CMP Associates Regulation Blog: World Inflation Waves, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, United States Industrial Production, Peaking Valuations of Risk Financial Assets, World Economic Slowdown and Global Recession Risk: Part II

Longer Run

World Inflation Waves, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, United States Industrial Production, Peaking Valuations of Risk Financial Assets, World Economic Slowdown and Global Recession Risk

Carlos M. Pelaez

Executive Summary

I World Inflation Waves

IA Appendix: Transmission of Unconventional Monetary Policy

IA1 Theory

IA2 Policy

IA3 Evidence

IA4 Unwinding Strategy

IB United States Inflation

IC Long-term US Inflation

ID Current US Inflation

IE Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation

II United States Industrial Production

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

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-Apr 18, 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:

clip_image008

Where R_τ is expected revenue in the time horizon from τ =1 to T; C_τ 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 ates increase without bound, then V → 0, or

clip_image008

declines.

There was weakening performance in equity indexes with many indexes decreasing in Table III-1 in the week ending on Apr 19, 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 0.1 percent on Apr 19, decreasing 2.1 percent in the week. Germany’s Dax decreased 0.2 percent on Fri Apr 19 and decreased 3.7 percent in the week. Dow Global increased 0.8 percent on Apr 19 and decreased 2.1 percent in the week. Japan’s Nikkei Average increased 0.7 percent on Fri Apr 19 and decreased 1.3 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 increased 0.3 percent on Apr 19 and decreased 1.2 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 2244.64 on Thu Apr 19 for gain of 2.1 percent and increase of 1.7 percent in the week of Apr 19. 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 mostly weaker in the week of Apr 19, 2013. The DJ UBS Commodities Index decreased 0.1 percent on Fri Apr 19 and decreased 1.7 percent in the week, as shown in Table III-1. WTI decreased 3.2 percent in the week of Apr 19 while Brent decreased 3.5 percent in the week. Gold increased 1.0 percent on Fri Apr 19 and decreased 5.5 percent in the week.

Table III-2 provides an update of the consolidated financial statement of the Eurosystem. The balance sheet has swollen with the long-term refinancing operations (LTROs). Line 5 “Lending to Euro Area Credit Institutions Related to Monetary Policy” increased from €546,747 million on Dec 31, 2010, to €879,130 million on Dec 28, 2011 and €884,212 million on Apr 12, 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 €1,502,183 million in the statement of Apr 12, 2013, with marginal reduction. There is high credit risk in these transactions with capital of only €88,917 million as analyzed by Cochrane (2012Aug31).

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

	Dec 31, 2010	Dec 28, 2011	Apr 12, 2013
1 Gold and other Receivables	367,402	419,822	435,317
2 Claims on Non Euro Area Residents Denominated in Foreign Currency	223,995	236,826	254,638
3 Claims on Euro Area Residents Denominated in Foreign Currency	26,941	95,355	34,512
4 Claims on Non-Euro Area Residents Denominated in Euro	22,592	25,982	22,157
5 Lending to Euro Area Credit Institutions Related to Monetary Policy Operations Denominated in Euro	546,747	879,130	884,212
6 Other Claims on Euro Area Credit Institutions Denominated in Euro	45,654	94,989	93,264
7 Securities of Euro Area Residents Denominated in Euro	457,427	610,629	617,971
8 General Government Debt Denominated in Euro	34,954	33,928	29,894
9 Other Assets	278,719	336,574	262,490
TOTAL ASSETS	2,004, 432	2,733,235	2,634,450
Memo Items
Sum of 5 and 7	1,004,174	1,489,759	1,502,183
Capital and Reserves	78,143	85,748	88,917

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/fs130416.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 surpluses 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 9.1 percent in Jan-Feb 2013 relative to Jan-Feb 2012 while those to EMU are growing at minus 3.1 percent.

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

Feb 2013	Exports % Share	∆% Jan-Feb 2013/ Jan-Feb 2012	Imports % Share	Imports ∆% Jan-Feb 2013/ Jan-Feb 2012
EU	53.7	-2.3	52.9	-2.7
EMU 17	40.5	-3.1	42.7	-2.6
France	11.1	-1.2	8.3	-5.3
Germany	12.5	-4.9	14.6	-7.8
Spain	4.7	-8.4	4.4	-2.4
UK	4.9	0.9	2.5	2.9
Non EU	46.3	9.1	47.1	-8.9
Europe non EU	13.9	5.2	11.3	11.9
USA	6.8	9.7	3.3	-19.3
China	2.3	4.8	6.5	-7.1
OPEC	5.7	20.0	10.8	-16.9
Total	100.0	2.5	100.0	-5.8

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

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/87669

Table III-4 provides Italy’s trade balance by product categories in Feb 2013 and cumulative Jan-Feb 2013. Italy’s trade balance excluding energy generated surplus of €5648 million in Feb 2013 and €9498 million cumulative in Jan-Feb 2013 but the energy trade balance created deficit of €4562 million in Feb 2013 and cumulative €10,025 million in Jan-Feb 2013. The overall surplus in Feb 2013 was €1086 million with cumulative deficit of €527 million in Jan-Feb 2013. Italy has significant competitiveness in various economic activities in contrast with some other countries with debt difficulties.

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-Feb 2013 Millions of Euro
EU	380	1,048
EMU 17	-395	-692
France	1,034	2,036
Germany	-411	-657
Spain	94	251
UK	561	1,270
Non EU	706	-1,575
Europe non EU	533	341
USA	1,218	1,890
China	-1,226	-2,845
OPEC	-1,235	-2,670
Total	1,086	-527

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

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/87669

Growth rates of Italy’s trade and major products are provided in Table III-5 for the period Jan-Feb 2013 relative to Jan-Feb 2012. Growth rates of cumulative imports relative to a year earlier are negative for energy with minus 16.3 percent, minus 14.5 percent for durable goods. The higher rate of growth of exports of 2.5 percent in Jan-Feb 2013/Jan-Feb 2012 relative to imports of minus 5.8 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 Share %	Exports ∆% Jan-Feb 2013/ Jan-Feb 2012	Imports Share %	Imports ∆% Jan-Feb 2013/ Jan-Feb 2012
Consumer Goods	29.3	7.7	25.6	0.6
Durable	5.8	3.3	2.9	-14.5
Non Durable	23.5	8.8	22.7	2.6
Capital Goods	31.6	4.2	19.5	-8.6
Inter- mediate Goods	33.6	-0.7	32.6	-1.1
Energy	5.5	-13.3	22.3	-16.3
Total ex Energy	94.5	3.5	77.7	-2.5
Total	100.0	2.5	100.0	-5.8

Note: % Share for Jan-Nov 2012.

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/87669

Table III-6 provides Italy’s trade balance by product categories in Feb 2013 and cumulative Jan-Feb 2013. Italy’s trade balance excluding energy generated surplus of €5648 million in Feb 2013 and €9498 million cumulative in Jan-Feb 2013 but the energy trade balance created deficit of €4562 million in Feb 2013 and cumulative €10,025 million in Jan-Feb 2013. The overall surplus in Feb 2013 was €1086 million with cumulative deficit of €527 million in Jan-Feb 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	1,669	2,665
Durable	991	1,793
Nondurable	678	872
Capital Goods	3,637	6,708
Intermediate Goods	343	125
Energy	-4,562	-10,025
Total ex Energy	5,648	9,498
Total	1,086	-527

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/87669

Brazil faced in the debt crisis of 1982 a more complex policy mix. Between 1977 and 1983, Brazil’s terms of trade, export prices relative to import prices, deteriorated 47 percent and 36 percent excluding oil (Pelaez 1987, 176-79; Pelaez 1986, 37-66; see Pelaez and Pelaez, The Global Recession Risk (2007), 178-87). Brazil had accumulated unsustainable foreign debt by borrowing to finance balance of payments deficits during the 1970s. Foreign lending virtually stopped. The German mark devalued strongly relative to the dollar such that Brazil’s products lost competitiveness in Germany and in multiple markets in competition with Germany. The resolution of the crisis was devaluation of the Brazilian currency by 30 percent relative to the dollar and subsequent maintenance of parity by monthly devaluation equal to inflation and indexing that resulted in financial stability by parity in external and internal interest rates avoiding capital flight. With a combination of declining imports, domestic import substitution and export growth, Brazil followed rapid growth in the US and grew out of the crisis with surprising GDP growth of 4.5 percent in 1984.

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

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

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

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

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

The prospects of survival of the euro zone are dire. Table III-7 is constructed with IMF World Economic Outlook database (http://www.imf.org/external/datamapper/index.php?db=WEO) for GDP in USD billions, primary net lending/borrowing as percent of GDP and general government debt as percent of GDP for selected regions and countries in 2010.

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

	GDP 2012 USD Billions	Primary Net Lending Borrowing % GDP 2012	General Government Net Debt % GDP 2012
World	71,277
Euro Zone	12,065	-0.5	73.4
Portugal	211	-0.7	110.9
Ireland	205	-4.4	103.0
Greece	255	-1.7	170.7
Spain	1,340	-4.5	78.6
Major Advanced Economies G7	33,769	-5.1	89.0
United States	15,653	-6.5	83.8
UK	2,434	-5.6	83.7
Germany	3,367	1.4	58.4
France	2,580	-2.2	83.7
Japan	5,984	-9.1	135.4
Canada	1,770	-3.2	35.8
Italy	1,980	2.6	103.1
China	8,250	-1.3*	22.2**

*Net Lending/borrowing**Gross Debt

Source: IMF World Economic Outlook databank http://www.imf.org/external/datamapper/index.php?db=WEO

The data in Table III-7 are used for some very simple calculations in Table III-8. The column “Net Debt USD Billions” in Table III-8 is generated by applying the percentage in Table III-7 column “General Government Net Debt % GDP 2010” to the column “GDP USD Billions.” The total debt of France and Germany in 2012 is $4155.8 billion, as shown in row “B+C” in column “Net Debt USD Billions” The sum of the debt of Italy, Spain, Portugal, Greece and Ireland is $3975.1 billion, adding rows D+E+F+G+H in column “Net Debt USD billions.” There is some simple “unpleasant bond arithmetic” in the two final columns of Table III-8. Suppose the entire debt burdens of the five countries with probability of default were to be guaranteed by France and Germany, which de facto would be required by continuing the euro zone. The sum of the total debt of these five countries and the debt of France and Germany is shown in column “Debt as % of Germany plus France GDP” to reach $8130.8 billion, which would be equivalent to 136.7 percent of their combined GDP in 2012. Under this arrangement the entire debt of the euro zone including debt of France and Germany would not have nil probability of default. The final column provides “Debt as % of Germany GDP” that would exceed 241.5 percent if including debt of France and 177.4 percent of German GDP if excluding French debt. The unpleasant bond arithmetic illustrates that there is a limit as to how far Germany and France can go in bailing out the countries with unsustainable sovereign debt without incurring severe pains of their own such as downgrades of their sovereign credit ratings. A central bank is not typically engaged in direct credit because of remembrance of inflation and abuse in the past. There is also a limit to operations of the European Central Bank in doubtful credit obligations. Wriston (1982) would prove to be wrong again that countries do not bankrupt but would have a consolation prize that similar to LBOs the sum of the individual values of euro zone members outside the current agreement exceeds the value of the whole euro zone. Internal rescues of French and German banks may be less costly than bailing out other euro zone countries so that they do not default on French and German banks.

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

	Net Debt USD Billions	Debt as % of Germany Plus France GDP	Debt as % of Germany GDP
A Euro Area	8,855.7
B Germany	1,996.3		$8130.9 as % of $3367 =241.5% $5971.4 as % of $3367 =177.4%
C France	2,159.5
B+C	4,155.8	GDP $5,947.0 Total Debt $8130.9 Debt/GDP: 136.7%
D Italy	2,041.4
E Spain	1,053.2
F Portugal	234.0
G Greece	435.3
H Ireland	211.2
Subtotal D+E+F+G+H	3,975.1

Source: calculation with IMF data http://www.imf.org/external/datamapper/index.php?db=WEO

There is extremely important information in Table III-9 for the current sovereign risk crisis in the euro zone. Table III-9 provides the structure of regional and country relations of Germany’s exports and imports with newly available data for Feb 2013. German exports to other European Union (EU) members are 58.1 percent of total exports in Feb 2013 and 58.4 percent in cumulative Jan-Feb 2013. Exports to the euro area are 38.1 percent in Feb and 38.4 percent cumulative in Jan-Feb. Exports to third countries are 41.9 percent of the total in Jan-Feb and 41.6 percent cumulative in Jan-Feb. There is similar distribution for imports. Exports to non-euro countries are decreasing 1.9 percent in Feb 2013 and increasing 1.2 percent cumulative in Jan-Feb 2013 while exports to the euro area are decreasing 4.1 percent in Feb 2013 and decreasing 2.0 percent cumulative in Jan-Feb 2013. Exports to third countries, accounting for 41.9 percent of the total in Jan 2013, are decreasing 1.9 percent in Jan 2013 and increasing 1.2 percent cumulative in Jan-Feb 2013, accounting for 41.6 percent of the cumulative total in Jan-Feb 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 ∆%

	Feb 2013 € Billions	Feb 12-Month ∆%	Cumulative Jan-Feb 2012 € Billions	Cumulative Jan-Feb 2013/ Jan-Feb 2012 ∆%
Total Exports	88.7	-2.8	177.2	0.0
A. EU Members	51.5 % 58.1	-3.4	103.5 % 58.4	-0.8
Euro Area	33.8 % 38.1	-4.1	68.1 % 38.4	-2.0
Non-euro Area	17.7 % 19.9	-1.9	35.4 % 20.0	1.6
B. Third Countries	37.2 % 41.9	-1.9	73.7 % 41.6	1.2
Total Imports	71.9	-5.9	146.8	-1.6
C. EU Members	46.4 % 62.6	-4.5	93.3 % 63.6	-0.1
Euro Area	32.1 % 43.1	-5.7	64.4 % 43.9	-1.6
Non-euro Area	14.3 % 19.5	-1.5	28.9 % 19.7	3.3
D. Third Countries	25.5 % 37.4	-8.3	53.5 % 36.4	-4.0

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

Source: https://www.destatis.de/EN/PressServices/Press/pr/2013/04/PE13_130_51.html;jsessionid=7C55A5AC7F08380B900542EE84791700.cae1

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

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

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

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

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

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

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

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

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

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

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

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

M_tV(i_t, ·) = P_tY_t (5)

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

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

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

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

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

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

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

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

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

	GDP	CPI	PPI	UNE
US	1.7	1.5	1.1	7.6
Japan	0.5	-0.7	-0.5	4.3
China	7.7	2.1	-1.9
UK	0.2	2.8* CPIH 2.6	2.0 output 1.3** input 0.4	7.9
Euro Zone	-0.9	1.7	1.3	12.0
Germany	0.4	1.8	1.2	5.4
France	-0.3	1.1	1.9	10.8
Nether-lands	-0.9	3.2	0.4	6.2
Finland	-1.4	2.5	1.1	8.1
Belgium	-0.4	1.3	4.2	8.1
Portugal	-3.8	0.7	1.9	17.5
Ireland	0.8	0.6	1.5	14.2
Italy	-2.7	1.8	0.5	11.6
Greece	-6.0	-0.2	1.0	NA
Spain	-1.9	2.6	2.1	26.3

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/march-2013/index.html**Core

PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/march-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 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html 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 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html 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 (http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or_8.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.htm ). 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: 7.6 percent in the US but 18.2 percent for unemployment/underemployment or job stress of 29.6 million (http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.htm), 4.3 percent for Japan (http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/03/mediocre-gdp-growth-at-16-to-20-percent.html), 7.9 percent for the UK with high rates of unemployment for young people (see the labor statistics of the UK in Subsection VH and earlier at http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html). Twelve-month rates of inflation have been quite high, even when some are moderating at the margin: 1.5 percent in the US, -0.7 percent for Japan, 2.1 percent for China, 1.7 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/2013/04/recovery-without-hiring-ten-million.html); (2) the tradeoff of growth and inflation in China now with change in growth strategy to domestic consumption instead of investment and political developments in a decennial transition; (3) slow growth by repression of savings with de facto interest rate controls (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html 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/2013/04/recovery-without-hiring-ten-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.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/2013/04/thirty-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.htm); (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 1.6 to 2.1 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 US economic growth has been at only 2.1 percent on average in the cyclical expansion in the 14 quarters from IIIQ2009 to IVQ2012. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html).Zero interest rates and quantitative easing have not provided the impulse for growth and were not required in past successful cyclical expansions.

First, 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 159,909 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 167,727 per month in the eleven months from Mar 2012 to Jan 2013. The number of 164,000 new private new jobs created in Jan 2013 is lower than the average 167,727 per month created from Mar 2012 to Jan 2013. New farm jobs created in Feb 2013 were 268,000 and 254,000 in private jobs, which exceeds the average for the prior eleven months. In Mar 2013 the US economy created 88,000 new farm jobs, which is 52 percent of the average of 169,000 jobs per month created in the past 12 months (page 2 http://www.bls.gov/news.release/pdf/empsit.pdf). 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 Oct 2012 to Mar 2013 was 188,333, 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 29.6 million unemployed or underemployed. The difference between the average increase of 188,333 new private nonfarm jobs per month in the US from Oct 2012 to Mar 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 75,166 monthly new jobs net of absorption of new entrants in the labor force. There are 29.6 million in job stress in the US currently. The provision of 75,166 new jobs per month net of absorption of new entrants in the labor force would require 393 months to provide jobs for the unemployed and underemployed (29.550 million divided by 75,166) or 32.8 years (393 divided by 12). The civilian labor force of the US in Mar 2013 not seasonally adjusted stood at 154.512 million with 11.815 million unemployed or effectively 19.490 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 162.187 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 75,166 by 12, which is 901,992). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.726 million (0.05 times labor force of 154.512 million) for new net job creation of 4.089 million (11.815 million unemployed minus 7.726 million unemployed at rate of 5 percent) that at the current rate would take 4.5 years (4.089 million divided by 901.992). Under the calculation in this blog there are 19.490 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 162.187 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 11.381 million jobs net of labor force growth that at the current rate would take 12.6 years (19.490 million minus 0.05(162.187 million) or 11.381 million divided by 901,992, 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 142.698 million in Mar 2013, by 4.420 million, or decline of 3.0 percent, while the noninstitutional population increased from 232.939 million in Nov 2007 to 244.995 million in Mar 2013, by 12.056 million or increase of 5.2 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/2013/04/thirty-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 {([(1.02^1/4(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.

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”

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.”

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.”

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 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html

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 Tendency
2013 Dec PR	2.3 to 2.8 2.3 to 3.0	7.3 to 7.5 7.4 to 7.7	1.3 to 1.7 1.3 to 2.0	1.5 to 1.6 1.6 to 1.9
2014 Dec PR	2.9 to 3.4 3.0 to 3.5	6.7 to 7.0 6.8 to 7.3	1.5 to 2.0 1.5 to 2.0	1.7 to 2.0 1.6 to 2.0
2015 Dec	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 Dec PR	2.0 to 3.0 2.0 to 3.2	6.9 to 7.6 6.9 to 7.8	1.3 to 2.0 1.3 to 2.0	1.5 to 2.0 1.5 to 2.0
2014 Dec PR	2.6 to 3.8 2.8 to 4.0	6.1 to 7.1 6.1 to 7.4	1.4 to 2.1 1.4 to 2.2	1.5 to 2.1 1.5 to 2.0
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

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

There are two categories of responses in the Empire State Manufacturing Survey of the Federal Reserve Bank of New York (http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html): current conditions and expectations for the next six months. There are responses in the survey for two types of prices: prices received or inputs of production and prices paid or sales prices of products. Table IV-5 provides indexes for the two categories and within them for the two types of prices from Jan 2011 to Apr 2013. There are two categories of responses in the Empire State Manufacturing Survey of the Federal Reserve Bank of New York (http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html): current conditions and expectations for the next six months. There are responses in the survey for two types of prices: prices received or inputs of production and prices paid or sales prices of products. The index of current prices paid or costs of inputs increased from 14.61 in Dec 2012 while the index of current prices received or sales prices increased from 1.08 in Dec 2012 to 5.68 in Apr 2013. The index of future prices paid or expectations of costs of inputs in the next six months fell from 51.61 in Dec 2012 to 44.32 in Apr 2013 while the index of future prices received or expectation of sales prices in the next six months fell from 25.81 in Dec 2012 to 14.77 in Apr 2013. Prices of sales of finished products are less dynamic than prices of costs of inputs during waves of increases. Prices of costs of costs of inputs fall less rapidly than prices of sales of finished products during waves of price decreases. As a result, margins of prices of sales less costs of inputs oscillate with typical deterioration against producers.

