Mediocre and Decelerating United States Economic Growth, Contracting Real Private Fixed Investment, Swelling Undistributed Profits, Peaking Valuations of Risk Financial Assets, World Economic Slowdown and 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
IA2 Swelling Undistributed Corporate Profits
IIA Stagnating Real Disposable Income and Consumption Expenditures
IIA1 Stagnating Real Disposable Income and Consumption Expenditures
IIA2 Financial Repression
IIB United States Housing Collapse
IIB1 United States New House Sales
IIB2 United States House Prices
IIB3 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
Discussion of current and recent risk-determining events is followed below by analysis of risk-measuring yields of the US and Germany and the USD/EUR rate. The European sovereign debt crisis continues to shake financial markets and the world economy. Debt resolution within the international financial architecture requires that a country be capable of borrowing on its own from the private sector. Mechanisms of debt resolution have included participation of the private sector (PSI), or “bail in,” that has been voluntary, almost coercive, agreed and outright coercive (Pelaez and Pelaez, International Financial Architecture: G7, IMF, BIS, Creditors and Debtors (2005), Chapter 4, 187-202). Private sector involvement requires losses by the private sector in bailouts of highly indebted countries. The essence of successful private sector involvement is to recover private-sector credit of the highly indebted country. Mary Watkins, writing on “Bank bailouts reshuffle risk hierarchy,” published on Mar 19, 2013, in the Financial Times (http://www.ft.com/intl/cms/s/0/7666546a-9095-11e2-a456-00144feabdc0.html#axzz2OSpbvCn8) analyzes the impact of the bailout or resolution of Cyprus banks on the hierarchy of risks of bank liabilities. Cyprus banks depend mostly on deposits with less reliance on debt, raising concerns in creditors of fixed-income debt and equity holders in banks in the euro area. Uncertainty remains as to the dimensions and structure of losses in private sector involvement or “bail in” in other rescue programs in the euro area. Alkman Granitsas, writing on “Central bank details losses at Bank of Cyprus,” on Mar 30, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887324000704578392502889560768.html), analyzes the impact of the agreement with the €10 billion agreement with IMF and the European Union on the banks of Cyprus. The recapitalization plan provides for immediate conversion of 37.5 percent of all deposits in excess of €100,000 to shares of special class of the bank. An additional 22.5 percent will be frozen without interest until the plan is completed. The overwhelming risk factor is the unsustainable Treasury deficit/debt of the United States (http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html). Another rising risk is division within the Federal Open Market Committee (FOMC) on risks and benefits of current policies as expressed in the minutes of the meeting held on Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):
“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy.
Jon Hilsenrath and Victoria McGrane, writing on “Fed slip over how long to keep cash spigot open,” published on Feb 20, 2013 in the Wall street Journal (http://professional.wsj.com/article/SB10001424127887323511804578298121033876536.html), analyze the minutes of the Fed, comments by members of the FOMC and data showing increase in holdings of riskier debt by investors, record issuance of junk bonds, mortgage securities and corporate loans.
A competing event is the high level of valuations of risk financial assets (http://cmpassocregulationblog.blogspot.com/2013/01/peaking-valuation-of-risk-financial.html). Matt Jarzemsky, writing on Dow industrials set record,” on Mar 5, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324156204578275560657416332.html), analyzes that the DJIA broke the closing high of 14164.53 set on Oct 9, 2007, and subsequently also broke the intraday high of 14198.10 reached on Oct 11, 2007. The DJIA closed at 14578.54
on Thu Mar 28, 2013, which is higher by 2.9 percent than the value of 14,164.53 reached on Oct 9, 2007 and higher by 2.7 percent than the value of 14,198.10 reached on Oct 11, 2007. Values of risk financial are approaching or exceeding historical highs. Jon Hilsenrath, writing on “Jobs upturn isn’t enough to satisfy Fed,” on Mar 8, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324582804578348293647760204.html), finds that much stronger labor market conditions are required for the Fed to end quantitative easing. Unconventional monetary policy with zero interest rates and quantitative easing is quite difficult to unwind because of the adverse effects of raising interest rates on valuations of risk financial assets and home prices, including the very own valuation of the securities held outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash.
An important risk event is the reduction of growth prospects in the euro zone discussed by European Central Bank President Mario Draghi in “Introductory statement to the press conference,” on Dec 6, 2012 (http://www.ecb.int/press/pressconf/2012/html/is121206.en.html):
“This assessment is reflected in the December 2012 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between -0.6% and -0.4% for 2012, between -0.9% and 0.3% for 2013 and between 0.2% and 2.2% for 2014. Compared with the September 2012 ECB staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.
The Governing Council continues to see downside risks to the economic outlook for the euro area. These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area, geopolitical issues and fiscal policy decisions in the United States possibly dampening sentiment for longer than currently assumed and delaying further the recovery of private investment, employment and consumption.”
Reuters, writing on “Bundesbank cuts German growth forecast,” on Dec 7, 2012, published in the Financial Times (http://www.ft.com/intl/cms/s/0/8e845114-4045-11e2-8f90-00144feabdc0.html#axzz2EMQxzs3u), informs that the central bank of Germany, Deutsche Bundesbank reduced its forecast of growth for the economy of Germany to 0.7 percent in 2012 from an earlier forecast of 1.0 percent in Jun and to 0.4 percent in 2012 from an earlier forecast of 1.6 percent while the forecast for 2014 is at 1.9 percent.
The major risk event during earlier weeks was sharp decline of sovereign yields with the yield on the ten-year bond of Spain falling to 5.309 percent and that of the ten-year bond of Italy falling to 4.473 percent on Fri Nov 30, 2012 and 5.366 percent for the ten-year of Spain and 4.527 percent for the ten-year of Italy on Fri Nov 14, 2012 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). Vanessa Mock and Frances Robinson, writing on “EU approves Spanish bank’s restructuring plans,” on Nov 28, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887323751104578146520774638316.html?mod=WSJ_hp_LEFTWhatsNewsCollection), inform that the European Union regulators approved restructuring of four Spanish banks (Bankia, NCG Banco, Catalunya Banc and Banco de Valencia), which helped to calm sovereign debt markets. Harriet Torry and James Angelo, writing on “Germany approves Greek aid,” on Nov 30, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887323751104578150532603095790.html?mod=WSJ_hp_LEFTWhatsNewsCollection), inform that the German parliament approved the plan to provide Greece a tranche of €44 billion in promised financial support, which is subject to sustainability analysis of the bond repurchase program later in Dec 2012. A hurdle for sustainability of repurchasing debt is that Greece’s sovereign bonds have appreciated significantly from around 24 percent for the bond maturing in 21 years and 20 percent for the bond maturing in 31 years in Aug 2012 to around 17 percent for the 21-year maturity and 15 percent for the 31-year maturing in Nov 2012. Declining years are equivalent to increasing prices, making the repurchase more expensive. Debt repurchase is intended to reduce bonds in circulation, turning Greek debt more manageable. Ben McLannahan, writing on “Japan unveils $11bn stimulus package,” on Nov 30, 2012, published in the Financial Times (http://www.ft.com/intl/cms/s/0/adc0569a-3aa5-11e2-baac-00144feabdc0.html#axzz2DibFFquN
), informs that the cabinet in Japan approved another stimulus program of $11 billion, which is twice larger than another stimulus plan in late Oct and close to elections in Dec. Henry Sender, writing on “Tokyo faces weak yen and high bond yields,” published on Nov 29, 2012 in the Financial Times (http://www.ft.com/intl/cms/s/0/9a7178d0-393d-11e2-afa8-00144feabdc0.html#axzz2DibFFquN), analyzes concerns of regulators on duration of bond holdings in an environment of likelihood of increasing yields and yen depreciation.
First, Risk-Determining Events. The European Council statement on Nov 23, 2012 asked the President of the European Commission “to continue the work and pursue consultations in the coming weeks to find a consensus among the 27 over the Union’s Multiannual Financial Framework for the period 2014-2020” (http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/133723.pdf) Discussions will continue in the effort to reach agreement on a budget: “A European budget is important for the cohesion of the Union and for jobs and growth in all our countries” (http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/133723.pdf). There is disagreement between the group of countries requiring financial assistance and those providing bailout funds. Gabrielle Steinhauser and Costas Paris, writing on “Greek bond rally puts buyback in doubt,” on Nov 23, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324352004578136362599130992.html?mg=reno64-wsj) find a new hurdle in rising prices of Greek sovereign debt that may make more difficult buybacks of debt held by investors. European finance ministers continue their efforts to reach an agreement for Greece that meets with approval of the European Central Bank and the IMF. The European Council (2012Oct19 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/133004.pdf ) reached conclusions on strengthening the euro area and providing unified financial supervision:
“The European Council called for work to proceed on the proposals on the Single Supervisory Mechanism as a matter of priority with the objective of agreeing on the legislative framework by 1st January 2013 and agreed on a number of orientations to that end. It also took note of issues relating to the integrated budgetary and economic policy frameworks and democratic legitimacy and accountability which should be further explored. It agreed that the process towards deeper economic and monetary union should build on the EU's institutional and legal framework and be characterised by openness and transparency towards non-euro area Member States and respect for the integrity of the Single Market. It looked forward to a specific and time-bound roadmap to be presented at its December 2012 meeting, so that it can move ahead on all essential building blocks on which a genuine EMU should be based.”
Buiter (2012Oct15) finds that resolution of the euro crisis requires full banking union together with restructuring the sovereign debt of at least four and possibly total seven European countries. The Bank of Spain released new data on doubtful debtors in Spain’s credit institutions (http://www.bde.es/bde/en/secciones/prensa/Agenda/Datos_de_credit_a6cd708c59cf931.html). In 2006, the value of doubtful credits reached €10,859 million or 0.7 percent of total credit of €1,508,626 million. In Aug 2012, doubtful credit reached €178,579 million or 10.5 percent of total credit of €1,698,714 million.
There are three critical factors influencing world financial markets. (1) Spain could request formal bailout from the European Stability Mechanism (ESM) that may also affect Italy’s international borrowing. David Roman and Jonathan House, writing on “Spain risks backlash with budget plan,” on Sep 27, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390443916104578021692765950384.html?mod=WSJ_hp_LEFTWhatsNewsCollection) analyze Spain’s proposal of reducing government expenditures by €13 billion, or around $16.7 billion, increasing taxes in 2013, establishing limits on early retirement and cutting the deficit by €65 billion through 2014. Banco de España, Bank of Spain, contracted consulting company Oliver Wyman to conduct rigorous stress tests of the resilience of its banking system. (Stress tests and their use are analyzed by Pelaez and Pelaez Globalization and the State Vol. I (2008b), 95-100, International Financial Architecture (2005) 112-6, 123-4, 130-3).) The results are available from Banco de España (http://www.bde.es/bde/en/secciones/prensa/infointeres/reestructuracion/ http://www.bde.es/f/webbde/SSICOM/20120928/informe_ow280912e.pdf). The assumptions of the adverse scenario used by Oliver Wyman are quite tough for the three-year period from 2012 to 2014: “6.5 percent cumulative decline of GDP, unemployment rising to 27.2 percent and further declines of 25 percent of house prices and 60 percent of land prices (http://www.bde.es/f/webbde/SSICOM/20120928/informe_ow280912e.pdf). Fourteen banks were stress tested with capital needs estimates of seven banks totaling €59.3 billion. The three largest banks of Spain, Banco Santander (http://www.santander.com/csgs/Satellite/CFWCSancomQP01/es_ES/Corporativo.html), BBVA (http://www.bbva.com/TLBB/tlbb/jsp/ing/home/index.jsp) and Caixabank (http://www.caixabank.com/index_en.html), with 43 percent of exposure under analysis, have excess capital of €37 billion in the adverse scenario in contradiction with theories that large, international banks are necessarily riskier. Jonathan House, writing on “Spain expects wider deficit on bank aid,” on Sep 30, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444138104578028484168511130.html?mod=WSJPRO_hpp_LEFTTopStories), analyzes the 2013 budget plan of Spain that will increase the deficit of 7.4 percent of GDP in 2012, which is above the target of 6.3 percent under commitment with the European Union. The ratio of debt to GDP will increase to 85.3 percent in 2012 and 90.5 percent in 2013 while the 27 members of the European Union have an average debt/GDP ratio of 83 percent at the end of IIQ2012. (2) Symmetric inflation targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even after the economy grows again at or close to potential output. Monetary easing by unconventional measures is now apparently open ended in perpetuity as provided in the statement of the meeting of the Federal Open Market Committee (FOMC) on Sep 13, 2012 (http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm):
“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”
In fact, it is evident to the public that this policy will be abandoned if inflation costs rise. There is the concern of the production and employment costs of controlling future inflation.
(2) The European Central Bank (ECB) approved a new program of bond purchases under the name “Outright Monetary Transactions” (OMT). The ECB will purchase sovereign bonds of euro zone member countries that have a program of conditionality under the European Financial Stability Facility (EFSF) that is converting into the European Stability Mechanism (ESM). These programs provide enhancing the solvency of member countries in a transition period of structural reforms and fiscal adjustment. The purchase of bonds by the ECB would maintain debt costs of sovereigns at sufficiently low levels to permit adjustment under the EFSF/ESM programs. Purchases of bonds are not limited quantitatively with discretion by the ECB as to how much is necessary to support countries with adjustment programs. Another feature of the OMT of the ECB is sterilization of bond purchases: funds injected to pay for the bonds would be withdrawn or sterilized by ECB transactions. The statement by the European Central Bank on the program of OTM is as follows (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html):
“6 September 2012 - Technical features of Outright Monetary Transactions
As announced on 2 August 2012, the Governing Council of the European Central Bank (ECB) has today taken decisions on a number of technical features regarding the Eurosystem’s outright transactions in secondary sovereign bond markets that aim at safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy. These will be known as Outright Monetary Transactions (OMTs) and will be conducted within the following framework:
Conditionality
A necessary condition for Outright Monetary Transactions is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line), provided that they include the possibility of EFSF/ESM primary market purchases. The involvement of the IMF shall also be sought for the design of the country-specific conditionality and the monitoring of such a programme.
The Governing Council will consider Outright Monetary Transactions to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected, and terminate them once their objectives are achieved or when there is non-compliance with the macroeconomic adjustment or precautionary programme.
Following a thorough assessment, the Governing Council will decide on the start, continuation and suspension of Outright Monetary Transactions in full discretion and acting in accordance with its monetary policy mandate.
Coverage
Outright Monetary Transactions will be considered for future cases of EFSF/ESM macroeconomic adjustment programmes or precautionary programmes as specified above. They may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access.
Transactions will be focused on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between one and three years.
No ex ante quantitative limits are set on the size of Outright Monetary Transactions.
Creditor treatment
The Eurosystem intends to clarify in the legal act concerning Outright Monetary Transactions that it accepts the same (pari passu) treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through Outright Monetary Transactions, in accordance with the terms of such bonds.
Sterilisation
The liquidity created through Outright Monetary Transactions will be fully sterilised.
Transparency
Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis. Publication of the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis.
Securities Markets Programme
Following today’s decision on Outright Monetary Transactions, the Securities Markets Programme (SMP) is herewith terminated. The liquidity injected through the SMP will continue to be absorbed as in the past, and the existing securities in the SMP portfolio will be held to maturity.”
Jon Hilsenrath, writing on “Fed sets stage for stimulus,” on Aug 31, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390443864204577623220212805132.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the essay presented by Chairman Bernanke at the Jackson Hole meeting of central bankers, as defending past stimulus with unconventional measures of monetary policy that could be used to reduce extremely high unemployment. Chairman Bernanke (2012JHAug31, 18-9) does support further unconventional monetary policy impulses if required by economic conditions (http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm):
“Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Professor John H Cochrane (2012Aug31), at the University of Chicago Booth School of Business, writing on “The Federal Reserve: from central bank to central planner,” on Aug 31, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444812704577609384030304936.html?mod=WSJ_hps_sections_opinion), analyzes that the departure of central banks from open market operations into purchase of assets with risks to taxpayers and direct allocation of credit subject to political influence has caused them to abandon their political independence and accountability. Cochrane (2012Aug31) finds a return to the proposition of Milton Friedman in the 1960s that central banks can cause inflation and macroeconomic instability.
Mario Draghi (2012Aug29), President of the European Central Bank, also reiterated the need of exceptional and unconventional central bank policies (http://www.ecb.int/press/key/date/2012/html/sp120829.en.html):
“Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools. When markets are fragmented or influenced by irrational fears, our monetary policy signals do not reach citizens evenly across the euro area. We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens. This may at times require exceptional measures. But this is our responsibility as the central bank of the euro area as a whole.
The ECB is not a political institution. But it is committed to its responsibilities as an institution of the European Union. As such, we never lose sight of our mission to guarantee a strong and stable currency. The banknotes that we issue bear the European flag and are a powerful symbol of European identity.”
Buiter (2011Oct31) analyzes that the European Financial Stability Fund (EFSF) would need a “bigger bazooka” to bail out euro members in difficulties that could possibly be provided by the ECB. Buiter (2012Oct15) finds that resolution of the euro crisis requires full banking union together with restructuring the sovereign debt of at least four and possibly total seven European countries. Table III-7 in IIIE Appendix Euro Zone Survival Risk below provides the combined GDP in 2012 of the highly indebted euro zone members estimated in the latest World Economic Outlook of the IMF at $4167 billion or 33.1 percent of total euro zone GDP of $12,586 billion. Using the WEO of the IMF, Table III-8 in IIIE Appendix Euro Zone Survival Risk below provides debt of the highly indebted euro zone members at $3927.8 billion in 2012 that increases to $5809.9 billion when adding Germany’s debt, corresponding to 167.0 percent of Germany’s GDP. There are additional sources of debt in bailing out banks. The dimensions of the problem may require more firepower than a bazooka perhaps that of the largest conventional bomb of all times of 44,000 pounds experimentally detonated only once by the US in 1948 (http://www.airpower.au.af.mil/airchronicles/aureview/1967/mar-apr/coker.html).
