Mediocre GDP Growth at 1.6 to 2.0 Percent, Sharp Contraction by 4.0 Percent of Real Personal Disposable Income in January 2013 because of Increase in Social Insurance Contributions, Contracting Investment in the Economic Cycle, World Financial Turbulence and World Economic Slowdown with Global Recession Risk: Part II

 

 

Mediocre GDP Growth at 1.6 to 2.0 Percent, Sharp Contraction by 4.0 Percent of Real Personal Disposable Income in January 2013 because of Increase in Social Insurance Contributions, Contracting Investment in the Economic Cycle, World Financial Turbulence and World Economic Slowdown with Global Recession Risk

Carlos M. Pelaez

© Carlos M. Pelaez, 2010, 2011, 2012, 2013

Executive Summary

I Mediocre and Decelerating United States Economic Growth

IA Mediocre and Decelerating United States Economic Growth

IA1 Contracting Real Private Fixed Investment

IB Stagnating Real Disposable Income and Consumption Expenditures

IB1 Stagnating Real Disposable Income and Consumption Expenditures

IB2 Financial Repression

II United States Housing Collapse

IIA United States New House Sales

IIB United States House Prices

IIC Factors of United States Housing Collapse

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

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 % Share	∆% Jan-Dec 2012/ Jan-Dec 2011	Imports % Share	Imports ∆% Jan-Dec 2012/ Jan-Dec 2011
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 Share %	Exports ∆% Jan-Dec 2012/ Jan-Dec 2011	Imports Share %	Imports ∆% Jan-Dec 2012/ Jan-Dec 2011
Consumer Goods	28.9	5.1	25.0	-3.3
Durable	5.9	2.6	3.0	-7.1
Non Durable	23.0	5.8	22.0	-2.7
Capital Goods	32.3	1.5	21.1	-12.9
Inter- mediate Goods	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 USD Billions	Primary Net Lending Borrowing % GDP 2012	General Government Net Debt % GDP 2012
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  € Billions	Dec 12-Month ∆%	Jan–Dec 2012 € Billions	Jan-Dec 2012/ Jan-Dec 2011 ∆%
Total Exports	79.0	-6.9	1,097.4	3.4
A. EU Members	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:

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

Equation (4) expresses the monetary, M_t, and debt, B_t, liabilities of the government, divided by the price level, P_t, in terms of the expected value discounted by the ex-post rate on government debt, R_{t, t+τ}, of the future primary surpluses s_t+τ, which are equal to T_t+τ – G_t+τ or difference between taxes, T, and government expenditures, G. Cochrane (2010A) provides the link to a web appendix demonstrating that it is possible to discount by the ex post R_{t, t+τ}. The second equation of Cochrane (2011Jan, 5) is:

M_tV(i_t, ·) = P_tY_t (5)

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

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

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

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

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

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

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

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

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

	GDP	CPI	PPI	UNE
US	1.6	1.6	1.3	7.9
Japan	0.3	-0.3	-0.2	4.2
China	7.9	2.0	-1.6
UK	0.3	2.7* RPI 3.3	2.0* output 1.4** input 1.8*	7.8
Euro Zone	-0.9	2.0	2.1	11.9
Germany	0.4	1.9	1.5	5.3
France	-0.3	1.4	1.7	10.6
Nether-lands	-0.9	3.2	4.2	6.0
Finland	-1.6	2.6	3.0	7.9
Belgium	-0.4	1.5	6.4	7.4
Portugal	-3.8	0.4	3.6	17.6
Ireland	-0.8	1.5	2.2	14.7
Italy	-2.7	2.4	2.0	11.7
Greece	-6.0	0.0	2.1	NA
Spain	-1.8	2.8	2.7	26.2

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

*Office for National Statistics 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 1.6 percent in IVQ2012 relative to IVQ2011 (Table 8 in http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp4q12_2nd.pdf See I Mediocre and Decelerating United States Economic Growth and earlier 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 increased 0.3 percent in IVQ2012 relative to IVQ2011 (see Section VH and earlier at http://cmpassocregulationblog.blogspot.com/2013/01/united-states-commercial-banks-assets_27.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: 7.9 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 and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.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 at http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html 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, -0.3 percent for Japan, 2.0 percent for China, 2.0 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/world-inflation-waves-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 actual growth is around 1.6 to 2.0 percent per year. This rate is well below 3 percent per year in trend from 1870 to 2010, which has been always recovered after events such as wars and recessions (Lucas 2011May). Growth is not only mediocre but sharply decelerating to a rhythm that is not consistent with reduction of unemployment and underemployment of 31.4 million people corresponding to 19.4 percent of the effective labor force of the United States (http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html). In the four quarters of 2011 and the four quarters of 2012, US real GDP grew at the seasonally-adjusted annual equivalent rates of 0.1 percent in the first quarter of 2011 (IQ2011), 2.5 percent in IIQ2011, 1.3 percent in IIIQ2011, 4.1 percent in IVQ2011, 2.0 percent in IQ2012, 1.3 percent in IIQ2012, 3.1 percent in IIIQ2012 and revised 0.1 percent in IVQ2012. GDP growth in IIIQ2012 was revised from 2.7 percent seasonally adjusted annual rate (SAAR) to 3.1 percent but mostly because of contribution of 0.73 percentage points of inventory accumulation and one-time contribution of 0.64 percentage points of expenditures in national defense that without them would have reduced growth from 3.1 percent to 1.73 percent. Equally, GDP growth in IVQ2012 is measured in the advanced estimate as 0.1 percent but mostly because of deduction of divestment of inventories of 1.55 percentage points and deduction of one-time national defense expenditures of 1.28 percentage points. The annual equivalent rate of growth of GDP for the four quarters of 2011 and the four quarters of 2012 is 2.0 percent, obtained as follows. Discounting 0.1 percent to one quarter is 0.025 percent {[(1.001)^1/4 -1]100 = 0.025}; discounting 2.5 percent to one quarter is 0.62 percent {[(1.025)^1/4 – 1]100}; discounting 1.3 percent to one quarter is 0.32 percent {[(1.013)^1/4 – 1]100}; discounting 4.1 percent to one quarter is 1.0 {[(1.04)^1/4 -1]100; discounting 2.0 percent to one quarter is 0.50 percent {[(1.020)^1/4 -1]100); discounting 1.3 percent to one quarter is 0.32 percent {[(1.013)^1/4 -1]100}; discounting 3.1 percent to one quarter is 0.77 {[(1.031)^1/4 -1]100); and discounting 0.1 percent to one quarter is 0.025 percent {[(1.001)^1/4 – 1]100}. Real GDP growth in the four quarters of 2011 and the four quarters of 2012 accumulated to 3.6 percent {[(1.00025 x 1.0062 x 1.0032 x 1.010 x 1.005 x 1.0032 x 1.0077 x 1.00025) - 1]100 = 3.6%}. This is equivalent to growth from IQ2011 to IVQ2012 obtained by dividing the seasonally-adjusted annual rate (SAAR) of IVQ2012 of $13,656.8 billion by the SAAR of IVQ2010 of $13,181.2 (http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1) and expressing as percentage {[($13,658.8/$13,181.2) - 1]100 = 3.6%}. The growth rate in annual equivalent for the four quarters of 2011 and the four quarters of 2012 is 1.8 percent {[(1.00025 x 1.0062 x 1.0032 x 1.010 x 1.005 x 1.0032 x 1.0077 x 1.00025)^4/8 -1]100 = 1.8%], or {[($13,656.8/$13,181.2)]^4/8-1]100 = 1.8%} dividing the SAAR of IVQ2012 by the SAAR of IVQ2010 in Table II-6 below, obtaining the average for eight quarters and the annual average for one year of four quarters. Growth in the four quarters of 2012 accumulates to 1.6 percent {[(1.02)^1/4(1.013)^1/4(1.031)^1/4(1.001)^1/4 -1]100 = 1.6%}. This is equivalent to dividing the SAAR of $13,656.8 billion for IVQ2012 by the SAAR of $13,441.0 billion in IVQ2011 to obtain 1.6 percent {[($13,656.8/$13,441.0) – 1]100 = 1.6%}. The US economy is still close to a standstill especially considering the GDP report in detail. Excluding growth at the SAAR of 2.5 percent in IIQ2011 and 4.1 percent in IVQ2011 while converting growth in IIIQ2012 to 1.73 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 1.55 percentage points of inventory divestment and 1.28 percentage points of national defense expenditure reductions to obtain 2.84 percent, the US economy grew at 1.5 percent in the remaining six quarters {[(1.00025x1.0032x1.005x1.0032x1.0043x1.0070)^4/6 – 1]100 = 1.5%} 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 2.84 percent by adding 1.55 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 1.55 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 Thus Feb 28, 2012, the second estimate of GDP for IVQ2012 at 0.1 percent seasonally-adjusted annual rate (SAAR) (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp4q12_2nd.pdf). In the four quarters of 2012, the US economy is growing at the annual equivalent rate of 2.0 percent {([(1.02^1/4(1.013)^1/4(1.0173)^1/4(1.0284)^1/4]-1)100 = 2.0%} 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 1.55 percentage points of inventory divestment to growth of 0.1 percent SAAR in IVQ2012 to obtain 2.84 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 in Section I (and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.htmlhttp://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 in Section IV and earlier 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). The Bureau of Economic Analysis (BEA) provides the second estimate of IVQ2012 GDP and annual for 2012 with the third estimate be released on Mar 28 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm See Section I and earlier 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). PCE inflation is the index of personal consumption expenditures (PCE) of the report of the Bureau of Economic Analysis (BEA) on “Personal Income and Outlays” (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm), which is analyzed in Section IV and earlier 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 29, 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 report for Jan 2013 was released on Feb 1, 2013 and analyzed in this blog (http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html). The report for Feb 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 Tendency
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  Sep PR	2.3 to 3.0 2.5 to 3.0	7.4 to 7.7 7.6 to 7.9	1.3 to 2.0 1.6 to 2.0	1.6 to 1.9 1.7 to 2.0
2014  Sep PR	3.0 to 3.5 3.0 to 3.8	6.8 to 7.3 6.7 to 7.3	1.5 to 2.0 1.6 to 2.0	1.6 to 2.0 1.8 to 2.0
2015 Sep	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 Sep PR	1.6 to 2.0 1.6 to 2.0	7.7 to 8.0 8.0 to 8.3	1.6 to 1.8 1.5 to 1.9	1.6 to 1.8 1.6 to 2.0
2013 Sep PR	2.0 to 3.2 2.3 to 3.5	6.9 to 7.8 7.0 to 8.0	1.3 to 2.0 1.5 to 2.1	1.5 to 2.0 1.6 to 2.0
2014 Sep PR	2.8 to 4.0 2.7 to 4.1	6.1 to 7.4 6.3 to 7.5	1.4 to 2.2 1.6 to 2.2	1.5 to 2.0 1.6 to 2.2
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

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-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

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

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

Appropriate Year of Increasing Target Fed Funds Rate	Number of Participants
2012	1
2013	2
2014	3
2015	13
2016	1

Source: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20121212.pdf

The Bureau of Economic Analysis (BEA) provides the annual revision of the national income and product accounts since Jan 2009 through May 2009 in the report on personal income and outlays for Jun 2012 released on Jul 31, 2012 (http://www.bea.gov/newsreleases/national/pi/2012/pdf/pi0612.pdf), including prices of personal consumption expenditures (PCE) and for Jul 2012 released on Aug 30 (http://www.bea.gov/newsreleases/national/pi/2012/pdf/pi0712.pdf) and the release for Dec 2012 (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). There are waves of inflation similar to those worldwide (http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html) in inflation of personal consumption expenditures (PCE) in Table IV-5. These waves are in part determined by commodity price shocks originating in the carry trade from zero interest rates to positions in risk financial assets, in particular in commodity futures, which increase the prices of food and energy when there is relaxed risk aversion. Return of risk aversion causes collapse in prices. The first wave is in Jan-Apr 2011 when headline PCE inflation grew at the average annual equivalent rate of 4.0 percent and PCE inflation excluding food and energy (PCEX) at 2.1 percent. The drivers of inflation were increases in food prices (PCEF) at the annual equivalent rate of 7.4 percent and of energy prices (PCEE) at 29.8 percent. This behavior will prevail under zero interest rates and relaxed risk aversion because of carry trades from zero interest rates to leveraged positions in commodity futures. The second wave occurred in May-Jun 2011 when risk aversion from the European sovereign risk crisis interrupted the carry trade. PCE prices increased 1.8 percent in annual equivalent and 2.4 percent excluding food and energy. The third wave is captured by the annual equivalent rates in Jul-Sep 2011 of headline PCE inflation of 2.4 percent with subdued PCE inflation excluding food and energy of 1.6 percent while PCE food rose at 6.2 percent and PCE energy increased at 13.6 percent. In the fourth wave in Oct-Dec 2011, increased risk aversion explains the fall of the annual equivalent rate of inflation to 0.8 for headline PCE inflation and 1.6 percent for PCEX excluding food and energy. PCEF of prices of food rose at the annual equivalent rate of 1.6 percent in Oct-Dec 2011 while PCEE of prices of energy fell at the annual equivalent rate of 13.5 percent. In the fifth wave in Jan-Mar 2012, headline PCE in annual equivalent was 3.3 percent and 2.4 percent excluding food and energy (PCEX). Energy prices of personal consumption (PCEE) increased at the annual equivalent rate of 21.3 percent because of the jump of 3.6 percent in Feb 2012 followed by 1.0 percent in Mar 2012. In the sixth wave, renewed risk aversion caused reversal of carry trades with headline PCE inflation falling at the annual equivalent rate of 1.2 percent in Apr-May 2012 while PCE inflation excluding food and energy increased at the annual equivalent rate of 1.2 percent. In the seventh wave, further shocks of risk aversion resulted in headline PCE annual equivalent inflation at 1.2 percent in Jun-Jul 2012 with core PCE excluding food and energy at 1.8 percent. In the eighth wave, temporarily relaxed risk aversion with zero interest rates resulted in central PCE inflation at 4.3 percent annual equivalent in Aug-Sep 2012 with PCEX excluding food and energy at 0.0 percent while PCEE energy jumped at 85.8 percent annual equivalent. In the ninth wave, prices collapsed with reversal of carry trade positions in a new episode of risk aversion with central PCE at annual equivalent 0.0 percent in Dec 2012 to Jan 2013 and PCEX at 0.9 percent while energy prices fell at minus 17.5 percent.

