European Union; EMU: European Monetary Union (euro zone)
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/82327
Growth rates of Italy’s trade and major products are provided in Table III-5 for the period Jan-Dec 2012 relative to Jan-Dec 2011. Growth rates in 12 months of imports are negative with the exception of 7.1 percent for energy. The higher rate of growth of exports of 3.7 percent in Jan-Dec 2012/Jan-Dec 2011 relative to imports of minus 5.7 percent may reflect weak demand in Italy with GDP declining during six consecutive quarters from IIIQ2011 through IVQ2012.
Table III-5, Italy, Exports and Imports % Share of Products in Total and ∆%
| Exports | Exports | Imports | Imports | |
| Consumer | 28.9 | 5.1 | 25.0 | -3.3 |
| Durable | 5.9 | 2.6 | 3.0 | -7.1 |
| Non | 23.0 | 5.8 | 22.0 | -2.7 |
| Capital Goods | 32.3 | 1.5 | 21.1 | -12.9 |
| Inter- | 34.2 | 1.9 | 34.3 | -10.3 |
| Energy | 4.7 | 21.9 | 19.6 | 7.1 |
| Total ex Energy | 95.3 | 2.8 | 80.4 | -8.8 |
| Total | 100.0 | 3.7 | 100.0 | -5.7 |
Note: % Share for Jan-Nov 2012.
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/82327
Table III-6 provides Italy’s trade balance by product categories in Dec 2012 and cumulative Jan-Dec 2012. Italy’s trade balance excluding energy generated surplus of €6814 million in Dec 2012 and €74,016 million in Jan-Dec 2012 but the energy trade balance created deficit of €4653 million in Dec 2012 and €62,994 million in Jan-Dec 2012. The overall surplus in Dec 2012 was €2162 million with surplus of €11,022 million in Jan-Dec 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
| Dec 2012 | Cumulative Jan-Dec 2012 | |
| Consumer Goods | 1,694 | 17,197 |
| Durable | 1,038 | 11,623 |
| Nondurable | 656 | 5,574 |
| Capital Goods | 4,454 | 49,327 |
| Intermediate Goods | 665 | 7,492 |
| Energy | -4,653 | -62,994 |
| Total ex Energy | 6,814 | 74,016 |
| Total | 2,162 | 11,022 |
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/82327
Brazil faced in the debt crisis of 1982 a more complex policy mix. Between 1977 and 1983, 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 Subsection IIIF 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/datamapper/index.php?db=WEO) for GDP in USD billions, primary net lending/borrowing as percent of GDP and general government debt as percent of GDP for selected regions and countries in 2010.
Table III-7, World and Selected Regional and Country GDP and Fiscal Situation
| GDP 2012 | Primary Net Lending Borrowing | General Government Net Debt | |
| World | 71,277 | ||
| Euro Zone | 12,065 | -0.5 | 73.4 |
| Portugal | 211 | -0.7 | 110.9 |
| Ireland | 205 | -4.4 | 103.0 |
| Greece | 255 | -1.7 | 170.7 |
| Spain | 1,340 | -4.5 | 78.6 |
| Major Advanced Economies G7 | 33,769 | -5.1 | 89.0 |
| United States | 15,653 | -6.5 | 83.8 |
| UK | 2,434 | -5.6 | 83.7 |
| Germany | 3,367 | 1.4 | 58.4 |
| France | 2,580 | -2.2 | 83.7 |
| Japan | 5,984 | -9.1 | 135.4 |
| Canada | 1,770 | -3.2 | 35.8 |
| Italy | 1,980 | 2.6 | 103.1 |
| China | 8,250 | -1.3* | 22.2** |
*Net Lending/borrowing**Gross Debt
Source: IMF World Economic Outlook databank http://www.imf.org/external/datamapper/index.php?db=WEO
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 $4155.8 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 $3975.1 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 $8130.8 billion, which would be equivalent to 136.7 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 241.5 percent if including debt of France and 177.4 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 | 8,855.7 | ||
| B Germany | 1,996.3 | $8130.9 as % of $3367 =241.5% $5971.4 as % of $3367 =177.4% | |
| C France | 2,159.5 | ||
| B+C | 4,155.8 | GDP $5,947.0 Total Debt $8130.9 Debt/GDP: 136.7% | |
| D Italy | 2,041.4 | ||
| E Spain | 1,053.2 | ||
| F Portugal | 234.0 | ||
| G Greece | 435.3 | ||
| H Ireland | 211.2 | ||
| Subtotal D+E+F+G+H | 3,975.1 |
Source: calculation with IMF data http://www.imf.org/external/datamapper/index.php?db=WEO
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 Dec 2012. German exports to other European Union (EU) members are 55.9 percent of total exports in Dec 2012 and 57.1 percent in Jan-Dec 2012. Exports to the euro area are 37.1 percent in Dec and 37.5 percent in Jan-Dec. Exports to third countries are 44.1 percent of the total in Dec and 43.0 percent in Jan-Dec. There is similar distribution for imports. Exports to non-euro countries are decreasing 4.5 percent in Dec 2012 and increasing 3.3 percent in Jan-Dec 2012 while exports to the euro area are decreasing 7.3 percent in Dec and decreasing 2.1 percent in Jan-Dec 2012. Exports to third countries, accounting for 44.1 percent of the total in Dec 2012, are decreasing 7.5 percent in Dec and increasing 8.8 percent in Jan-Dec, accounting for 43.0 percent of the cumulative total in Jan-Dec 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 high share in its 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 ∆%
| Dec 2012 | Dec 12-Month | Jan–Dec 2012 € Billions | Jan-Dec 2012/ | |
| Total | 79.0 | -6.9 | 1,097.4 | 3.4 |
| A. EU | 44.2 % 55.9 | -6.4 | 625.7 % 57.0 | -0.3 |
| Euro Area | 29.3 % 37.1 | -7.3 | 411.9 % 37.5 | -2.1 |
| Non-euro Area | 14.9 % 18.9 | -4.5 | 213.8 % 19.5 | 3.3 |
| B. Third Countries | 34.8 % 44.1 | -7.5 | 471.7 % 43.0 | 8.8 |
| Total Imports | 67.0 | -7.3 | 909.2 | 0.7 |
| C. EU Members | 42.6 % 63.6 | -7.1 | 577.1 % 63.5 | 0.9 |
| Euro Area | 29.9 % 44.6 | -6.8 | 402.4 % 44.3 | 0.7 |
| Non-euro Area | 12.8 % 19.1 | -7.9 | 172.9 % 19.0 | 1.4 |
| D. Third Countries | 24.4 % 36.4 | -7.6 | 332.1 % 36.5 | 0.4 |
Notes: Total Exports = A+B; Total Imports = C+D
Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_050_51.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:
(Mt + Bt)/Pt = Et∫(1/Rt, t+τ)st+τdτ (4)
Equation (4) expresses the monetary, Mt, and debt, Bt, liabilities of the government, divided by the price level, Pt, in terms of the expected value discounted by the ex-post rate on government debt, Rt, t+τ, of the future primary surpluses st+τ, which are equal to Tt+τ – Gt+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 Rt, t+τ. The second equation of Cochrane (2011Jan, 5) is:
MtV(it, ·) = PtYt (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 | 1.5 | 1.6 | 1.3 | 7.9 |
| Japan | 0.3 | -0.1 | -0.2 | 4.2 |
| China | 7.9 | 2.0 | -1.6 | |
| UK | 0.0 | 2.7* | 2.0* output | 7.8 |
| Euro Zone | -0.9 | 2.2 | 2.1 | 11.7 |
| Germany | 0.4 | 2.0 | 1.5 | 5.3 |
| France | -0.3 | 1.5 | 1.7 | 10.6 |
| Nether-lands | -0.9 | 3.4 | 4.2 | 5.8 |
| Finland | -1.6 | 3.5 | 3.0 | 7.7 |
| Belgium | -0.4 | 2.1 | 6.4 | 7.5 |
| Portugal | -3.8 | 2.1 | 3.6 | 16.5 |
| Ireland | -0.8 | 1.6 | 2.2 | 14.7 |
| Italy | -2.7 | 2.6 | 2.0 | 11.2 |
| Greece | -6.0 | 0.3 | 2.1 | NA |
| Spain | -1.8 | 3.0 | 2.7 | 26.1 |
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/january-2013/index.html **Core
PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/january-2013/index.html
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/; country statistical sources http://www.census.gov/aboutus/stat_int.html
Table IV-1 shows the simultaneous occurrence of low growth, inflation and unemployment in advanced economies. The US grew at 1.5 percent in IVQ2012 relative to IVQ2011 (Table 8 in http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp4q12_adv.pdf See II Mediocre and Decelerating United States Economic Growth at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html). Japan’s GDP fell 0.3 percent in IVQ2011 relative to IVQ2010 and contracted 1.6 percent in IIQ2011 relative to IIQ2010 because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 but grew at the seasonally-adjusted annual rate (SAAR) of 10.4 percent in IIIQ2011, increasing at the SAAR of 0.6 percent in IVQ 2011, increasing at the SAAR of 6.0 percent in IQ2012 and decreasing at 1.0 percent in IIQ2012 but contracting at the SAAR of 3.8 percent in IIIQ2012 and contracting at the SAAR of 0.4 percent in IVQ2012 (see Section VB at
http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/recovery-without-hiring-forecast-growth.html); the UK grew at minus 0.3 percent in IVQ2012 relative to IIIQ2012 and GDP changed 0.0 percent in IVQ2012 relative to IVQ2011 (see Section VH at http://cmpassocregulationblog.blogspot.com/2013/01/united-states-commercial-banks-assets_27.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/united-states-commercial-banks-assets.html); and the Euro Zone grew at minus 0.6 percent in IVQ2012 and minus 0.9 percent in IVQ2012 relative to IVQ2011 (see Section VD at
http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/twenty-eight-million-unemployed-or.html). These are stagnating or “growth recession” rates, which are positive or about nil growth rates with some contractions that are insufficient to recover employment. The rates of unemployment are quite high: 7.7 percent in the US but 19.4 percent for unemployment/underemployment or job stress of 31.4 million (see Table I-4 at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/01/thirty-million-unemployed-or.html), 4.2 percent for Japan (see Section VB at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_2.html), 7.8 percent for the UK with high rates of unemployment for young people (see the labor statistics of the UK in Subsection VH and earlier at http://cmpassocregulationblog.blogspot.com/2013/01/united-states-commercial-banks-assets.html). Twelve-month rates of inflation have been quite high, even when some are moderating at the margin: 1.7 percent in the US, -0.1 percent for Japan, 2.0 percent for China, 2.2 percent for the Euro Zone and 2.7 percent for the UK. Stagflation is still an unknown event but the risk is sufficiently high to be worthy of consideration (see http://cmpassocregulationblog.blogspot.com/2011/06/risk-aversion-and-stagflation.html). The analysis of stagflation also permits the identification of important policy issues in solving vulnerabilities that have high impact on global financial risks. There are six key interrelated vulnerabilities in the world economy that have been causing global financial turbulence: (1) sovereign risk issues in Europe resulting from countries in need of fiscal consolidation and enhancement of their sovereign risk ratings (see Section III and earlier
http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html); (2) the tradeoff of growth and inflation in China now with change in growth strategy to domestic consumption instead of investment and political developments in a decennial transition; (3) slow growth by repression of savings with de facto interest rate controls (http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html), weak hiring with the loss of 10 million full-time jobs (http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html) and continuing job stress of 24 to 30 million people in the US and stagnant wages in a fractured job market (Section I at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/01/thirty-million-unemployed-or.html); (4) the timing, dose, impact and instruments of normalizing monetary and fiscal policies (see http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with.html http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2011/03/global-financial-risks-and-fed.html http://cmpassocregulationblog.blogspot.com/2011/02/policy-inflation-growth-unemployment.html) in advanced and emerging economies; (5) the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 that had repercussions throughout the world economy because of Japan’s share of about 9 percent in world output, role as entry point for business in Asia, key supplier of advanced components and other inputs as well as major role in finance and multiple economic activities (http://professional.wsj.com/article/SB10001424052748704461304576216950927404360.html?mod=WSJ_business_AsiaNewsBucket&mg=reno-wsj); and (6) geopolitical events in the Middle East.
In the effort to increase transparency, the Federal Open Market Committee (FOMC) provides both economic projections of its participants and views on future paths of the policy rate that in the US is the federal funds rate or interest on interbank lending of reserves deposited at Federal Reserve Banks. These projections and views are discussed initially followed with appropriate analysis.
Charles Evans, President of the Federal Reserve Bank of Chicago, proposed an “economic state-contingent policy” or “7/3” approach (Evans 2012 Aug 27):
“I think the best way to provide forward guidance is by tying our policy actions to explicit measures of economic performance. There are many ways of doing this, including setting a target for the level of nominal GDP. But recognizing the difficult nature of that policy approach, I have a more modest proposal: I think the Fed should make it clear that the federal funds rate will not be increased until the unemployment rate falls below 7 percent. Knowing that rates would stay low until significant progress is made in reducing unemployment would reassure markets and the public that the Fed would not prematurely reduce its accommodation.
Based on the work I have seen, I do not expect that such policy would lead to a major problem with inflation. But I recognize that there is a chance that the models and other analysis supporting this approach could be wrong. Accordingly, I believe that the commitment to low rates should be dropped if the outlook for inflation over the medium term rises above 3 percent.
The economic conditionality in this 7/3 threshold policy would clarify our forward policy intentions greatly and provide a more meaningful guide on how long the federal funds rate will remain low. In addition, I would indicate that clear and steady progress toward stronger growth is essential.”
Evans (2012Nov27) modified the “7/3” approach to a “6.5/2.5” approach:
“I have reassessed my previous 7/3 proposal. I now think a threshold of 6-1/2 percent for the unemployment rate and an inflation safeguard of 2-1/2 percent, measured in terms of the outlook for total PCE (Personal Consumption Expenditures Price Index) inflation over the next two to three years, would be appropriate.”
The Federal Open Market Committee (FOMC) decided at its meeting on Dec 12, 2012 to implement the “6.5/2.5” approach (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm):
“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
Another rising risk is division within the Federal Open Market Committee (FOMC) on risks and benefits of current policies as expressed in the minutes of the meeting held on Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):
“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy.
Jon Hilsenrath and Victoria McGrane, writing on “Fed slip over how long to keep cash spigot open,” published on Feb 20, 2013 in the Wall street Journal (http://professional.wsj.com/article/SB10001424127887323511804578298121033876536.html), analyze the minutes of the Fed, comments by members of the FOMC and data showing increase in holdings of riskier debt by investors, record issuance of junk bonds, mortgage securities and corporate loans.
Unconventional monetary policy will remain in perpetuity, or QE→∞, changing to a “growth mandate.” There are two reasons explaining unconventional monetary policy of QE→∞: insufficiency of job creation to reduce unemployment/underemployment at current rates of job creation; and growth of GDP at 1.5 percent, which is well below 3.0 percent estimated by Lucas (2011May) from 1870 to 2010. Unconventional monetary policy interprets the dual mandate of low inflation and maximum employment as mainly a “growth mandate” of forcing economic growth in the US at a rate that generates full employment. A hurdle to this “growth mandate” is that the US economy grew at 6.2 percent on average during cyclical expansions in the postwar period while growth has been at only 2.1 percent on average in the cyclical expansion in the 14 quarters from IIIQ2009 to IVQ2012. Zero interest rates and quantitative easing have not provided the impulse for growth and were not required in past successful cyclical expansions.
First, the average increase of 165,900 new nonfarm jobs per month in the US from Mar to Dec 2012 or 166,000 created in Jan 2013 is insufficient even to absorb 113,167 new entrants per month into the labor force. The difference between the average increase of 165,900 new private nonfarm jobs per month in the US from Mar to Dec 2012 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 52,733 monthly new jobs net of absorption of new entrants in the labor force. There are 31.4 million in job stress in the US currently. The provision of 52,733 new jobs per month net of absorption of new entrants in the labor force would require 595 months to provide jobs for the unemployed and underemployed (31.4 million divided by 52,733) or 49.6 years (595 divided by 12). The civilian labor force of the US in Jan 2013 not seasonally adjusted stood at 154.794 million with 13.181 million unemployed or effectively 20.354 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.6 years (1 million divided by product of 52,733 by 12, which is 632,796). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.740 million (0.05 times labor force of 154.794 million) for new net job creation of 5.441 million (13.181 million unemployed minus 7.740 million unemployed at rate of 5 percent) that at the current rate would take 8.6 years (5.441 million divided by 632,796). Under the calculation in this blog there are 20.354 million unemployed by including those who ceased searching because they believe there is no job for them. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 12.614 million jobs net of labor force growth that at the current rate would take 19.9 years (12.614 million minus 0.05(161.967 million) divided by 632,796, using LF PART 66.2% and Total UEM in Table I-4). These calculations assume that there are no more recessions, defying United States economic history with periodic contractions of economic activity when unemployment increases sharply. The number employed in the US fell from 146.743 million in Oct 2007 to 141.614 million in Jan 2013, by 5.129 million, or 3.5 percent, while the noninstitutional population increased from 232.715 million in Oct 2007 to 244.663 million in Jan 2013, by 11.948 million or increase of 5.1 percent, using not seasonally adjusted data. There is actually not sufficient job creation to merely absorb new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.
Second, calculations show that GDP growth is 1.7 to 1.9 percent. Excluding growth at the SAAR of 2.5 percent in IIQ2011 and 4.1 percent in IVQ2011 while converting growth in IIIQ2012 to 1.3 percent by deducting from 3.1 percent one-time inventory accumulation of 0.73 percentage points and national defense expenditures of 0.64 percentage points and converting growth in IVQ2012 by adding 1.27 percentage points of inventory divestment and 1.28 percentage points of national defense expenditure reductions to obtain 2.54 percent, the US economy grew at 1.7 percent in the remaining six quarters {[(1.00025x1.0032x1.005x1.0032x1.0077x0.0063)4/6 – 1]100 = 1.7%} with declining growth trend in three consecutive quarters from 4.1 percent in IVQ2011, to 2.0 percent in IQ2012, 1.3 percent in IIQ2012, 3.1 percent in IIIQ2012 that is more like 1.73 percent without inventory accumulation and national defense expenditures and -0.1 percent in IVQ2012 that is more likely 2.54 percent by adding 1.27 percentage points of inventory divestment and 1.28 percentage points of national defense expenditures. Weakness of growth is more clearly shown by adjusting the exceptional one-time contributions to growth from items that are not aggregate demand: 2.53 percentage points contributed by inventory change to growth of 4.1 percent in IVQ2011; 0.64 percentage points contributed by expenditures in national defense together with 0.73 points of inventory accumulation to growth of 3.1 percent in IIIQ2012; and deduction of 1.27 percentage points of inventory divestment and 1.28 percentage points of national defense expenditure reductions. The Bureau of Economic Analysis (BEA) of the US Department of Commerce released on Wed Jan 30, 2012, the first or advanced estimate of GDP for IVQ2012 at minus 0.1 percent seasonally-adjusted annual rate (SAAR) (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp4q12_adv.pdf). In the four quarters of 2012, the US economy is growing at the annual equivalent rate of 1.9 percent {([(1.021/4(1.013)1/4(1.0173)1/4(1.0254)1/4]-1)100 = 1.89%} by excluding inventory accumulation of 0.73 percentage points and exceptional defense expenditures of 0.64 percentage points from growth 3.1 percent at SAAR in IIIQ2012 to obtain adjusted 1.73 percent SSAR and adding 1.28 percentage points of national defense expenditure reductions and 1.27 percentage points of inventory divestment to growth of minus 0.1 percent SAAR in IVQ2012 to obtain 2.54 percent.
In fact, it is evident to the public that this policy will be abandoned if inflation costs rise. There is concern of the production and employment costs of controlling future inflation. Even if there is no inflation, QE∞ cannot be abandoned because of the fear of rising interest rates. The economy would operate in an inferior allocation of resources and suboptimal growth path, or interior point of the production possibilities frontier where the optimum of productive efficiency and wellbeing is attained, because of the distortion of risk/return decisions caused by perpetual financial repression. Not even a second-best allocation is feasible with the shocks to efficiency of financial repression in perpetuity.
The statement of the FOMC at the conclusion of its meeting on Dec 12, 2012, revealed the following policy intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm) practically unchanged in the statement at the conclusion of its meeting on Jan 30, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130130a.htm):
“Release Date: December 12, 2012
For immediate release
Information received since the Federal Open Market Committee met in October suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated. Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient 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 will run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, 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 asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”
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 $85 billion of bond purchases per month: “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month.”
3. Advance Guidance on “6 ¼ 2 ½ “Rule. Policy will be accommodative even after the economy recovers satisfactorily: “o support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
4. Monitoring and Policy Focus on Jobs. The FOMC reconsiders its policy continuously in accordance with available information: “The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”
Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output that is actually a target of growth forecast. The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest during nearly a decade and programmed in monetary policy statements until 2015 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted. If economic perspectives are doomed until 2015 such as to warrant zero interest rates and open-ended bond-buying by “printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html; see Shultz et al 2012), rational investors and consumers will not invest and consume until just before interest rates are likely to increase. Monetary policy statements on intentions of zero interest rates for another three years or now virtually forever discourage investment and consumption or aggregate demand that can increase economic growth and generate more hiring and opportunities to increase wages and salaries. The doom scenario used to justify monetary policy accentuates adverse expectations on discounted future cash flows of potential economic projects that can revive the economy and create jobs. If it were possible to project the future with the central tendency of the monetary policy scenario and monetary policy tools do exist to reverse this adversity, why the tools have not worked before and even prevented the financial crisis? If there is such thing as “monetary policy science”, why it has such poor record and current inability to reverse production and employment adversity? There is no excuse of arguing that additional fiscal measures are needed because they were deployed simultaneously with similar ineffectiveness.
Table IV-2 provides economic projections of governors of the Board of Governors of the Federal Reserve and regional presidents of Federal Reserve Banks released at the meeting of Dec 12, 2012. The Fed releases the data with careful explanations (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20121212.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 IVQ2012 is analyzed at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html (and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html) and the PCE inflation data from the report on personal income and outlays (http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html). The Bureau of Economic Analysis (BEA) provides the advance estimate of IVQ2012 GDP and annual for 2012 with the second estimate be released on Feb 28 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm See http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html). 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 at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and the report for Nov 2012 at http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states.html. The next report on “Personal Income and Outlays” for Jan will be released at 8:30 AM on Mar 1, 2013 (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm). PCE core inflation consists of PCE inflation excluding food and energy. Column “UNEMP %” is the rate of unemployment measured as the average civilian unemployment rate in the fourth quarter of the year. The Bureau of Labor Statistics (BLS) provides the Employment Situation Report with the civilian unemployment rate in the first Friday of every month, which is analyzed in this blog (the Nov report at http://cmpassocregulationblog.blogspot.com/2012/12/twenty-eight-million-unemployed-or.html; the Oct report is analyzed in this blog at http://cmpassocregulationblog.blogspot.com/2012/11/twenty-eight-million-unemployed-or.html; the Sep report is analyzed in this blog at http://cmpassocregulationblog.blogspot.com/2012/10/twenty-nine-million-unemployed-or_7.html; 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 Dec was released on Fri Jan 4, 2013 (http://www.bls.gov/ces/) and analyzed in this blog (http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html). The report for Jan 2013 will be released on Mar 8, 2013 (http://www.bls.gov/ces/) and analyzed in this blog on Mar 10, 2013. “Longer term projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy” (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20121212.pdf).
It is instructive to focus on 2012 and 2013 as 2014, 2015 and longer term are too far away, and there is not much information even on what will happen in 2013 and beyond. The central tendency should provide reasonable approximation of the view of the majority of members of the FOMC but the second block of numbers provides the range of projections by FOMC participants. The first row for each year shows the projection introduced after the meeting of Dec 12, 2012 and the second row “PR” the projection of the Sep 13, 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 and 1.7 to 1.8 percent at the Dec 12, 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 but reduced to 2.3 to 3.0 percent at the Dec 12, 2012 meeting.
2. 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, lowering the projection to 7.8 to 7.9 percent at the Dec 12, 2012 meeting. 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 and reduced to 7.4 to 7.7 percent at the Dec 12 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 and 1.6 to 1.7 percent at the Dec 12, 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 and lowered to 1.7 to 1.9 percent at the Dec 12, 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 | ||||
| 2012 Sep PR | 1.7 to 1.8 1.7 to 2.0 | 7.8 to 7.9 8.0 to 8.2 | 1.6 to 1.7 1.7. to 1.8 | 1.6 to 1.7 1.7 to 1.9 |
| 2013 | 2.3 to 3.0 | 7.4 to 7.7 | 1.3 to 2.0 | 1.6 to 1.9 1.7 to 2.0 |
| 2014 | 3.0 to 3.5 | 6.8 to 7.3 | 1.5 to 2.0 | 1.6 to 2.0 |
| 2015 | 3.0 to 3.7 3.0 to 3.8 | 6.0 to 6.6 6.0 to 6.8 | 1.7 to 2.0 1.8 to 2.0 | 1.8 to 2.0 1.9 to 2.0 |
| Longer Run Sep 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 | 1.6 to 2.0 | 7.7 to 8.0 | 1.6 to 1.8 | 1.6 to 1.8 |
| 2013 | 2.0 to 3.2 | 6.9 to 7.8 | 1.3 to 2.0 | 1.5 to 2.0 |
| 2014 | 2.8 to 4.0 | 6.1 to 7.4 | 1.4 to 2.2 | 1.5 to 2.0 |
| 2015 Sep PR | 2.5 to 4.2 2.5 to 4.2 | 5.7 to 6.8 5.7 to 6.9 | 1.5 to 2.2 1.8 to 2.3 | 1.7 to 2.2 1.8 to 2.3 |
| Longer Run Sep PR | 2.2 to 3.0 2.2 to 3.0 | 5.0 to 6.0 5.0 to 6.3 | 2.0 2.0 |
Notes: UEM: unemployment; PR: Projection
Source: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20121212.pdf
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
| 0 to 0.25 | 0.5 to 1.0 | 1.0 to 1.5 | 1.0 to 2.0 | 2.0 to 3.0 | 3.0 to 4.5 | |
| 2012 | 19 | |||||
| 2013 | 17 | 1 | 1 | |||
| 2014 | 14 | 1 | 3 | 1 | ||
| 2015 | 1 | 8 | 6 | 1 | 3 | |
| Longer Run | 19 |
Source: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20121212.pdf
Another important decision at the FOMC meeting on Jan 25, 2012, is formal specification of the goal of inflation of 2 percent per year but without specific goal for unemployment (http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm):
“Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.