Second, Risk-Measuring Yields and Exchange Rate. The ten-year government bond of Spain was quoted at 6.868 percent on Aug 10, 2012, declining to 6.447 percent on Aug 17 and 6.403 percent on Aug 24, 2012, and the ten-year government bond of Italy fell from 5.894 percent on Aug 10, 2012 to 5.709 percent on Aug 17 and 5.618 percent on Aug 24, 2012. The yield of the ten-year sovereign bond of Spain traded at 5.063 percent on Mar 28, 2013 and that of the ten-year sovereign bond of Italy at 4.681 percent (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). Risk aversion is captured by flight of investors from risk financial assets to the government securities of the US and Germany. Diminishing aversion is captured by increase of the yield of the two- and ten-year Treasury notes and the two- and ten-year government bonds of Germany. Table III-1A provides yields of US and German governments bonds and the rate of USD/EUR. Yields of US and German government bonds decline during shocks of risk aversion and the dollar strengthens in the form of fewer dollars required to buy one euro. The yield of the US ten-year Treasury note fell from 2.202 percent on Aug 26, 2011 to 1.459 percent on Jul 20, 2012, reminiscent of experience during the Treasury-Fed accord of the 1940s that placed a ceiling on long-term Treasury debt (Hetzel and Leach 2001), while the yield of the ten-year government bond of Germany fell from 2.16 percent to 1.17 percent. In the week of Mar 28, 2013, the yield of the two-year Treasury stabilized 0.244 percent and that of the ten-year Treasury decreased to 1.847 percent while the two-year bond of Germany decreased to minus 0.02 percent and the ten-year decreased to 1.29 percent; and the dollar appreciated to USD 1.2818/EUR. The zero interest rates for the monetary policy rate of the US, or fed funds rate, carry trades ensure devaluation of the dollar if there is no risk aversion but the dollar appreciates in flight to safe haven during episodes of risk aversion. Unconventional monetary policy induces significant global financial instability, excessive risks and low liquidity. The ten-year Treasury yield is about equal to consumer price inflation of 2.0 percent in the 12 months ending in Feb 2013 (http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html) and the expectation of higher inflation if risk aversion diminishes. Treasury securities continue to be safe haven for investors fearing risk but with concentration in shorter maturities such as the two-year Treasury. The lower part of Table III-1A provides the same flight to government securities of the US and Germany and the USD during the financial crisis and global recession and the beginning of the European debt crisis in the spring of 2010 with the USD trading at USD 1.192/EUR on Jun 7, 2010.
Table III-1A, Two- and Ten-Year Yields of Government Bonds of the US and Germany and US Dollar/EUR Exchange rate
| US 2Y | US 10Y | DE 2Y | DE 10Y | USD/ EUR | |
| 3/29/13 | 0.244 | 1.847 | -0.02 | 1.29 | 1.2818 |
| 3/22/13 | 0.242 | 1.931 | 0.03 | 1.38 | 1.2988 |
| 3/15/13 | 0.246 | 1.992 | 0.05 | 1.46 | 1.3076 |
| 3/8/13 | 0.256 | 2.056 | 0.09 | 1.53 | 1.3003 |
| 3/1/13 | 0.236 | 1.842 | 0.03 | 1.41 | 1.3020 |
| 2/22/13 | 0.252 | 1.967 | 0.13 | 1.57 | 1.3190 |
| 2/15/13 | 0.268 | 2.007 | 0.19 | 1.65 | 1.3362 |
| 2/8/13 | 0.252 | 1.949 | 0.18 | 1.61 | 1.3365 |
| 2/1/13 | 0.26 | 2.024 | 0.25 | 1.67 | 1.3642 |
| 1/25/13 | 0.278 | 1.947 | 0.26 | 1.64 | 1.3459 |
| 1/18/13 | 0.252 | 1.84 | 0.18 | 1.56 | 1.3321 |
| 1/11/13 | 0.247 | 1.862 | 0.13 | 1.58 | 1.3343 |
| 1/4/13 | 0.262 | 1.898 | 0.08 | 1.54 | 1.3069 |
| 12/28/12 | 0.252 | 1.699 | -0.01 | 1.31 | 1.3218 |
| 12/21/12 | 0.272 | 1.77 | -0.01 | 1.38 | 1.3189 |
| 12/14/12 | 0.232 | 1.704 | -0.04 | 1.35 | 1.3162 |
| 12/7/12 | 0.256 | 1.625 | -0.08 | 1.30 | 1.2926 |
| 11/30/12 | 0.248 | 1.612 | 0.01 | 1.39 | 1.2987 |
| 11/23/12 | 0.273 | 1.691 | 0.00 | 1.44 | 1.2975 |
| 11/16/12 | 0.24 | 1.584 | -0.03 | 1.33 | 1.2743 |
| 11/9/12 | 0.256 | 1.614 | -0.03 | 1.35 | 1.2711 |
| 11/2/12 | 0.274 | 1.715 | 0.01 | 1.45 | 1.2838 |
| 10/26/12 | 0.299 | 1.748 | 0.05 | 1.54 | 1.2942 |
| 10/19/12 | 0.296 | 1.766 | 0.11 | 1.59 | 1.3023 |
| 10/12/12 | 0.264 | 1.663 | 0.04 | 1.45 | 1.2953 |
| 10/5/12 | 0.26 | 1.737 | 0.06 | 1.52 | 1.3036 |
| 9/28/12 | 0.236 | 1.631 | 0.02 | 1.44 | 1.2859 |
| 9/21/12 | 0.26 | 1.753 | 0.04 | 1.60 | 1.2981 |
| 9/14/12 | 0.252 | 1.863 | 0.10 | 1.71 | 1.3130 |
| 9/7/12 | 0.252 | 1.668 | 0.03 | 1.52 | 1.2816 |
| 8/31/12 | 0.225 | 1.543 | -0.03 | 1.33 | 1.2575 |
| 8/24/12 | 0.266 | 1.684 | -0.01 | 1.35 | 1.2512 |
| 8/17/12 | 0.288 | 1.814 | -0.04 | 1.50 | 1.2335 |
| 8/10/12 | 0.267 | 1.658 | -0.07 | 1.38 | 1.2290 |
| 8/3/12 | 0.242 | 1.569 | -0.02 | 1.42 | 1.2387 |
| 7/27/12 | 0.244 | 1.544 | -0.03 | 1.40 | 1.2320 |
| 7/20/12 | 0.207 | 1.459 | -0.07 | 1.17 | 1.2158 |
| 7/13/12 | 0.24 | 1.49 | -0.04 | 1.26 | 1.2248 |
| 7/6/12 | 0.272 | 1.548 | -0.01 | 1.33 | 1.2288 |
| 6/29/12 | 0.305 | 1.648 | 0.12 | 1.58 | 1.2661 |
| 6/22/12 | 0.309 | 1.676 | 0.14 | 1.58 | 1.2570 |
| 6/15/12 | 0.272 | 1.584 | 0.07 | 1.44 | 1.2640 |
| 6/8/12 | 0.268 | 1.635 | 0.04 | 1.33 | 1.2517 |
| 6/1/12 | 0.248 | 1.454 | 0.01 | 1.17 | 1.2435 |
| 5/25/12 | 0.291 | 1.738 | 0.05 | 1.37 | 1.2518 |
| 5/18/12 | 0.292 | 1.714 | 0.05 | 1.43 | 1.2780 |
| 5/11/12 | 0.248 | 1.845 | 0.09 | 1.52 | 1.2917 |
| 5/4/12 | 0.256 | 1.876 | 0.08 | 1.58 | 1.3084 |
| 4/6/12 | 0.31 | 2.058 | 0.14 | 1.74 | 1.3096 |
| 3/30/12 | 0.335 | 2.214 | 0.21 | 1.79 | 1.3340 |
| 3/2/12 | 0.29 | 1.977 | 0.16 | 1.80 | 1.3190 |
| 2/24/12 | 0.307 | 1.977 | 0.24 | 1.88 | 1.3449 |
| 1/6/12 | 0.256 | 1.957 | 0.17 | 1.85 | 1.2720 |
| 12/30/11 | 0.239 | 1.871 | 0.14 | 1.83 | 1.2944 |
| 8/26/11 | 0.20 | 2.202 | 0.65 | 2.16 | 1.450 |
| 8/19/11 | 0.192 | 2.066 | 0.65 | 2.11 | 1.4390 |
| 6/7/10 | 0.74 | 3.17 | 0.49 | 2.56 | 1.192 |
| 3/5/09 | 0.89 | 2.83 | 1.19 | 3.01 | 1.254 |
| 12/17/08 | 0.73 | 2.20 | 1.94 | 3.00 | 1.442 |
| 10/27/08 | 1.57 | 3.79 | 2.61 | 3.76 | 1.246 |
| 7/14/08 | 2.47 | 3.88 | 4.38 | 4.40 | 1.5914 |
| 6/26/03 | 1.41 | 3.55 | NA | 3.62 | 1.1423 |
Note: DE: Germany
Source:
http://www.bloomberg.com/markets/
http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata
http://www.federalreserve.gov/releases/h15/data.htm
http://www.ecb.int/stats/money/long/html/index.en.html
Chart III-1A of the Board of Governors of the Federal Reserve System provides the ten-year, two-year and one-month Treasury constant maturity yields together with the overnight fed funds rate and the yield of the corporate bond with Moody’s rating of Baa. The riskier yield of the Baa corporate bond exceeds the relatively riskless yields of the Treasury securities. The beginning yields in Chart III-1A for July 31, 2001, are 3.67 percent for one month, 3.79 percent for two years, 5.07 percent for ten years, 3.82 percent for the fed funds rate and 7.85 percent for the Baa corporate bond. On July 30, 2007, yields inverted with the one month at 4.95 percent, the two-year at 4.59 percent and the ten year at 5.82 percent with the yield of the Baa corporate bond at 6.70 percent. Another interesting point is for Oct 31, 2008, with the yield of the Baa jumping to 9.54 percent and the Treasury yields declining: one month 0.12 percent, two years 1.56 percent and ten years 4.01 percent during a flight to the dollar and government securities analyzed by Cochrane and Zingales (2009). Another spike in the series is for Apr 4, 2006 with the yield of the corporate Baa bond at 8.63 and the Treasury yields of 0.12 percent for one month, 0.94 for two years and 2.95 percent for ten years. During the beginning of the flight from risk financial assets to US government securities (see Cochrane and Zingales 2009), the one-month yield was 0.07 percent, the two-year yield 1.64 percent and the ten-year yield 3.41. The combination of zero fed funds rate and quantitative easing caused sharp decline of the yields from 2008 and 2009. Yield declines have also occurred during periods of financial risk aversion, including the current one of stress of financial markets in Europe. The final point of Chart III1-A is for Mar 28, 2013, with the one-month yield at 0.04 percent, the two-year at 0.25 percent, the ten-year at 1.87 percent, the fed funds rate at 0.13 percent and the corporate Baa bond at 4.83 percent.
Chart III-1A, US, Ten-Year, Two-Year and One-Month Treasury Constant Maturity Yields, Overnight Fed Funds Rate and Yield of Moody’s Baa Corporate Bond, Jul 31, 2001-Mar 28, 2013
Note: US Recessions in shaded areas
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/h15/update/
Kate Linebaugh, writing on “Falling revenue dings stocks,” on Oct 20, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444592704578066933466076070.html?mod=WSJPRO_hpp_LEFTTopStories), identifies a key financial vulnerability: falling revenues across markets for United States reporting companies. Global economic slowdown is reducing corporate sales and squeezing corporate strategies. Linebaugh quotes data from Thomson Reuters that 100 companies of the S&P 500 index have reported declining revenue only 1 percent higher in Jun-Sep 2012 relative to Jun-Sep 2011 but about 60 percent of the companies are reporting lower sales than expected by analysts with expectation that revenue for the S&P 500 will be lower in Jun-Sep 2012 for the entities represented in the index. Results of US companies are likely repeated worldwide. The basic valuation equation that is also used in capital budgeting postulates that the value of stocks or of an investment project is given by:
Where Rτ is expected revenue in the time horizon from τ =1 to T; Cτ denotes costs; and ρ is an appropriate rate of discount. In words, the value today of a stock or investment project is the net revenue, or revenue less costs, in the investment period from τ =1 to T discounted to the present by an appropriate rate of discount. In the current weak economy, revenues have been increasing more slowly than anticipated in investment plans. An increase in interest rates would affect discount rates used in calculations of present value, resulting in frustration of investment decisions. If V represents value of the stock or investment project, as ρ → ∞, meaning that interest rates increase without bound, then V → 0, or
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declines.
There was mostly strong performance in equity indexes with many indexes gaining in Table III-1 in the week ending on Mar 28, 2013. Stagnating revenues are causing reevaluation of discounted net earnings with deteriorating views on the world economy and United States fiscal sustainability but investors have been driving indexes higher. DJIA increased 0.4 percent on Mar 28, changing increasing 0.5 percent in the week, repeatedly breaking historical highs. Germany’s Dax increased 0.1 percent on Thu Mar 28 and decreased 1.5 percent in the week. Dow Global increased 0.3 percent on Mar 28 and decreased 0.3 percent in the week. Japan’s Nikkei Average increased 0.5 percent on Fri Mar 29 and increased 0.5 percent in the week as the yen continues to be oscillating but relatively weaker and the stock market gains in expectations of fiscal stimulus by a new administration and monetary stimulus by a new board of the Bank of Japan. Dow Asia Pacific TSM decreased 0.4 percent on Mar 28 and increased 0.9 percent in the week while Shanghai Composite that decreased 0.2 percent on Mar 8 and decreased 1.7 percent in the week of Mar 8, falling below 2000 to close at 1980.13 on Fri Nov 30 but closing at 2236.30 on Thu Mar 28 for loss of 2.8 percent and loss of 3.9 percent in the week of Mar 28. There is evident trend of deceleration of the world economy that could affect corporate revenue and equity valuations, causing oscillation in equity markets with increases during favorable risk appetite.
Commodities were mixed in the week of Mar 22, 2013. The DJ UBS Commodities Index decreased 1.3 percent on Thu Mar 28 and decreased 0.4 percent in the week, as shown in Table III-1. WTI increased 3.5 percent in the week of Mar 28 while Brent increased 2.2 percent in the week. Gold decreased 0.6 percent on Thu Mar 28 and decreased 0.7 percent in the week.
Table III-2 provides an update of the consolidated financial statement of the Eurosystem. The balance sheet has swollen with the long-term refinancing operations (LTROs). Line 5 “Lending to Euro Area Credit Institutions Related to Monetary Policy” increased from €546,747 million on Dec 31, 2010, to €879,130 million on Dec 28, 2011 and €906,244 million on Mar 22, 2013 with some repayment of loans already occurring. The sum of line 5 and line 7 (“Securities of Euro Area Residents Denominated in Euro”) has increased to €1,512,607 million in the statement of Mar 22, 2013, with marginal reduction. There is high credit risk in these transactions with capital of only €88,227 million as analyzed by Cochrane (2012Aug31).
Table III-2, Consolidated Financial Statement of the Eurosystem, Million EUR
| Dec 31, 2010 | Dec 28, 2011 | Mar 22, 2013 | |
| 1 Gold and other Receivables | 367,402 | 419,822 | 438,692 |
| 2 Claims on Non Euro Area Residents Denominated in Foreign Currency | 223,995 | 236,826 | 251,584 |
| 3 Claims on Euro Area Residents Denominated in Foreign Currency | 26,941 | 95,355 | 30,006 |
| 4 Claims on Non-Euro Area Residents Denominated in Euro | 22,592 | 25,982 | 22,998 |
| 5 Lending to Euro Area Credit Institutions Related to Monetary Policy Operations Denominated in Euro | 546,747 | 879,130 | 906,244 |
| 6 Other Claims on Euro Area Credit Institutions Denominated in Euro | 45,654 | 94,989 | 80,028 |
| 7 Securities of Euro Area Residents Denominated in Euro | 457,427 | 610,629 | 606,363 |
| 8 General Government Debt Denominated in Euro | 34,954 | 33,928 | 29,912 |
| 9 Other Assets | 278,719 | 336,574 | 276,873 |
| TOTAL ASSETS | 2,004, 432 | 2,733,235 | 2,642,700 |
| Memo Items | |||
| Sum of 5 and 7 | 1,004,174 | 1,489,759 | 1,512,607 |
| Capital and Reserves | 78,143 | 85,748 | 88,227 |
Source: European Central Bank
http://www.ecb.int/press/pr/wfs/2011/html/fs110105.en.html
http://www.ecb.int/press/pr/wfs/2011/html/fs111228.en.html
http://www.ecb.int/press/pr/wfs/2013/html/fs130326.en.html
IIIE Appendix Euro Zone survival risk. Professors Ricardo Caballero and Francesco Giavazzi (2012Jan15) find that the resolution of the European sovereign crisis with survival of the euro area would require success in the restructuring of Italy. That success would be assured with growth of the Italian economy. A critical problem is that the common euro currency prevents Italy from devaluing the exchange rate to parity or the exchange rate that would permit export growth to promote internal economic activity, which could generate fiscal revenues for primary fiscal surplus that ensure creditworthiness. Fiscal consolidation and restructuring are important but of long-term gestation. Immediate growth of the Italian economy would consolidate the resolution of the sovereign debt crisis. 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 40.5 percent of the total. Exports to the non-European Union area with share of 46.3 percent in Italy’s total exports are growing at 17.6 percent in Jan 2013 relative to Jan 2012 while those to EMU are growing at 1.7 percent.
Table III-3, Italy, Exports and Imports by Regions and Countries, % Share and 12-Month ∆%
| Jan 2013 | Exports | ∆% Jan-Ja Jan 2013/ Jan 2012 | Imports | Imports |
| EU | 53.7 | 2.6 | 52.9 | 2.4 |
| EMU 17 | 40.5 | 1.7 | 42.7 | 3.3 |
| France | 11.1 | 4.0 | 8.3 | 0.0 |
| Germany | 12.5 | 0.3 | 14.6 | -4.4 |
| Spain | 4.7 | -8.6 | 4.4 | 2.3 |
| UK | 4.9 | 8.1 | 2.5 | 5.9 |
| Non EU | 46.3 | 17.6 | 47.1 | -5.6 |
| Europe non EU | 13.9 | 10.7 | 11.3 | 19.9 |
| USA | 6.8 | 19.7 | 3.3 | -16.9 |
| China | 2.3 | 24.6 | 6.5 | -2.8 |
| OPEC | 5.7 | 26.1 | 10.8 | -19.6 |
| Total | 100.0 | 8.7 | 100.0 | -1.8 |
Notes: EU: European Union; EMU: European Monetary Union (euro zone)
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/85204
Table III-4 provides Italy’s trade balance by regions and countries. Italy had trade surplus of €663 million with the 17 countries of the euro zone (EMU 17) in Jan 2013 and cumulative surplus of €663 million in Jan 2013. Depreciation to parity could permit greater competitiveness in improving the trade deficit of €193 million in Jan 2013 with Europe non European Union and the trade surplus of €762 million with the US and trade with non European Union of €2281 million in Jan 2013. There is significant rigidity in the trade deficits in Jan of €1619 million with China and €1143 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 Jan 2013 Millions of Euro | Trade Balance Cumulative Jan 2013 Millions of Euro |
| EU | 663 | 663 |
| EMU 17 | -296 | -296 |
| France | 1,002 | 1,002 |
| Germany | -246 | -246 |
| Spain | 156 | 156 |
| UK | 702 | 702 |
| Non EU | -2,281 | -2,281 |
| Europe non EU | -193 | -193 |
| USA | 762 | 762 |
| China | -1,619 | -1,619 |
| OPEC | -1,435 | -1,1435 |
| Total | -1,619 | -1,619 |
Notes: EU: European Union; EMU: European Monetary Union (euro zone)
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/85204
Growth rates of Italy’s trade and major products are provided in Table III-5 for the period Jan 2013 relative to Jan 2012. Growth rates in 12 months of imports are negative for energy with minus 14.9 percent, minus 14.4 percent for durable goods, minus 5.0 percent for exports and minus 1.8 percent for total imports. The higher rate of growth of exports of 8.7 percent in Jan 2013/Jan 2012 relative to imports of minus 1.8 percent may reflect weak demand in Italy with GDP declining during six consecutive quarters from IIIQ2011 through IVQ2012 together with softening commodity prices.