Table IV-5, US, FRBNY Empire State Manufacturing Survey, Diffusion Indexes, Prices Paid and Prices Received, SA

	Current Prices Paid	Current Prices Received	Six Months Prices Paid	Six Months Prices Received
Apr 2013	28.41	5.68	44.32	14.77
Mar	25.81	2.15	50.54	23.66
Feb	26.26	8.08	44.44	13.13
Jan	22.58	10.75	38.71	21.51
Dec 2012	16.13	1.08	51.61	25.81
Nov	14.61	5.62	39.33	15.73
Oct	17.20	4.30	44.09	24.73
Sep	19.15	5.32	40.43	23.40
Aug	16.47	2.35	31.76	14.12
Jul	7.41	3.70	35.80	16.05
Jun	19.59	1.03	34.02	17.53
May	37.35	12.05	57.83	22.89
Apr	45.78	19.28	50.60	22.89
Mar	50.62	13.58	66.67	32.10
Feb	25.88	15.29	62.35	34.12
Jan	26.37	23.08	53.85	30.77
Dec 2011	24.42	3.49	56.98	36.05
Nov	18.29	6.10	36.59	25.61
Oct	22.47	4.49	40.45	17.98
Sep	32.61	8.70	53.26	22.83
Aug	28.26	2.17	42.39	15.22
Jul	43.33	5.56	51.11	30.00
Jun	56.12	11.22	55.10	19.39
May	69.89	27.96	68.82	35.48
Apr	57.69	26.92	56.41	38.46
Mar	53.25	20.78	71.43	36.36
Feb	45.78	16.87	55.42	27.71
Jan	35.79	15.79	60.00	42.11

Source: http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html

Price indexes of the Federal Reserve Bank of Philadelphia Outlook Survey are provided in Table IV-6. As inflation waves throughout the world (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html), indexes of both current and expectations of future prices paid and received were quite high until May 2011. Prices paid, or inputs, were more dynamic, reflecting carry trades from zero interest rates to commodity futures. All indexes softened after May 2011 with even decline of prices received in Aug 2011 during the first round of risk aversion. Current and future price indexes have increased again but not back to the levels in the beginning of 2011 because of risk aversion frustrating carry trades even under zero interest rates. The index of prices paid or prices of inputs fell from 23.5 in Dec 2012 to 3/1 in Apr 2013. The index of current prices received was minus 7.5 in Apr 2013, indicating decrease of prices received. The index of future prices paid fell to 26.6 in Apr 2013 from 45.8 in Dec 2012, indicating expectation of lower pressure of increases of input prices, while the index of future prices received fell marginally from 25.6 in Dec 2012 to 8.3 in Apr 2013. Expectations are incorporating faster increases in prices of inputs or costs of production than of sales of produced goods.

Table IV-6, US, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and Future Prices Paid and Prices Received, SA

	Current Prices Paid	Current Prices Received	Future Prices Paid	Future Prices Paid
Dec-10	44.3	6.6	59.6	25.3
Jan-11	48.9	11.9	58.3	34.4
Feb-11	58.9	13.1	62.1	33.3
Mar-11	57.5	16.8	60.2	31.8
Apr-11	49.4	19.8	54.2	32.4
May-11	47.7	18.5	52.7	27.6
Jun-11	38.9	8.1	38.3	6.8
Jul-11	35.6	6	49.6	16.7
Aug-11	23.3	-4.7	44.3	22.7
Sep-11	31.6	7.6	41.8	21.8
Oct-11	25.4	4.1	44.5	28.4
Nov-11	26.3	7.6	39	29.1
Dec-11	27.5	8.2	46.7	23.5
Jan-12	27.1	7.9	47.2	21.9
Feb-12	30.2	9.7	43.5	28.6
Mar-12	14.3	5.4	35.9	22
Apr-12	16	5.3	33.3	18.6
May-12	5.4	-2.2	37.2	8.3
Jun-12	5.4	-3.4	29.6	16.6
Jul-12	10.3	4.2	29.3	19.6
Aug-12	15.7	4.7	38	23.9
Sep-12	15.4	4	42.8	27.4
Oct-12	20.6	8.4	48.1	16.1
Nov-12	27.9	7.5	50.7	14
Dec-12	23.5	12.4	45.8	25.6
Jan-13	14.7	-1.1	34.3	21.7
Feb-13	8.9	-0.5	26.4	25.4
Mar-13	8.5	-0.8	30.9	16.6
Apr-13	3.1	-7.5	26.6	8.3

Source: Federal Reserve Bank of Philadelphia http://www.philadelphiafed.org/index.cfm

Chart IV-1 of the Business Outlook Survey of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices paid or prices of inputs from 2006 to 2013. Recession dates are in shaded areas. In the middle of deep global contraction after IVQ2007, input prices continued to increase in speculative carry trades from central bank policy rates falling toward zero into commodities futures. The index peaked above 70 in the second half of 2008. Inflation of inputs moderated significantly during the shock of risk aversion in late 2008, even falling briefly into contraction territory below zero during several months in 2009 in the flight away from risk financial assets into US government securities (Cochrane and Zingales 2009) that unwound carry trades. Return of risk appetite induced carry trade with significant increase until return of risk aversion in the first round of the European sovereign debt crisis in Apr 2010. Carry trades returned during risk appetite in expectation that the European sovereign debt crisis was resolved. The various inflation waves originating in carry trades induced by zero interest rates with alternating episodes of risk aversion are mirrored in the prices of inputs after 2011, in particular after Aug 2012 with the announcement of the Outright Monetary Transactions Program of the European Central Bank (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html). Subsequent risk aversion caused sharp decline in the index of prices paid.

Chart IV-1, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

http://www.philadelphiafed.org/index.cfm

Chart IV-2 of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices received from 2006 to 2013. The significant difference between the index of current prices paid in Chart IV-1 and the index of current prices paid in Chart IV-2 is that increases in prices paid are significantly sharper than increases in prices received. There were several periods of negative readings of prices received from 2010 to 2013 but none of prices paid. Prices paid relative to prices received deteriorate most of the time largely because of the carry trades from zero interest rates to commodity futures. Profit margins of business are compressed intermittently by fluctuations of commodity prices induced by unconventional monetary policy of zero interest rates, frustrating production, investment and hiring decisions of business, which is precisely the opposite outcome desired by unconventional monetary policy.

Chart IV-2, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

http://www.philadelphiafed.org/index.cfm

The harmonized index of consumer prices of the euro area in Table IV-7 has similar inflation waves as in most countries (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html). In the first wave, consumer prices in the euro area increased at the annual equivalent rate of 5.2 percent in Jan-Apr 2011. In the second wave, risk aversion caused unwinding of commodity carry trades with inflation decreasing at the annual equivalent rate of minus 2.4 percent in May-Jul 2011. In the third wave, improved risk appetite resulted in annual equivalent inflation in Aug-Nov at 4.3 percent. In the fourth wave, return of risk aversion caused decline of consumer prices at the annual equivalent rate of minus 3.0 percent in Dec 2011 to Jan 2012. In the fifth wave, improved attitudes toward risk aversion resulted in higher consumer price inflation at the high annual equivalent rate of 9.6 percent in Feb-Apr 2012. In the sixth wave, annual equivalent inflation fell to minus 2.8 percent in May-Jul 2012. In the seventh wave, increasing risk appetite caused new carry trade exposures that resulted in annual equivalent inflation of 6.8 percent in Aug-Sep 2012 and 5.3 percent in Aug-Oct 2012. In the eighth wave, annual-equivalent inflation was minus 2.4 percent in Nov 2012. In the ninth wave, annual equivalent inflation was 4.9 percent in Dec 2012. In the tenth wave, annual equivalent inflation was minus 11.4 percent in Jan 2013. In the eleventh wave, annual equivalent inflation was 10.0 percent in Feb-Mar 2013. Inflation volatility around the world is confusing the information required in investment and consumption decisions.

Table IV-7, Euro Area Harmonized Index of Consumer Prices Month and 12 Months ∆%

	Month ∆%	12 Months ∆%
Mar 2013	1.2	1.7
Feb	0.4	1.9
AE ∆% Feb-Mar	10.0
Jan	-1.0	2.0
AE ∆% Jan	-11.4
Dec 2012	0.4	2.2
AE ∆% Dec	4.9
Nov	-0.2	2.2
AE ∆% Nov	-2.4
Oct	0.2	2.5
Sep	0.7	2.6
Aug	0.4	2.6
AE ∆% Aug-Oct	5.3
Jul 2012	-0.5	2.4
Jun	-0.1	2.4
May	-0.1	2.4
AE ∆% May-Jul	-2.8
Apr	0.5	2.6
Mar	1.3	2.7
Feb	0.5	2.7
AE ∆% Feb-Apr	9.6
Jan	-0.8	2.7
Dec 2011	0.3	2.7
AE ∆% Dec-Jan	-3.0
Nov	0.1	3.0
Oct	0.4	3.0
Sep	0.7	3.0
Aug	0.2	2.6
AE ∆% Aug-Nov	4.3
Jul	-0.6	2.6
Jun	0.0	2.7
May	0.0	2.7
AE ∆% May-Jul	-2.4
Apr	0.6	2.8
Mar	1.4	2.7
Feb	0.4	2.4
Jan	-0.7	2.3
AE ∆% Jan-Apr	5.2
Dec 2010	0.6	2.2

AE: annual equivalent

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

Table IV-8 provides weights and inflation of selected components of the HICP of the euro area. Inflation of all items excluding energy increased 1.8 percent in Mar 2013 relative to Mar 2012 and increased 1.4 percent in Mar 2013 relative to Feb 2013. Prices of non-energy industrial goods increased 1.0 percent in Mar 2013 relative to a year earlier and increased 3.8 percent in Mar 2013. Inflation of services was 1.8 percent in Mar 2013 relative to a year earlier and increased 0.4 percent in Mar 2013.

Table IV-8, Euro Area, HICP Inflation and Selected Components, ∆%

	Weight % 2013	Mar 2013/ Mar 2012	12-month Average Rate Mar 2013-2012/ Mar 2012-2011	∆% Mar 2013/Feb 2013
All Items	1000.0	1.7	2.3	1.2
All Items ex Energy	890.4	1.8	1.8	1.4
All Items ex Energy, Food, Alcohol & Tobacco	696.7	1.5	1.5	1.7
All Items ex Energy & Unprocessed Food	816.9	1.6	1.7	1.5
All Items ex Seasonal Food	852.7	1.7	1.7	1.4
All Items ex Tobacco	975.8	1.7	2.2	1.2
Energy	109.6	1.7	6.1	-0.6
Food, Alcohol & Tobacco	193.7	2.7	3.0	0.3
Non-energy Industrial Goods	273.6	1.0	1.1	3.8
Services	423.0	1.8	1.7	0.4

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

Table IV-9 provides weights and inflation of selected components of the HICP of the euro area with highest annual impact. Inflation of electricity with weight of 25.9 percent increased 8.2 percent in Mar 2013 relative to a year earlier and contributed 0.17 percentage points. Package holidays with weight of 16.1 percent increased 11.4 percent in Mar 2013 relative to a year earlier and contributed 0.12 percentage points. Accommodation services with weight of 15.4 percent increased 7.2 in Mar 2013 relative to a year earlier and added 0.9 percentage points.

Table IV-9, Euro Area, Components with Highest Impact on Annual Inflation

	Weight % 2013	Annual Rate Mar 2013 ∆%	Impact Percentage Points Mar 2013
Electricity	25.9	8.2	0.17
Package Holidays	16.1	11.4	0.12
Accommodation Services	15.4	7.2	0.09
Medical & Paramedical Services	11.3	-5.0	-0.08
Telecommunications	29.4	-5.5	-0.22
Fuels for Transport	50.0	-2.4	-0.23

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

The producer price index of Germany decreased 0.3 percent in Mar 2013, calendar and seasonally adjusted (CSA), decreased 0.2 not seasonally adjusted (NS) in Mar 2013 and increased 0.4 percent in the 12 months ending in Mar 2013, as shown in Table IV-10. The producer price index of Germany has similar waves of inflation as in many other countries (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html). In the first wave from Jan to Apr 2011, the annual equivalent rate of producer price inflation was 10.4 percent NSA and 6.5 percent CSA, propelled by carry trades from zero interest rates to exposures in commodity futures in a mood of risk appetite. In the second wave in May and Jun 2011, the annual equivalent rate of producer price inflation was only 0.6 percent NSA because of the collapse of the carry trade in fear of risks of European sovereign debt but 4.3 percent CSA. In the third wave from Jul to Sep 2011, annual-equivalent producer price inflation in Germany was 2.8 percent NSA and 3.2 percent CSA with fluctuations in commodity prices resulting from perceptions of the sovereign risk crisis in Europe. In the fourth wave from Oct to Nov 2011, annual equivalent inflation was 1.8 percent NSA and 3.7 percent CSA. In the fifth wave from Dec 2011 to Jan 2012, annual equivalent inflation was at 1.2 percent NSA and minus 0.6 percent CSA in return of risk aversion. In the sixth wave, annual equivalent inflation increased to 6.2 percent in Feb-Mar 2012 NSA and 4.9 percent in Feb-Apr and 1.6 percent CSA. In the seventh wave, annual equivalent inflation was minus 2.8 percent in May-Jul 2012 NSA and minus 0.4 percent SA. In the eighth wave, annual equivalent inflation was 4.9 percent in Aug-Sep 2012 NSA and 4.9 percent SA. In the ninth wave, renewed risk aversion resulted in annual equivalent inflation NSA of minus 1.6 percent in Oct-Dec 2012 and 1.6 percent CSA. In the tenth wave, annual equivalent inflation was 10.0 percent NSA and 1.2 percent CSA in Jan 2013. In the eleventh wave, annual equivalent inflation NSA was minus 1.8 percent in Feb-Mar 2013 and minus 3.0 percent CSA. Data in the bottom of Table IV-10 show that the producer price index fell 5.2 percent in the 12 months ending in Dec 2009 because of the fall of commodity prices originating in risk aversion after the panic of 2008.

Table IV-10, Germany, Index of Producer Prices for Industrial Products ∆%

	12 Months ∆% NSA	Month ∆% Calendar and SA	Month ∆% NSA
Mar 2013	0.4	-0.3	-0.2
Feb	1.2	-0.2	-0.1
AE ∆% Feb-Mar		-3.0	-1.8
Jan	1.7	0.1	0.8
AE ∆% Jan		1.2	10.0
Dec 2012	1.5	0.2	-0.3
Nov	1.4	0.1	-0.1
Oct	1.5	0.1	0.0
AE ∆% Oct-Dec		1.6	-1.6
Sep	1.7	0.2	0.3
Aug	1.6	0.6	0.5
AE ∆% Aug-Sep		4.9	4.9
Jul	0.9	-0.1	0.0
Jun	1.6	-0.1	-0.4
May	2.1	0.1	-0.3
AE ∆% May-Jul		-0.4	-2.8
Apr	2.4	-0.2	0.2
Mar	3.3	0.4	0.6
Feb	3.2	0.2	0.4
AE ∆% Feb-Apr		1.6	4.9
Jan	3.4	0.0	0.6
Dec 2011	4.0	-0.1	-0.4
AE ∆% Dec-Jan		-0.6	1.2
Nov	5.2	0.3	0.1
Oct	5.3	0.3	0.2
AE ∆% Oct-Nov		3.7	1.8
Sep	5.5	0.3	0.3
Aug	5.5	0.0	-0.3
Jul	5.8	0.5	0.7
AE ∆% Jul-Sep		3.2	2.8
Jun	5.6	0.3	0.1
May	6.1	0.4	0.0
AE ∆% May-Jun		4.3	0.6
Apr	6.4	0.6	1.0
Mar	6.2	0.3	0.4
Feb	6.4	0.6	0.7
Jan	5.7	0.6	1.2
AE ∆% Jan-Apr		6.5	10.4
Dec 2010	5.3	0.8	0.7
Nov	4.4	0.4	0.2
Oct	4.3	0.4	0.4
Sep	3.9	0.5	0.3
Aug	3.2	0.2	0.0
Jul	3.7	0.6	0.5
Jun	1.7	0.5	0.6
May	0.9	0.3	0.3
Apr	0.6	0.5	0.8
Mar	-1.5	0.6	0.7
Feb	-2.9	0.1	0.0
Jan	-3.4	0.4	0.8
Dec 2009	-5.2	0.2	-0.1
Dec 2008	4.0	-0.2	-0.8
Dec 2007	1.9	0.4	-0.1
Dec 2006	4.2	0.3	0.1
Dec 2005	4.8	0.5	0.3
Dec 2004	2.9	0.3	0.1
Dec 2003	1.8		0.0
Dec 2002	0.5		0.1
Dec 2001	0.1		-0.2

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

Chart IV-3 of the Federal Statistical Agency of Germany Statistiche Bundesamt Deutschland provides the producer price index of Germany from 2005 to 2013. Producer price inflation peaked in 2008 with the rise of commodity prices induced by the carry trade from zero interest rates to commodity futures during a global contraction. Prices then declined with the flight away from risk financial assets to government obligations after the financial panic in Sep 2008. With zero interest rates and no risk aversion, the carry trade pushed commodity futures prices upwardly resulting in new rising trend of the producer price index. The right-hand side of the chart shows moderation and even decline in prices because of severe risk aversion frustrating carry trades from zero interest rates to commodity futures but then return of risk appetite with another surge of the index in annual equivalent rate at 6.2 percent in Feb-Mar 2012 and 4.9 percent annual equivalent in Feb-Apr 2012 but decline of 0.3 percent in May 2012 and 0.4 percent in Jun 2012 with flat prices in Jul 2012 with the pace at annual equivalent rate of minus 4.1 percent in May-Jun 2012 and flat prices in Jul 2012. Inflation returned in Aug and Sep 2012 with carry trades into commodity futures with 4.9 percent annual equivalent. Inflation then collapsed to zero in Oct 2012 NSA, minus 0.1 percent in Nov 2012 and minus 0.3 percent in Dec 2012 with increases of 0.8 percent in Jan 2013 but declines of 0.1 in Feb 2013 and 0.2 percent in Mar 2013.

Chart IV-3, Germany, Index of Producer Prices for Industrial Products, 2005=100

Source: Statistisches Bundesamt Deutschland

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

Chart IV-4 provides the index of producer finished goods in the US from 2005 to 2013. Chart IV-4 of the US mirrors behavior in Chart IV-3 of Germany. Carry trades from zero interest rates to exposures in commodity futures and risk financial assets have synchronized worldwide inflation during periods of risk appetite and disinflation during periods of risk aversion.

Chart IV-4, US, Producer Price Index, Finished Goods, NSA, 2005-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/ppi/

Chart IV-5 of the Federal Statistical Agency of Germany Statistiche Bundesamt Deutschland provides the unadjusted producer price index, trend and trend ends. There is a clear upward trend of prices after the end of risk aversion with zero interest rates in 2009. The actual curve fell below trend in the current episode of severe risk aversion but rose again in Feb-Apr 2012, falling in May-Jun 2012 with flat prices in Jul 2012, another increase in Aug-Sep 2012 and flat prices in Oct 2012 with declines of 0.1 percent in Nov 2012 and 0.3 percent in Dec 2012 followed by sharp increase of 0.8 percent in Jan 2013 and declines of 0.1 percent in Feb 2013 and 0.2 percent in Mar 2013.

