Recovery without Hiring, Collapse of United States Dynamism of Income Growth and Employment Creation, Peaking Valuations of Risk Financial Assets, World Economic Slowdown and Global Recession Risk
Carlos M. Pelaez
© Carlos M. Pelaez, 2010, 2011, 2012, 2013
Executive Summary
I Recovery without Hiring
IA1 Hiring Collapse
IA2 Labor Underutilization
IA3 Ten Million Fewer Full-time Job
IA4 Youth and Middle-Aged Unemployment
IB Collapse of United States Dynamism of Income Growth and Employment Creation
II United States International Trade
IIA1 United States International Trade
III World Financial Turbulence
IIIA Financial Risks
IIIE Appendix Euro Zone Survival Risk
IIIF Appendix on Sovereign Bond Valuation
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt Crisis
IIIGA Monetary Policy with Deficit Financing of Economic Growth
IIIGB Adjustment during the Debt Crisis of the 1980s
III World Financial Turbulence. Financial markets are being shocked by multiple factors including:
(1) world economic slowdown; (2) slowing growth in China with political development and slowing growth in Japan and world trade; (3) slow growth propelled by savings/investment reduction in the US with high unemployment/underemployment, falling wages, hiring collapse, contraction of real private fixed investment, decline of wealth of households over the business cycle by 8.4 percent adjusted for inflation while growing 617.2 percent adjusted for inflation from IVQ1945 to IVQ2012 and unsustainable fiscal deficit/debt threatening prosperity that can cause risk premium on Treasury debt with Himalayan interest rate hikes; and (4) the outcome of the sovereign debt crisis in Europe.
This section provides current data and analysis. Subsection IIIA Financial Risks provides analysis of the evolution of valuations of risk financial assets during the week. There are various appendixes for convenience of reference of material related to the euro area debt crisis. Some of this material is updated in Subsection IIIA when new data are available and then maintained in the appendixes for future reference until updated again in Subsection IIIA. Subsection IIIB Appendix on Safe Haven Currencies discusses arguments and measures of currency intervention and is available in the Appendixes section at the end of the blog comment. Subsection IIIC Appendix on Fiscal Compact provides analysis of the restructuring of the fiscal affairs of the European Union in the agreement of European leaders reached on Dec 9, 2011 and is available in the Appendixes section at the end of the blog comment. Subsection IIID Appendix on European Central Bank Large Scale Lender of Last Resort considers the policies of the European Central Bank and is available in the Appendixes section at the end of the blog comment. Appendix IIIE Euro Zone Survival Risk analyzes the threats to survival of the European Monetary Union and is available following Subsection IIIA. Subsection IIIF Appendix on Sovereign Bond Valuation provides more technical analysis and is available following Subsection IIIA. Subsection IIIG Appendix on Deficit Financing of Growth and the Debt Crisis provides analysis of proposals to finance growth with budget deficits together with experience of the economic history of Brazil and is available in the Appendixes section at the end of the blog comment.
IIIA Financial Risks. The past half year has been characterized by financial turbulence, attaining unusual magnitude in recent months. Table III-1, updated with every comment in this blog, provides beginning values on Fri May 3 and daily values throughout the week ending on May 10, 2013 of various financial assets. Section VI Valuation of Risk Financial Assets provides a set of more complete values. All data are for New York time at 5 PM. The first column provides the value on Fri May 3 and the percentage change in that prior week below the label of the financial risk asset. For example, the first column “Fri May 3, 2013”, first row “USD/EUR 1.3115 -0.7%,” provides the information that the US dollar (USD) depreciated 0.7 percent to USD 1.2992/EUR in the week ending on Fri May 3 relative to the exchange rate on Fri Apr 26. The first five asset rows provide five key exchange rates versus the dollar and the percentage cumulative appreciation (positive change or no sign) or depreciation (negative change or negative sign). Positive changes constitute appreciation of the relevant exchange rate and negative changes depreciation. Financial turbulence has been dominated by reactions to the new program for Greece (see section IB in http://cmpassocregulationblog.blogspot.com/2011/07/debt-and-financial-risk-aversion-and.html), modifications and new approach adopted in the Euro Summit of Oct 26 (European Commission 2011Oct26SS, 2011Oct26MRES), doubts on the larger countries in the euro zone with sovereign risks such as Spain and Italy but expanding into possibly France and Germany, the growth standstill recession and long-term unsustainable government debt in the US, worldwide deceleration of economic growth and continuing waves of inflation. The most important current shock is that resulting from the agreement by European leaders at their meeting on Dec 9 (European Council 2911Dec9), which is analyzed in IIIC Appendix on Fiscal Compact. European leaders reached a new agreement on Jan 30 (http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/127631.pdf) and another agreement on Jun 29, 2012 (http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131388.pdf).
The dollar/euro rate is quoted as number of US dollars USD per one euro EUR, USD 1.3115/EUR in the first row, first column in the block for currencies in Table III-1 for Fri May 3, appreciating to USD 1.3076/EUR on Mon May 6, 2013, or by 0.3 percent. The dollar appreciated because fewer dollars, $1.3076, were required on Mon May 6 to buy one euro than $1.3115 on May 3. Table III-1 defines a country’s exchange rate as number of units of domestic currency per unit of foreign currency. USD/EUR would be the definition of the exchange rate of the US and the inverse [1/(USD/EUR)] is the definition in this convention of the rate of exchange of the euro zone, EUR/USD. A convention used throughout this blog is required to maintain consistency in characterizing movements of the exchange rate such as in Table III-1 as appreciation and depreciation. The first row for each of the currencies shows the exchange rate at 5 PM New York time, such as USD 1.3115/EUR on May 3; the second row provides the cumulative percentage appreciation or depreciation of the exchange rate from the rate on the last business day of the prior week, in this case Fri May 3, to the last business day of the current week, in this case Fri May 10, such as appreciation to USD 1.2992/EUR by May 10; and the third row provides the percentage change from the prior business day to the current business day. For example, the USD appreciated (denoted by positive sign) by 0.9 percent from the rate of USD 1.3115/EUR on Fri May 3 to the rate of USD 1.2992/EUR on Fri May 10 {[(1.2992/1.3115) – 1]100 = -0.9%} and appreciated (denoted by positive sign) by 0.4 percent from the rate of USD 1.3042 on Thu May 9 to USD 1.2992/EUR on Fri May 10 {[(1.2992/1.3042) -1]100 = -0.4%}. Other factors constant, appreciation of the dollar relative to the euro is caused by increasing risk aversion, with rising uncertainty on European sovereign risks increasing dollar-denominated assets with sales of risk financial investments. Funds move away from higher yielding risk assets to the safety of dollar-denominated assets during risk aversion and return to higher yielding risk assets during risk appetite.
III-I, Weekly Financial Risk Assets May 6 to May 12, 2012
| Fri May 3, 2011 | M 6 | Tue 7 | W 8 | Thu 9 | Fri 10 |
| USD/EUR 1.3115 -0.7% | 1.3076 0.3% 0.3% | 1.3079 0.3% 0.0% | 1.3153 -0.3% -0.6% | 1.3042 0.6% 0.8% | 1.2992 0.9% 0.4% |
| JPY/USD 99.01 -1.0% | 99.33 -0.3% -0.3% | 99.00 0.0% 0.3% | 99.02 0.0% 0.0% | 100.60 -1.6% -1.6% | 101.60 -2.6% -1.0% |
| CHF/ USD 0.9354 0.8% | 0.9384 -0.3% -0.3% | 0.9403 -0.5% -0.2% | 0.9356 0.0% 0.5% | 0.9482 -1.4% -1.3% | 0.9570 -2.3% -0.9% |
| CHF/ EUR 1.2266 0.1% | 1.2270 0.0% 0.0% | 1.2298 -0.3% -0.3% | 1.2306 -0.3% -0.1% | 1.2367 -0.8% -0.5% | 1.2432 -1.4% -0.5% |
| USD/ AUD 1.0317 0.9693 0.4% | 1.0253 0.9753 -0.6% -0.6% | 1.0185 0.9818 -1.3% -0.7% | 1.0171 0.9832 -1.4% -0.1% | 1.0093 0.9908 -2.2% -0.8% | 1.0024 0.9976 -2.9% -0.7% |
| 10 Year T Note 1.742 | 1.763 | 1.778 | 1.768 | 1.811 | 1.896 |
| 2 Year T Note 0.222 | 0.218 | 0.218 | 0.226 | 0.218 | 0.239 |
| German Bond 2Y 0.00 10Y 1.24 | 2Y 0.00 10Y 1.24 | 2Y 0.02 10Y 1.30 | 2Y 0.01 10Y 1.27 | 2Y 0.00 10Y 1.27 | 2Y 0.05 10Y 1.38 |
| DJIA 14973.96 1.8% | 14968.89 0.0% 0.0% | 15056.20 0.5% 0.6% | 15105.12 0.9% 0.3% | 15082.62 0.7% -0.2% | 15118.49 1.0% 0.2% |
| DJ Global 2189.60 1.8% | 2187.97 -0.1% -0.1% | 2209.30 0.9% 1.0% | 2227.92 1.8% 0.8% | 2207.87 0.8% -0.9% | 2208.89 0.9% 0.1% |
| DJ Asia Pacific 1430.70 -0.2% | 1433.37 0.2% 0.2% | 1452.88 1.6% 1.4% | 1466.03 2.5% 0.9% | 1446.83 1.1% -1.3% | 1449.27 1.3% 0.2% |
| Nikkei 13694.04 -1.4% | 13694.04 0.0% 0.0% | 14180.24 3.6% 3.6% | 14285.69 4.3% 0.7% | 14191.48 3.6% -0.7% | 14607.54 6.7% 2.9% |
| Shanghai 2205.50 1.3% | 2231.17 1.2% 1.2% | 2235.57 1.4% 0.2% | 2246.30 1.8% 0.5% | 2232.97 1.2% -0.6% | 2246.83 1.9% 0.6% |
| DAX 8122.29 3.9% | 8112.08 -0.1% -0.1% | 8181.78 0.7% 0.9% | 8249.71 1.6% 0.8% | 8262.55 1.7% 0.2% | 8278.59 1.9% 0.2% |
| DJ UBS Comm. 133.12 0.9% | 132.70 -0.3% -0.3% | 132.03 -0.8% -0.5% | 132.49 -0.5% 0.3% | 133.38 0.2% 0.3% | 131.94 -0.9% -1.1% |
| WTI $ B 95.50 2.7% | 95.83 0.3% 0.3% | 95.52 0.0% -0.3% | 96.55 1.1% 1.1% | 96.04 0.6% -0.5% | 96.04 0.6% 0.0% |
| Brent $/B 104.05 1.2% | 105.34 1.2% 1.2% | 104.06 0.0% -1.2% | 104.22 0.2% 0.2% | 104.12 0.1% -0.1% | 103.91 -0.1% -0.2% |
| Gold $/OZ 1470.00 1.1% | 1469.4 0.0% 0.0% | 1451.0 -1.3% -1.3% | 1472.7 0.2% 1.5% | 1455.7 -1.0% -1.2% | 1436.6 -2.3% -1.3% |
Note: USD: US dollar; JPY: Japanese Yen; CHF: Swiss
Franc; AUD: Australian dollar; Comm.: commodities; OZ: ounce
Sources: http://www.bloomberg.com/markets/
http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata
Discussion of current and recent risk-determining events is followed below by analysis of risk-measuring yields of the US and Germany and the USD/EUR rate. Financial markets worldwide were affected by the reduction of policy rates of the European Central Bank (ECB) on May 2, 2013 (http://www.ecb.int/press/pr/date/2013/html/pr130502.en.html):
“2 May 2013 - Monetary policy decisions
At today’s meeting, which was held in Bratislava, the Governing Council of the ECB took the following monetary policy decisions:
- The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 0.50%, starting from the operation to be settled on 8 May 2013.
- The interest rate on the marginal lending facility will be decreased by 50 basis points to 1.00%, with effect from 8 May 2013.
- The interest rate on the deposit facility will remain unchanged at 0.00%.”
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.
The European sovereign debt crisis continues to shake financial markets and the world economy. Debt resolution within the international financial architecture requires that a country be capable of borrowing on its own from the private sector. Mechanisms of debt resolution have included participation of the private sector (PSI), or “bail in,” that has been voluntary, almost coercive, agreed and outright coercive (Pelaez and Pelaez, International Financial Architecture: G7, IMF, BIS, Creditors and Debtors (2005), Chapter 4, 187-202). Private sector involvement requires losses by the private sector in bailouts of highly indebted countries. The essence of successful private sector involvement is to recover private-sector credit of the highly indebted country. Mary Watkins, writing on “Bank bailouts reshuffle risk hierarchy,” published on Mar 19, 2013, in the Financial Times (http://www.ft.com/intl/cms/s/0/7666546a-9095-11e2-a456-00144feabdc0.html#axzz2OSpbvCn8) analyzes the impact of the bailout or resolution of Cyprus banks on the hierarchy of risks of bank liabilities. Cyprus banks depend mostly on deposits with less reliance on debt, raising concerns in creditors of fixed-income debt and equity holders in banks in the euro area. Uncertainty remains as to the dimensions and structure of losses in private sector involvement or “bail in” in other rescue programs in the euro area. Alkman Granitsas, writing on “Central bank details losses at Bank of Cyprus,” on Mar 30, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887324000704578392502889560768.html), analyzes the impact of the agreement with the €10 billion agreement with IMF and the European Union on the banks of Cyprus. The recapitalization plan provides for immediate conversion of 37.5 percent of all deposits in excess of €100,000 to shares of special class of the bank. An additional 22.5 percent will be frozen without interest until the plan is completed. The overwhelming risk factor is the unsustainable Treasury deficit/debt of the United States (http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html). Another rising risk is division within the Federal Open Market Committee (FOMC) on risks and benefits of current policies as expressed in the minutes of the meeting held on Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):
“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy.
Jon Hilsenrath, writing on “Fed maps exit from stimulus,” on May 11, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887324744104578475273101471896.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the development of strategy for unwinding quantitative easing and how it can create uncertainty in financial markets. Jon Hilsenrath and Victoria McGrane, writing on “Fed slip over how long to keep cash spigot open,” published on Feb 20, 2013 in the Wall street Journal (http://professional.wsj.com/article/SB10001424127887323511804578298121033876536.html), analyze the minutes of the Fed, comments by members of the FOMC and data showing increase in holdings of riskier debt by investors, record issuance of junk bonds, mortgage securities and corporate loans.
A competing event is the high level of valuations of risk financial assets (http://cmpassocregulationblog.blogspot.com/2013/01/peaking-valuation-of-risk-financial.html). Matt Jarzemsky, writing on Dow industrials set record,” on Mar 5, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324156204578275560657416332.html), analyzes that the DJIA broke the closing high of 14164.53 set on Oct 9, 2007, and subsequently also broke the intraday high of 14,198.10 reached on Oct 11, 2007. The DJIA closed at 15118.49
on Fri May 10, 2013, which is higher by 6.7 percent than the value of 14,164.53 reached on Oct 9, 2007 and higher by 6.5 percent than the value of 14,198.10 reached on Oct 11, 2007. Values of risk financial are approaching or exceeding historical highs. Jon Hilsenrath, writing on “Jobs upturn isn’t enough to satisfy Fed,” on Mar 8, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324582804578348293647760204.html), finds that much stronger labor market conditions are required for the Fed to end quantitative easing. Unconventional monetary policy with zero interest rates and quantitative easing is quite difficult to unwind because of the adverse effects of raising interest rates on valuations of risk financial assets and home prices, including the very own valuation of the securities held outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash.
An important risk event is the reduction of growth prospects in the euro zone discussed by European Central Bank President Mario Draghi in “Introductory statement to the press conference,” on Dec 6, 2012 (http://www.ecb.int/press/pressconf/2012/html/is121206.en.html):
“This assessment is reflected in the December 2012 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP growth in a range between -0.6% and -0.4% for 2012, between -0.9% and 0.3% for 2013 and between 0.2% and 2.2% for 2014. Compared with the September 2012 ECB staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.
The Governing Council continues to see downside risks to the economic outlook for the euro area. These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area, geopolitical issues and fiscal policy decisions in the United States possibly dampening sentiment for longer than currently assumed and delaying further the recovery of private investment, employment and consumption.”
Reuters, writing on “Bundesbank cuts German growth forecast,” on Dec 7, 2012, published in the Financial Times (http://www.ft.com/intl/cms/s/0/8e845114-4045-11e2-8f90-00144feabdc0.html#axzz2EMQxzs3u), informs that the central bank of Germany, Deutsche Bundesbank reduced its forecast of growth for the economy of Germany to 0.7 percent in 2012 from an earlier forecast of 1.0 percent in Jun and to 0.4 percent in 2012 from an earlier forecast of 1.6 percent while the forecast for 2014 is at 1.9 percent.
The major risk event during earlier weeks was sharp decline of sovereign yields with the yield on the ten-year bond of Spain falling to 5.309 percent and that of the ten-year bond of Italy falling to 4.473 percent on Fri Nov 30, 2012 and 5.366 percent for the ten-year of Spain and 4.527 percent for the ten-year of Italy on Fri Nov 14, 2012 (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). Vanessa Mock and Frances Robinson, writing on “EU approves Spanish bank’s restructuring plans,” on Nov 28, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887323751104578146520774638316.html?mod=WSJ_hp_LEFTWhatsNewsCollection), inform that the European Union regulators approved restructuring of four Spanish banks (Bankia, NCG Banco, Catalunya Banc and Banco de Valencia), which helped to calm sovereign debt markets. Harriet Torry and James Angelo, writing on “Germany approves Greek aid,” on Nov 30, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887323751104578150532603095790.html?mod=WSJ_hp_LEFTWhatsNewsCollection), inform that the German parliament approved the plan to provide Greece a tranche of €44 billion in promised financial support, which is subject to sustainability analysis of the bond repurchase program later in Dec 2012. A hurdle for sustainability of repurchasing debt is that Greece’s sovereign bonds have appreciated significantly from around 24 percent for the bond maturing in 21 years and 20 percent for the bond maturing in 31 years in Aug 2012 to around 17 percent for the 21-year maturity and 15 percent for the 31-year maturing in Nov 2012. Declining years are equivalent to increasing prices, making the repurchase more expensive. Debt repurchase is intended to reduce bonds in circulation, turning Greek debt more manageable. Ben McLannahan, writing on “Japan unveils $11bn stimulus package,” on Nov 30, 2012, published in the Financial Times (http://www.ft.com/intl/cms/s/0/adc0569a-3aa5-11e2-baac-00144feabdc0.html#axzz2DibFFquN), informs that the cabinet in Japan approved another stimulus program of $11 billion, which is twice larger than another stimulus plan in late Oct and close to elections in Dec. Henry Sender, writing on “Tokyo faces weak yen and high bond yields,” published on Nov 29, 2012 in the Financial Times (http://www.ft.com/intl/cms/s/0/9a7178d0-393d-11e2-afa8-00144feabdc0.html#axzz2DibFFquN), analyzes concerns of regulators on duration of bond holdings in an environment of likelihood of increasing yields and yen depreciation.
First, Risk-Determining Events. The European Council statement on Nov 23, 2012 asked the President of the European Commission “to continue the work and pursue consultations in the coming weeks to find a consensus among the 27 over the Union’s Multiannual Financial Framework for the period 2014-2020” (http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/133723.pdf) Discussions will continue in the effort to reach agreement on a budget: “A European budget is important for the cohesion of the Union and for jobs and growth in all our countries” (http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/133723.pdf). There is disagreement between the group of countries requiring financial assistance and those providing bailout funds. Gabrielle Steinhauser and Costas Paris, writing on “Greek bond rally puts buyback in doubt,” on Nov 23, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324352004578136362599130992.html?mg=reno64-wsj) find a new hurdle in rising prices of Greek sovereign debt that may make more difficult buybacks of debt held by investors. European finance ministers continue their efforts to reach an agreement for Greece that meets with approval of the European Central Bank and the IMF. The European Council (2012Oct19 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/133004.pdf ) reached conclusions on strengthening the euro area and providing unified financial supervision:
“The European Council called for work to proceed on the proposals on the Single Supervisory Mechanism as a matter of priority with the objective of agreeing on the legislative framework by 1st January 2013 and agreed on a number of orientations to that end. It also took note of issues relating to the integrated budgetary and economic policy frameworks and democratic legitimacy and accountability which should be further explored. It agreed that the process towards deeper economic and monetary union should build on the EU's institutional and legal framework and be characterised by openness and transparency towards non-euro area Member States and respect for the integrity of the Single Market. It looked forward to a specific and time-bound roadmap to be presented at its December 2012 meeting, so that it can move ahead on all essential building blocks on which a genuine EMU should be based.”
Buiter (2012Oct15) finds that resolution of the euro crisis requires full banking union together with restructuring the sovereign debt of at least four and possibly total seven European countries. The Bank of Spain released new data on doubtful debtors in Spain’s credit institutions (http://www.bde.es/bde/en/secciones/prensa/Agenda/Datos_de_credit_a6cd708c59cf931.html). In 2006, the value of doubtful credits reached €10,859 million or 0.7 percent of total credit of €1,508,626 million. In Aug 2012, doubtful credit reached €178,579 million or 10.5 percent of total credit of €1,698,714 million.