Table III-5, Italy, Exports and Imports % Share of Products in Total and ∆%
| Exports | Exports | Imports | Imports | |
| Consumer | 29.3 | 15.2 | 25.6 | 5.2 |
| Durable | 5.8 | 14.5 | 2.9 | -14.4 |
| Non | 23.5 | 15.3 | 22.7 | 7.7 |
| Capital Goods | 31.6 | 11.7 | 19.5 | -5.0 |
| Inter- | 33.6 | 6.9 | 32.6 | 5.5 |
| Energy | 5.5 | -23.8 | 22.3 | -14.9 |
| Total ex Energy | 94.5 | 11.0 | 77.7 | 2.7 |
| Total | 100.0 | 8.7 | 100.0 | -1.8 |
Note: % Share for Jan-Nov 2012.
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/85204
Table III-6 provides Italy’s trade balance by product categories in Jan 2013 and cumulative Jan 2013. Italy’s trade balance excluding energy generated surplus of €3844 million in Jan 2013 and €3844 million cumulative in Jan 2013 but the energy trade balance created deficit of €5463 million in Jan 2013 and cumulative €63844 million in Jan 2013. The overall deficit in Jan 2013 was €1618 million with cumulative deficit of €1618 million in Jan 2013. 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
| Jan 2013 | Cumulative Jan 2013 | |
| Consumer Goods | 996 | 996 |
| Durable | 802 | 802 |
| Nondurable | 194 | 194 |
| Capital Goods | 3,065 | 3,065 |
| Intermediate Goods | -217 | -217 |
| Energy | -5,463 | -5,463 |
| Total ex Energy | 3,844 | 3,844 |
| Total | -1,619 | -1,619 |
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/85204
Brazil faced in the debt crisis of 1982 a more complex policy mix. Between 1977 and 1983, Brazil’s terms of trade, export prices relative to import prices, deteriorated 47 percent and 36 percent excluding oil (Pelaez 1987, 176-79; Pelaez 1986, 37-66; see Pelaez and Pelaez, The Global Recession Risk (2007), 178-87). Brazil had accumulated unsustainable foreign debt by borrowing to finance balance of payments deficits during the 1970s. Foreign lending virtually stopped. The German mark devalued strongly relative to the dollar such that Brazil’s products lost competitiveness in Germany and in multiple markets in competition with Germany. The resolution of the crisis was devaluation of the Brazilian currency by 30 percent relative to the dollar and subsequent maintenance of parity by monthly devaluation equal to inflation and indexing that resulted in financial stability by parity in external and internal interest rates avoiding capital flight. With a combination of declining imports, domestic import substitution and export growth, Brazil followed rapid growth in the US and grew out of the crisis with surprising GDP growth of 4.5 percent in 1984.
The euro zone faces a critical survival risk because several of its members may default on their sovereign obligations if not bailed out by the other members. The valuation equation of bonds is essential to understanding the stability of the euro area. An explanation is provided in this paragraph and readers interested in technical details are referred to the Subsection IIIF Appendix on Sovereign Bond Valuation. Contrary to the Wriston doctrine, investing in sovereign obligations is a credit decision. The value of a bond today is equal to the discounted value of future obligations of interest and principal until maturity. On Dec 30 the yield of the 2-year bond of the government of Greece was quoted around 100 percent. In contrast, the 2-year US Treasury note traded at 0.239 percent and the 10-year at 2.871 percent while the comparable 2-year government bond of Germany traded at 0.14 percent and the 10-year government bond of Germany traded at 1.83 percent. There is no need for sovereign ratings: the perceptions of investors are of relatively higher probability of default by Greece, defying Wriston (1982), and nil probability of default of the US Treasury and the German government. The essence of the sovereign credit decision is whether the sovereign will be able to finance new debt and refinance existing debt without interrupting service of interest and principal. Prices of sovereign bonds incorporate multiple anticipations such as inflation and liquidity premiums of long-term relative to short-term debt but also risk premiums on whether the sovereign’s debt can be managed as it increases without bound. The austerity measures of Italy are designed to increase the primary surplus, or government revenues less expenditures excluding interest, to ensure investors that Italy will have the fiscal strength to manage its debt of 120 percent of GDP, which is the third largest in the world after the US and Japan. Appendix IIIE links the expectations on the primary surplus to the real current value of government monetary and fiscal obligations. As Blanchard (2011SepWEO) analyzes, fiscal consolidation to increase the primary surplus is facilitated by growth of the economy. Italy and the other indebted sovereigns in Europe face the dual challenge of increasing primary surpluses while maintaining growth of the economy (for the experience of Brazil in the debt crisis of 1982 see Pelaez 1986, 1987).
Much of the analysis and concern over the euro zone centers on the lack of credibility of the debt of a few countries while there is credibility of the debt of the euro zone as a whole. In practice, there is convergence in valuations and concerns toward the fact that there may not be credibility of the euro zone as a whole. The fluctuations of financial risk assets of members of the euro zone move together with risk aversion toward the countries with lack of debt credibility. This movement raises the need to consider analytically sovereign debt valuation of the euro zone as a whole in the essential analysis of whether the single-currency will survive without major changes.
Welfare economics considers the desirability of alternative states, which in this case would be evaluating the “value” of Germany (1) within and (2) outside the euro zone. Is the sum of the wealth of euro zone countries outside of the euro zone higher than the wealth of these countries maintaining the euro zone? On the choice of indicator of welfare, Hicks (1975, 324) argues:
“Partly as a result of the Keynesian revolution, but more (perhaps) because of statistical labours that were initially quite independent of it, the Social Product has now come right back into its old place. Modern economics—especially modern applied economics—is centered upon the Social Product, the Wealth of Nations, as it was in the days of Smith and Ricardo, but as it was not in the time that came between. So if modern theory is to be effective, if it is to deal with the questions which we in our time want to have answered, the size and growth of the Social Product are among the chief things with which it must concern itself. It is of course the objective Social Product on which attention must be fixed. We have indexes of production; we do not have—it is clear we cannot have—an Index of Welfare.”
If the burden of the debt of the euro zone falls on Germany and France or only on Germany, is the wealth of Germany and France or only Germany higher after breakup of the euro zone or if maintaining the euro zone? In practice, political realities will determine the decision through elections.
The prospects of survival of the euro zone are dire. Table III-7 is constructed with IMF World Economic Outlook database (http://www.imf.org/external/datamapper/index.php?db=WEO) for GDP in USD billions, primary net lending/borrowing as percent of GDP and general government debt as percent of GDP for selected regions and countries in 2010.
Table III-7, World and Selected Regional and Country GDP and Fiscal Situation
| GDP 2012 | Primary Net Lending Borrowing | General Government Net Debt | |
| World | 71,277 | ||
| Euro Zone | 12,065 | -0.5 | 73.4 |
| Portugal | 211 | -0.7 | 110.9 |
| Ireland | 205 | -4.4 | 103.0 |
| Greece | 255 | -1.7 | 170.7 |
| Spain | 1,340 | -4.5 | 78.6 |
| Major Advanced Economies G7 | 33,769 | -5.1 | 89.0 |
| United States | 15,653 | -6.5 | 83.8 |
| UK | 2,434 | -5.6 | 83.7 |
| Germany | 3,367 | 1.4 | 58.4 |
| France | 2,580 | -2.2 | 83.7 |
| Japan | 5,984 | -9.1 | 135.4 |
| Canada | 1,770 | -3.2 | 35.8 |
| Italy | 1,980 | 2.6 | 103.1 |
| China | 8,250 | -1.3* | 22.2** |
*Net Lending/borrowing**Gross Debt
Source: IMF World Economic Outlook databank http://www.imf.org/external/datamapper/index.php?db=WEO
The data in Table III-7 are used for some very simple calculations in Table III-8. The column “Net Debt USD Billions” in Table III-8 is generated by applying the percentage in Table III-7 column “General Government Net Debt % GDP 2010” to the column “GDP USD Billions.” The total debt of France and Germany in 2012 is $4155.8 billion, as shown in row “B+C” in column “Net Debt USD Billions” The sum of the debt of Italy, Spain, Portugal, Greece and Ireland is $3975.1 billion, adding rows D+E+F+G+H in column “Net Debt USD billions.” There is some simple “unpleasant bond arithmetic” in the two final columns of Table III-8. Suppose the entire debt burdens of the five countries with probability of default were to be guaranteed by France and Germany, which de facto would be required by continuing the euro zone. The sum of the total debt of these five countries and the debt of France and Germany is shown in column “Debt as % of Germany plus France GDP” to reach $8130.8 billion, which would be equivalent to 136.7 percent of their combined GDP in 2012. Under this arrangement the entire debt of the euro zone including debt of France and Germany would not have nil probability of default. The final column provides “Debt as % of Germany GDP” that would exceed 241.5 percent if including debt of France and 177.4 percent of German GDP if excluding French debt. The unpleasant bond arithmetic illustrates that there is a limit as to how far Germany and France can go in bailing out the countries with unsustainable sovereign debt without incurring severe pains of their own such as downgrades of their sovereign credit ratings. A central bank is not typically engaged in direct credit because of remembrance of inflation and abuse in the past. There is also a limit to operations of the European Central Bank in doubtful credit obligations. Wriston (1982) would prove to be wrong again that countries do not bankrupt but would have a consolation prize that similar to LBOs the sum of the individual values of euro zone members outside the current agreement exceeds the value of the whole euro zone. Internal rescues of French and German banks may be less costly than bailing out other euro zone countries so that they do not default on French and German banks.
Table III-8, Guarantees of Debt of Sovereigns in Euro Area as Percent of GDP of Germany and France, USD Billions and %
| Net Debt USD Billions | Debt as % of Germany Plus France GDP | Debt as % of Germany GDP | |
| A Euro Area | 8,855.7 | ||
| B Germany | 1,996.3 | $8130.9 as % of $3367 =241.5% $5971.4 as % of $3367 =177.4% | |
| C France | 2,159.5 | ||
| B+C | 4,155.8 | GDP $5,947.0 Total Debt $8130.9 Debt/GDP: 136.7% | |
| D Italy | 2,041.4 | ||
| E Spain | 1,053.2 | ||
| F Portugal | 234.0 | ||
| G Greece | 435.3 | ||
| H Ireland | 211.2 | ||
| Subtotal D+E+F+G+H | 3,975.1 |
Source: calculation with IMF data http://www.imf.org/external/datamapper/index.php?db=WEO
There is extremely important information in Table III-9 for the current sovereign risk crisis in the euro zone. Table III-9 provides the structure of regional and country relations of Germany’s exports and imports with newly available data for Jan 2013. German exports to other European Union (EU) members are 58.7 percent of total exports in Jan 2013 and 58.7 percent in cumulative Jan 2013. Exports to the euro area are 38.7 percent in Jan and 38.7 percent cumulative in Jan. Exports to third countries are 41.3 percent of the total in Jan and 41.3 percent cumulative in Jan. There is similar distribution for imports. Exports to non-euro countries are increasing 5.5 percent in Jan 2013 and increasing 5.5 percent cumulative in Jan 2013 while exports to the euro area are increasing 0.4 percent in Jan and increasing 0.4 percent cumulative in Jan 2013. Exports to third countries, accounting for 44.3 percent of the total in Jan 2013, are increasing 4.5 percent in Jan and increasing 4.5 percent cumulative in Jan, accounting for 41.3 percent of the cumulative total in Jan 2013. 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 ∆%
| Jan 2013 | Jan 12-Month | Cumulative Jan 2012 € Billions | Cumulative Jan 2013/ | |
| Total | 88.6 | 3.1 | 88.6 | 3.1 |
| A. EU | 52.0 % 58.7 | 2.1 | 52.0 % 58.7 | 2.1 |
| Euro Area | 34.3 % 38.7 | 0.4 | 34.3 % 38.7 | 0.4 |
| Non-euro Area | 17.7 % 20.0 | 5.5 | 17.7 % 20.0 | 5.5 |
| B. Third Countries | 36.6 % 41.3 | 4.5 | 36.6 % 41.3 | 4.5 |
| Total Imports | 74.9 | 2.9 | 74.9 | 2.9 |
| C. EU Members | 46.9 % 62.6 | 4.6 | 46.9 % 62.6 | 4.6 |
| Euro Area | 32.3 % 43.1 | 2.8 | 32.3 % 43.1 | 2.8 |
| Non-euro Area | 14.6 % 19.5 | 8.7 | 14.6 % 19.5 | 8.7 |
| D. Third Countries | 28.0 % 37.4 | 0.2 | 28.0 % 37.4 | 0.2 |
Notes: Total Exports = A+B; Total Imports = C+D
Source:
Statistisches Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2013/03/PE13_094_51.html
IIIF Appendix on Sovereign Bond Valuation. There are two approaches to government finance and their implications: (1) simple unpleasant monetarist arithmetic; and (2) simple unpleasant fiscal arithmetic. Both approaches illustrate how sovereign debt can be perceived riskier under profligacy.
First, Unpleasant Monetarist Arithmetic. Fiscal policy is described by Sargent and Wallace (1981, 3, equation 1) as a time sequence of D(t), t = 1, 2,…t, …, where D is real government expenditures, excluding interest on government debt, less real tax receipts. D(t) is the real deficit excluding real interest payments measured in real time t goods. Monetary policy is described by a time sequence of H(t), t=1,2,…t, …, with H(t) being the stock of base money at time t. In order to simplify analysis, all government debt is considered as being only for one time period, in the form of a one-period bond B(t), issued at time t-1 and maturing at time t. Denote by R(t-1) the real rate of interest on the one-period bond B(t) between t-1 and t. The measurement of B(t-1) is in terms of t-1 goods and [1+R(t-1)] “is measured in time t goods per unit of time t-1 goods” (Sargent and Wallace 1981, 3). Thus, B(t-1)[1+R(t-1)] brings B(t-1) to maturing time t. B(t) represents borrowing by the government from the private sector from t to t+1 in terms of time t goods. The price level at t is denoted by p(t). The budget constraint of Sargent and Wallace (1981, 3, equation 1) is:
D(t) = {[H(t) – H(t-1)]/p(t)} + {B(t) – B(t-1)[1 + R(t-1)]} (1)
Equation (1) states that the government finances its real deficits into two portions. The first portion, {[H(t) – H(t-1)]/p(t)}, is seigniorage, or “printing money.” The second part,
{B(t) – B(t-1)[1 + R(t-1)]}, is borrowing from the public by issue of interest-bearing securities. Denote population at time t by N(t) and growing by assumption at the constant rate of n, such that:
N(t+1) = (1+n)N(t), n>-1 (2)
The per capita form of the budget constraint is obtained by dividing (1) by N(t) and rearranging:
B(t)/N(t) = {[1+R(t-1)]/(1+n)}x[B(t-1)/N(t-1)]+[D(t)/N(t)] – {[H(t)-H(t-1)]/[N(t)p(t)]} (3)
On the basis of the assumptions of equal constant rate of growth of population and real income, n, constant real rate of return on government securities exceeding growth of economic activity and quantity theory equation of demand for base money, Sargent and Wallace (1981) find that “tighter current monetary policy implies higher future inflation” under fiscal policy dominance of monetary policy. That is, the monetary authority does not permanently influence inflation, lowering inflation now with tighter policy but experiencing higher inflation in the future.
Second, Unpleasant Fiscal Arithmetic. The tool of analysis of Cochrane (2011Jan, 27, equation (16)) is the government debt valuation equation:
(Mt + Bt)/Pt = Et∫(1/Rt, t+τ)st+τdτ (4)
Equation (4) expresses the monetary, Mt, and debt, Bt, liabilities of the government, divided by the price level, Pt, in terms of the expected value discounted by the ex-post rate on government debt, Rt, t+τ, of the future primary surpluses st+τ, which are equal to Tt+τ – Gt+τ or difference between taxes, T, and government expenditures, G. Cochrane (2010A) provides the link to a web appendix demonstrating that it is possible to discount by the ex post Rt, t+τ. The second equation of Cochrane (2011Jan, 5) is:
MtV(it, ·) = PtYt (5)
Conventional analysis of monetary policy contends that fiscal authorities simply adjust primary surpluses, s, to sanction the price level determined by the monetary authority through equation (5), which deprives the debt valuation equation (4) of any role in price level determination. The simple explanation is (Cochrane 2011Jan, 5):
“We are here to think about what happens when [4] exerts more force on the price level. This change may happen by force, when debt, deficits and distorting taxes become large so the Treasury is unable or refuses to follow. Then [4] determines the price level; monetary policy must follow the fiscal lead and ‘passively’ adjust M to satisfy [5]. This change may also happen by choice; monetary policies may be deliberately passive, in which case there is nothing for the Treasury to follow and [4] determines the price level.”
An intuitive interpretation by Cochrane (2011Jan 4) is that when the current real value of government debt exceeds expected future surpluses, economic agents unload government debt to purchase private assets and goods, resulting in inflation. If the risk premium on government debt declines, government debt becomes more valuable, causing a deflationary effect. If the risk premium on government debt increases, government debt becomes less valuable, causing an inflationary effect.
There are multiple conclusions by Cochrane (2011Jan) on the debt/dollar crisis and Global recession, among which the following three:
(1) The flight to quality that magnified the recession was not from goods into money but from private-sector securities into government debt because of the risk premium on private-sector securities; monetary policy consisted of providing liquidity in private-sector markets suffering stress
(2) Increases in liquidity by open-market operations with short-term securities have no impact; quantitative easing can affect the timing but not the rate of inflation; and purchase of private debt can reverse part of the flight to quality
(3) The debt valuation equation has a similar role as the expectation shifting the Phillips curve such that a fiscal inflation can generate stagflation effects similar to those occurring from a loss of anchoring expectations.
IV Global Inflation. There is inflation everywhere in the world economy, with slow growth and persistently high unemployment in advanced economies. Table IV-1, updated with every blog comment, provides the latest annual data for GDP, consumer price index (CPI) inflation, producer price index (PPI) inflation and unemployment (UNE) for the advanced economies, China and the highly-indebted European countries with sovereign risk issues. The table now includes the Netherlands and Finland that with Germany make up the set of northern countries in the euro zone that hold key votes in the enhancement of the mechanism for solution of sovereign risk issues (Peter Spiegel and Quentin Peel, “Europe: Northern Exposures,” Financial Times, Mar 9, 2011 http://www.ft.com/intl/cms/s/0/55eaf350-4a8b-11e0-82ab-00144feab49a.html#axzz1gAlaswcW). Newly available data on inflation is considered below in this section. Data in Table IV-1 for the euro zone and its members are updated from information provided by Eurostat but individual country information is provided in this section as soon as available, following Table IV-1. Data for other countries in Table IV-1 are also updated with reports from their statistical agencies. Economic data for major regions and countries is considered in Section V World Economic Slowdown following with individual country and regional data tables.