Chart IV-5, Germany, Producer Price Index, Non-adjusted Value and Trend, 2005=100

Source: Statistiche Bundesamt Deutschland

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

Inflation in the UK is somewhat higher than in many advanced economies, deserving more detailed analysis. Table IV-11 provides 12-month percentage changes of UK output prices for all manufactured products, excluding food, beverage and petroleum and excluding duty. The 12-month rates rose significantly in 2011 in all three categories, reaching 6.3 percent for all manufactured products in Sep 2011 but declining to 5.7 percent in Oct, 5.4 in Nov and down to 1.8 percent in Jul 2012, increasing marginally to 2.3 percent in Aug 2012, 2.5 percent in Sep, 2.6 in Oct, 2.1 percent in Nov 2012, 2.2 percent in Dec 2012, 2.1 percent in Jan 2013, 2.3 percent in Feb 2013 and 2.0 percent in Mar 2013. Output price inflation is highly sensitive to commodity prices as shown by the increase by 6.7 percent in 2008 when oil prices rose over $140/barrel even in the midst of a global recession driven by the carry trade from zero interest rates to oil futures. The mirage episode of false deflation in 2001 and 2002 is also captured by output prices for the UK, which was originated in decline of commodity prices (see Barsky and Killian 2004) but was used as an argument for unconventional monetary policy of zero interest rates and quantitative easing during the past decade.

Table IV-11, UK Output Prices 12 Months ∆% NSA

	All Manufactured Products	Excluding Food, Beverage, Tobacco and Petroleum	All Excluding Duty
Mar 2013	2.0	1.3	1.8
Feb	2.3	1.3	2.1
Jan	2.1	1.4	1.9
Dec 2012	2.2	1.5	1.9
Nov	2.1	1.4	1.8
Oct	2.6	1.4	2.3
Sep	2.5	1.2	2.2
Aug	2.3	1.2	1.9
Jul	1.8	1.2	1.5
Jun	2.0	1.7	1.7
May	2.8	2.1	2.5
Apr	3.3	2.3	3.1
Mar	3.7	2.5	3.5
Feb	4.1	3.0	4.1
Jan	4.0	2.4	4.0
Dec 2011	4.8	3.0	4.8
Nov	5.4	3.1	5.6
Oct	5.7	3.3	5.9
Sep	6.3	3.7	6.4
Aug	6.0	3.5	6.2
Jul	6.1	3.4	6.2
Jun	5.8	3.2	5.9
May	5.4	3.4	5.5
Apr	5.6	3.6	5.8
Mar	5.6	3.1	5.5
Feb	5.3	3.1	5.2
Jan	5.0	3.3	5.0
Dec 2010	4.2	2.7	4.0
Year ∆%
2012	2.8	1.8	2.5
2011	5.6	3.4	5.7
2010	4.2	3.0	3.9
2009	1.6	2.5	1.0
2008	6.7	3.7	6.7
2007	2.4	1.4	2.1
2006	2.0	1.5	2.0
2005	1.9	1.0	1.9
2004	1.0	-0.3	0.6
2003	0.6	0.1	0.5
2002	-0.1	-0.4	-0.1
2001	-0.3	-0.6	-0.3
2000	1.4	-0.5	0.8
1999	0.6	-1.0	-0.3
1998	0.0	-0.9	-0.9
1997	0.9	0.3	0.1

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/march-2013/index.html

Monthly and annual equivalent rates of change of output prices are shown in Table IV-12. There are waves of inflation similar to those in other countries (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html). In the first wave, annual equivalent inflation was 12.0 percent in Jan-Apr 2011 with relaxed risk aversion in commodity markets. In the second wave, intermittent risk aversion resulted in annual equivalent inflation of 2.0 percent in May-Oct 2011. In the third wave, alternation of risk aversion resulted in annual equivalent inflation of 1.6 percent in Nov 2011 to Jan 2012. In the fourth wave, the energy commodity shock processed through carry trades caused the jump of annual equivalent inflation to 7.9 percent in Feb-Apr 2012. A fifth wave occurred in May-Jun 2012 with decline of output inflation by 5.3 percent annual equivalent in an environment of risk aversion that caused decline of commodity prices. A sixth wave under commodity shocks induced by carry trades from zero interest rates resulted in annual equivalent inflation of 4.5 percent in Jul-Sep 2012 and 4.0 percent in Jul-Oct 2012. In the seventh wave, annual equivalent inflation in Nov-Dec 2012 fell to minus 2.4 percent. In the eighth wave, annual equivalent inflation returned at 5.3 percent in Jan-Mar 2013.

Table IV-12, UK Output Prices Month ∆% NSA

	All Manufactured Products	Excluding Food, Beverage and Petroleum	All Excluding Duty
Mar 2013	0.3	0.1	0.2
Feb	0.8	0.3	0.8
Jan	0.2	0.3	0.3
∆% AE Jan-Mar	5.3	2.8	5.3
Dec 2012	-0.1	0.0	-0.1
Nov	-0.3	-0.1	-0.2
∆% AE Nov-Dec	-2.4	-0.6	-1.8
Oct	0.2	0.1	0.2
Sep	0.5	0.3	0.5
Aug	0.5	0.1	0.6
Jul	0.1	-0.1	0.1
∆% AE Jul-Oct	4.0	1.2	4.3
Jun	-0.6	-0.2	-0.6
May	-0.3	-0.1	-0.4
∆% AE May-Jun	-5.3	-1.8	-5.8
Apr	0.7	0.6	0.5
Mar	0.6	0.1	0.5
Feb	0.6	0.5	0.6
∆% AE Feb-Apr	7.9	4.9	6.6
Jan	0.4	0.3	0.3
Dec 2011	-0.2	-0.1	-0.2
Nov	0.2	-0.1	0.2
∆% AE Nov-Jan	1.6	0.4	1.2
Oct	0.0	-0.1	0.1
Sep	0.3	0.3	0.2
Aug	0.0	0.1	0.1
Jul	0.3	0.4	0.3
Jun	0.2	0.2	0.2
May	0.2	0.2	0.2
∆% AE May-Oct	2.0	2.2	2.2
Apr	1.1	0.8	0.9
Mar	1.1	0.5	1.1
Feb	0.5	0.0	0.5
Jan	1.1	0.8	1.1
Jan-Apr ∆% AE	12.0	6.5	11.4
Dec 2010	0.5	0.0	0.6

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/march-2013/index.html

Input prices in the UK have been more dynamic than output prices until the current event of risk aversion, as shown by Table IV-13, but with sharp oscillations because of the commodity and raw material content. The 12-month rates of increase of input prices, even excluding food, tobacco, beverages and petroleum, are very high, reaching 18.1 percent in Sep 2011 for materials and fuels purchased and 13.3 percent excluding food, beverages and petroleum. Inflation in 12 months of materials and fuels purchased moderated to 5.4 percent in Mar 2012 and 4.1 percent excluding food, tobacco, beverages and petroleum with the rates falling further in Apr to 1.1 percent for materials and fuels purchased and 2.2 percent excluding food, tobacco, beverages and petroleum. Input-price inflation collapsed in the 12 months ending in Jul 2012 to minus 2.6 percent for materials and fuels purchased and minus 1.5 percent excluding food, beverages and tobacco. Inflation returned at 1.2 percent in the 12 months ending in Aug 2012 but minus 0.5 percent excluding food, tobacco, beverages and petroleum. Inflation of input prices in Sep 2012 was minus 0.8 percent and minus 0.8 percent excluding food, beverages and petroleum. In Nov 2012, inflation of input prices of all manufacturing and materials purchased was minus 0.1 percent in 12 months and minus 0.2 percent in 12 months excluding food, tobacco, beverages and petroleum. Inflation of materials and fuels purchased in 12 months was 0.6 percent in Dec 2012 and 0.1 percent excluding tobacco, beverages and petroleum. Inflation of inputs returned with 1.8 percent in the 12 months ending in Jan 2013 and 0.6 percent excluding various items, increasing to 2.1 percent in Feb 2013 and 1.7 percent excluding various items. In Mar 2013, inflation of all manufacturing materials and fuels increased 0.4 percent in 12 months and 1.6 percent excluding various items. There is comparable experience with 22.2 percent inflation of materials and fuels purchased in 2008 and 16.9 percent excluding food, beverages and petroleum followed in 2009 by decline of 3.8 percent by materials and fuels purchased and increase of 1.6 percent for the index excluding items. UK input and output inflation is sensitive to commodity price increases driven by carry trades from zero interest rates. The mirage of false deflation is also observed in input prices in 1997-9 and then again from 2001 to 2003.

Table IV-13, UK, Input Prices 12-Month ∆% NSA

	All Manufacturing Materials and Fuels Purchased	Excluding Food, Tobacco, Beverages and Petroleum
Mar 2013	0.4	1.6
Feb	2.1	1.7
Jan	1.8	0.6
Dec 2012	0.6	0.1
Nov	-0.1	-0.2
Oct	0.2	-0.4
Sep	-0.8	-0.8
Aug	1.2	-0.5
Jul	-2.6	-1.5
Jun	-2.2	-0.3
May	0.1	1.1
Apr	1.1	2.2
Mar	5.4	4.1
Feb	7.7	5.7
Jan	6.5	5.6
Dec 2011	8.9	7.2
Nov	13.8	10.2
Oct	14.5	11.0
Sep	18.1	13.3
Aug	16.3	13.0
Jul	18.5	13.3
Jun	16.8	12.6
May	16.3	11.4
Apr	17.9	12.2
Mar	14.8	10.3
Feb	14.9	10.7
Jan	14.2	10.5
Dec 2010	13.1	9.0
Year ∆%
2012	1.4	1.1
2011	15.4	11.5
2010	9.9	5.7
2009	-3.8	1.6
2008	22.2	16.9
2007	2.9	2.3
2006	9.8	7.2
2005	11.0	6.9
2004	3.3	1.6
2003	1.2	-0.6
2002	-4.4	-4.8
2001	-1.2	-1.2
2000	7.4	3.7
1999	-1.3	-3.6
1998	-9.1	-4.6
1997	-8.2	-6.3

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/march-2013/index.html

Table IV-14 provides monthly percentage changes of UK input prices for materials and fuels purchased and excluding food, tobacco, beverages and petroleum. There are strong waves of inflation of input prices in the UK similar to those worldwide (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html). In the first wave, input prices rose at the high annual equivalent rate of 35.6 percent in Jan-Apr 2011, driven by carry trades from unconventional monetary policy into commodity exposures. In the second wave, alternating risk aversion caused annual equivalent inflation of minus 3.1 percent in May-Oct 2011. In the third wave, renewed risk aversion resulted in annual equivalent inflation of minus 1.2 percent in Nov-Dec 2011. In the fourth wave, annual equivalent inflation of input prices in the UK surged at 18.1 percent in Jan-Mar 2012 under relaxed risk aversion. In the fifth wave, annual equivalent inflation was minus 21.9 percent in Apr-Jun 2012 because of collapse of commodity prices during increasing risk aversion. In the sixth wave, annual equivalent inflation of materials and fuels purchased jumped to 14.0 percent in Jul-Aug 2012. In the seventh wave, annual equivalent inflation moderated to 1.5 percent in Sep-Dec 2012. In the eighth wave, annual equivalent inflation in Jan-Feb 2013 jumped to 30.5 percent. In the eighth wave, annual equivalent inflation of materials and fuels purchased was minus 1.2 percent in Mar 2013.

Table IV-14, UK Input Prices Month ∆%

	All Manufacturing Materials and Fuels Purchased NSA	Excluding Food, Tobacco, Beverages and Petroleum SA
Mar 2013	-0.1	-0.4
∆% Mar	-1.2	-4.7
Feb	2.8	1.5
Jan	1.3	0.4
∆% Jan-Feb	30.5	12.0
Dec 2012	0.1	-0.2
Nov	0.1	0.2
Oct	0.2	0.3
Sep	0.1	0.2
∆% Sep-Dec	1.5	1.5
Aug	2.0	1.0
Jul	0.2	-0.3
∆% Jul-Aug	14.0	4.3
Jun	-2.1	-0.2
May	-2.6	-0.8
Apr	-1.4	0.1
∆% Apr-Jun	-21.9	-3.6
Mar	1.6	-0.5
Feb	2.5	0.7
Jan	0.1	-0.1
∆% AE Jan-Mar	18.1	0.4
Dec 2011	-0.6	-0.7
Nov	0.4	0.1
∆% AE Nov-Dec	-1.2	-3.6
Oct	-0.8	-0.5
Sep	2.1	0.6
Aug	-1.9	0.1
Jul	0.6	0.9
Jun	0.1	1.0
May	-1.6	-0.1
∆% AE May-Oct	-3.1	4.1
Apr	2.8	2.0
Mar	3.8	1.0
Feb	1.4	1.0
Jan	2.3	1.5
∆% AE Jan-Apr	35.6	17.8
Dec 2010	3.9	1.9

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/march-2013/index.html

The UK Office for National Statistics also provides contributions in percentage points to the monthly and 12-month rates of inflation of manufactured products, shown in Table IV-15. There are high contributions of 0.63 percentage points by food products, 0.64 percentage points by tobacco and alcohol, 0.29 percentage points by computer, electrical and optical and 0.23 percentage points by other manufactured products. There are diversified sources of contributions to 12 months output price inflation such as 0.10 percentage points by clothing, textile and leather and 0.19 percentage points by transport equipment. Petroleum deducted 0.10 percentage points. In general, contributions by products rich in commodities are the drivers of inflation. There were diversified contributions in percentage points to monthly inflation: 0.08 percentage points by food products, 0.10 percentage points by tobacco and alcohol and 0.02 percentage points by other manufactured products. The increase of petroleum prices by 0.1 percent contributed 0.01 percentage points to monthly inflation of manufactured products.

Table IV-15, UK, Contributions to Month and 12-Month Change in Prices of All Manufactured Products, Percentage Points, NSA

Mar 2013	12 Months % Points	12 Months ∆%	Month % Points	Month ∆%
Total %		2.0		0.3
Food Products	0.63	3.9	0.08	0.5
Tobacco & Alcohol	0.64	5.9	0.10	0.9
Clothing, Textile & Leather	0.10	0.9	0.01	0.0
Paper and Printing	-0.03	-0.8	0.00	0.1
Petroleum	-0.10	-0.8	0.01	0.1
Chemical & Pharmaceutical	0.03	0.3	0.05	0.6
Metal, Machinery & Equipment	0.01	0.4	0.01	0.2
Computer, Electrical & Optical	0.29	3.4	0.02	0.3
Transport Equipment	0.19	2.0	0.00	0.0
Other Manufactured Products	0.23	1.3	0.02	0.1

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/march-2013/index.html

Table IV-16, UK, Contributions to Month and 12-Month Change in Prices of Inputs, Percentage Points NSA

Mar 2013	12 Months % Points	12 Months ∆%	Month % Points	Month ∆%
Total		0.4		-0.1
Fuel	0.70	7.5	0.13	2.1
Crude Oil	-2.67	-9.0	-0.48	-2.6
Domestic Food Materials	1.65	17.3	0.08	1.1
Imported Food Materials	0.26	5.0	0.04	1.1
Other Domestic Produced Materials	-0.11	-2.9	0.00	0.2
Imported Metals	-0.29	-3.8	-0.01	-0.3
Imported Chemicals	0.16	1.6	0.03	0.4
Imported Parts and Equipment	0.41	2.8	0.07	0.7
Other Imported Materials	0.29	2.9	0.05	0.7

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/march-2013/index.html

Consumer price inflation in the UK is shown in Table IV-17. The CPI index increased 0.3 percent in Mar 2013 and 2.8 percent in 12 months. The same inflation waves (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html) are present in UK CPI inflation. In the first wave in Jan-Apr 2011, annual equivalent inflation was at a high 6.5 percent. In the second wave in May-Jul 2011, annual equivalent inflation fell to only 0.4 percent. In the third wave in Aug-Nov 2011, annual equivalent inflation returned at 4.6 percent. In the fourth wave in Dec 2011 to Jan 2012, annual equivalent inflation was minus 0.6 percent because of decline of 0.5 percent in Jan 2012. In the fifth wave, annual equivalent inflation increased to 6.2 percent in Feb-Apr 2012. In the seventh wave, annual equivalent inflation was minus 3.0 percent in May-Jun 2012. In the eighth wave, annual equivalent inflation in Jul-Dec 2012 was 4.5 percent and 6.2 percent in Oct 2012 with the rate in Oct caused mostly by increases in university tuition payments. In the ninth wave, annual equivalent inflation was minus 5.8 percent in Jan 2013. In the tenth wave, annual equivalent inflation jumped to 6.2 percent in Feb-Mar 2013.

Table IV-17, UK, Consumer Price Index All Items, Month and 12-Month ∆%

	Month ∆%	12 Months ∆%
Mar 2013	0.3	2.8
Feb	0.7	2.8
AE ∆% Feb-Mar	6.2
Jan 2013	-0.5	2.7
AE ∆% Jan	-5.8
Dec 2012	0.5	2.7
Nov	0.2	2.7
Oct	0.5	2.7
Sep	0.4	2.2
Aug	0.5	2.5
Jul	0.1	2.6
AE ∆% Jul-Dec	4.5
Jun	-0.4	2.4
May	-0.1	2.8
AE ∆% May-Jun	-3.0
Apr	0.6	3.0
Mar	0.3	3.5
Feb	0.6	3.4
AE ∆% Feb-Apr	6.2
Jan	-0.5	3.6
Dec 2011	0.4	4.2
AE ∆% Dec-Jan	-0.6
Nov	0.2	4.8
Oct	0.1	5.0
Sep	0.6	5.2
Aug	0.6	4.5
AE ∆% Aug-Nov	4.6
Jul	0.0	4.4
Jun	-0.1	4.2
May	0.2	4.5
May-Jul	0.4
Apr	1.0	4.5
Mar	0.3	4.0
Feb	0.7	4.4
Jan	0.1	4.0
AE ∆% Jan-Apr	6.5
Dec 2010	1.0	3.7
Nov	0.4	3.3
Oct	0.3	3.2
Sep	0.0	3.1
Aug	0.5	3.1
Jul	-0.2	3.1
Jun	0.1	3.2
May	0.2	3.4
Apr	0.6	3.7
Mar	0.6	3.4
Feb	0.4	3.0
Jan	-0.2	3.5

Source: UK Office for National Statistics

http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/march-2013/index.html

Inflation has been unusually high in the UK since 2006, as shown in Table IV-18. There were no rates of inflation close to 2.0 percent in the period from 1997 to 2004. Inflation has exceeded 2 percent since 2005, reaching 3.6 percent in 2008, 3.3 percent in 2010, 4.5 percent in 2011 and 2.8 percent in 2012.

Table IV-18, UK, Consumer Price Index, Annual ∆%

1997	1.8
1998	1.6
1999	1.3
2000	0.8
2001	1.2
2002	1.3
2003	1.4
2004	1.3
2005	2.1
2006	2.3
2007	2.3
2008	3.6
2009	2.2
2010	3.3
2011	4.5
2012	2.8

Source: UK Office for National Statistics

http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/march-2013/index.html

Table IV-19 provides the analysis of inflation in Mar 2013 by the UK Office for National Statistics. The drivers of monthly inflation of 0.3 percent are increase of 2.2 percent in clothing and footwear, adding 0.16 percentage points and transportation adding 0.09 percentage points. Food & nonalcoholic beverages decreased 0.5 percent, deducting 0.5 percentage points and furniture and household goods increased 1.3 percent, adding 0.05 percentage points. Contributions of percentage points to the 12-month rate of consumer price inflation of 2.8 percent are provided by the final two columns in Table IV-16. Food and nonalcoholic beverages increased 3.7 percent in 12 months, adding 0.42 percentage points. Education increased 19.7 percent, adding 0.37 percentage points. The UK Office for National Statistics explains as follows (http://www.ons.gov.uk/ons/dcp171778_286398.pdf pages 3-4):

“The CPI rose by 0.5 per cent between September and October this year. By far the largest upward contribution to the 1-month change came from: education: prices, overall, rose by 19.1 per cent between September and October. This is more than twice the size of the next biggest monthly increase for education prices since CPI records began in 1996. The increase was due predominantly to a significant rise in undergraduate tuition fees, where the maximum annual tuition fees for new UK and EU students in England rose to £9,000.”