The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decision making by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.
Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals.
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances.
The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants' estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC's Summary of Economic Projections. For example, in the most recent projections, FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent, roughly unchanged from last January but substantially higher than the corresponding interval several years earlier.
In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. ”
The probable intention of this specific inflation goal is to “anchor” inflationary expectations. Massive doses of monetary policy of promoting growth to reduce unemployment could conflict with inflation control. Economic agents could incorporate inflationary expectations in their decisions. As a result, the rate of unemployment could remain the same but with much higher rate of inflation (see Kydland and Prescott 1977 and Barro and Gordon 1983; http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html See Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 99-116). Strong commitment to maintaining inflation at 2 percent could control expectations of inflation.
The FOMC continues its efforts of increasing transparency that can improve the credibility of its firmness in implementing its dual mandate. Table IV-3 provides the views by participants of the FOMC of the levels at which they expect the fed funds rate in 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/fomcprojtabl20121212.pdf). There are 19 participants expecting the rate to remain at 0 to ¼ percent in 2012 and none to be higher. Not much change is expected in 2013 either with 17 participants anticipating the rate at the current target of 0 to ¼ percent and only two expecting higher rates. The rate would still remain at 0 to ¼ percent in 2014 for 14 participants with three expecting the rate to be in the range of 1.0 to 2.0 percent, one participant expecting rates at 0.5 to 1.0 percent and one participant 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, nine participants expect rates to be below 1.0 percent while nine expect rates from 1.0 to 4.5 percent. In the long-run, all 19 participants expect rates to be between 3.0 and 4.5 percent.
Table IV-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 | 2 |
| 2014 | 3 |
| 2015 | 13 |
| 2016 | 1 |
Source: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20121212.pdf
Price indexes of the Federal Reserve Bank of Philadelphia Outlook Survey are provided in Table IV-6. As inflation waves throughout the world (analyzed in I and earlier at http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html), indexes of both current and expectations of future prices paid and received were quite high until May 2011. Prices paid, or inputs, were more dynamic, reflecting carry trades from zero interest rates to commodity futures. All indexes softened after May 2011 with even decline of prices received in Aug 2011 during the first round of risk aversion. Current and future price indexes have increased again but not back to the levels in the beginning of 2011 because of risk aversion frustrating carry trades even under zero interest rates. The index of prices paid or prices of inputs fell from 23.5 in Dec 2012 to 8.9 in Feb 2013. In Feb 2013, the index of current prices received was minus 0.5, indicating moderate decrease of prices received. The index of future prices paid fell to 26.4 in Feb 2013 from 45.8 in Dec 2012, indicating expectation of lower pressure of increases of input prices while the index of future prices received fell marginally from 25.6 in Dec 2012 to 25.4 in Feb 2013.
Table IV-5, US, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and Future Prices Paid and Prices Received, SA
| Current Prices Paid | Current Prices Received | Future Prices Paid | Future Prices Paid | |
| Dec 2010 | 44.3 | 6.6 | 59.6 | 25.3 |
| Jan 2011 | 48.9 | 11.9 | 58.3 | 34.4 |
| Feb | 58.9 | 13.1 | 62.1 | 33.3 |
| Mar | 57.5 | 16.8 | 60.2 | 31.8 |
| Apr | 49.4 | 19.8 | 54.2 | 32.4 |
| May | 47.7 | 18.5 | 52.7 | 27.6 |
| Jun | 38.9 | 8.1 | 38.3 | 6.8 |
| Jul | 35.6 | 6.0 | 49.6 | 16.7 |
| Aug | 23.3 | -4.7 | 44.3 | 22.7 |
| Sep | 31.6 | 7.6 | 41.8 | 21.8 |
| Oct | 25.4 | 4.1 | 44.5 | 28.4 |
| Nov | 26.3 | 7.6 | 39.0 | 29.1 |
| Dec 2011 | 27.5 | 8.2 | 46.7 | 23.5 |
| Jan 2012 | 27.1 | 7.9 | 47.2 | 21.9 |
| Feb | 30.2 | 9.7 | 43.5 | 28.6 |
| Mar | 14.3 | 5.4 | 35.9 | 22.0 |
| Apr | 16.0 | 5.3 | 33.3 | 18.6 |
| May | 5.4 | -2.2 | 37.2 | 8.3 |
| Jun | 5.4 | -3.4 | 29.6 | 16.6 |
| Jul | 10.3 | 4.2 | 29.3 | 19.6 |
| Aug | 15.7 | 4.7 | 38.0 | 23.9 |
| Sep | 15.4 | 4.0 | 42.8 | 27.4 |
| Oct | 20.6 | 8.4 | 48.1 | 16.1 |
| Nov | 27.9 | 7.5 | 50.7 | 14.0 |
| Dec 2012 | 23.5 | 12.4 | 45.8 | 25.6 |
| Jan 2013 | 14.7 | -1.1 | 34.3 | 21.7 |
| Feb | 8.9 | -0.5 | 26.4 | 25.4 |
Source: Federal Reserve Bank of Philadelphia http://www.philadelphiafed.org/index.cfm
Chart IV-1 of the Business Outlook Survey of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices paid or prices of inputs from 2006 to 2013. Recession dates are in shaded areas. In the middle of deep global contraction after IVQ2007, input prices continued to increase in speculative carry trades from interest rates falling toward zero into commodities futures. The index peaked above 70 in the second half of 2008. Inflation of inputs moderated significantly during the shock of risk aversion in late 2008, even falling briefly into contraction territory below zero during several months in 2009 in the flight away from risk financial assets into US government securities (Cochrane and Zingales 2009) that unwound carry trades. Return of risk appetite induced carry trade with significant increase until return of risk aversion in the first round of the European sovereign debt crisis in Apr 2010. Carry trades returned during risk appetite in expectation that the European sovereign debt crisis was resolved. The various inflation waves originating in carry trades induced by zero interest rates with alternating episodes of risk aversion are mirrored in the prices of inputs after 2011, in particular after Aug 2012 with the announcement of the Outright Monetary Transactions Program of the European Central Bank (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html). Subsequent risk aversion caused sharp decline in the index of prices paid.
Chart IV-1, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid Diffusion Index SA
Source: Federal Reserve Bank of Philadelphia http://www.philadelphiafed.org/index.cfm
Chart IV-2 of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices received from 2006 to 2013. The significant difference between the index of current prices paid in Chart IV-1 and the index of current prices paid in Chart IV-2 is that increases in prices paid are significantly sharper than increases in prices received. There were several periods of negative readings of prices received from 2010 to 2013 but none of prices paid. Prices paid relative to prices received deteriorate most of the time largely because of the carry trades from zero interest rates to commodity futures. Profit margins of business are compressed intermittently by fluctuations of commodity prices induced by unconventional monetary policy, frustrating production, investment and hiring decisions of business, which is precisely the opposite outcome desired by unconventional monetary policy.
Chart IV-2, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Received Diffusion Index SA
Source: Federal Reserve Bank of Philadelphia http://www.philadelphiafed.org/index.cfm
China is experiencing similar inflation behavior as the advanced economies in prior months in the form of declining commodity prices but differs in decreasing inflation of producer prices recently as in Dec 2012 and in declining prices relative to a year earlier. As shown in Table IV-6, inflation of the price indexes for industry in Jan 2012 is 0.2 percent; 12-month inflation is minus 1.6 percent in Jan; and cumulative inflation in Jan 2013 relative to Jan 2013 is minus 1.6 percent. Inflation of segments in Dec 2012 in China is provided in Table IV-6 in column “Month Jan 2013 ∆%.” There were increases of prices of mining & quarrying of 0.4 percent in Jan but decrease of 5.0 percent in 12 months. Prices of consumer goods increased 0.3 percent in Jan and increased 0.7 percent in 12 months. Prices of inputs in the purchaser price index decreased 0.1 percent in Dec and declined 2.4 percent in 12 months. Fuel and power increased 0.3 percent in Jan and declined 1.9 percent in 12 months. An important category of inputs for exports is textile raw materials, increasing 0.2 percent in Jan and declining 0.9 percent in 12 months.
Table IV-6, China, Price Indexes for Industry ∆%
| Month Jan 2013 ∆% | 12-Month Jan 2013 ∆% | Jan 2013/Jan 2012 ∆% | |
| I Producer Price Indexes | 0.2 | -1.6 | -1.6 |
| Means of Production | 0.2 | -2.4 | -2.4 |
| Mining & Quarrying | 0.4 | -5.0 | -5.0 |
| Raw Materials | 0.4 | -2.2 | -2.2 |
| Processing | 0.1 | -2.2 | -2.2 |
| Consumer Goods | 0.3 | 0.7 | 0.7 |
| Food | 0.6 | 1.3 | 1.3 |
| Clothing | 0.3 | 1.5 | 1.5 |
| Daily Use Articles | 0.1 | 0.9 | 0.9 |
| Durable Consumer Goods | 0.0 | -1.0 | -1.0 |
| II Purchaser Price Indexes | 0.3 | -1.9 | -1.9 |
| Fuel and Power | 0.1 | -2.6 | -2.6 |
| Ferrous Metals | 1.0 | -6.5 | -6.5 |
| Nonferrous Metals | 0.1 | -1.5 | -1.5 |
| Raw Chemical Materials | 0.1 | -3.1 | -3.1 |
| Wood & Pulp | 0.1 | -0.5 | -0.5 |
| Building Materials | -0.5 | -1.4 | -1.4 |
| Other Industrial Raw Materials | 0.1 | -1.0 | -1.0 |
| Agricultural | 0.9 | 2.5 | 2.5 |
| Textile Raw Materials | 0.2 | -0.9 | -0.9 |
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
China’s producer price inflation follows waves similar to those around the world but with declining trend since May 2012, as shown in Table IV-7. In the first wave, annual equivalent inflation was 6.4 percent in Jan-Jun 2011, driven by carry trades from zero interest rates to commodity futures. In the second wave, risk aversion unwound carry trades, resulting in annual equivalent inflation of minus 3.1 percent in Jul-Nov 2011. In the third wave, renewed risk aversion resulted in annual equivalent inflation of minus 2.4 percent in Dec 2011-Jan 2012. In the fourth wave, new carry trades resulted in annual equivalent inflation of 2.4 percent in Feb-Apr 2012. In the fifth wave, annual equivalent is minus 5.8 percent in May-Sep 2012. There are declining producer prices in China in Aug-Sep 2012 in contrast with increases worldwide. In a sixth wave, producer prices increased 0.2 percent in Oct 2012, which is equivalent to 2.4 percent in a year. In an eighth wave, annual equivalent inflation was minus 1.2 percent in Nov-Dec 2012. In the ninth wave, annual equivalent inflation in Jan 2013 is 2.4 percent.
Table IV-7, China, Month and 12-Month Rate of Change of Producer Price Index, ∆%
| 12-Month ∆% | Month ∆% | |
| Jan 2013 | -1.6 | 0.2 |
| AE ∆% Jan | 2.4 | |
| Dec 2012 | -1.9 | -0.1 |
| Nov | -2.2 | -0.1 |
| AE ∆% Nov-Dec | -1.2 | |
| Oct | -2.8 | 0.2 |
| AE ∆% Oct | 2.4 | |
| Sep | -3.6 | -0.1 |
| Aug | -3.5 | -0.5 |
| Jul | -2.9 | -0.8 |
| Jun | -2.1 | -0.7 |
| May | -1.4 | -0.4 |
| AE ∆% May-Sep | -5.8 | |
| Apr | -0.7 | 0.2 |
| Mar | -0.3 | 0.3 |
| Feb | 0.0 | 0.1 |
| AE ∆% Feb-Apr | 2.4 | |
| Jan | 0.7 | -0.1 |
| Dec 2011 | 1.7 | -0.3 |
| AE ∆% Dec-Jan | -2.4 | |
| Nov | 2.7 | -0.7 |
| Oct | 5.0 | -0.7 |
| Sep | 6.5 | 0.0 |
| Aug | 7.3 | 0.1 |
| Jul | 7.5 | 0.0 |
| AE ∆% Jul-Nov | -3.1 | |
| Jun | 7.1 | 0.0 |
| May | 6.8 | 0.3 |
| Apr | 6.8 | 0.5 |
| Mar | 7.3 | 0.6 |
| Feb | 7.2 | 0.8 |
| Jan | 6.6 | 0.9 |
| AE ∆% Jan-Jun | 6.4 | |
| Dec 2010 | 5.9 | 0.7 |
AE: Annual Equivalent
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Chart IV-3 of the National Bureau of Statistics of China provides monthly and 12-month rates of inflation of the price indexes for the industrial sector. Negative monthly rates in Oct, Nov, Dec 2011, Jan, Mar, Apr, May, Jun, Jul, Aug, Sep, Nov and Dec 2012 pulled down the 12-month rates to 5.0 percent in Oct 2011, 2.7 percent in Nov, 1.7 percent in Dec, 0.7 percent in Jan 2012, 0.0 percent in Feb, minus 0.3 percent in Mar, minus 0.7 percent in Apr, minus 1.4 percent in May, 2.1 in Jun, minus 2.9 percent in Jul, minus 3.5 percent in Aug, minus 3.6 percent in Sep. The increase of 0.2 percent in Oct 2012 pulled up the 12-month rate to minus 2.8 percent and the rate eased to minus 2.2 percent in Nov 2012 and minus 1.9 percent in Dec 2012. Increase of 0.2 percent in Jan 2013 pulled the 12-month rate to minus 1.6 percent.
Chart IV-3, China, Producer Prices for the Industrial Sector Month and 12 months ∆%
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/enGliSH/
Chart IV-4 of the National Bureau of Statistics of China provides monthly and 12-month inflation of the purchaser product indices for the industrial sector. Decreasing monthly inflation with four successive contractions from Oct 2011 to Jan 2012 and May-Aug 2012 pulled down the 12-month rate to minus 4.1 percent in Aug and Sep. Consecutive increases of 0.1 percent in Sep and Oct 2012 raised the 12-month rate to minus 3.3 percent in Oct 2012. The rate eased to minus 2.8 in Nov 2012 with decrease of 0.2 percent in Nov 2012 and minus 2.4 percent in Dec 2012 with monthly decrease of 0.1 percent. Increase of 0.3 percent in Jan 2012 pulled the 12-month rate to minus 1.9 percent.
Chart IV-4, China, Purchaser Product Indices for Industrial Sector
http://www.stats.gov.cn/enGliSH/
China is highly conscious of food price inflation because of its high weight in the basket of consumption of the population. Consumer price inflation in China in Dec was 0.8 percent and 2.5 percent in 12 months, as shown in Table IV-8. Food prices increased 1.0 percent in Jan 2013, increasing 2.0 percent in 12 months because of inclement winter weather. Another area of concern is housing inflation which was 0.2 in Jan but increased 2.9 percent in 12 months. Prices of services increased 0.4 percent in Jan and gained 2.2 percent in 12 months.
Table IV-8, China, Consumer Price Index
| 2013 | Jan 2013 Month ∆% | Jan 2013 Month ∆% | Jan 2013 ∆% Jan 2012 |
| Consumer Prices | 1.0 | 2.0 | 2.0 |
| Urban | 1.0 | 2.0 | 2.0 |
| Rural | 1.2 | 2.2 | 2.2 |
| Food | 2.8 | 2.9 | 2.9 |
| Non-food | 0.1 | 1.6 | 1.6 |
| Consumer Goods | 1.2 | 2.0 | 2.0 |
| Services | 0.4 | 2.2 | 2.2 |
| Commodity Categories: | |||
| Food | 2.8 | 2.9 | 2.9 |
| Tobacco, Liquor | 0.0 | 1.4 | 1.4 |
| Clothing | -0.4 | 2.5 | 2.5 |
| Household | 0.3 | 1.5 | 1.5 |
| Healthcare & Personal Articles | 0.1 | 1.8 | 1.8 |
| Transportation & Communication | 0.1 | -0.3 | -0.3 |
| Recreation, Education, Culture & Services | 0.5 | 0.5 | 0.5 |
| Residence | 0.2 | 2.9 | 2.9 |
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Month and 12-month rates of change of consumer prices are provided in Table IV-11. There are waves of consumer price inflation in China similar to those around the world (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html). In the first wave, consumer prices increased at the annual equivalent rate of 8.3 percent in Jan-Mar 2011, driven by commodity price increases resulting from unconventional monetary policy of zero interest rates. In the second wave, risk aversion unwound carry trades with annual equivalent inflation falling to the rate of 2.0 percent in Apr-Jun 2011. In the third wave, inflation returned at 2.9 percent with renewed interest in commodity exposures in Jul-Nov 2011. In the fourth wave, inflation returned at a high 5.8 percent annual equivalent in Dec 2011 to Mar 2012. In the fifth wave, annual equivalent inflation was minus 3.9 percent in Apr to Jun 2012. In the sixth wave, annual equivalent inflation rose to 4.1 percent in Jul-Sep 2012. In the seventh wave, inflation was minus 1.2 percent annual equivalent in Oct 2012 and 0.0 percent in Oct-Nov 2012. In the eighth wave, annual equivalent inflation was 11.4 percent in Dec 2012-Jan 2013 primarily because of winter weather that caused increases in food prices. Inflation volatility originating in unconventional monetary policy clouds investment and consumption decisions by business and households.
Table IV-9, China, Month and 12-Month Rates of Change of Consumer Price Index ∆%
| Month ∆% | 12-Month ∆% | |
| Jan 2013 | 1.0 | 2.0 |
| Dec 2012 | 0.8 | 2.5 |
| AE ∆% Jan-Dec | 11.4 | |
| Nov | 0.1 | 2.0 |
| Oct | -0.1 | 1.7 |
| AE ∆% Oct-Nov | 0.0 | |
| Sep | 0.3 | 1.9 |
| Aug | 0.6 | 2.0 |
| Jul | 0.1 | 1.8 |
| AE ∆% Jul-Sep | 4.1 | |
| Jun | -0.6 | 2.2 |
| May | -0.3 | 3.0 |
| Apr | -0.1 | 3.4 |
| AE ∆% Apr to Jun | -3.9 | |
| Mar | 0.2 | 3.6 |
| Feb | -0.1 | 3.2 |
| Jan | 1.5 | 4.5 |
| Dec 2011 | 0.3 | 4.1 |
| AE ∆% Dec to Mar | 5.8 | |
| Nov | -0.2 | 4.2 |
| Oct | 0.1 | 5.5 |
| Sep | 0.5 | 6.1 |
| Aug | 0.3 | 6.2 |
| Jul | 0.5 | 6.5 |
| AE ∆% Jul to Nov | 2.9 | |
| Jun | 0.3 | 6.4 |
| May | 0.1 | 5.5 |
| Apr | 0.1 | 5.3 |
| AE ∆% Apr to Jun | 2.0 | 2.0 |
| Mar | -0.2 | 5.4 |
| Feb | 1.2 | 4.9 |
| Jan | 1.0 | 4.9 |
| AE ∆% Jan to Mar | 8.3 | |
| Dec 2010 | 0.5 | 4.6 |
AE: Annual Equivalent
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Chart IV-3 of the National Bureau of Statistics of China provides monthly and 12-month rates of consumer price inflation. In contrast with producer prices, consumer prices had not moderated at the monthly marginal rates. Consumer prices fell 0.2 percent in Nov 2011 after increasing only 0.1 percent in Oct but increased 0.3 percent in Dec and a high 1.5 percent in Jan 2012, declining 0.1 percent in Feb, rising 0.2 percent in Mar and declining 0.1 percent in Apr, 0.3 percent in May and 0.6 percent in Jun 2012 but increasing 0.1 percent in Jul, 0.6 percent in Aug 2012 and 0.3 percent in Sep 2012. Consumer prices fell 0.1 percent in Oct 2012. The decline of 0.1 percent in Feb 2012 pulled down the 12-month rate to 3.2 percent, which bounced back to 3.6 percent in Mar with the monthly increase of 0.2 percent and fell to 2.2 percent in Jun with increasing pace of monthly decline from Apr to Jun 2012. Even with increase of 0.1 percent in Jul 2012, consumer price inflation in 12 months fell to 1.8 percent in Jul 2012 but bounced back to 2.0 percent with increase of 0.6 percent in Aug. In Sep, increase of 0.3 percent still maintained 12-month inflation at 1.9 percent. The decline of 0.1 percent in Oct 2012 pulled down the 12-month rate to 1.7 percent, which is the lowest in Chart IV-3. Increase of 0.1 percent in Nov 2012 pulled up the 12-month rate to 2.0 percent. Abnormal increase of 0.8 percent in Dec 2012 because of winter weather pulled up the 12-month rate to 2.5 percent. Even with increase of 1.0 percent in Jan 2013 12-month inflation fell to 2.0 percent.
Chart IV-5, China, Consumer Prices ∆% Month and 12 Months Oct 2011 to Oct 2012
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
The producer price index of Germany increased 0.2 percent in Jan 2013, calendar and seasonally adjusted (CSA), increased 0.8 not seasonally adjusted (NS) in Jan 2013 and increased 1.7 percent in the 12 months ending in Jan 2013, as shown in Table IV-9. The producer price index of Germany has similar waves of inflation as in many other countries (Section I and earlier at http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html). In the first wave from Jan to Apr 2011, the annual equivalent rate of producer price inflation was 10.4 percent NSA and 6.5 percent CSA, propelled by carry trades from zero interest rates to exposures in commodity futures in a mood of risk appetite. In the second wave in May and Jun 2011, the annual equivalent rate of producer price inflation was only 0.6 percent NSA because of the collapse of the carry trade in fear of risks of European sovereign debt but 3.7 percent CSA. In the third wave from Jul to Sep 2011, annual-equivalent producer price inflation in Germany was 2.8 percent NSA and 3.7 percent CSA with fluctuations in commodity prices resulting from perceptions of the sovereign risk crisis in Europe. In the fourth wave from Oct to Nov 2011, annual equivalent inflation was 1.8 percent NSA and 3.7 percent CSA. In the fifth wave from Dec 2011 to Jan 2012, annual equivalent inflation was at 1.2 percent NSA and minus 0.6 percent CSA in return of risk aversion. In the sixth wave, annual equivalent inflation increased to 6.2 percent in Feb-Mar 2012 NSA and 4.9 percent in Feb-Apr and 1.6 percent CSA. In the seventh wave, annual equivalent inflation was minus 2.8 percent in May-Jul 2012 NSA and minus 0.8 percent SA. In the eighth wave, annual equivalent inflation was 4.9 percent in Aug-Sep 2012 NSA and 5.5 percent SA. In the ninth wave, renewed risk aversion resulted in annual equivalent inflation of minus 1.6 percent in Oct-Dec 2012 and 1.6 percent CSA. In the tenth wave, annual equivalent inflation was 10.0 percent NSA and 2.4 percent CSA. Data in the bottom of Table IV-9 show that the producer price index fell 5.2 percent in the 12 months ending in Dec 2009 as a result of the fall of commodity prices originating in risk aversion after the panic of 2008.