Table IV-5, US, Percentage Change from Prior Month of Prices of Personal Consumption Expenditures, Seasonally Adjusted Monthly ∆%

	PCE	PCEG	PCEG -D	PCES	PCEX	PCEF	PCEE
2013
Jan	0.0	-0.2	0.0	0.1	0.1	0.0	-1.9
2012
Dec	0.0	-0.3	-0.2	0.1	0.0	0.2	-0.9
Nov	-0.2	-0.8	-0.1	0.2	0.1	0.2	-3.7
Oct	0.2	0.1	-0.2	0.2	0.1	0.2	0.2
∆% AE Oct-Jan	0.0	-3.6	-1.5	1.8	0.9	1.8	-17.5
Sep	0.3	0.7	-0.2	0.1	0.0	-0.1	4.8
Aug	0.4	0.8	-0.2	0.1	0.0	0.1	5.8
∆% AE Aug-Sep	4.3	9.4	-2.4	1.2	0.0	0.0	85.8
Jul	0.1	0.0	-0.3	0.1	0.1	0.0	-0.2
Jun	0.1	-0.1	-0.1	0.2	0.2	0.2	-1.5
∆% AE Jun-Jul	1.2	-0.6	-2.4	1.8	1.8	1.2	-9.8
May	-0.2	-0.8	0.0	0.1	0.1	-0.1	-4.7
Apr	0.0	-0.3	-0.2	0.2	0.1	0.1	-1.8
∆% AE Apr- May	-1.2	-6.4	-1.2	1.8	1.2	0.0	-32.8
Mar	0.2	0.3	-0.1	0.2	0.2	0.1	1.0
Feb	0.3	0.6	0.0	0.2	0.1	0.0	3.6
Jan	0.3	0.3	0.1	0.2	0.3	0.1	0.3
∆% AE Jan- Mar	3.3	4.9	0.0	2.4	2.4	0.8	21.3
2011
Dec	0.1	-0.2	-0.2	0.2	0.2	0.2	-1.4
Nov	0.1	-0.1	-0.3	0.1	0.1	0.0	-0.5
Oct	0.0	-0.2	-0.1	0.1	0.1	0.2	-1.7
∆% AE Oct- Dec	0.8	-2.0	-2.4	1.6	1.6	1.6	-13.5
Sep	0.2	0.2	-0.4	0.1	0.0	0.5	1.5
Aug	0.2	0.3	-0.2	0.2	0.2	0.6	0.8
Jul	0.2	0.3	-0.1	0.2	0.2	0.4	0.9
∆% AE Jul-Sep	2.4	3.3	-2.8	2.0	1.6	6.2	13.6
Jun	0.1	0.1	0.2	0.1	0.2	0.3	-1.2
May	0.2	0.2	0.1	0.2	0.2	0.4	0.1
∆% AE May-Jun	1.8	1.8	1.8	1.8	2.4	4.3	-6.4
Apr	0.3	0.5	0.2	0.2	0.2	0.3	1.9
Mar	0.4	0.8	0.0	0.2	0.1	0.8	3.5
Feb	0.3	0.6	0.2	0.2	0.2	0.7	2.5
Jan	0.3	0.5	0.1	0.1	0.2	0.6	0.9
∆% AE Jan-Apr	4.0	7.4	1.5	2.1	2.1	7.4	29.8
2010
Dec	0.2	0.6	-0.4	0.0	0.0	0.2	4.2
Nov	0.1	0.2	-0.2	0.1	0.1	0.1	0.8
Oct	0.2	0.5	-0.2	0.1	0.1	0.2	3.1
Sep	0.1	0.2	-0.1	0.1	0.1	0.2	0.8
Aug	0.2	0.3	0.1	0.1	0.1	0.1	1.5
Jul	0.2	0.2	-0.3	0.1	0.1	0.1	1.8
Jun	0.0	-0.2	-0.3	0.1	0.1	-0.1	-1.0
May	0.0	-0.4	-0.2	0.2	0.1	0.0	-2.1
Apr	0.0	-0.3	-0.2	0.1	0.1	0.2	-0.8
Mar	0.2	-0.1	0.1	0.3	0.2	0.2	-0.6
Feb	0.1	-0.2	-0.3	0.2	0.1	0.1	-1.0
Jan	0.2	0.3	-0.1	0.2	0.1	0.1	1.8

Notes: percentage changes in price index relative to the same month a year earlier of PCE: personal consumption expenditures; PCEG: PCE goods; PCEG-D: PCE durable goods; PCES: PCE services; PCEX: PCE excluding food and energy; PCEF: PCE food; PCEE: PCE energy goods and services

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm

The charts of PCE inflation are also instructive. Chart IV-1 provides the monthly change of headline PCE price index. There is significant volatility in the monthly changes but excluding outliers fluctuations have been in a tight range between 1999 and 2013 around 0.2 percent per month.

Chart IV-1, US, Percentage Change of PCE Price Index from Prior Month, 1999-2013

Source: US Bureau of Economic Analysis

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

There is much less volatility in the PCE index excluding food and energy shown in Chart IV-2 with monthly percentage changes from 1999 to 2013. With the exception of 2001 there are no negative changes and again changes around 0.2 percent when excluding outliers.

Chart IV-2, US, Percentage Change of PCE Price Index Excluding Food and Energy from Prior Month, 1999-2013

Source: US Bureau of Economic Analysis

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

Fluctuations in the PCE index of food are much wider as shown in Chart IV-3 by monthly percentage changes from 1999 to 2013. There are also multiple negative changes and positive changes even exceeding 1.0 percent in three months.

Chart IV-3, US, Percentage Change of PCE Price Index Food from Prior Month, 1999-2013

Source: US Bureau of Economic Analysis

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

band of fluctuation of the PCE price index of energy in Chart IV-4 is much wider. An interesting feature is the abundance of negative changes and large percentages.

Chart IV-4, US, Percentage Change of PCE Price Index Energy from Prior Month, 1999-2013

Source: US Bureau of Economic Analysis

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

Table IV-6 provides 12-month rates of PCE inflation since 2000. Headline PCE inflation has increased from 1.5 percent in Jan 2011 to 2.8 percent in Aug 2011 and 2.9 percent in Sep 2011, declining to 1.2 percent in Jan 2013. PCE inflation excluding food and energy (PCEX), used as indicator in monetary policy, has increased from 1.1 percent in Jan 2011 to 1.9 percent in Dec 2011 and 1.3 percent in Jan 2013, which is still below or at the tolerable maximum of 2.0-2.5 percent in monetary policy. The unintended effect of shocks of commodity prices from zero interest rates captured by PCE food prices (PCEF) and energy (PCEE) in the absence of risk aversion should be weighed in design and implementation of monetary policy. The final row of Table IV-6 provides average rates of 12-month change of PCE prices in Dec. The average for central PCE prices is 2.2 per cent per year from 2000 to 2011 and 1.9 percent for core PCE. PCE food grew at the average rate of 2.6 percent from 2000 to 2011 and energy PCE at 6.1 percent with significant oscillations.

Table IV-6, US, Percentage Change in 12 Months of Prices of Personal Consumption Expenditures ∆%

	PCE	PCEG	PCEG -D	PCES	PCEX	PCEF	PCEE
2013
Jan	1.2	0.1	-1.6	1.8	1.3	1.0	0.1
2012
Dec	1.4	0.6	-1.6	1.9	1.4	1.2	2.4
Nov	1.5	0.7	-1.6	2.0	1.5	1.2	1.9
Oct	1.8	1.4	-1.7	1.9	1.6	0.9	5.3
Sep	1.6	1.1	-1.6	1.9	1.5	0.9	3.2
Aug	1.4	0.6	-1.8	1.9	1.5	1.5	0.0
Jul	1.3	0.1	-1.8	2.0	1.7	2.0	-4.7
Jun	1.5	0.4	-1.6	2.1	1.8	2.4	-3.6
May	1.5	0.6	-1.3	2.0	1.7	2.4	-3.3
Apr	1.9	1.6	-1.2	2.1	1.9	2.9	1.5
Mar	2.2	2.5	-0.8	2.1	2.0	3.2	5.4
Feb	2.4	2.9	-0.7	2.2	1.9	3.9	8.0
Jan	2.4	3.0	-0.5	2.2	1.9	4.6	6.8
2011
Dec	2.4	3.1	-0.5	2.1	1.9	5.1	7.4
Nov	2.6	4.0	-0.6	1.9	1.7	5.0	13.5
Oct	2.6	4.2	-0.5	1.8	1.6	5.2	15.1
Sep	2.9	4.9	-0.7	1.9	1.6	5.1	20.7
Aug	2.8	4.9	-0.4	1.8	1.6	4.8	19.8
Jul	2.8	4.8	-0.2	1.8	1.5	4.3	20.6
Jun	2.7	4.7	-0.4	1.7	1.4	4.0	21.6
May	2.6	4.5	-0.9	1.7	1.4	3.6	22.0
Apr	2.4	3.8	-1.2	1.6	1.2	3.2	19.4
Mar	2.1	3.0	-1.6	1.6	1.1	3.0	16.1
Feb	1.8	2.1	-1.6	1.7	1.2	2.4	11.5
Jan	1.5	1.3	-2.0	1.7	1.1	1.8	7.7
2010
Dec	1.5	1.1	-2.2	1.7	1.1	1.3	8.6
Nov	1.4	0.6	-2.0	1.7	1.2	1.3	4.4
Oct	1.5	0.8	-1.7	1.8	1.2	1.3	6.3
Sep	1.6	0.5	-1.3	2.1	1.5	1.2	4.1
Aug	1.7	0.6	-0.9	2.2	1.6	0.7	4.0
Dec 2009	2.3	4.1	-0.7	1.4	1.6	-1.6	20.5
Dec 2008	0.6	-3.8	-2.4	2.8	1.8	6.8	-23.7
Dec 2007	3.5	3.6	-1.9	3.5	2.5	5.0	18.6
Dec 2006	2,3	0.5	-2.0	3.2	2.7	1.3	3.7
Dec 2005	3.0	1.7	-1.4	3.7	2.3	1.7	16.3
Dec 2004	3.0	2.6	-0.7	3.2	2.2	2.3	18.0
Dec 2003	2.0	-0.1	-3.9	3.2	1.5	3.6	9.4
Dec 2002	2.2	0.6	-2.8	3.0	1.8	1.0	12.7
Dec 2001	1.0	-2.0	-2.4	2.8	1.7	2.4	-13.8
Dec 2000	2.4	1.5	-1.3	2.9	1.8	2.8	14.1
Average ∆%2000-2011	2.2	1.0	-20.0*	2.8	1.9	2.6	6.1

*Percentage change from 2000 to 2011.

Notes: percentage changes in price index relative to the same month a year earlier of PCE: personal consumption expenditures; PCEG: PCE goods; PCEG-D: PCE durable goods; PCES: PCE services; PCEX: PCE excluding food and energy; PCEF: PCE food; PCEE: PCE energy goods and services

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm

The headline PCE index is shown in Chart IV-5 from 1999 to 2013. There is an evident upward trend with the carry-trade bump of the global recession after IVQ2008.

Chart IV-5, US, Price Index of Personal Consumption Expenditures 1999-2013

Source: US Bureau of Economic Analysis

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

The headline consumer price index is shown in Chart IV-6. There is also an upward trend but with fluctuations and the 2008 carry-trade bump.

Chart IV-6, US, Consumer Price Index, NSA, 1999-2013

Source: US Bureau of Labor Statistics

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

The PCE price index excluding food and energy is shown in Chart IV-7. There is less pronounced long-term trend with fewer bumps because of excluding more volatile commodity items.

Chart IV-7, US, Price Index of Personal Consumption Expenditures Excluding Food and Energy 1999-2013

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm

The core consumer price index, excluding food and energy, is shown in Chart IV-8. There is also an upward trend but with fluctuations.

Chart IV-8, US, Consumer Price Index Excluding Food and Energy, NSA, 1999-2012

Source: US Bureau of Labor Statistics

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

The PCE price index of food is shown in Chart IV-9. There is a more pronounced upward trend and sharper fluctuations.

Chart IV-9, US, Price Index of Personal Consumption Expenditures Food 1999-2013

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm

There is similar behavior in the consumer price index of food in Chart IV-10. There is an upward trend from 1999 to 2011 with a major bump in 2009 when commodity futures positions were unwound. Zero interest rates with bouts of risk aversion dominate the trend into 2011. Risk aversion softens the trend toward the end of 2011 and in 2012.

Chart IV-10, US, Consumer Price Index, Food, NSA, 1999-2013

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

The most pronounced trend of PCE price indexes is that of energy in Chart IV-11. It is impossible to explain the hump in 2008 in the middle of the global recession without the carry trade from zero interest rates to leveraged positions in commodity futures. Risk aversion after Sep 2008 caused flight to the safe haven of government obligations. The return of risk appetite with zero interest rates caused a first wave of carry trades with another upward trend interrupted by the first European sovereign risk crisis in Apr-Jul 2010. Zero interest rates with risk appetite caused another sharp upward trend of commodity prices interrupted by risk aversion from the second sovereign crisis. In the absence of risk aversion, carry trades from zero interest rates to positions in risk financial assets will continue to cause distortions such as commodity price trends and fluctuations.

Chart IV-11, US, Price Index of Personal Consumption Expenditures Energy Goods and Services 1999-2013

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm

Chart IV-12 provides the consumer price index of energy commodities. Unconventional monetary policy of zero or near zero interest rates causes upward trends in commodity prices reflected in (1) increase from 2003 to 2007; (2) sharp increase during the global contraction in 2008; (3) collapse from 2008 into 2009 as positions in commodity futures were unwound in a flight to government obligations; (4) new upward trend after 2010; and (5) episodes of decline during risk aversion shocks such as the more recent segment during the worsening European debt crisis in Nov and Dec of 2011 and with new strength of commodity prices in the beginning of 2012 followed by softness in another episode of risk aversion and increases during risk appetite.

Chart IV-12, US, Consumer Price Index, Energy, NSA, 1999-2013

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

Chart IV-13 of the US Energy Information Administration provides prices of the crude oil futures contract. Unconventional monetary policy of very low interest rates and quantitative easing with suspension of the 30-year bond to lower mortgage rates caused a sharp upward trend of oil prices. There is no explanation for the jump of oil prices to $149/barrel in 2008 during a sharp global recession other than carry trades from zero interest rates to commodity futures. Prices collapsed in the flight to government obligations. Risk appetite with zero interest rates resulted in another upward trend of commodity prices after 2009 with fluctuations during periods of risk aversion. All price indexes are affected by unconventional monetary policy.