Table IV-19, UK, Consumer Price Index Month and Twelve-month ∆% and Percentage Point Contributions to Change by Components

Mar 2013	Month ∆%	Percentage Point Contribution	12 Months ∆%	Percentage Point Contribution
CPI All Items	0.3		2.8
Food & Non-Alcoholic Beverages	-0.5	-0.05	3.7	0.42
Alcohol & Tobacco	0.2	-0.02	6.3	0.27
Clothing & Footwear	2.2	0.16	-0.4	-0.01
Housing & Household Services	-0.2	0.00	4.5	0.64
Furniture & Household Goods	1.3	0.05	0.2	0.02
Health	0.0	0.01	2.3	0.06
Transport	0.8	0.09	1.7	0.27
Communication	0.6	0.00	3.3	0.10
Recreation & Culture	-0.1	0.07	1.8	0.25
Education	0.0	0.00	19.7	0.37
Restaurants & Hotels	0.2	0.02	3.1	0.35
Miscellaneous Goods & Services	0.0	0.02	1.1	0.11

Note: there are rounding effects in contributions

Source: UK Office for National Statistics http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/march-2013/index.html

V World Economic Slowdown. Table V-1 is constructed with the database of the IMF (http://www.imf.org/external/datamapper/index.php?db=WEO) and the update of Jan 2013 (http://www.imf.org/external/pubs/ft/weo/2013/update/01/index.htm) to show GDP in dollars in 2011 and the growth rate of real GDP of the world and selected regional countries from 2012 to 2015. The data illustrate the concept often repeated of “two-speed recovery” of the world economy from the recession of 2007 to 2009. The IMF has lowered its forecast of the world economy to 3.2 percent in 2012 but accelerating to 3.5 percent in 2013, 4.1 percent in 2014 and 4.4 percent in 2015. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $33,697 billion of world output of $69,899 billion, or 48.2 percent, but are projected to grow at much lower rates than world output, 1.9 percent on average from 2012 to 2015 in contrast with 3.8 percent for the world as a whole. While the world would grow 16.1 percent in the four years from 2012 to 2015, the G7 as a whole would grow 7.6 percent. The difference in dollars of 2011 is rather high: growing by 16.1 percent would add $11.5 trillion of output to the world economy, or roughly two times the output of the economy of Japan of $5,867 but growing by 7.6 percent would add $5.3 trillion of output to the world, or somewhat below the output of Japan in 2011. The “two speed” concept is in reference to the growth of the 150 countries labeled as emerging and developing economies (EMDE) with joint output in 2011 of $25,438 billion, or 36.4 percent of world output. The EMDEs would grow cumulatively 24.6 percent or at the average yearly rate of 5.7 percent, contributing $6.3 trillion from 2012 to 2015 or the equivalent of 86.3 percent of $7,298 billion of China in 2011. The final four countries in Table V-1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output adds to $13,468 billion, or 19.3 percent of world output, which is equivalent to 39.9 percent of the combined output of the major advanced economies of the G7.

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

	GDP USD 2011	Real GDP ∆% 2012	Real GDP ∆% 2013	Real GDP ∆% 2014	Real GDP ∆% 2015
World	69,899	3.3	3.6	4.2	4.4
G7	33,697	1.4	1.5	2.2	2.5
Canada	1,739	1.9	2.0	2.4	2.4
France	2,778	0.1	0.4	1.1	1.5
DE	3,607	0.9	0.9	1.4	1.4
Italy	2,199	-2.3	-0.7	0.5	1.2
Japan	5,867	2.2	1.2	1.1	1.2
UK	2,431	-0.4	1.1	2.2	2.6
US	15,076	2.2	2.1	2.9	3.4
Euro Area	13,114	-0.4	0.2	1.2	1.5
DE	3,607	0.9	0.9	1.4	1.4
France	2,778	0.1	0.4	1.1	1.5
Italy	2,199	-2.3	-0.7	0.5	1.2
POT	238	-3.0	-1.0	1.2	1.9
Ireland	221	0.4	1.4	2.5	2.9
Greece	299	-6.0	-4.0	0.0	2.8
Spain	1,480	-1.5	-1.3	1.0	1.6
EMDE	25,438	5.3	5.6	5.9	6.1
Brazil	2,493	1.5	3.9	4.2	4.2
Russia	1,850	3.7	3.8	3.9	3.9
India	1,827	4.9	6.0	6.4	6.7
China	7,298	7.8	8.2	8.5	8.5

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

Source: IMF World Economic Outlook databank http://www.imf.org/external/datamapper/index.php?db=WEO

Table V-2 is constructed with the WEO database to provide rates of unemployment from 2011 to 2015 for major countries and regions. In fact, unemployment rates for 2011 in Table V-2 are high for all countries: unusually high for countries with high rates most of the time and unusually high for countries with low rates most of the time. Estimated rates of unemployment for 2012 are particularly high for the countries with sovereign debt difficulties in Europe: 15.5 percent for Portugal (POT), 14.8 percent for Ireland, 23.8 percent for Greece, 24.9 percent for Spain and 10.6 percent for Italy, which is lower but still high. The G7 rate of unemployment is estimated at 7.5 percent. Unemployment rates are not likely to decrease substantially if slow growth persists in advanced economies.

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

	% Labor Force 2011	% Labor Force 2012	% Labor Force 2013	% Labor Force 2014	% Labor Force 2015
World	NA	NA	NA	NA	NA
G7	7.7	7.5	7.5	7.3	6.9
Canada	7.5	7.3	7.3	7.1	6.9
France	9.6	10.1	10.5	10.3	9.8
DE	6.0	5.2	5.3	5.2	5.2
Italy	8.4	10.6	11.1	11.3	11.0
Japan	4.6	4.5	4.4	4.5	4.4
UK	8.0	8.1	8.1	7.9	7.6
US	8.9	8.2	8.1	7.7	7.1
Euro Area	10.2	11.2	11.5	11.2	10.8
DE	6.0	5.2	5.3	5.2	5.2
France	9.6	10.1	10.5	10.3	9.8
Italy	8.4	10.6	11.1	11.3	11.0
POT	12.7	15.5	16.0	15.3	14.7
Ireland	14.4	14.8	14.4	13.7	13.1
Greece	17.3	23.8	25.4	24.5	22.4
Spain	21.7	24.9	25.1	24.1	23.2
EMDE	NA	NA	NA	NA	NA
Brazil	6.0	6.0	6.5	7.0	7.0
Russia	6.5	6.0	6.0	6.0	6.0
India	NA	NA	NA	NA	NA
China	4.1	4.1	4.1	4.1	4.1

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

Source: IMF World Economic Outlook databank http://www.imf.org/external/datamapper/index.php?db=WEO

Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog for IQ2012, IIQ2012 and IVQ2012 available now for all countries. Growth is weak throughout most of the world. Japan’s GDP increased 1.5 percent in IQ2012 and 3.4 percent relative to a year earlier but part of the jump could be the low level a year earlier because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan is experiencing difficulties with the overvalued yen because of worldwide capital flight originating in zero interest rates with risk aversion in an environment of softer growth of world trade. Japan’s GDP fell 0.2 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of minus 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 1.9 percent in IIQ2012, which annualizes to 7.8 percent and 7.6 percent relative to a year earlier. China grew at 2.1 percent in IIIQ2012, which annualizes at 8.7 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. In IQ2013, China grew at 1.6 percent, which annualizes at 6.6 percent and 7.7 percent relative to a year earlier. 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, 7.9 percent in IVQ2012 relative to year earlier and 7.7 percent in IQ2013. 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 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html 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/2013/04/recovery-without-hiring-ten-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.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	1.6	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 SAAR: -0.9	3.9
China	1.9	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 SAAR: 3.1	2.6
Japan	QOQ: –0.9 SAAR: –3.7	0.4
China	2.1	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 SAAR: 0.4	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
	IQ2013/IVQ2012	IQ2013/IQ2012
China	1.6	7.7

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 recent data. Table V-4 provides two types of data: growth of exports and imports in the latest available months and in the past 12 months; and contributions of net trade (exports less imports) to growth of real GDP. Japan provides the most worrisome data (Section VB and earlier 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 Mar 2013, Japan’s exports grew 1.1 percent in 12 months while imports increased 5.5 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. In Mar 2013, China exports increased 10.0 percent relative to a year earlier and imports 14.1 percent. Germany’s exports decreased 1.5 percent in the month of Feb 2013 and decreased 2.8 percent in the 12 months ending in Feb 2013 while imports decreased 3.8 percent in the month of Feb and decreased 5.9 percent in the 12 months ending in Feb. 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 1.9 percent in Feb 2013 while imports decreased 0.8 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 increased 0.8 percent in Feb 2013 and goods exports increased 2.2 percent in Jan-Feb 2013 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 0.0 percent in Feb 2013 and goods imports decreased 0.1 percent in Jan-Feb 2013 relative to a year earlier. In the six months ending in Mar 2013, United States national industrial production accumulated increase of 2.6 percent at the annual equivalent rate of 5.3 percent, which is higher than 3.5 percent growth in 12 months. Business equipment decreased 1.1 percent in Oct, increased 2.4 percent in Nov, increased 0.4 percent in Dec, fell 1.4 percent in Jan, increased 1.9 percent in Feb 2013 and 0.1 percent in Mar, growing 5.1 percent in the 12 months ending in Feb 2013 and at the annual equivalent rate of 4.6 percent in the six months ending in Mar 2013. Capacity utilization of total industry is analyzed by the Fed in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm) “ The rate of capacity utilization for total industry moved up in March to 78.5 percent, a rate that is 1.2 percentage points above its level of a year earlier but 1.7 percentage points below its long-run (1972--2012) average.” United States industry is apparently decelerating with some strength at the margin.

Manufacturing decreased 0.1 percent in Mar 2013 seasonally adjusted, increasing 2.1 percent not seasonally adjusted in 12 months, and increased 2.3 percent in the six months ending in Mar 2013 or at the annual equivalent rate of 4.7 percent. Manufacturing fell by 22.1 from the peak in Jun 2007 to the trough in Apr 2009 and increased 16.7 percent from the trough in Apr 2009 to Dec 2012. Manufacturing fell 7.0 percent from the peak in Jun 2007 to Mar 2013 and increased 19.4 from the trough in Apr 2008 to Mar 2013. Data do suggest that world trade slowdown is accompanying world economic slowdown.

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

	Exports M ∆%	Exports 12 M ∆%	Imports M ∆%	Imports 12 M ∆%
USA	0.8 Feb	2.2 Jan-Feb	0.0 Jan	-0.1 Jan-Feb
Japan		Mar 2013 1.1 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		Mar 2013 5.5 Feb 2013 7.3 Jan 2013 7.3 Dec 1.9 Nov 0.8 Oct -1.6 Sep 4.1 Aug -5.4 Jul 2.1
China		10.0 Mar 13 18.4 Jan-Mar 13		14.1 Mar 13 8.4 Jan-Mar 13
Euro Area	-1.1 12-M Feb	1.9 Jan-Feb	-7.1 12-M Feb	-2.7 Jan-Feb
Germany	-1.5 Feb CSA	-2.8 Feb	-3.8 B CSA	-5.9 Feb
France Feb	-1.9	-3.6	-0.8	-4.2
Italy Feb	-3.0	-2.8	-2.6	-9.6
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

The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table V-5 for Mar 2013. The share of Asia in Japan’s trade is more than one half, 54.2 percent of exports and 43.2 percent of imports. Within Asia, exports to China are 17.7 percent of total exports and imports from China 20.2 percent of total imports. While exports to China fell 2.5 percent in the 12 months ending in Mar 2013, imports from China increased 1.0 percent. The second largest export market for Japan in Mar 2013 is the US with share of 17.5 percent of total exports and share of imports from the US of 8.1 percent in total imports. Western Europe has share of 9.8 percent in Japan’s exports and of 10.5 percent in imports. Rates of growth of exports of Japan in Mar 2013 are negative for several countries and regions with the exception of growth of 7.0 percent for exports to the US, 22.3 for exports to Mexico, 3.6 percent for exports to Brazil and 1.0 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 increase of Japan’s exports by 1.1 percent in Mar 2013 while imports increased 5.5 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Mar 2013 are positive for most trading partners. Imports from Asia increased 3.8 percent in the 12 months ending in Mar 2013 while imports from China increased 1.0 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

Mar 2013	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	6,271,355	1.1	6,633,776	5.5
Asia	3,399,786	0.3	2,863,414	3.8
China	1,108,606	-2.5	1,342,491	1.0
USA	1,096,769	7.0	535,136	-0.4
Canada	78,247	-7.9	91,097	5.0
Brazil	50,166	3.6	86,684	10.4
Mexico	88,090	22.3	31,335	-6.8
Western Europe	615,009	-4.7	696,019	10.8
Germany	153,886	-1.4	185,366	0.4
France	49,858	-16.6	103,961	30.1
UK	80,750	-12.4	47,673	-14.4
Middle East	224,218	-7.1	1,313,653	2.7
Australia	150,352	1.0	399,424	6.1

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, increased marginally to 53.1 in Mar from 52.9 in Feb, indicating expansion at a moderate rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10974).This index has remained above the contraction territory of 50.0 during 44 consecutive months and the average for IQ2013 at 53.0 is slightly higher than 52.9 in IVQ2012. The employment index decreased to 51.4 in Mar relative to 52.3 in Feb with input prices rising at slower rate (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10974) David Hensley, Director of Global Economic Coordination at JP Morgan, finds continuing growth with slowing new orders and slow employment growth raising doubts on the sustainability of growth (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10974). The JP Morgan Global Manufacturing PMI^™, produced by JP Morgan and Markit in association with ISM and IFPSM, increased marginally to 51.2 in Mar from 50.9 in Feb, which is the third consecutive reading above 50 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10951). New export business increased marginally for the first month after eleven consecutive monthly declines. The HSBC Brazil Composite Output Index, compiled by Markit, decreased from 52.9 in Feb to 51.0 in Mar, indicating improvement but with business activity growing at lower rates in both manufacturing and services (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10948). The HSBC Brazil Services Business Activity index, compiled by Markit, decreased from 52.1 in Feb to 50.3 in Mar ((http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10948). Andre Loes, Chief Economist, Brazil, at HSBC, finds recovering economy but within a modest forecast for 2013 lowered from 3 percent to 2.6 percent ((http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10948). The HSBC Brazil Purchasing Managers’ Index^TM (PMI^™) decreased from a 22-month high in Jan 2012 at 53.2 to 52.5 in Feb 2013 and 51.2 in Mar 2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10871). The average of 52.5 in IQ2013 was higher than the average of 51.2 for IVQ2012. Andre Loes, Chief Economist, Brazil at HSBC, finds continuing expansion in Brazil’s manufacturing with greater strength in IQ2013 than in IVQ2012 and the highest reading in IQ2011, supporting the view that the economy of Brazil is experiencing moderate recovery (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10871).

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^™) increased to 54.6 in Mar from 54.3 in Feb (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10933). The index of new exports orders increased from 48.5 in Feb 2013 to 51.8 in Mar 2013 while total new orders were unchanged from 54.4 in Feb to 55.4 in Mar. 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=10933). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business^® decreased 2.9 percentage points from 54.2 in Feb to 51.3 in Mar (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders decreased 6.4 percentage points from 57.8 in Feb to 51.4 in Mar. The index of exports increased 2.5 percentage points from 53.5 in Feb to 56.0 in Mar, remaining in expansion territory. The Non-Manufacturing ISM Report on Business^® PMI decreased 1.6 percentage points from 56.0 in Feb to 54.4 in Mar, indicating production growth during 44 consecutive months, while the index of new orders decreased 3.6 percentage points from 58.2 in Feb to 54.6 in Mar (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	Mar 12 months NSA ∆%: 1.5; ex food and energy ∆%: 1.9 Mar month SA ∆%: -0.2; ex food and energy ∆%: 0.1 Blog 4/21/13
Producer Price Index	Mar 12-month NSA ∆%: 1.1; ex food and energy ∆% 1.7 Mar month SA ∆% = -0.6; ex food and energy ∆%: 0.2 Blog 4/21/13
PCE Inflation	Jan 12-month NSA ∆%: headline 1.2; ex food and energy ∆% 1.3 Blog 3/31/13
Employment Situation	Household Survey: Feb Unemployment Rate SA 7.6% Blog calculation People in Job Stress Mar: 29.6 million NSA, 18.2% of Labor Force Establishment Survey: Nov Nonfarm Jobs +88,000; Private +95,000 jobs created Feb 12-month Average Hourly Earnings Inflation Adjusted ∆%: 0.1 Blog 4/7/13
Nonfarm Hiring	Nonfarm Hiring fell from 63.8 million in 2006 to 52.0 million in 2012 or by 11.8 million Private-Sector Hiring Feb 2013 3.632 million lower by 0.789 million than 4.421 million in Feb 2006 Blog 4/14/13
GDP Growth	BEA Revised National Income Accounts IQ2012/IQ2011 ∆%: 2.4 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 Blog 3/31/13
Real Private Fixed Investment	SAAR IVQ2012 14.0 ∆% IVQ2007 to IIIQ2012: minus 9.7% Blog 3/31/13
Personal Income and Consumption	Feb month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 0.7 Real Personal Consumption Expenditures (RPCE): 0.3 12-month Feb NSA ∆%: RDPI: 0.9; RPCE ∆%: 2.0 Blog 3/31/2013
Quarterly Services Report	IVQ12/IVQ11 SA ∆%: Information 5.4 Financial & Insurance 6.2 Blog 3/10/13
Employment Cost Index	Compensation Private IVQ2012 SA ∆%: 0.5 Dec 12 months ∆%: 2.2 Blog 2/10/13
Industrial Production	Mar month SA ∆%: 0.4 Mar 12 months SA ∆%: 3.5 Manufacturing Mar SA ∆% -0.1 Mar 12 months SA ∆% 2.5, NSA 2.1 Capacity Utilization: 78.5 Blog 4/21/13
Productivity and Costs	Nonfarm Business Productivity IVQ2012∆% SAAE -1.9; IVQ2012/IVQ2011 ∆% 0.5; Unit Labor Costs SAAE IVQ2012 ∆% 4.6; IVQ2012/IVQ2011 ∆%: 2.1 Blog 3/10/2013
New York Fed Manufacturing Index	General Business Conditions From Feb 10.04 to Mar 9.24 New Orders: From Feb 13.31 to Mar +8.18 Blog 3/24/13
Philadelphia Fed Business Outlook Index	General Index from Feb -12.5 to Mar 2.0 New Orders from Feb -7.8 to Mar 0.5 Blog 3/24/13
Manufacturing Shipments and Orders	New Orders SA Feb ∆% 3.0 Ex Transport 0.3 Jan-Feb NSA New Orders 0.7 Ex transport 0.9 Blog 4/7/13
Durable Goods	Feb New Orders SA ∆%: 5.7; ex transport ∆%: -0.5 Jan-Feb 13/Jan-Feb 12 New Orders NSA ∆%: 0.6; ex transport ∆% 1.2 Blog 3/31/13
Sales of New Motor Vehicles	Jan-Mar 2013 3,688,662; Jan-Mar 2012 3,467,496. Mar 13 SAAR 15.27 million, Feb 13 SAAR 15.38 million, Mar 2012 SAAR 14.12 million Blog 4/7/13
Sales of Merchant Wholesalers	Jan-Feb 2013/Jan-Feb 2012 NSA ∆%: Total 1.7; Durable Goods: 0.4; Nondurable Goods: 2.7 Blog 4/14/13
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Feb 13/Feb 12 NSA ∆%: Sales Total Business 0.1; Manufacturers 0.0 Retailers 0.9; Merchant Wholesalers -0.3 Blog 4/14/13
Sales for Retail and Food Services	Jan-Mar 2013/Jan-Mar 2012 ∆%: Retail and Food Services 2.8; Retail ∆% 2.7 Blog 4/14/13
Value of Construction Put in Place	Feb SAAR month SA ∆%: 1.2 Feb 12-month NSA: 6.9 Jan-Feb 2013 ∆% 6.6 Blog 4/7/13
Case-Shiller Home Prices	Jan 2013/Jan 2012 ∆% NSA: 10 Cities 7.3; 20 Cities: 8.1 ∆% Jan SA: 10 Cities 1.0 ; 20 Cities: 1.0 Blog 3/31/13
FHFA House Price Index Purchases Only	Jan SA ∆% 0.6; 12 month NSA ∆%: 6.5 Blog 3/31/13
New House Sales	Feb 2013 month SAAR ∆%: minus 4.6 Jan-Feb 2013/Jan-Feb 2012 NSA ∆%: 19.0 Blog 3/31/13
Housing Starts and Permits	Mar Starts month SA ∆%: 7.0 ; Permits ∆%: -3.9 Jan-Mar 2013/Jan-Mar 2012 NSA ∆% Starts 35.9; Permits ∆% 22.3 Blog 4/21/13
Trade Balance	Balance Feb SA -$42,960 million versus Jan -$44,460 million Exports Feb SA ∆%: 0.8 Imports Feb SA ∆%: 0.0 Goods Exports Jan-Feb 2013/2012 NSA ∆%: 2.2 Goods Imports Jan-Feb 2013/2012 NSA ∆%: -0.1 Blog 4/14/13
Export and Import Prices	Mar 12-month NSA ∆%: Imports -2.7; Exports 0.3 Blog 4/14/13
Consumer Credit	Feb ∆% annual rate: 7.8 Blog 4/7/13
Net Foreign Purchases of Long-term Treasury Securities	Feb Net Foreign Purchases of Long-term Treasury Securities: -$17.8 billion Major Holders of Treasury Securities: China $1223 billion; Japan $1097 billion; Total Foreign US Treasury Holdings Feb $5657 billion Blog 4/21/13
Treasury Budget	Fiscal Year 2013/2012 ∆% Mar: Receipts 112.4; Outlays minus 2.5; Individual Income Taxes 14.7 Deficit Fiscal Year 2011 $1,297 billion Deficit Fiscal Year 2012 $1,089,353 million Blog 4/14/2013
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:

4/14/13 http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html

4/7/13 http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.htm

03/31/13 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html

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

11/18/12 http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html

Seasonally adjusted annual rates (SAAR) of housing starts and permits are shown in Table VA-1. Housing starts increased 7.0 percent in Mar 2013 after increasing 7.3 percent in Feb 2013 and falling 8.1 percent in Jan 2013. Housing permits, indicating future activity, fell 3.9 percent in Mar 2013 after increasing 3.9 percent in Feb 2013 and falling 0.6 percent in Jan 2013. Monthly rates in starts and permits fluctuate significantly as shown in Table VA-1.