Table IV-9, Germany, Index of Producer Prices for Industrial Products ∆%
| 12 Months ∆% NSA | Month ∆% Calendar and SA | Month ∆% NSA | |
| Jan 2013 | 1.7 | 0.2 | 0.8 |
| AE ∆% Jan | 2.4 | 10.0 | |
| Dec 2012 | 1.5 | 0.2 | -0.3 |
| Nov | 1.4 | 0.1 | -0.1 |
| Oct | 1.5 | 0.1 | 0.0 |
| AE ∆% Oct-Dec | 1.6 | -1.6 | |
| Sep | 1.7 | 0.3 | 0.3 |
| Aug | 1.6 | 0.6 | 0.5 |
| AE ∆% Aug-Sep | 5.5 | 4.9 | |
| Jul | 0.9 | -0.1 | 0.0 |
| Jun | 1.6 | -0.1 | -0.4 |
| May | 2.1 | 0.1 | -0.3 |
| AE ∆% May-Jul | -0.4 | -2.8 | |
| Apr | 2.4 | -0.2 | 0.2 |
| Mar | 3.3 | 0.3 | 0.6 |
| Feb | 3.2 | 0.1 | 0.4 |
| AE ∆% Feb-Apr | 0.8 | 4.9 | |
| Jan | 3.4 | 0.1 | 0.6 |
| Dec 2011 | 4.0 | -0.1 | -0.4 |
| AE ∆% Dec-Jan | 0.0 | 1.2 | |
| Nov | 5.2 | 0.3 | 0.1 |
| Oct | 5.3 | 0.3 | 0.2 |
| AE ∆% Oct-Nov | 3.7 | 1.8 | |
| Sep | 5.5 | 0.3 | 0.3 |
| Aug | 5.5 | 0.1 | -0.3 |
| Jul | 5.8 | 0.5 | 0.7 |
| AE ∆% Jul-Sep | 3.7 | 2.8 | |
| Jun | 5.6 | 0.3 | 0.1 |
| May | 6.1 | 0.3 | 0.0 |
| AE ∆% May-Jun | 3.7 | 0.6 | |
| Apr | 6.4 | 0.6 | 1.0 |
| Mar | 6.2 | 0.3 | 0.4 |
| Feb | 6.4 | 0.6 | 0.7 |
| Jan | 5.7 | 0.6 | 1.2 |
| AE ∆% Jan-Apr | 6.5 | 10.4 | |
| Dec 2010 | 5.3 | 0.8 | 0.7 |
| Nov | 4.4 | 0.4 | 0.2 |
| Oct | 4.3 | 0.4 | 0.4 |
| Sep | 3.9 | 0.5 | 0.3 |
| Aug | 3.2 | 0.2 | 0.0 |
| Jul | 3.7 | 0.6 | 0.5 |
| Jun | 1.7 | 0.5 | 0.6 |
| May | 0.9 | 0.3 | 0.3 |
| Apr | 0.6 | 0.5 | 0.8 |
| Mar | -1.5 | 0.6 | 0.7 |
| Feb | -2.9 | 0.0 | 0.0 |
| Jan | -3.4 | 0.4 | 0.8 |
| Dec 2009 | -5.2 | 0.2 | -0.1 |
| Dec 2008 | 4.0 | -0.2 | -0.8 |
| Dec 2007 | 1.9 | 0.4 | -0.1 |
| Dec 2006 | 4.2 | 0.2 | 0.1 |
| Dec 2005 | 4.8 | 0.2 | 0.3 |
| Dec 2004 | 2.9 | 0.3 | 0.1 |
| Dec 2003 | 1.8 | 0.0 | |
| Dec 2002 | 0.5 | 0.1 | |
| Dec 2001 | 0.1 | -0.2 |
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart IV-7 of the Federal Statistical Agency of Germany Statistiche Bundesamt Deutschland provides the producer price index of Germany from 2004 to 2012. Producer price inflation peaked in 2008 with the rise of commodity prices induced by the carry trade from zero interest rates to commodity futures during a global contraction. Prices then declined with the flight away from risk financial assets to government obligations after the financial panic in Sep 2008. With zero interest rates and no risk aversion, the carry trade pushed commodity futures prices upwardly resulting in new rising trend of the producer price index. The right-hand side of the chart shows moderation and even decline in prices because of severe risk aversion frustrating carry trades from zero interest rates to commodity futures but then return of risk appetite with another surge of the index in annual equivalent rate at 6.2 percent in Feb-Mar 2012 and 4.9 percent annual equivalent in Feb-Apr 2012 but decline of 0.3 percent in May 2012 and 0.4 percent in Jun 2012 with flat prices in Jul 2012 with the pace at annual equivalent rate of minus 4.1 percent in May-Jun 2012 and flat prices in Jul 2012. Inflation returned in Aug and Sep 2012 with carry trades into commodity futures with 4.9 percent annual equivalent. Inflation then collapsed to zero in Oct 2012 NSA, minus 0.1 percent in Nov 2012 and minus 0.3 percent in Dec 2012 with an increase in Jan 2013.
Chart IV-6, Germany, Index of Producer Prices for Industrial Products, 2005=100
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart IV-7 provides the index of producer finished goods in the US from 2004 to 2012. Chart IV-7 of the US mirrors behavior in Chart IV-6 of Germany. Carry trades from zero interest rates to exposures in commodity futures and risk financial assets have synchronized worldwide inflation during periods of risk appetite and disinflation during periods of risk aversion.
Chart IV-7, US, Producer Price Index, Finished Goods, NSA, 2004-2012
Source: US Bureau of Labor Statstics
Chart IV-8 of the Federal Statistical Agency of Germany Statistiche Bundesamt Deutschland provides the unadjusted producer price index, trend and trend ends. There is a clear upward trend of prices after the end of risk aversion with zero interest rates in 2009. The actual curve fell below trend in the current episode of severe risk aversion but rose again in Feb-Apr 2012, falling in May-Jun 2012 with flat prices in Jul 2012, another increase in Aug-Sep 2012 and flat prices in Oct 2012 with declines of 0.1 percent in Nov 2012 and 0.3 percent in Dec 2012 with sharp increase in Jan 2013.
Chart IV-8, Germany, Producer Price Index, Non-adjusted Value and Trend, 2005=100
Source: Statistiche Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
The estimate of consumer price inflation in Germany in Table IV-10 is 1.7 percent in 12 months ending in Jan 2012, minus 0.5 percent NSA in Jan 2013 relative to Dec 2012 and 0.0 percent SA in Jan 2013 relative to Dec 2012. There are waves of consumer price inflation in Germany similar to those worldwide (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html), as shown in Table IV-13. In the first wave, annual equivalent inflation was 3.0 percent in Feb-Apr 2011 NSA and 2.4 percent SA during risk appetite in carry trades from zero interest rates to commodity futures. In the second wave, annual equivalent consumer price inflation collapsed to 0.6 percent NSA and 3.0 percent SA in May-Jun 2011 because of risk aversion caused by European sovereign debt event. In the third wave, annual equivalent consumer price inflation was 1.7 percent NSA and 1.9 percent SA in Jul-Nov 2011 as a result of relaxed risk aversion. In the fourth wave, annual equivalent inflation was 0.6 percent NSA and 1.8 percent SA in Dec 2011 to Jan 2012. In the fifth wave, annual equivalent inflation rose to 4.5 percent NSA and 2.0 percent SA in Feb-Apr 2012 during another energy-commodity carry trade shock. In the sixth wave, annual equivalent inflation in May-Jun 2012 is minus 1.2 percent NSA and 1.2 percent SA. In the seventh wave, annual equivalent inflation NSA is 4.9 percent in Jul-Aug 2012 and 3.7 percent SA. In the eighth wave in Sep-Dec 2012, annual equivalent inflation is minus 1.5 percent NSA and 1.5 percent SA. In the ninth wave, annual equivalent inflation fell to minus 5.8 percent NSA in Jan 2013 and 0.0 percent SA. Under unconventional monetary policy of zero interest rates and quantitative easing inflation becomes highly volatile during alternative shocks of risk aversion and risk appetite, preventing sound investment and consumption decisions.
Table IV-10, Germany, Consumer Price Index ∆%
| 12-Month ∆% | Month ∆% NSA | Month ∆% CSA | |
| Jan 2013 | 1.7 | -0.5 | 0.0 |
| AE ∆% Jan | -5.8 | 0.0 | |
| Dec 2012 | 2.0 | 0.3 | 0.2 |
| Nov | 1.9 | 0.1 | 0.1 |
| Oct | 2.0 | 0.0 | 0.1 |
| Sep | 2.0 | 0.1 | 0.1 |
| AE ∆% Sep-Dec | 1.5 | 1.5 | |
| Aug | 2.2 | 0.4 | 0.3 |
| Jul | 1.9 | 0.4 | 0.3 |
| AE ∆% Jul-Aug | 4.9 | 3.7 | |
| Jun | 1.7 | -0.2 | 0.0 |
| May | 2.0 | 0.0 | 0.2 |
| AE ∆% May-Jun | -1.2 | 1.2 | |
| Apr | 2.0 | -0.2 | 0.1 |
| Mar | 2.2 | 0.6 | 0.2 |
| Feb | 2.2 | 0.7 | 0.2 |
| AE ∆% Feb-Apr | 4.5 | 2.0 | |
| Jan | 2.1 | -0.1 | 0.3 |
| Dec 2011 | 2.0 | 0.2 | 0.0 |
| AE ∆% Dec-Jan | 0.6 | 1.8 | |
| Nov | 2.4 | 0.2 | 0.2 |
| Oct | 2.3 | 0.0 | 0.1 |
| Sep | 2.4 | 0.2 | 0.3 |
| Aug | 2.1 | 0.1 | 0.1 |
| Jul | 2.1 | 0.2 | 0.1 |
| AE ∆% Jul-Nov | 1.7 | 1.9 | |
| Jun | 2.1 | 0.1 | 0.3 |
| May | 2.0 | 0.0 | 0.2 |
| AE ∆% May-Jun | 0.6 | 3.0 | |
| Apr | 1.9 | 0.0 | 0.2 |
| Mar | 2.0 | 0.6 | 0.2 |
| Feb | 1.9 | 0.6 | 0.2 |
| Jan | 1.7 | -0.2 | 0.2 |
| AE ∆% Feb-Apr | 3.0 | 2.4 | |
| Dec 2010 | 1.3 | 0.6 | 0.2 |
| Nov | 1.5 | 0.1 | 0.2 |
| Oct | 1.3 | 0.1 | 0.2 |
| Sep | 1.2 | -0.1 | 0.1 |
| Aug | 1.0 | 0.1 | 0.1 |
| Annual Average ∆% | |||
| 2012 | 2.0 | ||
| 2011 | 2.1 | ||
| 2010 | 1.1 | ||
| 2009 | 0.4 | ||
| 2008 | 2.6 | ||
| Dec 2009 | 0.8 | ||
| Dec 2008 | 1.1 | ||
| Dec 2007 | 3.2 | ||
| Dec 2006 | 1.4 | ||
| Dec 2005 | 1.4 | ||
| Dec 2004 | 2.3 | ||
| Dec 2003 | 1.1 | ||
| Dec 2002 | 1.1 | ||
| Dec 2001 | 1.6 |
AE: Annual Equivalent
Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart IV of the Statistisches Bundesamt Deutschland, or federal statistical office of Germany, provides the unadjusted consumer price index of Germany from 2004 to 2012. There is an evident acceleration in the form of sharper slope in the first months of 2011 and then a flattening in subsequent months with renewed strength in Dec, decline in Jan 2012 and another upward spike from Feb to Apr 2012, new drop in May-Jun 2012 and increases in Jul and Aug 2012 relaxed in Sep-Nov 2012. Inflation returned in Dec 2012 and fell in Jan 2013. If risk aversion declines, new carry trades from zero interest rates to commodity futures could again result in higher inflation.
Chart IV-9, Germany, Consumer Price Index, Unadjusted, 2005=100
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart IV-10, of the Statistisches Bundesamt Deutschland, or Federal Statistical Agency of Germany, provides the unadjusted consumer price index and trend of Germany from 2008 to 2013. Chart IV-10 captures inflation waves with alternation of periods of positive and negative slopes resulting from zero interest rates with shocks of risk appetite and risk aversion. For example, the negative slope of decline of inflation by 0.2 percent in Jun 2012 and 0.0 percent in May 2012 follows an upward slope of price increases in Feb-Apr 2012 after decline of inflation by 0.1 percent in Jan 2012. The final segment shows another positive slope caused by inflation of 0.4 percent in Jul 2012, which is followed by 0.4 percent in Aug 2012 and flattening segment as inflation remains almost unchanged with 0.1 percent in Sep 0.0 percent in Oct 2012, increasing 0.1 percent in Nov 2012 and increasing 0.3 percent in Dec 2012. Inflation fell 0.5 percent in Jan 2013. The waves occur around an upward trend of prices, disproving the proposition of fear of deflation.
Chart IV-10, Germany, Consumer Price Index, Unadjusted and Trend, 2005=100
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Table IV-11 provides the monthly and 12-month rate of inflation for segments of the consumer price index of Germany in Feb 2013. Inflation excluding energy decreased 0.9 percent in Jan 2013 and rose 1.3 percent in 12 months. Excluding household energy inflation was minus 0.8 percent in Jan and rose 1.3 percent in 12 months. Food prices increased 0.9 percent in Jan and increased 4.5 percent in 12 months. There were differences in inflation of energy-related prices. Heating oil fell 2.5 percent in 12 months and decreased 0.5 percent in Jan. Motor fuels decreased 0.3 percent in Jan and increased 0.5 percent in 12 months.
Table IV-11, Germany, Consumer Price Index ∆%
| Jan 2013 | Weight | 12- Month ∆% | Month ∆% |
| Total | 1,000.00 | 1.7 | -0.5 |
| Excluding heating oil and motor fuels | 950.52 | 1.8 | -0.5 |
| Excluding household energy | 931.81 | 1.3 | -0.8 |
| Excluding Energy | 893.44 | 1.3 | -0.9 |
| Total Goods | 479.77 | 2.3 | 0.2 |
| Nondurable Consumer Goods | 307.89 | 3.3 | 1.2 |
| Medium-Term Life Consumer Goods | 91.05 | 1.0 | -3.0 |
| Durable Consumer Goods | 80.83 | -0.7 | -0.2 |
| Services | 520.23 | 1.1 | -1.2 |
| Energy Components | |||
| Motor Fuels | 38.37 | 0.5 | -0.3 |
| Household Energy | 68.19 | 5.8 | 3.7 |
| Heating Oil | 11.11 | -2.5 | -0.5 |
| Food | 90.52 | 4.5 | 0.9 |
Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/Homepage.html
Table IV-12 provides monthly and 12 months consumer price inflation in France. There are the same waves as in inflation worldwide (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html). In the first wave, annual equivalent inflation in Jan-Apr 2011 was 4.3 percent driven by the carry trade from zero interest rates to commodity futures positions in an environment of risk appetite. In the second wave, risk aversion caused the reversal of carry trades into commodity futures, resulting in the fall of the annual equivalent inflation rate to minus 0.8 percent in May-Jul 2011. In the third wave, annual equivalent inflation rose to 2.7 percent in Aug-Nov 2011 with alternations of risk aversion and risk appetite. In the fourth wave, risk aversion originating in the European debt crisis caused annual equivalent inflation of 0.0 percent from Dec 2011 to Jan 2012. In the fifth wave, annual equivalent inflation increased to 5.3 percent in Feb-Apr 2012. In the sixth wave, annual equivalent inflation was minus 2.0 percent in May-Jul 2012 during another bout of risk aversion causing reversal of carry trades from zero interest rates to commodity price futures exposures. In the seventh wave, annual equivalent inflation jumped to 8.7 percent in Aug 2012, 2.4 percent in Aug-Sep 2012 and 2.4 percent in Aug-Oct 2012. In the eighth wave, annual equivalent inflation was minus 2.4 percent in Nov 2012. In the ninth wave, annual equivalent inflation was 3.7 percent in Dec 2012 and minus 1.6 percent in Nov 2012 to Jan 2013.
Table IV-12, France, Consumer Price Index, Month and 12-Month ∆%
| Month ∆% | 12-Month ∆% | |
| Jan 2013 | -0.5 | 1.2 |
| Dec 2012 | 0.3 | 1.3 |
| Nov | -0.2 | 1.4 |
| AE ∆% Nov-Jan | -1.6 | |
| Oct | 0.2 | 1.9 |
| Sep | -0.3 | 1.9 |
| Aug | 0.7 | 2.1 |
| AE ∆% Aug-Oct | 2.4 | |
| Jul | -0.4 | 1.9 |
| Jun | 0.0 | 1.9 |
| May | -0.1 | 2.0 |
| AE ∆% May-Jul | -2.0 | |
| Apr | 0.1 | 2.1 |
| Mar | 0.8 | 2.3 |
| Feb | 0.4 | 2.3 |
| AE ∆% Feb-Apr | 5.3 | |
| Jan | -0.4 | 2.3 |
| Dec 2011 | 0.4 | 2.5 |
| AE ∆% Dec-Jan | 0.0 | |
| Nov | 0.3 | 2.5 |
| Oct | 0.2 | 2.3 |
| Sep | -0.1 | 2.2 |
| Aug | 0.5 | 2.2 |
| AE ∆% Aug-Nov | 2.7 | |
| Jul | -0.4 | 1.9 |
| Jun | 0.1 | 2.1 |
| May | 0.1 | 2.0 |
| AE ∆% May-Jul | -0.8 | |
| Apr | 0.3 | 2.1 |
| Mar | 0.8 | 2.0 |
| Feb | 0.5 | 1.7 |
| Jan | -0.2 | 1.8 |
| AE ∆% Jan-Apr | 4.3 | |
| Dec 2010 | 0.5 | 1.8 |
| Annual | ||
| 2012 | 2.0 | |
| 2011 | 2.1 | |
| 2010 | 1.5 | |
| 2009 | 0.1 | |
| 2008 | 2.8 | |
| 2007 | 1.5 | |
| 2006 | 1.6 | |
| 2005 | 1.8 | |
| 2004 | 2.1 | |
| 2003 | 2.1 | |
| 2002 | 1.9 | |
| 2001 | 1.7 | |
| 2000 | 1.7 | |
| 1999 | 0.5 | |
| 1998 | 0.7 | |
| 1997 | 1.2 | |
| 1996 | 2.0 | |
| 1995 | 1.8 | |
| 1994 | 1.6 | |
| 1993 | 2.1 | |
| 1992 | 2.4 | |
| 1991 | 3.2 |
AE: Annual Equivalent
Source: Institut National de la Statistique et des Études Économiques http://www.insee.fr/en/themes/info-rapide.asp?id=29&date=20130220
Table IV-13 provides consumer price inflation in France and of various items in Jan 2013 and in the 12 months ending in Jan 2013. Inflation of all items was minus 0.5 percent in Jan 2013 and 1.2 percent in 12 months. Energy inflation increased 1.8 percent in Jan 2013 and increased 2.0 percent in 12 months. Transport and communications decreased 2.7 percent in Jan 2013 and fell 6.1 percent in 12 months. Food, energy and rentals and dwellings show the higher 12-month increases of 2.1 percent, 2.0 percent and 1.9 percent, respectively.
Table IV-13, France, Consumer Price Index, Month and 12-Month Percentage Changes of Index and Components, ∆%
| Jan 2013 | Month ∆% | 12-Month ∆% |
| All Items | -0.5 | 1.2 |
| Food | -0.1 | 2.1 |
| Manufactured Products | -2.3 | -0.2 |
| Energy | 1.8 | 2.0 |
| Petroleum Products | 1.3 | -0.6 |
| Services | 0.0 | 1.2 |
| Rentals, Dwellings | 0.1 | 1.9 |
| Transport and Communications | -2.7 | -6.1 |
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=29&date=20130220
Chart IV-4 of the Institut National de la Statistique et des Études Économiques (INSEE) of France shows headline and core consumer price inflation of France. Inflation rose during the commodity price shock of unconventional monetary policy. Risk aversion in late 2008 and beginning of 2009 caused collapse of valuation of commodity futures with resulting decline in inflation. Unconventional monetary policy with alternations of risk aversion resulted in higher inflation in France that stabilized in recent months until the increase of 0.2 percent in Oct 2011, 0.3 percent in Nov and 0.4 percent in Dec that were followed by decline of 0.4 percent in Jan 2012 and increases of 0.4 percent in Feb and 0.8 percent in Mar followed by 0.1 percent in Apr minus 0.1 percent in May and no change in Jun 2012 with marginal decline of 0.4 percent in Jul. Inflation returned with 0.7 percent in Aug 2012 but decline of 0.3 percent in Sep 2012 followed with increase of 0.2 percent in Oct 2012 and decrease of 0.2 percent in Nov 2012. Inflation in Dec 2012 was 0.3 percent and minus 0.5 percent in Jan 2013. Both the headline and core indexes are showing negative slopes in the new environment of risk aversion that causes reversals of carry trades into commodity futures prices. The 12-month rate of inflation has declined from 2.5 percent in Dec 2011 to 1.3 percent in Dec 2012.
Chart IV-11, France, Consumer Price Index (IPC) and Core Consumer Price Index (ISJ) 12 Months Rates of Change
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=29&date=20130220
The first wave of commodity price increases in the first four months of Jan-Apr 2011 also influenced the surge of consumer price inflation in Italy shown in Table IV-14. Annual equivalent inflation in the first four months of 2011 was 4.9 percent. The crisis of confidence or risk aversion resulted in reversal of carry trades on commodity positions. Consumer price inflation in Italy was subdued in the second wave in Jun and May 2011 at 0.1 percent for annual equivalent 1.2 percent. In the third wave in Jul-Sep 2011, annual equivalent inflation increased to 2.4 percent. In the fourth wave, annual equivalent inflation in Oct-Nov 2011 jumped again at 3.0 percent. Inflation returned in the fifth wave from Dec 2011 to Jan 2012 at annual equivalent 4.3 percent. In the sixth wave, annual equivalent inflation rose to 5.7 percent in Feb-Apr 2012. In the seventh wave, annual equivalent inflation was 1.2 percent in May-Jun 2012. In the eighth wave, annual equivalent inflation increased to 3.0 percent in Jul-Aug 2012. In the ninth wave, inflation collapsed to zero in Sep-Oct 2012 and was minus 0.8 percent in annual equivalent in Sep-Nov 2012. In the tenth wave, annual equivalent inflation in Dec 2012 to Jan 2013 was 2.4 percent. Economies are shocked worldwide by intermittent waves of inflation originating in combination of zero interest rates and quantitative easing with alternation of risk appetite and risk aversion (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html).
Table IV-14, Italy, Consumer Price Index
| Month | 12 Months | |
| Jan 2013 | 0.2 | 2.2 |
| Dec 2012 | 0.2 | 2.3 |
| AE ∆% Dec 2012-Jan 2013 | 2.4 | |
| Nov 2012 | -0.2 | 2.5 |
| Oct | 0.0 | 2.6 |
| Sep | 0.0 | 3.2 |
| AE ∆% Sep-Nov | -0.8 | |
| Aug | 0.4 | 3.2 |
| Jul | 0.1 | 3.1 |
| AE ∆% Jul-Aug | 3.0 | |
| June | 0.2 | 3.3 |
| May | 0.0 | 3.2 |
| AE ∆% May-Jun | 1.2 | |
| Apr | 0.5 | 3.3 |
| Mar | 0.5 | 3.3 |
| Feb | 0.4 | 3.3 |
| AE ∆% Feb-Apr | 5.7 | |
| Jan | 0.3 | 3.2 |
| Dec 2011 | 0.4 | 3.3 |
| AE ∆% Dec-Jan | 4.3 | |
| Nov | -0.1 | 3.3 |
| Oct | 0.6 | 3.4 |
| AE ∆% Oct-Nov | 3.0 | |
| Sep | 0.0 | 3.0 |
| Aug | 0.3 | 2.8 |
| Jul | 0.3 | 2.7 |
| AE ∆% Jul-Sep | 2.4 | |
| Jun | 0.1 | 2.7 |
| May | 0.1 | 2.6 |
| AE ∆% May-Jun | 1.2 | |
| Apr | 0.5 | 2.6 |
| Mar | 0.4 | 2.5 |
| Feb | 0.3 | 2.4 |
| Jan | 0.4 | 2.1 |
| AE ∆% Jan-Apr | 4.9 | |
| Dec 2010 | 0.4 | 1.9 |
| Annual | ||
| 2011 | 2.8 | |
| 2010 | 1.5 | |
| 2009 | 0.8 | |
| 2008 | 3.3 | |
| 2007 | 1.8 | |
| 2006 | 2.1 |
Source: Istituto Nazionale di Statistica http://www.istat.it/en/archive/83204 http://www.istat.it/it/archivio/81345
Consumer price inflation in Italy by segments in the estimate by ISTAT for Nov 2012 is provided in Table IV-15. Total consumer price inflation in Jan 2013 was 0.2 percent and 2.2 percent in 12 months. Inflation of goods was 0.4 percent in Jan and 2.3 percent in 12 months. Prices of durable goods increased 0.3 percent in Jan and increased 0.0 percent in 12 months, as typical in most countries. Prices of energy increased 0.2 percent in Jan and increased 5.3 percent in 12 months. Food prices increased 0.8 percent in Jan and increased 3.2 percent in 12 months. Prices of services decreased 0.1 percent in Jan and rose 2.1 percent in 12 months. Transport prices, also influenced by commodity prices, decreased 1.4 percent in Jan and increased 3.8 percent in 12 months. Carry trades from zero interest rates to positions in commodity futures cause increases in commodity prices. Waves of inflation originate in periods when there is no risk aversion and commodity prices decline during periods of risk aversion (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html).
Table IV-15, Italy, Consumer Price Index and Segments, Month and 12-Month ∆%
| Jan 2013 | Month ∆% | 12-Month ∆% |
| General Index | 0.2 | 2.2 |
| I Goods | 0.4 | 2.3 |
| Food | 0.8 | 3.2 |
| Energy | 0.2 | 5.3 |
| Durable | 0.3 | 0.0 |
| Nondurable | 0.3 | 0.5 |
| II Services | -0.1 | 2.1 |
| Housing | 0.2 | 2.1 |
| Communications | 0.3 | 0.1 |
| Transport | -1.4 | 3.8 |
Source: Istituto Nazionale di Statistica http://www.istat.it/en/archive/83204 http://www.istat.it/it/archivio/81345
Chart IV-12 of the Istituto Nazionale di Statistica shows moderation in 12-month percentage changes of the consumer price index of Italy with marginal increase followed by decline to 2.5 percent in Nov 2012, 2.3 percent in Dec 2012 and 2.2 percent in Jan 2013.