There are three critical factors influencing world financial markets. (1) Spain could request formal bailout from the European Stability Mechanism (ESM) that may also affect Italy’s international borrowing. David Roman and Jonathan House, writing on “Spain risks backlash with budget plan,” on Sep 27, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390443916104578021692765950384.html?mod=WSJ_hp_LEFTWhatsNewsCollection) analyze Spain’s proposal of reducing government expenditures by €13 billion, or around $16.7 billion, increasing taxes in 2013, establishing limits on early retirement and cutting the deficit by €65 billion through 2014. Banco de España, Bank of Spain, contracted consulting company Oliver Wyman to conduct rigorous stress tests of the resilience of its banking system. (Stress tests and their use are analyzed by Pelaez and Pelaez Globalization and the State Vol. I (2008b), 95-100, International Financial Architecture (2005) 112-6, 123-4, 130-3).) The results are available from Banco de España (http://www.bde.es/bde/en/secciones/prensa/infointeres/reestructuracion/ http://www.bde.es/f/webbde/SSICOM/20120928/informe_ow280912e.pdf). The assumptions of the adverse scenario used by Oliver Wyman are quite tough for the three-year period from 2012 to 2014: “6.5 percent cumulative decline of GDP, unemployment rising to 27.2 percent and further declines of 25 percent of house prices and 60 percent of land prices (http://www.bde.es/f/webbde/SSICOM/20120928/informe_ow280912e.pdf). Fourteen banks were stress tested with capital needs estimates of seven banks totaling €59.3 billion. The three largest banks of Spain, Banco Santander (http://www.santander.com/csgs/Satellite/CFWCSancomQP01/es_ES/Corporativo.html), BBVA (http://www.bbva.com/TLBB/tlbb/jsp/ing/home/index.jsp) and Caixabank (http://www.caixabank.com/index_en.html), with 43 percent of exposure under analysis, have excess capital of €37 billion in the adverse scenario in contradiction with theories that large, international banks are necessarily riskier. Jonathan House, writing on “Spain expects wider deficit on bank aid,” on Sep 30, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444138104578028484168511130.html?mod=WSJPRO_hpp_LEFTTopStories), analyzes the 2013 budget plan of Spain that will increase the deficit of 7.4 percent of GDP in 2012, which is above the target of 6.3 percent under commitment with the European Union. The ratio of debt to GDP will increase to 85.3 percent in 2012 and 90.5 percent in 2013 while the 27 members of the European Union have an average debt/GDP ratio of 83 percent at the end of IIQ2012. (2) Symmetric inflation targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even after the economy grows again at or close to potential output. Monetary easing by unconventional measures is now apparently open ended in perpetuity as provided in the statement of the meeting of the Federal Open Market Committee (FOMC) on Sep 13, 2012 (http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm):
“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”
In fact, it is evident to the public that this policy will be abandoned if inflation costs rise. There is the concern of the production and employment costs of controlling future inflation.
(2) The European Central Bank (ECB) approved a new program of bond purchases under the name “Outright Monetary Transactions” (OMT). The ECB will purchase sovereign bonds of euro zone member countries that have a program of conditionality under the European Financial Stability Facility (EFSF) that is converting into the European Stability Mechanism (ESM). These programs provide enhancing the solvency of member countries in a transition period of structural reforms and fiscal adjustment. The purchase of bonds by the ECB would maintain debt costs of sovereigns at sufficiently low levels to permit adjustment under the EFSF/ESM programs. Purchases of bonds are not limited quantitatively with discretion by the ECB as to how much is necessary to support countries with adjustment programs. Another feature of the OMT of the ECB is sterilization of bond purchases: funds injected to pay for the bonds would be withdrawn or sterilized by ECB transactions. The statement by the European Central Bank on the program of OTM is as follows (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html):
“6 September 2012 - Technical features of Outright Monetary Transactions
As announced on 2 August 2012, the Governing Council of the European Central Bank (ECB) has today taken decisions on a number of technical features regarding the Eurosystem’s outright transactions in secondary sovereign bond markets that aim at safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy. These will be known as Outright Monetary Transactions (OMTs) and will be conducted within the following framework:
Conditionality
A necessary condition for Outright Monetary Transactions is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line), provided that they include the possibility of EFSF/ESM primary market purchases. The involvement of the IMF shall also be sought for the design of the country-specific conditionality and the monitoring of such a programme.
The Governing Council will consider Outright Monetary Transactions to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected, and terminate them once their objectives are achieved or when there is non-compliance with the macroeconomic adjustment or precautionary programme.
Following a thorough assessment, the Governing Council will decide on the start, continuation and suspension of Outright Monetary Transactions in full discretion and acting in accordance with its monetary policy mandate.
Coverage
Outright Monetary Transactions will be considered for future cases of EFSF/ESM macroeconomic adjustment programmes or precautionary programmes as specified above. They may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access.
Transactions will be focused on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between one and three years.
No ex ante quantitative limits are set on the size of Outright Monetary Transactions.
Creditor treatment
The Eurosystem intends to clarify in the legal act concerning Outright Monetary Transactions that it accepts the same (pari passu) treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through Outright Monetary Transactions, in accordance with the terms of such bonds.
Sterilisation
The liquidity created through Outright Monetary Transactions will be fully sterilised.
Transparency
Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis. Publication of the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis.
Securities Markets Programme
Following today’s decision on Outright Monetary Transactions, the Securities Markets Programme (SMP) is herewith terminated. The liquidity injected through the SMP will continue to be absorbed as in the past, and the existing securities in the SMP portfolio will be held to maturity.”
Jon Hilsenrath, writing on “Fed sets stage for stimulus,” on Aug 31, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390443864204577623220212805132.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the essay presented by Chairman Bernanke at the Jackson Hole meeting of central bankers, as defending past stimulus with unconventional measures of monetary policy that could be used to reduce extremely high unemployment. Chairman Bernanke (2012JHAug31, 18-9) does support further unconventional monetary policy impulses if required by economic conditions (http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm):
“Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Professor John H Cochrane (2012Aug31), at the University of Chicago Booth School of Business, writing on “The Federal Reserve: from central bank to central planner,” on Aug 31, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444812704577609384030304936.html?mod=WSJ_hps_sections_opinion), analyzes that the departure of central banks from open market operations into purchase of assets with risks to taxpayers and direct allocation of credit subject to political influence has caused them to abandon their political independence and accountability. Cochrane (2012Aug31) finds a return to the proposition of Milton Friedman in the 1960s that central banks can cause inflation and macroeconomic instability.
Mario Draghi (2012Aug29), President of the European Central Bank, also reiterated the need of exceptional and unconventional central bank policies (http://www.ecb.int/press/key/date/2012/html/sp120829.en.html):
“Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools. When markets are fragmented or influenced by irrational fears, our monetary policy signals do not reach citizens evenly across the euro area. We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens. This may at times require exceptional measures. But this is our responsibility as the central bank of the euro area as a whole.
The ECB is not a political institution. But it is committed to its responsibilities as an institution of the European Union. As such, we never lose sight of our mission to guarantee a strong and stable currency. The banknotes that we issue bear the European flag and are a powerful symbol of European identity.”
Buiter (2011Oct31) analyzes that the European Financial Stability Fund (EFSF) would need a “bigger bazooka” to bail out euro members in difficulties that could possibly be provided by the ECB. Buiter (2012Oct15) finds that resolution of the euro crisis requires full banking union together with restructuring the sovereign debt of at least four and possibly total seven European countries. Table III-7 in IIIE Appendix Euro Zone Survival Risk below provides the combined GDP in 2012 of the highly indebted euro zone members estimated in the latest World Economic Outlook of the IMF at $4167 billion or 33.1 percent of total euro zone GDP of $12,586 billion. Using the WEO of the IMF, Table III-8 in IIIE Appendix Euro Zone Survival Risk below provides debt of the highly indebted euro zone members at $3927.8 billion in 2012 that increases to $5809.9 billion when adding Germany’s debt, corresponding to 167.0 percent of Germany’s GDP. There are additional sources of debt in bailing out banks. The dimensions of the problem may require more firepower than a bazooka perhaps that of the largest conventional bomb of all times of 44,000 pounds experimentally detonated only once by the US in 1948 (http://www.airpower.au.af.mil/airchronicles/aureview/1967/mar-apr/coker.html).
Second, Risk-Measuring Yields and Exchange Rate. The ten-year government bond of Spain was quoted at 6.868 percent on Aug 10, 2012, declining to 6.447 percent on Aug 17 and 6.403 percent on Aug 24, 2012, and the ten-year government bond of Italy fell from 5.894 percent on Aug 10, 2012 to 5.709 percent on Aug 17 and 5.618 percent on Aug 24, 2012. The yield of the ten-year sovereign bond of Spain traded at 4.215 percent on May 10, 2013, and that of the ten-year sovereign bond of Italy at 3.876 percent (http://professional.wsj.com/mdc/public/page/marketsdata.html?mod=WSJ_PRO_hps_marketdata). Risk aversion is captured by flight of investors from risk financial assets to the government securities of the US and Germany. Diminishing aversion is captured by increase of the yield of the two- and ten-year Treasury notes and the two- and ten-year government bonds of Germany. Table III-1A provides yields of US and German governments bonds and the rate of USD/EUR. Yields of US and German government bonds decline during shocks of risk aversion and the dollar strengthens in the form of fewer dollars required to buy one euro. The yield of the US ten-year Treasury note fell from 2.202 percent on Aug 26, 2011 to 1.459 percent on Jul 20, 2012, reminiscent of experience during the Treasury-Fed accord of the 1940s that placed a ceiling on long-term Treasury debt (Hetzel and Leach 2001), while the yield of the ten-year government bond of Germany fell from 2.16 percent to 1.17 percent. In the week of May10, 2013, the yield of the two-year Treasury rose to 0.239 percent and that of the ten-year Treasury increased to 1.896 percent while the two-year bond of Germany increased to 0.05 percent and the ten-year increased to 1.38 percent; and the dollar appreciated to USD 1.2992/EUR. The zero interest rates for the monetary policy rate of the US, or fed funds rate, induce carry trades that ensure devaluation of the dollar if there is no risk aversion but the dollar appreciates in flight to safe haven during episodes of risk aversion. Unconventional monetary policy induces significant global financial instability, excessive risks and low liquidity. The ten-year Treasury yield is about equal to consumer price inflation of 1.5 percent in the 12 months ending in Mar 2013 (http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html) and the expectation of higher inflation if risk aversion diminishes. Treasury securities continue to be safe haven for investors fearing risk but with concentration in shorter maturities such as the two-year Treasury. The lower part of Table III-1A provides the same flight to government securities of the US and Germany and the USD during the financial crisis and global recession and the beginning of the European debt crisis in the spring of 2010 with the USD trading at USD 1.192/EUR on Jun 7, 2010.
Table III-1A, Two- and Ten-Year Yields of Government Bonds of the US and Germany and US Dollar/EUR Exchange rate
| US 2Y | US 10Y | DE 2Y | DE 10Y | USD/ EUR | |
| 5/10/13 | 0.239 | 1.896 | 0.05 | 1.38 | 1.2992 |
| 5/3/13 | 0.22 | 1.742 | 0.00 | 1.24 | 1.3115 |
| 4/26/13 | 0.209 | 1.663 | 0.00 | 1.21 | 1.3028 |
| 4/19/13 | 0.232 | 1.702 | 0.02 | 1.25 | 1.3052 |
| 4/12/13 | 0.228 | 1.719 | 0.02 | 1.26 | 1.3111 |
| 4/5/13 | 0.228 | 1.706 | 0.01 | 1.21 | 1.2995 |
| 3/29/13 | 0.244 | 1.847 | -0.02 | 1.29 | 1.2818 |
| 3/22/13 | 0.242 | 1.931 | 0.03 | 1.38 | 1.2988 |
| 3/15/13 | 0.246 | 1.992 | 0.05 | 1.46 | 1.3076 |
| 3/8/13 | 0.256 | 2.056 | 0.09 | 1.53 | 1.3003 |
| 3/1/13 | 0.236 | 1.842 | 0.03 | 1.41 | 1.3020 |
| 2/22/13 | 0.252 | 1.967 | 0.13 | 1.57 | 1.3190 |
| 2/15/13 | 0.268 | 2.007 | 0.19 | 1.65 | 1.3362 |
| 2/8/13 | 0.252 | 1.949 | 0.18 | 1.61 | 1.3365 |
| 2/1/13 | 0.26 | 2.024 | 0.25 | 1.67 | 1.3642 |
| 1/25/13 | 0.278 | 1.947 | 0.26 | 1.64 | 1.3459 |
| 1/18/13 | 0.252 | 1.84 | 0.18 | 1.56 | 1.3321 |
| 1/11/13 | 0.247 | 1.862 | 0.13 | 1.58 | 1.3343 |
| 1/4/13 | 0.262 | 1.898 | 0.08 | 1.54 | 1.3069 |
| 12/28/12 | 0.252 | 1.699 | -0.01 | 1.31 | 1.3218 |
| 12/21/12 | 0.272 | 1.77 | -0.01 | 1.38 | 1.3189 |
| 12/14/12 | 0.232 | 1.704 | -0.04 | 1.35 | 1.3162 |
| 12/7/12 | 0.256 | 1.625 | -0.08 | 1.30 | 1.2926 |
| 11/30/12 | 0.248 | 1.612 | 0.01 | 1.39 | 1.2987 |
| 11/23/12 | 0.273 | 1.691 | 0.00 | 1.44 | 1.2975 |
| 11/16/12 | 0.24 | 1.584 | -0.03 | 1.33 | 1.2743 |
| 11/9/12 | 0.256 | 1.614 | -0.03 | 1.35 | 1.2711 |
| 11/2/12 | 0.274 | 1.715 | 0.01 | 1.45 | 1.2838 |
| 10/26/12 | 0.299 | 1.748 | 0.05 | 1.54 | 1.2942 |
| 10/19/12 | 0.296 | 1.766 | 0.11 | 1.59 | 1.3023 |
| 10/12/12 | 0.264 | 1.663 | 0.04 | 1.45 | 1.2953 |
| 10/5/12 | 0.26 | 1.737 | 0.06 | 1.52 | 1.3036 |
| 9/28/12 | 0.236 | 1.631 | 0.02 | 1.44 | 1.2859 |
| 9/21/12 | 0.26 | 1.753 | 0.04 | 1.60 | 1.2981 |
| 9/14/12 | 0.252 | 1.863 | 0.10 | 1.71 | 1.3130 |
| 9/7/12 | 0.252 | 1.668 | 0.03 | 1.52 | 1.2816 |
| 8/31/12 | 0.225 | 1.543 | -0.03 | 1.33 | 1.2575 |
| 8/24/12 | 0.266 | 1.684 | -0.01 | 1.35 | 1.2512 |
| 8/17/12 | 0.288 | 1.814 | -0.04 | 1.50 | 1.2335 |
| 8/10/12 | 0.267 | 1.658 | -0.07 | 1.38 | 1.2290 |
| 8/3/12 | 0.242 | 1.569 | -0.02 | 1.42 | 1.2387 |
| 7/27/12 | 0.244 | 1.544 | -0.03 | 1.40 | 1.2320 |
| 7/20/12 | 0.207 | 1.459 | -0.07 | 1.17 | 1.2158 |
| 7/13/12 | 0.24 | 1.49 | -0.04 | 1.26 | 1.2248 |
| 7/6/12 | 0.272 | 1.548 | -0.01 | 1.33 | 1.2288 |
| 6/29/12 | 0.305 | 1.648 | 0.12 | 1.58 | 1.2661 |
| 6/22/12 | 0.309 | 1.676 | 0.14 | 1.58 | 1.2570 |
| 6/15/12 | 0.272 | 1.584 | 0.07 | 1.44 | 1.2640 |
| 6/8/12 | 0.268 | 1.635 | 0.04 | 1.33 | 1.2517 |
| 6/1/12 | 0.248 | 1.454 | 0.01 | 1.17 | 1.2435 |
| 5/25/12 | 0.291 | 1.738 | 0.05 | 1.37 | 1.2518 |
| 5/18/12 | 0.292 | 1.714 | 0.05 | 1.43 | 1.2780 |
| 5/11/12 | 0.248 | 1.845 | 0.09 | 1.52 | 1.2917 |
| 5/4/12 | 0.256 | 1.876 | 0.08 | 1.58 | 1.3084 |
| 4/6/12 | 0.31 | 2.058 | 0.14 | 1.74 | 1.3096 |
| 3/30/12 | 0.335 | 2.214 | 0.21 | 1.79 | 1.3340 |
| 3/2/12 | 0.29 | 1.977 | 0.16 | 1.80 | 1.3190 |
| 2/24/12 | 0.307 | 1.977 | 0.24 | 1.88 | 1.3449 |
| 1/6/12 | 0.256 | 1.957 | 0.17 | 1.85 | 1.2720 |
| 12/30/11 | 0.239 | 1.871 | 0.14 | 1.83 | 1.2944 |
| 8/26/11 | 0.20 | 2.202 | 0.65 | 2.16 | 1.450 |
| 8/19/11 | 0.192 | 2.066 | 0.65 | 2.11 | 1.4390 |
| 6/7/10 | 0.74 | 3.17 | 0.49 | 2.56 | 1.192 |
| 3/5/09 | 0.89 | 2.83 | 1.19 | 3.01 | 1.254 |
| 12/17/08 | 0.73 | 2.20 | 1.94 | 3.00 | 1.442 |
| 10/27/08 | 1.57 | 3.79 | 2.61 | 3.76 | 1.246 |
| 7/14/08 | 2.47 | 3.88 | 4.38 | 4.40 | 1.5914 |
| 6/26/03 | 1.41 | 3.55 | NA | 3.62 | 1.1423 |
Note: DE: Germany
Source:
http://www.bloomberg.com/markets/
http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata
http://www.federalreserve.gov/releases/h15/data.htm
Chart III-1A of the Board of Governors of the Federal Reserve System provides the ten-year, two-year, one-month Treasury constant maturity yields together with the overnight fed funds rate, and the yield of the corporate bond with Moody’s rating of Baa. The riskier yield of the Baa corporate bond exceeds the relatively riskless yields of the Treasury securities. The beginning yields in Chart III-1A for July 31, 2001, are 3.67 percent for one month, 3.79 percent for two years, 5.07 percent for ten years, 3.82 percent for the fed funds rate and 7.85 percent for the Baa corporate bond. On July 30, 2007, yields inverted with the one month at 4.95 percent, the two-year at 4.59 percent and the ten year at 5.82 percent with the yield of the Baa corporate bond at 6.70 percent. Another interesting point is for Oct 31, 2008, with the yield of the Baa jumping to 9.54 percent and the Treasury yields declining: one month 0.12 percent, two years 1.56 percent and ten years 4.01 percent during a flight to the dollar and government securities analyzed by Cochrane and Zingales (2009). Another spike in the series is for Apr 4, 2006 with the yield of the corporate Baa bond at 8.63 and the Treasury yields of 0.12 percent for one month, 0.94 for two years and 2.95 percent for ten years. During the beginning of the flight from risk financial assets to US government securities (see Cochrane and Zingales 2009), the one-month yield was 0.07 percent, the two-year yield 1.64 percent and the ten-year yield 3.41. The combination of zero fed funds rate and quantitative easing caused sharp decline of the yields from 2008 and 2009. Yield declines have also occurred during periods of financial risk aversion, including the current one of stress of financial markets in Europe. The final point of Chart III1-A is for May 9, 2013, with the one-month yield at 0.02 percent, the two-year at 0.22 percent, the ten-year at 1.81 percent, the fed funds rate at 0.12 percent and the corporate Baa bond at 4.63 percent.
Chart III-1A, US, Ten-Year, Two-Year and One-Month Treasury Constant Maturity Yields, Overnight Fed Funds Rate and Yield of Moody’s Baa Corporate Bond, Jul 31, 2001-May 9, 2013
Note: US Recessions in shaded areas
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/h15/
Kate Linebaugh, writing on “Falling revenue dings stocks,” on Oct 20, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444592704578066933466076070.html?mod=WSJPRO_hpp_LEFTTopStories), identifies a key financial vulnerability: falling revenues across markets for United States reporting companies. Global economic slowdown is reducing corporate sales and squeezing corporate strategies. Linebaugh quotes data from Thomson Reuters that 100 companies of the S&P 500 index have reported declining revenue only 1 percent higher in Jun-Sep 2012 relative to Jun-Sep 2011 but about 60 percent of the companies are reporting lower sales than expected by analysts with expectation that revenue for the S&P 500 will be lower in Jun-Sep 2012 for the entities represented in the index. Results of US companies are likely repeated worldwide. The basic valuation equation that is also used in capital budgeting postulates that the value of stocks or of an investment project is given by:
Where Rτ is expected revenue in the time horizon from τ =1 to T; Cτ denotes costs; and ρ is an appropriate rate of discount. In words, the value today of a stock or investment project is the net revenue, or revenue less costs, in the investment period from τ =1 to T discounted to the present by an appropriate rate of discount. In the current weak economy, revenues have been increasing more slowly than anticipated in investment plans. An increase in interest rates would affect discount rates used in calculations of present value, resulting in frustration of investment decisions. If V represents value of the stock or investment project, as ρ → ∞, meaning that interest rates increase without bound, then V → 0, or
declines.
There was mostly strong performance in equity indexes with many indexes increasing in Table III-1 in the week ending on May 10, 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 0.2 percent on May 10, increasing 1.0 percent in the week. Germany’s Dax increased 0.2 percent on Fri May 10 and increased 1.9 percent in the week. Dow Global increased 0.1 percent on May 10 and increased 0.9 percent in the week. Japan’s Nikkei Average increased 2.9 percent on Fri May 10 and increased 6.7 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 0.2 percent on May 10 and increased 1.3 percent in the week. 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 2246.83 on Fri May 10 for increase of 0.6 percent and increase of 1.9 percent in the week of May 10. There is evident trend of deceleration of the world economy that could affect corporate revenue and equity valuations, causing oscillation in equity markets with increases during favorable risk appetite.
Commodities were mixed in the week of May 10, 2013. The DJ UBS Commodities Index decreased 1.1 percent on Fri May 10 and decreased 0.9 percent in the week, as shown in Table III-1. WTI increased 0.6 percent in the week of May 10 while Brent decreased 0.1 percent in the week. Gold decreased 1.3 percent on Fri May 10 and decreased 2.3 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 €846,437 million on May 3, 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 reached €1,455,263 million in the statement of May 3, 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 | May 3, 2013 | |
| 1 Gold and other Receivables | 367,402 | 419,822 | 435,316 |
| 2 Claims on Non Euro Area Residents Denominated in Foreign Currency | 223,995 | 236,826 | 254,527 |
| 3 Claims on Euro Area Residents Denominated in Foreign Currency | 26,941 | 95,355 | 35,367 |
| 4 Claims on Non-Euro Area Residents Denominated in Euro | 22,592 | 25,982 | 22,457 |
| 5 Lending to Euro Area Credit Institutions Related to Monetary Policy Operations Denominated in Euro | 546,747 | 879,130 | 846,437 |
| 6 Other Claims on Euro Area Credit Institutions Denominated in Euro | 45,654 | 94,989 | 111,818 |
| 7 Securities of Euro Area Residents Denominated in Euro | 457,427 | 610,629 | 608,826 |
| 8 General Government Debt Denominated in Euro | 34,954 | 33,928 | 29,018 |
| 9 Other Assets | 278,719 | 336,574 | 264,553 |
| TOTAL ASSETS | 2,004, 432 | 2,733,235 | 2,608,120 |
| Memo Items | |||
| Sum of 5 and 7 | 1,004,174 | 1,489,759 | 1,455,263 |
| 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/fs130507.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 | ∆% Jan-Feb 2013/ Jan-Feb 2012 | Imports | Imports |
| 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 | Exports | Imports | Imports | |
| Consumer | 29.3 | 7.7 | 25.6 | 0.6 |
| Durable | 5.8 | 3.3 | 2.9 | -14.5 |
| Non | 23.5 | 8.8 | 22.7 | 2.6 |
| Capital Goods | 31.6 | 4.2 | 19.5 | -8.6 |
| Inter- | 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, 2011, 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 exceeding 100 percent of GDP, which is the third largest in the world after the US and Japan. Appendix IIIE links the expectations on the primary surplus to the real current value of government monetary and fiscal obligations. As Blanchard (2011SepWEO) analyzes, fiscal consolidation to increase the primary surplus is facilitated by growth of the economy. Italy and the other indebted sovereigns in Europe face the dual challenge of increasing primary surpluses while maintaining growth of the economy (for the experience of Brazil in the debt crisis of 1982 see Pelaez 1986, 1987).