Chart IV-13, US, Crude Oil Futures Contract

Source: US Energy Information Administration

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

Unconventional monetary policy of zero interest rates and quantitative easing has been used in Japan and now also in the US. Table IV-7 provides the consumer price index of Japan, with inflation of minus 0.3 percent in 12 months ending in Jan 2013, change of 0.0 percent NSA (not-seasonally-adjusted) in Jan 2013 and decline of 0.1 percent SA (seasonally-adjusted) in the month of Jan 2013. Inflation of consumer prices in the first four months of 2012 annualizes at 1.2 percent SA and 3.0 percent NSA. Annual equivalent inflation in the first three months of 2012 is 1.6 percent SA and 3.7 percent NSA. There are negative percentage changes in most of the 12-month rates in 2011 with the exception of Jul and Aug both with 0.2 percent and stability in Sep. All monthly and 12-month rates of inflation are nonnegative in the first four months of 2012. There are ten years of deflation, three of zero inflation and only five of inflation in the annual rate of inflation from 1995 to 2012. This experience is entirely different from that of the US that shows long-term inflation. There is only one annual negative change of the CPI all items of the US in Table IV-7, minus 0.4 percent in 2009 but following 3.8 percent in 2008 because of carry trades from policy rates moving to zero in 2008 during a global contraction that were reversed because of risk aversion in late 2008 and early 2009, causing decreasing commodity prices. Both the US and Japan experienced high rates of inflation during the US Great Inflation of the 1970s (see http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html and Appendix I The Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB and http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). It is difficult to justify unconventional monetary policy because of risks of deflation similar to that experienced in Japan. Fear of deflation as had occurred during the Great Depression and in Japan was used as an argument for the first round of unconventional monetary policy with 1 percent interest rates from Jun 2003 to Jun 2004 and quantitative easing in the form of withdrawal of supply of 30-year securities by suspension of the auction of 30-year Treasury bonds with the intention of reducing mortgage rates. For fear of deflation see Pelaez and Pelaez, International Financial Architecture (2005), 18-28, and Pelaez and Pelaez, The Global Recession Risk (2007), 83-95. The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html 

Table IV-7, Japan, Consumer Price Index, All Items ∆%

	∆% Month   SA	∆% Month  NSA	∆% 12-Month NSA
Jan 2013	-0.1	0.0	-0.3
Dec	0.2	0.0	-0.1
Nov	0.0	-0.4	-0.2
Oct	-0.1	0.0	-0.4
Sep	0.1	0.1	-0.3
Aug	-0.1	0.1	-0.4
Jul	-0.1	-0.3	-0.4
Jun	-0.2	-0.5	-0.2
May	-0.3	-0.3	0.2
Apr	0.0	0.1	0.4
Mar	0.1	0.5	0.5
Feb	0.1	0.2	0.3
Jan	0.2	0.2	0.1
Dec 2011	0.1	0.0	-0.2
Nov	-0.2	-0.6	-0.5
Oct	0.1	0.1	-0.2
Sep	-0.1	0.0	0.0
Aug	-0.1	0.2	0.2
Jul	0.3	0.0	0.2
Jun	-0.1	-0.2	-0.4
May	0.1	0.0	-0.4
Apr	-0.1	0.1	-0.5
Mar	-0.1	0.3	-0.5
Feb	0.0	0.0	-0.5
Jan	-0.1	-0.1	-0.6
Dec 2010	-0.2	–0.3	-0.4
		CPI All Items USA	CPI All Items Japan
Annual
2012		2.1	0.0
2011		3.2	-0.3
2010		1.6	-0.7
2009		-0.4	-1.4
2008		3.8	1.4
2007		2.8	0.0
2006		3.2	0.3
2005		3.4	-0.3
2004		2.7	0.0
2003		2.3	-0.3
2002		1.6	-0.9
2001		2.8	-0.8
2000		3.4	-0.7
1999		2.2	-0.3
1998		1.6	0.6
1997		2.3	1.9
1996		3.0	0.1
1995		2.8	-0.1
1994		2.6	0.6
1993		3.0	1.3
1992		3.0	1.7
1991		4.2	3.3
1990		5.4	3.1
1989		4.8	2.2
1988		4.1	0.8
1987		3.6	0.0
1986		1.9	0.7
1985		3.6	2.0
1984		4.3	2.4
1983		3.2	1.8
1982		6.2	2.8
1981		10.3	4.8
1980		13.5	7.8
1979		11.3	3.6
1978		7.6	4.4
1977		6.5	8.0
1976		5.8	9.5
1975		9.1	11.8
1974		11.0	23.1
1973		6.2	11.8
1972		3.2	4.6
1971		4.4	6.7

Source: Japan, Statistics Bureau, Ministry of Internal Affairs and Communications

http://www.stat.go.jp/english/data/cpi/index.htm

Japan provides the consumer price index for all items and regions of Japan monthly from 1971 to 2012 with 2010=100. There was inflation in Japan during the 1970s and 1980s similar to other countries and regions. The index shows stability after the 1990s with sporadic cases of deflation. Slower growth with sporadic inflation has been characterized as a “lost decade” in Japan (see Pelaez and Pelaez, The Global Recession Risk (2007), 82-115).

Chart IV-14, Japan, Consumer Price Index All Items, All Japan, Index 2010=100, Monthly, 1970-2012

Sources: Japan, Statistics Bureau, Ministry of Internal Affairs and Communications

http://www.stat.go.jp/english/data/cpi/index.htm

Chart IV-15 provides the US consumer price index NSA from 1913 to 2012. The dominating characteristic is the increase in slope during the Great Inflation from the middle of the 1960s through the 1970s. There is long-term inflation in the US and no evidence of deflation risks.

Chart IV-15, US, Consumer Price Index, All Items, NSA, 1914-2013

Source: US Bureau of Labor Statistics

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

Chart IV-16 of the Statistics Bureau of the Ministry of Internal Affairs and Communications of Japan provides 12-month percentage changes of the consumer price index for all items and regions of Japan monthly from 1971 to 2012. Japan experienced the same inflation waves of the United States during the Great Inflation of the 1970s followed by similar low inflation after the inflation-control increase of interest rates in the early 1980s. Numerous cases of negative inflation or deflation are observed after the 1990s.

Chart IV-16, Japan, CPI All Items, All Japan, 12-Month ∆%, 1971-2012

Sources: Japan, Statistics Bureau, Ministry of Internal Affairs and Communications

http://www.stat.go.jp/english/data/cpi/index.htm

Chart IV-17 provides 12-month percentage changes of the US consumer price index from 1914 to 2013. There are actually three waves of inflation in the second half of the 1960s, in the mid 1970s and again in the late 1970s. Table IV-7 provides similar inflation waves in the economy of Japan with 11.8 percent in 1973, 23.1 percent in 1974 and 11.8 percent in 1975. The Great Inflation of the 1970s is analyzed in various comments of this blog (http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html and in Appendix I The Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB and http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). Inflation rates then stabilized in the US in a range with only two episodes above 5 percent. There are isolated cases of deflation concentrated over extended periods only during the 1930s. There is no case in United States economic history for unconventional monetary policy because of fear of deflation. There are cases of long-term deflation without lost decades or depressions. Delfim Netto (1958) partly reprinted in Pelaez (1973) conducted two classical nonparametric tests (Mann 1945, Wallis and Moore 1941; see Kendall and Stuart 1968) with coffee-price data in the period of free markets from 1857 to 1906 with the following conclusions (Pelaez, 1976a, 280):

“First, the null hypothesis of no trend was accepted with high confidence; secondly, the null hypothesis of no oscillation was rejected also with high confidence. Consequently, in the nineteenth century international prices of coffee fluctuated but without long-run trend. This statistical fact refutes the extreme argument of structural weakness of the coffee trade.”

The conventional theory that the terms of trade of Brazil deteriorated over the long term is without reality (Pelaez 1976a, 280-281):

“Moreover, physical exports of coffee by Brazil increased at the high average rate of 3.5 per cent per year. Brazil's exchange receipts from coffee-exporting in sterling increased at the average rate of 3.5 per cent per year and receipts in domestic currency at 4.5 per cent per year. Great Britain supplied nearly all the imports of the coffee economy. In the period of the free coffee market, British export prices declined at the rate of 0.5 per cent per year. Thus, the income terms of trade of the coffee economy improved at the relatively satisfactory average rate of 4.0 per cent per year. This is only a lower bound of the rate of improvement of the terms of trade. While the quality of coffee remained relatively constant, the quality of manufactured products improved significantly during the fifty-year period considered. The trade data and the non-parametric tests refute conclusively the long-run hypothesis. The valid historical fact is that the tropical export economy of Brazil experienced an opportunity of absorbing rapidly increasing quantities of manufactures from the "workshop" countries. Therefore, the coffee trade constituted a golden opportunity for modernization in nineteenth-century Brazil.”

Imlah (1958) provides decline of British export prices at 0.5 percent in the nineteenth century and there were no lost decades, depressions or unconventional monetary policies in the highly dynamic economy of England that provided the world’s growth impulse. The experience of the United Kingdom with deflation and economic growth is relevant and rich. Yearly percentage changes of the composite index of prices of the United Kingdom of O’Donoghue and Goulding (2004) provide strong evidence. There are 73 declines of inflation in the 145 years from 1751 to 1896. Prices declined in 50.3 percent of 145 years. Some price declines were quite sharp and many occurred over several years. O’Donoghue and Goulding (2004) also provide inflation data for the UK from 1929 to 1934. Deflation was much sharper in continuous years in earlier periods than during the Great Depression. The United Kingdom could not have led the world in modern economic growth if there were meaningful causality from deflation to depression.

Chart IV-17, US, Consumer Price Index, All Items, NSA, 12-Month Percentage Change 1914-2013

Source: US Bureau of Labor Statistics

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

Chart IV-18 provides the US consumer price index excluding food and energy from 1957 (when it first becomes available) to 2013. There is long-term inflation in the US without episodes of deflation that would justify symmetric inflation targets to increase inflation from low levels.

IV-18, US, Consumer Price Index Excluding Food and Energy, NSA, 1957-2013

Source: US Bureau of Labor Statistics

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

Chart IV-19 provides 12-month percentage changes of the consumer price index excluding food and energy from 1958 (when it first becomes available) to 2013. There are three waves of inflation in the 1970s during the Great Inflation. There is no episode of deflation.

Chart IV-19, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 1958-2013

Source: US Bureau of Labor Statistics

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

More detail on the consumer price index of Japan in Nov is shown in Table IV-8. Inflation in the 12 months ending in Jan 2013 has been driven by items rich in commodities such as 2.9 percent in fuel, light and water charges with decrease of 0.1 percent in the month of Jan 2013. There is similar behavior in the preliminary estimate for Feb for the Ku Area of Tokyo with decrease of 0.8 percent of fuel, light and water charges and increase of 3.8 percent in 12 months. There are increases of 0.3 percent of CPI goods, 0.1 percent of CPI excluding imputing rent and 0.1 percent of CPI transport and communications in Jan 2013 relative to Dec 2012. There is mild deflation in the CPI excluding food, alcoholic beverages and energy with minus 0.7 percent in the 12 months ending in Jan 2013 and minus 0.5 percent in Jan 2013. The CPI excluding imputed increased 0.1 percent in Jan 2013 and fell 0.3 percent in 12 months. The all-items CPI estimate for Feb 2013 of the Ku-Area of Tokyo fell 0.8 percent in Feb 2013 and declined 0.9 percent in 12 months.

Table IV-8, Japan, Consumer Price Index, ∆%

2012	Jan 2013/Dec 2012 ∆%	Year ∆%
CPI All Items	0.0	-0.3
CPI Excluding Fresh Food	-0.3	-0.2
CPI Excluding Food, Alcoholic Beverages and Energy	-0.5	-0.7
CPI Goods	0.3	-0.4
CPI Services	-0.2	-0.2
CPI Excluding Imputed Rent	0.1	-0.3
CPI Fuel, Light, Water Charges	-0.1	2.9
CPI Transport & Communications	0.1	0.0
CPI Ku-Area Tokyo All Items	-0.4	-0.9
Fuel, Light, Water Charges Ku Area Tokyo	-0.8	3.8

Note: Ku-area Tokyo CPI data preliminary for Feb 2013

Sources: Japan, Statistics Bureau, Ministry of Internal Affairs and Communications

http://www.stat.go.jp/english/data/cpi/index.htm

The harmonized index of consumer prices of the euro area in Table IV-9 has similar inflation waves as in most countries (http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html). In the first wave, consumer prices in the euro area increased at the annual equivalent rate of 5.2 percent in Jan-Apr 2011. In the second wave, risk aversion caused unwinding of commodity carry trades with inflation decreasing at the annual equivalent rate of minus 2.4 percent in May-Jul 2011. In the third wave, improved risk appetite resulted in annual equivalent inflation in Aug-Nov at 4.3 percent. In the fourth wave, return of risk aversion caused decline of consumer prices at the annual equivalent rate of minus 3.0 percent in Dec 2011 to Jan 2012. In the fifth wave, improved attitudes toward risk aversion resulted in higher consumer price inflation at the high annual equivalent rate of 9.6 percent in Feb-Apr 2012. In the sixth wave, equivalent inflation fell to minus 2.8 percent in May-Jul 2012. In the seventh wave, increasing risk appetite caused new carry trade exposures that resulted in annual equivalent inflation of 6.8 percent in Aug-Sep 2012 and 5.3 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 4.9 percent in Dec 2012. In the tenth wave, annual equivalent inflation was minus 11.4 percent in Jan 2013. Inflation volatility around the world is confusing the information required in investment and consumption decisions.

The harmonized index of consumer prices of the euro area in Table IV-10 has similar inflation waves as in most countries (see Section II World Inflation Waves and earlier http://cmpassocregulationblog.blogspot.com/2012/12/recovery-without-hiring-forecast-growth.html). In the first wave, consumer prices in the euro area increased at the annual equivalent rate of 5.2 percent in Jan-Apr 2011. In the second wave, risk aversion caused unwinding of commodity carry trades with inflation decreasing at the annual equivalent rate of minus 2.4 percent in May-Jul 2011. In the third wave, improved risk appetite resulted in annual equivalent inflation in Aug-Nov at 4.3 percent. In the fourth wave, return of risk aversion caused decline of consumer prices at the annual equivalent rate of minus 3.0 percent in Dec 2011 to Jan 2012. In the fifth wave, improved attitudes toward risk aversion resulted in higher consumer price inflation at the high annual equivalent rate of 9.6 percent in Feb-Apr 2012. In the sixth wave, equivalent inflation fell to minus 2.8 percent in May-Jul 2012. In the seventh wave, increasing risk appetite caused new carry trade exposures that resulted in annual equivalent inflation of 6.8 percent in Aug-Sep 2012 and 5.3 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 4.9 percent in Dec 2012. Inflation volatility around the world is confusing the information required in investment and consumption decisions.

Table IV-9, Euro Area Harmonized Index of Consumer Prices Month and 12 Months ∆%

	Month ∆%	12 Months ∆%
Jan 2013	-1.0	2.0
AE ∆% Jan	-11.4
Dec 2012	0.4	2.2
AE ∆% Dec	4.9
Nov	-0.2	2.2
AE ∆% Nov	-2.4
Oct	0.2	2.5
Sep	0.7	2.6
Aug	0.4	2.6
AE ∆% Aug-Oct	5.3
Jul 2012	-0.5	2.4
Jun	-0.1	2.4
May	-0.1	2.4
AE ∆% May-Jul	-2.8
Apr	0.5	2.6
Mar	1.3	2.7
Feb	0.5	2.7
AE ∆%  Feb-Apr	9.6
Jan	-0.8	2.7
Dec 2011	0.3	2.7
AE ∆%  Dec-Jan	-3.0
Nov	0.1	3.0
Oct	0.4	3.0
Sep	0.7	3.0
Aug	0.2	2.6
AE ∆%  Aug-Nov	4.3
Jul	-0.6	2.6
Jun	0.0	2.7
May	0.0	2.7
AE ∆%  May-Jul	-2.4
Apr	0.6	2.8
Mar	1.4	2.7
Feb	0.4	2.4
Jan	-0.7	2.3
AE ∆% Jan-Apr	5.2
Dec 2010	0.6	2.2

AE: annual equivalent

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

Table IV-10 provides weights and inflation of selected components of the HICP of the euro area. Inflation of all items excluding energy increased 1.8 percent in Jan 2013 relative to Jan 2012 and fell 1.3 percent in Jan 2013 relative to Dec 2012. Inflation of non-energy industrial goods increased 0.8 percent in Jan 2013 relative to a year earlier and fell 3.8 percent in Jan 2013. Inflation of services increased 1.6 percent in Jan 2013 relative to a year earlier and fell 0.5 percent in Jan 2013.