Chart, IV-12, Italy, Consumer Price Index, 12-Month Percentage Changes
Source: Istituto Nazionale di Statistica
V World Economic Slowdown. Table V-1 is constructed with the database of the IMF (http://www.imf.org/external/datamapper/index.php?db=WEO) and the update of Jan 2013 (http://www.imf.org/external/pubs/ft/weo/2013/update/01/index.htm) to show GDP in dollars in 2011 and the growth rate of real GDP of the world and selected regional countries from 2012 to 2015. 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 3.2 percent in 2012 but accelerating to 3.5 percent in 2013, 4.1 percent in 2014 and 4.4 percent in 2015. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $33,697 billion of world output of $69,899 billion, or 48.2 percent, but are projected to grow at much lower rates than world output, 1.9 percent on average from 2012 to 2015 in contrast with 3.8 percent for the world as a whole. While the world would grow 16.1 percent in the four years from 2012 to 2015, the G7 as a whole would grow 7.6 percent. The difference in dollars of 2011 is rather high: growing by 16.1 percent would add $11.5 trillion of output to the world economy, or roughly two times the output of the economy of Japan of $5,867 but growing by 7.6 percent would add $5.3 trillion of output to the world, or somewhat below 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 $25,438 billion, or 36.4 percent of world output. The EMDEs would grow cumulatively 24.6 percent or at the average yearly rate of 5.7 percent, contributing $6.3 trillion from 2012 to 2015 or the equivalent of 86.3 percent of $7,298 billion of China in 2011. The final four countries in Table V-1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output adds to $13,468 billion, or 19.3 percent of world output, which is equivalent to 39.9 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 ∆% | Real GDP ∆% | Real GDP ∆% | Real GDP ∆% | |
| World | 69,899 | 3.3 | 3.6 | 4.2 | 4.4 |
| G7 | 33,697 | 1.4 | 1.5 | 2.2 | 2.5 |
| Canada | 1,739 | 1.9 | 2.0 | 2.4 | 2.4 |
| France | 2,778 | 0.1 | 0.4 | 1.1 | 1.5 |
| DE | 3,607 | 0.9 | 0.9 | 1.4 | 1.4 |
| Italy | 2,199 | -2.3 | -0.7 | 0.5 | 1.2 |
| Japan | 5,867 | 2.2 | 1.2 | 1.1 | 1.2 |
| UK | 2,431 | -0.4 | 1.1 | 2.2 | 2.6 |
| US | 15,076 | 2.2 | 2.1 | 2.9 | 3.4 |
| Euro Area | 13,114 | -0.4 | 0.2 | 1.2 | 1.5 |
| DE | 3,607 | 0.9 | 0.9 | 1.4 | 1.4 |
| France | 2,778 | 0.1 | 0.4 | 1.1 | 1.5 |
| Italy | 2,199 | -2.3 | -0.7 | 0.5 | 1.2 |
| POT | 238 | -3.0 | -1.0 | 1.2 | 1.9 |
| Ireland | 221 | 0.4 | 1.4 | 2.5 | 2.9 |
| Greece | 299 | -6.0 | -4.0 | 0.0 | 2.8 |
| Spain | 1,480 | -1.5 | -1.3 | 1.0 | 1.6 |
| EMDE | 25,438 | 5.3 | 5.6 | 5.9 | 6.1 |
| Brazil | 2,493 | 1.5 | 3.9 | 4.2 | 4.2 |
| Russia | 1,850 | 3.7 | 3.8 | 3.9 | 3.9 |
| India | 1,827 | 4.9 | 6.0 | 6.4 | 6.7 |
| China | 7,298 | 7.8 | 8.2 | 8.5 | 8.5 |
Notes; DE: Germany; EMDE: Emerging and Developing Economies (150 countries); POT: Portugal
Source: IMF World Economic Outlook databank http://www.imf.org/external/datamapper/index.php?db=WEO
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 V-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. Estimated rates of unemployment for 2012 are particularly high for the countries with sovereign debt difficulties in Europe: 15.5 percent for Portugal (POT), 14.8 percent for Ireland, 23.8 percent for Greece, 24.9 percent for Spain and 10.6 percent for Italy, which is lower but still high. The G7 rate of unemployment is estimated at 7.5 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 | 7.5 | 7.5 | 7.3 | 6.9 |
| Canada | 7.5 | 7.3 | 7.3 | 7.1 | 6.9 |
| France | 9.6 | 10.1 | 10.5 | 10.3 | 9.8 |
| DE | 6.0 | 5.2 | 5.3 | 5.2 | 5.2 |
| Italy | 8.4 | 10.6 | 11.1 | 11.3 | 11.0 |
| Japan | 4.6 | 4.5 | 4.4 | 4.5 | 4.4 |
| UK | 8.0 | 8.1 | 8.1 | 7.9 | 7.6 |
| US | 8.9 | 8.2 | 8.1 | 7.7 | 7.1 |
| Euro Area | 10.2 | 11.2 | 11.5 | 11.2 | 10.8 |
| DE | 6.0 | 5.2 | 5.3 | 5.2 | 5.2 |
| France | 9.6 | 10.1 | 10.5 | 10.3 | 9.8 |
| Italy | 8.4 | 10.6 | 11.1 | 11.3 | 11.0 |
| POT | 12.7 | 15.5 | 16.0 | 15.3 | 14.7 |
| Ireland | 14.4 | 14.8 | 14.4 | 13.7 | 13.1 |
| Greece | 17.3 | 23.8 | 25.4 | 24.5 | 22.4 |
| Spain | 21.7 | 24.9 | 25.1 | 24.1 | 23.2 |
| EMDE | NA | NA | NA | NA | NA |
| Brazil | 6.0 | 6.0 | 6.5 | 7.0 | 7.0 |
| Russia | 6.5 | 6.0 | 6.0 | 6.0 | 6.0 |
| India | NA | NA | NA | NA | NA |
| China | 4.1 | 4.1 | 4.1 | 4.1 | 4.1 |
Notes: DE: Germany; EMDE: Emerging and Developing Economies (150 countries)
Source: IMF World Economic Outlook databank http://www.imf.org/external/datamapper/index.php?db=WEO
Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog for IQ2012, IIQ2012 and IVQ2012 available now for all countries. Growth is weak throughout most of the world. Japan’s GDP increased 1.5 percent in IQ2012 and 3.4 percent relative to a year earlier but part of the jump could be the low level a year earlier because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan is experiencing difficulties with the overvalued yen because of worldwide capital flight originating in zero interest rates with risk aversion in an environment of softer growth of world trade. Japan’s GDP fell 0.2 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of minus 1.0 percent, which is much lower than 6.0 percent in IQ2012. Growth of 3.8 percent in IIQ2012 in Japan relative to IIQ2011 has effects of the low level of output because of Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan’s GDP contracted 1.0 percent in IIIQ2012 at the SAAR of minus 3.8 percent and increased 0.4 percent relative to a year earlier. Japan’s GDP contracted 0.1 percent in IVQ2012 at the SAAR of minus 0.4 percent and increased 0.3 percent relative to a year earlier. China grew at 1.8 percent in IIQ2012, which annualizes to 7.4 percent relative to a year earlier. China grew at 2.2 percent in IIIQ2012, which annualizes at 9.1 percent and 7.4 percent relative to a year earlier. In IVQ2012, China grew at 2.0 percent, which annualizes at 8.2 percent, and 7.9 percent in IVQ2012 relative to IVQ2011. Xinhuanet informs that Premier Wen Jiabao considers the need for macroeconomic stimulus, arguing that “we should continue to implement proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm). Premier Wen elaborates that “the country should properly handle the relationship between maintaining growth, adjusting economic structures and managing inflationary expectations” (http://news.xinhuanet.com/english/china/2012-05/20/c_131599662.htm). There is decennial change in leadership in China (http://www.xinhuanet.com/english/special/18cpcnc/index.htm). China’s GDP grew 7.9 percent in IVQ2012 relative to IVQ2011. Growth rates of GDP of China in a quarter relative to the same quarter a year earlier have been declining from 2011 to 2012. China’s GDP grew 8.1 percent in IQ2012 relative to a year earlier but only 7.6 percent in IIQ2012 relative to a year earlier, 7.4 percent in IIIQ2012 relative to IIIQ2011 and 7.9 percent in IVQ2012 relative to year earlier. GDP was flat in the euro area in IQ2012 and fell 0.1 in IQ2012 relative to a year earlier. Euro area GDP contracted 0.2 percent IIQ2012 and fell 0.5 percent relative to a year earlier. In IIIQ2012, euro area GDP fell 0.1 percent and declined 0.6 percent relative to a year earlier. In IVQ2012, euro area GDP fell 0.6 percent relative to the prior quarter and fell 0.9 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. In IIIQ2012, Germany’s GDP increased 0.2 percent and 0.4 percent relative to a year earlier. Germany’s GDP contracted 0.6 percent in IVQ2012 and increased 0.1 percent relative to a year earlier. Growth of US GDP in IQ2012 was 0.5 percent, at SAAR of 2.0 percent and higher by 2.4 percent relative to IQ2011. US GDP increased 0.5 percent in IQ2012 at the SAAR of 2.0 percent and grew 5.4 percent relative to a year earlier. US GDP increased 0.3 percent in IIQ2012, 1.3 percent at SAAR and 2.1 percent relative to a year earlier. In IIIQ2012, GDP grew 0.8 percent, 3.1 percent at SAAR and 2.6 percent relative to IIIQ2011. In IVQ2012, GDP grew 0.0 percent,
-0.1 percent at SAAR and 1.5 percent relative to IVQ2011 (http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html) but with substantial unemployment and underemployment (http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/01/thirty-million-unemployed-or.html) and weak hiring (http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html). In IQ2012, UK GDP fell 0.2 percent, increasing 0.2 percent relative to a year earlier. UK GDP fell 0.4 percent in IIQ2012 and decreased 0.3 percent relative to a year earlier. UK GDP increased 0.9 percent in IIIQ2012 and fell 0.0 percent relative to a year earlier. UK GDP fell 0.3 percent in IVQ2012 relative to IIIQ2012 and was flat relative to a year earlier. Italy has experienced decline of GDP in six consecutive quarters from IIIQ2011 to IVQ2012. Italy’s GDP fell 0.8 percent in IQ2012 and declined 1.3 percent relative to IQ2011. Italy’s GDP fell 0.7 percent in IIQ2012 and declined 2.3 percent relative to a year earlier. In IIIQ2012, Italy’s GDP fell 0.2 percent and declined 2.4 percent relative to a year earlier. The GDP of Italy contracted 0.9 percent in IVQ2012 and fell 2.7 percent relative to a year earlier. France’s GDP stagnated in IQ2012 and increased 0.2 percent relative to a year earlier. France’s GDP decreased 0.1 percent in IIQ2012 and increased 0.1 percent relative to a year earlier. In IIIQ2012, France’s GDP increased 0.1 percent and increased 0.0 percent relative to a year earlier. France’s GDP fell 0.3 percent in IVQ2012 and declined 0.3 percent relative to a year earlier.
Table V-3, Percentage Changes of GDP Quarter on Prior Quarter and on Same Quarter Year Earlier, ∆%
| IQ2012/IVQ2011 | IQ2012/IQ2011 | |
| United States | QOQ: 0.5 SAAR: 2.0 | 2.4 |
| Japan | QOQ: 1.5 SAAR: 6.0 | 3.4 |
| China | 1.8 | 8.1 |
| Euro Area | 0.0 | -0.1 |
| Germany | 0.5 | 1.7 |
| France | 0.0 | 0.2 |
| Italy | -0.8 | -1.3 |
| United Kingdom | -0.2 | 0.2 |
| IIQ2012/IQ2012 | IIQ2012/IIQ2011 | |
| United States | QOQ: 0.3 SAAR: 1.3 | 2.1 |
| Japan | QOQ: -0.2 | 3.8 |
| China | 1.8 | 7.6 |
| Euro Area | -0.2 | -0.5 |
| Germany | 0.3 | 0.5 1.0 CA |
| France | -0.1 | 0.1 |
| Italy | -0.7 | -2.3 |
| United Kingdom | -0.4 | -0.3 |
| IIIQ2012/ IIQ2012 | IIIQ2012/ IIIQ2011 | |
| United States | QOQ: 0.8 | 2.6 |
| Japan | QOQ: –1.0 | 0.4 |
| China | 2.2 | 7.4 |
| Euro Area | -0.1 | -0.6 |
| Germany | 0.2 | 0.4 |
| France | 0.1 | 0.0 |
| Italy | -0.2 | -2.4 |
| United Kingdom | 0.9 | 0.0 |
| IVQ2012/IIIQ2012 | IVQ2012/IVQ2011 | |
| United States | QOQ: 0.0 | 1.5 |
| Japan | QOQ: -0.1 SAAR: -0.4 | 0.3 |
| China | 2.0 | 7.9 |
| Euro Area | -0.6 | -0.9 |
| Germany | -0.6 | 0.1 |
| France | -0.3 | -0.3 |
| Italy | -0.9 | -2.7 |
| United Kingdom | -0.3 | 0.0 |
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 and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html and earlier http://cmpassocregulationblog.blogspot.com/2012/11/contraction-of-united-states-real_25.html and for GDP Section VB http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html and earlier at http://cmpassocregulationblog.blogspot.com/2012/12/recovery-without-hiring-forecast-growth.html). In Jan 2013, Japan’s exports increased 6.4 percent in 12 months and imports 7.3 percent. Japan’s exports decreased 5.8 percent in the 12 months ending in Dec, 4.1 percent in the 12 months ending in Nov, 6.5 percent in the 12 months ending in Oct, 10.3 percent in the 12 months ending in Sep, 5.8 percent in the 12 months ending in Aug and 8.1 percent in 12 months ending in Jul while imports increased 1.9 percent in the 12 months ending in Dec, 0.8 percent in the 12 months ending in Nov, decreased 1.6 percent in the 12 months ending in Oct, increased 4.1 in the 12 months ending in Sep, 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 1.1 percentage points from Japan’s growth of GDP in IIQ2012, deducted 2.8 percentage points from GDP growth in IIIQ2012 and deducted 0.6 percentage points from GDP growth in IVQ2012. 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. Trade rebounded in China in Sep with growth of exports of 9.9 percent in the 12 months ending in Sep and 2.4 percent for imports. There was further growth in China’s exports of 11.6 percent in the 12 months ending in Oct while imports increased 2.4 percent. In Nov 2012, China’s exports increased 2.9 percent in 12 months and 7.3 percent in Jan-Nov 2012 while imports were unchanged in Nov 2012 and increased 4.1 percent in Jan-Nov 2012. In the 12 months ending in Dec 2012, China’s exports increased 14.1 percent and imports 6.0 while in Jan-Dec 2012 exports increased 7.9 percent and imports increased 4.3 percent. In Jan 2013, China exports increased 17.3 percent relative to a year earlier and imports 19.6 percent. Germany’s exports increased 0.3 percent in the month of Dec 2012 and decreased 6.9 percent in the 12 months ending in Dec 2012 while imports decreased 1.3 percent in the month of Dec and decreased 7.3 percent in the 12 months ending in Dec. Net trade contributed 0.4 percentage points to growth of GDP in IQ2012, contributed 1.4 percentage points in IIQ2012, contributed 1.6 percentage points in IIIQ2012, contributed 0.8 percentage points in IVQ2012 and contributed 1.0 percentage points in 2012. Net trade deducted 0.9 percentage points from UK GDP growth in IIQ2012 and added 0.5 percentage points in IIIQ2012. France’s exports increased 3.1 percent in Dec while imports increased 5.4 percent and net trade deducted 0.3 percentage points from GDP growth in IIQ2012, adding 0.3 percentage points in IIIQ2012 and 0.1 percentage points in IVQ2012. US exports increased 2.1 percent in Dec 2012 and goods exports increased 4.5 percent in Jan-Dec relative to a year earlier but net trade added 0.38 percentage points to GDP growth in IIIQ2012 and deducted 0.25 percentage points in IVQ2012. US imports decreased 2.7 percent in Dec 2012 and goods imports increased 3.0 percent in Jan-Dec 2012 relative to a year earlier. In the six months ending in Jan 2013, United States national industrial production accumulated increase of 0.7 percent at the annual equivalent rate of 1.4 percent, which is lower than 2.1 percent growth in 12 months. Business equipment fell 0.7 percent in Aug 2012, decreased 0.2 percent in Sep, decreased 1.2 percent in Oct, increased 3.1 percent in Nov, increased 1.3 percent in Dec and 0.1 percent in Jan 2013, growing 6.9 percent in the 12 months ending in Jan 2013 and at the annual equivalent rate of 2.7 percent in the six months ending in Jan 2013. Capacity utilization of total industry is analyzed by the Fed in its report (http://www.federalreserve.gov/releases/g17/current/): “The capacity utilization rate for total industry decreased in January to 79.1 percent, a rate that is 1.1 percentage points below its long-run (1972--2012) average.” United States industry is apparently decelerating. Manufacturing decreased 0.4 percent in Jan 2013 seasonally adjusted, increasing 2.0 percent not seasonally adjusted in 12 months, and increased 0.9 percent in the six months ending in Jan 2013 or at the annual equivalent rate of 1.8 percent. 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 | Exports 12 M ∆% | Imports | Imports 12 M ∆% | |
| USA | 2.1 Dec | 4.5 Jan-Dec | -2.7 Dec | 3.0 Jan-Dec |
| Japan | Jan 2013 6.4 Dec -5.8 Nov -4.1 Oct -6.5 Sep -10.3 Aug -5.8 Jul -8.1 | Jan 2013 7.3 Dec 1.9 Nov 0.8 Oct -1.6 Sep 4.1 Aug -5.4 Jul 2.1 | ||
| China | -1.8 Jul 0.6 Aug 4.7 Sep -5.7 Oct 2.2 Nov 11.1 Dec -11.7 Jan 13 | 1.0 Jul 7.8 Jan-Jul 2.7 Aug 7.1 Jan-Aug 9.9 Sep Jan-Sep 7.4 11.6 Oct 7.8 Jan-Oct 2.9 Nov 7.3 Jan-Nov 14.1 Dec 17.3 Jan 13 7.9 Jan-Dec | 2.2 Jul -0.3 Aug 4.9 Sep -9.4 Oct 11.3 Oct 4.9 Dec -12.5 Jan 13 | 4.7 Jul 6.5 Jan-Jul -2.6 Aug 5.2 Jan-Aug 2.4 Sep 4.8 Jan-Sep 2.4 Oct 4.6 Jan-Oct 0.0 Nov 4.1 Jan-Nov 6.0 Dec 19.6 Jan 13 4.3 Jan-Dec |
| Euro Area | -3.1 12-M Dec | 7.4 Jan-Dec | -5.9 12-M Dec | 1.7 Jan-Dec |
| Germany | 0.3 Dec CSA | -6.9 Dec | -1.3 Dec CSA | -7.3 Dec |
| France Dec | 3.1 | 4.7 | 5.4 | 3.8 |
| Italy Dec | -0.5 | -3.7 | 1.3 | -6.4 |
| UK | 1.9 Dec | -3.9 Oct-Dec 12/Oct-Dec 11 | 0.9 Dec | -0.4 Oct-Dec 12/Oct-Dec 11 |
| Net Trade % Points GDP Growth | % Points | |||
| USA | IVQ2012 -0.25 IIIQ2012 +0.38 | |||
| Japan | -1.1 IIQ2012 -2.8 IIIQ2012 -0.6 IVQ2012 | |||
| Germany | 0.4 IQ2012 1.4 IIQ2012 1.6 IIIQ2012 0.8 IVQ2012 1.0 2012 | |||
| France | -0.3 IIQ2012 0.3 IIIQ2012 0.1 IVQ2012 | |||
| UK | -0.9 IIQ2012 0.5 IIIQ2012 |
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.statistics.gov.uk/hub/index.html
The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table VB-5 for Dec 2012. The share of Asia in Japan’s trade is more than one half, 53.2 percent of exports and 44.8 percent of imports. Within Asia, exports to China are 15.9 percent of total exports and imports from China 22.1 percent of total imports. The second largest export market for Japan in Oct 2012 is the US with share of 17.5 percent of total exports and share of imports from the US of 8.1 percent in total imports. Western Europe has share of 10.9 percent in Japan’s exports and of 9.6 percent in imports. Rates of growth of exports of Japan in Jan 2013 are not sharply negative for all countries and regions as in Dec 2012 with the exception of minus 5.9 percent for exports to Western Europe, minus 15.8 percent for France and minus 1.8 percent for the UK. 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 Dec 2012 while imports increased 1.9 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Dec are positive for all trading partners with exception of decline of 3.5 percent for Australia. Imports from Asia increased 6.1 percent in the 12 months ending in Jan 2013 while imports from China increased 6.5 percent. Data are in millions of yen, which has effects of recent depreciation of the yen relative to the United States dollar (USD).
Table V-5, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yens
| Jan 2013 | Exports | 12 months ∆% | Imports Millions Yen | 12 months ∆% |
| Total | 4,799,161 | 6.4 | 6,428,601 | 7.3 |
| Asia | 2,554,209 | 8.4 | 2,881,218 | 6.1 |
| China | 762,899 | 3.0 | 1,417,516 | 6.5 |
| USA | 839,836 | 10.9 | 521,102 | 5.8 |
| Canada | 62,477 | 0.3 | 88,641 | 2.9 |
| Brazil | 35,726 | 1.5 | 92,697 | 3.9 |
| Mexico | 63,340 | 21.0 | 32,732 | 18.8 |
| Western Europe | 523,863 | -5.9 | 616,973 | 6.3 |
| Germany | 121,942 | 0.2 | 167,753 | 2.1 |
| France | 38,170 | -15.8 | 88,718 | 11.8 |
| UK | 95,788 | -1.8 | 50,961 | 15.7 |
| Middle East | 163,562 | 3.1 | 1,259,288 | 9.8 |
| Australia | 95,765 | -10.6 | 391,186 | -3.5 |
Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm
World trade projections of the IMF are in Table V-6. There is significantly slower growth of the volume of world trade of goods and services from 5.9 percent in 2011 to 2.8 percent in 2012 and 3.8 percent in 2013, increasing to 5.5 percent in 2014. World trade would slow sharply for advanced economies while emerging and developing economies (EMDE) experience slower growth. World economic slowdown is more challenging with lower growth of world trade.
Table V-6, IMF, Projections of World Trade, ∆%
| 2011 | 2012 | 2013 | 2014 | |
| World Trade Volume (Goods and Services) | 5.9 | 2.8 | 3.8 | 5.5 |
| Imports | ||||
| AE | 4.6 | 1.2 | 2.2 | 4.1 |
| EMDE | 8.4 | 6.1 | 6.5 | 7.8 |
| Exports | ||||
| AE | 5.6 | 2.1 | 2.8 | 4.5 |
| EMDE | 6.6 | 3.6 | 5.5 | 6.9 |
Source: International Monetary Fund World Economic Outlook databank update http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/index.aspx http://www.imf.org/external/pubs/ft/survey/so/2013/NEW012313A.htm http://www.imf.org/external/pubs/ft/weo/2013/update/01/index.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, decreased to 53.3 in Jan from 53.7 in Dec, indicating expansion at a moderate rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10694). This index has remained above the contraction territory of 50.0 during 42 consecutive months. Output increased in both index services and manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10694). The employment index increased from 51.8 in Dec to 52.5 in Jan with continuing increases in input prices but at a marginally faster pace. David Hensley, Director of Global Economic Coordination at JP Morgan, finds encouraging signs in the beginning of 2012 in new business, backlog of orders and increasing employment (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10694). The JP Morgan Global Manufacturing PMI™, produced by JP Morgan and Markit in association with ISM and IFPSM, increased to 51.5 in Jan from 50.1 in Dec, which is the second reading above 50 since May 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10666). New export business declined for the tenth consecutive month in Jan, but at the lowest rate of contraction since May 2012. David Hensley, Director of Global Economics Coordination at JP Morgan, finds improving global manufacturing in the new year that could improve in coming months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10666). The HSBC Brazil Composite Output Index, compiled by Markit, increased to 54.9 in Jan from 53.2 in Dec, indicating solid expansion at the fastest rate in eleven months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10643). The HSBC Brazil Services Business Activity index, compiled by Markit, increased from 53.5 in Dec to 54.5 in Jan (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10643). Andre Loes, Chief Economist, Brazil, at HSBC, finds improving expectations of economic activity in Brazil with the index at the highest reading since Feb 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10643). The HSBC Brazil Purchasing Managers’ IndexTM (PMI™) increased from 51.1 in Dec to 53.2 in Jan, indicating the highest output reading in 23 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10628). Andre Loes, Chief Economist, Brazil at HSBC, finds continuing expansion in Brazil’s manufacturing in the new year with strength in output and new orders (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10628).
VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index™ (PMI™) seasonally adjusted decreased to 55.2 in Feb from 55.8 in Jan, continuing to suggest strengthening US manufacturing activity (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10722).