Table VA-1, US, Housing Starts and Permits SSAR Month ∆%

	Housing Starts SAAR	Month ∆%	Housing Permits SAAR	Month ∆%
Mar 2013	1036	7.0	902	-3.9
Feb	968	7.3	939	3.9
Jan	902	-8.1	904	-0.6
Dec 2012	982	16.8	909	1.0
Nov	841	-5.4	900	3.7
Oct	889	5.5	868	-2.5
Sep	843	12.4	890	11.1
Aug	750	3.0	801	-1.2
Jul	728	-3.4	811	6.7
Jun	754	6.8	760	-3.1
May	706	-5.5	784	8.4
Apr	747	5.8	723	-6.0
Mar	706	-1.7	769	8.8
Feb	718	-0.3	707	3.4
Jan	720	3.3	684	-2.4
Dec 2011	697	-1.6	701	-1.1
Nov	708	12.4	709	6.3
Oct	630	-2.6	667	8.3
Sep	647	11.4	616	-4.5
Aug	581	-5.4	645	2.9
Jul	614	-0.2	627	-0.9
Jun	615	11.6	633	1.4
May	551	-0.2	624	7.9
Apr	552	-8.0	578	-2.0
Mar	600	15.8	590	10.1
Feb	518	-18.0	536	-5.3
Jan	632	17.3	566	-10.4
Dec 2010	539	-1.1	632	12.9
Nov	545	0.4	560	0.4
Oct	543	-8.6	558	-0.9
Sep	594	-0.8	563	-2.9

SAAR: Seasonally Adjusted Annual Rate

Source: US Census Bureau http://www.census.gov/construction/nrc/

Housing starts and permits in Jan-Nov not-seasonally adjusted are provided in Table VA-2. Housing starts increased 35.9 percent in Jan-Mar 2013 relative to Jan-Mar 2013 and in the same period new permits increased 22.3 percent. Construction of new houses in the US remains at very depressed levels. Housing starts fell 54.6 percent in Jan-Mar 2013 relative to Jan-Mar 2006 and fell 53.0 percent relative to Jan-Mar 2005. Housing permits fell 58.7 percent in Jan-Mar 2013 relative to Jan-Mar 2006 and fell 56.8 percent in Jan-Mar 2013 from Jan-Mar 2005.

Table VA-2, US, Housing Starts and New Permits, Thousands of Units, NSA, and %

	Housing Starts	New Permits
Jan-Mar 2013	210.7	205.1
Jan-Mar 2012	155.0	167.7
∆% Jan-Mar 2013/Jan-Mar 2012	35.9	22.3
Jan-Mar 2006	464.1	496.6
∆% Jan-Mar 2013/Jan-Mar 2012	-54.6	-58.7
Jan-Mar 2005	448.2	475.2
∆% Jan-Mar 2013/Jan-Mar 2012	-53.0	-56.8

Source: US Census Bureau http://www.census.gov/construction/nrc/

Chart VA-1 of the US Census Bureau shows the sharp increase in construction of new houses from 2000 to 2006. Housing construction fell sharply through the recession, recovering from the trough around IIQ2009. The right-hand side of Chart VA-3 shows a mild downward trend or stagnation from mid-2010 to the present in single-family houses with a recent mild upward trend in recent months in the category of two or more units but marginal decline in recent months.

Chart VA-1, US, New Housing Units Started in the US, SAAR (Seasonally Adjusted Annual Rate)

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr020.html

Table VA-3 provides new housing units started in the US at seasonally adjusted annual rates (SAAR) from Jan-Apr and Nov-Dec of the year from 2000 to 2013. SAARs have dropped from high levels around 2 million in 2005-2006 to the range of 706,000 in Mar 2012 to 982,000 in Dec 2012 and 1,036,000 in Mar 2013, which is an improvement over the range of 518,000 in Feb 2011 to 708,000 in Nov 2011.

Table VA-3, New Housing Units Started in the US, Seasonally Adjusted Annual Rates, Thousands of Units

	Jan	Feb	Mar	Apr	Nov	Dec
2000	1,636	1,737	1,604	1,626	1,551	1,532
2001	1,600	1,625	1,590	1,649	1,602	1,568
2002	1,698	1,829	1,642	1,592	1,753	1,788
2003	1,853	1,629	1,726	1,643	2,083	2,057
2004	1,911	1,846	1,998	2,003	1,782	2,042
2005	2,144	2,207	1,864	2,061	2,147	1,994
2006	2,273	2,119	1,969	1,821	1,570	1,649
2007	1,409	1,480	1,495	1,490	1,197	1,037
2008	1,084	1,103	1,005	1,013	652	560
2009	490	582	505	478	588	581
2010	614	604	636	687	545	539
2011	632	518	600	552	708	697
2012	720	718	706	747	841	982
2013	902	968	1,036	NA	NA	NA

Source: US Census Bureau http://www.census.gov/construction/nrc/

Chart VA-2 of the US Census Bureau provides construction of new housing units started in the US at seasonally adjusted annual rate (SAAR) from Jan 1959 to Mar 2013 that help to analyze in historical perspective the debacle of US new house construction. There are three periods in the series. (1) There is stationary behavior with wide fluctuations from 1959 to the beginning of the decade of the 1970s. (2) There is sharp upward trend from the 1990s to 2006 propelled by the US housing subsidy, politics of Fannie Mae and Freddie Mac and unconventional monetary policy of near zero interest rates from Jun 2003 to Jun 2004 and suspension of the auction of 30-year Treasury bonds intended to lower mortgage rates. The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html . (3) Housing construction dropped vertically during the global recession. There was initial stability followed by some recovery in recent months.

Chart VA-2, US, New Housing Units Started in the US, SAAR (Seasonally Adjusted Annual Rate), Thousands of Units, Jan 1959-Mar 2013

Source: US Census Bureau http://www.census.gov/construction/nrc/

Table VA-4 provides actual new housing units started in the US, or not seasonally adjusted, in Jan-Apr and Nov-Dec from 2000 to 2012 and Mar 2013. The number of housing units started fell from the peak of 192.8 thousand in Jun 2005 to 85.8 thousand in Mar 2013 or 55.5 percent. The number of housing units started fell from 173.8 thousand in Mar 2004 to 85.8 thousand in Mar 2013 or by 50.6 percent. The number of housing units started jumped from 49.9 thousand in Mar 2011 to 85.8 thousand in Mar 2013 or by 71.9 percent.

Table VA-4, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units

	Jan	Feb	Mar	Apr	Nov	Dec
2000	104.0	119.7	133.4	149.5	117.1	100.7
2001	106.4	108.2	133.2	151.3	121.0	104.6
2002	110.4	120.4	138.2	148.8	133.0	123.1
2003	117.8	109.7	147.2	151.2	153.7	144.2
2004	124.5	126.4	173.8	179.5	138.1	140.2
2005	142.9	149.1	156.2	184.6	160.7	136.0
2006	153.0	145.1	165.9	160.5	115.2	112.4
2007	95.0	103.1	123.8	135.6	88.8	68.9
2008	70.8	78.4	82.2	89.5	47.5	37.7
2009	31.9	39.8	42.7	42.5	42.3	36.6
2010	38.9	40.7	54.7	62.0	40.6	33.8
2011	40.2	35.4	49.9	49.0	53.0	42.7
2012	47.2	49.7	58.0	66.8	62.2	63.2
2013	58.7	66.3	85.8	NA	NA	NA

Source: US Census Bureau http://www.census.gov/construction/nrc/

Chart VA-3 of the US Census Bureau provides new housing units started in the US not seasonally adjusted (NSA) from Jan 1959 to Mar 2013. There is the same behavior as in Chart VA-2 SA but with sharper fluctuations in the original series without seasonal adjustment. There are the same three periods. (1) The series is virtually stationary with wide fluctuations from 1959 to the late 1980s. (2) There is downward trend during the savings and loans crisis of the 1980s. Benston and Kaufman (1997, 139) find that there was failure of 1150 US commercial and savings banks between 1983 and 1990, or about 8 percent of the industry in 1980, which is nearly twice more than between the establishment of the Federal Deposit Insurance Corporation in 1934 through 1983. More than 900 savings and loans associations, representing 25 percent of the industry, were closed, merged or placed in conservatorships (see Pelaez and Pelaez, Regulation of Banks and Finance (2008b), 74-7). The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) created the Resolution Trust Corporation (RTC) and the Savings Association Insurance Fund (SAIF) that received $150 billion of taxpayer funds to resolve insolvent savings and loans. The GDP of the US in 1989 was $5482.1 billion (http://www.bea.gov/iTable/index_nipa.cfm), such that the partial cost to taxpayers of that bailout was around 2.74 percent of GDP in a year. US GDP in 2012 is estimated at $15,681.5 billion, such that the bailout would be equivalent to cost to taxpayers of about $429.7 billion in current GDP terms. A major difference with the Troubled Asset Relief Program (TARP) for private-sector banks is that most of the costs were recovered with interest gains whereas in the case of savings and loans there was no recovery. (3) There is vertical drop of new housing construction in the US during the global recession from (Dec) IVQ2007 to (Jun) IIQ2009 (http://www.nber.org/cycles/cyclesmain.html). The final segment shows upward trend but it could be simply part of yet another fluctuation. Marginal improvement in housing in the US should not obscure the current depressed levels relative to earlier periods.

Chart VA-3, US, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units, Jan 1959-Mar 2013

Source: US Census Bureau http://www.census.gov/construction/nrc/

A longer perspective on residential construction in the US is provided by Table VA-5 with annual data from 1960 to 2012. Housing starts fell 62.3 percent from 2005 to 2012, 50.2 percent from 2000 to 2012 and 45.4 percent relative to the average from 1959 to 1963. Housing permits fell 62.2 percent from 2005 to 2012, 48.8 percent from 2000 to 2011 and 29.6 percent from the average of 1969-1963 to 2012. Housing starts rose 31.8 from 2000 to 2005 while housing permits grew 35.4 percent. From 1990 to 2000 housing starts increased 31.5 percent while permits increased 43.3 percent.

Table VA-5, US, Annual New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places and New Privately Owned Housing Units Started, Thousands

	Starts	Permits
2012	780.6	815.5
∆% 2012/2011	28.2	30.7
∆% 2012/2010	33.0	34.9
∆% 2012/2005	-62.3	-62.2
∆% 2012/2000	-50.2	-48.8
∆% 2012/Av 1959-1963	-45.4	-29.6
2011	608.8	624.1
∆% 2011/2005	-70.6	-71.9
∆% 2011/2000	-61.2	-62.0
∆% 2011/Av 1959-1963	-57.4	-46.1
2010	586.9	604.6
2009	554.0	583.0
2008	905.5	905.4
2007	1,355,0	1,398.4
2006	1,800.9	1,838.9
2005	2,068.3	2,155.3
∆% 2005/2000	31.8	35.4
2004	1,955.8	2,070.1
2003	1,847.7	1,889.2
2002	1,704.9	1,747.2
2001	1,602.7	1,636.7
2000	1,568.7	1,592.3
∆% 2000/1990	31.5	43.3
1990	1,192,7	1,110.8
1980	1,292.2	1,190.6
1970	1,433.6	1,351.5
Average 1959-63	1,429.7	1158.2

Source: US Census Bureau http://www.census.gov/construction/nrc/

Risk aversion channels funds toward US long-term and short-term securities that finance the US balance of payments and fiscal deficits benefitting currently from risk flight to US dollar denominated assets. Net foreign purchases of US long-term securities (row C in Table VA-6) decreased from $25.7 billion in Jan 2013 to minus $17.8 billion in Feb 2013. Foreign (residents) purchases minus sales of US long-term securities (row A in Table VA-6) in Jan 2013 of $48.3 billion decreased to $7.6 billion in Feb 2013. Net US (residents) purchases of long-term foreign securities (row B in Table VA-6) decreased from minus $22.6 billion in Jan 2013 to minus $25.4 billion in Feb 2013. In Feb 2013,

C = A + B = $7.6 billion - $25.4 billion = -$17.9 billion

There are minor rounding errors. There is increasing demand in Table VA-6 in Jan in A1 private purchases by residents overseas of US long-term securities of $9.1 billion of which increases in A11 Treasury securities of $7.0 billion, decrease in A12 of $1.9 billion in agency securities, increase by $8.5 billion of corporate bonds and decrease of $4.4 billion in equities. Worldwide risk aversion causes flight into US Treasury obligations with significant oscillations. Official purchases of securities in row A2 decreased $1.5 billion with decrease of Treasury securities of $7.1 billion in Dec. Official purchases of agency securities increased $9.1 billion in Dec and decreased $63.0 billion in Feb. Row D shows increase in Feb in purchases of short-term dollar denominated obligations. Foreign private holdings of US Treasury bills increased $5.5 billion (row D11) with foreign official holdings increasing $8.5 billion while the category “other” decreased $2.1 billion. Risk aversion of default losses in foreign securities dominates decisions to accept zero interest rates in Treasury securities with no perception of principal losses. In the case of long-term securities, investors prefer to sacrifice inflation and possible duration risk to avoid principal losses.

Table VA-6, Net Cross-Borders Flows of US Long-Term Securities, Billion Dollars, NSA

	Feb 2012 12 Months	Feb 2013 12 Months	Jan 2013	Feb 2013
A Foreign Purchases less Sales of US LT Securities	510.2	553.8	48.3	7.6
A1 Private	336.2	327.4	-14.7	9.1
A11 Treasury	301.5	129.5	-20.8	7.0
A12 Agency	74.2	126.8	-0.9	-1.9
A13 Corporate Bonds	-50.7	-11.6	2.6	8.5
A14 Equities	11.2	82.6	4.3	-4.4
A2 Official	174.0	226.4	63.0	-1.5
A21 Treasury	154.7	203.5	53.1	-7.1
A22 Agency	15.3	1.4	5.5	3.9
A23 Corporate Bonds	1.1	11.2	3.1	1.0
A24 Equities	2.9	10.3	1.3	0.7
B Net US Purchases of LT Foreign Securities	-93.0	-75.5	-22.6	-25.4
B1 Foreign Bonds	-43.3	-7.6	-2.8	-7.0
B2 Foreign Equities	-49.8	-67.9	-19.8	-18.5
C Net Foreign Purchases of US LT Securities	417.2	478.2	25.7	-17.8
D Increase in Foreign Holdings of Dollar Denominated Short-term	-61.9	68.0	11.8	11.8
D1 US Treasury Bills	-47.7	53.9	10.4	14.0
D11 Private	22.2	30.8	6.0	5.5
D12 Official	-69.9	23.1	4.4	8.5
D2 Other	-14.2	14.1	1.4	-2.1

C = A + B;

A = A1 + A2

A1 = A11 + A12 + A13 + A14

A2 = A21 + A22 + A23 + A24

B = B1 + B2

D = D1 + D2

Sources: http://www.treasury.gov/press-center/press-releases/Pages/jl1897.aspx

Table VA-7 provides major foreign holders of US Treasury securities. China is the largest holder with $1222.9 billion in Feb 2013, increasing 5.9 percent from $1155.2 billion in Feb 2012. Japan increased its holdings from $1088.6 billion in Feb 2012 to $1097.1 billion in Feb 2013 or by 0.8 percent likely in part by intervention to buy dollars against the yen to depreciate the overvalued yen/dollar rate that diminishes the competitiveness of Japan. Total foreign holdings of Treasury securities rose from $5105.2 billion in Feb 2012 to $5656.9 billion in Feb 2013, or 10.8 percent. The US continues to finance its fiscal and balance of payments deficits with foreign savings (see Pelaez and Pelaez, The Global Recession Risk (2007)). A point of saturation of holdings of US Treasury debt may be reached as foreign holders evaluate the threat of reduction of principal by dollar devaluation and reduction of prices by increases in yield, including possibly risk premium. Shultz et al (2012) find that the Fed financed three-quarters of the US deficit in fiscal year 2011, with foreign governments financing significant part of the remainder of the US deficit while the Fed owns one in six dollars of US national debt. Concentrations of debt in few holders are perilous because of sudden exodus in fear of devaluation and yield increases and the limit of refinancing old debt and placing new debt. In their classic work on “unpleasant monetarist arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of monetary policy by fiscal policy (emphasis added):

“Imagine that fiscal policy dominates monetary policy. The fiscal authority independently sets its budgets, announcing all current and future deficits and surpluses and thus determining the amount of revenue that must be raised through bond sales and seignorage. Under this second coordination scheme, the monetary authority faces the constraints imposed by the demand for government bonds, for it must try to finance with seignorage any discrepancy between the revenue demanded by the fiscal authority and the amount of bonds that can be sold to the public. Suppose that the demand for government bonds implies an interest rate on bonds greater than the economy’s rate of growth. Then if the fiscal authority runs deficits, the monetary authority is unable to control either the growth rate of the monetary base or inflation forever. If the principal and interest due on these additional bonds are raised by selling still more bonds, so as to continue to hold down the growth of base money, then, because the interest rate on bonds is greater than the economy’s growth rate, the real stock of bonds will growth faster than the size of the economy. This cannot go on forever, since the demand for bonds places an upper limit on the stock of bonds relative to the size of the economy. Once that limit is reached, the principal and interest due on the bonds already sold to fight inflation must be financed, at least in part, by seignorage, requiring the creation of additional base money.”

Table VA-7, US, Major Foreign Holders of Treasury Securities $ Billions at End of Period

	Feb 2013	Jan 2013	Feb 2012
Total	5656.9	5643.0	5105.2
China	1222.9	1214.2	1155.2
Japan	1097.1	1103.9	1088.6
Caribbean Banking Centers	286.7	271.8	232.6
Brazil	260.0	254.1	228.4
Oil Exporters	257.2	261.6	269.5
Taiwan	188.2	192.7	183.6
Switzerland	185.8	189.9	145.1
Belgium	184.9	185.6	125.0
Russia	162.1	164.4	144.8
Hong Kong	143.2	142.9	141.5
Luxembourg	141.3	147.9	137.4
United Kingdom	132.9	133.6	118.6
Foreign Official Holdings	4047.2	4045.8	3712.9
A. Treasury Bills	385.6	377.1	362.5
B. Treasury Bonds and Notes	3661.6	3668.7	3350.4

Source: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticsec2.aspx#ussecs

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.”