Table IV-1, GDP Growth, Inflation and Unemployment in Selected Countries, Percentage Annual Rates
| GDP | CPI | PPI | UNE | |
| US | 1.7 | 2.0 | 1.7 | 7.7 |
| Japan | 0.5 | -0.7 | -0.1 | 4.3 |
| China | 7.9 | 3.2 | -1.6 | |
| UK | 0.2 | 2.8* CPIH 2.6 | 2.3 output | 7.8 |
| Euro Zone | -0.9 | 1.8 | 1.9 | 11.9 |
| Germany | 0.4 | 1.8 | 1.7 | 5.3 |
| France | -0.3 | 1.2 | 1.4 | 10.6 |
| Nether-lands | -0.9 | 3.2 | 1.2 | 6.0 |
| Finland | -1.4 | 2.5 | 2.2 | 7.9 |
| Belgium | -0.4 | 1.3 | 5.4 | 7.4 |
| Portugal | -3.8 | 0.2 | 1.9 | 17.6 |
| Ireland | 0.8 | 1.2 | 1.0 | 14.7 |
| Italy | -2.7 | 2.0 | 2.0 | 11.7 |
| Greece | -6.0 | 0.1 | -0.1 | NA |
| Spain | -1.9 | 2.9 | 2.6 | 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/february-2013/index.html **Core
PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/february-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 1.7 percent in IVQ2012 relative to IVQ2011 (Table 8 in http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp4q12_3rd.pdf See I Mediocre and Decelerating United States Economic Growth and earlier at http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html). Japan’s GDP grew 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 10.6 percent in IIIQ2011, increasing at the SAAR of 0.4 percent in IVQ 2011, increasing at the SAAR of 6.1 percent in IQ2012 and decreasing at 0.9 percent in IIQ2012 but contracting at the SAAR of 3.7 percent in IIIQ2012 and increasing at the SAAR of 0.2 percent in IVQ2012 (see Section VB http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.htm and earlier at
http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html); the UK grew at minus 0.3 percent in IVQ2012 relative to IIIQ2012 and GDP increased 0.2 percent in IVQ2012 relative to IVQ2011 (see Section VH and earlier at http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.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 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.htm and earlier at
http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html). These are stagnating or “growth recession” rates, which are positive or about nil growth rates with some contractions that are insufficient to recover employment. The rates of unemployment are quite high: 7.7 percent in the US but 19.0 percent for unemployment/underemployment or job stress of 30.8 million (see Table I-4 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.htm and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html), 4.3 percent for Japan (see Section VB and earlier at http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.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 http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html). Twelve-month rates of inflation have been quite high, even when some are moderating at the margin: 2.0 percent in the US, -0.7 percent for Japan, 3.2 percent for China, 1.8 percent for the Euro Zone and 2.8 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/2013/03/united-states-commercial-banks-assets.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 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html), weak hiring with the loss of 10 million full-time jobs (http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html) and continuing job stress of 24 to 30 million people in the US and stagnant wages in a fractured job market (http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.htm and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-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. Jon Hilsenrath, writing on “Jobs upturn isn’t enough to satisfy Fed,” on Mar 8, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324582804578348293647760204.html), finds that much stronger labor market conditions are required for the Fed to end quantitative easing. Unconventional monetary policy with zero interest rates and quantitative easing is quite difficult to unwind because of the adverse effects of raising interest rates on valuations of risk financial assets and home prices, including the very own valuation of the securities held outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash.
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, total nonfarm payroll employment seasonally adjusted (SA) increased 236,000 in Feb 2013 and private payroll employment rose 246,000. The number of nonfarm jobs and private jobs created has been declining in 2012 from 311,000 in Jan 2012 to 87,000 in Jun, 138,000 in Sep, 160,000 in Oct, 247,000 in Nov and 219,000 in Dec 2012 for total nonfarm jobs and from 323,000 in Jan 2012 to 78,000 in Jun, 118,000 in Sep, 217,000 in Oct, 256,000 in Nov and 224,000 in Dec 2012 for private jobs. Average new nonfarm jobs in the quarter Dec 2011 to Feb 2012 were 270,667 per month, declining to average 157,273 per month in the eleven months from Mar 2012 to Jan 2013. Average new private jobs in the quarter Dec 2011 to Feb 2012 were 279,000 per month, declining to average 165,545 per month in the eleven months from Mar 2012 to Jan 2013. The number of 140,000 new private new jobs created in Jan 2013 is lower than the average 165,545 per month in Mar 2012 to Jan 2013. New farm jobs created in Feb 2013 were 236,000 and 246,000 in private jobs, which exceeds the average for the prior eleven months. The US labor force increased from 153.617 million in 2011 to 154.975 million in 2012 by 1.358 million or 113,167 per month. The average increase of nonfarm jobs in the six months from Sep 2012 to Feb 2013 was 186,500, which is a rate of job creation inadequate to reduce significantly unemployment and underemployment in the United States because of 113,167 new entrants in the labor force per month with 30.8 million unemployed or underemployed. The difference between the average increase of 186,500 new private nonfarm jobs per month in the US from Sep 2012 to Feb 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 73,333 monthly new jobs net of absorption of new entrants in the labor force. There are 30.8 million in job stress in the US currently. The provision of 73,333 new jobs per month net of absorption of new entrants in the labor force would require 419 months to provide jobs for the unemployed and underemployed (30.761 million divided by 73,333) or 34.9 years (419 divided by 12). The civilian labor force of the US in Feb 2013 not seasonally adjusted stood at 154.727 million with 12.500 million unemployed or effectively 19.849 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them for effective labor force of 162.076 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.1 years (1 million divided by product of 73,333 by 12, which is 879,996). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.736 million (0.05 times labor force of 154.727 million) for new net job creation of 4.764 million (12.500 million unemployed minus 7.736 million unemployed at rate of 5 percent) that at the current rate would take 5.4 years (4.764 million divided by 879,996). Under the calculation in this blog there are 19.849 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 162.076 million. 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 13.3 years (19.849 million minus 0.05(162.076 million) or 11.745 million divided by 879,996, 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 147.118 million in Nov 2007 to 142.228 million in Feb 2013, by 4.890 million, or decline of 3.3 percent, while the noninstitutional population increased from 232.939 million in Nov 2007 to 244.828 million in Feb 2013, by 11.889 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 2.1 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 30.8 million people corresponding to 19.0 percent of the effective labor force of the United States (http://cmpassocregulationblog.blogspot.com/2013/03/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, revised 3.1 percent in IIIQ2012 and 0.4 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 third estimate as 0.4 percent but mostly because of deduction of divestment of inventories of 1.52 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 1.8 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 0.4 percent to one quarter is 0.1 percent {[(1.004)1/4 – 1]100}. Real GDP growth in the four quarters of 2011 and the four quarters of 2012 accumulated to 3.7 percent {[(1.00025 x 1.0062 x 1.0032 x 1.010 x 1.005 x 1.0032 x 1.0077 x 1.001) - 1]100 = 3.7%}. This is equivalent to growth from IQ2011 to IVQ2012 obtained by dividing the seasonally-adjusted annual rate (SAAR) of IVQ2012 of $13,665.4 billion by the SAAR of IVQ2010 of $13,181.2 (http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1 and Table I-6 below) and expressing as percentage {[($13,665.4/$13,181.2) - 1]100 = 3.7%} with a minor rounding discrepancy. 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 1.001)4/8 -1]100 = 1.8%], or {[($13,665.4/$13,181.2)]4/8-1]100 = 1.8%} dividing the SAAR of IVQ2012 by the SAAR of IVQ2010 in Table I-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 1.7 percent {[(1.02)1/4(1.013)1/4(1.031)1/4(1.004)1/4 -1]100 = 1.7%}. This is equivalent to dividing the SAAR of $13,665.4 billion for IVQ2012 in Table I-6 by the SAAR of $13,441.0 billion in IVQ2011 except for a rounding discrepancy to obtain 1.7 percent {[($13,665.4/$13,441.0) – 1]100 = 1.7%}. 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 1.52 percentage points of inventory divestment and 1.28 percentage points of national defense expenditure reductions to obtain 3.2 percent, the US economy grew at 1.6 percent in the remaining six quarters {[(1.00025x1.0032x1.005x1.0032x1.0043x1.0079)4/6 – 1]100 = 1.6%} 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 0.4 percent in IVQ2012 that is more likely 3.2 percent by adding 1.52 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 1.52 percentage points of inventory divestment and 1.28 percentage points of national defense expenditure reductions. The Bureau of Economic Analysis (BEA) of the US Department of Commerce released on Wed Jan 30, 2012, the third estimate of GDP for IVQ2012 at 0.4 percent seasonally-adjusted annual rate (SAAR) (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp4q12_3rd.pdf). In the four quarters of 2012, the US economy is growing at the annual equivalent rate of 2.1 percent {([(1.021/4(1.013)1/4(1.0173)1/4(1.032)1/4]-1)100 = 2.1%} 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 1.52 percentage points of national defense expenditure reductions and 1.28 percentage points of inventory divestment to growth of 0.4 percent SAAR in IVQ2012 to obtain 3.2 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 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) and at its meeting on Mar 20, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130320a.htm):
“Release Date: Mar 20, 2013
For immediate release
Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive. 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 expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see 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 decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities 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 of 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. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.
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. 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 decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities 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: “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.”
4. Monitoring and Policy Focus on Jobs. The FOMC reconsiders its policy continuously in accordance with available information: “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 Mar 20, 2013. The Fed releases the data with careful explanations (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.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/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html) and the PCE inflation data from the report on personal income and outlays in Section IV (and earlier http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html and earlier at (http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html). The Bureau of Economic Analysis (BEA) provides the third estimate of IVQ2012 GDP and annual for 2012 with the first estimate for IQ2013 be released on Apr 26 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm See Section I and earlier at http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.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/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html 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 Mar will be released at 8:30 AM on Apr 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 was released on Mar 8, 2013 (http://www.bls.gov/ces/) and analyzed in this blog on Mar 10, 2013 (http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.htm). The report for Mar 2013 will be released on Apr 5, 2013 (http://www.bls.gov/ces/) and analyzed in this blog in the comment on Apr 7. “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 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 Mar 20, 2012 and the second row “PR” the projection of the Dec 12, 2012 meeting. There are three major changes in the view.
1. Growth “∆% GDP.” The FOMC has reduced the forecast of GDP growth in 2013 from 2.3 to 3.0 percent at the meeting in Dec 2012 to 2.3 to 2.8 percent at the meeting on Mar 20, 2013.
2. Rate of Unemployment “UNEM%.” The FOMC reduced the forecast of the rate of unemployment from 7.4 to 7.7 percent at the meeting on Dec 12, 2012 to 7.3 to 7.5 percent at the meeting on Mar 20, 2013.
3. Inflation “∆% PCE Inflation.” The FOMC changed the forecast of personal consumption expenditures (PCE) inflation from 1.3 to 2.0 percent at the meeting on Dec 12, 2012 to 1.3 to 1.7 percent at the meeting on Mar 20, 2013.
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 that changed from 1.6 to 1.9 percent at the meeting on Dec 12, 2012 to 1.5 to 1.6 percent at the meeting on Mar 20, 2013.
Table IV-2, US, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents in FOMC, Dec 2012 and Mar 2012
| ∆% GDP | UNEM % | ∆% PCE Inflation | ∆% Core PCE Inflation | |
| Central | ||||
| 2013 | 2.3 to 2.8 | 7.3 to 7.5 | 1.3 to 1.7 | 1.5 to 1.6 1.6 to 1.9 |
| 2014 | 2.9 to 3.4 | 6.7 to 7.0 | 1.5 to 2.0 | 1.7 to 2.0 |
| 2015 | 2.9 to 3.7 3.0 to 3.7 | 6.0 to 6.5 6.0 to 6.6 | 1.7 to 2.0 1.7 to 2.0 | 1.8 to 2.1 1.8 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 | ||||
| 2013 | 2.0 to 3.0 | 6.9 to 7.6 | 1.3 to 2.0 | 1.5 to 2.0 |
| 2014 | 2.6 to 3.8 | 6.1 to 7.1 | 1.4 to 2.1 | 1.5 to 2.1 |
| 2015 Dec PR | 2.5 to 3.8 2.5 to 4.2 | 5.7 to 6.5 5.7 to 6.8 | 1.6 to 2.6 1.5 to 2.2 | 1.7 to 2.6 1.7 to 2.2 |
| Longer Run Dec PR | 2.0 to 3.0 2.2 to 3.0 | 5.0 to 6.0 5.0 to 6.0 | 2.0 2.0 |
Notes: UEM: unemployment; PR: Projection
Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.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/fomcprojtabl20130320.pdf). There are 18 participants expecting the rate to remain at 0 to ¼ percent in 2013 and one to be higher in the interval below 1.0 percent. 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 | |
| 2013 | 18 | 1 | ||||
| 2014 | 14 | 1 | 3 | 1 | ||
| 2015 | 1 | 8 | 6 | 1 | 2 | 1 |
| Longer Run | 19 |
Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf
Additional information is provided in Table IV-4 with the number of participants expecting increasing interest rates in the years from 2013 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 |
| 2013 | 1 |
| 2014 | 4 |
| 2015 | 13 |
| 2016 | 1 |
Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.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 Feb 2013 (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf). There are waves of inflation similar to those worldwide (http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.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. Relaxed risk aversion was induced by the program of outright monetary transactions (OTM) of the European Central Bank (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html). 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 0.6 percent in Oct 2012 to Jan 2013 and PCEX at 1.8 percent while energy prices fell at minus 17.5 percent. In the tenth wave, central PCE increased at annual equivalent 4.9 percent in Feb 2013, PCEX at 1.2 percent and PCEE at 96.7 percent.
Table IV-5, US, Percentage Change from Prior Month of Prices of Personal Consumption Expenditures, Seasonally Adjusted Monthly ∆%
| PCE | PCEG | PCEG | PCES | PCEX | PCEF | PCEE | |
| 2013 | |||||||
| Feb | 0.4 | 0.9 | -0.1 | 0.1 | 0.1 | 0.2 | 5.8 |
| ∆% AE Feb | 4.9 | 11.4 | -1.2 | 1.2 | 1.2 | 2.4 | 96.7 |
| Jan | 0.0 | -0.2 | 0.1 | 0.1 | 0.2 | 0.0 | -1.9 |
| 2012 | |||||||
| Dec | 0.0 | -0.3 | -0.2 | 0.2 | 0.0 | 0.2 | -0.9 |
| Nov | -0.1 | -0.8 | -0.1 | 0.2 | 0.1 | 0.2 | -3.7 |
| Oct | 0.2 | 0.1 | -0.2 | 0.2 | 0.2 | 0.2 | 0.2 |
| ∆% AE Oct-Jan | 0.6 | -3.5 | -1.2 | 2.1 | 1.5 | 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
The 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 12-month 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 1.3 percent in Feb 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 Feb 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 | PCES | PCEX | PCEF | PCEE | |
| 2013 | |||||||
| Feb | 1.3 | 0.4 | -1.7 | 1.8 | 1.3 | 1.2 | 2.2 |
| Jan | 1.3 | 0.1 | -1.6 | 1.8 | 1.3 | 1.0 | 0.1 |
| 2012 | |||||||
| Dec | 1.5 | 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 | 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.bea.gov/iTable/index_nipa.cfm
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 0.7 percent in 12 months ending in Feb 2013, decrease of 0.2 percent NSA (not-seasonally-adjusted) in Feb 2013 and decline of 0.1 percent SA (seasonally-adjusted) in the month of Feb 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 | |
| Feb 2013 | -0.1 | -0.2 | -0.7 |
| Jan | -0.1 | 0.0 | -0.3 |
| Dec 2012 | 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
Source: 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 2013. 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
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
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
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
More detail on the consumer price index of Japan in Nov is shown in Table IV-8. Inflation in the 12 months ending in Feb 2013 has been driven by items rich in commodities such as 3.0 percent in fuel, light and water charges with increase of 0.1 percent in the month of Feb 2013. There is similar behavior in the preliminary estimate for Mar for the Ku Area of Tokyo with increase of 0.1 percent of fuel, light and water charges and increase of 4.2 percent in 12 months. There are increases of 0.6 percent of CPI transport and communications and 0.1 percent of CPI fuel, light and water charges in Feb 2013 relative to Jan 2013. There is mild deflation in the CPI excluding food, alcoholic beverages and energy with minus 0.9 percent in the 12 months ending in Feb 2013 and 0.0 percent in Feb 2013. The CPI excluding imputed rent decreased 0.2 percent in Feb 2013 and fell 0.7 percent in 12 months. The all-items CPI estimate for Mar 2013 of the Ku-Area of Tokyo increased 0.3 percent in Mar 2013 and declined 1.0 percent in 12 months.
Table IV-8, Japan, Consumer Price Index, ∆%
| 2013 | Feb 2013/Jan 2013 ∆% | Year ∆% |
| CPI All Items | -0.2 | -0.7 |
| CPI Excluding Fresh Food | 0.1 | -0.3 |
| CPI Excluding Food, Alcoholic Beverages and Energy | 0.0 | -0.9 |
| CPI Goods | -0.3 | -1.3 |
| CPI Services | 0.0 | -0.1 |
| CPI Excluding Imputed Rent | -0.2 | -0.7 |
| CPI Fuel, Light, Water Charges | 0.1 | 3.0 |
| CPI Transport & Communications | 0.6 | 0.9 |
| CPI Ku-Area Tokyo All Items | 0.3 | -1.0 |
| Fuel, Light, Water Charges Ku Area Tokyo | 0.1 | 4.2 |
Note: Ku-area Tokyo CPI data preliminary for Mar 2013
Sources: Japan, Statistics Bureau, Ministry of Internal Affairs and Communications http://www.stat.go.jp/english/data/cpi/index.htm
There are waves of inflation of producer prices in France as everywhere in the world economy (http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html), as shown in Table IV-9. 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 10.4 percent. In the second wave, producer prices fell 0.2 percent in May and another 0.1 percent in Jun for annual equivalent inflation in May-Jun 2011 of minus 1.8 percent. In the third wave from Jul to Sep 2011, annual equivalent producer price inflation was 3.7 percent. In the fourth wave Oct-Dec 2011, annual equivalent producer price inflation was 2.8 percent. In the fifth wave Jan-Mar 2012, average annual inflation rose to 6.2 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 5.1 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 7.1 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 4.1 percent in Nov-Dec 2012. In the ninth wave, inflation returned with annual equivalent 6.2 percent in Jan-Feb 2013. The bottom part of Table IV-12 shows producer price inflation at 3.2 percent in the 12 months ending in Dec 2005 and again at 4.6 percent in the 12 months ending in Dec 2007. Producer prices fell in 2009 during the global contraction and decline of commodity prices but returned at 4.3 percent in the 12 months ending in Dec 2010.