New export orders registered 48.7 in Feb from 51.5 in Jan, indicating contraction at a moderate rate while output was at the highest reading in about two years. Chris Williams, Chief Economist at Markit, finds that the survey data with highest rate of output expansion in about two years are consistent with impulse to US economic growth but weakness in foreign orders that slowed new overall orders (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10722). The Markit US Manufacturing Purchasing Managers’ Index™ (PMI™) increased to 55.8 in Jan from 54.0 in Dec, which is the fastest growth rate since May 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10663). The index of new exports orders increased from 47.2 in Oct to 50.3 in Nov while total new orders increased from 51.1 in Oct to 53.6 in Nov. The index of new export orders decreased from 52.6 in Dec to 51.5 in Jan, indicating expansion at a slower rate. Chris Williamson, Chief Economist at Markit, finds that manufacturing in the US is improving and could support growth of the US economy in IQ2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10663). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business® increased 2.9 percentage points from 50.2 in Dec to 53.1 in Jan (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders increased 3.6 percentage points from 49.7 in Dec to 53.3 in Jan. The index of exports decreased 1.0 percentage points from 51.5 in Dec to 50.5 in Jan, remaining in expansion territory. The Non-Manufacturing ISM Report on Business® PMI decreased 0.5 percentage points from 55.7 in Dec to 52.2 in Jan, indicating growth during 42 consecutive months, while the index of new orders decreased 3.9 percentage points from 58.3 in Dec to 54.4 in Jan (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 | Jan 12 months NSA ∆%: 1.6; ex food and energy ∆%: 1.9 Jan month SA ∆%: 0.0; ex food and energy ∆%: 0.3 |
| Producer Price Index | Jan 12-month NSA ∆%: 1.3; ex food and energy ∆% 1.8 |
| PCE Inflation | Dec 12-month NSA ∆%: headline 1.3; ex food and energy ∆% 1.4 |
| Employment Situation | Household Survey: Nov Unemployment Rate SA 7.9% |
| Nonfarm Hiring | Nonfarm Hiring fell from 63.8 million in 2006 to 50.1 million in 2011 or by 13.7 million |
| GDP Growth | BEA Revised National Income Accounts IIQ2012/IIQ2011 2.1 IIIQ2012/IIIQ2011 2.6 IVQ2012/IVQ2011 1.5 IQ2012 SAAR 2.0 IIQ2012 SAAR 1.3 IIIQ2012 SAAR 3.1 IVQ2012 SAAR -0.1 |
| Real Private Fixed Investment | SAAR IVQ2012 9.7 ∆% IVQ2007 to IIIQ2012: minus 10.6% Blog 2/3/13 |
| Personal Income and Consumption | Dec month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 2.7 |
| Quarterly Services Report | IIIQ12/IIIQ11 SA ∆%: Financial & Insurance 6.5 |
| Employment Cost Index | Compensation Private IVQ2012 SA ∆%: 0.5 |
| Industrial Production | Jan month SA ∆%: -0.1 Manufacturing Dec SA ∆% -0.4 Dec 12 months SA ∆% 1.7, NSA 2.0 |
| Productivity and Costs | Nonfarm Business Productivity IVQ2012∆% SAAE -1.9; IVQ2012/IVQ2011 ∆% 0.5; Unit Labor Costs SAAE IVQ2012 ∆% 4.6; IVQ2012/IVQ2011 ∆%: 2.1 Blog 2/10/2013 |
| New York Fed Manufacturing Index | General Business Conditions From Jan -7.78 to Feb +10.04 |
| Philadelphia Fed Business Outlook Index | General Index from Jan -5.8 to Feb -12.5 |
| Manufacturing Shipments and Orders | New Orders SA Dec ∆% 1.8 Ex Transport 0.2 Jan-Dec NSA New Orders 3.0 Ex transport 2.1 |
| Durable Goods | Dec New Orders SA ∆%: 4.6; ex transport ∆%: 1.3 |
| Sales of New Motor Vehicles | Jan 2013 1,043,103; Jan 2012 913,287. Jan 13 SAAR 15.29 million, Dec 12 SAAR 15.37 million, Jan 2012 SAAR 13.98 million Blog 2/10/13 |
| Sales of Merchant Wholesalers | Jan-Dec 2012/Jan-Dec 2011 NSA ∆%: Total 5.1; Durable Goods: 5.5; Nondurable |
| Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers | Dec 12/Dec 11 NSA ∆%: Sales Total Business 1.6; Manufacturers 1.9 |
| Sales for Retail and Food Services | Jan 2013/Jan 2012 ∆%: Retail and Food Services 6.2; Retail ∆% 6.2 |
| Value of Construction Put in Place | Dec SAAR month SA ∆%: 0.9 Dec 12-month NSA: 7.4 Jan-Dec 2012 ∆% 9.2 |
| Case-Shiller Home Prices | Nov 2012/Nov 2011 ∆% NSA: 10 Cities 4.5; 20 Cities: 5.5 |
| FHFA House Price Index Purchases Only | Nov SA ∆% 0.6; |
| New House Sales | Dec 2012 month SAAR ∆%: minus 7.3 |
| Housing Starts and Permits | Jan Starts month SA ∆%: -8.5 ; Permits ∆%: 1.8 |
| Trade Balance | Balance Dec SA -$38539 million versus Nov -$48613 million |
| Export and Import Prices | Jan 12-month NSA ∆%: Imports -1.3; Exports 1.1 |
| Consumer Credit | Dec ∆% annual rate: 6.3 |
| Net Foreign Purchases of Long-term Treasury Securities | Dec Net Foreign Purchases of Long-term Treasury Securities: $64.2 billion |
| Treasury Budget | Fiscal Year 2013/2012 ∆% Jan: Receipts 12.4; Outlays 3.5; Individual Income Taxes 16.0 Deficit Fiscal Year 2012 $1,089,353 million Blog 2/17/2013 |
| CBO Budget and Economic Outlook | 2012 Deficit $1089 B 7.0% GDP Debt 11,280 B 72.5% GDP 2013 Deficit $845 B, Debt 12,229 B 76.3% GDP Blog 8/26/12 11/18/12 2/10/13 |
| Commercial Banks Assets and Liabilities | Jan 2013 SAAR ∆%: Securities -2.5 Loans 5.9 Cash Assets 47.9 Deposits 2.8 Blog 2/24/13 |
| Flow of Funds | IIIQ2012 ∆ since 2007 Assets -$2059B Real estate -$4035B Financial +$1529 MM Net Worth -$1232B Blog 12/9/12 |
| Current Account Balance of Payments | IIIQ2012 -$128 B %GDP 3.3 Blog 12/23-24/12 |
Links to blog comments in Table USA:
2/17/13 http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html
2/10/13 http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html
2/3/13 http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html
1/27/13 http://cmpassocregulationblog.blogspot.com/2013/01/united-states-commercial-banks-assets.html
12/23-24/12 http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html
12/9/12 http://cmpassocregulationblog.blogspot.com/2012/12/twenty-eight-million-unemployed-or.html
11/18/12 http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html
8/26/12 http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with_26.html
The Business Outlook Survey Diffusion Index of the Federal Reserve Bank of Philadelphia in Table VA-1 also shows deterioration. The general index fell deeper into contraction territory of minus 12.5 in Feb 2013 and the index of new orders fell to minus 7.8. Employment segments also show weakness: 0.9 for number of workers and minus 1.6 for hours worked. Expectations for the next six months are brighter with the general index increasing to 38.0 in Feb 2013 and the index of new orders at 30.3.
Table VA-1, FRB of Philadelphia Business Outlook Survey Diffusion Index SA
| General Index | New Orders | Ship- | # of Workers | Average Workweek | |
| 11-Jan | 15.0 | 19.1 | 11.1 | 13.9 | 8.0 |
| 11-Feb | 25.6 | 15.7 | 24.0 | 19.6 | 6.9 |
| 11-Mar | 36.1 | 33.2 | 28.1 | 16.1 | 7.3 |
| 11-Apr | 13.7 | 12.6 | 23.0 | 9.9 | 15.1 |
| 11-May | 4.0 | 6.8 | 5.4 | 22.2 | 2.8 |
| 11-Jun | -1.1 | -1.2 | 5.7 | 3.4 | 3.7 |
| 11-Jul | 9.4 | 4.7 | 9.0 | 12.6 | -0.8 |
| 11-Aug | -19.0 | -18.6 | -4.7 | -0.5 | -7.6 |
| 11-Sep | -10.0 | -4.5 | -7.4 | 9.4 | -2.8 |
| 11-Oct | 9.7 | 8.8 | 11.2 | 7.8 | 5.2 |
| 11-Nov | 5.0 | 3.6 | 6.9 | 10.9 | 6.8 |
| 11-Dec | 4.2 | 5.9 | 6.2 | 8.0 | -0.3 |
| 12-Jan | 4.7 | 9.0 | 4.4 | 9.6 | 3.9 |
| 12-Feb | 5.0 | 5.3 | 8.6 | 0.9 | 5.7 |
| 12-Mar | 8.6 | -0.7 | 0.2 | 5.9 | -0.6 |
| 12-Apr | 6.5 | -0.8 | 0.5 | 13.4 | -3.4 |
| 12-May | -4.9 | -0.6 | 2.7 | -0.2 | -6.4 |
| 12-Jun | -12.8 | -13.1 | -13.8 | 2.3 | -16.9 |
| 12-Jul | -9.1 | -2.1 | -7.5 | -4.7 | -13.9 |
| 12-Aug | -1.7 | -0.8 | -5.9 | -7.6 | -9.9 |
| 12-Sep | 1.4 | 2.5 | -10.4 | -4.9 | -2.9 |
| 12-Oct | 4.2 | -0.5 | -3.5 | -7.6 | -6.5 |
| 12-Nov | -8.9 | -4.7 | -6.3 | -6.9 | -7.4 |
| 12-Dec | 4.6 | 4.9 | 14.7 | -0.2 | 0.4 |
| 13-Jan | -5.8 | -4.3 | 0.4 | -5.2 | -8.3 |
| 13-Feb | -12.5 | -7.8 | 2.4 | 0.9 | -1.6 |
| Future | General Index | New Orders | Ship- ments | # of Workers | Average Workweek |
| 10-Dec | 42.1 | 41.9 | 14.5 | 28 | 22.0 |
| 11-Jan | 35.9 | 39.8 | 10.3 | 29.1 | 19.6 |
| 11-Feb | 38.6 | 42.7 | 14.2 | 22.6 | 11.8 |
| 11-Mar | 53.6 | 52.3 | 12.6 | 25.2 | 13.0 |
| 11-Apr | 26.6 | 33.5 | 8.8 | 32.3 | 15.9 |
| 11-May | 22.4 | 26.1 | 3.8 | 20.9 | 12.5 |
| 11-Jun | 9.6 | 7.7 | -4.7 | 7.2 | 4.2 |
| 11-Jul | 35.0 | 31.0 | 8 | 16.2 | 6.6 |
| 11-Aug | 26.4 | 22.8 | 3.5 | 13.9 | 2.4 |
| 11-Sep | 26.6 | 27.0 | 6 | 13.4 | 5.7 |
| 11-Oct | 29.8 | 31.0 | 5.3 | 17.5 | 8.2 |
| 11-Nov | 36.2 | 34.0 | 8.9 | 27.9 | 4.5 |
| 11-Dec | 37.7 | 31.6 | 4.4 | 7.9 | 2.0 |
| 12-Jan | 43.9 | 46.1 | 13.0 | 17.8 | 6.8 |
| 12-Feb | 32.2 | 26.3 | 5.7 | 20.2 | 8.7 |
| 12-Mar | 34.4 | 28.6 | 6 | 19.2 | 8.0 |
| 12-Apr | 34.8 | 29.6 | 5.6 | 23.6 | 6.9 |
| 12-May | 30.2 | 26.0 | 10.1 | 11.8 | 1.2 |
| 12-Jun | 35.5 | 35.6 | 6 | 19.1 | 5.0 |
| 12-Jul | 30.8 | 24.7 | 6.5 | 15.3 | 14.6 |
| 12-Aug | 25.3 | 17.3 | 4.8 | 14.5 | 8.8 |
| 12-Sep | 52.0 | 42.8 | 12.6 | 21.2 | 13.8 |
| 12-Oct | 22.6 | 22.7 | 8.6 | 9.8 | 10.5 |
| 12-Nov | 23.2 | 24.9 | 2.7 | 7.0 | 8.2 |
| 12-Dec | 28.3 | 28.0 | 2.7 | 11.2 | 14.4 |
| 13-Jan | 32.5 | 38.9 | 2.9 | 10.7 | 8.9 |
| 13-Feb | 38.0 | 30.3 | 4.3 | 14.9 | 6.5 |
Source: Federal Reserve Bank of Philadelphia http://www.philadelphiafed.org/index.cfm
Chart VA-1 of the Federal Reserve Bank of Philadelphia is very useful, providing current and future general activity indexes from Jan 1995 to Jun 2012. The shaded areas are the recession cycle dates of the National Bureau of Economic Research (NBER) (http://www.nber.org/cycles.html). The Philadelphia Fed index dropped during the initial period of recession and then led the recovery, as industry overall. There was a second decline of the index into 2011 followed now by what hopefully appeared as renewed strength from late 2011 into Jan 2012 with decline to negative territory of the current activity index in Nov 2012 and return to positive territory in Dec 2012 with decline of current conditions into contraction in Jan-Feb 2013.
Chart VA-1, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and Future Activity Indexes
Source: Federal Reserve Bank of Philadelphia
http://www.philadelphiafed.org/index.cfm
The index of current new orders of the Business Outlook Survey of the Federal Reserve Bank of Philadelphia in Table VA-2 illustrates the weakness of the cyclical expansion. The index weakened in 2006 and 2007 and then fell sharply into contraction during the global recession. There have been nine readings into contraction and generally weak readings with some exceptions.
Chart VA-2, Federal Reserve Bank of Philadelphia Current New Orders Diffusion Index
Source: Federal Reserve Bank of Philadelphia
http://www.philadelphiafed.org/index.cfm
Seasonally-adjusted annual rates (SAAR) of housing starts and permits are shown in Table VA-2. Housing starts fell 8.5 in Jan 2012 but had jumped 15.7 percent in Dec 2012 after decreasing 4.3 percent in Nov 2012 and increasing 12.4 percent in Sep 2012. Housing permits, indicating future activity, increased 1.8 percent in Jan 2013 after increases of 1.0 percent in Dec and 3.7 percent in Nov 2012 but decreased 2.5 percent in Oct 2012 and increased 11.1 percent in Sep 2012. Monthly rates in starts and permits fluctuate significantly as shown in Table VA-2.
Table VA-2, US, Housing Starts and Permits SSAR Month ∆%
| Housing | Month ∆% | Housing | Month ∆% | |
| Jan 2013 | 890 | -8.5 | 925 | 1.8 |
| Dec 2012 | 973 | 15.7 | 909 | 1.0 |
| Nov | 841 | -5.4 | 900 | 3.7 |
| Oct | 889 | 5.5 | 868 | -2.5 |
| Sep | 843 | 12.4 | 890 | 11.1 |
| Aug | 750 | 3.0 | 801 | -1.2 |
| Jul | 728 | -3.4 | 811 | 6.7 |
| Jun | 754 | 6.8 | 760 | -3.1 |
| May | 706 | -5.5 | 784 | 8.4 |
| Apr | 747 | 5.8 | 723 | -6.0 |
| Mar | 706 | -1.7 | 769 | 8.8 |
| Feb | 718 | -0.3 | 707 | 3.4 |
| Jan | 720 | 3.3 | 684 | -2.4 |
| Dec 2011 | 697 | -1.6 | 701 | -1.1 |
| Nov | 708 | 12.4 | 709 | 6.3 |
| Oct | 630 | -2.6 | 667 | 8.3 |
| Sep | 647 | 11.4 | 616 | -4.5 |
| Aug | 581 | -5.4 | 645 | 2.9 |
| Jul | 614 | -0.2 | 627 | -0.9 |
| Jun | 615 | 11.6 | 633 | 1.4 |
| May | 551 | -0.2 | 624 | 7.9 |
| Apr | 552 | -8.0 | 578 | -2.0 |
| Mar | 600 | 15.8 | 590 | 10.1 |
| Feb | 518 | -18.0 | 536 | -5.3 |
| Jan | 632 | 17.3 | 566 | -10.4 |
| Dec 2010 | 539 | -1.1 | 632 | 12.9 |
| Nov | 545 | 0.4 | 560 | 0.4 |
| Oct | 543 | -8.6 | 558 | -0.9 |
| Sep | 594 | -0.8 | 563 | -2.9 |
SAAR: Seasonally Adjusted Annual Rate
Source: US Census Bureau http://www.census.gov/construction/nrc/
Housing starts and permits in Jan-Nov not-seasonally adjusted are provided in Table VA-12. Housing starts increased 28.1 percent in Jan-Dec 2012 relative to Jan-Dec 2011 and in the same period new permits increased 30.7 percent. Construction of new houses in the US remains at very depressed levels. Housing starts fell 56.7 percent in Jan-Dec 2012 relative to Jan-Dec 2006 and fell 62.3 percent relative to Jan-Dec 2005. Housing permits fell 55.7 percent in Jan-Dec 2012 relative to Jan-Dec 2006 and fell 62.2 percent in Jan-Dec 2012 from Jan-Dec 2005.
Table VA-3, US, Housing Starts and New Permits, Thousands of Units, NSA, and %
| Housing Starts | New Permits | |
| Jan-Dec 2012 | 779.9 | 815.5 |
| Jan-Dec 2011 | 608.8 | 624.1 |
| ∆% Jan-Dec 2012/Jan-Dec 2011 | 28.1 | 30.7 |
| Jan-Dec 2006 | 1800.9 | 1838.9 |
| ∆% Jan-Dec 2012/ | -56.7 | -55.7 |
| Jan-Dec 2005 | 2068.3 | 2155.3 |
| ∆%/ Jan-Dec 2012 | -62.3 | -62.2 |
Source: US Census Bureau http://www.census.gov/construction/nrc/
Chart VA-3 of the US Census Bureau shows the sharp increase in construction of new houses from 2000 to 2006. Housing construction fell sharply through the recession, recovering from the trough around IIQ2009. The right-hand side of Chart VA-3 shows a mild downward trend or stagnation from mid 2010 to the present in single-family houses with a recent mild upward trend in recent months in the category of two or more units but marginal decline in recent months.
Chart VA-3, US, New Housing Units Started in the US, SAAR (Seasonally Adjusted Annual Rate)
Source: US Census Bureau
http://www.census.gov/briefrm/esbr/www/esbr020.html
Table VA-4 provides new housing units started in the US at seasonally adjusted annual rates (SAAR) from Jan-Apr and Nov-Dec of the year from 2000 to 2013. SAARs have dropped from high levels around 2 million in 2005-2006 to the range of 706,000 in Feb 2012 to 873,000 in Dec 2012 and 890,000 in Jan 2013, which is an improvement over the range of 518,000 in Feb 2011 to 708,000 in Nov 2011.
Table VA-4, New Housing Units Started in the US, Seasonally Adjusted Annual Rates, Thousands of Units
| Jan | Feb | Mar | Apr | Nov | Dec | |
| 2000 | 1,636 | 1,737 | 1,604 | 1,626 | 1,551 | 1,532 |
| 2001 | 1,600 | 1,625 | 1,590 | 1,649 | 1,602 | 1,568 |
| 2002 | 1,698 | 1,829 | 1,642 | 1,592 | 1,753 | 1,788 |
| 2003 | 1,853 | 1,629 | 1,726 | 1,643 | 2,083 | 2,057 |
| 2004 | 1,911 | 1,846 | 1,998 | 2,003 | 1,782 | 2,042 |
| 2005 | 2,144 | 2,207 | 1,864 | 2,061 | 2,147 | 1,994 |
| 2006 | 2,273 | 2,119 | 1,969 | 1,821 | 1,570 | 1,649 |
| 2007 | 1,409 | 1,480 | 1,495 | 1,490 | 1,197 | 1,037 |
| 2008 | 1,084 | 1,103 | 1,005 | 1,013 | 652 | 560 |
| 2009 | 490 | 582 | 505 | 478 | 588 | 581 |
| 2010 | 614 | 604 | 636 | 687 | 545 | 539 |
| 2011 | 632 | 518 | 600 | 552 | 708 | 697 |
| 2012 | 720 | 718 | 706 | 747 | 841 | 973 |
| 2013 | 890 | NA | NA | NA | NA | NA |
Source: US Census Bureau http://www.census.gov/construction/nrc/
Chart VA-4 of the US Census Bureau provides construction of new housing units started in the US at seasonally adjusted annual rate (SAAR) from Jan 1959 to Jan 2013 that help to analyze in historical perspective the debacle of US new house construction. There are three periods in the series. (1) There is stationary behavior with wide fluctuations from 1959 to the beginning of the decade of the 1970s. (2) There is sharp upward trend from the 1990s to 2006 propelled by the US housing subsidy, politics of Fannie Mae and Freddie Mac and unconventional monetary policy of near zero interest rates from Jun 2003 to Jun 2004 and suspension of the auction of 30-year Treasury bonds. The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html . (3) Housing construction dropped vertically during the global recession. There was initial stability followed by some recovery in recent months.
Chart VA-4, US, New Housing Units Started in the US, SAAR (Seasonally Adjusted Annual Rate), Thousands of Units, Jan 1959-Jan 2013
Source: US Census Bureau
http://www.census.gov/construction/nrc/
Table VA-5 provides actual new housing units started in the US, or not seasonally adjusted, in Jan-Apr and Nov-Dec 2012 from 2000 to 2012 and Jan 2013. The number of housing units started fell from the peak of 192.8 thousand in Jun 2005 to 58.5 thousand in Jan 2013 or 69.7 percent. The number of housing units started fell from 153.0 thousand in Jan 2006 to 58.5 thousand in Jan 2013 or by 61.8 percent. The number of housing units started jumped from 40.2 thousand in Jan 2011 to 58.5 thousand in Jan 2013 or by 45.5 percent.
Table VA-5, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units
| Jan | Feb | Mar | Apr | Nov | Dec | |
| 2000 | 104.0 | 119.7 | 133.4 | 149.5 | 117.1 | 100.7 |
| 2001 | 106.4 | 108.2 | 133.2 | 151.3 | 121.0 | 104.6 |
| 2002 | 110.4 | 120.4 | 138.2 | 148.8 | 133.0 | 123.1 |
| 2003 | 117.8 | 109.7 | 147.2 | 151.2 | 153.7 | 144.2 |
| 2004 | 124.5 | 126.4 | 173.8 | 179.5 | 138.1 | 140.2 |
| 2005 | 142.9 | 149.1 | 156.2 | 184.6 | 160.7 | 136.0 |
| 2006 | 153.0 | 145.1 | 165.9 | 160.5 | 115.2 | 112.4 |
| 2007 | 95.0 | 103.1 | 123.8 | 135.6 | 88.8 | 68.9 |
| 2008 | 70.8 | 78.4 | 82.2 | 89.5 | 47.5 | 37.7 |
| 2009 | 31.9 | 39.8 | 42.7 | 42.5 | 42.3 | 36.6 |
| 2010 | 38.9 | 40.7 | 54.7 | 62.0 | 40.6 | 33.8 |
| 2011 | 40.2 | 35.4 | 49.9 | 49.0 | 53.0 | 42.7 |
| 2012 | 47.2 | 49.7 | 58.0 | 66.8 | 62.2 | 62.5 |
| 2013 | 58.5 | NA | NA | NA | NA | NA |
Source: US Census Bureau http://www.census.gov/construction/nrc/
Chart VA-5 of the US Census Bureau provides new housing units started in the US not seasonally adjusted (NSA) from Jan 1959 to Jan 2013. There is the same behavior as in Chart VA-4 SA but with sharper fluctuations in the original series without seasonal adjustment. There are the same three periods. (1) The series is virtually stationary with wide fluctuations from 1959 to the late 1980s. (2) There is downward trend during the savings and loans crisis of the 1980s. Benston and Kaufman (1997, 139) find that there was failure of 1150 US commercial and savings banks between 1983 and 1990, or about 8 percent of the industry in 1980, which is nearly twice more than between the establishment of the Federal Deposit Insurance Corporation in 1934 through 1983. More than 900 savings and loans associations, representing 25 percent of the industry, were closed, merged or placed in conservatorships (see Pelaez and Pelaez, Regulation of Banks and Finance (2008b), 74-7). The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) created the Resolution Trust Corporation (RTC) and the Savings Association Insurance Fund (SAIF) that received $150 billion of taxpayer funds to resolve insolvent savings and loans. The GDP of the US in 1989 was $5482.1 billion (http://www.bea.gov/iTable/index_nipa.cfm), such that the partial cost to taxpayers of that bailout was around 2.74 percent of GDP in a year. US GDP in 2011 is estimated at $15,075.7 billion, such that the bailout would be equivalent to cost to taxpayers of about $412.5 billion in current GDP terms. A major difference with the Troubled Asset Relief Program (TARP) for private-sector banks is that most of the costs were recovered with interest gains whereas in the case of savings and loans there was no recovery. (3) There is vertical drop of new housing construction in the US during the global recession from (Dec) IVQ2007 to (Jun) IIQ2009 (http://www.nber.org/cycles/cyclesmain.html). The final segment shows upward trend but it could be simply part of yet another fluctuation. Marginal improvement in housing in the US should not obscure the current depressed levels relative to earlier periods.
Chart VA-5, US, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units, Jan 1959-Jan 2013
Source: US Census Bureau http://www.census.gov/construction/nrc/
A longer perspective on residential construction in the US is provided by Table VA-6 with annual data from 1960 to 2012. Housing starts fell 62.3 percent from 2005 to 2012, 50.3 percent from 2000 to 2012 and 45.5 percent relative to the average from 1959 to 1963. Housing permits fell 62.2 percent from 2005 to 2012, 48.8 percent from 2000 to 2011 and 29.6 percent from the average of 1969-1963 to 2012. Housing starts rose 31.8 from 2000 to 2005 while housing permits grew 35.4 percent. From 1990 to 2000 housing starts increased 31.5 percent while permits increased 43.3 percent.