Financial markets in Japan and worldwide were shocked by new bold measures of “quantitative and qualitative monetary easing” by the Bank of Japan (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf). The objective of policy is to “achieve the price stability target of 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) at the earliest possible time, with a time horizon of about two years” (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf). The main elements of the new policy are as follows:

Monetary Base Control. Most central banks in the world pursue interest rates instead of monetary aggregates, injecting bank reserves to lower interest rates to desired levels. The Bank of Japan (BOJ) has shifted back to monetary aggregates, conducting money market operations with the objective of increasing base money, or monetary liabilities of the government, at the annual rate of 60 to 70 trillion yen. The BOJ estimates base money outstanding at “138 trillion yen at end-2012) and plans to increase it to “200 trillion yen at end-2012 and 270 trillion yen at end 2014” (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf).
Maturity Extension of Purchases of Japanese Government Bonds. Purchases of bonds will be extended even up to bonds with maturity of 40 years with the guideline of extending the average maturity of BOJ bond purchases from three to seven years. The BOJ estimates the current average maturity of Japanese government bonds (JGB) at around seven years. The BOJ plans to purchase about 7.5 trillion yen per month (http://www.boj.or.jp/en/announcements/release_2013/rel130404d.pdf). Takashi Nakamichi, Tatsuo Ito and Phred Dvorak, wiring on “Bank of Japan mounts bid for revival,” on Apr 4, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887323646604578401633067110420.html ), find that the limit of maturities of three years on purchases of JGBs was designed to avoid views that the BOJ would finance uncontrolled government deficits.
Seigniorage. The BOJ is pursuing coordination with the government that will take measures to establish “sustainable fiscal structure with a view to ensuring the credibility of fiscal management” (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf).
Diversification of Asset Purchases. The BOJ will engage in transactions of exchange traded funds (ETF) and real estate investment trusts (REITS) and not solely on purchases of JGBs. Purchases of ETFs will be at an annual rate of increase of one trillion yen and purchases of REITS at 30 billion yen.

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

Fiscal Year Date of Forecast	Real GDP	Domestic CGPI	CPI All Items Less Fresh Food
2011
Apr 2012	-0.2 to –0.2 [-0.2]	+1.7	0.0
Jan 2012	-0.4 to –0.3 [-0.4]	+1.8 to +1.9 [+1.8]	-0.1 to 0.0 [-0.1]
2012
Oct 2012	+1.4 to +1.6 [+1.5]	-1.2 to -0.9 [-1.1]	-0.1 to -0.1 [-0.1]
Jul 2012	+2.2 to +2.4 [+2.2]	-0.3 to 0.0 [-0.2]	+0.1 to +0.3 [+0.2]
Apr 2012	+2.1 to +2.4 [+2.3]	+0.4 to +0.7 [+0.6]	+0.1 to +0.4 [+0.3]
Jan 2012	+1.8 to +2.1 [+2.0]	-0.1 to +0.2 [+0.1]	0.0 to +0.2 [+0.1]
2013
Oct 2012	+1.3 to +1.8 [+1.6]	+0.1 to +0.7 [+0.5]	+0.2 to +0.6 [+0.4]
Jul 2012	+1.6 to +1.8 [+1.7]	+0.6 to +0.8 [+0.6]	+0.5 to +0.7 [+0.7]
Apr 2012	+1.6 to +1.8 [+1.7]	+0.7 to +0.9 [+0.8]	+0.5 to +0.7 [+0.7]
Jan 2012	+1.4 to +1.7 [+1.6]	+0.6 to 1.0 [+0.8]	+0.4 to +0.5 [+0.5]
2014
Oct 2012	+0.2 to +0.7] [+0.6]	+3.7 to +4.4 [+4.2]	+2.4 to +3.0 [+2.8]

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

Source: Policy Board, Bank of Japan

http://www.boj.or.jp/en/mopo/outlook/gor1210a.pdf

Private-sector activity in Japan expanded strongly with the Markit Composite Output PMI^™ Index increasing from 50.2 in Feb to 53.2 in Mar, which is the highest reading in a year (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10950). Paul Smith, economist at Markit and author of the report, finds that the survey data suggest growth of the economy of Japan possibly even higher than 0,5 percent in IQ2013 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10824). The Markit Business Activity Index of Services increased from 51.1 in Feb to 54.0 in Mar, which is the highest level since Sep 2007 when the survey began (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10950). 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=10950). Markit/JMMA Purchasing Managers’ Index^™ (PMI™), seasonally adjusted, increased from 48.5 in Feb to 50.4 in Mar for the first reading above 50.0 since May 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10885). Foreign business grew at the fastest rate in more than two years with respondents attributing growth to devaluation of the yen and strength in Asia. Andrew Harker, Senior Economist at Markit and author of the report, finds resumption of growth in manufacturing in Japan in Mar 2013 both in new orders and output (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10885).Table JPY provides the country data table for Japan.

Table JPY, Japan, Economic Indicators

Historical GDP and CPI	1981-2010 Real GDP Growth and CPI Inflation 1981-2010 Blog 8/9/11 Table 26
Corporate Goods Prices	Feb ∆% +0.1 12 months ∆% minus 0.5 Blog 4/14/13
Consumer Price Index	Feb NSA ∆% -0.2; Feb 12 months NSA ∆% -0.7 Blog 3/31/13
Real GDP Growth	IVQ2012 ∆%: 0.0 on IIIQ2012; IVQ2012 SAAR 0.2; ∆% from quarter a year earlier: 0.5 % Blog 3/10/13
Employment Report	Feb Unemployed 2.77 million Change in unemployed since last year: minus 120 thousand Unemployment rate: 4.2% Blog 3/31/13
All Industry Indices	Jan month SA ∆% -1.4 12-month NSA ∆% -0.5 Blog 3/24/13
Industrial Production	Feb SA month ∆%: -0.1 12-month NSA ∆% -11.0 Blog 3/31/13
Machine Orders	Total Feb ∆% 4.6 Private ∆%: 0.1 Feb ∆% Excluding Volatile Orders 7.5 Blog 4/14/13
Tertiary Index	Feb month SA ∆% 1.1 Feb 12 months NSA ∆% 0.2 Blog 4/14/13
Wholesale and Retail Sales	Feb 12 months: Total ∆%: -1.6 Wholesale ∆%: -1.3 Retail ∆%: -2.3 Blog 3/31/13
Family Income and Expenditure Survey	Feb 12-month ∆% total nominal consumption 0.1, real 0.8 Blog 3/31/13
Trade Balance	Exports Mar 12 months ∆%: 1.1 Imports Mar 12 months ∆% 5.5 Blog 4/21/13

Links to blog comments in Table JPY: 4/14/13 http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html

03/31/13 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html

3/24/13 http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html

3/10/13 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.html

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

The structure of exports and imports of Japan is in Table VB-1. Japan imports all types of raw materials and fuels at rapidly increasing prices caused by the carry trade from zero interest rates to commodities, oscillating under shocks of risk aversion. Mineral fuels account for 36.5 percent of Japan’s imports and increased 6.1 percent in the 12 months ending in Mar 2013 because of alternating carry trades into commodity futures in accordance with risk aversion. Weakness of world demand depresses prices of industrial goods. Manufactured products contribute 13.6 percent of Japan’s exports with increase of 3.3 percent in the 12 months ending in Mar 2013. Machinery contributes 20.4 percent of Japan’s exports with decrease of 4.7 percent in the 12 months ending in Mar 2013. Electrical machinery contributes 17.1 percent of Japan’s exports with decrease of 3.4 percent in the 12 months ending in Mar 2013. Exports of transport equipment with share of 22.8 percent in total exports decreased 1.2 percent in the 12 months ending in Mar 2013 but had been increasing sharply largely because of the low level after the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. The breakdown of transport equipment in Table VB-1 shows decrease of the major categories of motor vehicles of 3.4 percent: cars decreased 4.1 percent with decrease of 0.1 percent in the minor category of buses and trucks, increase of 0.7 percent for parts of motor vehicles, increase of 4.1 percent for motorcycles and decrease of 0.9 percent for ships. The result of rising commodity prices and stable or declining prices of industrial products is pressure on Japan’s terms of trade with oscillations when risk aversion causes reversal of carry trades from zero interest rates to commodity prices. Data in Table VB-1 are in millions of yen that have been affected by recent depreciation of the yen relative to the USD with invoicing of many products in dollars.

Table VB-1, Japan, Structure and Growth of Exports and Imports % and ∆% Millions Yens

Mar 2013	Value JPY Millions	% of Total	12 Months ∆%	Contribution Degree %
Exports	6,271,355	100.0	1.1	1.1
Foodstuffs	35,839	0.6	13.8	0.1
Raw Materials	122,843	2.0	21.5	0.4
Mineral Fuels	115,144	1.8	38.9	0.5
Chemicals	670,237	10.7	12.7	1.2
Manufactured Goods	852,547	13.6	3.3	0.4
Machinery	1,278,897	20.4	-4.7	-1.0
Electrical Machinery	1,069,873	17.1	-3.4	-0.6
Transport Equipment	1,432,399	22.8	-1.2	-0.3
Motor Vehicles	841,427	13.4	-3.4	-0.5
Cars	693,458	11.1	-4.1	-0.5
Buses & Trucks	136,023	2.2	-0.1	0.0
Parts of Motor Vehicles	307,255	4.9	0.7	0.0
Motorcycles	30,367	0.4	4.1	0.0
Ships	193,053	3.1	-0.9	0.0
Other	693,576	11.1	3.8	0.4
Imports	6,633,776	100.0	5.5	5.5
Foodstuffs	518,767	7.8	7.4	0.6
Raw Materials	426,236	6.4	2.5	0.2
Mineral Fuels	2,418,828	36.5	6.1	2.2
Chemicals	521,555	7.9	6.3	0.5
Manufactured Goods	472,248	7.1	2.1	0.2
Machinery	477,453	7.2	2.8	0.2
Electrical Machinery	793,902	12.0	11.5	1.3
Transport Equipment	217,407	3.3	3.1	0.1
Other	787,382	11.9	2.7	0.3

Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm

Table VB-2 provides Japan’s exports, imports and trade balance in five-year intervals from 1950 to 1975 and then yearly from 1979 to 2012. Exports grew at the average yearly rate of 3.2 percent while imports grew at 3.3 percent per year in the years from 1979 to 2012. Abstracting from the global recession and the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011, exports grew at the average annual rate of 4.8 percent between 1979 and 2007 and imports at 4.0 percent. The global recession had a brutal impact on Japan’s trade. Exports fell 35.5 percent from 2007 to 2009 while imports fell 29.6 percent. Japan had the first trade deficit in 2011 since 1980 and the highest deficit in 2012.

Table VB-2, Japan, Exports and Imports Calendar Year 1979-2010 Billion Yens

Years	Exports	Imports	Balance
1950	298	348	-50
1955	723	889	-166
1960	1,459	1,616	-157
1965	3,042	2,940	102
1970	6,954	6,797	157
1975	16,545	17,170	-625
1979	22,531	24,245	-1,714
1980	29,382	31,995	-2,613
1981	33,468	31,464	2,004
1982	34,432	32,656	1,776
1983	34,909	30,014	4,895
1984	40,325	32,321	8,004
1985	41,955	31,084	10,871
1986	35,289	21,550	13,739
1987	33,315	21,736	11,579
1988	33,939	24,006	9,933
1989	37,822	28,978	8,844
1990	41,456	33,855	7,601
1991	42,359	31,900	10,459
1992	43,012	29,527	13,485
1993	40,202	26,826	13,376
1994	40,497	28,104	12,393
1995	41,530	31,548	9,982
1996	44,731	37,993	6,738
1997	50,937	40,956	9,981
1998	50,645	36,653	13,992
1999	47,547	35,268	12,279
2000	51,654	40,938	10,716
2001	48,979	42,415	6,564
2002	52,108	42,227	9,881
2003	54,548	44,362	10,186
2004	61,169	49,216	11,953
2005	65,656	56,949	8,707
2006	75,246	67,344	7,902
2007	83,931	73,135	10,796
2008	81,018	78,955	2,063
2009	54,170	51,499	2,671
2010	67,399	60,764	6,635
2011	65,546	68,111	-2,565
2012	63,748	70,689	-6,941

Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm

The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table VB-3 for Mar 2013. The share of Asia in Japan’s trade is more than one half, 54.2 percent of exports and 43.2 percent of imports. Within Asia, exports to China are 17.7 percent of total exports and imports from China 20.2 percent of total imports. While exports to China fell 2.5 percent in the 12 months ending in Mar 2013, imports from China increased 1.0 percent. The second largest export market for Japan in Mar 2013 is the US with share of 17.5 percent of total exports and share of imports from the US of 8.1 percent in total imports. Western Europe has share of 9.8 percent in Japan’s exports and of 10.5 percent in imports. Rates of growth of exports of Japan in Mar 2013 are negative for several countries and regions with the exception of growth of 7.0 percent for exports to the US, 22.3 for exports to Mexico, 3.6 percent for exports to Brazil and 1.0 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 increase of Japan’s exports by 1.1 percent in Mar 2013 while imports increased 5.5 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Mar 2013 are positive for most trading partners. Imports from Asia increased 3.8 percent in the 12 months ending in Mar 2013 while imports from China increased 1.0 percent. Data are in millions of yen, which has effects of recent depreciation of the yen relative to the United States dollar (USD).

Table VB-3, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yens

Mar 2013	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	6,271,355	1.1	6,633,776	5.5
Asia	3,399,786	0.3	2,863,414	3.8
China	1,108,606	-2.5	1,342,491	1.0
USA	1,096,769	7.0	535,136	-0.4
Canada	78,247	-7.9	91,097	5.0
Brazil	50,166	3.6	86,684	10.4
Mexico	88,090	22.3	31,335	-6.8
Western Europe	615,009	-4.7	696,019	10.8
Germany	153,886	-1.4	185,366	0.4
France	49,858	-16.6	103,961	30.1
UK	80,750	-12.4	47,673	-14.4
Middle East	224,218	-7.1	1,313,653	2.7
Australia	150,352	1.0	399,424	6.1

Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm

Japan registered another deficit in the trade balance of JPY 362,421 million, as shown in Table VB-4. The significantly large deficits of JPY 1,089,435 million with the Middle East, JPY 233,372 million with China, JPY 249,072 with China and JPY 81,010 with Western Europe are not compensated by surpluses of JPY 536,372 with Asia and JPY 561,633 with the US

Table VB-4, Japan, Trade Balance, Millions of Yen

Mar 2013	Millions of Yen
Total	-362,421
Asia	536,372
China	-233,885
USA	561,633
Canada	-12,850
Brazil	-36,518
Mexico	56,755
Western Europe	-81,010
Germany	-31,480
France	-54,103
UK	33,077
Middle East	-1,089,435
Australia	-249,072

Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm

There was milder increase in Japan’s export corporate goods price index during the global recession in 2008 but similar sharp decline during the bank balance sheets effect in late 2008, as shown in Chart VB-1 of the Bank of Japan. Japan exports industrial goods whose prices have been less dynamic than those of commodities and raw materials. As a result, the export CGPI on the yen basis in Chart VB-1 trends down with oscillations after a brief rise in the final part of the recession in 2009. The export corporate goods price index fell from 104.9 in Jun 2009 to 94 in Jan 2012 or minus 10.4 percent and increased to 106.6 in Mar 2013 for a gain of 13.4 percent relative to Jan 2012 and 1.6 percent relative to Jun 2009. The choice of Jun 2009 is designed to capture the reversal of risk aversion beginning in Sep 2008 with the announcement of toxic assets in banks that would be withdrawn with the Troubled Asset Relief Program (TARP) (Cochrane and Zingales 2009). Reversal of risk aversion in the form of flight to the USD and obligations of the US government opened the way to renewed carry trades from zero interest rates to exposures in risk financial assets such as commodities. Japan exports industrial products and imports commodities and raw materials.

Chart VB-1, Japan, Export Corporate Goods Price Index, Monthly, Yen Basis, 2008-2013

Source: Bank of Japan

http://www.stat-search.boj.or.jp/index_en.html

Chart VB-2 provides the export corporate goods price index on the basis of the contract currency. The export corporate goods price index on the basis of the contract currency increased from 97.9 in Jun 2009 to 102.4 in Feb 2012 or 4.6 percent but dropped to 101.3 in Mar 2013 or minus 1.1 percent relative to Feb 2012 and gained 3.5 percent relative to Jun 2009.

Chart VB-2, Japan, Export Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2013

http://www.stat-search.boj.or.jp/index_en.html

Japan imports primary commodities and raw materials. As a result, the import corporate goods price index on the yen basis in Chart VB-3 shows an upward trend after the rise during the global recession in 2008 driven by carry trades from fed funds rates collapsing to zero into commodity futures and decline during risk aversion from late 2008 into beginning of 2008 originating in doubts about soundness of US bank balance sheets. More careful measurement should show that the terms of trade of Japan, export prices relative to import prices, declined during the commodity shocks originating in unconventional monetary policy. The decline of the terms of trade restricted potential growth of income in Japan. The import corporate goods price index on the yen basis increased from 93.5 in Jun 2009 to 106.4 in Feb 2012 or 13.8 percent and to 122.2 in Mar 2013 or gain of 14.8 percent relative to Feb 2012 and 30.7 percent relative to Jun 2009.

Chart VB-3, Japan, Import Corporate Goods Price Index, Monthly, Yen Basis, 2008-2013

Source: Bank of Japan

http://www.stat-search.boj.or.jp/index_en.html

Chart VB-4 provides the import corporate goods price index on the contract currency basis. The import corporate goods price index on the basis of the contract currency increased from 86.2 in Jun 2009 to 115.8 in Feb 2012 or 34.3 percent and to 115.3 in Mar 2013 or minus 0.4 percent relative to Feb 2012 and gain of 33.8 percent relative to Jun 2009. There is evident deterioration of the terms of trade of Japan: the export corporate goods price index on the basis of the contract currency increased 4.6 percent from Jun 2009 to Feb 2012 while the import corporate goods price index increased 34.3 percent. Prices of Japan’s exports of corporate goods, mostly industrial products, increased only 3.5 percent from Jun 2009 to Mar 2013, while imports of corporate goods, mostly commodities and raw materials increased 33.8 percent. Unconventional monetary policy induces carry trades from zero interest rates to exposures in commodities that squeeze economic activity of industrial countries by increases in prices of imported commodities and raw materials during periods without risk aversion. Reversals of carry trades during periods of risk aversion decrease prices of exported commodities and raw materials that squeeze economic activity in economies exporting commodities and raw materials. Devaluation of the dollar by unconventional monetary policy could increase US competitiveness in world markets but economic activity is squeezed by increases in prices of imported commodities and raw materials. Devaluation of the dollar by unconventional monetary policy could increase US competitiveness in world markets but economic activity is squeezed by increases in prices of imported commodities and raw materials. Unconventional monetary policy causes instability worldwide instead of the mission of central banks of promoting financial and economic stability.

materials. Unconventional monetary policy causes instability worldwide instead of the mission of central banks of promoting financial and economic stability.

Chart VB-4, Japan, Import Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2013

http://www.stat-search.boj.or.jp/index_en.html

Table VB-5 provides the Bank of Japan’s Corporate Goods Price indexes of exports and imports on the yen and contract bases from Jan 2008 to Mar 2013. There are oscillations of the indexes that are shown vividly in the four charts above. For the entire period from Jan 2008 to Mar 2013, the export index on the contract currency basis increased 2.1 percent and fell 7.7 percent on the yen basis. For the entire period from Jan 2008 to Mar 2013, the import index increased 14.5 percent on the contract currency basis and increased 2.7 percent on the yen basis. The charts show sharp deteriorations in relative prices of exports to prices of imports during multiple periods. Price margins of Japan’s producers are subject to periodic squeezes resulting from carry trades from zero interest rates of monetary policy to exposures in commodities.