Table IV-9, France, Producer Price Index for the French Market, ∆%
| Month | 12 Months | |
| Feb 2013 | 0.4 | 1.9 |
| Jan | 0.6 | 1.9 |
| AE ∆% Jan | 6.2 | |
| Dec 2012 | -0.5 | 1.8 |
| Nov | -0.2 | 2.1 |
| AE ∆% Nov-Dec | -4.1 | |
| Oct | 0.4 | 2.6 |
| Sep | 0.3 | 2.6 |
| Aug | 1.1 | 2.6 |
| Jul | 0.5 | 1.5 |
| AE ∆% Jul-Oct | 7.1 | |
| Jun | -0.6 | 1.6 |
| May | -0.8 | 2.1 |
| Apr | 0.1 | 2.8 |
| AE ∆% Apr-Jun | -5.1 | |
| Mar | 0.5 | 3.6 |
| Feb | 0.5 | 4.0 |
| Jan | 0.5 | 4.2 |
| AE ∆% Jan-Mar | 6.2 | |
| Dec 2011 | -0.2 | 4.5 |
| Nov | 0.4 | 5.2 |
| Oct | 0.5 | 5.3 |
| AE ∆% Oct-Dec | 2.8 | |
| Sep | 0.3 | 5.4 |
| Aug | 0.0 | 5.6 |
| Jul | 0.6 | 5.7 |
| AE ∆% Jul-Sep | 3.7 | |
| Jun | -0.1 | 5.4 |
| May | -0.2 | 5.7 |
| AE ∆% May-Jun | -1.8 | |
| Apr | 1.0 | 6.0 |
| Mar | 0.8 | 5.7 |
| Feb | 0.7 | 5.2 |
| Jan | 0.8 | 4.6 |
| AE ∆% Jan-Apr | 10.4 | |
| Dec 2010 | 4.3 | |
| Dec 2009 | -2.9 | |
| Dec 2008 | 0.8 | |
| Dec 2007 | 4.6 | |
| Dec 2006 | 2.6 | |
| Dec 2005 | 3.2 |
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20130329
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-Feb 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=20130329
France’s producer price index for the domestic market is shown in Table IV-10 for Feb 2013. The segment of prices of coke and refined petroleum increased 3.7 percent in Feb 2013 and decreased 1.4 percent in 12 months. Manufacturing prices, with the highest weight in the index, increased 0.3 percent in Feb and rose 0.9 percent in 12 months. Mining prices increased 0.9 percent in Feb and increased 5.1 percent in 12 months. Waves of inflation originating in carry trades from unconventional monetary policy of zero interest rates (http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.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-10, France, Producer Price Index for the Domestic Market, %
| Feb 2013 | Weight | Month ∆% | 12 Months ∆% |
| Total | 1000 | 0.4 | 1.9 |
| Mining | 234 | 0.9 | 5.1 |
| Mfg | 766 | 0.3 | 0.9 |
| Food Products, Beverages, Tobacco | 209 | 0.0 | 4.1 |
| Coke and Refined Petroleum | 52 | 3.7 | -1.4 |
| Electrical, Electronic | 51 | 0.4 | 0.9 |
| Transport | 72 | 0.3 | 0.2 |
| Other Mfg | 382 | -0.1 | -0.4 |
Source: Institut National de la Statistique et des Études Économiques http://www.insee.fr/en/themes/info-rapide.asp?id=25&date=20130329
Italy’s producer price inflation in Table IV-11 also has the same waves in 2011 and into 2012-2013 observed for many countries (http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html). The annual equivalent producer price inflation in the first wave Jan-Apr 2011 was 10.7 percent, which was driven by increases in commodity prices resulting from the carry trades from zero interest rates to risk financial assets, in particular leveraged positions in commodities. In the second wave, producer price inflation was 1.8 percent in annual equivalent rate in May-Jun 2011. In the third wave, annual equivalent inflation was 4.9 percent in Jul-Sep 2011. With the return of risk aversion in the fourth wave coinciding with the worsening sovereign debt crisis in Europe, annual equivalent inflation was 2.0 percent in Oct-Dec 2011. Inflation accelerated in the fifth wave in Jan and Feb 2012 to annual equivalent 8.1 percent. In the sixth wave, annual equivalent inflation in Mar-Apr was at 6.8 percent. In the seventh wave, risk aversion originating in world economic slowdown and financial turbulence softened carry trades with annual equivalent inflation falling to minus 0.6 percent in May-Jun 2012. In the eighth wave, more aggressive carry trades into commodity futures exposures resulted in increase of inflation at annual equivalent 9.4 percent in Jul-Aug 2012. In the ninth wave, risk aversion caused unwinding carry trades with annual equivalent inflation of minus 5.2 percent in Sep 2012-Jan 2013. Inflation returned in the tenth wave at 2.4 percent annual equivalent in Feb 2013.
Table IV-11, Italy, Industrial Prices, Internal Market
| Month ∆% | 12-Month ∆% | |
| Feb 2013 | 0.2 | 0.5 |
| AE ∆% Feb | 2.4 | |
| Jan | -0.6 | 0.7 |
| Dec 2012 | -0.3 | 2.4 |
| Nov | -0.3 | 2.8 |
| Oct | -0.7 | 3.5 |
| Sep | -0.3 | 4.2 |
| AE ∆% Sep-Jan | -5.2 | |
| Aug | 1.1 | 4.5 |
| Jul | 0.4 | 3.8 |
| AE ∆% Jul-Aug | 9.4 | |
| Jun | 0.0 | 4.2 |
| May | -0.1 | 4.4 |
| AE ∆% May-Jun | -0.6 | |
| Apr | 0.6 | 4.6 |
| Mar | 0.5 | 4.8 |
| AE ∆% Mar-Apr | 6.8 | |
| Feb | 0.5 | 5.2 |
| Jan | 0.8 | 5.2 |
| AE ∆% Jan-Feb | 8.1 | |
| Dec 2011 | 0.1 | 5.5 |
| Nov | 0.4 | 6.0 |
| Oct | 0.0 | 6.1 |
| AE ∆% Oct-Dec | 2.0 | |
| Sep | 0.0 | 5.3 |
| Aug | 0.4 | 5.4 |
| Jul | 0.8 | 5.2 |
| AE ∆% Jul-Sep | 4.9 | |
| Jun | 0.2 | 4.6 |
| May | 0.1 | 4.6 |
| AE ∆% May-Jun | 1.8 | |
| Apr | 0.9 | 5.1 |
| Mar | 0.9 | 5.0 |
| Feb | 0.4 | 4.5 |
| Jan | 1.2 | 5.3 |
| AE ∆% Jan-Apr | 10.7 | |
| Year | ||
| 2012 | 4.2 | |
| 2011 | 5.1 | |
| 2010 | 3.1 | |
| 2009 | -5.4 | |
| 2008 | 5.8 | |
| 2007 | 3.3 | |
| 2006 | 5.3 | |
| 2005 | 4.0 | |
| 2004 | 2.8 | |
| 2003 | 1.6 | |
| 2002 | 0.1 | |
| 2001 | 2.0 |
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/86538
Chart IV-21 of the Istituto Nazionale di Statistica provides 12-month percentage changes of the producer price index of Italy. Rates of change in 12 months stabilized from Jul to Nov 2011 and then fell to 3.5 percent in Jan 2012 with increases of 0.7 percent in the month of Jan 2013 and 0.5 percent in Feb 2013.
Chart IV-21, Italy, Producer Price Index 12-Month Percentage Changes
Source: Istituto Nazionale di Statistica
Monthly and 12-month inflation of the producer price index of Italy and individual components is provided in Table IV-12. Energy prices increased 0.2 percent in Feb 2013 and fell 0.4 percent in 12 months. Producer-price inflation is positive for most components in the month of Feb 2013 with the exception of decline of 0.1 percent for intermediate goods. There is higher inflation in 12 months of 2.1 percent for nondurable goods than 0.3 percent for durable goods.
Table IV-12, Italy, Industrial Prices, Internal Market, ∆%
| Feb 2013/ | Feb 2013/ | |
| Total | 0.2 | 0.5 |
| Consumer Goods | 0.1 | 1.8 |
| Durable Goods | 0.1 | 0.3 |
| Nondurable | 0.1 | 2.1 |
| Capital Goods | 0.1 | 0.4 |
| Intermediate | -0.1 | 0.1 |
| Energy | 0.2 | -0.4 |
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/86538
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-13. 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 Mar 2013 was 2.4 percent. Economies are shocked worldwide by intermittent waves of inflation originating in combination of zero interest rates and quantitative easing with alternation of risk appetite and risk aversion (http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html).
Table IV-13, Italy, Consumer Price Index
| Month | 12 Months | |
| Mar 2013 | 0.3 | 1.7 |
| Feb | 0.1 | 1.9 |
| Jan | 0.2 | 2.2 |
| Dec 2012 | 0.2 | 2.3 |
| AE ∆% Dec 2012-Mar 2013 | 2.4 | |
| Nov 2012 | -0.2 | 2.5 |
| Oct | 0.0 | 2.6 |
| Sep | 0.0 | 3.2 |
| AE ∆% Sep-Nov | -0.8 | |
| Aug | 0.4 | 3.2 |
| Jul | 0.1 | 3.1 |
| AE ∆% Jul-Aug | 3.0 | |
| June | 0.2 | 3.3 |
| May | 0.0 | 3.2 |
| AE ∆% May-Jun | 1.2 | |
| Apr | 0.5 | 3.3 |
| Mar | 0.5 | 3.3 |
| Feb | 0.4 | 3.3 |
| AE ∆% Feb-Apr | 5.7 | |
| Jan | 0.3 | 3.2 |
| Dec 2011 | 0.4 | 3.3 |
| AE ∆% Dec-Jan | 4.3 | |
| Nov | -0.1 | 3.3 |
| Oct | 0.6 | 3.4 |
| AE ∆% Oct-Nov | 3.0 | |
| Sep | 0.0 | 3.0 |
| Aug | 0.3 | 2.8 |
| Jul | 0.3 | 2.7 |
| AE ∆% Jul-Sep | 2.4 | |
| Jun | 0.1 | 2.7 |
| May | 0.1 | 2.6 |
| AE ∆% May-Jun | 1.2 | |
| Apr | 0.5 | 2.6 |
| Mar | 0.4 | 2.5 |
| Feb | 0.3 | 2.4 |
| Jan | 0.4 | 2.1 |
| AE ∆% Jan-Apr | 4.9 | |
| Dec 2010 | 0.4 | 1.9 |
| Annual | ||
| 2012 | 3.0 | |
| 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/86554
Consumer price inflation in Italy by segments in the estimate by ISTAT for Mar 2013 is provided in Table IV-14. Total consumer price inflation in Mar 2013 was 0.1 percent and 1.7 percent in 12 months. Inflation of goods was 0.1 percent in Mar 2013 and 1.7 percent in 12 months. Prices of durable goods decreased 0.1 percent in Mar and decreased 0.2 percent in 12 months, as typical in most countries. Prices of energy increased 0.2 percent in Mar and increased 3.4 percent in 12 months. Food prices increased 0.1 percent in Mar and increased 2.5 percent in 12 months. Prices of services increased 0.5 percent in Mar and rose 1.7 percent in 12 months. Transport prices, also influenced by commodity prices, increased 1.7 percent in Mar and increased 3.3 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/2013/03/recovery-without-hiring-ten-million.html).
Table IV-14, Italy, Consumer Price Index and Segments, Month and 12-Month ∆%
| Mar 2013 | Weights | Month ∆% | 12-Month ∆% |
| General Index | 1,000,000 | 0.3 | 1.7 |
| I Goods | 559,402 | 0.1 | 1.7 |
| Food | 168,499 | 0.1 | 2.5 |
| Energy | 94,758 | 0.2 | 3.4 |
| Durable | 89,934 | -0.1 | -0.2 |
| Nondurable | 71,031 | -0.1 | 1.2 |
| II Services | 440,598 | 0.5 | 1.7 |
| Housing | 71,158 | 0.1 | 2.0 |
| Communications | 20,227 | -0.7 | -5.0 |
| Transport | 81,266 | 1.7 | 3.3 |
Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/86554
Chart IV-22 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, 1.9 percent in Feb 2013 and 1.7 percent in Mar 2013.
Chart, IV-22, Italy, Consumer Price Index, 12-Month Percentage Changes
Source: Istituto Nazionale di Statistica
V World Economic Slowdown. Table V-1 is constructed with the database of the IMF (http://www.imf.org/external/datamapper/index.php?db=WEO) and the update of Jan 2013 (http://www.imf.org/external/pubs/ft/weo/2013/update/01/index.htm) to show GDP in dollars in 2011 and the growth rate of real GDP of the world and selected regional countries from 2012 to 2015. The data illustrate the concept often repeated of “two-speed recovery” of the world economy from the recession of 2007 to 2009. The IMF has lowered its forecast of the world economy to 3.2 percent in 2012 but accelerating to 3.5 percent in 2013, 4.1 percent in 2014 and 4.4 percent in 2015. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $33,697 billion of world output of $69,899 billion, or 48.2 percent, but are projected to grow at much lower rates than world output, 1.9 percent on average from 2012 to 2015 in contrast with 3.8 percent for the world as a whole. While the world would grow 16.1 percent in the four years from 2012 to 2015, the G7 as a whole would grow 7.6 percent. The difference in dollars of 2011 is rather high: growing by 16.1 percent would add $11.5 trillion of output to the world economy, or roughly two times the output of the economy of Japan of $5,867 but growing by 7.6 percent would add $5.3 trillion of output to the world, or somewhat below the output of Japan in 2011. The “two speed” concept is in reference to the growth of the 150 countries labeled as emerging and developing economies (EMDE) with joint output in 2011 of $25,438 billion, or 36.4 percent of world output. The EMDEs would grow cumulatively 24.6 percent or at the average yearly rate of 5.7 percent, contributing $6.3 trillion from 2012 to 2015 or the equivalent of 86.3 percent of $7,298 billion of China in 2011. The final four countries in Table V-1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output adds to $13,468 billion, or 19.3 percent of world output, which is equivalent to 39.9 percent of the combined output of the major advanced economies of the G7.
Table V-1, IMF World Economic Outlook Database Projections of Real GDP Growth
| GDP USD 2011 | Real GDP ∆% | Real GDP ∆% | Real GDP ∆% | Real GDP ∆% | |
| World | 69,899 | 3.3 | 3.6 | 4.2 | 4.4 |
| G7 | 33,697 | 1.4 | 1.5 | 2.2 | 2.5 |
| Canada | 1,739 | 1.9 | 2.0 | 2.4 | 2.4 |
| France | 2,778 | 0.1 | 0.4 | 1.1 | 1.5 |
| DE | 3,607 | 0.9 | 0.9 | 1.4 | 1.4 |
| Italy | 2,199 | -2.3 | -0.7 | 0.5 | 1.2 |
| Japan | 5,867 | 2.2 | 1.2 | 1.1 | 1.2 |
| UK | 2,431 | -0.4 | 1.1 | 2.2 | 2.6 |
| US | 15,076 | 2.2 | 2.1 | 2.9 | 3.4 |
| Euro Area | 13,114 | -0.4 | 0.2 | 1.2 | 1.5 |
| DE | 3,607 | 0.9 | 0.9 | 1.4 | 1.4 |
| France | 2,778 | 0.1 | 0.4 | 1.1 | 1.5 |
| Italy | 2,199 | -2.3 | -0.7 | 0.5 | 1.2 |
| POT | 238 | -3.0 | -1.0 | 1.2 | 1.9 |
| Ireland | 221 | 0.4 | 1.4 | 2.5 | 2.9 |
| Greece | 299 | -6.0 | -4.0 | 0.0 | 2.8 |
| Spain | 1,480 | -1.5 | -1.3 | 1.0 | 1.6 |
| EMDE | 25,438 | 5.3 | 5.6 | 5.9 | 6.1 |
| Brazil | 2,493 | 1.5 | 3.9 | 4.2 | 4.2 |
| Russia | 1,850 | 3.7 | 3.8 | 3.9 | 3.9 |
| India | 1,827 | 4.9 | 6.0 | 6.4 | 6.7 |
| China | 7,298 | 7.8 | 8.2 | 8.5 | 8.5 |
Notes; DE: Germany; EMDE: Emerging and Developing Economies (150 countries); POT: Portugal
Source: IMF World Economic Outlook databank http://www.imf.org/external/datamapper/index.php?db=WEO
Table V-2 is constructed with the WEO database to provide rates of unemployment from 2011 to 2015 for major countries and regions. In fact, unemployment rates for 2011 in Table V-2 are high for all countries: unusually high for countries with high rates most of the time and unusually high for countries with low rates most of the time. Estimated rates of unemployment for 2012 are particularly high for the countries with sovereign debt difficulties in Europe: 15.5 percent for Portugal (POT), 14.8 percent for Ireland, 23.8 percent for Greece, 24.9 percent for Spain and 10.6 percent for Italy, which is lower but still high. The G7 rate of unemployment is estimated at 7.5 percent. Unemployment rates are not likely to decrease substantially if slow growth persists in advanced economies.