Much of the analysis and concern over the euro zone centers on the lack of credibility of the debt of a few countries while there is credibility of the debt of the euro zone as a whole. In practice, there is convergence in valuations and concerns toward the fact that there may not be credibility of the euro zone as a whole. The fluctuations of financial risk assets of members of the euro zone move together with risk aversion toward the countries with lack of debt credibility. This movement raises the need to consider analytically sovereign debt valuation of the euro zone as a whole in the essential analysis of whether the single-currency will survive without major changes.
Welfare economics considers the desirability of alternative states, which in this case would be evaluating the “value” of Germany (1) within and (2) outside the euro zone. Is the sum of the wealth of euro zone countries outside of the euro zone higher than the wealth of these countries maintaining the euro zone? On the choice of indicator of welfare, Hicks (1975, 324) argues:
“Partly as a result of the Keynesian revolution, but more (perhaps) because of statistical labours that were initially quite independent of it, the Social Product has now come right back into its old place. Modern economics—especially modern applied economics—is centered upon the Social Product, the Wealth of Nations, as it was in the days of Smith and Ricardo, but as it was not in the time that came between. So if modern theory is to be effective, if it is to deal with the questions which we in our time want to have answered, the size and growth of the Social Product are among the chief things with which it must concern itself. It is of course the objective Social Product on which attention must be fixed. We have indexes of production; we do not have—it is clear we cannot have—an Index of Welfare.”
If the burden of the debt of the euro zone falls on Germany and France or only on Germany, is the wealth of Germany and France or only Germany higher after breakup of the euro zone or if maintaining the euro zone? In practice, political realities will determine the decision through elections.
The prospects of survival of the euro zone are dire. Table III-7 is constructed with IMF World Economic Outlook database (http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx) 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 2013.
Table III-7, World and Selected Regional and Country GDP and Fiscal Situation
| GDP 2013 | Primary Net Lending Borrowing | General Government Net Debt | |
| World | 74,172 | ||
| Euro Zone | 12,752 | -0.04 | 73.9 |
| Portugal | 218 | -1.4 | 115.0 |
| Ireland | 222 | -3.2 | 106.2 |
| Greece | 244 | -- | 155.4 |
| Spain | 1,388 | -3.5 | 79.1 |
| Major Advanced Economies G7 | 34,068 | -3.8 | 91.5 |
| United States | 16,238 | -4.6 | 89.0 |
| UK | 2,423 | -5.0 | 86.1 |
| Germany | 3,598 | 1.8 | 54.1 |
| France | 2,739 | -1.4 | 86.5 |
| Japan | 5,150 | -9.0 | 143.4 |
| Canada | 1,844 | -2.4 | 35.9 |
| Italy | 2,076 | 2.7 | 102.3 |
| China | 9,020 | -2.1* | 21.3** |
*Net Lending/borrowing**Gross Debt
Source: IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx
The data in Table III-7 are used for some very simple calculations in Table III-8. The column “Net Debt USD Billions” in Table III-8 is generated by applying the percentage in Table III-7 column “General Government Net Debt % GDP 2013” to the column “GDP USD Billions.” The total debt of France and Germany in 2013 is $4315.7 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 $4087.3 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 $8403.0 billion, which would be equivalent to 132.6 percent of their combined GDP in 2013. 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 233.5 percent if including debt of France and 167.7 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 | 9,423.7 | ||
| B Germany | 1,946.5 | $8403.0 as % of $3598 =233.5% $6033.8 as % of $3598 =167.7% | |
| C France | 2,369.2 | ||
| B+C | 4,315.7 | GDP $6,337.0 Total Debt $8403.0 Debt/GDP: 132.6% | |
| D Italy | 2,123.7 | ||
| E Spain | 1,097.9 | ||
| F Portugal | 250.7 | ||
| G Greece | 379.2 | ||
| H Ireland | 235.8 | ||
| Subtotal D+E+F+G+H | 4,087.3 |
Source: calculation with IMF data IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx
There is extremely important information in Table III-9 for the current sovereign risk crisis in the euro zone. Table III-9 provides the structure of regional and country relations of Germany’s exports and imports with newly available data for Mar 2013. German exports to other European Union (EU) members are 53.8 percent of total exports in Mar 2013 and 57.8 percent in cumulative Jan-Mar 2013. Exports to the euro area are 37.3 percent in Mar and 38.0 percent cumulative in Jan-Mar. Exports to third countries are 40.8 percent of the total in Mar and 42.1 percent cumulative in Jan-Mar. There is similar distribution for imports. Exports to non-euro countries are decreasing 2.2 percent in Mar 2013, increasing 0.3 percent cumulative in Jan-Mar 2013 while exports to the euro area are decreasing 7.0 percent in Mar 2013, and decreasing 3.9 percent cumulative in Jan-Mar 2013. Exports to third countries, accounting for 40.8 percent of the total in Mar 2013, are decreasing 2.6 percent in Mar 2013 and decreasing 0.2 percent cumulative in Jan-Mar 2013, accounting for 42.1 percent of the cumulative total in Jan-Mar 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 ∆%
| Mar 2013 | Mar 12-Month | Cumulative Jan-Mar 2012 € Billions | Cumulative Jan-Mar 2013/ | |
| Total | 94.6 | -4.2 | 271.8 | -1.5 |
| A. EU | 53.8 % 56.9 | -5.4 | 157.2 % 57.8 | -2.5 |
| Euro Area | 35.3 % 37.3 | -7.0 | 103.3 % 38.0 | -3.9 |
| Non-euro Area | 18.5 % 19.6 | -2.2 | 53.9 % 19.8 | 0.3 |
| B. Third Countries | 40.8 % 43.1 | -2.6 | 114.5 % 42.1 | -0.2 |
| Total Imports | 75.8 | -6.9 | 222.5 | -3.5 |
| C. EU Members | 50.4 % 66.5 | -3.7 | 143.7 % 64.5 | -1.4 |
| Euro Area | 35.5 % 46.8 | -4.6 | 99.9 % 44.9 | -2.6 |
| Non-euro Area | 15.0 % 19.8 | -1.5 | 43.8 % 19.7 | 1.5 |
| D. Third Countries | 25.3 % 33.4 | -12.8 | 78.8 % 35.4 | -7.0 |
Notes: Total Exports = A+B; Total Imports = C+D
Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_159_51.html;jsessionid=31CEB4069FD614D4281C2D321DB67FFC.cae4
IIIF Appendix on Sovereign Bond Valuation. There are two approaches to government finance and their implications: (1) simple unpleasant monetarist arithmetic; and (2) simple unpleasant fiscal arithmetic. Both approaches illustrate how sovereign debt can be perceived riskier under profligacy.
First, Unpleasant Monetarist Arithmetic. Fiscal policy is described by Sargent and Wallace (1981, 3, equation 1) as a time sequence of D(t), t = 1, 2,…t, …, where D is real government expenditures, excluding interest on government debt, less real tax receipts. D(t) is the real deficit excluding real interest payments measured in real time t goods. Monetary policy is described by a time sequence of H(t), t=1,2,…t, …, with H(t) being the stock of base money at time t. In order to simplify analysis, all government debt is considered as being only for one time period, in the form of a one-period bond B(t), issued at time t-1 and maturing at time t. Denote by R(t-1) the real rate of interest on the one-period bond B(t) between t-1 and t. The measurement of B(t-1) is in terms of t-1 goods and [1+R(t-1)] “is measured in time t goods per unit of time t-1 goods” (Sargent and Wallace 1981, 3). Thus, B(t-1)[1+R(t-1)] brings B(t-1) to maturing time t. B(t) represents borrowing by the government from the private sector from t to t+1 in terms of time t goods. The price level at t is denoted by p(t). The budget constraint of Sargent and Wallace (1981, 3, equation 1) is:
D(t) = {[H(t) – H(t-1)]/p(t)} + {B(t) – B(t-1)[1 + R(t-1)]} (1)
Equation (1) states that the government finances its real deficits into two portions. The first portion, {[H(t) – H(t-1)]/p(t)}, is seigniorage, or “printing money.” The second part,
{B(t) – B(t-1)[1 + R(t-1)]}, is borrowing from the public by issue of interest-bearing securities. Denote population at time t by N(t) and growing by assumption at the constant rate of n, such that:
N(t+1) = (1+n)N(t), n>-1 (2)
The per capita form of the budget constraint is obtained by dividing (1) by N(t) and rearranging:
B(t)/N(t) = {[1+R(t-1)]/(1+n)}x[B(t-1)/N(t-1)]+[D(t)/N(t)] – {[H(t)-H(t-1)]/[N(t)p(t)]} (3)
On the basis of the assumptions of equal constant rate of growth of population and real income, n, constant real rate of return on government securities exceeding growth of economic activity and quantity theory equation of demand for base money, Sargent and Wallace (1981) find that “tighter current monetary policy implies higher future inflation” under fiscal policy dominance of monetary policy. That is, the monetary authority does not permanently influence inflation, lowering inflation now with tighter policy but experiencing higher inflation in the future.
Second, Unpleasant Fiscal Arithmetic. The tool of analysis of Cochrane (2011Jan, 27, equation (16)) is the government debt valuation equation:
(Mt + Bt)/Pt = Et∫(1/Rt, t+τ)st+τdτ (4)
Equation (4) expresses the monetary, Mt, and debt, Bt, liabilities of the government, divided by the price level, Pt, in terms of the expected value discounted by the ex-post rate on government debt, Rt, t+τ, of the future primary surpluses st+τ, which are equal to Tt+τ – Gt+τ or difference between taxes, T, and government expenditures, G. Cochrane (2010A) provides the link to a web appendix demonstrating that it is possible to discount by the ex post Rt, t+τ. The second equation of Cochrane (2011Jan, 5) is:
MtV(it, ·) = PtYt (5)
Conventional analysis of monetary policy contends that fiscal authorities simply adjust primary surpluses, s, to sanction the price level determined by the monetary authority through equation (5), which deprives the debt valuation equation (4) of any role in price level determination. The simple explanation is (Cochrane 2011Jan, 5):
“We are here to think about what happens when [4] exerts more force on the price level. This change may happen by force, when debt, deficits and distorting taxes become large so the Treasury is unable or refuses to follow. Then [4] determines the price level; monetary policy must follow the fiscal lead and ‘passively’ adjust M to satisfy [5]. This change may also happen by choice; monetary policies may be deliberately passive, in which case there is nothing for the Treasury to follow and [4] determines the price level.”
An intuitive interpretation by Cochrane (2011Jan 4) is that when the current real value of government debt exceeds expected future surpluses, economic agents unload government debt to purchase private assets and goods, resulting in inflation. If the risk premium on government debt declines, government debt becomes more valuable, causing a deflationary effect. If the risk premium on government debt increases, government debt becomes less valuable, causing an inflationary effect.
There are multiple conclusions by Cochrane (2011Jan) on the debt/dollar crisis and Global recession, among which the following three:
(1) The flight to quality that magnified the recession was not from goods into money but from private-sector securities into government debt because of the risk premium on private-sector securities; monetary policy consisted of providing liquidity in private-sector markets suffering stress
(2) Increases in liquidity by open-market operations with short-term securities have no impact; quantitative easing can affect the timing but not the rate of inflation; and purchase of private debt can reverse part of the flight to quality
(3) The debt valuation equation has a similar role as the expectation shifting the Phillips curve such that a fiscal inflation can generate stagflation effects similar to those occurring from a loss of anchoring expectations.
IV Global Inflation. There is inflation everywhere in the world economy, with slow growth and persistently high unemployment in advanced economies. Table IV-1, updated with every blog comment, provides the latest annual data for GDP, consumer price index (CPI) inflation, producer price index (PPI) inflation and unemployment (UNE) for the advanced economies, China and the highly-indebted European countries with sovereign risk issues. The table now includes the Netherlands and Finland that with Germany make up the set of northern countries in the euro zone that hold key votes in the enhancement of the mechanism for solution of sovereign risk issues (Peter Spiegel and Quentin Peel, “Europe: Northern Exposures,” Financial Times, Mar 9, 2011 http://www.ft.com/intl/cms/s/0/55eaf350-4a8b-11e0-82ab-00144feab49a.html#axzz1gAlaswcW). Newly available data on inflation is considered below in this section. Data in Table IV-1 for the euro zone and its members are updated from information provided by Eurostat but individual country information is provided in this section as soon as available, following Table IV-1. Data for other countries in Table IV-1 are also updated with reports from their statistical agencies. Economic data for major regions and countries is considered in Section V World Economic Slowdown following with individual country and regional data tables.
Table IV-1, GDP Growth, Inflation and Unemployment in Selected Countries, Percentage Annual Rates
| GDP | CPI | PPI | UNE | |
| US | 1.8 | 1.5 | 1.1 | 7.5 |
| Japan | 0.5 | -0.9 | -0.5 | 4.1 |
| China | 7.7 | 2.4 | -2.6 | |
| UK | 0.6 | 2.8* CPIH 2.6 | 2.0 output | 7.9 |
| Euro Zone | -0.9 | 1.7 | 0.7 | 12.1 |
| Germany | 0.4 | 1.8 | 0.4 | 5.4 |
| France | -0.3 | 1.1 | 1.9 | 11.0 |
| Nether-lands | -0.9 | 3.2 | -0.4 | 6.4 |
| Finland | -1.4 | 2.5 | 1.3 | 8.2 |
| Belgium | -0.4 | 1.3 | 3.7 | 8.2 |
| Portugal | -3.8 | 0.7 | 1.5 | 17.5 |
| Ireland | 0.8 | 0.6 | 2.6 | 14.1 |
| Italy | -2.7 | 1.8 | 0.0 | 11.5 |
| Greece | -6.0 | -0.2 | -1.3 | NA |
| Spain | -1.9 | 2.6 | 0.5 | 26.7 |
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 1.8 percent in IQ2013 relative to IQ2012 (Table 8 in http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp1q13_adv.pdf http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.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 0.3 percent in IQ2013 relative to IVQ2012 and GDP increased 0.6 percent in IQ2013 relative to IQ2012 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.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: 7.5 percent in the US but 17.6 percent for unemployment/underemployment or job stress of 29.6 million (http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html
and earlier http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html), 4.1 percent for Japan (http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.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 at http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html
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, -0.9 percent for Japan, 2.4 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/2013/05/twenty-nine-million-unemployed-or.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_28.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html), weak hiring with the loss of 10 million full-time jobs (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/04/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/2013/05/twenty-nine-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html); (4) the timing, dose, impact and instruments of normalizing monetary and fiscal policies (see http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with.html http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2011/03/global-financial-risks-and-fed.html http://cmpassocregulationblog.blogspot.com/2011/02/policy-inflation-growth-unemployment.html) in advanced and emerging economies; (5) the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 that had repercussions throughout the world economy because of Japan’s share of about 9 percent in world output, role as entry point for business in Asia, key supplier of advanced components and other inputs as well as major role in finance and multiple economic activities (http://professional.wsj.com/article/SB10001424052748704461304576216950927404360.html?mod=WSJ_business_AsiaNewsBucket&mg=reno-wsj); and (6) geopolitical events in the Middle East.
In the effort to increase transparency, the Federal Open Market Committee (FOMC) provides both economic projections of its participants and views on future paths of the policy rate that in the US is the federal funds rate or interest on interbank lending of reserves deposited at Federal Reserve Banks. These projections and views are discussed initially followed with appropriate analysis.
Charles Evans, President of the Federal Reserve Bank of Chicago, proposed an “economic state-contingent policy” or “7/3” approach (Evans 2012 Aug 27):
“I think the best way to provide forward guidance is by tying our policy actions to explicit measures of economic performance. There are many ways of doing this, including setting a target for the level of nominal GDP. But recognizing the difficult nature of that policy approach, I have a more modest proposal: I think the Fed should make it clear that the federal funds rate will not be increased until the unemployment rate falls below 7 percent. Knowing that rates would stay low until significant progress is made in reducing unemployment would reassure markets and the public that the Fed would not prematurely reduce its accommodation.
Based on the work I have seen, I do not expect that such policy would lead to a major problem with inflation. But I recognize that there is a chance that the models and other analysis supporting this approach could be wrong. Accordingly, I believe that the commitment to low rates should be dropped if the outlook for inflation over the medium term rises above 3 percent.
The economic conditionality in this 7/3 threshold policy would clarify our forward policy intentions greatly and provide a more meaningful guide on how long the federal funds rate will remain low. In addition, I would indicate that clear and steady progress toward stronger growth is essential.”
Evans (2012Nov27) modified the “7/3” approach to a “6.5/2.5” approach:
“I have reassessed my previous 7/3 proposal. I now think a threshold of 6-1/2 percent for the unemployment rate and an inflation safeguard of 2-1/2 percent, measured in terms of the outlook for total PCE (Personal Consumption Expenditures Price Index) inflation over the next two to three years, would be appropriate.”
The Federal Open Market Committee (FOMC) decided at its meeting on Dec 12, 2012 to implement the “6.5/2.5” approach (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm):
“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
Another rising risk is division within the Federal Open Market Committee (FOMC) on risks and benefits of current policies as expressed in the minutes of the meeting held on Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):
“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy.
Jon Hilsenrath, writing on “Fed maps exit from stimulus,” on May 11, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887324744104578475273101471896.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the development of strategy for unwinding quantitative easing and how it can create uncertainty in financial markets. 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). The average of 7.8 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 3.2 percent obtained by diving GDP of $13,103.5 billion in IIIQ2010 by GDP of $12,701.0 billion in IIQ2009 {[$13.103.5/$12,701.0 -1]100 = 3.2%], or accumulating the quarter on quarter growth rates (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent and at 7.7 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html). Zero interest rates and quantitative easing have not provided the impulse for growth and were not required in past successful cyclical expansions.
First, total nonfarm payroll employment seasonally adjusted (SA) increased 165,000 in Apr 2013 and private payroll employment rose 176,000. The average number of nonfarm jobs created in Jan-Apr 2012 was 224,750 while the average number of nonfarm jobs created in Jan-Apr 2013 was 195,750, or decline by 12.9 percent. The average number of private jobs created in the US in Jan-Apr 2012 was 229,000 while the average in Jan-Apr 2013 was 203,250, or decline by 11.2 percent. 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 four months from Jan to Mar 2013 was 195,750, 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 28.6 million unemployed or underemployed. The difference between the average increase of 203,250 new private nonfarm jobs per month in the US from Jan to Mar 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 90,083 monthly new jobs net of absorption of new entrants in the labor force. There are 28.6 million in job stress in the US currently. The provision of 90,083 new jobs per month net of absorption of new entrants in the labor force would require 318 months to provide jobs for the unemployed and underemployed (28.637 million divided by 90,083) or 26.5 years (318 divided by 12). The civilian labor force of the US in Apr 2013 not seasonally adjusted stood at 154.739 million with 11.014 million unemployed or effectively 18.581 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 162.306 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 0.9 years (1 million divided by product of 90,083 by 12, which is 1,080,996). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.737 million (0.05 times labor force of 154.739 million) for new net job creation of 3.277 million (11.014 million unemployed minus 7.737 million unemployed at rate of 5 percent) that at the current rate would take 3.0 years (3.277 million divided by 1.080996). Under the calculation in this blog there are 18.581 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 162.306 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 9.7 years (18.581 million minus 0.05(162.306 million) or 10.466 million divided by 1.080996, using LF PART 66.2% and Total UEM (in Table I-4 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html). 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 147.315 million in Jul 2007 to 143.724 million in Apr 2013, by 3.591 million, or decline of 2.4 percent, while the noninstitutional population increased from 231.958 million in Jul 2007 to 245.175 million in Apr 2013, by 13.217 million or increase of 5.7 percent, using not seasonally adjusted data. There is actually not sufficient job creation in merely absorbing 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, the economy of the US can be summarized in growth of economic activity or GDP as decelerating from mediocre growth of 2.4 percent on an annual basis in 2010 and 1.8 percent in 2011 to 2.2 percent in 2012. Calculations below show that actual growth is around 1.9 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). United States real GDP grew at the rate of 3.2 percent between 1929 and 2012 and at 3.2 percent between 1947 and 2012 (http://www.bea.gov/iTable/index_nipa.cfm see http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html). Growth is not only mediocre but also sharply decelerating to a rhythm that is not consistent with reduction of unemployment and underemployment of 28.6 million people corresponding to 17.6 percent of the effective labor force of the United States (http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html). In the four quarters of 2011, the four quarters of 2012 and the first quarter of 2013, 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, 0.4 percent in IVQ2012 and 2.5 percent in IQ2013. The annual equivalent rate of growth of GDP for the four quarters of 2011, the four quarters of 2012 and the first quarter of 2013 is 1.9 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); discounting 0.4 percent to one quarter is 0.1 percent {[(1.004)1/4 – 1]100}; and discounting 2.5 percent to one quarter is 0.62 percent {[(1.025)1/4 -1}100}. Real GDP growth in the four quarters of 2011, the four quarters of 2012 and the first quarter of 2013 accumulated to 4.3 percent {[(1.00025 x 1.0062 x 1.0032 x 1.010 x 1.005 x 1.0032 x 1.0077 x 1.001 x 1.0062) - 1]100 = 4.3%}. This is equivalent to growth from IQ2011 to IVQ2012 obtained by dividing the seasonally-adjusted annual rate (SAAR) of IQ2013 of $13,750.1 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 {[($13,750.1/$13,181.2) - 1]100 = 4.3%}. The growth rate in annual equivalent for the four quarters of 2011, the four quarters of 2012 and the first quarter of 2013 is 1.9 percent {[(1.00025 x 1.0062 x 1.0032 x 1.010 x 1.005 x 1.0032 x 1.0077 x 1.001 x 1.0062)4/9 -1]100 = 1.9%], or {[($13,750.1/$13,181.2)]4/9-1]100 = 1.9%} dividing the SAAR of IVQ2012 by the SAAR of IVQ2010 in Table I-6 below, obtaining the average for nine 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.