Table IV-10, Euro Area, HICP Inflation and Selected Components, ∆%

	Weight %	Jan 2013/ Jan 2012	12-month Average Rate Jan 2013-2012/ Jan  2012/Jan 2011	∆% Jan 2013/Dec 2012
All Items ex Energy	890.4	1.8	1.9	-1.3
All Items ex Energy, Food, Alcohol & Tobacco	696.7	1.3	1.5	-1.8
All Items ex Energy & Unprocessed Food	816.9	1.5	1.7	-1.5
All Items ex Seasonal Food	852.7	1.6	1.8	-1.4
All Items ex Tobacco	975.8	1.9	2.4	-1.1
Energy	109.6	3.9	7.2	1.3
Food, Alcohol & Tobacco	193.7	3.2	3.1	0.5
Non-energy Industrial Goods	273.6	0.8	1.2	-3.8
Services	423.0	1.6	1.7	-0.5

Source: Eurostat http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

Table IV-11 provides components with highest impact on annual inflation and percentage point contributions to the annual rate of inflation in Jan 2013. Electricity increased 8.1 percent in Jan 2013 relative to a year earlier with contribution of 0.16 percentage points. Telecommunications fell 4.4 percent relative to a year earlier, deducting 0.20 percentage points.

Table IV-11, Euro Area, Components with Highest Impact on Annual Inflation

	Weight % 2013	Annual Rate Jan 2013 ∆%	Impact Percentage Points
Electricity	25.9	8.1	0.16
Vegetables	15.2	7.9	0.09
Tobacco	24.2	4.7	0.07
Garments	49.1	0.2	-0.06
Medical & Paramedical Services	11.3	-4.8	-0.08
Telecommunications	29.4	-4.4	-0.20

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

There are waves of inflation of producer prices in France as everywhere in the world economy (http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html), as shown in Table IV-12. There was a first wave of sharply increasing inflation in the first four months of 2011 originating in the surge of commodity prices driven by carry trades from zero interest rates to commodity futures risk positions. Producer price inflation in the first four months of 2011 was at the annual equivalent rate of 11.7 percent. In the second wave, producer prices fell 0.5 percent in May and another 0.1 percent in Jun for annual equivalent inflation in May-Jun 2011 of minus 3.5 percent. In the third wave from Jul to Sep, annual equivalent producer price inflation was 2.8 percent. In the fourth wave Oct-Dec 2011, annual equivalent producer price inflation was 2.4 percent. In the fifth wave Jan-Mar 2012, average annual inflation rose to 8.7 percent during carry trades from zero interest rates to commodity futures. In the sixth wave in Apr-Jun 2012, annual equivalent inflation fell at the rate of 8.1 percent during unwinding of carry trades because of increasing risk aversion. In the seventh wave, carry trades returned under more relaxed risk aversion with producer price inflation in France at 8.1 percent in annual equivalent in Jul-Oct 2012. In the eighth wave, return of risk aversion caused unwinding carry trade and annual equivalent inflation of minus 4.7 percent in Nov-Dec 2012. In the ninth wave, inflation returned with annual equivalent 6.2 percent in Jan 2013. The bottom part of Table IV-12 shows producer price inflation at 3.5 percent in the 12 months ending in Dec 2005 and again at 5.2 percent in the 12 months ending in Dec 2007. Producer prices fell in 2008 and 2009 during the global contraction and decline of commodity prices but returned at 5.4 percent in the 12 months ending in Dec 2010.

Table IV-12, France, Producer Price Index for the French Market, ∆%

	Month	12 Months
Jan 2013	0.5	1.4
AE ∆% Jan	6.2
Dec 2012	-0.4	1.7
Nov	-0.4	1.9
AE ∆% Nov-Dec	-4.7
Oct	0.4	2.8
Sep	0.3	2.8
Aug	1.3	2.8
Jul	0.6	1.5
AE ∆% Jul-Oct	8.1
Jun	-0.9	1.3
May	-1.1	2.2
Apr	-0.1	2.8
AE ∆% Apr-Jun	-8.1
Mar	0.5	3.9
Feb	0.8	4.3
Jan	0.8	4.3
AE ∆% Jan-Mar	8.7
Dec 2011	-0.2	4.6
Nov	0.4	5.6
Oct	0.4	5.7
AE ∆% Oct-Dec	2.4
Sep	0.3	6.1
Aug	0.0	6.2
Jul	0.4	6.3
AE ∆% Jul-Sep	2.8
Jun	-0.1	6.1
May	-0.5	6.2
AE ∆% May-Jun	-3.5
Apr	1.0	6.7
Mar	0.9	6.7
Feb	0.8	6.3
Jan	1.0	5.6
AE ∆% Jan-Apr	11.7
Dec 2010	0.8	5.4
Dec 2009	0.1	-2.9
Dec 2008	-1.5	-0.2
Dec 2007	0.6	5.2
Dec 2006	-0.2	2.9
Dec 2005	0.2	3.5

Source: Institut National de la Statistique et des Études Économiques http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20130228

Chart IV-20 of the Institut National de la Statistique et des Études Économiques of France provides the behavior of the producer price index of France for the various segments: import prices, foreign markets, domestic market and all markets. All the components exhibit the rise to the peak in 2008 driven by carry trades from zero interest rates of unconventional monetary policy that was of such an impulse as to drive increases in commodity prices during the global recession. Prices collapsed with the flight out of financial risk assets such as commodity positions to government obligations. Commodity price increases returned with zero interest rates and subdued risk aversion. The shock of confidence of the current European sovereign risk moderated exposures to financial risk that influenced the flatter curve of France’s producer prices followed by another mild trend of increase and moderation in Dec 2011 and then renewed inflation in the first quarter of 2012 with a new pause in Apr 2012, decline in May-Jun 2012, the jump in Jul-Oct 2012 and the decline in Nov-Dec 2012 followed by increase in Jan 2013.

Chart IV-20, France, Producer Price Index (PPI)

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20130228

France’s producer price index for the domestic market is shown in Table IV-13 for Dec 2012. The segment of prices of coke and refined petroleum increased 1.4 percent in Jan 2013 and decreased 2.0 percent in 12 months. Manufacturing prices, with the highest weight in the index, increased 0.2 percent in Dec and rose 0.8 percent in 12 months. Mining prices increased 1.6 percent in Jan and increased 4.9 percent in 12 months. Waves of inflation originating in carry trades from unconventional monetary policy of zero interest rates (http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html) tend to deteriorate sales prices of productive activities relative to prices of inputs and commodities with adverse impact on operational margins and thus on production, investment and hiring.

Table IV-13, France, Producer Price Index for the Domestic Market, %

Jan 2013	Weight	Month ∆%	12 Months ∆%
Total	1000	0.5	1.4
Mining	130	1.6	4.9
Mfg	870	0.3	0.8
Food Products, Beverages, Tobacco	188	0.2	4.8
Coke and Refined Petroleum	70	1.4	-2.0
Electrical, Electronic	92	0.1	1.2
Transport	79	0.2	0.4
Other Mfg	441	0.1	-0.2

Source:  Institut National de la Statistique et des Études Économiques http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20130228

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 Feb 2013 was 2.0 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 (http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html).

Table IV-14, Italy, Consumer Price Index

	Month	12 Months
Feb 2013	0.1	1.9
Jan	0.2	2.2
Dec 2012	0.2	2.3
AE ∆% Dec 2012-Feb 2013	2.0
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/it/archivio/83776

Consumer price inflation in Italy by segments in the estimate by ISTAT for Feb 2013 is provided in Table IV-15. Total consumer price inflation in Feb 2013 was 0.1 percent and 1.9 percent in 12 months. Inflation of goods was 0.2 percent in Feb 2013 and 2.2 percent in 12 months. Prices of durable goods decreased 0.2 percent in Feb and decreased 0.1 percent in 12 months, as typical in most countries. Prices of energy increased 0.6 percent in Feb and increased 5.0 percent in 12 months. Food prices increased 0.1 percent in Feb and increased 2.5 percent in 12 months. Prices of services decreased 0.1 percent in Feb and rose 1.7 percent in 12 months. Transport prices, also influenced by commodity prices, increased 0.1 percent in Feb and increased 3.1 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 (http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html).

Table IV-15, Italy, Consumer Price Index and Segments, Month and 12-Month ∆%

Feb 2013	Month ∆%	12-Month ∆%
General Index	0.1	1.9
I Goods	0.2	2.2
Food	0.1	2.5
Energy	0.6	5.0
Durable	-0.2	-0.1
Nondurable	0.4	0.6
II Services	-0.1	1.7
Housing	0.2	2.2
Communications	-4.2	-4.2
Transport	0.1	3.1

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/83776

Chart IV-21 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, 2.2 percent in Jan 2013 and 1.9 percent in Feb 2013.

Chart, IV-21, Italy, Consumer Price Index, 12-Month Percentage Changes

Source: Istituto Nazionale di Statistica

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

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 ∆% 2012	Real GDP ∆% 2013	Real GDP ∆% 2014	Real GDP ∆% 2015
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 1.6 percent relative to IVQ2011 (Section I and earlier 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 0.1 percent, increasing 0.3 percent relative to a year earlier. UK GDP fell 0.4 percent in IIQ2012 and decreased 0.2 percent relative to a year earlier. UK GDP increased 1.0 percent in IIIQ2012 and increased 0.2 percent relative to a year earlier. UK GDP fell 0.3 percent in IVQ2012 relative to IIIQ2012 and increased 0.3 percent 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	-0.1	0.3
	IIQ2012/IQ2012	IIQ2012/IIQ2011
United States	QOQ: 0.3         SAAR: 1.3	2.1
Japan	QOQ: -0.2 SAAR: -1.0	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	-0.2
	IIIQ2012/ IIQ2012	IIIQ2012/ IIIQ2011
United States	QOQ: 0.8  SAAR: 3.1	2.6
Japan	QOQ: –1.0 SAAR: –3.8	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	1.0	0.2
	IVQ2012/IIIQ2012	IVQ2012/IVQ2011
United States	QOQ: 0.0 SAAR: 0.1	1.6
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	0.3

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

Source: Country Statistical Agencies http://www.bea.gov/national/index.htm#gdp

There is evidence of deceleration of growth of world trade and even contraction in more recent data. Table V-4 provides two types of data: growth of exports and imports in the latest available months and in the past 12 months; and contributions of net trade (exports less imports) to growth of real GDP. Japan provides the most worrisome data (Section VB at http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html 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 0.5 percentage points from UK value added in IQ2012, deducted 0.8 percentage points in IIQ2012, added 0.4 percentage points in IIIQ2012 and subtracted 0.1 percentage points in IVQ2012. 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 M ∆%	Exports 12 M ∆%	Imports M ∆%	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	-0.5 IQ2012 -0.8 IIQ2012 0.4 IIIQ2012 -0.1 IVQ2012

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

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

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

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

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

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

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

The geographical breakdown of exports 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 Millions Yen	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, decreased to 50.8 in Feb from 51.4 in Dec, which is the fourth consecutive reading above 50 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10802). New export business declined for the eleventh consecutive month in Jan, but at a marginal rate of contraction. 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’ Index^TM (PMI^™) decreased from a 22-month high in Jan 2012 at 53.2 to 52.5 in Feb 2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10766). Andre Loes, Chief Economist, Brazil at HSBC, finds continuing expansion in Brazil’s manufacturing with greater strength in IQ2013 than in IVQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10766).

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^™) decreased to 54.3 in Feb from 55.8 in Jan (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10792). The index of new exports orders decreased from 51.5 in Jan 2013 to 48.5 in Feb 2013 while total new orders decreased from 57.4 in Jan to 55.4 in Feb. Chris Williamson, Chief Economist at Markit, finds that manufacturing in the US is moving to growth of 2 percent in IQ2013 and could support growth of the US economy (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10792). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business^® increased 1.1 percentage points from 53.1 in Jan to 54.2 in Feb (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders increased 4.5 percentage points from 53.3 in Jan to 57.8 in Feb. The index of exports increased 3.0 percentage points from 50.5 in Jan to 53.5 in Feb, 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 Blog 2/24/13
Producer Price Index	Jan 12-month NSA ∆%: 1.3; ex food and energy ∆% 1.8 Jan month SA ∆% = 0.2; ex food and energy ∆%: 0.2 Blog 2/24/13
PCE Inflation	Jan 12-month NSA ∆%: headline 1.2; ex food and energy ∆% 1.3 Blog 3/3/13
Employment Situation	Household Survey: Nov Unemployment Rate SA 7.9% Blog calculation People in Job Stress Jan: 31.4 million NSA, 19.4% of Labor Force Establishment Survey: Nov Nonfarm Jobs +157,000; Private +166,000 jobs created  Dec 12-month Average Hourly Earnings Inflation Adjusted ∆%: 1.0 Blog 2/3/13
Nonfarm Hiring	Nonfarm Hiring fell from 63.8 million in 2006 to 50.1 million in 2011 or by 13.7 million Private-Sector Hiring Dec 2012 3.017 million lower by 0.818 million than 3.835 million in Dec 2006 Blog 2/17/13
GDP Growth	BEA Revised National Income Accounts IQ2012/IQ2011 ∆%: 2.4 IIQ2012/IIQ2011 2.1 IIIQ2012/IIIQ2011 2.6 IVQ2012/IVQ2011 1.6 IQ2012 SAAR 2.0 IIQ2012 SAAR 1.3 IIIQ2012 SAAR 3.1 IVQ2012 SAAR 0.1 Blog 3/3/13
Real Private Fixed Investment	SAAR IVQ2012 9.7 ∆% IVQ2007 to IIIQ2012: minus 11.2% Blog 3/3/13
Personal Income and Consumption	Jan month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% -4.0 Real Personal Consumption Expenditures (RPCE): 0.1 12-month Jan NSA ∆%: RDPI: 0.6; RPCE ∆%: 2.0 Blog 3/3/2013
Quarterly Services Report	IIIQ12/IIIQ11 SA ∆%: Information 2.1 Professional 6.0 Administrative 3.9 Hospitals 7.4 Financial & Insurance 6.5 Blog 12/9/12
Employment Cost Index	Compensation Private IVQ2012 SA ∆%: 0.5 Dec 12 months ∆%: 2.2 Blog 2/10/13
Industrial Production	Jan month SA ∆%: -0.1 Dec 12 months SA ∆%: 2.1 Manufacturing Dec SA ∆% -0.4 Dec 12 months SA ∆% 1.7, NSA 2.0 Capacity Utilization: 78.8 Blog 2/17/13
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 New Orders: From Jan -7.18 to Feb +13.31 Blog 2/17/13
Philadelphia Fed Business Outlook Index	General Index from Jan -5.8 to Feb -12.5 New Orders from Jan -4.3 to Feb -7.8 Blog 2/24/13
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 Blog 2/10/13
Durable Goods	Jan New Orders SA ∆%: -5.2; ex transport ∆%: 1.9 Jan 13/Jan 12 New Orders NSA ∆%: -0.5; ex transport ∆% 3.6 Blog 3/3/13
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 Goods: 4.8 Blog 2/10/13
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Dec 12/Dec 11 NSA ∆%: Sales Total Business 1.6; Manufacturers 1.9 Retailers 2.1; Merchant Wholesalers 0.7 Blog 2/17/13
Sales for Retail and Food Services	Jan 2013/Jan 2012 ∆%: Retail and Food Services 6.2; Retail ∆% 6.2 Blog 2/17/13
Value of Construction Put in Place	Jan SAAR month SA ∆%: -2.1 Jan 12-month NSA: 7.6 Jan-Dec 2012 ∆% 9.2 Blog 3/3/13
Case-Shiller Home Prices	Dec 2012/Dec 2011 ∆% NSA: 10 Cities 5.9; 20 Cities: 6.8 ∆% Dec SA: 10 Cities 0.9 ; 20 Cities: 0.9 Blog 3/3/13
FHFA House Price Index Purchases Only	Dec SA ∆% 0.6; 12 month NSA ∆%: 5.9 Blog 3/3/13
New House Sales	Jan 2013 month SAAR ∆%: 15.6 Jan 2013/Jan 2012 NSA ∆%: 34.8 Blog 3/3/13
Housing Starts and Permits	Jan Starts month SA ∆%: -8.5 ; Permits ∆%: 1.8 Jan-Dec 2012/Jan-Dec 2011 NSA ∆% Starts 28.1; Permits  ∆% 30.7 Blog 2/24/13
Trade Balance	Balance Dec SA -$38539 million versus Nov -$48613 million Exports Dec SA ∆%: 2.1 Imports Dec SA ∆%: -2.7 Goods Exports Jan-Dec 2012/2011 NSA ∆%: 4.5 Goods Imports Jan-Dec 2012/2011 NSA ∆%: 3.0 Blog 2/10/13
Export and Import Prices	Jan 12-month NSA ∆%: Imports -1.3; Exports 1.1 Blog 2/17/13
Consumer Credit	Dec ∆% annual rate: 6.3 Blog 2/10/13
Net Foreign Purchases of Long-term Treasury Securities	Dec Net Foreign Purchases of Long-term Treasury Securities: $64.2 billion Major Holders of Treasury Securities: China $1203 billion; Japan $1120 billion; Total Foreign US Treasury Holdings Dec $5555 billion Blog 2/17/13
Treasury Budget	Fiscal Year 2013/2012 ∆% Jan: Receipts 12.4; Outlays 3.5; Individual Income Taxes 16.0 Deficit Fiscal Year 2011 $1,297 billion 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:

2/24/13 http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html

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

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

Manufacturers’ shipments of durable goods decreased 1.2 percent in Jan 2013 after increasing 0.5 percent in Dec and 1.8 percent in Nov. New orders decreased 5.2 percent in Jan 2013 after increasing 3.7 percent in Dec and 0.6 percent in Nov, as shown in Table VA-1. These data are very volatile. Volatility is illustrated by decrease of 12.8 percent in Nov after increase of orders for nondefense aircraft of 2642.2 percent in Sep after decrease of 97.2 percent in Aug and increases of 51.1 percent in Jul and 32.5 percent in Jun. New orders excluding transportation equipment increased 1.9 percent in Jan, 1.0 percent in Dec and 1.2 percent in Nov. Capital goods new orders, indicating investment, decreased 12.8 percent in Jan, increased 11.9 percent in Dec and decreased 1.7 percent in Nov. New orders of nondefense capital goods decreased 0.1 percent in Jan and increased 1.4 percent in Dec after decreasing 2.2 percent in Nov. Excluding more volatile aircraft, capital goods orders increased 6.3 percent in Jan after falling 0.3 percent in Dec and increasing 3.3 percent in Nov.

Table VA-1, US, Durable Goods Value of Manufacturers’ Shipments and New Orders, SA, Month ∆%

	Jan 2013  ∆%	Dec 2012 ∆%	Nov 2012  ∆%
Total
S	-1.2	0.5	1.8
NO	-5.2	3.7	0.6
Excluding Transport
S	-0.7	0.4	1.6
NO	1.9	1.0	1.2
Excluding Defense
S	-0.7	0.4	1.8
NO	-0.4	0.5	0.5
Machinery
S	0.1	-1.3	3.2
NO	13.5	-1.8	2.3
Computers & Electronic Products
S	-3.5	1.1	-0.5
NO	-5.3	2.4	0.8
Computers
S	-15.2	13.7	2.3
NO	-15.5	6.4	5.5
Transport Equipment
S	-2.3	0.8	2.4
NO	-19.8	9.9	-0.7
Motor Vehicles
S	-0.4	0.1	3.4
NO	0.0	0.2	3.1
Nondefense Aircraft
S	-5.5	1.3	0.5
NO	-34.0	-3.2	-12.8
Capital Goods
S	-2.8	1.0	1.7
NO	-12.8	11.9	-1.7
Nondefense Capital Goods
S	-1.7	0.4	1.6
NO	-0.1	1.4	-2.2
Capital Goods ex Aircraft
S	-1.0	0.0	2.2
NO	6.3	-0.3	3.3

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

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

Chart VA-1 of the US Census Bureau shows monthly changes in manufacturers’ new orders in the past 12 months. Trends are difficult to discern for these data because of the significant volatility. Twelve-month percentage rates have fallen from the highs in 2010.

Chart VA-1, US, Manufacturers’ Durable Goods New Orders 2010-2011

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr021.html

Additional perspective on manufacturers’ shipments and new orders of durable goods is provided by Table VA-2. Values are cumulative millions of dollars in Jan 2013 not seasonally adjusted (NSA). Shipments of all manufacturing industries in Jan 2013 total $206.3 billion and new orders total $204.4 billion, growing respectively by 3.7 percent and minus 0.5 percent relative to the same period in 2012. Excluding transportation equipment, shipments grew 3.0 percent and new orders increased 3.6 percent. Excluding defense, shipments grew 4.2 percent and new orders grew 0.4 percent. Important information not in Table VA-2 is the large share of nondurable goods: with shipments of $3 trillion in 2012, growing by 2.0 percent, and new orders of $3 trillion, growing by 2.0 percent, in part driven by higher prices for food and energy. Durable goods were slightly higher in value in 2012, with shipments of $2.7 trillion, growing by 7.0 percent, and new orders of $2.6 trillion, growing by 4.1 percent. Capital goods have relatively high value of $61.3 billion for shipments, growing 1.8 percent, and new orders $70.9 billion, falling 10.6 percent. Excluding aircraft, capital goods shipments reached $57.0 billion, growing by 2.8 percent, and new orders $64.3billion, growing 5.1 percent. There is no suggestion in these data that the US economy is close to recession but performance at the margin appears somewhat weaker without enough data to discern trends.

Table VA-2, US, Value of Manufacturers’ Shipments and New Orders of Durable Goods, NSA, Millions of Dollars 

Jan 2013	Shipments	∆% 2013/ 2012	New Orders	∆% 2013/  2012
Total	206,326	3.7	204,366	-0.5
Excluding Transport	149,219	3.0	150,271	3.6
Excluding Defense	197,922	4.2	196,680	0.4
Machinery	29,663	10.5	34,025	10.2
Computers & Electronic Products	24,685	-4.7	17,068	-9.0
Computers & Related Products	1,665	-28.4	1,630	-28.7
Transport Equipment	57,107	5.8	54,095	-10.3
Motor Vehicles	41,516	9.8	41,617	10.2
Nondefense Aircraft	7,268	1.6	5,045	-62.3
Capital Goods	67,836	1.8	70,905	-10.6
Nondefense Capital Goods	61,251	2.6	65,609	-8.8
Capital Goods ex Aircraft	57,015	2.8	64,258	5.1

Note: Transport: transportation

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

Chart VA-2 of the Board of Governors of the Federal Reserve System shows that output accelerated in the 1980s and 1990s with slower growth in the 2000s perhaps because processes matured. Growth was robust after the major drop during the global recession but appears to vacillate in the final segment.

Chart VA-2, US, Output of Durable Manufacturing, 1972-2012

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/g17/current/

Manufacturing jobs increased 4,000 in Jan 2013 relative to Dec 2012, seasonally adjusted but decreased 90,000 in Jan 2013 relative to Dec 2012, not seasonally adjusted because of the weaker economy and international trade together with the yearly adjustment of labor statistics. 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. Capacity utilization for total industry in the United States decreased 0.2 percentage points in Jan 2013 to 79.1 percent from 79.3 percent in Dec, which is 1.1 percentage points lower than the long-run average from 1972 to 2012. 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. Table VA-3 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.3 percent in US national income in IIQ2012 and 86.4 percent in IIIQ2012. Most of US national income is in the form of services. In Jan 2013, there were 132.705 million nonfarm jobs NSA in the US, according to estimates of the establishment survey of the Bureau of Labor Statistics (BLS) (http://www.bls.gov/news.release/empsit.nr0.htm Table B-1 http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html). Total private jobs of 110.965 million NSA in Jan 2013 accounted for 82.6 percent of total nonfarm jobs of 132.705 million, of which 11.846 million, or 10.7 percent of total private jobs and 8.9 percent of total nonfarm jobs, were in manufacturing. Private service-producing jobs were 92.929 million NSA in Jan 2013, or 70.0 percent of total nonfarm jobs and 83.8 percent of total private-sector jobs. Manufacturing has share of 11.2 percent in US national income in IIQ2011 and 11.1 percent in IIIQ2012, as shown in Table VA-3. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.

Table VA-3, US, National Income without Capital Consumption Adjustment by Industry, Seasonally Adjusted Annual Rates, Billions of Dollars, % of Total

	SAAR IIQ2012	% Total	SAAR IIIQ2012	% Total
National Income WCCA	13,833.6	100.0	13,976.7	100.0
Domestic Industries	13,586.3	98.2	13,733.6	98.3
Private Industries	11,933.2	86.3	12,075.0	86.4
Agriculture	131.7	0.9	138.6	1.0
Mining	208.3	1.5	205.3	1.5
Utilities	214.6	1.6	216.6	1.6
Construction	583.7	4.2	589.3	4.2
Manufacturing	1548.1	11.2	1548.9	11.1
Durable Goods	894.3	6.5	892.8	6.4
Nondurable Goods	653.8	4.7	656.1	4.7
Wholesale Trade	853.5	6.2	837.8	6.0
Retail Trade	951.9	6.9	957.4	6.9
Transportation & WH	414.5	3.0	415.5	3.0
Information	499.1	3.6	504.4	3.6
Finance, Insurance, RE	2237.5	16.2	2330.6	16.7
Professional, BS	1971.7	14.3	2003.4	14.3
Education, Health Care	1378.1	10.0	1385.6	9.9
Arts, Entertainment	540.4	3.9	539.4	3.9
Other Services	400.0	2.9	402.3	2.9
Government	1653.0	11.9	1658.6	11.9
Rest of the World	247.3	1.8	243.1	1.7

Notes: SSAR: Seasonally-Adjusted Annual Rate; WCCA: Without Capital Consumption Adjustment by Industry; WH: Warehousing; RE, includes rental and leasing: Real Estate; Art, Entertainment includes recreation, accommodation and food services; BS: business services

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm

Construction spending at seasonally-adjusted annualized rate (SAAR) reached $883.3 billion in Jan 2013, which was lower by 2.1 percent than in the prior month of Dec 2012, as shown in Table VA-4. Residential investment, with $311.2 billion accounting for 35.2 percent of total value of construction, increased 0.0 percent in Jan and nonresidential investment, with $572.1 billion accounting for 64.8 percent of the total, decreased 3.3 percent. Public construction decreased 1.0 percent while private construction decreased 2.6 percent. Data in Table VA-4 show that nonresidential construction at $572.1 billion is much higher in value than residential construction at $311.2 billion while total private construction at $614.2 billion is much higher than public construction at $260.9 billion, all in SAAR. Residential and nonresidential construction contributed positively to growth of GDP in the US in IQ2012 and IIQ2012, nonresidential investment deducted 0.19 percentage points from GDP growth in IIIQ2012 while residential construction added 0.31 percentage points and nonresidential construction added 0.96 percentage points in IVQ2012 with residential construction adding 0.40 percentage points (Section IA1 http://www.bea.gov/iTable/index_nipa.cfm).

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

	Jan 2013   SAAR  $ Millions	Month ∆%	12-Month ∆%
Total	883,281	-2.1	7.1
Residential	311,192	0.0	21.1
Nonresidential	572,089	-3.3	0.8
Total Private	614,244	-2.6	12.2
Private Residential	304,583	0.0	22.0
New Single Family	150,525	3.6	30.2
New Multi-Family	26,492	1.7	54.9
Private Nonresidential	309,661	-5.1	4.0
Total Public	269,038	-1.0	-3.0
Public Residential	6,609	-0.7	-11.7
Public Nonresidential	262,428	-1.0	-2.7

SAAR: seasonally adjusted annual rate; B: billions

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

Further information on construction spending is provided in Table VA-5. The original monthly estimates not-seasonally adjusted (NSA) and their 12-month rates of change are provided in the first two columns while the SAARs and their monthly changes are provided in the final two columns. There has been improvement in construction in the US in 2011 but another bump in early 2012. On a monthly basis, construction fell three consecutive months from Dec 2010 to Feb 2011, increasing in ten of the eleven months from Mar 2011 to Jan 2012, with sole decline of 3.0 percent in Jul 2011. Improvement was interrupted in 2012 with decline of 0.5 percent in Feb 2012, further decline of 0.3 percent in Mar and recovery of 0.9 percent in Apr, 1.7 percent in May and 0.8 percent in Jun with strong 1.1 percent in Aug and 1.6 percent in Oct 2012. The 12 months rates of change improved from minus 8.6 percent in Apr 2011 to the first positive 12-month percentage change of 0.7 percent in Nov 2011 and further improvement with 12.1 percent in Dec 2012 and 7.6 percent in Jan 2013.

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

	Value NSA Month $ Millions	12-Month ∆% NSA	Value SAAR $ Millions	Month ∆% SA*
Jan 2013	60,835	7.6	883,281	-2.1
Dec 2012	70,400	12.1	902,629	1.1
Nov	76,737	12.1	892,448	1.9
Oct	81,438	11.1	876,213	1.6
Sep	79,357	7.9	862,220	0.7
Aug	81,457	8.5	855,916	1.1
Jul	78,070	11.6	846,645	0.2
Jun	76,491	7.3	845,072	0.8
May	71,635	8.8	838,778	1.7
Apr	66,201	9.1	825,133	0.9
Mar	60,939	8.6	817,842	-0.3
Feb	56,108	11.8	820,677	-0.5
Jan	56,535	10.9	824,687	0.5
Dec 2011	62,825	4.4	820,614	2.1
Nov	68,476	0.7	804,046	1.0
Oct	73,282	-0.3	795,733	0.7
Sep	73,515	-1.7	790,294	0.5
Aug	75,101	-1.0	786,308	3.0
Jul	69,929	-4.3	763,468	-3.0
Jun	71,297	-3.7	786,784	1.4
May	65,845	-4.4	775,837	2.7
Apr	60,682	-8.6	755,420	0.3
Mar	56,130	-6.8	753,433	1.0
Feb	50,184	-7.1	746,056	-0.9
Jan	50,971	-8.3	752,638	-3.5
Dec 2010	60,202	-6.1	779,895	-2.3

SAAR: Seasonally-adjusted Annual Rate

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

The sharp contraction of the value of construction in the US is revealed by Table VA-6. Construction spending in Jan 2013, not seasonally adjusted, reached $60.8 billion, which is higher by 7.6 percent than $56.5 billion in the same period in 2012. The depth of the contraction is shown by the decline of construction spending from $81.1 billion in Jan 2006 to only $60.8 billion in the same period in 2013, or decline by minus 24.9 percent. The comparable decline from Jan 2005 to Jan 2013 is minus 14.9 percent. Construction spending in Jan 2013 increased by 1.6 percent relative to the same period in 2003. Construction spending is lower by 6.3 percent in Jan 2013 relative to the same period in 2009. Construction has been weaker than the economy as a whole.