Table V-2, IMF World Economic Outlook Database Projections of Unemployment Rate as Percent of Labor Force
| % Labor Force 2011 | % Labor Force 2012 | % Labor Force 2013 | % Labor Force 2014 | % Labor Force 2015 | |
| World | NA | NA | NA | NA | NA |
| G7 | 7.7 | 7.5 | 7.5 | 7.3 | 6.9 |
| Canada | 7.5 | 7.3 | 7.3 | 7.1 | 6.9 |
| France | 9.6 | 10.1 | 10.5 | 10.3 | 9.8 |
| DE | 6.0 | 5.2 | 5.3 | 5.2 | 5.2 |
| Italy | 8.4 | 10.6 | 11.1 | 11.3 | 11.0 |
| Japan | 4.6 | 4.5 | 4.4 | 4.5 | 4.4 |
| UK | 8.0 | 8.1 | 8.1 | 7.9 | 7.6 |
| US | 8.9 | 8.2 | 8.1 | 7.7 | 7.1 |
| Euro Area | 10.2 | 11.2 | 11.5 | 11.2 | 10.8 |
| DE | 6.0 | 5.2 | 5.3 | 5.2 | 5.2 |
| France | 9.6 | 10.1 | 10.5 | 10.3 | 9.8 |
| Italy | 8.4 | 10.6 | 11.1 | 11.3 | 11.0 |
| POT | 12.7 | 15.5 | 16.0 | 15.3 | 14.7 |
| Ireland | 14.4 | 14.8 | 14.4 | 13.7 | 13.1 |
| Greece | 17.3 | 23.8 | 25.4 | 24.5 | 22.4 |
| Spain | 21.7 | 24.9 | 25.1 | 24.1 | 23.2 |
| EMDE | NA | NA | NA | NA | NA |
| Brazil | 6.0 | 6.0 | 6.5 | 7.0 | 7.0 |
| Russia | 6.5 | 6.0 | 6.0 | 6.0 | 6.0 |
| India | NA | NA | NA | NA | NA |
| China | 4.1 | 4.1 | 4.1 | 4.1 | 4.1 |
Notes: DE: Germany; EMDE: Emerging and Developing Economies (150 countries)
Source: IMF World Economic Outlook databank http://www.imf.org/external/datamapper/index.php?db=WEO
Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog for IQ2012, IIQ2012 and IVQ2012 available now for all countries. Growth is weak throughout most of the world. Japan’s GDP increased 1.5 percent in IQ2012 and 3.4 percent relative to a year earlier but part of the jump could be the low level a year earlier because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan is experiencing difficulties with the overvalued yen because of worldwide capital flight originating in zero interest rates with risk aversion in an environment of softer growth of world trade. Japan’s GDP fell 0.2 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of minus 0.9 percent, which is much lower than 6.1 percent in IQ2012. Growth of 3.9 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 0.9 percent in IIIQ2012 at the SAAR of minus 3.7 percent and increased 0.4 percent relative to a year earlier. Japan’s GDP grew 0.0 percent in IVQ2012 at the SAAR of 0.2 percent and increased 0.5 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 fell 0.1 percent in the euro area in IQ2012 and increased 0.3 in IQ2012 relative to a year earlier. Euro area GDP contracted 0.2 percent IIQ2012 and fell 0.8 percent relative to a year earlier. In IIIQ2012, euro area GDP fell 0.1 percent and declined 0.8 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 2.4 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,
0.4 percent at SAAR and 1.7 percent relative to IVQ2011 (Section I and earlier at http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html) and weak hiring (http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html and earlier 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 changed 0.0 percent relative to a year earlier. UK GDP increased 0.9 percent in IIIQ2012 and increased 0.4 percent relative to a year earlier. UK GDP fell 0.3 percent in IVQ2012 relative to IIIQ2012 and increased 0.2 percent relative to a year earlier. Italy has experienced decline of GDP in six consecutive quarters from IIIQ2011 to IVQ2012. Italy’s GDP fell 0.9 percent in IQ2012 and declined 1.6 percent relative to IQ2011. Italy’s GDP fell 0.7 percent in IIQ2012 and declined 2.6 percent relative to a year earlier. In IIIQ2012, Italy’s GDP fell 0.2 percent and declined 2.6 percent relative to a year earlier. The GDP of Italy contracted 0.9 percent in IVQ2012 and fell 2.8 percent relative to a year earlier. France’s GDP fell 0.1 percent in IQ2012 and increased 0.5 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 0.2 percent and increased 0.1 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: 6.1 | 3.4 |
| China | 1.8 | 8.1 |
| Euro Area | -0.1 | 0.3 |
| Germany | 0.5 | 1.7 |
| France | -0.1 | 0.5 |
| Italy | -0.9 | -1.6 |
| United Kingdom | -0.1 | 0.3 |
| IIQ2012/IQ2012 | IIQ2012/IIQ2011 | |
| United States | QOQ: 0.3 SAAR: 1.3 | 2.1 |
| Japan | QOQ: -0.2 | 3.9 |
| China | 1.8 | 7.6 |
| Euro Area | -0.2 | -0.8 |
| Germany | 0.3 | 0.5 1.0 CA |
| France | -0.1 | 0.1 |
| Italy | -0.7 | -2.6 |
| United Kingdom | -0.4 | 0.0 |
| IIIQ2012/ IIQ2012 | IIIQ2012/ IIIQ2011 | |
| United States | QOQ: 0.8 | 2.6 |
| Japan | QOQ: –0.9 | 0.4 |
| China | 2.2 | 7.4 |
| Euro Area | -0.1 | -0.8 |
| Germany | 0.2 | 0.4 |
| France | 0.2 | 0.1 |
| Italy | -0.2 | -2.6 |
| United Kingdom | 0.9 | 0.4 |
| IVQ2012/IIIQ2012 | IVQ2012/IVQ2011 | |
| United States | QOQ: 0.1 | 1.7 |
| Japan | QOQ: 0.0 SAAR: 0.2 | 0.5 |
| China | 2.0 | 7.9 |
| Euro Area | -0.6 | -0.9 |
| Germany | -0.6 | 0.1 |
| France | -0.3 | -0.3 |
| Italy | -0.9 | -2.8 |
| United Kingdom | -0.3 | 0.2 |
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 http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html and earlier 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 Feb 2013, Japan’s exports increased 2.9 percent in 12 months and imports increased 11.9 percent. 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 1.4 percent in the month of Jan 2013 and increased 3.1 percent in the 12 months ending in Jan 2013 while imports increased 3.3 percent in the month of Jan and increased 3.3 percent in the 12 months ending in Jan. 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 0.7 percentage points from UK value added in IQ2012, deducted 0.8 percentage points in IIQ2012, added 0.4 percentage points in IIIQ2012 and subtracted 0.2 percentage points in IVQ2012. France’s exports decreased 2.4 percent in Jan while imports decreased 1.0 percent and net trade deducted 0.4 percentage points from GDP growth in IIQ2012, adding 0.3 percentage points in IIIQ2012 and 0.2 percentage points in IVQ2012. US exports decreased 1.2 percent in Jan 2013 and goods exports increased 4.3 percent in Jan relative to a year earlier but net trade added 0.38 percentage points to GDP growth in IIIQ2012 and added 0.33 percentage points in IVQ2012. US imports increased 1.8 percent in Jan 2013 and goods imports increased 0.9 percent in Jan 2013 relative to a year earlier. In the six months ending in Feb 2013, United States national industrial production accumulated increase of 2.5 percent at the annual equivalent rate of 5.1 percent, which is higher than 2.5 percent growth in 12 months. Business equipment decreased 0.4 percent in Sep, decreased 1.2 percent in Oct, increased 3.1 percent in Nov, increased 0.5 percent in Dec, fell 1.3 percent in Jan, and increased 2.5 percent in Feb 2013, growing 3.2 percent in the 12 months ending in Feb 2013 and at the annual equivalent rate of 6.4 percent in the six months ending in Feb 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 increased to 79.6 percent [in Feb 2013], a rate that is 0.6 percentage points below its long-run (1972--2012) average.” United States industry is apparently decelerating with some strength at the margin. Manufacturing increased 0.8 percent in Feb 2013 seasonally adjusted, increasing 2.2 percent not seasonally adjusted in 12 months, and increased 3.0 percent in the six months ending in Feb 2013 or at the annual equivalent rate of 6.1 percent. Trade values incorporate both price and quantity effects that are difficult to separate. Data do suggest that world trade slowdown is accompanying world economic slowdown.
Table V-4, Growth of Trade and Contributions of Net Trade to GDP Growth, ∆% and % Points
| Exports | Exports 12 M ∆% | Imports | Imports 12 M ∆% | |
| USA | -1.2 Jan | 4.3 Jan | 1.8 Jan | 0.9 Jan |
| Japan | Feb 2013 -2.9 Jan 2013 6.4 Dec -5.8 Nov -4.1 Oct -6.5 Sep -10.3 Aug -5.8 Jul -8.1 | Feb 2013 11.9 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 -25.6 Feb | 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 23.6 Jan-Feb | 2.2 Jul -0.3 Aug 4.9 Sep -9.4 Oct 11.3 Oct 4.9 Dec -12.5 Jan 13 -21.6 Feb | 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 5.1 Jan-Feb |
| Euro Area | 5.2 12-M Jan | 7.4 Jan-Dec | 1.4 12-M Jan | 1.8 Jan-Dec |
| Germany | 1.4 Jan CSA | 3.1 Jan | 3.3 Jan CSA | 3.3 Jan |
| France Jan | -2.4 | 0.0 | -1.0 | 0.7 |
| Italy Jan | 1.4 | 8.7 | 0.4 | -1.8 |
| 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 +0.33 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 | -0.4 IIQ2012 0.3 IIIQ2012 0.2 IVQ2012 | |||
| UK | -0.7 IQ2012 -0.8 IIQ2012 +0.4 IIIQ2012 -0.2 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.statistics.gov.uk/hub/index.html
The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table V-5 for Feb 2013. The share of Asia in Japan’s trade is more than one half, 52.2 percent of exports and 42.1 percent of imports. Within Asia, exports to China are 15.9 percent of total exports and imports from China 18.5 percent of total imports. While exports to China fell 15.8 percent in the 12 months ending in Feb 2013, imports from China increased 22.0 percent. The second largest export market for Japan in Feb 2013 is the US with share of 19.1 percent of total exports and share of imports from the US of 7.9 percent in total imports. Western Europe has share of 10.6 percent in Japan’s exports and of 9.9 percent in imports. Rates of growth of exports of Japan in Feb 2013 are sharply negative for all countries and regions with the exception of growth of 5.7 percent for exports to the US and 1.3 percent for exports to Australia. 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 2.9 percent in Feb 2013 while imports increased 11.9 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Feb 2013 are positive for all trading partners. Imports from Asia increased 14.0 percent in the 12 months ending in Feb 2013 while imports from China increased 22.0 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
| Feb 2013 | Exports | 12 months ∆% | Imports Millions Yen | 12 months ∆% |
| Total | 5,284,067 | -2.9 | 6,061,534 | 11.9 |
| Asia | 2,757,508 | -5.2 | 2,551,827 | 14.0 |
| China | 842,260 | -15.8 | 1,119,981 | 22.0 |
| USA | 1,007,389 | 5.7 | 479,214 | 0.6 |
| Canada | 72,975 | -17.2 | 77,539 | 22.2 |
| Brazil | 39,131 | -1.8 | 97,131 | 15.1 |
| Mexico | 71,309 | 4.7 | 29,109 | 32.3 |
| Western Europe | 558,641 | -9.0 | 600,914 | 11.3 |
| Germany | 136,919 | -2.5 | 160,801 | 7.8 |
| France | 44,677 | -15.1 | 80,966 | 8.9 |
| UK | 88,406 | -16.7 | 49,949 | 19.9 |
| Middle East | 194,606 | -6.9 | 1,358,008 | 14.4 |
| Australia | 136,255 | 1.3 | 352,350 | 1.9 |
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 53.0 in Feb from 53.2 in Jan, indicating expansion at a moderate rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10838).This index has remained above the contraction territory of 50.0 during 43 consecutive months and the average for IQ2013 in the first two months is slightly higher than 52.9 in IVQ2012. The employment index was unchanged at 52.3 in Feb relative to 52.3 in Jan with input prices rising at a faster rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10838) David Hensley, Director of Global Economic Coordination at JP Morgan, finds finds that increasing new business could signal improvement in the index (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10838). 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, decreased from 54.9 in Jan to 52.9 in Feb, indicating solid expansion but at a four-month low (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10833). The HSBC Brazil Services Business Activity index, compiled by Markit, decreased from 54.5 in Jan to 52.1 in Feb (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10833). Andre Loes, Chief Economist, Brazil, at HSBC, finds recovering economy but within a modest forecast for 2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10833). The HSBC Brazil Purchasing Managers’ IndexTM (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 increased to 54.9 in Mar from 54.3 in Feb, continuing to suggest strengthening US manufacturing activity (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10868).
New export orders registered 51.2 in Mar from 48.5 in Feb, indicating expansion at a moderate rate while output continued growth after a high of eleven months in Feb. Chris Williams, Chief Economist at Markit, finds that the survey data are consistent with growth at 2.0 percent in IQ2013 that can provide impulse to US economic growth (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10868). 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 increased 0.8 percentage points from 55.2 in Jan to 56.0 in Feb, indicating production growth during 43 consecutive months, while the index of new orders increased 3.8 percentage points from 54.4 in Jan to 58.2 in Feb (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 | Feb 12 months NSA ∆%: 2.0; ex food and energy ∆%: 2.0 Feb month SA ∆%: 0.7; ex food and energy ∆%: 0.2 |
| Producer Price Index | Feb 12-month NSA ∆%: 1.3; ex food and energy ∆% 1.3 |
| PCE Inflation | Jan 12-month NSA ∆%: headline 1.2; ex food and energy ∆% 1.3 |
| Employment Situation | Household Survey: Feb Unemployment Rate SA 7.7% |
| Nonfarm Hiring | Nonfarm Hiring fell from 63.8 million in 2006 to 52.0 million in 2012 or by 11.8 million |
| GDP Growth | BEA Revised National Income Accounts IIQ2012/IIQ2011 2.1 IIIQ2012/IIIQ2011 2.6 IVQ2012/IVQ2011 1.7 IQ2012 SAAR 2.0 IIQ2012 SAAR 1.3 IIIQ2012 SAAR 3.1 IVQ2012 SAAR 0.4 |
| Real Private Fixed Investment | SAAR IVQ2012 9.7 ∆% IVQ2007 to IIIQ2012: minus 11.2% Blog 3/3/13 |
| Personal Income and Consumption | Feb month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 0.7 |
| Quarterly Services Report | IVQ12/IVQ11 SA ∆%: Financial & Insurance 6.2 |
| Employment Cost Index | Compensation Private IVQ2012 SA ∆%: 0.5 |
| Industrial Production | Feb month SA ∆%: 0.7 Manufacturing Feb SA ∆% 0.8 Feb 12 months SA ∆% 2.0, NSA 2.2 |
| 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 3/10/2013 |
| New York Fed Manufacturing Index | General Business Conditions From Feb 10.04 to Mar 9.24 |
| Philadelphia Fed Business Outlook Index | General Index from Feb -12.5 to Mar 2.0 |
| Manufacturing Shipments and Orders | New Orders SA Jan ∆% -2.0 Ex Transport 1.3 Jan NSA New Orders 1.2 Ex transport 3.0 |
| Durable Goods | Feb New Orders SA ∆%: 5.7; ex transport ∆%: -0.5 |
| Sales of New Motor Vehicles | Jan-Feb 2013 2,235,352; Jan-Feb 2012 2,062,722. Jan 13 SAAR 15.29 million, Feb 13 SAAR 15.38 million, Feb 2012 SAAR 14.50 million Blog 3/10/13 |
| Sales of Merchant Wholesalers | Jan 2013/Jan 2012 NSA ∆%: Total 5.9; Durable Goods: 5.4; Nondurable |
| Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers | Jan 13/Jan 12 NSA ∆%: Sales Total Business 4.9; Manufacturers 3.1 |
| Sales for Retail and Food Services | Feb 2013/Feb 2012 ∆%: Retail and Food Services 3.6; Retail ∆% 3.6 |
| Value of Construction Put in Place | Jan SAAR month SA ∆%: -2.1 Jan 12-month NSA: 7.6 Jan-Dec 2012 ∆% 9.2 |
| Case-Shiller Home Prices | Jan 2013/Jan 2012 ∆% NSA: 10 Cities 7.3; 20 Cities: 8.1 |
| FHFA House Price Index Purchases Only | Jan SA ∆% 0.6; |
| New House Sales | Feb 2013 month SAAR ∆%: minus 4.6 |
| Housing Starts and Permits | Feb Starts month SA ∆%: 0.8 ; Permits ∆%: 4.6 |
| Trade Balance | Balance Jan SA -$44,448 million versus Dec -$18144 million |
| Export and Import Prices | Feb 12-month NSA ∆%: Imports -0.3; Exports 1.5 |
| Consumer Credit | Jan ∆% annual rate: 7.0 |
| Net Foreign Purchases of Long-term Treasury Securities | Jan Net Foreign Purchases of Long-term Treasury Securities: $25.7 billion |
| Treasury Budget | Fiscal Year 2013/2012 ∆% Feb: Receipts 13.1; Outlays 2.1; Individual Income Taxes 17.7 Deficit Fiscal Year 2012 $1,089,353 million Blog 3/17/2013 |
| 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 | Feb 2013 SAAR ∆%: Securities -3.2 Loans 2.1 Cash Assets 66.6 Deposits 4.5 Blog 3/24/13 |
| Flow of Funds | 2012 ∆ since 2007 Assets -$868.9 MM Real estate -$3562.7 MM Financial +$2204.3 MM Net Worth -$46.6 MM Blog 3/17/13 |
| Current Account Balance of Payments | IVQ2012 +$6793 MM %GDP 2.8 Blog 3/17/13 |
Links to blog comments in Table USA:
3/24/13 http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html
3/17/13 http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html
3/10/13 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.html
3/3/13 http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html
2/10/13 http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html
12/23-24/12 http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.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 increased 1.0 percent in Feb 2013 after decreasing 0.7 percent in Jan 2013 and increasing 0.6 percent in Dec 2012. New orders increased 5.7 percent in Feb 2013 after decreasing 3.8 percent in Jan 2013 and increasing 3.6 percent in Dec 2012, as shown in Table VA-1. These data are very volatile. Volatility is illustrated by decrease of 12.9 percent in Nov after increase of orders for nondefense aircraft of 2642.2 percent in Sep 2012 after decrease of 97.2 percent in Aug and increases of 51.1 percent in Jul and 32.5 percent in Jun. Nondefense aircraft new orders increased 95.3 percent in Feb 2013 after decreasing 24.0 percent in Jan 2013. New orders excluding transportation equipment decreased 0.5 percent in Feb 2013, increasing 2.9 percent in Jan 2013 and 0.8 percent in Dec 2012. Capital goods new orders, indicating investment, increased 13.6 percent in Feb 2013 and decreased 11.2 percent in Jan 2013 after increase of 11.5 percent in Dec 2012. New orders of nondefense capital goods increased 10.0 percent in Feb 2013 and increased 2.0 percent in Jan 2013 after increasing 1.0 percent in Dec 2012. Excluding more volatile aircraft, capital goods orders decreased 2.7 percent in Feb 2013, increased 6.7 percent in Jan 2013 and decreased 0.8 percent in Dec 2012.