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 May 1, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130501a.htm):
“Release Date: May 1, 2013
For immediate release
Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. 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. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. 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.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.“
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.”
- Increase or Reduction of Asset Purchases. Market participants focused on slightly different wording about increasing asset purchases: “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. 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.” Will there be an increase in asset purchases?
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 IQ2013 is analyzed in Section I (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.htm and earlier at 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 earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html) and the PCE inflation data from the report on personal income and outlays in Section IV (http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html). The Bureau of Economic Analysis (BEA) provides the first estimate of IQ2013 GDP with the second estimate for IQ2013 to be released on May 30 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm See Section I (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.htm and earlier at http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html). PCE inflation is the index of personal consumption expenditures (PCE) of the report of the Bureau of Economic Analysis (BEA) on “Personal Income and Outlays” (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm), which is analyzed in Section IV at http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html. The next report on “Personal Income and Outlays” for Apr will be released at 8:30 AM on May 31, 2013 (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm). PCE core inflation consists of PCE inflation excluding food and energy. Column “UNEMP %” is the rate of unemployment measured as the average civilian unemployment rate in the fourth quarter of the year. The Bureau of Labor Statistics (BLS) provides the Employment Situation Report with the civilian unemployment rate in the first Friday of every month, which is analyzed in this blog. The report for Apr 13 was released on May 3 and analyzed in this blog (http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html). “Longer term projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy” (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20121212.pdf).
It is instructive to focus on 2013 as 2014, 2015 and longer term are too far away, and there is not much information even on what will happen in 2013 and beyond. The central tendency should provide reasonable approximation of the view of the majority of members of the FOMC but the second block of numbers provides the range of projections by FOMC participants. The first row for each year shows the projection introduced after the meeting of Mar 20, 2012 and the second row “PR” the projection of the Dec 12, 2012 meeting. There are three major changes in the view.
1. Growth “∆% GDP.” The FOMC has reduced the forecast of GDP growth in 2013 from 2.3 to 3.0 percent at the meeting in Dec 2012 to 2.3 to 2.8 percent at the meeting on Mar 20, 2013.
2. Rate of Unemployment “UNEM%.” The FOMC reduced the forecast of the rate of unemployment from 7.4 to 7.7 percent at the meeting on Dec 12, 2012 to 7.3 to 7.5 percent at the meeting on Mar 20, 2013.
3. Inflation “∆% PCE Inflation.” The FOMC changed the forecast of personal consumption expenditures (PCE) inflation from 1.3 to 2.0 percent at the meeting on Dec 12, 2012 to 1.3 to 1.7 percent at the meeting on Mar 20, 2013.
4. Core Inflation “∆% Core PCE Inflation.” Core inflation is PCE inflation excluding food and energy. There is again not much of a difference of the projection that changed from 1.6 to 1.9 percent at the meeting on Dec 12, 2012 to 1.5 to 1.6 percent at the meeting on Mar 20, 2013.
Table IV-2, US, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents in FOMC, Dec 2012 and Mar 2012
| ∆% GDP | UNEM % | ∆% PCE Inflation | ∆% Core PCE Inflation | |
| Central | ||||
| 2013 | 2.3 to 2.8 | 7.3 to 7.5 | 1.3 to 1.7 | 1.5 to 1.6 1.6 to 1.9 |
| 2014 | 2.9 to 3.4 | 6.7 to 7.0 | 1.5 to 2.0 | 1.7 to 2.0 |
| 2015 | 2.9 to 3.7 3.0 to 3.7 | 6.0 to 6.5 6.0 to 6.6 | 1.7 to 2.0 1.7 to 2.0 | 1.8 to 2.1 1.8 to 2.0 |
| Longer Run Sep PR | 2.3 to 2.5 2.3 to 2.5 | 5.2 to 6.0 5.2 to 6.0 | 2.0 2.0 | |
| Range | ||||
| 2013 | 2.0 to 3.0 | 6.9 to 7.6 | 1.3 to 2.0 | 1.5 to 2.0 |
| 2014 | 2.6 to 3.8 | 6.1 to 7.1 | 1.4 to 2.1 | 1.5 to 2.1 |
| 2015 Dec PR | 2.5 to 3.8 2.5 to 4.2 | 5.7 to 6.5 5.7 to 6.8 | 1.6 to 2.6 1.5 to 2.2 | 1.7 to 2.6 1.7 to 2.2 |
| Longer Run Dec PR | 2.0 to 3.0 2.2 to 3.0 | 5.0 to 6.0 5.0 to 6.0 | 2.0 2.0 |
Notes: UEM: unemployment; PR: Projection
Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf
Another important decision at the FOMC meeting on Jan 25, 2012, is formal specification of the goal of inflation of 2 percent per year but without specific goal for unemployment (http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm):
“Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.
The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decision making by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.
Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals.
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances.
The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants' estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC's Summary of Economic Projections. For example, in the most recent projections, FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent, roughly unchanged from last January but substantially higher than the corresponding interval several years earlier.
In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. ”
The probable intention of this specific inflation goal is to “anchor” inflationary expectations. Massive doses of monetary policy of promoting growth to reduce unemployment could conflict with inflation control. Economic agents could incorporate inflationary expectations in their decisions. As a result, the rate of unemployment could remain the same but with much higher rate of inflation (see Kydland and Prescott 1977 and Barro and Gordon 1983; http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html See Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 99-116). Strong commitment to maintaining inflation at 2 percent could control expectations of inflation.
The FOMC continues its efforts of increasing transparency that can improve the credibility of its firmness in implementing its dual mandate. Table IV-3 provides the views by participants of the FOMC of the levels at which they expect the fed funds rate in 2012, 2013, 2014 and the in the longer term. Table IV-3 is inferred from a chart provided by the FOMC with the number of participants expecting the target of fed funds rate (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf). There are 18 participants expecting the rate to remain at 0 to ¼ percent in 2013 and one to be higher in the interval below 1.0 percent. The rate would still remain at 0 to ¼ percent in 2014 for 14 participants with three expecting the rate to be in the range of 1.0 to 2.0 percent, one participant expecting rates at 0.5 to 1.0 percent and one participant expecting rates from 2.0 to 3.0. This table is consistent with the guidance statement of the FOMC that rates will remain at low levels until late in 2014. For 2015, nine participants expect rates to be below 1.0 percent while nine expect rates from 1.0 to 4.5 percent. In the long run, all 19 participants expect the fed funds rate in the range of 3.0 to 4.5 percent.
Table IV-3, US, Views of Target Federal Funds Rate at Year-End of Federal Reserve Board
Members and Federal Reserve Bank Presidents Participating in FOMC, June 20, 2012
| 0 to 0.25 | 0.5 to 1.0 | 1.0 to 1.5 | 1.0 to 2.0 | 2.0 to 3.0 | 3.0 to 4.5 | |
| 2013 | 18 | 1 | ||||
| 2014 | 14 | 1 | 3 | 1 | ||
| 2015 | 1 | 8 | 6 | 1 | 2 | 1 |
| Longer Run | 19 |
Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf
Additional information is provided in Table IV-4 with the number of participants expecting increasing interest rates in the years from 2013 to 2015. It is evident from Table IV-4 that the prevailing view of the FOMC is for interest rates to continue at low levels in future years. This view is consistent with the economic projections of low economic growth, relatively high unemployment and subdued inflation provided in Table IV-2.
Table IV-4, US, Views of Appropriate Year of Increasing Target Federal Funds Rate of Federal
Reserve Board Members and Federal Reserve Bank Presidents Participating in FOMC, June 20, 2012
| Appropriate Year of Increasing Target Fed Funds Rate | Number of Participants |
| 2013 | 1 |
| 2014 | 4 |
| 2015 | 13 |
| 2016 | 1 |
Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf
China is experiencing similar inflation behavior as the advanced economies in prior months in the form of declining commodity prices but differs in decreasing inflation of producer prices relative to a year earlier. As shown in Table IV-5, inflation of the price indexes for industry in Apr 2013 is minus 0.6 percent; 12-month inflation is minus 2.6 percent in Apr; and cumulative inflation in Jan-Apr 2013 relative to Jan-Apr 2012 is minus 2.0 percent. Inflation of segments in Mar 2013 in China is provided in Table IV-8 in column “Month Apr 2013 ∆%.” There were decreases of prices of mining & quarrying of 1.6 percent in Apr and decrease of 8.2 percent in 12 months. Prices of consumer goods decreased 0.1 percent in Apr and increased 0.3percent in 12 months. Prices of inputs in the purchaser price index decreased 0.6 percent in Apr and declined 2.7 percent in 12 months. Fuel and power decreased 1.0 percent in Apr and declined 4.8 percent in 12 months. An important category of inputs for exports is textile raw materials, increasing 0.1 percent in Apr and declining 0.7 percent in 12 months.
Table IV-5, China, Price Indexes for Industry ∆%
| Month Apr 2013 ∆% | 12-Month Apr 2013 ∆% | Jan-Apr 2013/Jan-Apr 2012 ∆% | |
| I Producer Price Indexes | -0.6 | -2.6 | -2.0 |
| Means of Production | -0.7 | -3.5 | -2.7 |
| Mining & Quarrying | -1.6 | -8.2 | -6.0 |
| Raw Materials | -1.3 | -4.8 | -3.2 |
| Processing | -0.3 | -2.5 | -2.2 |
| Consumer Goods | -0.1 | 0.3 | 0.6 |
| Food | -0.3 | 0.6 | 1.1 |
| Clothing | 0.1 | 1.3 | 1.4 |
| Daily Use Articles | 0.0 | 0.1 | 0.5 |
| Durable Consumer Goods | -0.1 | -0.6 | -0.8 |
| II Purchaser Price Indexes | -0.6 | -2.7 | -2.1 |
| Fuel and Power | -1.0 | -4.8 | -3.4 |
| Ferrous Metals | -0.6 | -5.5 | -5.6 |
| Nonferrous Metals | -1.8 | -4.7 | -3.1 |
| Raw Chemical Materials | -0.8 | -3.8 | -3.2 |
| Wood & Pulp | -0.2 | -0.6 | -0.5 |
| Building Materials | -0.2 | -2.0 | -1.8 |
| Other Industrial Raw Materials | -0.1 | -0.8 | -0.8 |
| Agricultural | -0.9 | 1.0 | 2.0 |
| Textile Raw Materials | 0.1 | -0.7 | -0.9 |
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
China’s producer price inflation follows waves similar to those around the world but with declining trend since May 2012, as shown in Table IV-6. In the first wave, annual equivalent inflation was 6.4 percent in Jan-Jun 2011, driven by carry trades from zero interest rates to commodity futures. In the second wave, risk aversion unwound carry trades, resulting in annual equivalent inflation of minus 3.1 percent in Jul-Nov 2011. In the third wave, renewed risk aversion resulted in annual equivalent inflation of minus 2.4 percent in Dec 2011-Jan 2012. In the fourth wave, new carry trades resulted in annual equivalent inflation of 2.4 percent in Feb-Apr 2012. In the fifth wave, annual equivalent is minus 5.8 percent in May-Sep 2012. There are declining producer prices in China in Aug-Sep 2012 in contrast with increases worldwide. In a sixth wave, producer prices increased 0.2 percent in Oct 2012, which is equivalent to 2.4 percent in a year. In an eighth wave, annual equivalent inflation was minus 1.2 percent in Nov-Dec 2012. In the ninth wave, annual equivalent inflation in Jan-Feb 2013 is 2.4 percent. In the tenth wave, annual equivalent inflation was minus 3.6 percent in Mar-Apr 2013.
Table IV-6, China, Month and 12-Month Rate of Change of Producer Price Index, ∆%
| 12-Month ∆% | Month ∆% | |
| Apr 2013 | -2.6 | -0.6 |
| Mar 2013 | -1.9 | 0.0 |
| AE ∆% Mar-Apr | -3.6 | |
| Feb | -1.6 | 0.2 |
| Jan | -1.6 | 0.2 |
| AE ∆% Jan-Feb | 2.4 | |
| Dec 2012 | -1.9 | -0.1 |
| Nov | -2.2 | -0.1 |
| AE ∆% Nov-Dec | -1.2 | |
| Oct | -2.8 | 0.2 |
| AE ∆% Oct | 2.4 | |
| Sep | -3.6 | -0.1 |
| Aug | -3.5 | -0.5 |
| Jul | -2.9 | -0.8 |
| Jun | -2.1 | -0.7 |
| May | -1.4 | -0.4 |
| AE ∆% May-Sep | -5.8 | |
| Apr | -0.7 | 0.2 |
| Mar | -0.3 | 0.3 |
| Feb | 0.0 | 0.1 |
| AE ∆% Feb-Apr | 2.4 | |
| Jan | 0.7 | -0.1 |
| Dec 2011 | 1.7 | -0.3 |
| AE ∆% Dec-Jan | -2.4 | |
| Nov | 2.7 | -0.7 |
| Oct | 5.0 | -0.7 |
| Sep | 6.5 | 0.0 |
| Aug | 7.3 | 0.1 |
| Jul | 7.5 | 0.0 |
| AE ∆% Jul-Nov | -3.1 | |
| Jun | 7.1 | 0.0 |
| May | 6.8 | 0.3 |
| Apr | 6.8 | 0.5 |
| Mar | 7.3 | 0.6 |
| Feb | 7.2 | 0.8 |
| Jan | 6.6 | 0.9 |
| AE ∆% Jan-Jun | 6.4 | |
| Dec 2010 | 5.9 | 0.7 |
AE: Annual Equivalent
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Chart IV-1 of the National Bureau of Statistics of China provides monthly and 12-month rates of inflation of the price indexes for the industrial sector. Negative monthly rates in Oct, Nov, Dec 2011, Jan, Mar, Apr, May, Jun, Jul, Aug, Sep, Nov and Dec 2012 pulled down the 12-month rates to 5.0 percent in Oct 2011, 2.7 percent in Nov, 1.7 percent in Dec, 0.7 percent in Jan 2012, 0.0 percent in Feb, minus 0.3 percent in Mar, minus 0.7 percent in Apr, minus 1.4 percent in May, 2.1 in Jun, minus 2.9 percent in Jul, minus 3.5 percent in Aug, minus 3.6 percent in Sep. The increase of 0.2 percent in Oct 2012 pulled up the 12-month rate to minus 2.8 percent and the rate eased to minus 2.2 percent in Nov 2012 and minus 1.9 percent in Dec 2012. Increases of 0.2 percent in Jan and Feb 2013 pulled the 12-month rate to minus 1.6 percent while no change in Mar 2013 brought down the 12-month rate to minus 1.9 percent. Decline of prices of 0.6 percent in Apr 2013 pushed the 12-month rate to minus 2.6 percent.
Chart IV-1, China, Producer Prices for the Industrial Sector Month and 12 months ∆%
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Chart IV-10 of the National Bureau of Statistics of China provides monthly and 12-month inflation of the purchaser product indices for the industrial sector. Decreasing monthly inflation with four successive contractions from Oct 2011 to Jan 2012 and May-Aug 2012 pulled down the 12-month rate to minus 4.1 percent in Aug and Sep. Consecutive increases of 0.1 percent in Sep and Oct 2012 raised the 12-month rate to minus 3.3 percent in Oct 2012. The rate eased to minus 2.8 in Nov 2012 with decrease of 0.2 percent in Nov 2012 and minus 2.4 percent in Dec 2012 with monthly decrease of 0.1 percent. Increase of 0.3 percent in Jan 2013 and 0.2 in Feb 2013 pulled the 12-month rate to minus 1.9 percent. Decrease of prices of 0.1 percent in Mar 2013 brought down the 12-month rate to minus 2.0 percent. Declining prices of 0.6 percent in Apr 2013 pushed down the 12-month rate to minus 2.7 percent.
Chart IV-2, China, Purchaser Product Indices for Industrial Sector
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
China is highly conscious of food price inflation because of its high weight in the basket of consumption of the population. Consumer price inflation in China in Apr 2013 was minus 0.2 percent and 2.4 percent in 12 months, as shown in Table IV-7. Food prices increased 0.4 percent in Apr 2013, increasing 4.0 percent in 12 months because of inclement winter weather in prior months. Another area of concern is housing inflation, which was 0.3 in Feb but increased 2.8 percent in 12 months. Prices of services increased 0.3 percent in Apr and gained 2.9 percent in 12 months.
Table IV-7, China, Consumer Price Index
| 2013 | Apr 2013 Month ∆% | Apr 2013 12-Month ∆% | Jan-Apr 2013 ∆% Jan-Apr 2012 |
| Consumer Prices | 0.2 | 2.4 | 2.4 |
| Urban | 0.3 | 2.4 | 2.4 |
| Rural | 0.1 | 2.4 | 2.5 |
| Food | 0.4 | 4.0 | 3.9 |
| Non-food | 0.2 | 1.6 | 1.7 |
| Consumer Goods | 0.2 | 2.2 | 2.3 |
| Services | 0.3 | 2.9 | 2.8 |
| Commodity Categories: | |||
| Food | 0.4 | 4.0 | 3.9 |
| Tobacco, Liquor | 0.0 | 0.8 | 1.1 |
| Clothing | 0.7 | 2.5 | 2.4 |
| Household | 0.1 | 1.6 | 1.6 |
| Healthcare & Personal Articles | 0.0 | 1.5 | 1.7 |
| Transportation & Communication | -0.4 | -1.1 | -0.4 |
| Recreation, Education, Culture & Services | 0.4 | 1.5 | 1.4 |
| Residence | 0.2 | 2.9 | 2.9 |
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Month and 12-month rates of change of consumer prices are provided in Table IV-8. There are waves of consumer price inflation in China similar to those around the world (http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html). In the first wave, consumer prices increased at the annual equivalent rate of 8.3 percent in Jan-Mar 2011, driven by commodity price increases resulting from unconventional monetary policy of zero interest rates. In the second wave, risk aversion unwound carry trades with annual equivalent inflation falling to the rate of 2.0 percent in Apr-Jun 2011. In the third wave, inflation returned at 2.9 percent with renewed interest in commodity exposures in Jul-Nov 2011. In the fourth wave, inflation returned at a high 5.8 percent annual equivalent in Dec 2011 to Mar 2012. In the fifth wave, annual equivalent inflation was minus 3.9 percent in Apr to Jun 2012. In the sixth wave, annual equivalent inflation rose to 4.1 percent in Jul-Sep 2012. In the seventh wave, inflation was minus 1.2 percent annual equivalent in Oct 2012 and 0.0 percent in Oct-Nov 2012. In the eighth wave, annual equivalent inflation was 12.2 percent in Dec 2012-Feb 2013 primarily because of winter weather that caused increases in food prices. In the ninth wave, collapse of food prices resulted in annual equivalent inflation of minus 10.3 percent in Mar 2013. In the tenth wave, annual equivalent inflation returned at 2.4 percent in Apr 2013. Inflation volatility originating in unconventional monetary policy clouds investment and consumption decisions by business and households.
Table IV-8, China, Month and 12-Month Rates of Change of Consumer Price Index ∆%
| Month ∆% | 12-Month ∆% | |
| Apr 2013 | 0.2 | 2.4 |
| AE ∆% Apr | 2.4 | |
| Mar 2013 | -0.9 | 2.1 |
| AE ∆% Mar | -10.3 | |
| Feb | 1.1 | 3.2 |
| Jan | 1.0 | 2.0 |
| Dec 2012 | 0.8 | 2.5 |
| AE ∆% Dec-Feb | 12.2 | |
| Nov | 0.1 | 2.0 |
| Oct | -0.1 | 1.7 |
| AE ∆% Oct-Nov | 0.0 | |
| Sep | 0.3 | 1.9 |
| Aug | 0.6 | 2.0 |
| Jul | 0.1 | 1.8 |
| AE ∆% Jul-Sep | 4.1 | |
| Jun | -0.6 | 2.2 |
| May | -0.3 | 3.0 |
| Apr | -0.1 | 3.4 |
| AE ∆% Apr to Jun | -3.9 | |
| Mar | 0.2 | 3.6 |
| Feb | -0.1 | 3.2 |
| Jan | 1.5 | 4.5 |
| Dec 2011 | 0.3 | 4.1 |
| AE ∆% Dec to Mar | 5.8 | |
| Nov | -0.2 | 4.2 |
| Oct | 0.1 | 5.5 |
| Sep | 0.5 | 6.1 |
| Aug | 0.3 | 6.2 |
| Jul | 0.5 | 6.5 |
| AE ∆% Jul to Nov | 2.9 | |
| Jun | 0.3 | 6.4 |
| May | 0.1 | 5.5 |
| Apr | 0.1 | 5.3 |
| AE ∆% Apr to Jun | 2.0 | 2.0 |
| Mar | -0.2 | 5.4 |
| Feb | 1.2 | 4.9 |
| Jan | 1.0 | 4.9 |
| AE ∆% Jan to Mar | 8.3 | |
| Dec 2010 | 0.5 | 4.6 |
AE: Annual Equivalent
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Chart IV-11 of the National Bureau of Statistics of China provides monthly and 12-month rates of consumer price inflation. In contrast with producer prices, consumer prices had not moderated at the monthly marginal rates. Consumer prices fell 0.2 percent in Nov 2011 after increasing only 0.1 percent in Oct but increased 0.3 percent in Dec and a high 1.5 percent in Jan 2012, declining 0.1 percent in Feb, rising 0.2 percent in Mar and declining 0.1 percent in Apr, 0.3 percent in May and 0.6 percent in Jun 2012 but increasing 0.1 percent in Jul, 0.6 percent in Aug 2012 and 0.3 percent in Sep 2012. Consumer prices fell 0.1 percent in Oct 2012. The decline of 0.1 percent in Feb 2012 pulled down the 12-month rate to 3.2 percent, which bounced back to 3.6 percent in Mar with the monthly increase of 0.2 percent and fell to 2.2 percent in Jun with increasing pace of monthly decline from Apr to Jun 2012. Even with increase of 0.1 percent in Jul 2012, consumer price inflation in 12 months fell to 1.8 percent in Jul 2012 but bounced back to 2.0 percent with increase of 0.6 percent in Aug. In Sep, increase of 0.3 percent still maintained 12-month inflation at 1.9 percent. The decline of 0.1 percent in Oct 2012 pulled down the 12-month rate to 1.7 percent, which is the lowest in Chart IV-3. Increase of 0.1 percent in Nov 2012 pulled up the 12-month rate to 2.0 percent. Abnormal increase of 0.8 percent in Dec 2012 because of winter weather pulled up the 12-month rate to 2.5 percent. Even with increase of 1.0 percent in Jan 2013 12-month inflation fell to 2.0 percent. Inflation of 1.1 percent in Feb 2013 pulled the 12-month rate to 3.2 percent. Collapse of food prices with decline of consumer prices by 0.9 percent in Mar 2013 brought down the 12-month rate to 2.1 percent. Renewed inflation of 0.2 percent in Apr 2013 raised the 12-month rate to 2.4 percent.