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

Jan 2013 $ MM	60,835
Jan 2012	56,535
∆% to 2013	7.6
Jan 2011 $ MM	50,971
∆% to 2013	19.4
Jan 2010 $ MM	55,586
∆% to 2013	9.4
Jan 2009 $MM	66,944
∆% to 2013	-9.1
Jan 2006 $ MM	81,058
∆% to 2013	-24.9
Jan 2005 $ MM	71,474
∆% to 2013	-14.9
Jan 2003 $ MM	59,877
∆% to 2013	1.6

Source: US Census Bureau

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

Chart VA-3 of the US Census Bureau provides value of construction spending in the US not seasonally adjusted from 2002 to 2013. There are wide oscillations requiring seasonal adjustment to compare adjacent data. There was sharp decline during the global recession followed in recent periods by a stationary series that may be moving upward again.

Chart VA-3, Value of Construction Spending not Seasonally Adjusted, Millions of Dollars, 2002-2013

Source: US Census Bureau

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

Monthly construction spending in the US in Jan-Feb and Nov-Dec not seasonally adjusted is shown in Table VA-7 for the years between 2002 and 2013. The value of $60.8 billion in Jan 2013 is just slightly higher by 2.2 percent than $59.5 billion in Jan 2012. Construction fell by 25.0 percent from the peak of $81.1 billion in Jan 2006 to $60.8 billion in Jan 2013. The data are not adjusted for inflation or changes in quality.

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

Year	Jan	Feb	Nov	Dec
2002	59,516	58,588	71,362	63,984
2003	59,877	58,526	77,915	71,050
2004	64,934	64,138	86,394	77,733
2005	71,474	72,048	97,549	88,172
2006	81,058	81,478	95,339	86,436
2007	79,406	79,177	94,822	84,218
2008	77,349	77,227	86,067	76,645
2009	66,944	66,296	71,906	64,098
2010	55,586	54,019	68,019	60,202
2011	50,971	50,184	68,476	62,825
2012	56,535	56,108	76,737	70,400
2013	60,835	NA	NA	NA

Source: US Census Bureau

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

Chart VA-4 of the US Census Bureau shows SAARs of construction spending for the US since 1993. Construction spending surged in nearly vertical slope after the stimulus of 2003 combining near zero interest rates and subsequent slow adjustment in 17 doses of increases by 25 basis points between Jun 2004 and Jun 2006 together with other housing subsidies. Construction spending collapsed after subprime mortgages defaulted with the fed funds rate increasing from 1.00 percent in Jun 2004 to 5.25 percent in Jun 2006. Subprime mortgages were programmed for refinancing in two years after increases in homeowner equity in the assumption that fed funds rates would remain low forever or increase in small increments (Gorton 2009EFM see http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Price declines of houses or even uncertainty prevented refinancing of subprime mortgages that defaulted, causing the financial crisis that eventually triggered the global recession. Chart VA-4 shows a trend of increase in the final segment but it is difficult to assess if it will be sustained.

Chart VA-4, US, Construction Expenditures SAAR 1993-2012

Source: US Census Bureau

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

Construction spending at SAARs in the four months Jan-Feb and Nov-Dec is shown in Table VA-8 for the years between 2002 and 2012. There is a peak in 2005 to 2007 with subsequent collapse of SAARs and rebound in 2012-2013.

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

Year	Jan	Feb	Nov	Dec
2002	858,654	862,338	844,697	855,921
2003	863,855	859,225	925,985	948,491
2005	1,036,187	1,056,492	1,156,977	1,178,305
2006	1,183,861	1,199,767	1,137,488	1,153,491
2007	1,149,899	1,156,008	1,127,558	1,108,958
2008	1,106,047	1,092,331	1,029,211	993,515
2009	962,704	959,907	850,732	832,565
2010	816,132	795,808	798,328	779,895
2011	752,638	746,056	804,046	820,614
2012	824,687	820,677	892,448	902,629
2013	883,281	NA	NA	NA

Source: US Census Bureau

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

Chart VA-5 of the US Census Bureau provides SAARs of value of construction from 2002 to 2013. There is clear acceleration after 2003 when fed funds rates were fixed in at 1.0 percent in Jun 2003 until Jun 2004. Construction peaked in 2005-2006, stabilizing in 2007 at a lower level and then collapsed in a nearly vertical drop until 2011 with increases into 2012 and marginal drop in Jan 2013.

Chart VA-5, US, Construction Expenditures SAAR 2002-2013

Source: US Census Bureau

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

Annual available data for the value of construction put in place in the US between 1993 and 2012 are provided in Table VA-9. Data from 1993 to 2001 are available for public and private construction with breakdown in residential and nonresidential only for private construction. Data beginning in 2002 provide aggregate residential and nonresidential values. Total construction value put in place in the US increased 76.2 percent between 1993 and 2012 but most of the growth, 65.3 percent, was concentrated in 1993 to 2000 with increase of 6.6 percent between 2000 and 2012. Total value of construction increased 0.9 percent between 2002 and 2012 with value of nonresidential construction increasing 28.4 percent while value of residential construction fell 32.1 percent. Value of total construction fell 25.0 percent between 2005 and 2012, with value of residential construction declining 54.2 percent while value of nonresidential construction rose 17.7 percent. Value of total construction fell 26.7 percent between 2006 and 2012, with value of nonresidential construction increasing 4.6 percent while value of residential construction fell 54.4 percent. In 2002, nonresidential construction had a share of 52.6 percent in total construction while the share of residential construction was 47.4 percent. In 2012, the share of nonresidential construction in total value rose to 66.9 percent while that of residential construction fell to 33.1 percent.

Table VA-9, Annual Value of Construction Put in Place 1993-2012, Millions of Dollars and ∆% 

	Total	Private Nonresidential	Private Residential
1993	485,548	150,006	208,180
1994	531,892	160,438	241,033
1995	548,666	180,534	228,121
1996	599,693	195,523	257,495
1997	631,853	213,720	264,696
1998	688,515	237,394	296,343
1999	744,551	249,167	326,302
2000	802,756	275,293	346,138
2001	840,249	273,922	364,414
	Total	Total Nonresidential	Total Residential
2002	847,874	445,914	401,960
2003	891,497	440,246	451,251
2004	991,356	452,948	538,408
2005	1,140,136	486,629	617,507
2006	1,167,222	547,408	619,814
2007	1,152,351	651,883	500,468
2008	1,067,564	709,818	357,746
2009	903,201	649,273	253,928
2010	804,561	555,449	249,112
2011	778,238	532,552	245,686
2012	855,370	572,593	282,777
∆% 1993-2012	76.2
∆% 1993-2000	65.3
∆% 2000-2012	6.6
∆% 2002-2012	0.9	28.4	-32.1
∆% 2005-2012	-25.0	17.7	-54.2
∆% 2006-2012	-26.7	4.6	-54.4

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

Chart VA-6 shows sharp growth of residential construction spending in the US from 2002 to 2006. The value of construction spending dropped sharply during the global recession and has remained at a low plateau with an apparent increase in the final segment.

Chart, VA-6, US, Residential Construction, Not Seasonally Adjusted, Millions of Dollars, 2002-2013

Source: US Census Bureau

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

Nonresidential construction has been more resilient. Chart VA-7 provides the value of nonresidential construction not seasonally adjusted. There was more moderate growth of nonresidential construction with more prudent business management and fewer subsidies. Nonresidential construction also declined during the global recession but less sharply than residential construction and has remained at a lower plateau.

Chart, VA-7, US, Nonresidential Construction, Not Seasonally Adjusted, Millions of Dollars, 2002-2013

Source: US Census Bureau

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

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 Date of Forecast	Real GDP	Domestic CGPI	CPI All Items Less Fresh Food
2011
Apr 2012	-0.2 to –0.2 [-0.2]	+1.7	0.0
Jan 2012	-0.4 to –0.3 [-0.4]	+1.8 to +1.9 [+1.8]	-0.1 to 0.0 [-0.1]
2012
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 [+2.3]	+0.4 to +0.7 [+0.6]	+0.1 to +0.4 [+0.3]
Jan 2012	+1.8 to +2.1 [+2.0]	-0.1 to +0.2 [+0.1]	0.0 to +0.2 [+0.1]
2013
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 [+1.7]	+0.7 to +0.9 [+0.8]	+0.5 to +0.7 [+0.7]
Jan 2012	+1.4 to +1.7 [+1.6]	+0.6 to 1.0 [+0.8]	+0.4 to +0.5 [+0.5]
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 47.7 in Jan to 48.5 in Feb for the ninth consecutive month of contraction below 50.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10739). Foreign orders fell for the eleventh consecutive. Paul Smith, economist at Markit and author of the report, finds probable decline of manufacturing of 1 percent in IQ2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10739).Table JPY provides the country data table for Japan.

Table JPY, Japan, Economic Indicators

Historical GDP and CPI	1981-2010 Real GDP Growth and CPI Inflation 1981-2010 Blog 8/9/11 Table 26
Corporate Goods Prices	Jan ∆% +0.4 12 months ∆% minus 0.2 Blog 2/17/13
Consumer Price Index	Jan NSA ∆% 0.0; Jan 12 months NSA ∆% -0.3 Blog 3/3/13
Real GDP Growth	IVQ2012 ∆%: minus 0.1 on IIIQ2012;  IVQ2012 SAAR minus 0.1; ∆% from quarter a year earlier: 0.3 % Blog 2/17/13
Employment Report	Jan Unemployed 2.73 million Change in unemployed since last year: minus 100 thousand Unemployment rate: 4.2% Blog 3/3/13
All Industry Indices	Dec month SA ∆% 1.8 12-month NSA ∆% -0.8 Blog 2/24/13
Industrial Production	Jan SA month ∆%: 1.0 12-month NSA ∆% -5.1 Blog 3/3/13
Machine Orders	Total Dec ∆% -1.6 Private ∆%: -9.8 Dec ∆% Excluding Volatile Orders 2.8 Blog 2/10/13
Tertiary Index	Dec month SA ∆% 1.4 Dec 12 months NSA ∆% 0.2 Blog 2/17/13
Wholesale and Retail Sales	Jan 12 months: Total ∆%: -0.9 Wholesale ∆%: -0.8 Retail ∆%: -1.1 Blog 3/3/13
Family Income and Expenditure Survey	Jan 12-month ∆% total nominal consumption 2.1, real 2.4 Blog 3/3/13
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:

2/24/13 http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html

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

8/9/11 http://cmpassocregulationblog.blogspot.com/2011/08/turbulence-in-world-financial-markets.html

In Jan 2013, industrial production in Japan increased 1.0 percent and decreased 5.1 percent in the 12 months ending in Jan 2013, as shown in Table VB-1. In the nine months Apr-Dec 2012, industrial production fell cumulative 7.2 or at the annual equivalent rate of 9.5 percent. As a result, growth of industrial production in 12 months fell from 14.2 percent in Mar 2012 to minus 7.8 percent in Dec 2012. Japan’s industrial production increased during two consecutive months by revised 2.3 percent in Dec 2011 and revised 0.9 percent in Jan 2012, reducing the percentage decline in 12 months from minus 3.0 percent in Dec to minus 1.6 percent in Jan 2012 and positive 1.5 percent in Feb. Monthly industrial production had climbed in every month since the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011, with exception of Sep 2011 but fell again in Nov by 1.7 percent. Industrial production was higher in 12 months for the first month in Aug 2011 by 1.6 percent and again in Oct by 0.9 percent but fell 2.9 percent in Nov and 3.0 percent in Dec 2011 relative to a year earlier. Industrial production fell 21.9 percent in 2009 after falling 3.4 percent in 2008 but recovered by 16.4 percent in 2010. The annual average in calendar year 2011 fell 2.3 percent largely because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 and fell again 0.3 percent in 2012.

Table VB-1, Japan, Industrial Production ∆%

	∆% Month SA	∆% 12 Months NSA
Jan 2013	1.0	-5.1
Dec 2012	2.4	-7.9
Nov	-1.4	-5.5
Oct	1.6	-4.5
Sep	-4.1	-8.1
Aug	-1.6	-4.6
Jul	-1.0	-0.8
Jun	0.4	-1.5
May	-3.4	6.0
Apr	-0.2	12.9
Mar	1.3	14.2
Feb	-1.6	1.5
Jan	0.9	-1.6
Dec 2011	2.3	-3.0
Nov	-1.7	-2.9
Oct	1.8	0.9
Sep	-1.9	-2.4
Aug	0.9	1.6
Jul	1.1	-1.7
Jun	3.8	-0.6
May	5.8	-4.6
Apr	2.4	-12.7
Mar	-16.2	-12.4
Feb	1.1	4.5
Jan	1.2	6.1
Dec 2010	2.4	5.9
Calendar Year
2012		-0.3
2011		-2.3
2010		16.4
2009		-21.9
2008		-3.4

Source:

http://www.meti.go.jp/english/statistics/index.html

The employment report for Japan in Jan 2013 is in Table VB-2. The rate of unemployment seasonally adjusted decreased to 4.2 percent in Sep 2012 from 4.3 percent in Jul 2012 and remained at 4.2 percent in Oct 2012, declining to 4.1 percent in Nov 2012, increasing to 4.2 percent in Dec 2012 and stabilizing at 4.2 percent in Jan 2013. The rate of unemployment not seasonally adjusted stood at 4.2 percent in Jan 2013 and 0.3 percentage points lower from a year earlier. The employment rate stood at 56.2 percent in Jan 2013 and increased 0.3 percentage points from a year earlier.

Table VB-2, Japan, Employment Report Jan 2013 

Unemployed	2.73 million
Change since last year	-180 thousand; ∆% –6.2
Unemployment rate	4.2% SA -0.1; NSA 4.2%, -0.3 from earlier year
Population ≥ 15 years	110.90 million
Change since last year	∆% -0.1
Labor Force	65.02 million
Change since last year	∆% 0.0
Employed	62.28 million
Change since last year	∆% 0.3
Labor force participation rate	58.6
Change since last year	0.0
Employment rate	56.2%
Change since last year	0.3

Source: Japan, Statistics Bureau, Ministry of Internal Affairs and Communications http://www.stat.go.jp/english/data/roudou/154.htm

Chart VB-1 of Japan’s Statistics Bureau at the Ministry of Internal Affairs and Communications provides the unemployment rate of Japan from 2010 to 2013. The sharp decline in Sep 2011 was the best reading in 2011 but the rate increased in the final quarter of the year, declining in Feb 2012 and stabilizing in Mar 2012 but increasing to 4.6 percent in Apr 2012 and declining again to 4.4 percent in May 2012 and 4.3 percent in both Jun and Jul 2012 with further decline to 4.2 percent in Aug, Sep and Oct 2012, 4.1 percent in Nov 2012, 4.2 percent in Dec 2012 and 4.2 percent in Jan 2013.