Table VA-6, US, Annual New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places and New Privately Owned Housing Units Started, Thousands
| Starts | Permits | |
| 2012 | 779.9 | 815.5 |
| ∆% 2012/2011 | 28.1 | 30.7 |
| ∆% 2012/2010 | 32.9 | 34.9 |
| ∆% 2012/2005 | -62.3 | -62.2 |
| ∆% 2012/2000 | -50.3 | -48.8 |
| ∆% 2012/Av 1959-1963 | -45.5 | -29.6 |
| 2011 | 608.8 | 624.1 |
| ∆% 2011/2005 | -70.6 | -71.9 |
| ∆% 2011/2000 | -61.2 | -62.0 |
| ∆% 2011/Av 1959-1963 | -57.4 | -46.1 |
| 2010 | 586.9 | 604.6 |
| 2009 | 554.0 | 583.0 |
| 2008 | 905.5 | 905.4 |
| 2007 | 1,355,0 | 1,398.4 |
| 2006 | 1,800.9 | 1,838.9 |
| 2005 | 2,068.3 | 2,155.3 |
| ∆% 2005/2000 | 31.8 | 35.4 |
| 2004 | 1,955.8 | 2,070.1 |
| 2003 | 1,847.7 | 1,889.2 |
| 2002 | 1,704.9 | 1,747.2 |
| 2001 | 1,602.7 | 1,636.7 |
| 2000 | 1,568.7 | 1,592.3 |
| ∆% 2000/1990 | 31.5 | 43.3 |
| 1990 | 1,192,7 | 1,110.8 |
| 1980 | 1,292.2 | 1,190.6 |
| 1970 | 1,433.6 | 1,351.5 |
| Average 1959-63 | 1,429.7 | 1158.2 |
Source: US Census Bureau http://www.census.gov/construction/nrc/
VB Japan. Table VB-BOJF provides the forecasts of economic activity and inflation in Japan by the majority of members of the Policy Board of the Bank of Japan, which is part of their Outlook for Economic Activity and Prices (http://www.boj.or.jp/en/mopo/outlook/gor1210a.pdf). For fiscal 2013, the forecast is of growth of GDP between 1.3 and 1.8 percent, with domestic producer price inflation (Corporate Goods Price Index, CGPI) in the range of 0.1 to 0.7 percent and the all items CPI less fresh food of 0.2 to 0.6 percent. These forecasts are biannual in Apr and Oct. The Cabinet Office, Ministry of Finance and Bank of Japan released on Jan 22, 2013, a “Joint Statement of the Government and the Bank of Japan on Overcoming Deflation and Achieving Sustainable Economic Growth” (http://www.boj.or.jp/en/announcements/release_2013/k130122c.pdf) with the important change of increasing the inflation target of monetary policy from 1 percent to 2 percent:
“The Bank of Japan conducts monetary policy based on the principle that the policy shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy, and is responsible for maintaining financial system stability. The Bank aims to achieve price stability on a sustainable basis, given that there are various factors that affect prices in the short run.
The Bank recognizes that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening competitiveness and growth potential of Japan's economy make progress. Based on this recognition, the Bank sets the price stability target at 2 percent in terms of the year-on-year rate of change in the consumer price index.
Under the price stability target specified above, the Bank will pursue monetary easing and aim to achieve this target at the earliest possible time. Taking into consideration that it will take considerable time before the effects of monetary policy permeate the economy, the Bank will ascertain whether there is any significant risk to the sustainability of economic growth, including from the accumulation of financial imbalances.”
The Bank of Japan also provided explicit analysis of its view on price stability in a “Background note regarding the Bank’s thinking on price stability” (http://www.boj.or.jp/en/announcements/release_2013/data/rel130123a1.pdf http://www.boj.or.jp/en/announcements/release_2013/rel130123a.htm/). The Bank of Japan also amended “Principal terms and conditions for the Asset Purchase Program” (http://www.boj.or.jp/en/announcements/release_2013/rel130122a.pdf): “Asset purchases and loan provision shall be conducted up to the maximum outstanding amounts by the end of 2013. From January 2014, the Bank shall purchase financial assets and provide loans every month, the amount of which shall be determined pursuant to the relevant rules of the Bank.”
Table VB-BOJF, Bank of Japan, Forecasts of the Majority of Members of the Policy Board, % Year on Year
| Fiscal Year | Real GDP | Domestic CGPI | CPI All Items Less Fresh Food |
| 2011 | |||
| Apr 2012 | -0.2 to –0.2 | +1.7 | 0.0 |
| Jan 2012 | -0.4 to –0.3 | +1.8 to +1.9 | -0.1 to 0.0 |
| 2012 | |||
| Oct 2012 | +1.4 to +1.6 [+1.5] | -1.2 to -0.9 [-1.1] | -0.1 to -0.1 [-0.1] |
| Jul 2012 | +2.2 to +2.4 [+2.2] | -0.3 to 0.0 [-0.2] | +0.1 to +0.3 [+0.2] |
| Apr 2012 | +2.1 to +2.4 | +0.4 to +0.7 | +0.1 to +0.4 |
| Jan 2012 | +1.8 to +2.1 | -0.1 to +0.2 | 0.0 to +0.2 |
| 2013 | |||
| Oct 2012 | +1.3 to +1.8 [+1.6] | +0.1 to +0.7 [+0.5] | +0.2 to +0.6 [+0.4] |
| Jul 2012 | +1.6 to +1.8 [+1.7] | +0.6 to +0.8 [+0.6] | +0.5 to +0.7 [+0.7] |
| Apr 2012 | +1.6 to +1.8 | +0.7 to +0.9 | +0.5 to +0.7 |
| Jan 2012 | +1.4 to +1.7 | +0.6 to 1.0 | +0.4 to +0.5 |
| 2014 | |||
| Oct 2012 | +0.2 to +0.7] [+0.6] | +3.7 to +4.4 [+4.2] | +2.4 to +3.0 [+2.8] |
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/gor1210a.pdf
Private-sector activity in Japan expanded at a marginal rate with the Markit Composite Output PMI™ Index increasing from 49.3 in Dec to 50.4 in Jan, which is the first reading above the no-change 50.0 since May 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10632). Paul Smith, economist at Markit and author of the report, finds that growth in services but with weakness in manufacturing could provide some support for marginal growth in the beginning of 2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10632). The Markit Business Activity Index of Services remained unchanged at 51.5 in Jan and also 51.5 in Dec, indicating moderate growth of the private services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10632). Paul Smith, Senior Economist at Markit and author of the report, finds signs of moderate growth in the beginning of 2013 with demand for services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10632). Markit/JMMA Purchasing Managers’ Index™ (PMI™), seasonally adjusted, increased from 45.0 in Dec to 47.7 in Jan for the eighth consecutive month of contraction below 50.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10609). Foreign orders fell for the tenth consecutive month with weakness in markets in China. Paul Smith, economist at Markit and author of the report, finds weakness in the beginning of 2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10609).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 |
| Corporate Goods Prices | Jan ∆% +0.4 |
| Consumer Price Index | Dec NSA ∆% 0.1; Dec 12 months NSA ∆% -0.1 |
| Real GDP Growth | IVQ2012 ∆%: minus 0.1 on IIIQ2012; IVQ2012 SAAR minus 0.1; |
| Employment Report | Dec Unemployed 2.59 million Change in unemployed since last year: minus 170 thousand |
| All Industry Indices | Dec month SA ∆% 1.8 Blog 2/24/13 |
| Industrial Production | Dec SA month ∆%: 2.5 |
| Machine Orders | Total Dec ∆% -1.6 Private ∆%: -9.8 Dec ∆% Excluding Volatile Orders 2.8 |
| Tertiary Index | Dec month SA ∆% 1.4 |
| Wholesale and Retail Sales | Dec 12 months: |
| Family Income and Expenditure Survey | Dec 12-month ∆% total nominal consumption -0.8, real -0.7 Blog 2/3/13 |
| Trade Balance | Exports Jan 12 months ∆%: 6.4 Imports Jan 12 months ∆% 7.3 Blog 2/24/13 |
Links to blog comments in Table JPY:
2/17/13 http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html
2/10/13 http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html
2/3/13 http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html
1/27/13 http://cmpassocregulationblog.blogspot.com/2013/01/united-states-commercial-banks-assets.html
8/9/11 http://cmpassocregulationblog.blogspot.com/2011/08/turbulence-in-world-financial-markets.html
The indices of all industry activity of Japan, which is an approximation of GDP or economic activity, fell to levels close to the worst point of the recession, showing the brutal impact of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Table VB-1 with the latest revisions shows the quarterly index which permits comparison with the movement of real GDP. The first row provides weights of the various components of the index: AG (agriculture) 1.4 percent (not shown), CON (construction) 5.7 percent, IND (industrial production) 18.3 percent, TERT (services) 63.2 percent, and GOVT (government) 11.4 percent. GDP decreased 0.1 percent in IVQ2012 (Table VB-1 http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html), industry decreased 1.9 percent, the tertiary sector increased 0.6 percent, government decreased 0.1 percent and construction increased 2.1 percent. The report shows that the all industry index increased 0.3 percent in IVQ2012. Industry deducted 0.33 percentage points from growth of the all industry index and the tertiary index contributed 0.40 percentage points. Japan had already experienced a very weak quarter in IVQ2010, with decline of the all industry index of 0.2 percent and decline of GDP of 0.3 percent (Table VB-1 http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html), when it was unexpectedly hit by the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. The worst impact of the natural disaster was on construction with drop of 7.5 percent in IIQ2011 relative to IQ2011 but recovery at 3.3 percent in IIIQ2011. Industrial production fell 4.2 percent from IQ2011 into IIQ2011 but grew 5.4 percent in IIIQ2011. Many accounts had already been closed when the earthquake occurred, but there is visible decline of the index of all industry by 1.3 percent in IQ2011 caused by decline of industrial production by 1.5 percent and services by 1.0 percent with GDP falling revised 1.8 percent (http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.htmlTable VB-1).
Table VB-1, Japan, Indices of All Industry Activity Percentage Change from Prior Quarter SA ∆%
| CON | IND | TERT | GOVT | ALL IND | REAL | |
| Weight | 5.7 | 18.3 | 63.2 | 11.4 | 100.0 | |
| 2012 | ||||||
| IVQ2012 | 2.1 | -1.9 | 0.6 | -0.1 | 0.3 | -0.1 |
| Cont to IVQ % Change | 0.10 | -0.33 | 0.40 | -0.01 | ||
| IIIQ | 1.6 | -4.2 | 0.1 | 0.0 | -0.5 | -1.0 |
| IIQ | -1.5 | -2.0 | 0.0 | -0.1 | -0.1 | -0.2 |
| IQ | 5.7 | 1.3 | 0.0 | 0.1 | -0.1 | 1.5 |
| 2011 | ||||||
| IVQ | -1.5 | 0.4 | 0.5 | 0.2 | 0.5 | 0.2 |
| IIIQ | 3.3 | 5.4 | 1.5 | 0.2 | 2.1 | 2.5 |
| IIQ | -7.5 | -4.2 | -0.5 | 0.1 | -0.9 | -0.9 |
AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity
Source: http://www.meti.go.jp/english/statistics/index.html
There are more details in Table VB-2. The all industry activity increased 1.8 percent in Dec 2012 relative to Nov 2012 with increase of 1.4 percent of the tertiary or services sector and increase of industry of 2.4 percent while construction decreased 0.4 percent and government increased 0.1 percent. Industry added 0.41 percentage points to growth in Dec while the tertiary sector added 0.94 percentage points, construction deducted 0.02 percentage points and government added 0.01 percentage points. Weakness in Sep and Aug 2011 had interrupted the sharp recovery from Apr to Jul with renewed strength in Oct but weakness again in Nov followed by strong rebound in Dec 2011 that was interrupted in Jan-Mar 2012 with modest growth in Apr, new decline in May 2012, moderate increase in Jun 2012 and new decline of 0.5 percent in Jul 2012, nil growth in Aug 2012, decline of 0.4 percent in Sep 2012 and increase of 0.2 percent in Oct 2012 interrupted by decline of 0.3 percent in Dec 2012 with increase of 1.8 percent in Dec 2012. The highest risk to Japan is if weakening world growth would affect Japanese exports.
Table VB-2, Japan, Indices of All Industry Activity Percentage Change from Prior Month SA ∆%
| CON | IND | TERT | GOVT | ALL IND | |
| Dec 2012 | -0.4 | 2.4 | 1.4 | 0.1 | 1.8 |
| Cont to Dec % Change | -0.02 | 0.41 | 0.94 | 0.01 | |
| Nov | 4.8 | -1.4 | -0.4 | -0.1 | -0.4 |
| Oct | -2.7 | 1.6 | 0.2 | 0.6 | 0.3 |
| Sep | 2.6 | -4.1 | 0.2 | -1.2 | -0.4 |
| Aug | -0.3 | -1.6 | 0.3 | 0.4 | 0.0 |
| Jul | -2.7 | -1.0 | -0.6 | 0.0 | -0.5 |
| Jun | 1.0 | 0.4 | 0.1 | 0.2 | 0.3 |
| May | 9.5 | -3.4 | 0.9 | -0.1 | -0.2 |
| Apr | -5.5 | -0.2 | -0.2 | 0.1 | 0.1 |
| Mar | -5.4 | 1.3 | -0.6 | -0.1 | -0.3 |
| Feb | 4.2 | -1.6 | 0.0 | -0.4 | -0.1 |
| Jan | 5.6 | 0.9 | -0.6 | 0.5 | -0.7 |
| Dec 2011 | -1.4 | 2.3 | 1.6 | -0.2 | 1.7 |
| Nov | 0.3 | -1.7 | -0.8 | 0.1 | -0.9 |
| Oct | -2.6 | 1.8 | 0.6 | 0.1 | 0.6 |
| Sep | 1.6 | -1.9 | -0.2 | 0.2 | -0.1 |
| Aug | 1.1 | 0.9 | 0.1 | -0.1 | 0.2 |
| Jul | 0.1 | 1.1 | 0.4 | -0.2 | 0.5 |
| Jun | -0.1 | 3.8 | 1.2 | 0.2 | 1.5 |
| May | 6.5 | 5.8 | 0.9 | 0.7 | 1.6 |
| Apr | -5.1 | 2.4 | 2.1 | -0.9 | 2.0 |
| Mar | -10.6 | -16.2 | -5.4 | 0.7 | -6.6 |
| Feb | 2.3 | 1.1 | 0.3 | 0.0 | 0.1 |
| Jan | 6.3 | 1.2 | 0.5 | -0.5 | 0.6 |
| Dec 2010 | -0.5 | 2.4 | -0.2 | 0.3 | 0.1 |
| Nov | -1.4 | 1.6 | 0.6 | -0.4 | 0.3 |
| Oct | 0.1 | -1.4 | 0.2 | -0.1 | 0.0 |
| Sep | -1.9 | -0.8 | -0.4 | -0.1 | -0.4 |
| Aug | 1.6 | -0.1 | 0.1 | 0.1 | -0.5 |
| Jul | 0.8 | 0.3 | 0.7 | 0.1 | 1.1 |
| Jun | -2.1 | -1.5 | 0.1 | -0.1 | 0.2 |
| May | 6.3 | -0.1 | -0.3 | 0.0 | 0.0 |
| Apr | -3.1 | 0.6 | 1.6 | -0.2 | 0.9 |
AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity
Sources: http://www.meti.go.jp/english/statistics/index.html
Percentage changes from a year earlier in calendar years and relative to the same quarter a year earlier of the all industry activity indices are provided in Table VB-3. The first row shows that services contribute 63.2 percent of the total index and industry contributes 18.3 percent for joint contribution of 81.5 percent. The all industry activity index decreased 0.2 percent in IVQ2012 and GDP increased 0.3 percent relative to a year earlier (Table VB-2 http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html). Industry decreased 5.9 percent relative to a year earlier while the tertiary sector increased 0.9 percent, deducting combined 0.47 percentage points to growth of the all industry activity index of minus 0.2 percent while construction added 0.38 percentage points and government deducted 0.04 percentage points. The fall of industrial production in 2009 was by a catastrophic 21.9 percent. Japan emerged from the crisis with industrial growth of 16.4 percent in 2010. Quarterly data show that industry is the most dynamic sector of the Japanese economy. The all-industry index increased 1.2 percent in 2012 and real GDP increased 1.9 percent. Industry fell 0.3 percent, deducting 0.06 percentage points, while the tertiary sector increased 1.4 percent, adding 0.94 percentage points. The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 201, declining world trade and revaluation of the yen in fear of world financial risks interrupted the recovery of the Japanese economy from the global recession.
Table VB-3, Japan, Indices of All Industry Activity Percentage Change from Earlier Calendar Year and Same Quarter Year Earlier NSA ∆%
| CON | IND | TERT | GOVT | ALL IND | REAL | |
| Weight | 5.7 | 18.3 | 63.2 | 11.4 | 100.0 | |
| Calendar Year | ||||||
| 2012 | 4.3 | -0.3 | 1.4 | 0.1 | 1.2 | 1.9 |
| Cont to 2012 % Change | 0.19 | -0.06 | 0.94 | 0.01 | ||
| 2011 | -2.0 | -2.3 | 0.1 | -0.2 | -0.5 | -0.6 |
| 2010 | -7.0 | 16.4 | 1.3 | -0.7 | 3.1 | 4.7 |
| 2009 | -5.6 | -21.9 | -5.2 | 0.1 | -7.7 | -5.5 |
| 2008 | -7.6 | -3.4 | -1.0 | -1.4 | -1.9 | -1.0 |
| 2012 | ||||||
| IVQ | 7.8 | -5.9 | 0.9 | -0.3 | -0.2 | 0.3 |
| Cont to IVQ % Change | 0.38 | -1.06 | 0.59 | -0.04 | ||
| IIIQ | 4.2 | -4.6 | 0.5 | 0.3 | -0.2 | 0.4 |
| IIQ | 5.8 | 5.3 | 2.2 | 0.4 | 2.6 | 3.8 |
| IQ | -0.3 | 4.8 | 2.4 | 0.1 | 2.4 | 3.4 |
| 2011 | ||||||
| IVQ | -2.8 | -1.6 | 0.6 | 0.6 | 0.0 | -0.3 |
| IIIQ | -3.2 | -0.9 | 0.3 | -0.1 | -0.1 | -0.5 |
| IIQ | -5.1 | -5.8 | -0.5 | -0.4 | -1.6 | -1.6 |
| IQ | 2.3 | -1.3 | -0.3 | -1.0 | -0.5 | 0.0 |
| 2010 | ||||||
| IVQ | -0.6 | 5.9 | 1.6 | -0.8 | 2.1 | 3.3 |
| IIIQ | -3.2 | 14.0 | 1.8 | -0.6 | 3.2 | 6.0 |
| IIQ | -11.3 | 21.3 | 1.4 | -0.7 | 3.5 | 4.4 |
| IQ | -12.4 | 28.0 | 0.8 | -0.5 | 3.9 | 4.9 |
AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity
Source: http://www.meti.go.jp/english/statistics/index.html
Percentage changes of a month relative to the same month a year earlier for the indices of all industry activity of Japan are shown in Table VB-4. The all industry activity index decreased 0.8 percent in Dec 2012 relative to Dec 2011. Industry fell 7.9 percent in Dec 2012 relative to a year earlier, subtracting 1.37 percentage points to growth of the all industry activity index. The tertiary sector increased 0.2 percent, adding 0.13 percentage points. Construction added 0.47 percentage points to the index and government added 0.08 percentage points.
Table VB-4, Japan, Indices of All Industry Activity Percentage Change from Same Month Year Earlier NSA ∆%
| CON | IND | TERT | GOVT | ALL IND | |
| Dec 2012 | 9.9 | -7.9 | 0.2 | 0.7 | -0.8 |
| Cont to Dec % Change | 0.47 | -1.37 | 0.13 | 0.08 | |
| Nov | 8.8 | -5.5 | 1.1 | -0.3 | 0.1 |
| Oct | 4.6 | -4.5 | 1.4 | -1.4 | 0.2 |
| Sep | 4.1 | -8.1 | 0.1 | 0.6 | -1.2 |
| Aug | 3.5 | -4.6 | 0.6 | 0.8 | -0.1 |
| Jul | 4.9 | -0.8 | 0.9 | -0.3 | 0.6 |
| Jun | 7.6 | -1.5 | 0.8 | 0.8 | 0.6 |
| May | 6.4 | 6.0 | 3.2 | -0.6 | 3.3 |
| Apr | 3.7 | 12.9 | 2.6 | 0.8 | 4.1 |
| Mar | 4.1 | 14.2 | 4.2 | 0.6 | 5.5 |
| Feb | -1.6 | 1.5 | 2.4 | -0.7 | 1.6 |
| Jan | -3.4 | -1.6 | 0.4 | 0.4 | -0.1 |
| Dec 2011 | -3.0 | -3.0 | 1.2 | 0.8 | 0.2 |
| Nov | -1.2 | -2.9 | -0.3 | 0.8 | -0.7 |
| Oct | -4.0 | 0.9 | 0.9 | 0.2 | 0.5 |
| Sep | -0.4 | -2.4 | 0.1 | 0.1 | -0.3 |
| Aug | -4.3 | 1.6 | 0.8 | -1.1 | 0.4 |
| Jul | -4.8 | -1.7 | 0.1 | 0.5 | -0.4 |
| Jun | -4.6 | -0.6 | 1.0 | 0.3 | 0.4 |
| May | -6.5 | -4.6 | -0.2 | -0.8 | -1.3 |
| Apr | -4.1 | -12.7 | -2.3 | -0.6 | -4.0 |
| Mar | -2.8 | -12.4 | -3.4 | 0.0 | -4.6 |
| Feb | 4.4 | 4.5 | 2.0 | -1.4 | 2.1 |
| Jan | 5.9 | 6.1 | 1.0 | -1.4 | 1.8 |
| Dec 2010 | -0.5 | 5.9 | 1.8 | -0.7 | 2.1 |
| Nov | -0.5 | 7.0 | 2.5 | -1.9 | 2.7 |
| Oct | -1.1 | 5.0 | 0.5 | 0.3 | 1.3 |
| Sep | -2.8 | 12.1 | 1.3 | -0.6 | 2.7 |
| Aug | -1.7 | 15.5 | 2.3 | -1.1 | 3.8 |
| Jul | -5.3 | 14.6 | 1.6 | -0.1 | 3.3 |
| Jun | -8.3 | 16.6 | 1.0 | -0.7 | 3.0 |
| May | -8.1 | 20.7 | 1.2 | -0.9 | 3.4 |
| Apr | -17.0 | 27.0 | 1.9 | -0.4 | - |
AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity
Source: http://www.meti.go.jp/english/statistics/index.html
The structure of exports and imports of Japan is in Table VB-5. Japan imports all types of raw materials and fuels at rapidly increasing prices caused by the carry trade from zero interest rates to commodities, oscillating under shocks of risk aversion. Mineral fuels account for 35.2 percent of Japan’s imports and increased 8.8 percent in the 12 months ending in Jan 2013 because of alternating carry trades into commodity futures in accordance with risk aversion. Weakness of world demand depresses prices of industrial goods. Manufactured products contribute 13.3 percent of Japan’s exports with increase of 10.6 percent in the 12 months ending in Jan 2013. Machinery contributes 18.1 percent of Japan’s exports with decrease of 2.7 percent in the 12 months ending in Jan 2013. Electrical machinery contributes 16.2 percent of Japan’s exports with increase of 2.4 percent in the 12 months ending in Jan 2013. Exports of transport equipment with share of 25.0 percent in total exports increased 3.5 percent in the 12 months ending in Jan 2013 but had been increasing sharply largely because of the low level after the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. The breakdown of transport equipment in Table VB-5 shows increase of the major categories of motor vehicles of 2.1 percent: cars increased 3.4 percent with decrease of 11.1 percent in the minor category of buses and trucks, increase of 15.9 percent for parts of motor vehicles, decrease of 2.1 percent for motorcycles and decrease of 8.7 percent for ships. The result of rising commodity prices and stable or declining prices of industrial products is pressure on Japan’s terms of trade with oscillations when risk aversion causes reversion of carry trades from zero interest rates to commodity prices. Data in Table VB-5 are in millions of yen that have been affected by recent depreciation of the yen relative to the USD with invoicing of many products in dollars.
Table VB-5, Japan, Structure and Growth of Exports and Imports % and ∆% Millions Yens
| Jan 2013 | Value JPY Millions | % of Total | 12 Months ∆% | Contribution Degree % |
| Exports | 4,799,161 | 100.0 | 6.4 | 6.4 |
| Foodstuffs | 27,803 | 0.6 | 27.3 | 0.1 |
| Raw Materials | 86,342 | 1.8 | 25.3 | 0.4 |
| Mineral Fuels | 78,736 | 1.6 | 14.3 | 0.2 |
| Chemicals | 547,836 | 11.4 | 20.2 | 2.0 |
| Manufactured Goods | 636,435 | 13.3 | 10.6 | 1.3 |
| Machinery | 867,331 | 18.1 | -2.7 | -0.5 |
| Electrical Machinery | 779,322 | 16.2 | 2.4 | 0.4 |
| Transport Equipment | 1,200,199 | 25.0 | 3.5 | 0.9 |
| Motor Vehicles | 683,792 | 14.2 | 2.1 | 0.3 |
| Cars | 589,906 | 12.3 | 3.4 | 0.4 |
| Buses & Trucks | 82,838 | 1.7 | -11.1 | -0.2 |
| Parts of Motor Vehicles | 235,108 | 4.9 | 15.9 | 0.7 |
| Motorcycles | 22,959 | 0.5 | -2.1 | 0.0 |
| Ships | 207,528 | 4.3 | -8.7 | -0.4 |
| Other | 575,157 | 12.0 | 13.3 | 1.5 |
| Imports | 6,428,601 | 100.0 | 7.3 | 7.3 |
| Foodstuffs | 491,201 | 7.6 | 2.4 | 0.2 |
| Raw Materials | 425,503 | 6.6 | -0.8 | -0.1 |
| Mineral Fuels | 2,260,247 | 35.2 | 8.8 | 3.1 |
| Chemicals | 518,148 | 8.1 | 3.3 | 0.3 |
| Manufactured Goods | 484,854 | 7.5 | 0.2 | 0.0 |
| Machinery | 469,643 | 7.3 | 14.6 | 1.0 |
| Electrical Machinery | 785,247 | 12.2 | 14.7 | 1.7 |
| Transport Equipment | 196,991 | 3.1 | 5.6 | 0.2 |
| Other | 796,767 | 12.4 | 7.7 | 0.9 |
Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm
Table VB-6 provides Japan’s exports, imports and trade balance in five-year intervals from 1950 to 1975 and then yearly from 1979 to 2012. Exports grew at the average yearly rate of 3.2 percent while imports grew at 3.3 percent per year in the years from 1979 to 2012. Abstracting from the global recession and the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011, exports grew at the average annual rate of 4.8 percent between 1979 and 2007 and imports at 4.0 percent. The global recession had a brutal impact on Japan’s trade. Exports fell 35.5 percent from 2007 to 2009 while imports fell 29.6 percent. Japan had the first trade deficit in 2011 since 1980 and the highest deficit in 2012.