Chart IV-3, China, Consumer Prices ∆% Month and 12 Months Oct 2011 to Oct 2012
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
V World Economic Slowdown. Table V-1 is constructed with the database of the IMF (http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx) to show GDP in dollars in 2012 and the growth rate of real GDP of the world and selected regional countries from 2013 to 2016. 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 3.3 percent in 2013 but accelerating to 4.0 percent in 2014, 4.4 percent in 2015 and 4.5 percent in 2016. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $33,932 billion of world output of $71,707 billion, or 47.3 percent, but are projected to grow at much lower rates than world output, 2.1 percent on average from 2013 to 2016 in contrast with 4.1 percent for the world as a whole. While the world would grow 17.2 percent in the four years from 2013 to 2016, the G7 as a whole would grow 8.8 percent. The difference in dollars of 2012 is rather high: growing by 17.2 percent would add $12.3 trillion of output to the world economy, or roughly, two times the output of the economy of Japan of $5,964 but growing by 8.8 percent would add $6.3 trillion of output to the world, or about the output of Japan in 2012. 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 2012 of $27,290 billion, or 38.1 percent of world output. The EMDEs would grow cumulatively 25.2 percent or at the average yearly rate of 5.8 percent, contributing $6.9 trillion from 2013 to 2016 or the equivalent of somewhat less than the GDP of $8,227 billion of China in 2012. The final four countries in Table 1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output in 2012 adds to $14,470 billion, or 20.2 percent of world output, which is equivalent to 42.6 percent of the combined output of the major advanced economies of the G7.
Table V-1, IMF World Economic Outlook Database Projections of Real GDP Growth
| GDP USD 2012 | Real GDP ∆% | Real GDP ∆% | Real GDP ∆% | Real GDP ∆% | |
| World | 71,707 | 3.3 | 4.0 | 4.4 | 4.5 |
| G7 | 33,932 | 1.3 | 2.2 | 2.5 | 2.5 |
| Canada | 1,819 | 1.5 | 2.4 | 2.5 | 2.4 |
| France | 2,609 | -0.1 | 0.9 | 1.5 | 1.7 |
| DE | 3,401 | 0.6 | 1.5 | 1.3 | 1.3 |
| Italy | 2,014 | -1.5 | 0.5 | 1.2 | 1.4 |
| Japan | 5,964 | 1.6 | 1.4 | 1.1 | 1.2 |
| UK | 2,441 | 0.7 | 1.5 | 1.8 | 1.9 |
| US | 15,685 | 1.9 | 2.9 | 3.6 | 3.4 |
| Euro Area | 12,198 | -0.3 | 1.1 | 1.4 | 1.6 |
| DE | 3,401 | 0.6 | 1.5 | 1.3 | 1.3 |
| France | 2,609 | -0.1 | 0.9 | 1.5 | 1.7 |
| Italy | 2,014 | -1.5 | 0.5 | 1.2 | 1.4 |
| POT | 213 | -2.3 | 0.6 | 1.5 | 1.8 |
| Ireland | 210 | 1.1 | 2.2 | 2.7 | 2.7 |
| Greece | 249 | -4.2 | 0.6 | 2.9 | 3.7 |
| Spain | 1,352 | -1.6 | 0.7 | 1.4 | 1.5 |
| EMDE | 27,290 | 5.3 | 5.7 | 6.0 | 6.1 |
| Brazil | 2,396 | 3.0 | 4.0 | 4.1 | 4.2 |
| Russia | 2,022 | 3.4 | 3.8 | 3.7 | 3.6 |
| India | 1,825 | 5.7 | 6.2 | 6.6 | 6.9 |
| China | 8,227 | 8.0 | 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/pubs/ft/weo/2013/01/weodata/index.aspx
Continuing high rates of unemployment in advanced economies constitute another characteristic of the database of the WEO (http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx). Table I-2 is constructed with the WEO database to provide rates of unemployment from 2012 to 2016 for major countries and regions. In fact, unemployment rates for 2012 in Table I-2 are high for all countries: unusually high for countries with high rates most of the time and unusually high for countries with low rates most of the time. The rates of unemployment are particularly high for the countries with sovereign debt difficulties in Europe: 15.7 percent for Portugal (POT), 14.7 percent for Ireland, 24.2 percent for Greece, 25.0 percent for Spain and 10.6 percent for Italy, which is lower but still high. The G7 rate of unemployment is 7.4 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 2012 | % Labor Force 2013 | % Labor Force 2014 | % Labor Force 2015 | % Labor Force 2016 | |
| World | NA | NA | NA | NA | NA |
| G7 | 7.4 | 7.4 | 7.3 | 7.0 | 6.6 |
| Canada | 7.3 | 7.3 | 7.2 | 7.1 | 7.0 |
| France | 10.2 | 11.2 | 11.6 | 11.4 | 10.9 |
| DE | 5.5 | 5.6 | 5.7 | 5.6 | 5.6 |
| Italy | 10.6 | 12.0 | 12.4 | 12.0 | 11.2 |
| Japan | 4.4 | 4.1 | 4.1 | 4.1 | 4.1 |
| UK | 8.0 | 7.8 | 7.8 | 7.4 | 6.9 |
| US | 8.1 | 7.7 | 7.5 | 6.9 | 6.3 |
| Euro Area | 11.4 | 12.3 | 12.3 | 11.9 | 11.4 |
| DE | 5.5 | 5.6 | 5.7 | 5.6 | 5.6 |
| France | 10.2 | 11.2 | 11.6 | 11.4 | 10.9 |
| Italy | 10.6 | 12.0 | 12.4 | 12.0 | 11.2 |
| POT | 15.7 | 18.3 | 18.5 | 18.1 | 17.5 |
| Ireland | 14.7 | 14.2 | 13.8 | 12.9 | 11.9 |
| Greece | 24.2 | 27.0 | 26.1 | 24.0 | 21.0 |
| Spain | 25.0 | 27.0 | 26.5 | 25.6 | 24.7 |
| EMDE | NA | NA | NA | NA | NA |
| Brazil | 5.5 | 6.0 | 6.5 | 6.5 | 6.5 |
| Russia | 6.0 | 5.5 | 5.5 | 5.5 | 5.5 |
| 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/pubs/ft/weo/2013/01/weodata/index.aspx
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 and IQ2013 for a few 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. In IQ2013, US GDP grew at 2.5 percent SAAR, 0.6 percent relative to the prior quarter and 1.8 percent relative to the same quarter in 2013 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html) with 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 0.5 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. UK GDP increased 0.3 percent in IQ2013 and 0.6 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 | 0.5 |
| IIQ2012/IQ2012 | IIQ2012/IIQ2011 | |
| United States | QOQ: 0.3 SAAR: 1.3 | 2.1 |
| Japan | QOQ: -0.2 | 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 | 2.6 |
| Japan | QOQ: –0.9 | 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 | 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 | |
| United States | QOQ: 0.6 | 1.8 |
| China | 1.6 | 7.7 |
| UK | 0.3 | 0.6 |
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 Apr 2013, China exports increased 14.7 percent relative to a year earlier and imports 16.8 percent. Germany’s exports increased 0.5 percent in the month of Mar 2013 and decreased 4.2 percent in the 12 months ending in Mar 2013 while imports increased 0.8 percent in the month of Mar and decreased 6.9 percent in the 12 months ending in Mar. 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 increased 0.5 percent in Mar 2013 while imports decreased 1.1 percent and net trade deducted 0.4 percentage points from GDP growth in IIQ2012, adding 0.3 percentage points in IIIQ2012 and 0.2 percentage points in IVQ2012. US exports decreased 0.9 percent in Mar 2013 and goods exports increased 2.2 percent in Jan-Mar 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. In IQ2013, net trade deducted 0.50 percentage points from US GDP growth. US imports decreased 2.5 percent in Mar 2013 and goods imports decreased 0.1 percent in Jan-Mar 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 | Exports 12 M ∆% | Imports | Imports 12 M ∆% | |
| USA | -0.9 Mar | 2.2 Jan-Mar | -2.5 Jan | -0.1 Jan-Mar |
| 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 | 14.7 Apr 10.0 Mar 13 17.3 Jan-Apr 13 | 16.8 Apr 14.1 Mar 13 10.6 Jan-Apr 13 | ||
| Euro Area | -1.1 12-M Feb | 1.9 Jan-Feb | -7.1 12-M Feb | -2.7 Jan-Feb |
| Germany | 0.5 Mar CSA | -4.2 Mar | 0.8 Mar CSA | -6.9 Mar |
| France Mar | 1.4 | -0.4 | -1.1 | -3.1 |
| 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 | IQ2013 -0.50 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: Country Statistical Agencies 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 | 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 increasing growth of the volume of world trade of goods and services from 3.6 percent in 2013 to 6.1 percent in 2015 and 5.7 percent in 2018. World trade would be slower for advanced economies while emerging and developing economies (EMDE) experience faster growth. World economic slowdown would more challenging with lower growth of world trade.
Table V-6, IMF, Projections of World Trade, ∆%
| 2013 | 2014 | 2015 | Average ∆% 2013-2018 | |
| World Trade Volume (Goods and Services) | 3.6 | 5.3 | 6.1 | 5.7 |
| Oil Price USD/Barrel | 102.60 | 97.58 | NA | NA |
| Commodity Price Index | 181.84 | 174.06 | NA | NA |
| Commodity Industrial Inputs Price | 170.04 | 164.66 | NA | NA |
| Imports Goods & Services | ||||
| G7 | 1.8 | 4.0 | 4.7 | 4.3 |
| EMDE | 6.2 | 7.3 | 7.9 | 7.5 |
| Exports Goods & Services | ||||
| G7 | 2.2 | 4.4 | 4.9 | 4.5 |
| EMDE | 4.8 | 6.5 | 7.6 | 7.1 |
Notes: Commodity Price Index includes Fuel and Non-fuel Prices; Commodity Industrial Inputs Price includes agricultural raw materials and metal prices; Oil price is average of WTI, Brent and Dubai
Source: International Monetary Fund World Economic Outlook databank
http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx
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 fell to 51.9 in Apr from 53.0 in Mar, indicating expansion at a moderate rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/d2e650432b25425ab2bfac6532ac0dda).This index has remained above the contraction territory of 50.0 during 45 consecutive months. The employment index decreased to 50.4 in Apr relative to 51.4 in Mar with input prices rising at slower rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/d2e650432b25425ab2bfac6532ac0dda).David Hensley, Director of Global Economic Coordination at JP Morgan, finds slowdown across manufacturing and services with output growing at the lowest rate in six months (http://www.markiteconomics.com/Survey/PressRelease.mvc/d2e650432b25425ab2bfac6532ac0dda). The JP Morgan Global Manufacturing PMI™, produced by JP Morgan and Markit in association with ISM and IFPSM, decreased marginally to 50.5 in Apr from 51.1 in Mar, which is the fourth consecutive reading above 50 (http://www.markiteconomics.com/Survey/PressRelease.mvc/2b14d16a09f7424aa7baed58f4f284ff). New export business increased marginally for the second consecutive month after eleven consecutive monthly declines. The HSBC Brazil Composite Output Index, compiled by Markit, increased marginally from 51.0 in Mar to 51.5 in Apr, indicating improvement but with business activity growing accelerating in services but slowing in manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/53f380f4e26742e8b5bb6ddda8a09652). The HSBC Brazil Services Business Activity index, compiled by Markit, increased from 50.3 in Mar to 51.3 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/53f380f4e26742e8b5bb6ddda8a09652). Andre Loes, Chief Economist, Brazil, at HSBC, finds recovering economy but within a modest forecast (http://www.markiteconomics.com/Survey/PressRelease.mvc/53f380f4e26742e8b5bb6ddda8a09652). The HSBC Brazil Purchasing Managers’ IndexTM (PMI™) decreased from 51.8 in Mar to 50.8 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/7622c1409310421184b7f7f5314594e1). Andre Loes, Chief Economist, Brazil at HSBC, finds continuing expansion in Brazil’s manufacturing with greater strength in Jan 2013, supporting the view that the economy of Brazil is experiencing moderate recovery (http://www.markiteconomics.com/Survey/PressRelease.mvc/7622c1409310421184b7f7f5314594e1).
VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index™ (PMI™) seasonally adjusted fell to 52.0 in Apr from 54.6 in Mar, which is the lowest reading in six months (http://www.markiteconomics.com/Survey/PressRelease.mvc/8b5f686e481f42199fa60c1ae997959c).New export orders registered 52.2 in Apr from 51.8 in Mar, indicating expansion at a moderate rate while output fell from 56.6 in Mar to 53.6 in Apr. Chris Williams, Chief Economist at Markit, finds that the survey data are consistent with growth at only 2.0 percent annual rythm in the beginning of IIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/8b5f686e481f42199fa60c1ae997959c). The Markit US Manufacturing Purchasing Managers’ Index™ (PMI™) decreased to 52.1 in Apr from 54.6 in Mar (http://www.markiteconomics.com/Survey/PressRelease.mvc/caf2295d7e5642779cb9b6bf7c81c0d3). The index of new exports orders was unchanged from 51.8 in Apr 2013 from 51.8 in Mar 2013 while total new orders fell from 55.4 in Mar to 51.5 in Apr. Chris Williamson, Chief Economist at Markit, finds that weakness of new orders of manufacturing in the US suggest slower growth than in the preceding first quarter of 2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/caf2295d7e5642779cb9b6bf7c81c0d3). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business® decreased 0.6 percentage points from 51.3 in Mar to 50.7 in Apr (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders increased 0.9 percentage points from 51.4 in Mar to 52.3 in Apr. The index of exports decreased 2.0 percentage points from 56.0 in Mar to 54.0 in Apr, remaining in expansion territory. The Non-Manufacturing ISM Report on Business® PMI decreased 1.3 percentage points from 54.4 in Mar to 53.1 in Apr, indicating production growth during 45 consecutive months, while the index of new orders decreased 0.1 percentage points from 54.6 in Mar to 54.5 in Apr (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 |
| Producer Price Index | Mar 12-month NSA ∆%: 1.1; ex food and energy ∆% 1.7 |
| PCE Inflation | Mar 12-month NSA ∆%: headline 1.0; ex food and energy ∆% 1.1 |
| Employment Situation | Household Survey: Apr Unemployment Rate SA 7.5% |
| Nonfarm Hiring | Nonfarm Hiring fell from 63.8 million in 2006 to 52.0 million in 2012 or by 11.8 million |
| GDP Growth | BEA Revised National Income Accounts IIQ2012/IIQ2011 2.1 IIIQ2012/IIIQ2011 2.6 IVQ2012/IVQ2011 1.7 IQ2013/IQ2012 1.8 IQ2012 SAAR 2.0 IIQ2012 SAAR 1.3 IIIQ2012 SAAR 3.1 IVQ2012 SAAR 0.4 IQ2013 SAAR 2.5 |
| Real Private Fixed Investment | SAAR IQ2013 4.1 ∆% IVQ2007 to IIIQ2012: minus 8.8% Blog 4/28/13 |
| Personal Income and Consumption | Mar month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 0.3 |
| Quarterly Services Report | IVQ12/IVQ11 SA ∆%: Financial & Insurance 6.2 |
| Employment Cost Index | Compensation Private IQ2013 SA ∆%: 0.3 |
| Industrial Production | Mar month SA ∆%: 0.4 Manufacturing Mar SA ∆% -0.1 Mar 12 months SA ∆% 2.5, NSA 2.1 |
| Productivity and Costs | Nonfarm Business Productivity IQ2013∆% SAAE 0.7; IQ2013/IQ2012 ∆% 0.9; Unit Labor Costs SAAE IQ2013 ∆% 0.5; IQ2013/IQ2012 ∆%: 0.6 Blog 5/5/2013 |
| New York Fed Manufacturing Index | General Business Conditions From Mar 9.24 to Apr 3.05 |
| Philadelphia Fed Business Outlook Index | General Index from Mar 2.0 to Apr 1.3 |
| Manufacturing Shipments and Orders | New Orders SA Mar ∆% -4.0 Ex Transport -2.0 Jan-Mar NSA New Orders -0.2 Ex transport -0.1 |
| Durable Goods | Mar New Orders SA ∆%: minus 5.7; ex transport ∆%: minus 1.4 |
| Sales of New Motor Vehicles | Jan-Apr 2013 4,974,000; Jan-Apr 2012 4,652,005. Apr 13 SAAR 14.92 million, Mar 13 SAAR 15.27 million, Apr 2012 SAAR 14.12 million Blog 5/5/13 |
| Sales of Merchant Wholesalers | Jan-Mar 2013/Jan-Mar 2012 NSA ∆%: Total 1.2; Durable Goods: 0.5; Nondurable |
| Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers | Feb 13/Feb 12 NSA ∆%: Sales Total Business 0.1; Manufacturers 0.0 |
| Sales for Retail and Food Services | Jan-Mar 2013/Jan-Mar 2012 ∆%: Retail and Food Services 2.8; Retail ∆% 2.7 |
| Value of Construction Put in Place | Mar SAAR month SA ∆%: -1.7 Mar 12-month NSA: 4.9 Jan-Mar 2013 ∆% 4.7 |
| Case-Shiller Home Prices | Feb 2013/Feb 2012 ∆% NSA: 10 Cities 8.6; 20 Cities: 9.3 |
| FHFA House Price Index Purchases Only | Feb SA ∆% 0.7; |
| New House Sales | Mar 2013 month SAAR ∆%: minus 1.5 |
| Housing Starts and Permits | Mar Starts month SA ∆%: 7.0 ; Permits ∆%: -3.9 |
| Trade Balance | Balance Mar SA -$38,829 million versus Feb -$42,960 million |
| Export and Import Prices | Mar 12-month NSA ∆%: Imports -2.7; Exports 0.3 |
| Consumer Credit | Mar ∆% annual rate: 3.4 |
| Net Foreign Purchases of Long-term Treasury Securities | Feb Net Foreign Purchases of Long-term Treasury Securities: -$17.8 billion |
| Treasury Budget | Fiscal Year 2013/2012 ∆% Apr: Receipts 15.9; Outlays minus 0.6; Individual Income Taxes 20.0 Deficit Fiscal Year 2012 $1,089,353 million Blog 5/12/2013 |
| 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 | Mar 2013 SAAR ∆%: Securities -4.3 Loans 2.1 Cash Assets 85.5 Deposits 7.6 Blog 4/28/13 |
| 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:
5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html
4/28/13 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html
4/21/13 http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html
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
3/17/13 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
Sales and inventories of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-1 for Mar 2013 and percentage changes from the prior month and for Jan-Mar 2013 relative to Jan-Mar 2012. These data are volatile aggregating diverse categories of durable and nondurable goods without adjustment for price changes. Total sales for the US rose 1.2 percent in Jan-Mar 2013 relative to Jan-Mar 2012 and decreased 1.6 percent in Mar 2013 relative to Feb 2013. The value of total sales is quite high at $1209.2 billion, approaching five trillion dollars in a year. Value in the breakdown is useful in identifying relative importance of individual categories. Sales of durable goods in Jan-Feb 2013 reached $538.0 billion, over two trillion dollars for a year, decreasing 0.6 percent in Mar 2013 relative to Feb 2013 and increasing 0.5 percent in Jan-Mar 2013 relative to Jan-Mar 2012. Sales of automotive products reached $98.8 billion in Jan-Mar 2013, increasing 1.7 percent in the month and increasing 2.4 percent relative to a year earlier. There is strong performance of 3.4 percent in machinery but lower of 0.1 percent in electrical products. Sales of nondurable goods rose 1.8 percent over a year earlier. The influence of commodity prices returned as suggested by decrease of 2.7 percent in Mar 2013 and increase of 6.7 percent in Jan-Mar 2013 relative to a year earlier in farm products with decrease of 7.5 percent in petroleum products in Mar 2013 and increase of 0.7 percent relative to a year earlier. The final three columns in Table VA-13 provide the value of inventories and percentage changes from the prior month and relative to the same month a year earlier. US total inventories of wholesalers increased 0.4 percent in Mar 2013 and increased 4.6 percent relative to a year earlier. Inventories of durable goods of $299.5 billion are 59.1 percent of total inventories of $506.5 billion and rose 7.2 percent relative to a year earlier. Automotive inventories decreased 0.5 percent relative to a year earlier. Machinery inventories of $85.6 billion rose 15.1 percent relative to a year earlier. Inventories of nondurable goods of $207.0 billion are 40.9 percent of the total and increased 1.0 percent relative to a year earlier. Inventories of farm products increased 0.9 percent in Mar relative to Feb and decreased 7.0 percent relative to a year earlier. Inventories of petroleum products decreased 3.4 percent in Mar and decreased 8.9 percent relative to a year earlier.