Table VA-1, US, Durable Goods Value of Manufacturers’ Shipments and New Orders, SA, Month ∆%
| Feb 2013 | Jan 2013 ∆% | Dec 2012 | |
| Total | |||
| S | 1.0 | -0.7 | 0.6 |
| NO | 5.7 | -3.8 | 3.6 |
| Excluding | |||
| S | 0.7 | -0.3 | 0.5 |
| NO | -0.5 | 2.9 | 0.8 |
| Excluding | |||
| S | 0.9 | -0.3 | 0.5 |
| NO | 4.5 | 1.1 | 0.3 |
| Machinery | |||
| S | 2.7 | 0.5 | -1.1 |
| NO | -2.2 | 15.8 | -3.0 |
| Computers & Electronic Products | |||
| S | -0.5 | -3.3 | 1.3 |
| NO | 1.3 | -4.6 | 2.7 |
| Computers | |||
| S | 0.2 | -16.4 | 13.4 |
| NO | 4.9 | -15.6 | 6.2 |
| Transport | |||
| S | 1.6 | -1.9 | 0.8 |
| NO | 21.7 | -17.8 | 9.9 |
| Motor Vehicles | |||
| S | 3.8 | 0.4 | 0.1 |
| NO | 3.8 | 0.8 | 0.2 |
| Nondefense | |||
| S | -10.5 | -6.7 | 1.3 |
| NO | 95.3 | -24.0 | -3.2 |
| Capital Goods | |||
| S | 0.7 | -2.7 | 1.1 |
| NO | 13.6 | -11.2 | 11.5 |
| Nondefense Capital Goods | |||
| S | 0.2 | -1.6 | 0.5 |
| NO | 10.0 | 2.0 | 1.0 |
| Capital Goods ex Aircraft | |||
| S | 1.9 | -0.7 | 0.1 |
| NO | -2.7 | 6.7 | -0.8 |
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-Feb 2013 not seasonally adjusted (NSA). Shipments of all manufacturing industries in Jan-Feb 2013 total $421.6 billion and new orders total $432.1 billion, growing respectively by 2.4 percent and 0.6 percent relative to the same period in 2012. Excluding transportation equipment, shipments grew 1.2 percent and new orders increased 1.2 percent. Excluding defense, shipments grew 2.7 percent and new orders grew 1.4 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 lower 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 $140.9 billion for shipments, growing 0.6 percent, and new orders $159.2 billion, growing minus 5.0 percent. Excluding aircraft, capital goods shipments reached $117.2 billion, growing by 1.5 percent, and new orders $128.3 billion, growing 0.7 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-Feb 2013 | Shipments | ∆% 2013/ 2012 | New Orders | ∆% 2013/ |
| Total | 421,591 | 2.4 | 432,146 | 0.6 |
| Excluding Transport | 300,207 | 1.2 | 303,511 | 1.2 |
| Excluding Defense | 403,102 | 2.7 | 414,440 | 1.4 |
| Machinery | 61,383 | 8.0 | 67,897 | 5.0 |
| Computers & Electronic Products | 48,567 | -6.5 | 37,690 | -9.8 |
| Computers & Related Products | 3,300 | -29.6 | 3,397 | -26.4 |
| Transport Equipment | 121,384 | 5.6 | 128,635 | -0.8 |
| Motor Vehicles | 87,684 | 9.4 | 87,979 | 9.4 |
| Nondefense Aircraft | 15,122 | -3.4 | 24,102 | -19.6 |
| Capital Goods | 140,852 | 0.6 | 159,233 | -5.0 |
| Nondefense Capital Goods | 126,102 | 0.8 | 145,569 | -3.9 |
| Capital Goods ex Aircraft | 117,193 | 1.5 | 128,304 | 0.7 |
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/default.htm
Manufacturing jobs increased 14,000 in Feb 2013 relative to Jan 2013, seasonally adjusted and increased 12,000 in Feb 2013 relative to Jan 2013, not seasonally adjusted, as shown in Table VA-3. There are effects of the weaker economy and international trade together with the yearly adjustment of labor statistics. In the six months ending in Feb 2013, United States national industrial production accumulated increase of 2.5 percent at the annual equivalent rate of 5.1 percent, which is higher than 2.5 percent growth in 12 months. Capacity utilization for total industry in the United States increased 0.4 percentage points in Feb 2013 to 79.6 percent from 79.2 percent in Jan, which is 0.6 percentage points lower than the long-run average from 1972 to 2012. Manufacturing decreased 0.8 percent in Feb 2013 seasonally adjusted, increasing 2.2 percent not seasonally adjusted in 12 months, and increased 3.0 percent in the six months ending in Feb 2013 or at the annual equivalent rate of 6.1 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 IVQ2012 and 86.4 percent in IIIQ2012. Most of US national income is in the form of services. In Feb 2013, there were 133.603 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). Total private jobs of 111.432 million NSA in Feb 2013 accounted for 83.4 percent of total nonfarm jobs of 133.603 million, of which 11.866 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 93.345 million NSA in Feb 2013, or 70.0 percent of total nonfarm jobs and 83.8 percent of total private-sector jobs. Manufacturing has share of 11.1 percent in US national income in IVQ2012 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 IIIQ2012 | % Total | SAAR | % Total | |
| National Income WCCA | 13,976.7 | 100.0 | 14,122.2 | 100.0 |
| Domestic Industries | 13,733.6 | 98.3 | 13,855.6 | 98.1 |
| Private Industries | 12,075.0 | 86.4 | 12,192.5 | 86.3 |
| Agriculture | 138.6 | 1.0 | 138.9 | 1.0 |
| Mining | 205.3 | 1.5 | 214.7 | 1.5 |
| Utilities | 216.6 | 1.6 | 209.5 | 1.5 |
| Construction | 589.3 | 4.2 | 603.5 | 4.3 |
| Manufacturing | 1548.9 | 11.1 | 1563.1 | 11.1 |
| Durable Goods | 892.8 | 6.4 | 893.8 | 6.3 |
| Nondurable Goods | 656.1 | 4.7 | 669.3 | 4.7 |
| Wholesale Trade | 837.8 | 6.0 | 857.8 | 6.1 |
| Retail Trade | 957.4 | 6.9 | 972.8 | 6.9 |
| Transportation & WH | 415.5 | 3.0 | 415.8 | 2.9 |
| Information | 504.4 | 3.6 | 490.5 | 3.5 |
| Finance, Insurance, RE | 2330.6 | 16.7 | 2352.0 | 16.7 |
| Professional, BS | 2003.4 | 14.3 | 2029.0 | 14.4 |
| Education, Health Care | 1385.6 | 9.9 | 1395.5 | 9.9 |
| Arts, Entertainment | 539.4 | 3.9 | 544.4 | 3.9 |
| Other Services | 402.3 | 2.9 | 405.1 | 2.9 |
| Government | 1658.6 | 11.9 | 1663.0 | 11.8 |
| Rest of the World | 243.1 | 1.7 | 266.6 | 1.9 |
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
VB Japan. Table VB-BOJF provides the forecasts of economic activity and inflation in Japan by the majority of members of the Policy Board of the Bank of Japan, which is part of their Outlook for Economic Activity and Prices (http://www.boj.or.jp/en/mopo/outlook/gor1210a.pdf). For fiscal 2013, the forecast is of growth of GDP between 1.3 and 1.8 percent, with domestic producer price inflation (Corporate Goods Price Index, CGPI) in the range of 0.1 to 0.7 percent and the all items CPI less fresh food of 0.2 to 0.6 percent. These forecasts are biannual in Apr and Oct. The Cabinet Office, Ministry of Finance and Bank of Japan released on Jan 22, 2013, a “Joint Statement of the Government and the Bank of Japan on Overcoming Deflation and Achieving Sustainable Economic Growth” (http://www.boj.or.jp/en/announcements/release_2013/k130122c.pdf) with the important change of increasing the inflation target of monetary policy from 1 percent to 2 percent:
“The Bank of Japan conducts monetary policy based on the principle that the policy shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy, and is responsible for maintaining financial system stability. The Bank aims to achieve price stability on a sustainable basis, given that there are various factors that affect prices in the short run.
The Bank recognizes that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening competitiveness and growth potential of Japan's economy make progress. Based on this recognition, the Bank sets the price stability target at 2 percent in terms of the year-on-year rate of change in the consumer price index.
Under the price stability target specified above, the Bank will pursue monetary easing and aim to achieve this target at the earliest possible time. Taking into consideration that it will take considerable time before the effects of monetary policy permeate the economy, the Bank will ascertain whether there is any significant risk to the sustainability of economic growth, including from the accumulation of financial imbalances.”
The Bank of Japan also provided explicit analysis of its view on price stability in a “Background note regarding the Bank’s thinking on price stability” (http://www.boj.or.jp/en/announcements/release_2013/data/rel130123a1.pdf http://www.boj.or.jp/en/announcements/release_2013/rel130123a.htm/). The Bank of Japan also amended “Principal terms and conditions for the Asset Purchase Program” (http://www.boj.or.jp/en/announcements/release_2013/rel130122a.pdf): “Asset purchases and loan provision shall be conducted up to the maximum outstanding amounts by the end of 2013. From January 2014, the Bank shall purchase financial assets and provide loans every month, the amount of which shall be determined pursuant to the relevant rules of the Bank.”
Table VB-BOJF, Bank of Japan, Forecasts of the Majority of Members of the Policy Board, % Year on Year
| Fiscal Year | Real GDP | Domestic CGPI | CPI All Items Less Fresh Food |
| 2011 | |||
| Apr 2012 | -0.2 to –0.2 | +1.7 | 0.0 |
| Jan 2012 | -0.4 to –0.3 | +1.8 to +1.9 | -0.1 to 0.0 |
| 2012 | |||
| Oct 2012 | +1.4 to +1.6 [+1.5] | -1.2 to -0.9 [-1.1] | -0.1 to -0.1 [-0.1] |
| Jul 2012 | +2.2 to +2.4 [+2.2] | -0.3 to 0.0 [-0.2] | +0.1 to +0.3 [+0.2] |
| Apr 2012 | +2.1 to +2.4 | +0.4 to +0.7 | +0.1 to +0.4 |
| Jan 2012 | +1.8 to +2.1 | -0.1 to +0.2 | 0.0 to +0.2 |
| 2013 | |||
| Oct 2012 | +1.3 to +1.8 [+1.6] | +0.1 to +0.7 [+0.5] | +0.2 to +0.6 [+0.4] |
| Jul 2012 | +1.6 to +1.8 [+1.7] | +0.6 to +0.8 [+0.6] | +0.5 to +0.7 [+0.7] |
| Apr 2012 | +1.6 to +1.8 | +0.7 to +0.9 | +0.5 to +0.7 |
| Jan 2012 | +1.4 to +1.7 | +0.6 to 1.0 | +0.4 to +0.5 |
| 2014 | |||
| Oct 2012 | +0.2 to +0.7] [+0.6] | +3.7 to +4.4 [+4.2] | +2.4 to +3.0 [+2.8] |
Figures in brackets are the median of forecasts of Policy Board members
Source: Policy Board, Bank of Japan
http://www.boj.or.jp/en/mopo/outlook/gor1210a.pdf
Private-sector activity in Japan expanded at a marginal rate with the Markit Composite Output PMI™ Index decreasing marginally from 50.4 in Jan to 50.2 in Feb, which is the second consecutive reading above the no-change 50.0 since May 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10824). 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 first quarter of 2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10824). The Markit Business Activity Index of Services decreased marginally from 51.5 in Jan to 51.1 in Feb, indicating moderate growth of the private services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10824). Paul Smith, Senior Economist at Markit and author of the report, finds signs of growth in the beginning of 2013 with confidence in 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 |
| Corporate Goods Prices | Feb ∆% +0.4 |
| Consumer Price Index | Feb NSA ∆% -0.2; Feb 12 months NSA ∆% -0.7 |
| Real GDP Growth | IVQ2012 ∆%: 0.0 on IIIQ2012; IVQ2012 SAAR 0.2; |
| Employment Report | Feb Unemployed 2.77 million Change in unemployed since last year: minus 120 thousand |
| All Industry Indices | Jan month SA ∆% -1.4 Blog 3/24/13 |
| Industrial Production | Feb SA month ∆%: -0.1 |
| Machine Orders | Total Dec ∆% -1.6 Private ∆%: -9.8 Dec ∆% Excluding Volatile Orders 2.8 |
| Tertiary Index | Jan month SA ∆% -1.1 |
| Wholesale and Retail Sales | Feb 12 months: |
| Family Income and Expenditure Survey | Feb 12-month ∆% total nominal consumption 0.1, real 0.8 Blog 3/31/13 |
| Trade Balance | Exports Feb 12 months ∆%: -2.9 Imports Feb 12 months ∆% 11.9 Blog 3/24/13 |
Links to blog comments in Table JPY:
3/24/13 http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html
3/17/13 http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html
3/10/13 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.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 Feb 2013, industrial production in Japan decreased 0.1 percent and decreased 11.1 percent in the 12 months ending in Feb 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 7.9 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 2011 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 | |
| Feb 2013 | -0.1 | -11.0 |
| Jan | 0.3 | -5.8 |
| 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, stabilizing at 4.2 percent in Jan 2013 and increasing to 4.3 percent in Feb 2013. The rate of unemployment not seasonally adjusted stood at 4.2 percent in Feb 2013 and 0.2 percentage points lower from a year earlier. The employment rate stood at 56.3 percent in Feb 2013 and increased 0.2 percentage points from a year earlier.
Table VB-2, Japan, Employment Report Feb 2013
| Unemployed | 2.77 million |
| Change since last year | -120 thousand; ∆% –4.2 |
| Unemployment rate | 4.3% SA -0.1; NSA 4.2%, -0.2 from earlier year |
| Population ≥ 15 years | 110.86 million |
| Change since last year | ∆% -0.1 |
| Labor Force | 65.19 million |
| Change since last year | ∆% 0.1 |
| Employed | 62.42 million |
| Change since last year | ∆% 0.3 |
| Labor force participation rate | 58.8 |
| Change since last year | 0.1 |
| Employment rate | 56.3% |
| Change since last year | 0.2 |
Source: Japan, Statistics Bureau, Ministry of Internal Affairs and Communications http://www.stat.go.jp/english/data/roudou/results/month/index.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, 4.2 percent in Jan 2013 and 4.3 percent in Feb 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/results/month/index.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 | 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/results/month/index.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, Jan 2013 and Feb 2013 (http://www.stat.go.jp/english/data/kakei/156.htm). Total consumption increased 0.8 percent in real terms in Feb 2013 and increased 0.1 percent in nominal terms relative to a year earlier. There are several segments of decreasing real consumption: housing declining 11.1 percent in real terms and 11.5 percent in nominal terms, clothing food declining 0.7 percent in real terms and 2.5 percent in nominal terms, medical care declining 8.3 percent in real terms and 8.8 percent in nominal terms and furniture and household utensils declining 0.7 percent in real terms and 4.5 percent in nominal terms. Real household income decreased 0.8 percent; real disposable income decreased 1.7 percent; and real consumption expenditures increased 2.7 percent.
Table VB-4, Japan, Family Income and Expenditure Survey 12-months ∆% Relative to a Year Earlier
| Feb 2013 | Nominal | Real |
| Households of Two or More Persons | ||
| Total Consumption | 0.1 | 0.8 |
| Excluding Housing, Vehicles & Remittance | 0.4* | |
| Food | -2.5 | -0.7 |
| Housing | -11.5 | -11.1 |
| Fuel, Light & Water Charges | 1.0 | -1.9 |
| Furniture & Household Utensils | -4.5 | -0.7 |
| Clothing & Footwear | 3.3 | 3.8 |
| Medical Care | -8.8 | -8.3 |
| Transport and Communications | 12.4 | 11.4 |
| Education | 5.2 | 4.8 |
| Culture & Recreation | 0.6 | 3.5 |
| Other Consumption Expenditures | -1.1 | -0.4* |
| Workers’ Households | ||
| Income | -1.5 | -0.8 |
| Disposable Income | -2.4 | -1.7 |
| Consumption Expenditures | 2.0 | 2.7 |
*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 0.8 percent in the 12 months ending in Feb 2013 and 0.1 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. Growth was much lower in Feb 2013, 0.8 percent in real consumption and 0.1 percent in nominal consumption. 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 | Real Consumption Expenditures | |
| Feb 2013 | 0.1 | 0.8 |
| Jan | 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 2.3 percent in Feb 2013 and had increased 0.9 percent in the 12 months ending in Nov 2012 but only 0.2 percent in the 12 months ending in Dec 2012, falling 1.1 percent in the 12 months ending in Jan 2013. Total sales decreased 1.6 percent in the 12 months ending in Feb 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 May 2012 but fell again by 1.3 percent in Jul 2012, increasing 1.3 percent in Aug 2012 and 0.4 percent in Sep 2012 but declining 1.2 percent in Oct 2012, rebounding by 0.9 percent in Nov 2012 and only 0.2 percent in Dec 2012 but contracting 1.1 percent in Jan 2013 and 2.3 percent in Feb 2013.
Table VB-6, Japan, Wholesale and Retail Sales 12 Month ∆%
| Total | Wholesale | Retail | |
| Feb 2013 | -1.6 | -1.3 | -2.3 |
| Jan | -0.3 | 0.1 | -1.1 |
| Dec 2012 | -1.7 | -2.5 | 0.2 |
| Nov | -0.9 | -1.6 | 0.9 |
| Oct | -1.6 | -1.8 | -1.2 |
| Sep | -3.6 | -5.1 | 0.4 |
| Aug | -2.7 | -4.4 | 1.3 |
| Jul | -3.1 | -4.0 | -1.3 |
| Jun | -2.6 | -3.6 | -0.2 |
| May | 2.7 | 2.6 | 3.0 |
| Apr | 1.8 | 0.4 | 5.0 |
| Mar | 3.2 | 0.9 | 9.3 |
| Feb | -0.1 | -1.3 | 3.1 |
| Jan | -2.1 | -3.8 | 1.6 |
| 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 | 1.8 |
| 2011 | 1.0 | 1.9 | -1.0 |
| 2010 | 2.4 | 2.3 | 2.6 |
| 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. The index fell from 58.0 in Mar to 55.2 in May but climbed to 56.7 in Jun, which is lower than 58.0 in Mar and 57.3 in Feb but higher than in any other of the months in 2012. In Jul 2012 the index fell marginally to 55.6 and then to 56.3 in Aug and 53.7 in Sep but rebounded to 55.5 in Oct and 55.6 in Nov 2012. Improvement continued with 56.1 in Dec 2012 and 56.2 in Jan 2013.
Table CIPMNM, China, Nonmanufacturing Index of Purchasing Managers, %, Seasonally Adjusted
| Total Index | New Orders | Interm. | Subs Prices | Exp | |
| Jan 2013 | 56.2 | 53.7 | 58.2 | 50.9 | 61.4 |
| Dec 2012 | 56.1 | 54.3 | 53.8 | 50.0 | 64.6 |
| Nov | 55.6 | 53.2 | 52.5 | 48.4 | 64.6 |
| Oct | 55.5 | 51.6 | 58.1 | 50.5 | 63.4 |
| Sep | 53.7 | 51.8 | 57.5 | 51.3 | 60.9 |
| Aug | 56.3 | 52.7 | 57.6 | 51.2 | 63.2 |
| Jul | 55.6 | 53.2 | 49.7 | 48.7 | 63.9 |
| Jun | 56.7 | 53.7 | 52.1 | 48.6 | 65.5 |
| May | 55.2 | 52.5 | 53.6 | 48.5 | 65.4 |
| Apr | 56.1 | 52.7 | 57.9 | 50.3 | 66.1 |
| Mar | 58.0 | 53.5 | 60.2 | 52.0 | 66.6 |
| Feb | 57.3 | 52.7 | 59.0 | 51.2 | 63.8 |
| Jan | 55.7 | 52.2 | 58.2 | 51.1 | 65.3 |
Notes: Interm.: Intermediate; Subs: Subscription; Exp: Business Expectations
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Chart CIPMNM provides China’s nonmanufacturing purchasing managers’ index. 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. 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=10856) is improving. The overall Flash China Manufacturing PMI™ increased marginally from 50.4 in Feb to 51.7 in Mar while the Flash China Manufacturing Output Index increased from 50.8 in Feb to 52.8 in Mar, 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 toward moderate growth (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10856).The HSBC China Services PMI™, compiled by Markit, shows relative strength in business activity in China with the HSBC Composite Output, combining manufacturing and services, decreasing from the two-year high in Jan of 53.5 to 51.4 in Feb (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10827). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that combined manufacturing and services data suggest continuing growth (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10827). The HSBC Business Activity index decreased from 54.0 in Jan to 52.1 in Feb with continuing growth in services at a slower rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10827). Hongbin Ku, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds strength in services with sound labor markets and continuing 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 provides the country data table for China.