Table VB-6, Japan, Exports and Imports Calendar Year 1979-2010 Billion Yens
| Years | Exports | Imports | Balance |
| 1950 | 298 | 348 | -50 |
| 1955 | 723 | 889 | -166 |
| 1960 | 1,459 | 1,616 | -157 |
| 1965 | 3,042 | 2,940 | 102 |
| 1970 | 6,954 | 6,797 | 157 |
| 1975 | 16,545 | 17,170 | -625 |
| 1979 | 22,531 | 24,245 | -1,714 |
| 1980 | 29,382 | 31,995 | -2,613 |
| 1981 | 33,468 | 31,464 | 2,004 |
| 1982 | 34,432 | 32,656 | 1,776 |
| 1983 | 34,909 | 30,014 | 4,895 |
| 1984 | 40,325 | 32,321 | 8,004 |
| 1985 | 41,955 | 31,084 | 10,871 |
| 1986 | 35,289 | 21,550 | 13,739 |
| 1987 | 33,315 | 21,736 | 11,579 |
| 1988 | 33,939 | 24,006 | 9,933 |
| 1989 | 37,822 | 28,978 | 8,844 |
| 1990 | 41,456 | 33,855 | 7,601 |
| 1991 | 42,359 | 31,900 | 10,459 |
| 1992 | 43,012 | 29,527 | 13,485 |
| 1993 | 40,202 | 26,826 | 13,376 |
| 1994 | 40,497 | 28,104 | 12,393 |
| 1995 | 41,530 | 31,548 | 9,982 |
| 1996 | 44,731 | 37,993 | 6,738 |
| 1997 | 50,937 | 40,956 | 9,981 |
| 1998 | 50,645 | 36,653 | 13,992 |
| 1999 | 47,547 | 35,268 | 12,279 |
| 2000 | 51,654 | 40,938 | 10,716 |
| 2001 | 48,979 | 42,415 | 6,564 |
| 2002 | 52,108 | 42,227 | 9,881 |
| 2003 | 54,548 | 44,362 | 10,186 |
| 2004 | 61,169 | 49,216 | 11,953 |
| 2005 | 65,656 | 56,949 | 8,707 |
| 2006 | 75,246 | 67,344 | 7,902 |
| 2007 | 83,931 | 73,135 | 10,796 |
| 2008 | 81,018 | 78,955 | 2,063 |
| 2009 | 54,170 | 51,499 | 2,671 |
| 2010 | 67,399 | 60,764 | 6,635 |
| 2011 | 65,546 | 68,111 | -2,565 |
| 2012 | 63,744 | 70,674 | -6,930 |
Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm
The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table VB-7 for Dec 2012. The share of Asia in Japan’s trade is more than one half, 53.2 percent of exports and 44.8 percent of imports. Within Asia, exports to China are 15.9 percent of total exports and imports from China 22.1 percent of total imports. The second largest export market for Japan in Oct 2012 is the US with share of 17.5 percent of total exports and share of imports from the US of 8.1 percent in total imports. Western Europe has share of 10.9 percent in Japan’s exports and of 9.6 percent in imports. Rates of growth of exports of Japan in Jan 2013 are not sharply negative for all countries and regions as in Dec 2012 with the exception of minus 5.9 percent for exports to Western Europe, minus 15.8 percent for France and minus 1.8 percent for the UK. 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 Dec 2012 while imports increased 1.9 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Dec are positive for all trading partners with exception of decline of 3.5 percent for Australia. Imports from Asia increased 6.1 percent in the 12 months ending in Jan 2013 while imports from China increased 6.5 percent. Data are in millions of yen, which has effects of recent depreciation of the yen relative to the United States dollar (USD).
Table VB-7, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yens
| Jan 2013 | Exports | 12 months ∆% | Imports Millions Yen | 12 months ∆% |
| Total | 4,799,161 | 6.4 | 6,428,601 | 7.3 |
| Asia | 2,554,209 | 8.4 | 2,881,218 | 6.1 |
| China | 762,899 | 3.0 | 1,417,516 | 6.5 |
| USA | 839,836 | 10.9 | 521,102 | 5.8 |
| Canada | 62,477 | 0.3 | 88,641 | 2.9 |
| Brazil | 35,726 | 1.5 | 92,697 | 3.9 |
| Mexico | 63,340 | 21.0 | 32,732 | 18.8 |
| Western Europe | 523,863 | -5.9 | 616,973 | 6.3 |
| Germany | 121,942 | 0.2 | 167,753 | 2.1 |
| France | 38,170 | -15.8 | 88,718 | 11.8 |
| UK | 95,788 | -1.8 | 50,961 | 15.7 |
| Middle East | 163,562 | 3.1 | 1,259,288 | 9.8 |
| Australia | 95,765 | -10.6 | 391,186 | -3.5 |
Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm
The geographical distribution of Japan’s trade balance is provided in Table VB-8. The combined trade surpluses with the US, UK and Mexico of JPY 394,169 million are more than erased by the trade deficits of importing raw materials and fuels from Australia and the Middle East, adding to JPY 1,391,147 million. China typically contributes a sizeable trade deficit of Japan with deficit of JPY 654,617 million in Jan 2013.
Table VB-8, Japan, Trade Balance, Millions of Yen
| Jan 2013 | Millions of Yen |
| Total | -1,629,440 |
| Asia | -327,009 |
| China | -654,617 |
| USA | 318,734 |
| Canada | -26,164 |
| Brazil | -56,971 |
| Mexico | 30,608 |
| Western Europe | -93,110 |
| Germany | -45,811 |
| France | -50,548 |
| UK | 44,827 |
| Middle East | -1,095,726 |
| Australia | -295,421 |
Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm
VC China. China estimates an index of nonmanufacturing purchasing managers on the basis of a sample of 1200 nonmanufacturing enterprises across the country (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Table CIPMNM provides this index and components from Jan to No 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 and 53.7 in Sep but rebounded to 55.5 in Oct and 55.6 in Nov 2012. Improvement continued with 56.1 in Dec 2012 and 56.2 in Jan 2013.
Table CIPMNM, China, Nonmanufacturing Index of Purchasing Managers, %, Seasonally Adjusted
| Total Index | New Orders | Interm. | Subs Prices | Exp | |
| Jan 2013 | 56.2 | 53.7 | 58.2 | 50.9 | 61.4 |
| Dec 2012 | 56.1 | 54.3 | 53.8 | 50.0 | 64.6 |
| Nov | 55.6 | 53.2 | 52.5 | 48.4 | 64.6 |
| Oct | 55.5 | 51.6 | 58.1 | 50.5 | 63.4 |
| Sep | 53.7 | 51.8 | 57.5 | 51.3 | 60.9 |
| Aug | 56.3 | 52.7 | 57.6 | 51.2 | 63.2 |
| Jul | 55.6 | 53.2 | 49.7 | 48.7 | 63.9 |
| Jun | 56.7 | 53.7 | 52.1 | 48.6 | 65.5 |
| May | 55.2 | 52.5 | 53.6 | 48.5 | 65.4 |
| Apr | 56.1 | 52.7 | 57.9 | 50.3 | 66.1 |
| Mar | 58.0 | 53.5 | 60.2 | 52.0 | 66.6 |
| Feb | 57.3 | 52.7 | 59.0 | 51.2 | 63.8 |
| Jan | 55.7 | 52.2 | 58.2 | 51.1 | 65.3 |
Notes: Interm.: Intermediate; Subs: Subscription; Exp: Business Expectations
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Chart CIPMNM provides China’s nonmanufacturing purchasing managers’ index from Nov 2011 to Nov 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 and sharper drop to 53.7 in Sep 2012, rebounding to 55.5 in Oct 2012, 55.6 in Nov 2012, 56.1 in Dec 2012 and 56.2 in Jan 2013.
Chart CIPMNM, China, Nonmanufacturing Index of Purchasing Managers, Seasonally Adjusted
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Table CIPMMFG provides the index of purchasing managers of manufacturing seasonally adjusted of the National Bureau of Statistics of China. The general index (IPM) rose from 50.5 in Jan 2012 to 53.3 in Apr and declined to 50.1 in Jul and to the contraction zone at 49.2 in Aug and 49.8 in Sep, climbing above 50.0 to 50.2 in Oct, 50.6 in Nov-Dec 2012 and 50.4 in Jan 2013. The index of new orders (NOI) fell from 54.5 in Apr 2012 to 49.0 in Jul and 48.7 in Aug, climbing above 50.0, 51.2 in Nov 2012-Dec 2012 and 51.6 in Jan 2013. The index of employment also fell from 51.0 in Apr to 49.1 in Aug and further down to 48.7 in Nov 2012, 49.9 in Dec 2012 and 47.8 in Jan 2013.
Table CIPMMFG, China, Manufacturing Index of Purchasing Managers, %, Seasonally Adjusted
| IPM | PI | NOI | INV | EMP | SDEL | |
| Jan 2013 | 50.4 | 51.3 | 51.6 | 50.1 | 47.8 | 50.0 |
| Dec 2012 | 50.6 | 52.0 | 51.2 | 47.3 | 49.9 | 48.8 |
| Nov | 50.6 | 52.5 | 51.2 | 47.9 | 48.7 | 49.9 |
| Oct | 50.2 | 52.1 | 50.4 | 47.3 | 49.2 | 50.1 |
| Sep | 49.8 | 51.3 | 49.8 | 47.0 | 48.9 | 49.5 |
| Aug | 49.2 | 50.9 | 48.7 | 45.1 | 49.1 | 50.0 |
| Jul | 50.1 | 51.8 | 49.0 | 48.5 | 49.5 | 49.0 |
| Jun | 50.2 | 52.0 | 49.2 | 48.2 | 49.7 | 49.1 |
| May | 50.4 | 52.9 | 49.8 | 45.1 | 50.5 | 49.0 |
| Apr | 53.3 | 57.2 | 54.5 | 48.5 | 51.0 | 49.6 |
| Mar | 53.1 | 55.2 | 55.1 | 49.5 | 51.0 | 48.9 |
| Feb | 51.0 | 53.8 | 51.0 | 48.8 | 49.5 | 50.3 |
| Jan | 50.5 | 53.6 | 50.4 | 49.7 | 47.1 | 49.7 |
IPM: Index of Purchasing Managers; PI: Production Index; NOI: New Orders Index; EMP: Employed Person Index; SDEL: Supplier Delivery Time Index
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
China estimates the manufacturing index of purchasing managers on the basis of a sample of 820 enterprises (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Chart CIPMMFG provides the manufacturing index of purchasing managers from Nov 2011 to Nov 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 and improved to 49.8 in Sep with movement to 50.2 in Oct 2012, 50.6 in Nov 2012 and 50.4 in Jan 2013 above the neutral zone of 50.0.
Chart CIPMMFG, China, Manufacturing Index of Purchasing Managers, Seasonally Adjusted
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Cumulative growth of China’s GDP in the four quarters of 2012 relative to the same period in 2011 was 7.8 percent, as shown in Table VC-GDP. Secondary industry accounts for 45.3 percent of GDP of which industry alone for 40.1 percent in the first three quarters of 2012 and construction with the remaining 6.7 percent in the first three quarters of 2012. Tertiary industry accounts for 43.8 percent of GDP in the first three quarters of 2012 and primary industry for 9.4 percent in the first three quarters of 2012. China’s growth strategy consisted of rapid increases in productivity in industry to absorb population from agriculture where incomes are lower (Pelaez and Pelaez, The Global Recession Risk (2007), 56-80). The bottom block of Table VC-GDP provides quarter-on-quarter growth rates of GDP and their annual equivalent. China’s GDP growth decelerated significantly from annual equivalent 9.9 percent in IIIQ2011 to 7.0 percent in IVQ2011 and 6.1 percent in IQ2012, rebounding to 8.2 percent in IIQ2012, 9.1 percent in IIIQ2012 and 8.2 percent in IVQ2012.
Table VC-GDP, China, Cumulative and Quarterly Growth of GDP, Current CNY 100 Million and Inflation Adjusted ∆%
| Cumulative GDP 2012 | Value Current CNY Billion | 2012 Year-on-Year ∆% |
| GDP | 51,932.2 | 7.8 |
| Primary Industry | 5,237.7 | 4.5 |
| Farming IIIQ | 33,088.0 | 4.2 |
| Secondary Industry | 23,531.9 | 8.1 |
| Industry IIIQ | 141,641.5 | 7.9 |
| Construction IIIQ | 23,787.0 | 9.2 |
| Tertiary Industry | 23,162.6 | 8.1 |
| Transport, Storage, Post IIIQ | 18,941.0 | 6.7 |
| Wholesale, Retail Trades IIIQ | 31,651.2 | 11.8 |
| Hotel & Catering Services IIIQ | 7,015.6 | 7.6 |
| Financial Intermediation IIIQ | 22,465.2 | 9.5 |
| Real Estate IIIQ | 20,789.6 | 2.7 |
| Other IIIQ | 54,101.0 | 7.7 |
| Growth in Quarter Relative to Prior Quarter | ∆% on Prior Quarter | ∆% Annual Equivalent |
| 2012 | ||
| IVQ2012 | 2.0 | 8.2 |
| IIIQ2012 | 2.2 | 9.1 |
| IIQ2012 | 2.0 | 8.2 |
| IQ2012 | 1.5 | 6.1 |
| 2011 | ||
| IVQ2011 | 1.7 | 7.0 |
| IIIQ2011 | 2.4 | 9.9 |
| IIQ2011 | 2.5 | 10.4 |
| IQ2011 | 2.2 | 9.1 |
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Chart VC-GDP of the National Bureau of Statistics of China provides annual value and growth rates of GDP. China’s GDP growth in 2012 is still high at 7.8 percent but at the lowest rhythm in five years.
Chart VC-GDP, China, Gross Domestic Product, Million Yuan and ∆%, 2008-2012
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Table VC-GDPb provides growth of GDP in China relative to a year earlier and relative to prior quarter. Growth of GDP relative to a year earlier decelerated from 12.1 percent in IQ2010 to 7.4 percent in IIIQ2012 and 7.9 percent in IVQ2012. Growth of secondary industry decelerated from 14.5 percent in IQ2010 to 7.4 percent in IIIQ2012 and 7.9 percent in IVQ2012.
Table VC-GDPb, China, Growth Rate of GDP, ∆% Relative to a Year Earlier and ∆% Relative to Prior Quarter
| IQ 2011 | IIQ 2011 | IIIQ 2011 | IVQ 2011 | IQ 2012 | IIQ 2012 | IIIQ 2012 | IVQ 2012 | |
| GDP | 9.7 | 9.5 | 9.1 | 8.9 | 8.1 | 7.6 | 7.4 | 7.9 |
| Primary Industry | 3.5 | 3.2 | 3.8 | 4.5 | 3.8 | 4.3 | 4.2 | 4.5 |
| Secondary Industry | 11.1 | 11.0 | 10.8 | 10.6 | 9.1 | 8.3 | 8.1 | 8.1 |
| Tertiary Industry | 9.1 | 9.2 | 9.0 | 8.9 | 7.5 | 7.7 | 7.9 | 8.1 |
| GDP ∆% Relative to a Prior Quarter | 2.2 | 2.3 | 2.4 | 1.9 | 1.8 | 1.8 | 2.2 | 2.0 |
| IQ 2010 | IIQ 2010 | IIIQ 2010 | IVQ 2010 | |||||
| GDP | 12.1 | 11.2 | 10.7 | 12.1 | ||||
| Primary Industry | 3.8 | 3.6 | 4.0 | 3.8 | ||||
| Secondary Industry | 14.5 | 13.3 | 12.6 | 14.5 | ||||
| Tertiary Industry | 10.5 | 9.9 | 9.7 | 10.5 |
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Table VC-IND provides values and growth rates of important segments of economic activity in China. Value added by industry decelerated from 12.1 percent in 2010 to 7.9 percent in 2012. Construction growth also decelerated from 18.6 percent in 2009 during high stimulus to 9.3 percent in 2012. There is also deceleration of investment in fixed assets from growth of 30.0 percent in 2009 and 23.8 percent in 2011 to 20.2 percent in 2012. Growth of retail sales of consumer goods fell from 18.3 percent in 2010 to 14.3 percent in 2012.
Table VC-IND, China, Value Added by Industry, Construction, Investment in Fixed Assets and Retail Sales of Consumer Goods, Billions of Yuan and ∆%, 2008-2012
| IND VA BY | ∆% | CON BY | ∆% | IFA BY | ∆% | RSCG BY | ∆% | |
| 2012 | 1999 | 7.9 | 355 | 9.3 | 3747 | 20.3 | 2103 | 14.3 |
| 2011 | 1885 | 10.4 | 319 | 9.7 | 3115 | 23.8 | 1839 | 17.1 |
| 2010 | 1607 | 12.1 | 267 | 13.5 | 2781 | 23.8 | 1570 | 18.3 |
| 2009 | 1352 | 8.7 | 224 | 18.6 | 2246 | 30.0 | 1327 | 15.5 |
| 2008 | 1303 | 9.9 | 187 | 9.5 | 1788 | 25.9 | 1148 | 22.7 |
Notes: IND VA: Value Added by Industry; CON: Construction; IFA: Investment in Fixed Assets; RSCG: Retail Sales of Consumer Goods; BY: Billions of Yuan
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Table VC-F provides China FX reserves, exports and imports from 2008 to 2012. Growth of exports and imports fell from high two-digit rates to 7.9 percent for exports and 4.3 percent for imports in 2012. Growth of China’s international reserves also fell from high two-digit rates to 4.1 percent in 2012 with the stock of reserves at a high level of $3.3 trillion.
Table VC-F, China, Foreign Exchange Reserves, Exports and Imports, USD Billions and ∆%
| FX Reserves USD B | ∆% | Exports USD B | ∆% | Imports USD B | ∆% | |
| 2012 | 3311.6 | 4.1 | 2048.9 | 7.9 | 1817.8 | 4.3 |
| 2011 | 3181.1 | 11.7 | 1898.4 | 20.3 | 1743.5 | 24.9 |
| 2010 | 2847.3 | 18.7 | 1577.8 | 31.3 | 1396.2 | 38.8 |
| 2009 | 2399.2 | 23.3 | 1201.6 | 19.5 | 1005.9 | -6.8 |
| 2008 | 1946.0 | 27.3 | 1005.9 | 1132.6 |
Notes: USD B: US Dollar Billions
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
The HSBC Flash China Manufacturing Purchasing Managers’ Index™ (PMI™) compiled by Markit (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10587) is improving. The overall Flash China Manufacturing PMI™ increased marginally from 51.5 in Dec to 51.9 in Jan for a high in 24 months while the Flash China Manufacturing Output Index increased from 51.9 in Dec to 52.2 in Jan, both in expansion territory above 50.0. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that the economy of China is improving because of internal demand even with weak foreign demand (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10587).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 51.8 in Dec to 53.5 in Jan for the highest rate in two years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10685). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that combined manufacturing and services data suggest growth (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10685). The HSBC Business Activity index increased from 51.7 in Dec to 54.0 in Jan with continuing growth in services at a faster rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10685). Hongbin Ku, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds strength in services and recovery in manufacturing (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10685). The HSBC Purchasing Managers’ Index™ (PMI™), compiled by Markit, increased to 52.3 in Jan from 51.5 in Dec, indicating moderate activity, which is the highest reading in two years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10652). New orders increased with respondents of the survey finding strengthening demand in Europe and the US. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds manufacturing is gaining traction following improving domestic demand (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10652).
Table CNY, China, Economic Indicators
| Price Indexes for Industry | Jan 12-month ∆%: minus 1.6 Jan month ∆%: 0.2 |
| Consumer Price Index | Jan month ∆%: 1.0 Jan 12 months ∆%: 2.0 |
| Value Added of Industry | Dec month ∆%: 0.87 Jan-Dec 2012/Jan-Dec 2011 ∆%: 10.0 |
| GDP Growth Rate | Year IVQ2012 ∆%: 7.9 |
| Investment in Fixed Assets | Dec month ∆%: 1.24 Total Jan-Dec 2012 ∆%: 20.6 Real estate development: 16.2 |
| Retail Sales | Dec month ∆%: 1.53 Jan-Dec ∆%: 14.3 |
| Trade Balance | Jan balance $29.15 billion Cumulative Jan: $29.15 billion |
Links to blog comments in Table CNY:
2/10/13 http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html
1/20/13 http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.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 0.4 percent in 2012 and 0.1 percent in 2013 but 1.4 percent in 2014.
Table VD-EUR, Euro Area, Yearly Percentage Change of Harmonized Index of Consumer Prices, Unemployment and GDP ∆%
| Year | HICP ∆% | Unemployment | GDP ∆% |
| 1999 | 1.2 | 9.6 | 2.9 |
| 2000 | 2.2 | 8.7 | 3.8 |
| 2001 | 2.4 | 8.1 | 2.0 |
| 2002 | 2.3 | 8.5 | 0.9 |
| 2003 | 2.1 | 9.0 | 0.7 |
| 2004 | 2.2 | 9.3 | 2.2 |
| 2005 | 2.2 | 9.2 | 1.7 |
| 2006 | 2.2 | 8.5 | 3.2 |
| 2007 | 2.1 | 7.6 | 3.0 |
| 2008 | 3.3 | 7.6 | 0.4 |
| 2009 | 0.3 | 9.6 | -4.4 |
| 2010 | 1.6 | 10.1 | 2.0 |
| 2011 | 2.7 | 10.1 | 1.4 |
| 2012* | 2.5 | 11.4 | -0.4 |
| 2013* | 0.1 | ||
| 2014* | 1.4 |
*EUROSTAT forecast Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
The GDP of the euro area in 2011 in current US dollars in the dataset of the World Economic Outlook (WEO) of the International Monetary Fund (IMF) is $13,114.4 billion (http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/index.aspx). The sum of the GDP of France is $2778.1 billion with the GDP of Germany of $3607.4 billion, Italy of $2198.7 billion and Spain $1479.6 billion is $10,063.8 billion or 76.7 percent of total euro area GDP. The four largest economies account for slightly more than three quarters of economic activity of the euro area. Table VD-EUR1 is constructed with the dataset of EUROSTAT, providing growth rates of the euro area as a whole and of the largest four economies of Germany, France, Italy and Spain annually from 1996 to 2011 with the estimate of 2012 and forecasts for 2013 and 2014 by EUROSTAT. The impact of the global recession on the overall euro area economy and on the four largest economies was quite strong. There was sharp contraction in 2009 and growth rates have not rebounded to earlier growth with exception of Germany in 2010 and 2011.
Table VD-EUR1, Euro Area, Real GDP Growth Rate, ∆%
| Euro Area | Germany | France | Italy | Spain | |
| 2014* | 1.4 | 2.0 | 1.2 | 0.8 | 0.8 |
| 2013* | 0.1 | 0.8 | 0.4 | -0.5 | -1.4 |
| 2012 | -0.4* | 0.7 | 0.2* | -2.3* | -1.4* |
| 2011 | 1.4 | 3.0 | 1.7 | 0.4 | 0.4 |
| 2010 | 2.0 | 4.2 | 1.7 | 1.8 | -0.3 |
| 2009 | -4.4 | -5.1 | -3.1 | -5.5 | -3.7 |
| 2008 | 0.4 | 1.1 | -0.1 | -1.2 | 0.9 |
| 2007 | 3.0 | 3.3 | 2.3 | 1.7 | 3.5 |
| 2006 | 3.2 | 3.7 | 2.5 | 2.2 | 4.1 |
| 2005 | 1.7 | 0.7 | 1.8 | 0.9 | 3.6 |
| 2004 | 2.2 | 1.2 | 2.5 | 1.7 | 3.3 |
| 2003 | 0.7 | -0.4 | 0.9 | 0.0 | 3.1 |
| 2002 | 0.9 | 0.0 | 0.9 | 0.5 | 2.7 |
| 2001 | 2.0 | 1.5 | 1.8 | 1.9 | 3.7 |
| 2000 | 3.8 | 3.1 | 3.7 | 3.7 | 5.0 |
| 1999 | 2.9 | 1.9 | 3.3 | 1.5 | 4.7 |
| 1998 | 2.8 | 1.9 | 3.4 | 1.4 | 4.5 |
| 1997 | 2.6 | 1.7 | 2.2 | 1.9 | 3.9 |
| 1996 | 1.5 | 0.8 | 1.1 | 1.1 | 2.5 |
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
The Flash Eurozone PMI Composite Output Index of the Markit Flash Eurozone PMI®, combining activity in manufacturing and services, decreased from 48.6 in Jan to 47.3 in Feb, for thirteen consecutive declines and sixteen drops in seventeen months but with Oct registering the lowest reading in two months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10715). Chris Williamson, Chief Economist at Markit, finds that the Markit Flash Eurozone PMI index is consistent with GDP declining in a fourth consecutive quarter but at a rate of 0.2 to 0.3 percent, which would be lower than the decline of 0.6 percent in IVQ2012 in EUROSTAT estimates (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10715). The Markit Eurozone PMI® Composite Output Index, combining services and manufacturing activity with close association with GDP, increased from 47.2 in Dec to 48.6 in Jan, which is the twelfth consecutive contraction; contraction but at a slower rate in three consecutive months spread in manufacturing and services throughout France, Italy and Spain but with growth in Germany (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10671). Chris Williamson, Chief Economist at Markit, finds that the data are consistent with sharp reduction in contraction and likely stabilization in IQ2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10671). The Markit Eurozone Services Business Activity Index increased from 47.8 in Dec to 48.6 in Jan (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10671). The Markit Eurozone Manufacturing PMI® increased to 47.9 in Jan from 46.1 in Dec, which indicates contraction in eighteen consecutive months of deterioration of manufacturing business in the euro zone but with the index at a high in eleven months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10641). New export orders declined in Jan for the nineteenth consecutive month but only at a marginal pace with increases in Italy, Spain, Ireland and the Netherlands. Chris Williamson, Chief Economist at Markit, finds that the survey data are consistent with likely stabilization following contraction throughout most of 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10641). Table EUR provides the regional data table for the euro area.