Table VA-1, US, Sales and Inventories of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, Month ∆%
| 2013 | Sales $ Billions Jan-Mar 2013 | Sales Mar ∆% SA | Sales∆% Jan-Mar 2013 from Jan-Mar 2012 NSA | INV $ Billions Mar 2013 NSA | INV Mar ∆% SA | INV ∆% Mar 2013 from Mar 2012 NSA |
| US Total | 1209.2 | -1.6 | 1.2 | 506.5 | 0.4 | 4.6 |
| Durable | 538.0 | -0.6 | 0.5 | 299.5 | 0.5 | 7.2 |
| Automotive | 98.8 | 1.7 | 2.4 | 44.6 | 1.2 | -0.5 |
| Prof. Equip. | 92.4 | -1.0 | 0.6 | 33.2 | -0.3 | 7.8 |
| Computer Equipment | 46.0 | -0.9 | -1.6 | 12.7 | -1.0 | 12.9 |
| Electrical | 90.1 | 0.5 | 0.1 | 42.1 | 0.3 | 5.1 |
| Machinery | 96.7 | -1.5 | 3.4 | 85.6 | 1.2 | 15.1 |
| Not Durable | 671.2 | -2.5 | 1.8 | 207.0 | 0.1 | 1.0 |
| Drugs | 107.9 | 3.9 | -0.2 | 36.0 | 0.1 | 2.2 |
| Apparel | 34.7 | -5.5 | 3.3 | 21.3 | 1.7 | 3.5 |
| Groceries | 143.4 | -0.3 | 0.9 | 36.4 | 1.2 | 7.4 |
| Farm Products | 58.0 | -2.7 | 6.7 | 22.8 | 0.9 | -7.0 |
| Petroleum | 190.1 | -7.5 | 0.7 | 26.3 | -3.4 | -8.9 |
Note: INV: inventories
Source: US Census Bureau http://www.census.gov/wholesale/index.html
Chart VA-1 of the US Census Bureau provides wholesale trade sales without adjustment for seasonality or price changes from Jan 1992 to Mar 2013. The jagged curve of wholesale trade sales without adjustment shows strong seasonal variations. There is a strong long-term trend interrupted by sharp drop during the global recession. Growth resumed along a stronger upward trend and the level in Dec 2012 surpasses the peak before the global recession with stability in the final segment.
Chart VA-1, US, Wholesale Trade Sales, Monthly, NSA, Jan 1992-Mar 2013, Millions of Dollars
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Chart VA-6 of the US Census Bureau provides US wholesale trade sales with seasonal adjustment from Jan 1992 to Mar 2013. The elimination of seasonality permits enhanced comparison of adjacent sales. The final segment identifies another drop followed by increase to a higher level with stability.
Chart VA-2, US, Wholesale Trade Sales, Monthly, SA, Jan 1992-Mar 2013, Millions of Dollars
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Inventory/sales ratios of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-2. The total for the US has remained almost without change at 1.21 in Mar 2013, 1.19 in Feb 2013 and 1.17 in Mar 2012. Inventory/sales ratios are higher in durable goods industries but remain relatively stable with 1.61 in Mar 2013, 1.59 in Feb 2013 and 1.53 in Mar 2012. Computer equipment operates with low inventory/sales ratios of 0.82 in Mar 2013, 0.82 in Feb 2013 and 0.73 in Mar 2012 because of the capacity to fill orders on demand. As expected because of perishable nature, nondurable inventory/sales ratios are quite low with 0.89 in Mar 2013 and 0.86 in Feb 2013, which are almost equal to 0.89 in Mar 2012. There are exceptions such as 1.91 in Mar 2013 in apparel that is equal to 1.77 in Feb 2013 and lower than 1.87 in Mar 2012.
Table VA-2, Inventory/Sales Ratios of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, % SA
| Mar 2013 | Feb 2013 | Mar 2012 | |
| US Total | 1.21 | 1.19 | 1.17 |
| Durable | 1.61 | 1.59 | 1.53 |
| Automotive | 1.31 | 1.32 | 1.39 |
| Prof. Equip. | 1.06 | 1.05 | 1.00 |
| Comp. Equip. | 0.82 | 0.82 | 0.73 |
| Electrical | 1.36 | 1.36 | 1.32 |
| Machinery | 2.57 | 2.50 | 2.29 |
| Not Durable | 0.89 | 0.86 | 0.89 |
| Drugs | 0.96 | 1.00 | 0.97 |
| Apparel | 1.91 | 1.77 | 1.87 |
| Groceries | 0.76 | 0.75 | 0.72 |
| Farm Products | 1.12 | 1.08 | 1.24 |
| Petroleum | 0.40 | 0.38 | 0.43 |
Source: US Census Bureau http://www.census.gov/wholesale/index.html
Inventories of merchant wholesalers except manufacturers’ sales branches in millions of dollars SA are provided in Chart VA-3 of the US Census Bureau. There is evident acceleration in inventory building in the final segment at a sharper slope than before the global recession.
Chart VA-3, US, Inventories of Merchant Wholesalers, Millions of Dollars, NSA, Jan 1992-Mar 2013
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Inventories of merchant wholesalers except manufacturers’ sales branches in millions of dollars SA are provided in Chart VA-4 of the US Census Bureau. There is evident acceleration in inventory building in the final segment at a much sharper slope than before the global recession.
Chart VA-4, US, Inventories of Merchant Wholesalers, Millions of Dollars, SA, Jan 1992-Mar 2013
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Chart VA-5 provides the chart of the US Census Bureau with inventories/sales ratios of merchant wholesalers from 2004 to 2013 seasonally adjusted. Inventory/sales ratios rise during contractions as merchants are caught with increasing inventories because of weak sales and fall during expansions as merchants attempt to fill sales with existing stocks. There is an increase in the inventory/sales ratio in 2012 but not yet significantly higher with declining trend in the final segment followed by an increase.
Chart VA-5, US, Monthly Inventories/Sales Ratios of Merchant Wholesalers, SA, 2004-2013
Source: US Census Bureau
http://www2.census.gov/wholesale/img/mwtsbrf.jpg
The report of consumer credit outstanding of the Board of Governors of the Federal Reserve System is provided in Table VA-3. The data are in seasonally adjusted annual rates both percentage changes and billions of dollars. The estimate of consumer credit “covers most short- and intermediate-term credit extended to individuals, excluding loans secured by real estate (http://www.federalreserve.gov/releases/g19/current/default.htm). Consumer credit is divided into two categories. (1) Revolving consumer credit (REV in Table VA-3) consists mainly of unsecured credit cards. (2) Non-revolving consumer credit (NREV in Table VA-3) “includes automobile loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers or vacations” (http://www.federalreserve.gov/releases/g19/current/default.htm). In Mar 2013, revolving credit was $846 billion, or 30.1 percent of total consumer credit of $2807 billion, and non-revolving credit was $1961 billion, or 69.9 percent of total consumer credit outstanding. Consumer credit grew at relatively high rates before the recession beginning in IVQ2007 (Dec) and extending to IIQ2009 (Jun) as dated by the National Bureau of Economic Research or NBER (http://www.nber.org/cycles/cyclesmain.html). Percentage changes of consumer credit outstanding fell already in 2009. Rates were still negative in 2010 with decline of 0.7 percent in annual data and sharp decline of 7.6 percent in revolving credit. In IVQ 2012, total consumer credit grew at 6.5 percent with increase of revolving credit at 0.3 percent and increase of non-revolving credit at 9.3 percent. Growth continued in Maar 2013 with total credit at 3.4 percent, revolving at minus 2.4 percent and non-revolving at 5.9 percent.
Table VA-3, US, Consumer Credit Outstanding, SA, Annual Rate and Billions of Dollars
| Total ∆% | REV ∆% | NRV ∆% | Total $B | REV $B | NREV $B | |
| 2013 | ||||||
| Mar | 3.4 | -2.4 | 5.9 | 2807 | 846 | 1961 |
| Feb | 8.0 | 0.6 | 11.3 | 2799 | 848 | 1952 |
| Jan | 5.5 | 2.3 | 6.9 | 2781 | 847 | 1933 |
| 2012 | ||||||
| IVQ | 6.5 | 0.3 | 9.3 | 2768 | 846 | 1922 |
| IIIQ | 4.9 | 0.4 | 6.9 | 2724 | 845 | 1879 |
| IIQ | 6.4 | 1.0 | 8.9 | 2691 | 844 | 1847 |
| IQ | 5.4 | -0.1 | 8.0 | 2651 | 842 | 1809 |
| 2012 | 5.9 | 0.4 | 8.5 | 2768 | 846 | 1922 |
| 2011 | 3.7 | 0.2 | 5.5 | 2616 | 842 | 1773 |
| 2010 | -0.7 | -7.6 | 3.4 | 2522 | 841 | 1681 |
| 2009 | -4.4 | -8.8 | -1.5 | 2420 | 917 | 1503 |
| 2008 | 0.8 | 0.2 | 1.2 | 2526 | 1005 | 1521 |
| 2007 | 5.9 | 8.5 | 4.3 | 2529 | 1008 | 1521 |
Note: REV: Revolving; NREV: Non-revolving; ∆%: simple annual rate from unrounded data; Total may not add exactly because of rounding
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g19/current/default.htm
Chart VA-6 of the Board of Governors of the Federal Reserve System total consumer credit outstanding in millions of dollars measured in the right axis and the finance rate on 24-month personal loans at commercial banks, not seasonally adjusted, measured on the left axis. There was sharp decline of total consumer loans outstanding during the global recession followed by strong recovery. There is long-term decline of the financing rate.
Chart VA-6, US, Total Consumer Credit Owned and Securitized NSA and Financing Rate on 24-month Personal Loans at Commercial Banks NSA, Millions of Dollars and Percent, Feb 1972-Mar 2013
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g19/current/default.htm
Chart VA-7 of the Board of Governors of the Federal Reserve System provides percentage changes of total consumer credit outstanding in the US and the financing rate on 24-month personal consumer loans at commercial banks, since 1972. The shaded bars are the cyclical contraction dates of the National Bureau of Economic Research (http://www.nber.org/cycles/cyclesmain.html). Consumer credit is cyclical, declining during contractions as shown by negative percentage changes during economic contractions. There is clear upward trend in 2012-2013 but with significant fluctuations.
Chart VA-7, US, Percent Change of Total Consumer Credit, Seasonally Adjusted at an Annual Rate and Finance Rate on 24-month Personal Loans at Commercial Banks NSA, Feb 1972-Mar 2013
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g19/current/default.htm
Table VA-7 provides additional information required for understanding the deficit/debt situation of the United States. The table is divided into four parts: Treasury budget in the 2013 fiscal year to Apr 2013; federal fiscal data for the years from 2009 to 2012; federal fiscal data for the years from 2005 to 2008; and Treasury debt held by the public from 2005 to 2012. Receipts increased 15.9 percent in the cumulative fiscal year 2013 for Apr 2013 relative to the cumulative in fiscal year 2012. Individual income taxes increased 14.7 percent relative to the same period a year earlier. Outlays decreased 0.6 percent relative to a year earlier. Total revenues of the US from 2009 to 2012 accumulate to $9019 billion, or $9.0 trillion, while expenditures or outlays accumulate to $14,111 billion, or $14.1 trillion, with the deficit accumulating to $5092 billion, or $5.1 trillion. Revenues decreased 6.6 percent from $9653 billion in the four years from 2005 to 2008 to $9019 billion in the years from 2009 to 2012. Decreasing revenues were caused by the global recession from IVQ2007 (Dec) to IIQ2009 (Jun) and by growth of only 2.1 percent on average in the cyclical expansion from IIIQ2009 to IVQ2012 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states.html). 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). The average of 7.8 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 3.2 percent obtained by diving GDP of $13,103.5 billion in IIIQ2010 by GDP of $12,701.0 billion in IIQ2009 {[$13.103.5/$12,701.0 -1]100 = 3.2%], or accumulating the quarter on quarter growth rates (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html). Weakness of growth and employment creation is analyzed in IB Collapse of United States Dynamism of Income Growth and Employment Creation. There are 28.6 million people without jobs or underemployed that is equivalent to 17.6 percent of the US effective labor force (http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html) and hiring is significantly below the earlier cyclical expansion before 2007 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html). In contrast with the decline of revenue, outlays or expenditures increased 30.2 percent from $10,839 billion, or $10.8 trillion, in the four years from 2005 to 2008, to $14,111 billion, or $14.1 trillion, in the four years from 2009 to 2012. Increase in expenditures by 30.2 percent while revenue declined by 6.6 percent caused the increase in the federal deficit from $1186 billion in 2005-2008 to $5092 billion in 2009-2012. Federal revenue was 15.4 percent of GDP on average in the years from 2009 to 2012, which is well below 18.0 percent of GDP on average from 1970 to 2010. Federal outlays were 24.1 percent of GDP on average from 2009 to 2012, which is well above 21.9 percent of GDP on average from 1970 to 2010. The lower part of Table IIB-4 shows that debt held by the public swelled from $5803 billion in 2008 to $11,280 billion in 2012, by $5477 billion or 94.3 percent. Debt held by the public as percent of GDP or economic activity jumped from 40.5 percent in 2008 to 72.5 percent in 2012, which is well above the average of 37.0 percent from 1970 to 2010. The United States faces tough adjustment because growth is unlikely to recover, creating limits on what can be obtained by increasing revenues, while continuing stress of social programs restricts what can be obtained by reducing expenditures.
Table VA-4, US, Treasury Budget in Fiscal Year to Date Million Dollars
| Apr 2013 | Fiscal Year 2013 | Fiscal Year 2012 | ∆% |
| Receipts | 1,603,334 | 1,383,192 | 15.9 |
| Outlays | 2,090,928 | 2,103,050 | -0.6 |
| Deficit | -487,594 | -719,859 | NA |
| Individual Income Taxes | 795,422 | 662,708 | 20.0 |
| Social Insurance | 381,819 | 332,926 | 14.7 |
| Receipts | Outlays | Deficit (-), Surplus (+) | |
| $ Billions | |||
| 2012 | 2,449 | 3,538 | -1,089 |
| Fiscal Year 2011 | 2,302 | 3,599 | -1,297 |
| Fiscal Year 2010 | 2,163 | 3,456 | -1,293 |
| Fiscal Year 2009 | 2,105 | 3,518 | -1,413 |
| Total 2009-2012 | 9,019 | 14,111 | -5,092 |
| Average % GDP 2009-2012 | 15.4 | 24.1 | -8.7 |
| Fiscal Year 2008 | 2,524 | 2,983 | -459 |
| Fiscal Year 2007 | 2,568 | 2,729 | -161 |
| Fiscal Year 2006 | 2,407 | 2,655 | -248 |
| Fiscal Year 2005 | 2,154 | 2,472 | -318 |
| Total 2005-2008 | 9,653 | 10,839 | -1,186 |
| Average % GDP 2005-2008 | 17.9 | 20.1 | -2.2 |
| Debt Held by the Public | Billions of Dollars | Percent of GDP | |
| 2005 | 4,592 | 36.9 | |
| 2006 | 4,829 | 36.6 | |
| 2007 | 5,035 | 36.3 | |
| 2008 | 5,803 | 40.5 | |
| 2009 | 7,545 | 54.1 | |
| 2010 | 9,019 | 62.8 | |
| 2011 | 10,128 | 67.7 | |
| 2012 | 11,280 | 72.5 |
Sources: http://www.fms.treas.gov/mts/index.html CBO (2012NovMBR). CBO (2011AugBEO); Office of Management and Budget 2011. Historical Tables. Budget of the US Government Fiscal Year 2011. Washington, DC: OMB; CBO. 2011JanBEO. Budget and Economic Outlook. Washington, DC, Jan. CBO. 2012AugBEO. Budget and Economic Outlook. Washington, DC, Aug 22. CBO. 2012Jan31. Historical budget data. Washington, DC, Jan 31. CBO. 2012NovCDR. Choices for deficit reduction. Washington, DC. Nov. CBO. 2013HBDFeb5. Historical budget data—February 2013 baseline projections. Washington, DC, Congressional Budget Office, Feb 5. CBO. 2013HBDFeb5. Historical budget data—February 2013 baseline projections. Washington, DC, Congressional Budget Office, Feb 5.
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/gor1304b.pdf). For fiscal 2013, the forecast is of growth of GDP between 2.4 and 3.0 percent, with the all items CPI less fresh food of 0.4 to 0.8 percent. The critical difference is forecast of the CPI excluding fresh food of 2.7 to 3.6 percent in 2014 and 1.6 to 2.9 percent in 2015. The new monetary policy of the Bank of Japan aims to increase inflation to 2 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 | Real GDP | CPI All Items Less Fresh Food | Excluding Effects of Consumption Tax Hikes |
| 2012 | |||
| Apr 2013 | +1.0 to +1.0 | -0.2 | |
| Jan 2013 | +1.0 to +1.1 [+1.0] | -0.2 to –0.1 [-0.2] | |
| 2013 | |||
| Apr 2013 | +2.4 to +3.0 [+2.9] | +0.4 to +0.8 [+0.7] | |
| Jan 2013 | +1.9 to +2.5 [+2.3] | +0.3 to +0.6 [+0.4] | |
| 2014 | |||
| Apr 2013 | +1.0 to +1.5 [+1.4] | +2.7 to +3.6 [+3.4] | +0.7 to +1.6 [+1.4] |
| Jan 2013 | +0.6 to +1.0 [+0.8] | +2.5 to +3.0 [+2.9] | +0.5 to +1.0 [+0.9] |
| 2015 | |||
| Apr 2013 | +1.4 to +1.9 [+1.6] | +1.6 to +2.9 [+2.6] | +0.9 to +2.2 [+1.9] |
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/gor1304a.pdf
Private-sector activity in Japan expanded moderately with the Markit Composite Output PMI™ Index decreasing from 53.2 in Mar to 51.8 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/00f4933645f042f98ebcece4b088a884). Paul Smith, economist at Markit and author of the report, finds that the survey data suggest continuing growth of the economy of Japan after strong performance in IQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/00f4933645f042f98ebcece4b088a884). The Markit Business Activity Index of Services decreased from 54.0 in Mar, which is the highest level since Sep 2007 when the survey began, to 51.7 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/00f4933645f042f98ebcece4b088a884). Paul Smith, Senior Economist at Markit and author of the report, finds continuing confidence in demand for services (http://www.markiteconomics.com/Survey/PressRelease.mvc/00f4933645f042f98ebcece4b088a884). Markit/JMMA Purchasing Managers’ Index™ (PMI™), seasonally adjusted, increased from 50.4 in Mar to 51.1 in Apr for the second consecutive and highest reading above 50.0 since May 2012 (http://www.markiteconomics.com/Survey/PressRelease.mvc/18ffdfb11432422bbaa05b971dbe5a15). Foreign and domestic business continued improvement with yen devaluation supporting foreign demand but with increases in input costs. Paul Smith, Senior Economist at Markit and author of the report, finds survey data consistent with quarterly growth of manufacturing around 2 percent (http://www.markiteconomics.com/Survey/PressRelease.mvc/18ffdfb11432422bbaa05b971dbe5a15).Table JPY provides the country data table for Japan.
Table JPY, Japan, Economic Indicators
| Historical GDP and CPI | 1981-2010 Real GDP Growth and CPI Inflation 1981-2010 |
| Corporate Goods Prices | Feb ∆% +0.1 |
| Consumer Price Index | Mar NSA ∆% 0.2; Mar 12 months NSA ∆% -0.9 |
| Real GDP Growth | IVQ2012 ∆%: 0.0 on IIIQ2012; IVQ2012 SAAR 0.2; |
| Employment Report | Mar Unemployed 2.8 million Change in unemployed since last year: minus 270 thousand |
| All Industry Indices | Feb month SA ∆% 0.6 Blog 4/28/13 |
| Industrial Production | Mar SA month ∆%: 0.2 |
| Machine Orders | Total Feb ∆% 4.6 Private ∆%: 0.1 Feb ∆% Excluding Volatile Orders 7.5 |
| Tertiary Index | Feb month SA ∆% 1.1 |
| Wholesale and Retail Sales | Mar 12 months: |
| Family Income and Expenditure Survey | Mar 12-month ∆% total nominal consumption 4.1, real 5.2 Blog 5/5/13 |
| 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:
5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html
4/28/13 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html
4/21/13 http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html
4/14/13 http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.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
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. The index fell to 54.5 in Apr 2013.
Table CIPMNM, China, Nonmanufacturing Index of Purchasing Managers, %, Seasonally Adjusted
| Total Index | New Orders | Interm. | Subs Prices | Exp | |
| Apr 2013 | 54.5 | 50.9 | 51.1 | 47.6 | 62.5 |
| Mar | 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. The index fell again to 54.5 in Apr 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, 50.9 in Mar 2013 and 50.6 in Apr 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, 52.3 in Mar 2013 and 51.7 in Apr 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, 49.8 in Mar 2013 and 49.0 in Apr 2013.
Table CIPMMFG, China, Manufacturing Index of Purchasing Managers, %, Seasonally Adjusted
| IPM | PI | NOI | INV | EMP | SDEL | |
| Apr 2013 | 50.6 | 52.6 | 51.7 | 47.5 | 49.0 | 50.8 |
| Mar | 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, 50.9 in Mar 2013 and 50.6 in Apr 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/
Growth of China’s GDP in IQ2013 relative to the same period in 2012 was 7.7 percent, as shown in Table VC-GDPA. 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-GDPA, 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/
The HSBC Flash China Manufacturing Purchasing Managers’ Index™ (PMI™) compiled by Markit (http://www.markiteconomics.com/Survey/PressRelease.mvc/6a7e23c1fd0a42c9baa11cf90ebcb9bb) is moving at slower pace. The overall Flash China Manufacturing PMI™ decreased marginally from 51.6 in Mar to 50.5 in Apr while the Flash China Manufacturing Output Index decreased from 53.0 in Mar to 51.1 in Apr, 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 with weak overseas demand (http://www.markiteconomics.com/Survey/PressRelease.mvc/6a7e23c1fd0a42c9baa11cf90ebcb9bb). The HSBC China Services PMI™, compiled by Markit, shows marginal strength in business activity in China with the HSBC Composite Output, combining manufacturing and services, decreasing from 53.5 in Mar to 51.1 in Apr for the eighth consecutive month of expansion (http://www.markiteconomics.com/Survey/PressRelease.mvc/4ca5cc08062f42678db1318d3b796553). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that combined manufacturing and services data suggest effects on growth and employment in IIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/4ca5cc08062f42678db1318d3b796553). The HSBC Business Activity index decreased from 54.3 in Mar to 51.1 in Apr at the slowest rate since Aug 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/4ca5cc08062f42678db1318d3b796553). Hongbin Ku, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds concern with growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/4ca5cc08062f42678db1318d3b796553). The HSBC Purchasing Managers’ Index™ (PMI™), compiled by Markit, decreased to 50.4 in Apr from 51.6 in Mar, indicating moderate activity in six consecutive months of improvement (http://www.markiteconomics.com/Survey/PressRelease.mvc/38c24b45fc394273bcb70ed19903e633). New export orders decreased in the only month since Dec 2012. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds deteriorating foreign demand together with adverse effects of domestic deflation (http://www.markiteconomics.com/Survey/PressRelease.mvc/38c24b45fc394273bcb70ed19903e633). Table CNY provides the country data table for China.