Table VB-5, Japan, Exports and Imports Corporate Goods Price Index, Contract Currency Basis and Yen Basis

Month	Exports Contract Currency	Exports Yen	Imports Contract Currency	Imports Yen
2008/01	99.2	115.5	100.7	119.0
2008/02	99.8	116.1	102.4	120.6
2008/03	100.5	112.6	104.5	117.4
2008/04	101.6	115.3	110.1	125.2
2008/05	102.4	117.4	113.4	130.4
2008/06	103.5	120.7	119.5	140.3
2008/07	104.7	122.1	122.6	143.9
2008/08	103.7	122.1	123.1	147.0
2008/09	102.7	118.3	117.1	137.1
2008/10	100.2	109.6	109.1	121.5
2008/11	98.6	104.5	97.8	105.8
2008/12	97.9	100.6	89.3	93.0
2009/01	98.0	99.5	85.6	88.4
2009/02	97.5	100.1	85.7	89.7
2009/03	97.3	104.2	85.2	93.0
2009/04	97.6	105.6	84.4	93.0
2009/05	97.5	103.8	84.0	90.8
2009/06	97.9	104.9	86.2	93.5
2009/07	97.5	103.1	89.2	95.0
2009/08	98.3	104.4	89.6	95.8
2009/09	98.3	102.1	91.0	94.7
2009/10	98.0	101.2	91.0	94.0
2009/11	98.4	100.8	92.8	94.8
2009/12	98.3	100.7	95.4	97.5
2010/01	99.4	102.2	97.0	100.0
2010/02	99.7	101.6	97.6	99.8
2010/03	99.7	101.8	97.0	99.2
2010/04	100.5	104.6	99.9	104.6
2010/05	100.7	102.9	101.7	104.9
2010/06	100.1	101.6	100.0	102.3
2010/07	99.4	99	99.9	99.8
2010/08	99.1	97.3	99.5	97.5
2010/09	99.4	97	100.0	97.2
2010/10	100.1	96.4	100.5	95.8
2010/11	100.7	97.4	102.6	98.2
2010/12	101.2	98.3	104.4	100.6
2011/01	102.1	98.6	107.2	102.6
2011/02	102.9	99.5	109.0	104.3
2011/03	103.5	99.6	111.8	106.3
2011/04	104.1	101.7	115.9	111.9
2011/05	103.9	99.9	118.8	112.4
2011/06	103.8	99.3	117.5	110.5
2011/07	103.6	98.3	118.3	110.2
2011/08	103.6	96.6	118.6	108.1
2011/09	103.7	96.1	117.0	106.2
2011/10	103.0	95.2	116.6	105.6
2011/11	101.9	94.8	115.4	105.4
2011/12	101.5	94.5	116.1	106.2
2012/01	101.8	94	115.0	104.2
2012/02	102.4	95.8	115.8	106.4
2012/03	102.9	99.2	118.3	112.9
2012/04	103.1	98.6	119.5	113.1
2012/05	102.2	96.3	118.1	109.9
2012/06	101.4	95.0	115.2	106.7
2012/07	100.6	94.0	112.0	103.6
2012/08	100.8	94.1	112.4	103.6
2012/09	100.9	94.0	114.7	105.2
2012/10	101.0	94.7	113.8	105.2
2012/11	100.9	95.9	113.3	106.6
2012/12	100.7	98.0	113.6	109.7
2013/01	101.0	102.5	114.0	115.5
2013/02	101.5	105.9	114.9	120.4
2013/03	101.3	106.6	115.3	122.2

Source: Bank of Japan

http://www.stat-search.boj.or.jp/index_en.html

Further insight into inflation of the corporate goods price index (CGPI) of Japan is provided in Table VB-6. Petroleum and coal with weight of 5.7 percent increased 0.6 percent in Mar 2013 and increased 1.6 percent in 12 months. Japan exports manufactured products and imports raw materials and commodities such that the country’s terms of trade, or export prices relative to import prices, deteriorate during commodity price increases. In contrast, prices of production machinery, with weight of 3.1 percent, increased 0.4 percent in Mar 2013 and increased 0.2 percent in 12 months. In general, most manufactured products have been experiencing negative or low increases in prices while inflation rates have been high in 12 months for products originating in raw materials and commodities. Ironically, unconventional monetary policy of zero interest rates and quantitative easing that intended to increase aggregate demand and GDP growth deteriorated the terms of trade of advanced economies with adverse effects on real income.

Table VB-6, Japan, Corporate Goods Prices and Selected Components, % Weights, Month and 12 Months ∆%

Mar 2013	Weight	Month ∆%	12 Month ∆%
Total	1000.0	0.1	-0.5
Food, Beverages, Tobacco, Feedstuffs	137.5	-0.1	0.4
Petroleum & Coal	57.4	0.6	1.6
Production Machinery	30.8	0.4	0.2
Electronic Components	31.0	-0.3	-1.9
Electric Power, Gas & Water	52.7	0.4	4.2
Iron & Steel	56.6	0.3	-7.5
Chemicals	92.1	0.3	0.9
Transport Equipment	136.4	0.0	-2.2

Source: Bank of Japan http://www.boj.or.jp/en/statistics/pi/cgpi_release/cgpi1303.pdf

Percentage point contributions to change of the corporate goods price index (CGPI) in Mar 2013 are provided in Table VB-7 divided into domestic, export and import segments. In the domestic CGPI, increasing 0.1 percent in Mar 2013, the energy shock resulting from carry trades is evident in the contribution of 0.04 percentage points by petroleum and coal products in new carry trades of exposures in commodity futures. The exports CGPI decreased 0.2 percent on the basis of the contract currency with deduction of 0.08 percentage points by general purpose, production & business oriented machinery. The imports CGPI increased 0.3 percent on the contract currency basis. Petroleum, coal & natural gas added 0.45 percentage points because of new carry trades into energy commodity exposures. Shocks of risk aversion cause unwinding carry trades that result in declining commodity prices with resulting downward pressure on price indexes. The volatility of inflation adversely affects financial and economic decisions worldwide.

Table VB-7, Japan, Percentage Point Contributions to Change of Corporate Goods Price Index

Groups Mar 2013	Contribution to Change Percentage Points
A. Domestic Corporate Goods Price Index	Monthly Change: 0.1%
Petroleum & Coal Products	0.04
Scrap & Waste	0.03
Chemicals & Related Products	0.02
Electric Power, Gas & Water	0.02
Iron & Steel	0.02
Nonferrous Metals	-0.02
B. Export Price Index	Monthly Change: -0.2% contract currency
General Purpose, Production & Business Oriented Machinery	-0.08
Textiles	-0.07
Metals & Related Products	-0.06
Chemicals & Related Products	0.07
C. Import Price Index	Monthly Change: 0.3 % contract currency basis
Petroleum, Coal & Natural Gas	0.45
Metals & Related Products	-0.09

Source: Bank of Japan

http://www.boj.or.jp/en/statistics/pi/cgpi_release/cgpi1303.pdf

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, declining marginally to 54.5 in Feb 2013 and 55.6 in Mar 2013.

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

	Total Index	New Orders	Interm. Input Prices	Subs Prices	Exp
Mar 2013	55.6	52.0	55.3	50.0	62.4
Feb	54.5	51.8	56.2	51.1	62.7
Jan	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 55.6 in Mar 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 50.9 in Mar 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 52.3 in Mar 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 49.8 in Mar 2013.

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

	IPM	PI	NOI	INV	EMP	SDEL
Mar 2013	50.9	52.7	52.3	47.5	49.8	51.1
Feb	50.1	51.2	50.1	49.5	47.6	48.3
Jan	50.4	51.3	51.6	50.1	47.8	50.0
Dec 2012	50.6	52.0	51.2	47.3	49.0	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 50.9 in Mar 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/

Growth of China’s GDP in IQ2013 relative to the same period in 2012 was 7.7 percent, as shown in Table VC-GDP. Secondary industry accounts for 45.9 percent of GDP of which industry alone for 41.1 percent in IQ2013 and construction with the remaining 4.8 percent in the first three quarters of 2012. Tertiary industry accounts for 47.8 percent of GDP in the IQ2013 and primary industry for 6.3 percent. 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-1 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 IIQ2011 to 7.4 percent in IVQ2011 and 6.6 percent in IQ2012, rebounding to 7.8 percent in IIQ2012, 8.7 percent in IIIQ2012 and 8.2 percent in IVQ2012. Annual equivalent growth in IQ2013 fell to 6.6 percent.

Table VC-GDP, China, Quarterly Growth of GDP, Current CNY 100 Million and Inflation Adjusted ∆%

Cumulative GDP IQ2013	Value Current CNY 100 Million	2013 Year-on-Year ∆%
GDP	118855	7.7
Primary Industry	7427	3.4
Farming	7427	3.4
Secondary Industry	54569	7.8
Industry	48832	7.5
Construction	5737	9.8
Tertiary Industry	56859	8.3
Transport, Storage, Post	6563	7.0
Wholesale, Retail Trades	11914	10.5
Hotel & Catering Services	2419	4.5
Financial Intermediation	8099	11.5
Real Estate	8383	7.8
Other	19481	6.8
Growth in Quarter Relative to Prior Quarter	∆% on Prior Quarter	∆% Annual Equivalent
2012
IQ2013	1.6	6.6
IVQ2012	2.0	8.2
IIIQ2012	2.1	8.7
IIQ2012	1.9	7.8
IQ2012	1.6	6.6
2011
IVQ2011	1.8	7.4
IIIQ2011	2.3	9.6
IIQ2011	2.4	9.9
IQ2011	2.3	9.5

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Table VC-GDP, China, Growth Rate of GDP, ∆% Relative to a Year Earlier and ∆% Relative to Prior Quarter

	IQ 2013
GDP	7.7
Primary Industry	3.4
Secondary Industry	7.8
Tertiary Industry	8.3
GDP ∆% Relative to a Prior Quarter	1.6
	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	2.3	2.4	2.3	1.8	1.6	1.9	2.1	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/

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, 7.9 percent in IVQ2012 and 7.7 percent in IQ2013. Growth of secondary industry decelerated from 14.5 percent in IQ2010 to 8.1 percent in IIIQ2012, 8.1 percent in IVQ2012 and 7.8 percent in IQ2013.

Table VC-GDPb, China, Growth Rate of GDP, ∆% Relative to a Year Earlier and ∆% Relative to Prior Quarter

	IQ 2013
GDP	7.7
Primary Industry	3.4
Secondary Industry	7.8
Tertiary Industry	8.3
GDP ∆% Relative to a Prior Quarter	1.6
	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	2.3	2.4	2.3	1.8	1.6	1.9	2.1	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, increasing from 51.4 in Feb to 53.5 in Mar for the seventh consecutive month of expansion (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10939). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that combined manufacturing and services data suggest continuing growth supported by improving labor markets (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10939). The HSBC Business Activity index increased from 52.1 in Feb to 54.3 in Mar with continuing growth in services at the fastest rate in six months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10939). 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=10939). The HSBC Purchasing Managers’ Index^™ (PMI^™), compiled by Markit, increased to 51.6 in Mar from 50.4 in Mar, indicating moderate activity in five consecutive months of improvement (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10883). New export orders increased marginally. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds manufacturing is gaining traction from internal demand (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10883). Table CNY provides the country data table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry	Mar 12-month ∆%: minus 1.9 Mar month ∆%: 0.0 Blog 4/14/13
Consumer Price Index	Mar month ∆%: -0.9 Mar 12 months ∆%: 2.1 Blog 4/14/13
Value Added of Industry	Mar month ∆%: 0.66 Jan-Mar 2013/Jan-Mar 2012 ∆%: 9.5 Blog 4/21/13
GDP Growth Rate	Year IQ2013 ∆%: 7.9 Quarter IQ2013 ∆%: 7.7 Blog 4/21/13
Investment in Fixed Assets	Mar month ∆%: 1.59 Total Jan-Mar 2012 ∆%: 20.9 Real estate development: 20.2 Blog 4/21/13
Retail Sales	Mar month ∆%: 1.23 Mar 12 month ∆%: 12.6 Jan-Mar ∆%: 12.4 Blog 4/21/13
Trade Balance	Mar balance -$0.88 billion Exports 12M ∆% 10.0 Imports 12M ∆% 14.1 Cumulative Mar: $43.27 billion Blog 4/14/13

Links to blog comments in Table CNY:

4/14/13 http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html

Growth of China’s GDP in IQ2013 relative to the same period in 2012 was 7.7 percent, as shown in Table VC-1. Secondary industry accounts for 45.9 percent of GDP of which industry alone for 41.1 percent in IQ2013 and construction with the remaining 4.8 percent in the first three quarters of 2012. Tertiary industry accounts for 47.8 percent of GDP in the IQ2013 and primary industry for 6.3 percent. 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-1 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 IIQ2011 to 7.4 percent in IVQ2011 and 6.6 percent in IQ2012, rebounding to 7.8 percent in IIQ2012, 8.7 percent in IIIQ2012 and 8.2 percent in IVQ2012. Annual equivalent growth in IQ2013 fell to 6.6 percent.

Table VC-1, China, Quarterly Growth of GDP, Current CNY 100 Million and Inflation Adjusted ∆%

Cumulative GDP IQ2013	Value Current CNY 100 Million	2013 Year-on-Year ∆%
GDP	118855	7.7
Primary Industry	7427	3.4
Farming	7427	3.4
Secondary Industry	54569	7.8
Industry	48832	7.5
Construction	5737	9.8
Tertiary Industry	56859	8.3
Transport, Storage, Post	6563	7.0
Wholesale, Retail Trades	11914	10.5
Hotel & Catering Services	2419	4.5
Financial Intermediation	8099	11.5
Real Estate	8383	7.8
Other	19481	6.8
Growth in Quarter Relative to Prior Quarter	∆% on Prior Quarter	∆% Annual Equivalent
2012
IQ2013	1.6	6.6
IVQ2012	2.0	8.2
IIIQ2012	2.1	8.7
IIQ2012	1.9	7.8
IQ2012	1.6	6.6
2011
IVQ2011	1.8	7.4
IIIQ2011	2.3	9.6
IIQ2011	2.4	9.9
IQ2011	2.3	9.5

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Table VC-2 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, 7.9 percent in IVQ2012 and 7.7 percent in IQ2013. Growth of secondary industry decelerated from 14.5 percent in IQ2010 to 8.1 percent in IIIQ2012, 8.1 percent in IVQ2012 and 7.8 percent in IQ2013.

Table VC-2, China, Growth Rate of GDP, ∆% Relative to a Year Earlier and ∆% Relative to Prior Quarter

	IQ 2013
GDP	7.7
Primary Industry	3.4
Secondary Industry	7.8
Tertiary Industry	8.3
GDP ∆% Relative to a Prior Quarter	1.6
	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	2.3	2.4	2.3	1.8	1.6	1.9	2.1	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/

Cumulative and 12-months rates of value added of industry in China are provided in Table VC-3. Value added in total industry in Jan-Mar 2013 increased 9.5 percent relative to a year earlier. Heavy industry had been the driver of growth with a cumulative rate of 11.0 percent relative to a year earlier in Jan-Mar 2012 that declined to 10.5 percent in Jan-Apr 2012 relative to the same period a year earlier and further down to 10.1 percent in Jan-Jun 2012, 9.9 percent in Jan-Jul 2012, 9.8 percent in Jan-Aug 2012, 9.7 percent in Jan-Sep 2012, 9.7 percent in Jan-Oct 2012, 9.8 percent in Jan-Nov 2012, 9.9 percent in Jan-Dec 2012, 10.2 percent in Jan-Feb 2013 and 9.8 percent in Jan-Mar 2013. Light industry grew 9.5 percent in Jan-Mar 2013 relative to a year earlier. Growth of total industry decelerated from cumulative 14.4 percent in Jan-Mar 2011 to 9.5 percent in Jan-Mar 2013.

Table VC-3, China, Growth Rate of Value Added of Industry ∆%

	Industry	Light Industry	Heavy Industry	State Owned	Joint-Stock
2013
Jan-Mar	9.5	8.7	9.8	5.2	11.3
12 M Mar	8.9	8.2	9.1	4.3	11.0
Jan-Feb	9.9	9.1	10.2	5.8	11.4
2012
Jan-Dec 2012	10.0	10.1	9.9	6.4	11.8
12 M Dec	10.3	9.6	10.6	8.0	12.1
Jan-Nov	10.0	10.2	9.8	6.3	11.8
12 M Nov	10.1	9.2	10.5	7.2	11.8
Jan-Oct	10.0	10.3	9.7	6.4	11.8
12 M Oct	9.6	9.1	9.7	7.0	11.7
Jan-Sep	10.0	10.4	9.7	6.3	11.8
12 M Sep	9.2	9.0	9.3	6.3	11.0
Jan-Aug	10.1	10.5	9.8	6.3	15.4
12 M Aug	8.9	8.6	9.0	5.3	14.3
Jan-Jul	10.3	10.8	9.9	6.6	12.1
12 M Jul	9.2	10.1	8.8	4.8	10.9
Jan-Jun	10.5	11.1	10.1	7.0	12.4
12 M Jun	9.5	9.0	9.6	6.5	11.5
Jan-May	10.7	11.5	10.3	6.7	12.4
12 M May	9.6	9.1	9.8	6.6	11.0
Jan-Apr	11.0	12.3	10.5	6.6	12.9
12 M Apr	9.3	10.3	8.9	4.3	10.7
Jan-Mar	11.6	13.2	11.0	7.2	13.8
12 M Mar	11.9	13.9	11.2	8.0	13.7
Jan-Feb	11.4	12.7	10.9	7.3	13.9
2011
Jan-Dec	13.9	13.0	14.3	9.9	15.8
12 M Dec	12.8	12.6	13.0	9.2	14.7
Jan-Nov	14.0	13.0	14.4	9.9	16.0
12 M Nov	12.4	12.4	12.4	7.8	14.4
Jan-Oct	14.1	13.0	14.5	10.1	9.1
12 M Oct	13.2	12.1	13.7	8.9	15.1
Jan-Sep	14.2	13.1	14.6	10.4	16.1
12 M Sep	13.8	12.8	14.3	9.9	16.0
Jan-Aug	14.2	13.1	14.6	10.4	16.1
12 M Aug	13.5	13.4	13.5	9.4	15.5
Jan-Jul	14.3
12 M Jul	14.0	12.8	14.5	9.5
Jan-Jun	14.3	13.1	14.7	10.7	19.7
12 M Jun	15.1	13.9	15.6	10.7	20.8
Jan-May	14.0	12.9	14.4	10.7	19.3
12 M May	13.3	12.9	13.5	8.9	18.7
Jan-Apr	14.2	12.9	14.7	11.2	19.5
12 M Apr	13.4	11.9	14.0	10.4	18.0
Jan-Mar	14.4	13.1	14.9	11.4	19.8
12 M Mar	14.8	12.8	15.6	12.9	19.2
12 M Feb	14.9	13.1	15.6	10.5	21.7
Jan-Feb	14.1	13.3	14.4	10.6	20.3

Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/

Chart VC-1 provides 12-month percentage changes of value added of industry in 2011 and from Jan to Dec 2012. Growth rates of value added of industry in the first five months of 2010 were higher than in 2011 as would be expected in an earlier phase of recovery from the global recession. Growth rates have converged in the second half of 2011 to lower percentages with further decline into 2012 to single digit percentage changes, 10.3 percent in Dec 2012 and 8.9 percent in Mar 2013.

Chart VC-1, China, Growth Rate of Total Value Added of Industry, 12-Month ∆%

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Yearly rates of growth for the past 12 months and cumulative relative to the earlier year of various segments of industrial production in China are provided in Table VC-4. Rates from Jan to Dec 2011 relative to the same period a year earlier fluctuated but remained mostly above 10 percent with the exception of motor vehicles and crude oil. There is deceleration in Jan-Dec 2012 of percentage change with no segment showing growth exceeding 10 percent with exception of 12-month growth of 13.5 percent for pig iron and 16.7 percent for nonferrous metals. In Jan-Mar 2013, all segments grew at rates exceeding 10 percent with exception of electricity at 2.9 percent, crude oil at 4.3 percent and cement at 8.2 percent. Electricity fell from growth of 16.2 percent in the 12 months ending in Jun 2011 to 0.0 percent in the 12 months ending in Jun 2012, rebounding to 4.8 percent in Aug 2012 but declining to 1.5 percent in Sep 2012, increasing to 3.9 percent in Oct 2012, 7.9 percent in Nov 2012 and 7.6 percent in Dec 2012. Electricity grew 2.9 percent in Jan-Mar 2013 relative to a year earlier.