Table EUR, Euro Area Economic Indicators
| GDP | IVQ2012 ∆% -0.6; IVQ2012/IVQ2011 ∆% -0.9 Blog 2/17/13 |
| Unemployment | Dec 2012: 11.7% unemployment rate Dec 2012: 18.715 million unemployed Blog 2/10/13 |
| HICP | Dec month ∆%: 0.4 12 months Dec ∆%: 2.2 |
| Producer Prices | Euro Zone industrial producer prices Dec ∆%: -0.2 |
| Industrial Production | Dec month ∆%: 0.7; Dec 12 months ∆%: -2.4 |
| Retail Sales | Dec month ∆%: -0.8 |
| Confidence and Economic Sentiment Indicator | Sentiment 87.8 Jan 2013 Consumer minus 23.9 Jan 2013 Blog 2/3/13 |
| Trade | Jan-Dec 2012/Jan-Dec 2011 Exports ∆%: 7.4 Dec 2012 12-month Exports ∆% -3.1 Imports ∆% -5.9 |
Links to blog comments in Table EUR:
2/17/13 http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html
2/10/13 http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html
2/3/13 http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html
1/20/13 http://cmpassocregulationblog.blogspot.com/2013/01/recovery-without-hiring-world-inflation.html
VE Germany. Table VE-DE provides yearly growth rates of the German economy from 1992 to 2012, price adjusted chain-linked and price and calendar-adjusted chain-linked. Germany’s GDP fell 5.1 percent in 2009 after growing below trend at 1.1 percent in 2008. Recovery has been robust in contrast with other advanced economy. The German economy grew at 3.7 percent in 2010, 3.0 percent in 2011 and 0.7 percent in 2012. Growth slowed in 2011 from 1.2 percent in IQ2011, 0.5 percent in IIQ2011 and 0.4 percent in IIIQ2011 to decline of 0.1 percent in IVQ2011 and growth of 0.5 percent in IQ2012, 0.3 percent in IIQ2012, 0.2 percent in IIIQ2012 and decline of 0.6 percent in IVQ2012.
The Federal Statistical Agency of Germany analyzes the fall and recovery of the German economy (http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/Aktuell,templateId=renderPrint.psml):
“The German economy again grew strongly in 2011. The price-adjusted gross domestic product (GDP) increased by 3.0% compared with the previous year. Accordingly, the catching-up process of the German economy continued during the second year after the economic crisis. In the course of 2011, the price-adjusted GDP again exceeded its pre-crisis level. The economic recovery occurred mainly in the first half of 2011. In 2009, Germany experienced the most serious post-war recession, when GDP suffered a historic decline of 5.1%. The year 2010 was characterised by a rapid economic recovery (+3.7%).”
Table VE-DE, Germany, GDP Year ∆%
| Price Adjusted Chain-Linked | Price- and Calendar-Adjusted Chain Linked | |
| 2012 | 0.7 | 0.9 |
| 2011 | 3.0 | 3.1 |
| 2010 | 4.2 | 4.0 |
| 2009 | -5.1 | -5.1 |
| 2008 | 1.1 | 0.8 |
| 2007 | 3.3 | 3.4 |
| 2006 | 3.7 | 3.9 |
| 2005 | 0.7 | 0.8 |
| 2004 | 1.2 | 0.7 |
| 2003 | -0.4 | -0.4 |
| 2002 | 0.0 | 0.0 |
| 2001 | 1.5 | 1.6 |
| 2000 | 3.1 | 3.3 |
| 1999 | 1.9 | 1.8 |
| 1998 | 1.9 | 1.7 |
| 1997 | 1.7 | 1.8 |
| 1996 | 0.8 | 0.8 |
| 1995 | 1.7 | 1.8 |
| 1994 | 2.5 | 2.5 |
| 1993 | -1.0 | -1.0 |
| 1992 | 1.9 | 1.5 |
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=59DE7E440F9F7393B12C16FDA63BEB66.cae1
The Flash Germany Composite Output Index of the Markit Flash Germany PMI®, combining manufacturing and services, decreased from 54.4 in Jan to 52.7 in Feb, which is above the 50.0 neutral zone and near the long-term average of the survey of 53.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10713). New export orders for manufacturing increased at the fastest rate in 22 months, with respondents finding enhanced demand in Asia. Tim Moore, Senior Economist at Markit and author of the report, finds strength in Germany’s private sector with potential to provide impulse to GDP growth in IQ2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10713). 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 50.3 in Dec to 54.4 in Jan, which is the fastest rate of since Jun 2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10560). Tim Moore, Senior Economist at Markit and author of the report, finds that the economy of Germany has moved away from contraction to expansion with growth in both manufacturing and services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10688). The Germany Services Business Activity Index increased from 52.0 in Dec to 55.7 in Jan (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10688). The Markit/BME Germany Purchasing Managers’ Index® (PMI®), showing close association with Germany’s manufacturing conditions, increased from 46.0 in Dec to 49.8 in Jan for the eleventh consecutive month in contraction territory below 50.0 but at the slowest rate of deterioration and with modest increase in output after nine consecutive months of contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10655). New export orders fell in Jan for nineteen consecutive months but at rate well below that in Dec with some respondents indicating improving demand for Asia that compensates declines in southern Europe. Tim Moore, Senior Economist at Markit and author of the report, finds strength in Germany’s return to manufacturing growth (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10655).Table DE provides the country data table for Germany.
Table DE, Germany, Economic Indicators
| GDP | IVQ2012 -0.6 ∆%; IV/Q2012/IVQ2011 ∆% 0.1 2012/2011: 0.7% GDP ∆% 1992-2012 Blog 8/26/12 5/27/12 11/25/12 2/17/13 2/24/13 |
| Consumer Price Index | Jan month NSA ∆%: -0.5 |
| Producer Price Index | Jan month ∆%: 0.2 CSA, 0.8 NSA |
| Industrial Production | Mfg Dec month CSA ∆%: 1.2 |
| Machine Orders | MFG Dec month ∆%: 0.8 |
| Retail Sales | Dec Month ∆% -1.7 12-Month ∆% -4.7 Blog 2/3/13 |
| Employment Report | Unemployment Rate Dec 5.3% |
| Trade Balance | Exports Dec 12-month NSA ∆%: -6.9 Blog 2/10/13 |
Links to blog comments in Table DE:
2/17/13 http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html
2/10/13 http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html
2/3/13 http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html
11/25/12 http://cmpassocregulationblog.blogspot.com/2012/11/contraction-of-united-states-real.html
8/26/12 http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with_26.html
Table VE-1 provides percentage change of Germany’s GDP in one quarter relative to the prior quarter from 2003 to 2012. Germany’s GDP contracted during four consecutive quarters from IIQ2008 to IQ2009. The deepest contraction was 4.1 percent in IQ2009. Growth was quite strong from IIIQ2009 to IQ2011 for cumulative growth of 7.3 percent in seven quarters or at the average rate of 1.0 percent per quarter, which is equivalent to 4.1 percent per year. Economic growth decelerated in IIQ2011 to 0.5 percent and 0.4 percent in IIIQ2011. The economy contracted mildly by 0.1 percent in IVQ2011 and grew 0.5 percent in IQ2012 and 0.3 percent in IIQ2012. GDP growth in IIIQ2012 was 0.2 percent relative to IIQ2012. Germany’s GDP contracted 0.6 percent in IVQ2012 relative to IIIQ2012.
Table VE-1, Germany Quarter GDP ∆% Relative to Prior Quarter, Seasonally and Calendar Adjusted
| IQ | IIQ | IIIQ | IV | |
| 2012 | 0.5 | 0.3 | 0.2 | -0.6 |
| 2011 | 1.2 | 0.5 | 0.4 | -0.1 |
| 2010 | 0.7 | 2.2 | 0.7 | 0.6 |
| 2009 | -4.1 | 0.2 | 0.8 | 0.9 |
| 2008 | 1.0 | -0.4 | -0.4 | -2.0 |
| 2007 | 0.6 | 0.5 | 0.9 | 0.4 |
| 2006 | 1.1 | 1.5 | 1.0 | 1.3 |
| 2005 | -0.1 | 0.6 | 0.8 | 0.3 |
| 2004 | 0.0 | 0.3 | -0.2 | 0.0 |
| 2003 | -0.8 | -0.1 | 0.5 | 0.4 |
| 2002 | -0.4 | 0.3 | 0.4 | -0.2 |
| 2001 | 1.5 | 0.1 | -0.3 | 0.2 |
Seasonal and calendar adjusted
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Table VE-2 provides percentage changes of Germany’s GDP in a quarter relative to the same quarter a year earlier. Growth was weak in the recovery from the recession of 2001 through 2005, as in most of the euro area (see Pelaez and Pelaez, The Global Recession Risk (2007), 116-46). Germany’s economy then grew robustly in 2006 and 2007 until the global recession after 2007. Germany recovered with strong growth in 2010 and vigorous 5.2 percent in IQ2011. The economy decelerated in the final three quarters of 2011, growing 1.7 percent in IQ2012 relative to IQ2011. Growth decelerated further to 0.5 percent in IIQ2012 without calendar adjustment and 1.0 percent with calendar adjustment and to 0.4 percent in IIIQ2012. Growth in IVQ2012 relative to IVQ2011 was 0.1 percent.
Table VE-2, Germany, Quarter GDP ∆% Relative to Same Quarter a Year Earlier, Price Adjusted NCSA
| IQ | IIQ | IIIQ | IV | |
| 2012 | 1.7 | 0.5 | 0.4 | 0.1 |
| 2011 | 5.2 | 3.1 | 2.6 | 1.4 |
| 2010 | 2.8 | 5.0 | 4.5 | 4.2 |
| 2009 | -6.5 | -7.4 | -5.0 | -1.6 |
| 2008 | 2.1 | 3.1 | 1.1 | -1.9 |
| 2007 | 4.3 | 3.4 | 3.3 | 2.2 |
| 2006 | 4.3 | 2.4 | 3.5 | 4.6 |
| 2005 | -0.8 | 1.2 | 1.2 | 1.0 |
| 2004 | 1.5 | 1.6 | 0.6 | 0.9 |
| 2003 | 0.0 | -1.1 | -0.5 | 0.1 |
Price adjusted NSA Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
There are strong calendar effects in economic activity in Germany. Table VE-3 provides Germany’s percentage change in a quarter relative to the same quarter a year earlier adjusting for price changes and calendar effects. Germany’s GDP increased 1.0 percent in IIQ2012 calendar-adjusted in contrast with only 0.5 percent without calendar adjustment. GDP growth adjusting for calendar effects was 0.9 percent in IIIQ2012 relative to IIIQ2011 and 0.4 percent without calendar adjustment. Growth in IVQ2012 was 0.4 percent calendar and price adjusted in contrast with 0.1 percent without calendar adjustment. As the Statistisches Bundesamt, Germany’s Federal Statistical Agency, explains: “In a year-on-year comparison, too, GDP increased. The price-adjusted GDP rose 0.5% in the second quarter of 2012 compared with the same quarter of 2011. The relatively small increase was among other things due to the negative calendar effect as the reference quarter had one working day less than the same quarter of the previous year. Thus, in calendar-adjusted terms, the GDP increase was larger (+1.0%)” (https://www.destatis.de/EN/PressServices/Press/pr/2012/08/PE12_287_811.html;jsessionid=A761BC574543A771416A9CF81034F7BA.cae1). There was similar calendar effect with IIIQ2012 as explained by the Statistisches Bundesamt, Germany’s Federal Statistical Agency: “In a year-on-year comparison, too, economic growth has slowed down since the beginning of this year. Price-adjusted GDP rose 0.4% in the third quarter of 2012 compared with the same quarter of 2011. The relatively small increase was due, among other things, to a calendar effect, as was the case in the second quarter. The reference quarter had one working day less than the same quarter of the previous year, which had a negative impact on GDP growth. In calendar-adjusted terms, the GDP increase was larger (+0.9%). The relatively small increase was due, among other things, to a calendar effect, as was the case in the second quarter. The reference quarter had one working day less than the same quarter of the previous year, which had a negative impact on GDP growth. In calendar-adjusted terms, the GDP increase was larger (+0.9%)” (https://www.destatis.de/EN/PressServices/Press/pr/2012/11/PE12_407_811.html;jsessionid=53305DE860BC169DF8A2A6C48E738557.cae4). The Federal Statistical Office of Germany also explains the calendar effects on IVQ2012 GDP growth: “The price-adjusted gross domestic product was slightly higher in the fourth quarter of 2012 than in the fourth quarter of 2011 (+0.1%). When calendar-adjusted, the increase was slightly larger (+0.4%) because the fourth quarter of 2012 had two working days less than the fourth quarter of 2011. The economic development thus slowed considerably in the course of 2012” (https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=54F30E0BCD1F0520017F84AAFDF4270E.cae1).
Table VE-3, Germany, Quarter GDP ∆% Relative to Same Quarter a Year Earlier, Calendar and Price Adjusted NSA
| IQ | IIQ | IIIQ | IV | |
| 2012 | 1.2 | 1.0 | 0.9 | 0.4 |
| 2011 | 4.9 | 3.0 | 2.7 | 1.9 |
| 2010 | 2.7 | 4.6 | 4.5 | 4.2 |
| 2009 | -6.7 | -6.2 | -5.1 | -2.3 |
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=59DE7E440F9F7393B12C16FDA63BEB66.cae1
Table VE-4 provides annual 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 economies. The German economy grew at 3.7 percent in 2010, 3.0 percent in 2011 and 0.7 percent in 2012. Growth slowed in 2011 from 1.2 percent in IQ2011, 0.5 percent in IIQ2011 and 0.4 percent in IIIQ2011 to decline of 0.1 percent in IVQ2011 and growth of 0.5 percent in IQ2012, 0.3 percent in IIQ2012, 0.2 percent in IIIQ2012 and decline of 0.6 percent in IVQ2012. 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-4, Germany, GDP Year ∆%
| Price Adjusted Chain-Linked | Price- and Calendar-Adjusted Chain Linked | |
| 2012 | 0.7 | 0.9 |
| 2011 | 3.0 | 3.1 |
| 2010 | 4.2 | 4.0 |
| 2009 | -5.1 | -5.1 |
| 2008 | 1.1 | 0.8 |
| 2007 | 3.3 | 3.4 |
| 2006 | 3.7 | 3.9 |
| 2005 | 0.7 | 0.8 |
| 2004 | 1.2 | 0.7 |
| 2003 | -0.4 | -0.4 |
| 2002 | 0.0 | 0.0 |
| 2001 | 1.5 | 1.6 |
| 2000 | 3.1 | 3.3 |
| 1999 | 1.9 | 1.8 |
| 1998 | 1.9 | 1.7 |
| 1997 | 1.7 | 1.8 |
| 1996 | 0.8 | 0.8 |
| 1995 | 1.7 | 1.8 |
| 1994 | 2.5 | 2.5 |
| 1993 | -1.0 | -1.0 |
| 1992 | 1.9 | 1.5 |
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=59DE7E440F9F7393B12C16FDA63BEB66.cae1 https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
The Statistisches Bundesamt provides the analysis of percentage point contributions to GDP on growth from the same quarter a year earlier, shown in Table VE-5. The original data are adjusted for price but not for seasonality. There is strong internal demand, or consumption and investment, which is uncommon in advanced economies. Consumption provided 1.3 percentage points to growth in IQ2012 and grew 1.8 percent from the same quarter a year earlier; provided 0.5 percentage points in IIQ2012 with growth of 0.7 percent; provided 0.1 percentage points in IIIQ2012 with growth of 0.1 percent; and provided 0.6 percentage points in IVQ2012 with growth of 0.8 percent. Growth of fixed capital formation (GFCF) provided 0.2 percentage points to growth of GDP in IQ2012 and grew 1.1 percent from the same quarter a year earlier; deducted 0.5 percentage points in IIQ2012 and declined 2.4 percent relative to a year earlier; deducted 0.6 percentage points in IIIQ2012 and declined 3.0 percent relative to a year earlier; and deducted 1.0 percentage points in IVQ2012 and declined 5.1 percent relative to a year earlier (https://www.destatis.de/EN/PressServices/Press/pr/2012/11/PE12_407_811.html;jsessionid=53305DE860BC169DF8A2A6C48E738557.cae4 https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=54F30E0BCD1F0520017F84AAFDF4270E.cae1). Domestic uses contributed 1.3 percentage points in IQ2012 and grew 1.4 percent from the same quarter a year earlier; deducted 0.9 percentage points in IIQ2012 and fell 0.9 percent relative to a year earlier; deducted 1.1 percentage points in IIIQ2012, declining 1.2 percent relative to a year earlier; and deducted 0.6 percentage points in IVQ2012, declining 0.7 percent relative to a year earlier. Net exports contributed 0.4 percentage points in IQ2012; added 1.4 percentage points in IIQ2012; added 1.6 percentage points in IIIQ2012; added 0.8 percentage points in IVQ2008; and added 1.0 percentage points in 2012. The rates of growth of exports and imports fell from over 10 percent to single digits with 3.5 percent growth of exports and 3.2 percent growth of imports in IQ2012; 5.0 percent growth of exports and 2.5 percent growth of imports in IIQ2012; 4.2 percent growth of exports in IIIQ2012 and 1.2 percent growth of imports; and export growth of 2.0 percent in IVQ2012 and 0.5 percent of imports. GDP per person in employment grew 0.3 percent in IQ2012, minus 0.7 percent in IIQ2012, minus 0.7 percent in IIIQ2012 and minus 0.7 percent in IVQ2012.
Table VE-5, Germany, Percentage Point Contributions of Use of Gross Domestic Product on Growth from Same Quarter Year earlier, Price Adjusted
| IQ12 PP | ∆% IQ 12 | IIQ 12 PP | ∆% | IIIQ 11 PP | ∆% IIIQ 12 | IVQ 12 PP | ∆% IVQ 12 | |
| Consumption | 1.3 | 1.8 | 0.5 | 0.7 | 0.1 | 0.1 | 0.6 | 0.8 |
| Households Consumption | 1.0 | 1.7 | 0.4 | 0.6 | -0.2 | -0.3 | 0.3 | 0.6 |
| Government | 0.4 | 1.9 | 0.2 | 0.9 | 0.3 | 1.4 | 0.3 | 1.4 |
| Gross Capital Formation | 0.0 | -0.1 | -1.4 | -7.7 | -1.2 | -6.4 | -1.3 | -7.6 |
| Gross Fixed | 0.2 | 1.1 | -0.5 | -2.4 | -0.6 | -3.0 | -1.0 | -5.1 |
| GFCF including | 0.2 | 2.4 | -0.3 | -3.8 | -0.5 | -7.2 | -0.7 | -9.3 |
| GFCF in Construction | 0.0 | 0.1 | -0.2 | -2.2 | -0.1 | -1.0 | -0.3 | -2.6 |
| Change in Inventories | -0.2 | -0.9 | -0.6 | -0.3 | ||||
| Domestic Uses | 1.3 | 1.4 | -0.9 | -0.9 | -1.1 | -1.2 | -0.6 | -0.7 |
| Net Exports | 0.4 | 1.4 | 1.6 | 0.8 | ||||
| Exports | 3.5 | 5.0 | 4.2 | 2.0 | ||||
| Imports | 3.2 | 2.5 | 1.2 | 0.5 | ||||
| GDP | 1.7 | 0.5 | 0.4 | 0.1 | ||||
| GDP per Person in Employment | 0.3 | -0.7 | -0.7 | -0.7 | ||||
| GDP per Hour Worked | -0.2 | 0.3 | 0.2 | 0.9 |
PP: Percentage Points
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=59DE7E440F9F7393B12C16FDA63BEB66.cae1
Table VE-6 provides segments of Germany’s GDP with growth in 2012 and contributions to growth in percentage points. Contributions to growth of GDP in 2012 were driven by percentage point contributions of 0.6 by total consumption and 1.0 by net exports. Gross capital formation deducted 1.0 percentage points and change in inventories 0.5 percentage points.
Table VE-6, Germany, Percentage Point Contributions of Use of Gross Domestic Product on Growth from Year Earlier, Price Adjusted
| 2012 PP | ∆% 2012 | |
| Consumption | 0.6 | 0.8 |
| Households Consumption | 0.4 | 0.6 |
| Government | 0.3 | 1.4 |
| Gross Capital Formation | -1.0 | -5.4 |
| Gross Fixed | -0.5 | -2.5 |
| GFCF including | -0.3 | -4.8 |
| GFCF in Construction | -0.1 | -1.5 |
| Change in Inventories | -0.5 | |
| Domestic Uses | -0.3 | -0.4 |
| Net Exports | 1.0 | |
| Exports | 3.7 | |
| Imports | 1.8 | |
| GDP | 0.7 | |
| GDP per Person in Employment | -0.4 | |
| GDP per Hour Worked | 0.3 |
PP Percntage Points
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=59DE7E440F9F7393B12C16FDA63BEB66.cae1
Percentage changes from year earlier of gross value added by economic sectors are shown for Germany in Table VE-7. The two rows of industry ex construction and including manufacturing reveal sharp reductions in yearly growth rates from double digits in 2010, upper single digits in 2011, and lower single digits in IQ2012 and contractions in IIQ2012, IIIQ2012 and IVQ2012. Finance and insurance rebounded from decline of 1.7 percent in 2007 to growth of 2.0 percent in IQ2012, 2.1 percent in IIQ2012 and 1.9 percent in IIIQ2012 but only 0.8 percent in IVQ2012. Business services also grew at relatively higher rates from minus 12.3 percent in 2007 to 4.1 percent in IQ2012, 3.1 percent in IIQ2012, 2.8 percent in IIIQ2012 and 1.7 percent in IVQ2012.
Table VE-7, Germany, Percentage Change from Year Earlier of Gross Value Added by Economic Sector, Price Adjusted NSA
| 2012 | IQ 2012 | IIQ 2012 | IIIQ 2012 | IVQ 2012 | |
| Agriculture | 1.5 | 2.6 | -0.3 | 1.7 | 2.0 |
| Industry ex | -0.7 | 1.1 | -0.8 | -1.6 | -1.5 |
| Industry Including Manufacturing | -1.0 | 2.2 | -1.2 | -2.3 | -2.4 |
| Construction | -2.5 | 0.8 | -3.0 | -2.4 | -5.1 |
| Trade, Transport, Accommodation & Food Services | 0.8 | 2.7 | 1.0 | -0.4 | 0.0 |
| Information & Communications. | 3.5 | 3.4 | 2.7 | 3.8 | 4.2 |
| Finance & Insurance | 1.7 | 2.0 | 2.1 | 1.9 | 0.8 |
| Real Estate | 1.8 | 1.7 | 1.7 | 1.9 | 2.0 |
| Business Services | 2.9 | 4.1 | 3.1 | 2.8 | 1.7 |
| Public Services, Education & Health | 0.8 | 0.9 | 0.9 | 1.0 | 0.5 |
| Other Services | 0.8 | 1.1 | 0.9 | 1.2 | 0.0 |
| Total Gross Value Added | 0.7 | 1.8 | 0.7 | 0.4 | 0.1 |
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=59DE7E440F9F7393B12C16FDA63BEB66.cae1
Chart VE-1 of the Statistisches Bundesamt Deutschland (Federal Statistics Agency of Germany) provides GDP at current prices from 2004 to 2012. The German economy is productive with significant dynamism over the long term. There are fluctuations in an increasing trend since 2009.
Chart VE-1, Germany, GDP, Current Prices, Billion Euro
Source: Statistisches Bundesamt Deutschland (Destatis)
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart VE-2 of the Statistisches Bundesamt Deutschland (Federal Statistics Agency of Germany) provides the index of price-adjusted chain-linked GDP of Germany from 2008 to 2012. Germany was growing rapidly before the global contraction and rebounded with significant strength along a strong upward trend.
Chart VE-2, Germany, Index of Price-Adjusted Chain-Linked GDP, 2000=100
Source: Statistisches Bundesamt Deutschland (Destatis)
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Table VE-7 provides Germany’s GDP of €2643.9 billion in 2012 and €669.2 billion in IVQ2012 and its uses. Private consumption is 57.6 percent of GDP in 2012 and gross capital formation 17.2 percent with government consumption of 19.5 percent and net exports 5.7 percent. Germany’s savings ratio has been in the rate of 8.8 percent to 13.7 percent. Structural reforms in the early 2000s provided strength and dynamism to Germany’s economic performance.
Table VE-8, Germany, GDP and Uses, Euro Billions and %
| 2012 | IVQ2012 | |
| GDP Euro Billions | 2,643.90 | 669.20 |
| Percent Distribution of Uses | ||
| Gross Capital Formation | 17.2 | 15.4 |
| Household and NPISH Consumption | 57.6 | 58.0 |
| Balance of Exports and Imports | 5.7 | 5.7 |
| Government Consumption | 19.5 | 20.8 |
| Memo: Savings Ratio % | 10.3 | 8.8 |
| IIIQ2012 | 8.8 | |
| IIQ2012 | 10.0 | |
| IQ2012 | 13.7 | |
| IVQ2011 | 9.1 | |
| IIIQ2011 | 8.8 | |
| 2012 | 10.3 | |
| 2011 | 10.4 | |
| 2010 | 10.9 | |
| 2009 | 10.9 | |
| 2008 | 11.5 |
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=59DE7E440F9F7393B12C16FDA63BEB66.cae1
© Carlos M. Pelaez, 2010, 2011, 2012, 2013
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