Table CNY, China, Economic Indicators
| Price Indexes for Industry | Apr 12-month ∆%: minus 2.6 Apr month ∆%: -0.6 |
| Consumer Price Index | Apr month ∆%: 0.2 Apr 12 months ∆%: 2.4 |
| Value Added of Industry | Mar month ∆%: 0.66 Jan-Mar 2013/Jan-Mar 2012 ∆%: 9.5 |
| GDP Growth Rate | Year IQ2013 ∆%: 7.9 |
| Investment in Fixed Assets | Mar month ∆%: 1.59 Total Jan-Mar 2012 ∆%: 20.9 Real estate development: 20.2 |
| Retail Sales | Mar month ∆%: 1.23 Jan-Mar ∆%: 12.4 |
| Trade Balance | Apr balance $18.2 billion Cumulative Apr: $61.27 billion |
Links to blog comments in Table CNY:
4/21/13 http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html
Table VC-1 provides China’s exports, imports, trade balance and percentage changes from Dec 2010 to Apr 2013. Exports increased 14.7 percent in Apr 2013 relative to a year earlier and imports 16.8 percent for trade surplus of $18.2 billion. Exports increased 10.0 percent in Mar 2013 relative to a year earlier and imports increased 14.1 percent for trade deficit of $0.88 billion. Exports increased 18.4 percent in Jan-Mar 2013 relative to a year earlier and imports 8.4 percent for surplus of $43.27 billion. Exports increased 21.8 percent in Feb 2013 relative to a year earlier and imports fell 15.0 percent for trade surplus of $15.25 billion. China’s trade growth was stronger in Jan 2013 with growth of exports of 25.0 percent in 12 months and of imports of 28.8 percent for trade surplus of $29.15 billion. China’s trade growth strengthened in Dec 2012 with growth in 12 months of exports of 14.1 percent and of imports of 6.0 percent. China’s trade growth weakened again in Nov 2012 with growth of exports of 2.9 percent and no change in imports. China’s trade growth rebounded with growth of exports in 12 months of 11.6 percent in Oct 2012 and 9.9 percent in Sep 2012 after 2.7 percent in Aug 2012 and 1.0 percent in Jul 2012 while imports grew 2.4 percent in both Sep and Oct 2012, stagnating in Nov 2012. As a result, the monthly trade surplus increased from $25.2 billion in Jul 2012 to $31.9 billion in Oct 2012, declining to $19.6 billion in Nov 2012 but increasing to $31.67 billion in Dec 2012. China’s trade growth rebounded in Oct 2012 with growth of exports of 11.6 percent in 12 months and 2.4 percent for imports and trade surplus of $31.9 billion. The number that caught attention in financial markets was growth of 1.0 percent in exports in the 12 months ending in Jul 2012. Imports were also weak, growing 4.7 percent in 12 months ending in Jul 2012. Exports increased 11.3 percent in Jun 2012 relative to a year earlier while imports grew 6.3 percent. The rate of growth of exports fell to 4.9 percent in Apr 2012 relative to a year earlier and imports increased 0.3 percent but export growth was 15.3 percent in May and imports increased 12.7 percent. China reversed the large trade deficit of USD 31.48 billion in Feb 2012 with a surplus of $5.35 billion in Mar 2012, $18.42 billion in Apr 2012, $18.7 billion in May 2012, $31.7 billion in Jun 2012, $25.2 billion in Jul 2012, $26.7 billion in Aug 2012, $27.7 billion in Sep 2012, $31.9 billion in Oct 2012 and $19.6 billion in Nov 2012. Exports fell 0.5 percent in the 12 months ending in Jan while imports fell 15.3 percent for a still sizeable trade surplus of $27.3 billion. In Feb, exports increased 18.4 percent while imports jumped 39.6 percent for a sizeable deficit of $31.48 billion. There are distortions from the New Year holidays.
Table VC-1, China, Exports, Imports and Trade Balance USD Billion and ∆%
| Exports | ∆% Relative | Imports USD | ∆% Relative | Balance | |
| Apr 2013 | 187.1 | 14.7 | 168.9 | 16.8 | 18.2 |
| Mar | 182.19 | 10.0 | 183.07 | 14.1 | -0.88 |
| Feb | 139.37 | 21.8 | 124.12 | -15.2 | 15.25 |
| Jan | 187.37 | 25.0 | 158.22 | 28.8 | 29.15 |
| Dec 2012 | 199.23 | 14.1 | 167.61 | 6.0 | 31.62 |
| Nov | 179.38 | 2.9 | 159.75 | 0.0 | 19.63 |
| Oct | 175.57 | 11.6 | 143.58 | 2.4 | 31.99 |
| Sep | 186.35 | 9.9 | 158.68 | 2.4 | 27.67 |
| Aug | 177.97 | 2.7 | 151.31 | -2.6 | 26.66 |
| Jul | 176.94 | 1.0 | 151.79 | 4.7 | 25.15 |
| Jun | 180.20 | 11.3 | 148.48 | 6.3 | 31.72 |
| May | 181.14 | 15.3 | 162.44 | 12.7 | 18.70 |
| Apr | 163.25 | 4.9 | 144.83 | 0.3 | 18.42 |
| Mar | 165.66 | 8.9 | 160.31 | 5.3 | 5.35 |
| Feb | 114.47 | 18.4 | 145.95 | 39.6 | -31.48 |
| Jan | 149.94 | -0.5 | 122.66 | -15.3 | 27.28 |
| Dec 2011 | 174.72 | 13.4 | 158.20 | 11.8 | 16.52 |
| Nov | 174.46 | 13.8 | 159.94 | 22.1 | 14.53 |
| Oct | 157.49 | 15.9 | 140.46 | 28.7 | 17.03 |
| Sep | 169.67 | 17.1 | 155.16 | 20.9 | 14.51 |
| Aug | 173.32 | 24.5 | 155.56 | 30.2 | 17.76 |
| Jul | 175.13 | 20.4 | 143.64 | 22.9 | 31.48 |
| Jun | 161.98 | 17.9 | 139.71 | 19.3 | 22.27 |
| May | 157.16 | 19.4 | 144.11 | 28.4 | 13.05 |
| Apr | 155.69 | 29.9 | 144.26 | 21.8 | 11.42 |
| Mar | 152.20 | 35.8 | 152.06 | 27.3 | 0.14 |
| Feb | 96.74 | 2.4 | 104.04 | 19.4 | -7.31 |
| Jan | 150.73 | 37.7 | 144.27 | 51.0 | 6.46 |
| Dec 2010 | 154.15 | 17.9 | 141.07 | 25.6 | 13.08 |
Source: http://english.mofcom.gov.cn/article/statistic/BriefStatistics/
Table VC-2 provides cumulative exports, imports and the trade balance of China together with percentage growth of exports and imports. Exports increased 17.3 percent in Jan-Apr 2012 relative to a year earlier while imports increased 10.6 percent for cumulative surplus of $61.27 billion. Exports increased 18.4 percent in Jan-Mar 2013 relative to a year earlier while imports increased 8.4 percent for cumulative surplus of $43.27 billion. Cumulative exports in Jan-Feb 2013 grew 23.6 percent relative to a year earlier and imports 5.1 percent for trade surplus of $44.40 billion. There is strong beginning of 2013 with trade surplus of $29.15 in Jan 2013 and growth of exports of 17.3 percent and imports of 19.6 percent. The trade balance of $231.1 billion in 2012 is stronger than the trade balance of $155.14 billion in 2011. The trade balance in 2011 of $155.14 billion is lower than those from 2008 to 2010. China’s trade balance reached $231.1 billion in Jan-Dec 2012 with cumulative growth of exports of 7.9 percent and 4.3 percent of imports, which is much lower than 20.3 percent for exports and 24.9 percent for imports in 2011 and 31.3 percent for exports and 38.7 percent for imports in 2010. There is a rare cumulative deficit of $4.2 billion in Feb 2012 reversed to a small surplus in Mar 2012 and a higher surplus of $19.3 billion in Apr 2012, increasing to $37.9 billion in May, $68.9 billion in Jun 2012, $94.1 billion in Jul 2012, $120.8 billion in Aug 2012, $148.3 billion in Sep 2012, $180.24 billion in Oct 2012, $199.54 billion in Nov 2012 and $231.1 billion in Dec 2012. More observations are required to detect trends of Chinese trade but available data suggest deceleration that would be expected from the large share of trade with Europe.
Table VC-2, China, Year to Date Exports, Imports and Trade Balance USD Billion and ∆%
| Exports | ∆% Relative | Imports USD | ∆% Relative | Balance | |
| Apr 2013 | 695.97 | 17.3 | 634.70 | 10.6 | 61.27 |
| Mar | 508.87 | 18.4 | 465.80 | 8.4 | 43.07 |
| Feb | 326.73 | 23.6 | 282.58 | 5.0 | 44.15 |
| Jan | 187.37 | 25.0 | 158.22 | 28.8 | 29.15 |
| Dec 2012 | 2048.93 | 7.9 | 1817.83 | 4.3 | 231.11 |
| Nov | 1849.91 | 7.3 | 1650.37 | 4.1 | 199.54 |
| Oct | 1670.90 | 7.8 | 1490.67 | 4.6 | 180.24 |
| Sep | 1495.39 | 7.4 | 1347.08 | 4.8 | 148.31 |
| Aug | 1309.11 | 7.1 | 1188.51 | 5.1 | 120.61 |
| Jul | 1131.24 | 7.8 | 1037.14 | 6.4 | 94.10 |
| Jun | 954.38 | 9.2 | 885.46 | 6.7 | 68.91 |
| May | 774.40 | 8.7 | 736.49 | 6.7 | 37.92 |
| Apr | 593.24 | 6.9 | 573.94 | 5.1 | 19.3 |
| Mar | 430.02 | 7.6 | 429.36 | 6.6 | 0.66 |
| Feb | 264.40 | 6.9 | 268.64 | 7.7 | -4.24 |
| Jan | 149.94 | -0.5 | 122.66 | -15.3 | 27.28 |
| Dec 2011 | 1,898.60 | 20.3 | 1,743.46 | 24.9 | 155.14 |
| Nov | 1,724.01 | 21.1 | 1585.61 | 26.4 | 138.40 |
| Oct | 1,549.71 | 22.0 | 1,425.68 | 26.9 | 124.03 |
| Sep | 1,392.27 | 22.7 | 1,285.17 | 26.7 | 107.10 |
| Aug | 1,222.63 | 23.6 | 1,129.90 | 27.5 | 92.73 |
| Jul | 1,049.38 | 23.4 | 973.17 | 26.9 | 76.21 |
| Jun | 874.3 | 24.0 | 829.37 | 27.6 | 44.93 |
| May | 712.37 | 25.5 | 689.41 | 29.4 | 22.96 |
| Apr | 555.30 | 27.4 | 545.02 | 29.6 | 10.28 |
| Mar | 399.64 | 26.5 | 400.66 | 32.6 | -1.02 |
| Feb | 247.47 | 21.3 | 248.36 | 36.0 | -0.89 |
| Jan | 150.7 | 37.7 | 144.27 | 51.0 | 6.46 |
| Dec 2010 | 1577.93 | 31.3 | 1394.83 | 38.7 | 183.10 |
Source: http://english.mofcom.gov.cn/article/statistic/BriefStatistics/
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, was unchanged from 46.5 in Mar to 46.5 in Apr, for fifteen consecutive declines and seventeen drops in nineteen months with acceleration of the rate of contraction (http://www.markiteconomics.com/Survey/PressRelease.mvc/8fdf9fdbced5421badae119e01f41b55). Chris Williamson, Chief Economist at Markit, finds that the Markit Flash Eurozone PMI index is consistent with GDP declining at a rate around 0.4 percent in IIQ2013 and the PMI is consistent with decline of 0.2 to 0.3 percent in IQ2013, which would be lower than the decline of 0.6 percent in IVQ2012 in EUROSTAT estimates (http://www.markiteconomics.com/Survey/PressRelease.mvc/8fdf9fdbced5421badae119e01f41b55). The Markit Eurozone PMI® Composite Output Index, combining services and manufacturing activity with close association with GDP, increased from 46.5 in Mar to 46.9 in Apr with aggregate output declining during 15 months (http://www.markiteconomics.com/Survey/PressRelease.mvc/d4a49d09f9a842b0a8b89e2c92b75525). Chris Williamson, Chief Economist at Markit, finds that the data are consistent GDP falling in Apr at a quarterly rate of 0.4 to 0.5 percent (http://www.markiteconomics.com/Survey/PressRelease.mvc/d4a49d09f9a842b0a8b89e2c92b75525). The Markit Eurozone Services Business Activity Index increased from 46.4 in Mar to 47.0 in Apr, indicating contraction (http://www.markiteconomics.com/Survey/PressRelease.mvc/d4a49d09f9a842b0a8b89e2c92b75525). The Markit Eurozone Manufacturing PMI® decreased marginally to 46.7 in Apr from 46.8 in Mar, which indicates contraction for the twenty-first consecutive month (http://www.markiteconomics.com/Survey/PressRelease.mvc/5f81202a24254223bcbe39032fa15a56). Total orders contracted for the twenty-third consecutive month with difficult competition abroad. Chris Williamson, Chief Economist at Markit, finds the survey data consistent with contraction of industry in Apr at the quarterly rate of 0.5 percent (http://www.markiteconomics.com/Survey/PressRelease.mvc/5f81202a24254223bcbe39032fa15a56).
Table EUR, Euro Area Economic Indicators
| GDP | IVQ2012 ∆% -0.6; IVQ2012/IVQ2011 ∆% -0.9 Blog 4/7/13 |
| Unemployment | Mar 2013: 12.1% unemployment rate Mar 2013: 19.211 million unemployed Blog 5/5/13 |
| HICP | Mar month ∆%: 1.2 12 months Feb ∆%: 1.7 |
| Producer Prices | Euro Zone industrial producer prices Mar ∆%: -0.2 |
| Industrial Production | Feb month ∆%: 0.4; Feb 12 months ∆%: -3.1 |
| Retail Sales | Mar month ∆%: -0.1 |
| Confidence and Economic Sentiment Indicator | Sentiment 88.6 Apr 2013 Consumer minus 22.2 Apr 2013 Blog 5/5/13 |
| Trade | Jan-Feb 2013/Jan-Feb 2012 Exports ∆%: 1.8 Feb 2013 12-month Exports ∆% -1.1 Imports ∆% -7.1 |
Links to blog comments in Table EUR:
5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html
4/21/13 http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html
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.html
Advanced economies are experiencing weak demand. Table VD-1 provides month and 12-month percentage changes of the volume of retail sales in the euro zone from Jan 2011 to Mar 2013. Retail sales decreased 0.1 percent in Mar 2013 and fell 2.4 percent in 12 months. The 12-month rates of growth have become negative since Mar 2011 with exception of 1.1 percent in Apr 2011 and stability in Aug 2011. The lower part of Table VD-6 provides annual percentage changes of inflation-adjusted retail sales in the euro zone since 2001. Retail sales fell 0.8 percent in 2010 after falling 0.4 percent in 2009 and 1.8 percent in 2008 and fell again by 1.6 percent in 2011 and 2.9 percent in 2012.
Table VD-1, Euro Zone, Volume of Retail Sales, Deflated ∆%
| Month ∆% | 12-Month CA ∆% | |
| Mar 2013 | -0.1 | -2.4 |
| Feb | -0.2 | -1.7 |
| Jan | 0.9 | -1.9 |
| Dec 2012 | -0.7 | -2.9 |
| Nov | 0.1 | -2.1 |
| Oct | -0.4 | -3.4 |
| Sep | -1.6 | -2.2 |
| Aug | 0.6 | -1.0 |
| Jul | -0.1 | -1.8 |
| Jun | 0.0 | -1.1 |
| May | 1.1 | -0.8 |
| Apr | -1.6 | -3.7 |
| Mar | 0.3 | -0.1 |
| Feb | -0.3 | -2.4 |
| Jan | -0.1 | -1.2 |
| Dec 2011 | 0.0 | -1.6 |
| Nov | -0.7 | -1.2 |
| Oct | 0.1 | -0.4 |
| Sep | -0.4 | -0.9 |
| Aug | 0.1 | 0.0 |
| Jul | 0.1 | -0.1 |
| Jun | 0.7 | -0.5 |
| May | -1.4 | -1.5 |
| Apr | 1.3 | 1.1 |
| Mar | -1.5 | -1.2 |
| Feb | 0.5 | 1.5 |
| Jan | 0.1 | 1.0 |
| Dec ∆% | ||
| 2012 | -2.9 | |
| 2011 | -1.6 | |
| 2010 | -0.8 | |
| 2009 | -0.4 | |
| 2008 | -1.8 | |
| 2007 | -0.9 | |
| 2006 | 2.5 | |
| 2005 | 0.8 | |
| 2004 | 2.3 | |
| 2003 | 0.7 | |
| 2002 | -0.4 | |
| 2001 | 1.9 |
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
Growth rates of retail sales of the euro zone by major segments are in Table VD-2. Total sales decreased 0.1 percent in Mar 2013 and declined 2.4 percent in the 12 months ending in Mar 2013. All 12-month and monthly percentage changes are negative with exception of increase by 0.8 percent of food, drinks and tobacco in Mar.
Table VD-2, Euro Zone, Volume of Retail Sales by Products, ∆%
| Mar 2013 | Month ∆% | 12-Month ∆% |
| Total | -0.1 | -2.4 |
| Food, Drinks, Tobacco | 0.8 | -1.2 |
| Nonfood Products ex Automotive Fuel | -0.5 | -3.3 |
| Automotive Fuel in Specialized Stores | -0.1 | -2.2 |
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
Month and 12-month percentage rates of change of retail sales by member countries of the euro zone are shown in Table VD-3 for Mar 2013. Retail sales are weak throughout the euro zone. The 12-month percentage changes are negative for some members in Table VD-3 with the exception of 1.9 percent for Finland. The 12-month percentage change for the UK, which is not a member of the euro zone, was 0.9 percent. The European Union’s 12-month percentage change was minus 1.6 percent.
Table VD-3, Euro Zone, Volume of Retail Sales by Member Countries, ∆%
| Mar 2013 | Month ∆% | 12-Month ∆% |
| Euro Zone | -0.1 | -2.4 |
| Germany | -0.5 | -0.4 |
| France | 0.7 | -0.7 |
| Netherlands | NA | NA |
| Finland | 1.3 | 1.9 |
| Belgium | 1.0 | -0.7 |
| Portugal | -3.0 | -5.9 |
| Ireland | -1.9 | -0.5 |
| Italy | NA | NA |
| Greece | NA | NA |
| Spain | -1.0 | -10.5 |
| UK | -0.6 | 0.9 |
| European Union | -0.2 | -1.6 |
Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
VE Germany. Table VE-DE provides yearly growth rates of the German economy from 1992 to 2012, price adjusted chain-linked and price and calendar-adjusted chain-linked. Germany’s GDP fell 5.1 percent in 2009 after growing below trend at 1.1 percent in 2008. Recovery has been robust in contrast with other advanced economy. The German economy grew at 3.7 percent in 2010, 3.0 percent in 2011 and 0.7 percent in 2012. Growth slowed in 2011 from 1.2 percent in IQ2011, 0.5 percent in IIQ2011 and 0.4 percent in IIIQ2011 to decline of 0.1 percent in IVQ2011 and growth of 0.5 percent in IQ2012, 0.3 percent in IIQ2012, 0.2 percent in IIIQ2012 and decline of 0.6 percent in IVQ2012.
The Federal Statistical Agency of Germany analyzes the fall and recovery of the German economy (http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/Aktuell,templateId=renderPrint.psml):
“The German economy again grew strongly in 2011. The price-adjusted gross domestic product (GDP) increased by 3.0% compared with the previous year. Accordingly, the catching-up process of the German economy continued during the second year after the economic crisis. In the course of 2011, the price-adjusted GDP again exceeded its pre-crisis level. The economic recovery occurred mainly in the first half of 2011. In 2009, Germany experienced the most serious post-war recession, when GDP suffered a historic decline of 5.1%. The year 2010 was characterised by a rapid economic recovery (+3.7%).”
Table VE-DE, Germany, GDP Year ∆%
| Price Adjusted Chain-Linked | Price- and Calendar-Adjusted Chain Linked | |
| 2012 | 0.7 | 0.9 |
| 2011 | 3.0 | 3.1 |
| 2010 | 4.2 | 4.0 |
| 2009 | -5.1 | -5.1 |
| 2008 | 1.1 | 0.8 |
| 2007 | 3.3 | 3.4 |
| 2006 | 3.7 | 3.9 |
| 2005 | 0.7 | 0.8 |
| 2004 | 1.2 | 0.7 |
| 2003 | -0.4 | -0.4 |
| 2002 | 0.0 | 0.0 |
| 2001 | 1.5 | 1.6 |
| 2000 | 3.1 | 3.3 |
| 1999 | 1.9 | 1.8 |
| 1998 | 1.9 | 1.7 |
| 1997 | 1.7 | 1.8 |
| 1996 | 0.8 | 0.8 |
| 1995 | 1.7 | 1.8 |
| 1994 | 2.5 | 2.5 |
| 1993 | -1.0 | -1.0 |
| 1992 | 1.9 | 1.5 |
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/02/PE13_066_811.html;jsessionid=59DE7E440F9F7393B12C16FDA63BEB66.cae1
The Flash Germany Composite Output Index of the Markit Flash Germany PMI®, combining manufacturing and services, decreased from 50.6 in Mar to 48.8 in Apr, which indicates moderate contraction (http://www.markiteconomics.com/Survey/PressRelease.mvc/403f548dda24421facaee99f64821d5b). New export orders for manufacturing decreased at the fastest rate in 2013. Tim Moore, Senior Economist at Markit and author of the report, finds weakening in Germany’s private sector with accelerated decline in new orders for both manufacturing and services (http://www.markiteconomics.com/Survey/PressRelease.mvc/403f548dda24421facaee99f64821d5b). 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 50.6 in Mar to 49.2 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/87059b95df854202afbb0fc45ee9900e). Tim Moore, Senior Economist at Markit and author of the report, finds risks of standstill in the economy of Germany (http://www.markiteconomics.com/Survey/PressRelease.mvc/87059b95df854202afbb0fc45ee9900e). The Germany Services Business Activity Index decreased from 50.9 in Mar to 49.6 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/87059b95df854202afbb0fc45ee9900e). The Markit/BME Germany Purchasing Managers’ Index® (PMI®), showing close association with Germany’s manufacturing conditions, decreased from 49.0 in Mar to 48.1 in Apr, in contraction territory below 50.0 (http://www.markiteconomics.com/Survey/PressRelease.mvc/40e3836803c0428d83b2f6aa8da5c5ee). New export orders decreased moderately in Apr with declining business within the euro zone offsetting demand from emerging countries. Tim Moore, Senior Economist at Markit and author of the report, finds moderately deteriorating conditions in German manufacturing with lower volumes of new orders and job reductions (http://www.markiteconomics.com/Survey/PressRelease.mvc/40e3836803c0428d83b2f6aa8da5c5ee).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 |
| Producer Price Index | Mar month ∆%: -0.3 CSA, -0.2 NSA |
| Industrial Production | MFG Mar month CSA ∆%: 1.4 |
| Machine Orders | MFG Mar month ∆%: 2.2 |
| Retail Sales | Mar Month ∆% -0.3 12-Month ∆% -2.7 Blog 5/5/13 |
| Employment Report | Unemployment Rate SA Mar 5.4% |
| Trade Balance | Exports Mar 12-month NSA ∆%: -4.2 Blog 5/12/13 |
Links to blog comments in Table DE:
5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html
4/21/13 http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html
4/14/13 http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.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
The production industries index of Germany in Table VE-1 shows increase of 0.2 percent in Dec 2012 and decrease of 9.4 percent in the 12 months ending in Dec 2012. The index decreased 0.6 percent in Jan 2013 and 1.2 percent in 12 months and increased 0.6 percent in Feb 20, declining 5.3 percent in 12 months. In Mar 2013, the production index of Germany increased 1.2 percent and fell 8.7 percent in 12 months. Germany’s production industries suffered decline of 7.3 percent in Dec 2008 relative to Dec 2007 and decline of 2.3 percent in 2009. Recovery was vigorous with 17.1 percent in the 12 months ending in Dec 2010. The first quarter of 2011 was quite strong when the German economy outperformed the other advanced economies. The performance of Germany’s production industries from 2002 to 2006 was vigorous with average rate of 4.5 percent. Data for the production industries index of Germany fluctuate sharply from month to month and in 12-month rates.