Table CNY, China, Economic Indicators
| Price Indexes for Industry | Feb 12-month ∆%: minus 1.6 Feb month ∆%: 0.2 |
| Consumer Price Index | Feb month ∆%: 1.1 Feb 12 months ∆%: 3.2 |
| Value Added of Industry | Feb month ∆%: 0.79 Jan-Feb 2013/Jan-Feb 2012 ∆%: 9.9 |
| GDP Growth Rate | Year IVQ2012 ∆%: 7.9 |
| Investment in Fixed Assets | Feb month ∆%: -0.23 Total Jan-Feb 2012 ∆%: 21.2 Real estate development: 16.9 |
| Retail Sales | Feb month ∆%: 0.99 Jan-Feb ∆%: 12.3 |
| Trade Balance | Feb balance $15.25 billion Cumulative Feb: $44.40 billion |
Links to blog comments in Table CNY:
3/17/13 http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html
3/10/13 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.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 0.6 percent in 2012 and minus 0.3 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 47.9 in Feb to 46.5 in Mar, for fourteen consecutive declines and seventeen drops in eighteen months with acceleration of the rate of contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10860). 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 around 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=10860). The Markit Eurozone PMI® Composite Output Index, combining services and manufacturing activity with close association with GDP, decreased from 48.6 in Jan to 47.9 in Feb, which is the thirteenth consecutive contraction (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10814). Chris Williamson, Chief Economist at Markit, finds that the data are consistent with milder contraction likely of 0.2 percent decline in GDP in IQ2013 in contrast with fall of 0.6 percent in IVQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10814). The Markit Eurozone Services Business Activity Index decreased from 48.6 in Jan to 47.9 in Feb (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10814). 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 3/10/13 |
| Unemployment | Jan 2013: 11.9% unemployment rate Jan 2013: 18.998 million unemployed Blog 3/3/13 |
| HICP | Feb month ∆%: 0.4 12 months Feb ∆%: 1.8 |
| Producer Prices | Euro Zone industrial producer prices Jan ∆%: -0.6 |
| Industrial Production | Jan month ∆%: -0.4; Jan 12 months ∆%: -1.3 |
| Retail Sales | Jan month ∆%: 1.2 |
| Confidence and Economic Sentiment Indicator | Sentiment 90.0 Mar 2013 Consumer minus 23.5 Mar 2013 Blog 3/31/13 |
| Trade | Jan-Dec 2012/Jan-Dec 2011 Exports ∆%: 7.4 Jan 2013 12-month Exports ∆% 5.2 Imports ∆% 1.4 |
Links to blog comments in Table EUR:
3/24/13 http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html
3/17/13 http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html
3/10/13 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.html
3/3/13 http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html
The Economic Sentiment Indicator of the European Economic Commission, Economic and Financial Affairs, provides correlation with the economic cycle since 1990, capturing all three recessions in the period and even the threat of recession from 1994 to 1995. The latest chart of this index accessible in the link in parenthesis shows trend of decline in 2011 and 2012 that has punctured the historical average of 100 and resumed downward trend in 2012 followed by recovery but at a relatively low level (http://ec.europa.eu/economy_finance/db_indicators/surveys/index_en.htm). This deterioration is shown in Table VD-1 with the index falling from 94.4 in Apr 2012 to 89.5 in Jan 2013 with improvement at the margin from 88.0 in Dec 2012 to 90.0 in Mar 2013. There is downward trend with the index still above the minimum value of 69.8 reached in Mar 2009 but still below the average of 100.
Table VD-1, Euro Area, Indicators of Confidence and Economic Sentiment SA
| ESI | IND | SERV | CON | RET | CONS | |
| Historical Average | 100.0 | -6.8 | 10.2 | -13.2 | -9.2 | -17.8 |
| Maximum | 118.1 | 7.8 | 35.3 | 2.4 | 5.3 | 6.1 |
| Minimum | 69.8 | -38.2 | -26.9 | -34.3 | -24.9 | -46.1 |
| Mar 2013 | 90.0 | -12.5 | -6.7 | -23.5 | -17.6 | -30.3 |
| Feb | 91.1 | -11.3 | -5.3 | -23.6 | -16.1 | -29.7 |
| Jan | 89.5 | -13.8 | -7.7 | -23.9 | -15.5 | -28.5 |
| Dec 2012 | 88.0 | -14.2 | -8.6 | -26.3 | -15.9 | -33.3 |
| Nov | 87.2 | -14.9 | -9.3 | -26.7 | -14.8 | -34.1 |
| Oct | 85.7 | -18.2 | -9.9 | -25.5 | -17.3 | -31.6 |
| Sep | 86.1 | -15.9 | -11.0 | -25.7 | -18.4 | -30.3 |
| Aug | 87.2 | -15.3 | -9.2 | -24.4 | -17.1 | -31.5 |
| Jul | 88.9 | -15.0 | -7.3 | -21.3 | -14.9 | -27.3 |
| Jun | 90.9 | -12.7 | -6.5 | -19.6 | -14.3 | -26.7 |
| May | 91.8 | -11.2 | -3.2 | -19.1 | -18.0 | -28.7 |
| Apr | 94.4 | -8.8 | 0.5 | -19.7 | -10.9 | -26.1 |
ESI: Economic Sentiment Index; IND: Industry; SERV: Services; CON: Consumer; RET: Retail Trade; CONS: Construction
ESI: Economic Sentiment Index; IND: Industry; SERV: Services; CON: Consumer; RET: Retail Trade; CONS: Construction
Source: European Commission Services http://ec.europa.eu/economy_finance/db_indicators/surveys/index_en.htm
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 53.3 in Feb to 51.0 in Mar, which indicates moderate expansion with the decline of 2.3 points in one month being the sharpest since Jul 2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10862). New export orders for manufacturing decreased, with respondents finding soft demand in southern Europe but enhanced demand in Asia and North America. 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 but with risks of moderation in the latest survey (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10862). The Markit Germany Composite Output Index of the Markit Germany Services PMI®, combining manufacturing and services with close association with Germany’s GDP, decreased from 54.4 in Jan to 53.3 in Feb (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10829). 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 at the fastest rate since the strong first part of 2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10829). The Germany Services Business Activity Index decreased from 55.7 in Jan to 54.7 in Feb (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10829). 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 | Feb month NSA ∆%: 0.6 |
| Producer Price Index | Feb month ∆%: -0.1 CSA, 0.1 NSA |
| Industrial Production | Mfg Jan month CSA ∆%: -0.2 |
| Machine Orders | MFG Jan month ∆%: -1.9 |
| Retail Sales | Feb Month ∆% 0.4 12-Month ∆% -2.2 Blog 3/31/13 |
| Employment Report | Unemployment Rate SA Feb 5.4% |
| Trade Balance | Exports Jan 12-month NSA ∆%: 3.1 Blog 3/17/13 |
Links to blog comments in Table DE:
3/24/13 http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html
3/17/13 http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html
3/10/13 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.html
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
11/25/12 http://cmpassocregulationblog.blogspotcom/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, increased from 2.49 million in Feb 2012 to 2.54 million in Feb 2013, or 2.0 percent, while the unemployment rate increased from 5.9 percent in Feb 2012 to 6.0 percent in Feb 2013. The number of persons in employment, not seasonally adjusted, increased from 39.82 million in Feb 2012 to 40.20 million in Feb 2013, or 0.1 percent, while the employment rate increased from 62.5 percent in Feb 2012 to 63.3 percent in Feb 2013. The number unemployed, seasonally adjusted, was unchanged from 2.30 million in Jan 2013 to 2.30 million in Feb 2013, while the unemployment rate was unchanged from 5.4 percent in Jan 2013 to 5.4 percent in Feb 2013. The number of persons in employment, seasonally adjusted, increased from 40.16 million in Jan 2013 to 40.20 million in Feb 2013, or 0.1 percent.
Table VE-1, Germany, Unemployment Labor Force Survey
| Feb 2013 | Jan 2013 | Feb 2012 | |
| NSA | |||
| Number | 2.54 ∆% Feb 2013 /Jan 2013: 2.0 ∆% Feb 2013/Feb 2012: 2.0 | 2.49 | 2.49 |
| % Rate Unemployed | 6.0 | 5.9 | 5.9 |
| Persons in Employment Millions | 40.20 ∆% Feb 2013/Jan 2013: 0.1 ∆% Feb 2013/Feb 2012:1.0 | 40.16 | 39.82 |
| Employment Rate | 63.3 | 63.1 | 62.5 |
| SA | |||
| Number | 2.30 ∆% Feb 2013/Jan 2013: 0.0 ∆% Feb 2013/Jan 2012: –1.7 | 2.30 | 2.34 |
| % Rate Unemployed | 5.4 | 5.4 | 5.6 |
| Persons in Employment Millions | 40.20 ∆% Feb 2013/Jan 2013: 0.1 ∆% Feb 2013/Feb 2012: 1.0 | 40.16 | 39.82 |
NSA: not seasonally adjusted; SA: seasonally adjusted
Source: Statistisches Bundesamt https://www.destatis.de/EN/PressServices/Press/pr/2013/03/PE13_122_132.html;jsessionid=E75F08402E559EC06CA6C28A7B185662.cae2
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 and Feb 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 | |
| Feb 2013 | 7.4 |
| Jan | 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-Feb 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 increased 0.4 percent in Feb 2013 and fell 2.2 percent in 12 months. Retail sales rebounded in Jan 2013 with monthly increase of 3.0 percent and 2.5 percent in 12 months.
Table VE-3, Retail Sales in Germany Adjusted for Inflation
| 12-Month ∆% NSA | Month ∆% SA and Calendar Adjusted | |
| Feb 2013 | -2.2 | 0.4 |
| Jan | 2.5 | 3.0 |
| Dec 2012 | -3.5 | -1.9 |
| 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 | -0.1 |
| May | -0.5 | 0.9 |
| Apr | -4.6 | -0.6 |
| 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 | 0.9 |
| 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.
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 3.2 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 | 3.2 |
| 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=28&date=20130327
The Markit Flash France Composite Output Index fell from 43.1 in Feb to 42.1 in Mar for the lowest reading in four years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10859). 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 expectations on the economic environment at depressed levels (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10859).
The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, increased marginally from the low in 46 months of 42.7 in Jan to 43.1 in Feb, indicating significant contraction of private sector activity for a twelveth consecutive month at marginally slower rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10731). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI®, finds that composite data for manufacturing and services suggest further contraction of GDP in France in IQ2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10731). The Markit France Services Activity index increased from the lowest reading in 45 months of 43.6 in Jan to 43.1 in Feb (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 | Feb month ∆% 0.3 |
| PPI | Feb month ∆%: 0.4 Blog 3/31/13 |
| GDP Growth | IVQ2012/IIIQ2012 ∆%: -0.3 |
| Industrial Production | Jan ∆%: |
| Consumer Spending | Manufactured Goods |
| Employment | IVQ2012 Unemployed 2.944 million |
| Trade Balance | Jan Exports ∆%: month -2.4, 12 months 0.0 Jan Imports ∆%: month -1.0, 12 months 0.7 Blog 3/17/13 |
| Confidence Indicators | Historical averages 100 Mar Mfg Business Climate 90 Blog 3/24/13 |
Links to blog comments in Table FR:
3/24/13 http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html
3/17/13 http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html
3/10/13 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.html
3/3/13 http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html
Growth of GDP in a quarter relative to the prior quarter is provided for France in Table VF-1. GDP fell 0.3 percent in IVQ2012. The French economy grew 0.1 percent in IVQ201, declining 0.1 percent in IQ2012 and 0.1 percent in IIQ2011, growing 0.2 percent in IIIQ2012. In the four quarters of 2012, France’s GDP contracted 0.3 percent. Growth in the nine quarters of expansion from IIIQ2009 to IIIQ2011 accumulated 3.4 percent at the annual equivalent rate of 1.5 percent. Growth from IVQ2011 to IVQ2012 was minus 0.2 percent. Recovery has been much weaker than the cumulative 2.7 percent in the four quarters of 2006. Weak recoveries in advanced economies have prevented full utilization of labor, capital and productive resources.
Table VF-1, France, Quarterly Real GDP Growth, Quarter on Prior Quarter ∆%
| IQ | IIQ | IIIQ | IVQ | |
| 2012 | -0.1 | -0.1 | 0.2 | -0.3 |
| 2011 | 0.8 | 0.0 | 0.2 | 0.1 |
| 2010 | 0.3 | 0.6 | 0.4 | 0.4 |
| 2009 | -1.7 | 0.0 | 0.1 | 0.5 |
| 2008 | 0.3 | -0.6 | -0.5 | -1.5 |
| 2007 | 0.6 | 0.5 | 0.4 | 0.3 |
| 2006 | 0.7 | 1.0 | 0.1 | 0.9 |
| 2005 | 0.1 | 0.3 | 0.5 | 0.7 |
| 2004 | 0.5 | 0.8 | 0.4 | 0.9 |
| 2003 | 0.3 | 0.0 | 0.7 | 0.7 |
| 2002 | 0.7 | 0.5 | 0.2 | -0.1 |
| 2001 | 0.5 | 0.2 | 0.2 | -0.4 |
| 2000 | 1.1 | 0.7 | 0.5 | 0.9 |
| 1999 | 0.6 | 0.9 | 1.0 | 1.2 |
Source: Institut National de la Statistique et des Études Économiques http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20130327
Growth rates of France’s real GDP in a quarter relative to the same quarter a year earlier are shown in Table VF-2. France has not recovered the rates of growth in excess of 2 percent prior to the global recession. GDP fell 4.3 percent in IQ2009, 3.7 percent in IIQ2009, 3.1 percent in IIIQ2009 and 1.0 percent in IVQ2009. Growth in IVQ2011 relative to IVQ2010 was 1.2 percent and GDP growth declined to 0.2 percent in IQ2012, 0.1 percent in IIQ2012 relative to the same quarter a year earlier, 0.1 percent in IIIQ2012 relative to a year earlier and minus 0.3 percent in IVQ2012 relative to a year earlier.
Table VF-2, France, Real GDP Growth Current Quarter Relative to Same Quarter Year Earlier ∆%
| IQ | IIQ | IIIQ | IVQ | |
| 2012 | 0.2 | 0.1 | 0.1 | -0.3 |
| 2011 | 2.4 | 1.8 | 1.5 | 1.2 |
| 2010 | 0.9 | 1.6 | 1.9 | 1.8 |
| 2009 | -4.3 | -3.7 | -3.1 | -1.0 |
| 2008 | 1.6 | 0.5 | -0.5 | -2.3 |
| 2007 | 2.6 | 2.1 | 2.5 | 1.9 |
| 2006 | 2.3 | 3.0 | 2.6 | 2.7 |
| 2005 | 2.1 | 1.7 | 1.9 | 1.7 |
| 2004 | 1.8 | 2.6 | 2.3 | 2.5 |
| 2003 | 0.9 | 0.4 | 0.8 | 1.6 |
| 2002 | 0.6 | 0.9 | 0.9 | 1.3 |
| 2001 | 2.7 | 2.2 | 1.9 | 0.5 |
| 2000 | 4.3 | 4.1 | 3.6 | 3.3 |
| 1999 | 2.9 | 2.8 | 3.2 | 3.7 |
Source: Institut National de la Statistique et des Études Économiques http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20130327
Percentage changes and contributions of segments of GDP in France are provided in Table VF-3. Internal demand deducted 0.1 percentage points from GDP growth in IVQ2012, 0.1 percentage points to GDP growth in IIIQ2012, contributed 0.0 percentage points to GDP growth in IIQ2012 and contributed 0.1 percentage points to GDP growth in IQ2012. Net foreign trade added 0.2 percentage points in IVQ2012 and 0.3 percentage points in IIIQ2012 after deducting 0.4 percentage points in IIQ2012 and 0.0 percentage points in IQ2012.
Table VF-3, France, Contributions to GDP Growth, Calendar and Seasonally Adjusted, %
| ∆% from Prior Period | IQ 2012 | IIQ | IIIQ | IVQ 2012 | 2011 | 2012 |
| GDP | -0.1 | -0.1 | 0.2 | -0.3 | 1.7 | 0.0 |
| Imports | -0.1 | 1.6 | -0.2 | -1.2 | 5.2 | -0.3 |
| Household Consump. | 0.2 | -0.3 | 0.1 | -0.1 | 0.2 | -0.1 |
| Govt. | 0.6 | 0.5 | 0.4 | 0.3 | 0.2 | 1.4 |
| GFCF | -1.0 | 0.3 | -0.4 | -0.8 | 3.5 | 0.0 |
| Exports | -0.1 | 0.4 | 1.0 | -0.6 | 5.5 | 2.5 |
| % Point | ||||||
| Internal Demand ex Inventory Changes | 0.1 | 0.0 | 0.1 | -0.1 | 0.9 | 0.3 |
| Inventory Changes | -0.2 | 0.3 | -0.2 | -0.4 | 0.8 | -1.0 |
| Net Foreign Trade | 0.0 | -0.4 | 0.3 | 0.2 | 0.0 | 0.7 |
Notes: Consump.: Consumption; Gvt.: Government; GFCF: Gross Fixed Capital Formation; Contribus.: Contributions
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20130327
Chart VF-1 of France’s Institut National de la Statistique et des Études Économiques provides percentage point contributions to GDP growth. GDP grew sharply into IQ2011 and then stalled in IIQ2011, declining in IQ2012, IIQ2011 and IVQ2012. Final consumption was the key negative contributor to GDP growth in IIQ2011. GDP growth strengthened in IIIQ2011 with the impulse originating in final consumption. Net trade and gross fixed capital formation (GFCF) drove GDP growth in IVQ2011. Final consumption and net trade were positive contributors to GDP growth in IQ2012 with subtractions by GFCF (Gross Fixed Capital Formation) and inventory change. Net trade subtracted from growth in IIQ2012. Net trade and final consumption drove growth of GDP in IIIQ2012. Final consumption and net trade contributed to growth in IVQ2012 with deductions by GFCF and inventory changes.
Chart VF-1, France, Percentage Point Contributions to GDP Growth
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20130327
VG Italy. Table VG-IT provides percentage changes in a quarter relative to the same quarter a year earlier of Italy’s expenditure components in chained volume measures. GDP has been declining at sharper rates from minus 0.5 percent in IVQ2011 to minus 2.8 percent in IIIQ2012. The aggregate demand components of consumption and gross fixed capital formation (GFCF) have been declining at faster rates.
© Carlos M. Pelaez, 2010, 2011, 2012, 2013
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