Chart VB-1, Japan, Unemployment Rate

Source: Japan, Statistics Bureau, Ministry of Internal Affairs and Communications

http://www.stat.go.jp/english/data/roudou/154.htm

During the “lost decade” of the 1990s from 1991 to 2002 (Pelaez and Pelaez, The Global Recession Risk (2007), 82-3), Japan’s GDP grew at the average yearly rate of 1.0 percent, the CPI at 0.1 percent and the implicit deflator at minus 0.8 percent. Japan’s growth rate from the mid 1970s to 1992 was 4 percent (Ito 2004). Table VB-3 provides Japan’s rates of unemployment, participation in labor force and employment for 1968, 1975, 1980 and 1985 and yearly from 1990 to 2012. The rate of unemployment jumped from 2.1 percent in 1991 to 5.4 percent in 2002, which was a year of global economic weakness. The participation rate dropped from 64.0 percent in 1992 to 61.2 percent in 2002 and the employment rate fell from 62.4 percent in 1992 to 57.9 percent in 2002. The rate of unemployment rose from 3.9 percent in 2007 to 5.1 percent in 2010, falling to 4.6 percent in 2011 and 4.3 percent in 2012, while the participation rate fell from 60.4 percent to 59.6 percent, falling to 59.3 percent in 2011 and 59.1 in 2012, and the employment rate fell from 58.1 percent to 56.6 percent in 2010 and 56.5 percent in 2011 and 2012. The global recession adversely affected labor markets in advanced economies.

Table VB-3, Japan, Rates of Unemployment, Participation in Labor Force and Employment, %

	Unemployment Rate	Participation Rate	Employment Rate
1968	1.2	65.9	65.1
1975	1.9	63.0	61.9
1980	2.0	63.3	62.0
1985	2.6	63.0	61.4
1990	2.1	63.3	61.9
1991	2.1	63.8	62.4
1992	2.2	64.0	62.6
1993	2.5	63.8	62.2
1994	2.9	63.6	61.8
1995	3.2	63.4	61.4
1996	3.4	63.5	61.4
1997	3.4	63.7	61.5
1998	4.1	63.3	60.7
1999	4.7	62.9	59.9
2000	4.7	62.4	59.5
2001	5.0	62.0	58.9
2002	5.4	61.2	57.9
2003	5.3	60.8	57.6
2004	4.7	60.4	57.6
2005	4.4	60.4	57.7
2006	4.1	60.4	57.9
2007	3.9	60.4	58.1
2008	4.0	60.2	57.8
2009	5.1	59.9	56.9
2010	5.1	59.6	56.6
2011	4.6	59.3	56.5
2012	4.3	59.1	56.5

Source: Japan, Statistics Bureau, Ministry of Internal Affairs and Communications http://www.stat.go.jp/english/data/roudou/154.htm

The survey of household income and consumption of Japan in Table VB-4 is showing noticeable improvement in recent months relative to earlier months, which can be appreciated in the chart in the link in parentheses but followed by decline in Nov 2011, renewed strength in Dec 2011, another decline in Jan 2012 and increase in Feb and Mar 2012 with stabilization in Apr and May 2012 but sharp decline into Jun 2012 with recovery in Jul and Aug 2012, interrupted in Sep-Oct 2012 and new increases in Nov 2012 and Jan 2013 (http://www.stat.go.jp/english/data/kakei/156.htm). Total consumption increased 2.4 percent in real terms in Jan 2013 and increased 2.1 percent in nominal terms relative to a year earlier. There fewer segments of decreasing real consumption: housing declining 6.9 percent in real terms and 7.3 percent in nominal terms and clothing and footwear declining 6.7 percent in real terms and 6.4 percent in nominal terms. Real household income increased 1.1 percent; real disposable income decreased 0.1 percent; and real consumption expenditures increased 4.1 percent.

Table VB-4, Japan, Family Income and Expenditure Survey 12-months ∆% Relative to a Year Earlier

Jan 2013	Nominal	Real
Households of Two or More Persons
Total Consumption	2.1	2.4
Excluding Housing, Vehicles & Remittance		2.2*
Food	-0.4	0.3
Housing	-7.3	-6.9
Fuel, Light & Water Charges	4.6	1.7
Furniture & Household Utensils	0.6	6.2
Clothing & Footwear	-6.4	-6.7
Medical Care	3.2	3.9
Transport and Communications	8.7	8.7
Education	9.8	9.4
Culture & Recreation	1.5	2.3
Other Consumption Expenditures	2.6	2.9*
Workers’ Households
Income	0.8	1.1
Disposable Income	-0.4	-0.1
Consumption Expenditures	3.8	4.1

*Real: nominal deflated by CPI excluding imputed rent

Source: http://www.stat.go.jp/english/data/kakei/156.htm

Percentage changes in 12 months of nominal and real consumption expenditures in Japan are provided in Table VB-5. Real consumption expenditures increased 2.4 percent in the 12 months ending in Jan 2013 and 2.1 percent in nominal terms. There was sharp decline in nominal consumption of 8.8 percent in Mar 2011 and 8.2 percent in real consumption because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Dec was the first month in 2011 with increases in 12 months in both nominal and real consumption expenditures followed by Feb 2012 through Aug 2012. Nominal and real consumption fell in both Sep and Oct 2012 and increased in Nov 2012. Real consumption fell 0.7 percent in the 12 months ending in Dec 2012 and nominal consumption fell 0.8 percent. Real consumption expenditures increased 2.4 percent in the 12 months ending in Jan 2013 and 2.1 percent in nominal terms. Consumption was an important driver of GDP growth in Japan in IQ2012. Real GDP grew at the seasonally adjusted annual rate (SAAR) of 6.0 percent in IQ2012 with private consumption contributing 2.9 percentage points for the highest contribution to growth (Table VB-2 at http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states_18.html). There was deceleration in IIQ2012 with growth of GDP at SAAR of minus 1.0 percent and contribution of 0.0 percentage points of personal consumption. In IIIQ2012, Japan’s GDP contracted at the SAAR of 3.8 percent and personal consumption deducted 1.2 percentage points. Japan’s GDP fell at the SAAR of 0.4 percent in IVQ2012 with personal consumption contributing 1.1 percentage points. Nominal consumption increased 4.3 percent in May 2012 but at a lower 1.5 percent in Jun 2012, 1.2 percent in Jul 2012 and 1.4 percent in Aug 2012, decreasing 1.2 percent in Sep 2012 and 0.5 percent in Oct 2012, increasing 0.1 percent in Nov 2012 and decreasing 0.8 percent in Dec 2012. Real consumption expenditures increased 4.0 percent in May 2012 but at a lower 1.6 percent in Jun 2012, 1.7 percent in Jul 2012 and 1.8 percent in Aug 2012, declining 0.9 percent in Sep 2012 and 0.1 percent in Oct 2012, increasing 0.2 percent in Nov 2012 but declining 0.7 percent in Dec 2012. Consumption rebounded in Jan 2013 with growth of real consumption of 2.4 percent and nominal consumption of 2.1 percent. Both nominal and real consumption expenditures increased in 2009, 0.3 percent and 2.1 percent, respectively.

Table VB-5, Japan, Family Income and Expenditure Survey 12-months ∆% Relative to a Year Earlier

	Nominal Consumption Expenditures ∆% Relative to a Year Earlier	Real Consumption Expenditures ∆% Relative to a Year Earlier
Jan 2013	2.1	2.4
Dec 2012	-0.8	-0.7
Nov	0.1	0.2
Oct	-0.5	-0.1
Sep	-1.2	-0.9
Aug	1.4	1.8
Jul	1.2	1.7
Jun	1.5	1.6
May	4.3	4.0
Apr	3.2	2.6
Mar	4.1	3.4
Feb	2.7	2.3
Jan	-2.1	-2.3
Dec 2011	0.3	0.5
Nov	-3.8	-3.2
Oct	-0.6	-0.4
Sep	-1.9	-1.9
Aug	-3.9	-4.1
Jul	-1.8	-2.1
Jun	-3.9	-3.5
May	-1.6	-1.2
Apr	-2.5	-2.0
Mar	-8.8	-8.2
Feb	-0.1	0.5
Jan	-0.9	-0.3
Dec 2010	-3.2	-3.3
Dec 2009	0.3	2.1

Source: http://www.stat.go.jp/english/data/kakei/156.htm

Japan is experiencing weak internal demand as in most advanced economies, interrupted by strong growth in IQ2012 but renewed weakening at the end of IIQ2012, beginning of IIIQ2012 and in IVQ2012. Table VB-6 provides Japan’s wholesale and retail sales. Retail sales fell 1.1 percent in Jan 2013 and had increased 1.2 percent in the 12 months ending in Nov 2012 but only 0.3 percent in the 12 months ending in Dec 2012. Total sales decreased 1.7 percent in the 0.9 months ending in Jan 2013. Retail sales are recovering from deep drops in Mar and Apr 2011 following the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Retail sales have been increasing in 12-month percentage changes from Dec 2011 through Jun 2012 but fell again by 0.7 percent in Jul 2012, increasing 1.7 percent in Aug 2012 and 0.4 percent in Sep 2012 but declining 1.2 percent in Oct 2012, rebounding by 1.2 percent in Nov 2012 and only 0.3 percent in Dec 2012 but contracting 1.1 percent in Jan 2013.

Table VB-6, Japan, Wholesale and Retail Sales 12 Month ∆%

	Total	Wholesale	Retail
Jan 2013	-0.9	-0.8	-1.1
Dec 2012	-1.7	-2.5	0.3
Nov	-0.8	-1.5	1.2
Oct	-1.4	-1.4	-1.2
Sep	-3.6	-4.9	0.4
Aug	-2.6	-4.2	1.7
Jul	-3.1	-4.0	-0.7
Jun	-2.8	-3.8	0.2
May	2.5	2.1	3.6
Apr	1.7	0.3	5.7
Mar	2.9	0.5	10.3
Feb	-0.1	-1.3	3.4
Jan	-2.0	-3.5	1.8
Dec 2011	-0.8	-2.0	2.5
Nov	-2.3	-2.4	-2.2
Oct	1.1	0.8	1.9
Sep	0.3	0.8	-1.1
Aug	3.1	5.2	-2.6
Jul	2.3	3.0	0.6
Jun	3.1	3.8	1.2
May	1.3	2.3	-1.3
Apr	-2.6	-1.7	-4.8
Mar	-1.3	1.2	-8.3
Feb	5.3	7.2	0.1
Jan	3.3	4.6	0.1
Dec 2010	3.5	5.7	-2.1
Calendar Year
2012	-0.9	-2.0	2.2
2011	1.0	1.8	-1.2
2010	1.5	1.1	2.5
2009	-20.5	-25.6	-2.3
2008	1.2	1.5	0.3

Source: http://www.meti.go.jp/english/statistics/index.html

VC China. China estimates an index of nonmanufacturing purchasing managers on the basis of a sample of 1200 nonmanufacturing enterprises across the country (http://www.stats.gov.cn/english/pressrelease/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. Input Prices	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=10724) is improving. The overall Flash China Manufacturing PMI^™ decreased marginally from a 24-month high at 52.3 in Jan to 50.4 in Feb while the Flash China Manufacturing Output Index decreased from 53.1 in Jan to 50.9 in Feb, 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 even with moderating moderating flash indices (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10724).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, decreased to 50.4 in Feb from 52.3 in Jan, indicating moderate activity (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10799). New export orders increased marginally with respondents of the survey finding strengthening demand in Europe, Japan 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 and labor markets (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10799).

Table CNY, China, Economic Indicators

Price Indexes for Industry	Jan 12-month ∆%: minus 1.6 Jan month ∆%: 0.2 Blog 2/24/13
Consumer Price Index	Jan month ∆%: 1.0 Jan 12 months ∆%: 2.0 Blog 2/24/13
Value Added of Industry	Dec month ∆%: 0.87 Jan-Dec 2012/Jan-Dec 2011 ∆%: 10.0 Blog 1/20/13
GDP Growth Rate	Year IVQ2012 ∆%: 7.9 Quarter IIQ2012 ∆%: 2.0 Blog 1/20/13
Investment in Fixed Assets	Dec month ∆%: 1.24 Total Jan-Dec 2012 ∆%: 20.6 Real estate development: 16.2 Blog 1/20/13
Retail Sales	Dec month ∆%: 1.53 Dec 12 month ∆%: 15.2 Jan-Dec ∆%: 14.3 Blog 1/20/13
Trade Balance	Jan balance $29.15 billion Exports 12M ∆% 17.3 Imports 12M ∆% 19.6 Cumulative Jan: $29.15 billion Blog 2/10/13

Links to blog comments in Table CNY:

2/24/13 http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html

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	-0.6
2013*			-0.3
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*	-0.3	0.5	0.1	-1.0	-1.4
2012	-0.6*	0.7	0.0*	-2.2*	-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^® was unchanged at 47.9 in Feb from 47.9 in Jan, which indicates contraction in nineteen 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=10783). Contraction of total new orders was the slowest since Jun 2011 because improving new export orders. Chris Williamson, Chief Economist at Markit, finds moderating decline of manufacturing in 2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10783). 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	Jan 2013: 11.9% unemployment rate Jan 2013: 18.998 million unemployed Blog 3/3/13
HICP	Jan month ∆%: -1.0 12 months Jan ∆%: 2.0 Blog 3/3/13
Producer Prices	Euro Zone industrial producer prices Dec ∆%: -0.2 Dec 12-month ∆%: 2.1 Blog 2/10/13
Industrial Production	Dec month ∆%: 0.7; Dec 12 months ∆%: -2.4 Blog 2/17/13
Retail Sales	Dec month ∆%: -0.8 Dec 12 months ∆%: minus 3.4 Blog 2/10/13
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 Imports ∆%: 1.7 Dec 2012 12-month Exports ∆% -3.1 Imports ∆% -5.9 Blog 2/17/13

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

EUROSTAT estimates the rate of unemployment in the euro area at 11.9 percent in Jan 2013, as shown in Table VD-1. The number of unemployed in Jan 2013 was 18.998 million, which was 1.910 million higher than 17.088 million in Jan 2012. The rate of unemployment jumped from 10.8 percent in Jan 2012 to 11.9 percent in Jan 2013.

Table VD-1, Euro Area, Unemployment Rate and Number of Unemployed, % and Millions, SA 

	Unemployment Rate %	Number Unemployed Millions
Jan 2013	11.9	18,998
Dec 2012	11.8	18.797
Nov	11.8	18.764
Oct	11.7	18.653
Sep	11.6	18.416
Aug	11.5	18.259
Jul	11.4	18.174
Jun	11.4	18.072
May	11.3	17.874
Apr	11.2	17.746
Mar	11.0	17.490
Feb	10.9	17.291
Jan	10.8	17.088
Dec 2011	10.7	16.943
Nov	10.6	16.807
Oct	10.4	16.521
Sep	10.3	16.334
Aug	10.2	16.073
Jul	10.1	15.929
Jun	10.0	15.708
May	9.9	15.654
Apr	9.9	15.518
Mar	9.9	15.598
Feb	9.9	15.631
Jan	10.0	15.713
Dec 2010	10.0	15.712

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

Table VD-2 shows the disparity in rates of unemployment in the euro area with 11.9 percent for the region as a whole and 18.998 million unemployed but 5.3 percent in Germany and 2.266 million unemployed. At the other extreme is Spain with rate of unemployment of 26.2 percent and 5.999 million unemployed. The rate of unemployment of the European Union in Jan 2013 is 10.8 percent with 26.217 million unemployed.