Table VC-4, China, Industrial Production Operation ∆%

	Elec- tricity	Pig Iron	Cement	Crude Oil	Non- ferrous Metals	Autos
2013
Jan-Mar	2.9	12.3	8.2	4.3	10.6	13.5
12 M Mar	2.1	9.2	6.9	5.5	9.9	12.4
Jan-Feb	3.4	14.2	10.8	3.0	13.5	12.4
2012
Jan-Dec	4.7	7.7	7.4	3.7	9.3	6.3
12 M Dec	7.6	13.5	5.4	8.4	16.7	5.3
Jan-Nov	4.4	7.2	7.5	3.2	8.4	6.5
12 M Nov	7.9	16.5	9.4	9.1	15.2	3.9
Jan-Oct	3.9	6.3	6.7	2.6	7.7	6.9
12 M Oct	6.4	11.7	11.5	6.7	14.0	3.8
Jan-Sep	3.6	5.7	6.7	2.2	7.1	7.3
12 M Sep	1.5	4.9	12.0	7.0	7.1	6.3
Jan-Aug	3.8	-0.5	8.7	2.5	13.8	10.4
12 M Aug	4.8	2.6	5.9	-0.4	13.8	9.7
Jan-Jul	3.8	6.1	5.3	1.6	6.7	7.4
12M Jul	2.1	6.5	6.1	1.1	4.1	12.3
Jan-Jun	3.7	6.1	5.5	1.7	6.7	6.7
12 M Jun	0.0	6.7	6.5	-0.6	5.8	13.8
Jan-May	4.7	6.3	5.0	2.2	5.1	6.2
12 M May	2.7	6.3	4.3	0.7	6.6	18.5
Jan-Apr	5.0	6.2	5.5	2.9	4.6	3.1
12 M Apr	0.7	7.9	4.9	-0.3	2.3	10.7
Jan-Mar	7.1	6.5	7.3	3.1	5.8	0.0
12 M Mar	7.2	10.2	7.9	2.0	3.3	5.1
Jan-Feb	7.1	4.6	4.8	4.0	8.4	-1.8
2011
Jan-Dec	12.0	8.4	16.1	4.9	10.6	3.0
12 M Dec	9.7	3.7	7.0	4.0	13.2	-6.5
Jan-Nov	12.0	13.1	17.2	5.3	10.2	3.9
12 M Nov	8.5	7.8	11.2	3.2	8.2	-1.3
Jan-Oct	12.3	13.7	18.0	5.4	10.4	5.2
12 M Oct	9.3	13.4	16.5	-0.9	3.7	1.3
Jan-Sep	12.7	13.9	18.1	6.0	11.2	5.5
12 M Sep	11.5	18.8	15.7	1.5	13.9	2.5
Jan-Aug	13.0	13.1	18.4	6.6		4.7
12 M Aug	10.0	12.9	12.8	4.5	15.6	9.5
Jan-Jul	13.3	13.0	19.2	6.9	9.9	4.0
12 M Jul	13.2	14.9	16.8	5.9	9.8	-1.3
12 M Jun	16.2	14.8	19.9	-0.7	9.8	3.6
12 M May	12.1	10.6	19.2	6.0	14.2	-1.9
12 M Apr	11.7	8.3	22.4	6.8	6.1	-1.6
12 M Mar	14.8	13.7	29.8	8.0	11.6	9.9
12 M Feb	11.7	14.5	9.1	10.9	14.4	10.3
12 M Jan	5.1	3.5	16.4	12.2	1.4	23.9
12 M Dec 2010	5.6	4.6	17.3	10.3	-1.9	27.6

M: month

Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/

Monthly growth rates of industrial production in China are provided in Table VC-5. Monthly rates have fluctuated around 1 percent. Jan and Feb 2012 are somewhat weaker but there was improvement to 1.24 percent in Mar 2012. The rate of 0.36 percent in Apr 2012 is the lowest in the monthly series from Feb 2011 to Mar 2013. Monthly sales growth remained below 1 percent in all the fourteen months from Jan 2012 to Mar 2013 with the exception of Mar 2012.

Table VC-5, China, Industrial Production Operation, Month ∆%

2011	Month ∆%
Feb	0.93
Mar	0.99
Apr	1.32
May	0.79
Jun	1.30
Jul	0.82
Aug	0.85
Sep	0.95
Oct	0.71
Nov	0.68
Dec	0.94
Jan 2012	0.50
Feb	0.61
Mar	1.24
Apr	0.36
May	0.89
Jun	0.76
Jul	0.69
Aug	0.72
Sep	0.79
Oct	0.78
Nov	0.79
Dec	0.81
Jan 2013	0.58
Feb	0.78
Mar	0.66

Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/

Table VC-6 provides cumulative growth of investment in fixed assets in China in 2011 relative to 2010, Jan-Dec 2012 and Jan-Mar 2013 relative to a year earlier. Total fixed investment had grown at a high rate fluctuating around 25 percent and fixed investment in real estate development has grown at rates in excess of 30 percent but rates have declined significantly to still quite high percentages. In Jan-Mar 2013 investment in fixed assets in China grew 20.9 percent relative to a year earlier and 20.2 percent in real estate development. There was slight deceleration in the final two months of 2011 that continued into Jan-Mar 2013.

Table VC-6, China, Investment in Fixed Assets ∆% Relative to a Year Earlier

	Total	State	Real Estate Development
Jan-Mar 2013	20.9	18.7	20.2
Jan-Feb	21.2	16.9	22.8
Jan-Dec 2012	20.6	14.7	16.2
Jan-Nov	20.7	14.5	16.7
Jan-Oct	20.7	14.2	15.4
Jan-Sep	20.5	13.6	15.4
Jan-Aug	20.2	12.9	15.6
Jan-Jul	20.4	12.6	15.4
Jan-Jun	20.4	13.8	16.6
Jan-May	20.1	10.0	18.5
Jan-Apr	20.2	9.5	18.7
Jan-Mar	20.9	9.0	23.5
Jan-Feb	21.5	8.8	27.8
Jan-Dec 2011	23.8	11.1	27.9
Jan-Nov	24.5	11.7	29.9
Jan-Oct	24.9	12.4	31.1
Jan-Sep	24.9	12.7	32.0
Jan-Aug	25.0	12.1	33.2
Jan-Jul	25.4	13.6	33.6
Jan-Jun	25.6	14.6	32.9
Jan-May	25.8	14.9	34.6
Jan-Apr	25.4	16.6	34.3
Jan-Mar	25.0	17.0	34.1
Jan-Feb	24.9	15.6	35.2

Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/

Chart VC-2 provides cumulative fixed asset investment in China relative to a year earlier in all months for 2011 and 2012. Growth rose to 25.8 percent in Jan-May 2011 and then fell back to 24.9 percent in Sep and Oct 2011, declining further to 24.5 percent in Nov and 23.8 percent in Dec 2011 with deeper drop in Jan-Feb 2012 to 21.5 percent, 20.9 percent in Jan-Mar, 20.2 percent in Jan-Apr 2012, 20.1 percent in Jan-Apr 2012, 20.4 percent in both Jan-Jun 2012 and Jan-Jul 2012, 20.2 percent in Jan-Aug 2012, 20.5 percent in Jan-Sep 2012, 20.7 percent in Jan-Oct 2012, 20.7 percent in Jan-Nov 2012, 20.6 percent in Jan-Dec 2012, 21.2 percent in Jan-Feb 2013 and 20.9 percent in Jan-Mar 2013. Rates in 2012 and 2012 have fallen from higher gains in 2011.

Chart VC-2, China, Investment in Fixed Assets, ∆% Cumulative over Year Earlier

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Monetary policy has been used in China in the form of increases in interest rates and required reserves of banks to moderate real estate investment. These policies have been reversed because of lower inflation and weakening economic growth. Chart VC-3 shows decline of fluctuating cumulative growth rates of investment in real estate development relative to a year earlier from 35.2 percent in Jan-Feb 2011 to 31.1 percent in Jan-Oct 2011, 29.9 percent in Jan-Nov 2011, 27.9 percent in Jan-Dec 2011, 27.8 percent in Jan-Feb 2012 and sharper decline to 23.5 percent in Jan-Mar 2012, 18.7 percent in Jan-Apr 2012 and 18.5 percent in Jan-May 2012. The trend of decline continued with 16.6 percent in Jan-Jun 2012, 15.4 percent in Jan-Jul 2012, 15.6 percent in Jan-Aug 2012, 15.4 percent in Jan-Sep 2012, 16.7 percent in Jan-Oct 2012, 16.7 percent in Jan-Nov 2012, 16.2 percent in Jan-Dec 2012, 22.8 percent in Jan-Feb 2013 and 20.2 percent in Jan-Mar 2013.

Chart VC-3, China, Investment in Real Estate Development, ∆% Cumulative over Year Earlier

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Table VC-7 provides monthly growth rates of investment in fixed assets in China from Feb 2011 to Jan 2013. Rates increased moderately after Apr 2012. The celebrations of the New Year affect sales in the first two months of the year.

Table VC-7, China, Investment in Fixed Assets, Month ∆%

	Month ∆%
Feb 2011	-0.23
Mar	2.45
Apr	2.22
May	1.68
Jun	1.48
Jul	1.58
Aug	1.62
Sep	1.88
Oct	1.42
Nov	1.43
Dec	1.52
Jan 2012	1.70
Feb	1.84
Mar	1.01
Apr	1.21
May	1.89
Jun	1.81
Jul	1.39
Aug	1.26
Sep	1.91
Oct	1.96
Nov	0.96
Dec	1.32
Jan 2013	1.67
Feb	0.73
Mar	1.59

Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/

Growth rates of retail sales in 12 months and cumulative relative to a year earlier are in Table VC-8. There is decline of growth rates to cumulative 14.7 percent in Feb 2012, 14.8 percent in Mar, 14.7 percent in Apr, 14.5 percent in May, 14.4 percent in Jun, 14.2 percent in Jul, 14.1 percent in Aug to Oct 2012, 14.2 percent in Nov 2012 and 14.3 percent in Dec 2012. Percentage growth rates have declined in Jan-Dec 2012 relative to earlier months in 2011. The rate of retail sales growth was even lower at 12.3 percent in Feb 2013 with influence from the celebration of the New Year followed by 12.4 percent in Mar 2013.

Table VC-8, China, Total Retail Sales of Consumer Goods ∆%

	12-Month ∆%	Cumulative ∆%/ Cumulative Year Earlier
2013
Mar	12.6	12.4
Feb	12.3	12.3
2012
Dec	15.2	14.3
Nov	14.9	14.2
Oct	14.5	14.1
Sep	14.2	14.1
Aug	13.2	14.1
Jul	13.1	14.2
Jun	13.7	14.4
May	13.8	14.5
Apr	14.1	14.7
Mar	15.2	14.8
Feb	14.7	14.7
Jan
2011
Dec	18.1	17.1
Nov	17.3	17.0
Oct	17.2	17.0
Sep	17.7	17.0
Aug	17.0	16.9
Jul	17.2	16.8
Jun	17.7	16.8
May	16.9	16.6
Apr	17.1	16.5
Mar	17.4	17.4
Feb	11.6	15.8
Jan	19.9	19.9

Note: there are slight revisions of month relative to earlier month data but not of the month on the same month year earlier or cumulative relative to cumulative year earlier in the databank

Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/

Chart VC-4 of the National Bureau of Statistics of China provides 12-month rates of growth of retail sales in 2011 and 2012. There is again a drop into 2013with the lowest percentages in Chart VC-4 followed by increases.

Chart VC-4, China, Total Retail Sales of Consumer Goods 12-Month ∆%

Source: National Bureau of Statistics of China

http://www.stats.gov.cn/english/

Table VC-7 provides monthly percentage changes of retail sales in China. Although the rate of 0.19 percent in Jan 2012 is the lowest in Table VC-9, the rate of 1.38 percent in Sep 2012 is relatively high and 1.27 percent in Dec 2012 is closer to rates in 2011. Sales are lower in Jan-Feb 2013 because of the New Year celebrations, rebounding in Mar 2013.

Table VC-9, China, Retail Sales, Month ∆%

2011	Month ∆%
Feb	1.35
Mar	1.26
Apr	1.30
May	1.39
Jun	1.49
Jul	1.57
Aug	1.50
Sep	1.33
Oct	1.36
Nov	1.26
Dec	1.41
2012
Jan	0.19
Feb	0.99
Mar	1.21
Apr	0.97
May	1.09
Jun	1.23
Jul	1.03
Aug	1.08
Sep	1.38
Oct	1.14
Nov	1.17
Dec	1.27
Jan 2013	0.18
Feb	0.98
Mar	1.23

Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/

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	10.2	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/statistics/search_database

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*	-2.4	-1.4*
2011	1.4	3.0	1.7	0.4	0.4
2010	2.0	4.2	1.7	1.7	-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/statistics/search_database

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 47.9 in Feb to 46.5 in Mar, which is the nineteenth contraction in 19 months with only one marginal increase in the beginning of 2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10945). Chris Williamson, Chief Economist at Markit, finds that the data are consistent with milder contraction of GDP in IQ2013 in contrast with fall of 0.6 percent in IVQ2012 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10945). 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^® decreased to 46.8 in Mar from 47.9 in Feb, which indicates contraction in twenty consecutive months of deterioration of manufacturing business in the euro zone since Aug 2011 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10921). Total orders contracted for the twenty second consecutive month with weakness at home and abroad. Chris Williamson, Chief Economist at Markit, finds weakness with accelerating pace of decline in Mar.

Table EUR, Euro Area Economic Indicators

GDP	IVQ2012 ∆% -0.6; IVQ2012/IVQ2011 ∆% -0.9 Blog 4/7/13
Unemployment	Feb 2013: 12.0% unemployment rate Feb 2013: 10.071 million unemployed Blog 4/7/13
HICP	Mar month ∆%: 1.2 12 months Feb ∆%: 1.7 Blog 4/21/13
Producer Prices	Euro Zone industrial producer prices Feb ∆%: 0.2 Feb 12-month ∆%: 1.3 Blog 4/7/13
Industrial Production	Feb month ∆%: 0.4; Feb 12 months ∆%: -3.1 Blog 4/14/13
Retail Sales	Feb month ∆%: -0.3 Feb 12 months ∆%: minus 1.4 Blog 4/7/13
Confidence and Economic Sentiment Indicator	Sentiment 90.0 Mar 2013 Consumer minus 23.5 Mar 2013 Blog 3/31/13
Trade	Jan-Feb 2013/Jan-Feb 2012 Exports ∆%: 1.8 Imports ∆%: -2.7 Feb 2013 12-month Exports ∆% -1.1 Imports ∆% -7.1 Blog 4/21/13

Links to blog comments in Table EUR:

4/14/13 http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html

4/7/13 http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.htm

03/31/13 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html

Euro zone trade growth continues to be relatively strong as shown in Table VD-1 but with deceleration at the margin. Exports grew at 1.9 percent and imports fell 2.7 percent in Jan-Feb 2013 relative to Jan-Feb 2012. The 12-month rate of growth of exports was 1.1 percent in Feb 2013 while imports decreased 2.7 percent. In Jan 2013, exports increased 5.2 percent in 12 months and imports increased 1.8 percent. At the margin, rates of growth of trade are declining in part because of moderation of commodity prices.

Table VD-1, Euro Zone, Exports, Imports and Trade Balance, Billions of Euros and Percent, NSA

	Exports	Imports
Jan-Feb 2013	295.0	289.3
Jan-Feb 2012	289.4	297.3
∆%	1.9	-2.7
Feb 2013	148.6	138.3
Feb 2012	150.2	148.9
∆%	-1.1	-7.1
Jan 2013	146.4	151.1
Jan 2012	139.2	148.4
∆%	5.2	1.8
Trade Balance	Jan-Feb 2013	Jan-Feb 2012
€ Billions	5.7	-7.9

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-15042013-AP/EN/6-15042013-AP-EN.PDF

The structure of trade of the euro zone in Jan 2013 is provided in Table VD-2. Data are still not available for trade structure for Feb 2013. Manufactured exports increased 4.4 percent in Jan 2013 relative to Jan 2012 while imports increased w.6 percent. The trade surplus in manufactured products was marginally higher than the trade deficit in primary products in Jan 2013 but lower in Jan 2012 largely because of the commodity shock caused by carry trades.

Table VD-2, Euro Zone, Structure of Exports, Imports and Trade Balance, € Billions, NSA, ∆%

	Primary	Manufactured	Other	Total
Exports
Jan 2013 € B	24.3	117.2	4.9	146.4
Jan 2012 € B	22.7	112.3	4.2	139.2
∆%	7.0	4.4	16.7	5.2
Imports
Jan 2013 € B	56.0	92.1	3.0	151.1
Jan 2012 € B	55.7	89.8	3.0	148.5
∆%	0.5	2.6	0.0	1.8
Trade Balance € B
Jan 2013	-31.7	25.1	1.9	-4.7
Jan 2012	-32.9	22.5	1.2	-9.2

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-15042013-AP/EN/6-15042013-AP-EN.PDF

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 53.3 in Feb to 50.6 in Mar (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10968). Tim Moore, Senior Economist at Markit and author of the report, finds that the economy of Germany will grow modestly in IQ2013 while the strength of the recovery is declining (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10968). The Germany Services Business Activity Index decreased from 54.7 in Feb to 50.9 in Mar (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10968). The Markit/BME Germany Purchasing Managers’ Index^® (PMI^®), showing close association with Germany’s manufacturing conditions, decreased from 50.3 in Feb to 49.0 in Mar, returned to contraction territory below 50.0 and below the long-term average of 51.9 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10931). New export orders decreased in Mar after the fastest rate in 12 months in Feb with broad geographical reach in Asia and outside Europe. Tim Moore, Senior Economist at Markit and author of the report, finds moderate deteriorating conditions in German manufacturing with weakness in export markets in the euro area after stronger demand from emerging Asian markets in Germany’s return to manufacturing growth in the prior month of Feb propelled by the fastest growth rate of new export orders in almost two years (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10931).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 2/24/13
Consumer Price Index	Mar month NSA ∆%: 0.5 Mar 12-month NSA ∆%: 1.4 Blog 4/14/13
Producer Price Index	Mar month ∆%: -0.3 CSA, -0.2 NSA 12-month NSA ∆%: 0.4 Blog 4/21/13
Industrial Production	Mfg Feb month CSA ∆%: 0.4 12-month NSA: -5.4 Blog 4/14/13
Machine Orders	MFG Feb month ∆%: 2.3 Feb 12-month ∆%: -2.9 Blog 4/7/13
Retail Sales	Feb Month ∆% 0.4 12-Month ∆% -2.2 Blog 3/31/13
Employment Report	Unemployment Rate SA Feb 5.4% Blog 3/31/13
Trade Balance	Exports Feb 12-month NSA ∆%: -2.8 Imports Feb 12 months NSA ∆%: -5.9 Exports Feb month CSA ∆%: -1.5; Imports Feb month SA -3.8 Blog 4/14/13

Links to blog comments in Table DE:

4/14/13 http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html

4/7/13 http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.htm

03/31/13 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html

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

11/25/12 http://cmpassocregulationblog.blogspotcom/2012/11/contraction-of-united-states-real.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, fell from 43.1 in Feb to 41.9 in Mar, indicating significant contraction of private sector activity for the lowest reading in 48 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10970). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI^®, finds that composite data for manufacturing and services indicating expected weakening of business during the next year (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10970). The Markit France Services Activity index decreased from 43.7 in Feb to 41.3 in Mar, which is the lowest reading in 49 months (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10970). The Markit France Manufacturing Purchasing Managers’ Index^® increased marginally to 44.0 in Mar from 43.9 in Feb, remaining deeply below the neutral level of 50.0 (http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=10903). 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=10903). Table FR provides the country data table for France.

Table FR, France, Economic Indicators

CPI	Mar month ∆% 0.8 12 months ∆%: 1.0 4/14/13
PPI	Feb month ∆%: 0.4 Feb 12 months ∆%: 1.9 Blog 3/31/13
GDP Growth	IVQ2012/IIIQ2012 ∆%: -0.3 IVQ2012/IVQ2011 ∆%: -0.3 Blog 3/31/12
Industrial Production	Feb ∆%: Manufacturing 0.8 12-Month ∆%: Manufacturing minus 1.9 Blog 4/14/13
Consumer Spending	Manufactured Goods Feb ∆%: -0.7 Feb 12-Month Manufactured Goods ∆%: -2.5 Blog 4/7/13
Employment	IVQ2012 Unemployed 2.944 million Unemployment Rate: 10.2% Employment Rate: 64.1% Blog 3/10/13
Trade Balance	Feb Exports ∆%: month -1.9, 12 months -3.6 Feb Imports ∆%: month -0.8, 12 months -4.2 Blog 4/14/13
Confidence Indicators	Historical averages 100 Mar Mfg Business Climate 90 Blog 3/24/13