Table VD-2, Unemployed and Unemployment Rate in Countries and Regions, Millions and %

Jan 13	Unemployment Rate %	Unemployed Millions
Euro Zone	11.9	18.998
Germany	5.3	2.266
France	10.6	3.122
Netherlands	6.0	0.535
Finland	7.9	0.212
Portugal	17.6	0.942
Ireland	14.7	0.315
Italy	11.7	2.999
Greece	NA	NA
Spain	26.2	5.999
Belgium	7.4	0.365
European Union	10.8	26.217

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

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

Chart VD-1, Unemployment Rate in Various Countries and Regions

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

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 49.8 in Jan to 50.3 in Feb, breaking the chain of eleven consecutive month in contraction territory below 50.0 but below the long-term average of 51.9 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10780). New export orders increased briskly at the fastest rate in 12 months with broad geographical reach in Asia and outside Europe. Tim Moore, Senior Economist at Markit and author of the report, finds stronger demand from emerging Asian markets in Germany’s return to manufacturing growth propelled by the fastest growth rate of new export orders in almost two years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10780).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 Dec 12-month NSA ∆%: 1.7 Blog 2/24/13
Producer Price Index	Jan month ∆%: 0.2 CSA, 0.8 NSA 12-month NSA ∆%: 1.7 Blog 2/24/13
Industrial Production	Mfg Dec month CSA ∆%: 1.2 12-month NSA: minus 9.9 Blog 2/10/13
Machine Orders	MFG Dec month ∆%: 0.8 Dec 12-month ∆%: 9.2 Blog 2/10/13
Retail Sales	Jan Month ∆% 3.1 12-Month ∆% 2.4 Blog 3/3/13
Employment Report	Unemployment Rate SA Jan 5.3% Blog 3/3/13
Trade Balance	Exports Dec 12-month NSA ∆%: -6.9 Imports Dec 12 months NSA ∆%: -7.3 Exports Dec month CSA ∆%: -0.3; Imports Dec month SA -1.3 Blog 2/10/13

Links to blog comments in Table DE:

2/24/13 http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html

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

Germany’s labor market continues to show strength not found in most of the advanced economies, as shown in Table VE-1. The number unemployed, not seasonally adjusted, decreased from 2.66 million in Jan 2012 to 2.50 million in Jan 2013, or 6.0 percent, while the unemployment rate decreased from 6.4 percent in Jan 2012 to 5.9 percent in Jan 2013. The number of persons in employment, not seasonally adjusted, increased from 39.20 million in Jan 2012 to 39.96 million in Jan 2013, or 1.9 percent, while the employment rate increased from 62.1 percent in Jan 2012 to 63.4 percent in Jan 2013. The number unemployed, seasonally adjusted, fell from 2.28 million in Dec 2012 to 2.27 million in Jan 2013, while the unemployment rate was unchanged from 5.3 percent in Dec 2012 to 5.3 percent in Jan 2013. The number of persons in employment, seasonally adjusted, increased from 40.30 million in Dec 2012 to 40.35 million in Jan 2013, or 0.1 percent.

Table VE-1, Germany, Unemployment Labor Force Survey

	Jan 2013	Dec 2012	Jan 2012
NSA
Number Unemployed Millions	2.50 ∆% Jan 2013/Dec 2012: 11.1 ∆% Jan 2013/Jan 2012: -6.0	2.25	2.66
% Rate Unemployed	5.9	5.3	6.4
Persons in Employment Millions	39.96 ∆% Jan 2013/Dec 2012: -1.1 ∆% Jan 2013/Jan 2012:1.9	40.42	39.20
Employment Rate	63.4	64.1	62.2
SA
Number Unemployed Millions	2.27 ∆% Jan 2013/Dec  2012: -0.4 ∆% Jan 2013/Jan 2012: –3.4	2.28	2.35
% Rate Unemployed	5.3	5.3	5.6
Persons in Employment Millions	40.35 ∆% Jan 2013/Dec 2012: 0.1 ∆% Jan  2013/Jan 2012: 1.3	40.30	39.82

NSA: not seasonally adjusted; SA: seasonally adjusted

Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_074_132.html;jsessionid=5D4153C95BF15E79E4BC8723E633A943.cae1

The unemployment rate in Germany as percent of the labor force in Table VE-2 stood at 6.5 percent in Sep, Oct and Nov 2012, increasing to 6.7 percent in Dec 2012 and 7.4 percent in Jan 2013. The rate is much lower than 11.1 percent in 2005 and 9.6 percent in 2006.

Table VE-2, Germany, Unemployment Rate in Percent of Labor Force

	Percent of Labor Force
Jan 2013	7.4
Dec 2012	6.7
Nov	6.5
Oct	6.5
Sep	6.5
Aug	6.8
Jul	6.8
Jun	6.6
May	6.7
Apr	7.0
Mar	7.2
Feb	7.4
Jan	7.3
Dec 2011	6.6
Nov	6.4
Oct	6.5
Sep	6.6
Aug	7.0
Jul	7.0
Jun	6.9
May	7.0
Apr	7.3
Mar	7.6
Feb	7.9
Jan	7.9
Dec 2010	7.1
Dec 2009	7.8
Dec 2008	7.4
Dec 2007	8.1
Dec 2006	9.6
Dec 2005	11.1

Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Chart VE-1 of Statistisches Bundesamt Deutschland, or Federal Statistical Office of Germany, shows the long-term decline of the rate of unemployment in Germany from more than 12 percent in early 2005 to 6.6 percent in Dec 2011, 6.6 percent in Jun 2012, 6.8 percent in Jul and Aug 2012 and 6.5 percent from Sep to Nov 2012, increasing to 6.7 percent in Dec 2012 and 7.4 percent in Jan 2013.

Chart VE-1, Germany, Unemployment Rate, Unadjusted, Percent

Source: Statistisches Bundesamt Deutschland

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

Retail sales in Germany adjusted for inflation are provided in Table VE-3. There have been sharp fluctuations in monthly and 12 months percentage changes. Retail sales rebounded in Jan 2013 with monthly increase of 3.1 percent and 2.4 percent in 12 months after decreasing 2.1 percent in Dec 2012 and 3.7 percent in the 12 months ending in Dec 2012.

Table VE-3, Retail Sales in Germany Adjusted for Inflation

	12-Month ∆% NSA	Month ∆% SA and Calendar Adjusted
Jan 2013	2.4	3.1
Dec 2012	-3.7	-2.1
Nov	0.2	1.0
Oct	1.4	-0.9
Sep	-3.3	0.0
Aug	-0.3	0.1
Jul	-0.9	-1.2
Jun	4.8	-0.2
May	-0.4	0.8
Apr	-4.5	-0.4
Mar	4.3	1.4
Feb	2.6	0.3
Jan	2.0	-1.8
Dec 2011	0.8	0.9
Nov	0.9	-0.6
Oct	-0.4	0.3
Sep	1.2	0.1
Aug	3.4	-0.5
Jul	-2.4	0.5
Jun	-2.0	2.0
May	4.5	-1.5
Apr	4.8	0.9
Mar	-2.9	-2.2
Feb	3.0	0.7
Jan	3.3	0.7
Dec 2010	-0.2	0.3
Dec 2009	-2.2
Dec 2008	3.4
Dec 2007	-6.2
Dec 2006	1.3

Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html

Chart VE-2 of the Statistisches Bundesamt Deutschland, Federal Statistical Office of Germany, shows retail sales at constant prices from 2009 to 2013. There appear to be fluctuations without trend but probably the beginning of declining trend in the final segment.

Chart VE-2, Germany, Turnover in Retail Trade at Constant Prices 2005=100

Source: Statistisches Bundesamt Deutschland (Destatis), Federal Statistical Office of Germany

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

Chart VE-3 of the Statistisches Bundesamt Deutschland, Federal Statistical Office of Germany, shows retail sales at current prices from 2004 to 2013. There are also sharp fluctuations but without trend.

Chart VE-3, Germany, Turnover in Retail Sales at Current Prices, Original Values, 2005=100

Source: Statistisches Bundesamt Deutschland (Destatis), Federal Statistical Office of Germany

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

VF France. Table VF-FR provides growth rates of GDP of France with the estimates of Institut National de la Statistique et des Études Économiques (INSEE). The long-term rate of GDP growth of France from IVQ1949 to IVQ2012 is quite high at 3.3 percent. France’s growth rates were quite high in the four decades of the 1950s, 1960, 1970s and 1980s with an average growth rate of 4.1 percent compounding the average rates in the decades and discounting to one decade. The growth impulse diminished with 1.9 percent in the 1990s and 1.7 percent from 2000 to 2007. The average growth rate from 2000 to 2012, using fourth quarter data, is 1.0 percent because of the sharp impact of the global recession from IVQ2007 to IIQ2009. Cobet and Wilson (2002) provide estimates of output per hour and unit labor costs in national currency and US dollars for the US, Japan and Germany from 1950 to 2000 (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). The average yearly rate of productivity change from 1950 to 2000 was 2.9 percent in the US, 6.3 percent for Japan and 4.7 percent for Germany while unit labor costs in USD increased at 2.6 percent in the US, 4.7 percent in Japan and 4.3 percent in Germany. From 1995 to 2000, output per hour increased at the average yearly rate of 4.6 percent in the US, 3.9 percent in Japan and 2.6 percent in Germany while unit labor costs in US fell at minus 0.7 percent in the US, 4.3 percent in Japan and 7.5 percent in Germany. There was increase in productivity growth in the G7 in Japan and France in the second half of the 1990s but significantly lower than the acceleration of 1.3 percentage points per year in the US. Lucas (2011May) compares growth of the G7 economies (US, UK, Japan, Germany, France, Italy and Canada) and Spain, finding that catch-up growth with earlier rates for the US and UK stalled in the 1970s.

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

Period	Average ∆%
1949-2012	3.3
2000-2012	1.0
2000-2011	1.1
2000-2007	1.7
1990-1999	1.9
1980-1989	2.6
1970-1979	3.8
1960-1969	5.7
1950-1959	4.2

Source: Institut National de la Statistique et des Études Économiques http://www.insee.fr/en/themes/info-rapide.asp?id=26&date=20130214

The Markit Flash France Composite Output Index fell from 42.7 in Jan to 42.3 in Feb for the lowest reading in 47 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10714). Jack Kennedy, Senior Economist at Markit and author of the report, finds that the data suggest the sharpest decline of overall output in about four years since IQ2009 with all indicators at depressed readings (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10714).

The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, fell from 44.6 in Dec to 42.7 in Jan, which is at a low in 46 months since Mar 2009, indicating significant contraction of private sector activity for an eleventh consecutive month at faster rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10682). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI^®, finds generalized deteriorating conditions in the French private sector (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10682). The Markit France Services Activity index decreased from 45.2 in Dec to 43.6 in Jan, which is the weakest reading in 46 months since Mar 2009 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10682). The Markit France Manufacturing Purchasing Managers’ Index^® increased marginally to to 43.9 in Feb from 42.9 in Jan, remaining deeply below the neutral level of 50.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10728). Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI^®, finds continuing weakness in manufacturing with weakness in new internal orders because of weak domestic economic views (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10728). Table FR provides the country data table for France.

Table FR, France, Economic Indicators

CPI	Jan month ∆% -0.5 12 months ∆%: 1.2 2/24/13
PPI	Jan month ∆%: 0.5 Jan 12 months ∆%: 1.4 Blog 3/3/13
GDP Growth	IVQ2012/IIIQ2012 ∆%: -0.3 IVQ2012/IVQ2011 ∆%: -0.3 Blog 2/17/12
Industrial Production	Dec ∆%: Manufacturing 0.1 12-Month ∆%: Manufacturing minus 2.9 Blog 2/17/13
Consumer Spending	Manufactured Goods Jan ∆%: -1.3 Dec 12-Month Manufactured Goods ∆%: -0.7 Blog 3/3/13
Employment	IIIQ2012 Unemployed 2.826 million Unemployment Rate: 9.9% Employment Rate: 63.9% Blog 12/16/12
Trade Balance	Dec Exports ∆%: month 3.1, 12 months 4.7 Dec Imports ∆%: month 5.4, 12 months 3.8 Blog 2/10/13
Confidence Indicators	Historical averages 100 Feb Mfg Business Climate 90 Blog 2/24/13

Links to blog comments in Table FR:

2/24/13 http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html

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

12/16/12 http://cmpassocregulationblog.blogspot.com/2012/12/recovery-without-hiring-forecast-growth.html

The monthly report of household expenditures in consumption goods for France is in Table VF-1. Total consumption decreased 0.8 percent in Jan 2013 after increasing 0.2 percent in Dec 2012. Consumption of manufactured products decreased 1.3 percent in Jan 2013 after increasing 0.6 percent in Dec 2012. Total consumption decreased 0.2 percent in Jan 2013 relative to Jan 2012 and consumption of manufactured goods decreased 0.7 percent in Jan 2013 relative to Jan 2012. Internal demand is weak throughout most advanced economies.

Table VF-1, France, Household Expenditures in Consumption Goods, Month ∆% Chained Billion Euros Trading-Days SA

	Total	Food	Eng. Goods	Energy	Mfg Goods
Jan 2013	-0.8	0.4	-2.6	1.5	-1.3
Jan 2013/Jan 2012	-0.2	-1.1	-0.9	3.5	-0.7
Dec 2012	0.2	0.1	1.7	-3.4	0.6
Nov	0.1	-0.5	-0.2	2.2	-0.1
Oct	-0.1	-0.5	0.3	0.0	0.1
Sep	0.1	-0.1	0.2	0.1	0.1
Aug	-0.6	-0.2	-0.5	-1.9	-0.7
Jul	0.3	0.0	0.5	0.1	0.3
Jun	0.3	1.1	-0.1	-0.2	0.4
May	0.4	0.1	2.1	-3.0	1.4
Apr	0.3	-0.6	-2.6	10.0	-1.5
Mar	-2.5	-2.0	1.0	-11.5	-0.4
Feb	2.2	1.3	-0.7	11.3	0.5
Jan	-0.4	1.0	-2.1	1.6	-0.7
Dec 2011	-0.2	-0.8	0.5	-0.8	-0.2
Nov	0.0	0.2	0.6	-2.0	0.1
Oct	0.0	-0.6	0.8	-0.9	0.1
Sep	-0.2	0.4	0.3	-2.8	-0.1
Aug	0.9	0.3	0.5	3.0	1.0
Jul	-0.4	0.2	-0.9	-0.3	-0.4
Jun	0.5	-1.0	0.9	3.1	0.4
May	0.1	-0.5	-0.4	3.1	-0.6
Apr	-1.7	1.0	-2.2	-6.2	-1.1
Mar	-0.6	-0.2	-1.0	-0.3	-0.8
Feb	0.4	0.5	1.2	-2.4	0.8
Jan	-1.4	-0.7	-0.7	-5.0	-0.7
Dec 2010	0.9	0.5	0.3	3.6	0.4

Eng. Goods: Engineered Goods

Source: Institut National de la Statistique et des Études Économiques http://www.insee.fr/en/themes/info-rapide.asp?id=19&date=20130228

Chart VF-1 of Institut National de la Statistique et des Études Économiques of France provides growth of total consumption in France. Internal demand is not supporting overall economic growth. There is downward trend of monthly consumption with fluctuations and stability in the final segment followed by another drop in Jan 2013.

Chart VF-1, France, Total Consumption of Goods, Billions of Euros Trading and Seasonally Adjusted and Quarterly ∆%

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=19&date=20130228

© Carlos M. Pelaez, 2010, 2011, 2012, 2013