Table VE-1, Germany, Production Industries, Month and 12-Month ∆%
| 12-Month ∆% NSA | Month ∆% Calendar SA | |
| Mar 2013 | -8.7 | 1.2 |
| Feb | -5.3 | 0.6 |
| Jan | -1.2 | -0.6 |
| Dec 2012 | -9.4 | 0.2 |
| Nov | -3.0 | -0.4 |
| Oct | 4.1 | -1.5 |
| Sep | -6.8 | -1.3 |
| Aug | -0.7 | -0.1 |
| Jul | 2.2 | 0.8 |
| Jun | 4.3 | -0.6 |
| May | -6.2 | 1.0 |
| Apr | -0.5 | -1.9 |
| Mar | -0.1 | 2.2 |
| Feb | 2.5 | -0.3 |
| Jan | 4.9 | 0.7 |
| Dec 2011 | 1.5 | -1.7 |
| Nov | 3.6 | 0.0 |
| Oct | -0.4 | 1.0 |
| Sep | 4.0 | -1.9 |
| Aug | 9.8 | -0.6 |
| Jul | 5.4 | 2.8 |
| Jun | -1.1 | -1.1 |
| May | 17.5 | 0.4 |
| Apr | 4.7 | 0.4 |
| Mar | 9.2 | 0.7 |
| Feb | 15.1 | 1.1 |
| Jan | 14.4 | 0.9 |
| Dec 2010 | 17.1 | |
| Dec 2009 | -2.3 | |
| Dec 2008 | -7.3 | |
| Dec 2007 | -0.1 | |
| Dec 2006 | 2.5 | |
| Dec 2005 | 4.9 | |
| Dec 2004 | 5.3 | |
| Dec 2003 | 5.1 | |
| Dec 2002 | 2.0 | |
| Average ∆% per Year | ||
| Dec 1994 to Dec 2012 | 0.7 | |
| Dec 1994 to Dec 2000 | 0.8 | |
| Dec 1994 to Dec 2006 | 1.3 | |
| Dec 2002 to Dec 2006 | 4.5 |
Source: Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Table VE-2 provides monthly percentage changes of the German production industries index by components from Aug 2012 to Mar 2013. The index increased 1.2 percent in Mar 2013 with increases of 1.4 percent in industry, 1.4 percent in manufacturing, 2.1 percent in capital goods and 4.0 percent in energy while other segments increased with particular strength in 2.2 percent in durable goods but decline 0.7 percent in nondurable goods. Performance was strong in Feb 2013 with growth of 0.6 percent for the index, 0.8 percent for manufacturing, 1.4 percent for durable goods, 2.7 percent for capital goods and 0.8 percent for energy. There was recovery in Dec 2012 with growth of 0.2 percent in production industries, 1.1 percent in manufacturing, 0.9 percent in capital goods, 0.8 percent in durable goods and 4.4 percent in nondurable goods but 0.1 percent in intermediate goods and decline 4.6 percent of energy. There were four sharp declines in the monthly production industries index of 1.7 percent in Dec 2011, 1.9 percent in Apr 2012, 1.3 percent in Sep 2012 and 1.5 percent in Oct 2012. The declines of investment or capital goods were quite sharp with 1.4 percent in Jun 2012, 2.5 percent in Sep 2012, 3.0 percent in Oct 2012 and 1.9 percent in Jan 2013. Durable goods fell in seven of eleven months from Dec 2011 to Oct 2012 and nondurable goods also fell in multiple months.
Table VE-2, Germany, Production Industries, Industry and Components, Month ∆%
| Mar 2013 | Feb | Jan | Dec | Nov | Oct | Sep | Aug | |
| Production | 1.2 | 0.6 | -0.6 | 0.2 | -0.4 | -1.5 | -1.3 | -0.1 |
| Industry | 1.4 | 0.9 | -1.1 | 1.1 | -0.3 | -1.5 | -1.6 | -0.2 |
| Mfg | 1.4 | 0.8 | -1.1 | 1.1 | -0.3 | -1.5 | -1.5 | -0.2 |
| Intermediate Goods | 0.6 | 0.1 | -0.1 | 0.1 | -0.8 | -0.3 | -1.3 | -0.7 |
| Capital | 2.1 | 2.7 | -1.9 | 0.9 | 1.1 | -3.0 | -2.5 | -0.1 |
| Durable Goods | 2.2 | 1.4 | 1.3 | 0.8 | -1.2 | -3.4 | -1.9 | -1.4 |
| Nondurable Goods | 0.7 | -3.0 | -1.8 | 4.4 | -2.5 | 0.5 | 0.3 | 1.4 |
| Energy | 4.0 | 0.8 | -0.4 | -4.6 | -1.2 | -2.2 | -1.3 | 3.3 |
Seasonally Calendar Adjusted
Source: Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Table VE-3 provides 12-month unadjusted percentage changes of industry and components in Germany. There have been percentage declines of 12-month rates in the production index of Germany and all segments in the four months from Dec 2012 to Mar 2013. Percentage declines in 12 months are quite sharp in Dec 2012 with all percentage changes negative around two-digits. Although there are sharp fluctuations in the data there is suggestion of deceleration that would be expected from much higher earlier rates. The deceleration is quite evident in single-digit percentage changes from Sep 2011 to Dec 2012 relative to high double-digit percentage changes in Jan-Mar 2011. There are multiple negative 12-month percentage changes across many segments. Growth rates in the recovery from the global recession from IVQ2007 to IIQ2009 were initially very vigorous in comparison with the growth rates before the contraction that are shown in the bottom part of Table VE-3.
Table VE-3, Germany, Industry and Components, 12-Month ∆% Unadjusted
| IND | MFG | INTG | CG | DG | NDG | EN | |
| 2013 | |||||||
| Mar | -8.2 | -8.2 | -8.3 | -9.3 | -9.3 | -7.8 | -3.2 |
| Feb | -5.0 | -5.1 | -5.8 | -5.1 | -6.3 | -2.3 | -12.3 |
| Jan | -0.7 | -0.6 | -1.5 | -1.9 | -1.9 | 5.1 | -4.8 |
| 2012 | |||||||
| Dec | -9.6 | -9.3 | -11.8 | -8.5 | -12.4 | -7.1 | -2.3 |
| Nov | -3.2 | -3.1 | -4.0 | -2.7 | -7.6 | -1.3 | 0.7 |
| Oct | 3.9 | 3.8 | 2.9 | 4.0 | 0.7 | 6.9 | 3.2 |
| Sep | -7.7 | -7.6 | -9.0 | -7.2 | -11.1 | -5.4 | 3.9 |
| Aug | -1.1 | -1.1 | -3.3 | 0.3 | 0.6 | 0.5 | 4.4 |
| Jul | 2.0 | 1.9 | 0.3 | 4.7 | -2.3 | -0.8 | 2.1 |
| Jun | 4.0 | 3.9 | 2.1 | 6.5 | 7.4 | 0.4 | 6.9 |
| May | -6.8 | -6.7 | -7.2 | -5.9 | -10.6 | -7.7 | 4.0 |
| Apr | -0.9 | -0.9 | -1.8 | 1.9 | -5.3 | -5.7 | 4.0 |
| Mar | -0.4 | -0.3 | -3.0 | 2.8 | -6.0 | -2.2 | -0.8 |
| Feb | 3.3 | 3.3 | 1.1 | 7.4 | 0.0 | -2.3 | 5.8 |
| Jan | 5.7 | 5.6 | 3.2 | 10.4 | 5.0 | 0.1 | -3.3 |
| 2011 | |||||||
| Dec | 0.9 | 0.8 | 1.0 | 0.9 | 0.1 | 1.0 | -9.3 |
| Nov | 4.0 | 3.9 | 2.2 | 7.5 | 2.1 | -1.4 | -5.8 |
| Oct | 0.1 | 0.2 | -1.0 | 2.7 | -2.5 | -3.8 | -6.1 |
| Sep | 5.2 | 5.2 | 4.1 | 8.8 | 3.2 | -1.6 | -6.3 |
| Aug | 11.6 | 11.5 | 8.6 | 20.0 | 4.6 | 0.7 | -3.2 |
| Jul | 7.3 | 7.3 | 4.4 | 13.1 | 6.6 | -0.7 | -5.9 |
| Jun | -0.1 | -0.2 | -0.6 | 1.9 | -10.3 | -2.5 | -4.8 |
| May | 20.8 | 20.5 | 16.9 | 27.7 | 20.5 | 12.4 | -7.4 |
| Apr | 6.8 | 6.7 | 5.3 | 10.6 | 4.4 | 1.3 | -5.7 |
| Mar | 10.5 | 10.4 | 9.7 | 14.5 | 8.1 | 1.1 | 2.5 |
| Feb | 16.5 | 16.3 | 15.0 | 22.6 | 9.7 | 5.4 | -0.6 |
| Jan | 16.3 | 16.0 | 16.1 | 22.9 | 9.7 | 2.7 | -2.7 |
| 2010 | |||||||
| Dec | 17.6 | 17.6 | 15.0 | 25.8 | 8.3 | 1.5 | 2.5 |
| Nov | 14.0 | 14.0 | 13.0 | 19.3 | 7.7 | 3.7 | 3.5 |
| Oct | 9.9 | 9.9 | 9.8 | 14.1 | 6.3 | 0.6 | 2.4 |
| Sep | 9.8 | 9.5 | 12.1 | 10.1 | 8.3 | 2.8 | 2.1 |
| Aug | 17.0 | 17.0 | 19.3 | 19.9 | 18.3 | 7.1 | 1.3 |
| Jul | 9.0 | 8.7 | 13.1 | 8.7 | 7.4 | 1.0 | 1.9 |
| Jun | 16.3 | 16.2 | 20.7 | 16.1 | 19.6 | 4.9 | -2.8 |
| May | 13.0 | 13.3 | 19.9 | 12.0 | 11.2 | 1.2 | 11.1 |
| Apr | 14.8 | 14.9 | 21.6 | 15.5 | 8.8 | -0.1 | 9.4 |
| Mar | 14.3 | 14.5 | 20.4 | 12.1 | 12.0 | 5.9 | 4.2 |
| Feb | 6.8 | 7.4 | 10.6 | 6.5 | 8.0 | -0.9 | 3.7 |
| Jan | 0.4 | 0.9 | 6.4 | -3.9 | 0.7 | -2.8 | 0.8 |
| Dec 2010 | 17.6 | 17.6 | 15.0 | 25.8 | 8.3 | 1.5 | 2.5 |
| Dec 2009 | -3.2 | -3.1 | 3.3 | -9.9 | -0.1 | 1.1 | 3.7 |
| Dec 2008 | -7.6 | -7.4 | -14.3 | -5.4 | -11.2 | 3.7 | -9.0 |
| Dec 2007 | 0.0 | -0.3 | -0.6 | 2.5 | -10.0 | -2.7 | 1.6 |
| Dec 2006 | 3.2 | 3.1 | 5.2 | 2.3 | 8.6 | -0.9 | -5.3 |
| Dec 2005 | 5.8 | 5.9 | 3.5 | 9.0 | 3.2 | 2.1 | 0.6 |
| Dec 2004 | 5.3 | 5.5 | 7.7 | 3.4 | 0.8 | 5.7 | 9.6 |
| Dec 2003 | 5.5 | 5.3 | 5.5 | 6.4 | 1.7 | 4.4 | 0.3 |
| Dec 2002 | 3.7 | 3.3 | 5.4 | 3.4 | -5.9 | 2.3 | -2.6 |
Note: IND: Industry; MFG: Manufacturing; INTG: Intermediate Goods; CG: Capital Goods; DG: Durable Goods; NDG: Nondurable Goods; EN: Energy
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Broader perspective since 2005 is provided by Chart VE-1 of the Statistisches Bundesamt Deutschland, Federal Statistical Agency of Germany. The index of production industries not seasonally adjusted rises by more than one third between 2003 and 2008 with sharp fluctuations and then collapses during the global recession in 2008. Recovery has been in a steep upward trajectory that has recovered at the more recent peaks the losses during the contraction. Recovery was reversed by the drop in Dec 2011 with strong rebound into 2012 and another sharp drop in Apr 2012 with recovery in May 2012 and drops in Jun, Aug, Sep, Oct and Jan 2013 followed by recovery in Feb-Mar 2013.
Chart VE-1, Germany, Production Industries, Not Adjusted, 2005=100
Source: Statistiche Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
More detail is provided by Chart VE-2 of the Statistiche Bundesamt Deutschland, or Federal Statistical Agency of Germany, with the unadjusted production industries index and trend from 2009 to 2013. There could be some flattening in recent months probably leading into mild downturn as depicted by trend.
Chart VE-2, Germany, Production Index, Production Industries, Not Adjusted Index and Trend, 2005=100
Source: Statistiche Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Table VE-4 provides month and 12-month rates of growth of manufacturing in Germany from Dec 2010 to Mar 2013. There are fluctuations in both monthly rates and in the past 12 months. Recovery is strong in Jan-Mar 2012 with cumulative growth of 2.1 percent at the high annual equivalent rate of 8.7 percent but the drop in Apr 2012 of 1.8 percent results in increase of 0.3 percent in the first four months of 2012 that pulls down the 12-month rate of Apr 2012 to minus 0.9 percent. Growth of 1.5 percent in May 2012 is insufficient to prevent decline of 6.7 percent in 12 months because production was quite strong in the first part of 2011. Manufacturing decreased 0.8 percent in Jun 2011 but the 12-month change was 3.9 percent. In Jul 2012, manufacturing grew 0.9 percent in the month and 1.9 percent in 12 months. Declining of manufacturing by 0.2 percent in Aug 2012 brought down the 12-month percentage change to minus 1.1 percent. In Sep, manufacturing output fell 1.5 percent, pulling down the 12-month rate to minus 7.6 percent. Manufacturing decreased 1.5 percent in Oct but increased 3.8 percent in 12 months. In Nov 2012, manufacturing decreased 0.3 percent but fell 3.1 percent in 12 months. Manufacturing increased 1.1 percent in Dec 2012 but fell 9.3 percent in 12 months. In Jan 2013, manufacturing fell 1.1 percent and decreased 0.6 percent in 12 months. Manufacturing increased 0.8 percent in Feb 2013, declining 5.1 percent in 12 months. In Mar 2013, manufacturing increased 1.4 percent but fell 8.2 percent in 12 months.
Table VE-4, Germany, Manufacturing Month and 12-Month ∆%
| 12-Month ∆% NSA | Month ∆% SA and Calendar Adjusted | |
| Mar 2013 | -8.2 | 1.4 |
| Feb | -5.1 | 0.8 |
| Jan | -0.6 | -1.1 |
| Dec 2012 | -9.3 | 1.1 |
| Nov | -3.1 | -0.3 |
| Oct | 3.8 | -1.5 |
| Sep | -7.6 | -1.5 |
| Aug | -1.1 | -0.2 |
| Jul | 1.9 | 0.9 |
| Jun | 3.9 | -0.8 |
| May | -6.7 | 1.5 |
| Apr | -0.9 | -1.8 |
| Mar | -0.3 | 1.2 |
| Feb | 3.3 | 0.4 |
| Jan | 5.6 | 0.5 |
| Dec 2011 | 0.8 | -1.6 |
| Nov | 3.9 | -0.3 |
| Oct | 0.2 | 0.9 |
| Sep | 5.2 | -2.0 |
| Aug | 11.5 | -0.5 |
| Jul | 7.3 | 2.9 |
| Jun | -0.2 | -1.1 |
| May | 20.5 | 0.7 |
| Apr | 6.7 | 0.6 |
| Mar | 10.4 | 0.9 |
| Feb | 16.3 | 1.4 |
| Jan | 16.0 | -0.9 |
| Dec | 17.6 | 1.3 |
Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart VE-3 of the Statistisches Bundesamt Deutschland, or Federal Statistical Office of Germany, provides the manufacturing index of Germany from 2009 to 2013. Manufacturing was already flattening in 2007 and fell sharply in 2008 to the beginning of 2010. Manufacturing grew sharply in the initial phase of recovery but has flattened in recent months as revealed by the trend that may be turning downward.
Chart VE-3, Germany, Production Index, Manufacturing, Not Adjusted Index and Trend, 2005=100
Source: Statistiche Bundesamt Deutschland https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Table VE-5 provides month and 12-month rates of growth of new orders of manufacturing in Germany from Jan 2010 to Mar 2013. There are fluctuations in both monthly rates and in the past 12 months. In the four months Dec 2012 to Mar 2013, total orders for manufacturing grew cumulatively 3.9 percent for annual equivalent 11.4 percent. Foreign orders grew cumulatively 3.7 percent in Dec 2012-Mar 2013, at annual equivalent 4.6 percent while domestic orders grew 4.4 percent, or at annual equivalent 13.6 percent. Table VE-1 reveals strong fluctuations in an evident deceleration of total orders for industry of Germany with strength in 2013. The same behavior is observed for total, foreign and domestic orders with decline in 12-month rates from two-digit levels to single digits and negative changes. An important aspect of Germany is that the bulk of orders is domestic or from other European countries while foreign orders have been growing rapidly. There is weakening world trade affecting export economies. As in other countries, data on orders for manufacturing are highly volatile. Most 12-month percentage changes from Jan 2012 to Sep 2012 in Table VE-1 are negative largely because of the unusual strength of the Germany economy in the beginning of 2011 but more recently because of slowing world economy in 2012.
Table VE-5, Germany, Volume of Orders Received in Manufacturing, Total, Domestic and Foreign, ∆%
| Total | Total | Foreign 12 M | Foreign M | Home | Home | |
| 2013 | ||||||
| Mar | -6.0 | 2.2 | -4.8 | 2.7 | -7.5 | 1.8 |
| Feb | -3.1 | 2.2 | -2.0 | 2.1 | -4.6 | 2.1 |
| Jan | -1.0 | -1.6 | 0.5 | -2.7 | -2.7 | 0.1 |
| 2012 | ||||||
| Dec | -9.1 | 1.1 | -6.7 | 1.6 | -12.6 | 0.3 |
| Nov | -0.9 | -2.7 | 2.4 | -4.7 | -5.1 | -0.1 |
| Oct | 4.5 | 4.1 | 7.0 | 6.9 | 1.3 | 0.7 |
| Sep | -8.9 | -1.9 | -6.6 | -2.4 | -11.7 | -1.2 |
| Aug | -4.4 | -0.9 | -2.1 | -0.5 | -7.1 | -1.5 |
| Jul | -1.6 | 0.2 | 0.6 | 0.3 | -4.2 | 0.2 |
| Jun | -4.5 | -1.3 | -6.4 | -0.9 | -1.7 | -1.9 |
| May | -11.0 | 0.5 | -3.7 | 1.3 | -18.8 | -0.7 |
| Apr | -3.9 | -2.1 | -4.4 | -3.1 | -3.1 | -0.9 |
| Mar | -2.2 | 2.6 | -1.2 | 3.5 | -3.3 | 1.6 |
| Feb | -4.3 | 0.2 | -4.7 | 1.1 | -3.8 | -0.8 |
| Jan | -2.6 | -1.5 | -4.6 | -2.7 | -0.2 | 0.0 |
| 2011 | ||||||
| Dec | 0.0 | 2.0 | -0.3 | 4.2 | 0.5 | -0.6 |
| Nov | -4.8 | -2.9 | -8.2 | -5.1 | -0.3 | -0.2 |
| Oct | 0.1 | 1.9 | 2.1 | 3.3 | -2.1 | 0.3 |
| Sep | 2.2 | -3.3 | 1.9 | -3.6 | 2.6 | -2.9 |
| Aug | 7.1 | -0.8 | 5.2 | 0.1 | 9.4 | -1.9 |
| Jul | 4.9 | -2.6 | 4.6 | -6.7 | 5.4 | 2.8 |
| Jun | 3.5 | 0.4 | 7.8 | 10.2 | -2.0 | -10.3 |
| May | 23.1 | 2.3 | 16.0 | -4.5 | 31.8 | 10.9 |
| Apr | 6.7 | 1.5 | 9.6 | 2.0 | 3.0 | 0.9 |
| Mar | 9.8 | -3.0 | 12.3 | -3.0 | 6.9 | -3.0 |
| Feb | 21.5 | 0.8 | 24.1 | 0.0 | 18.4 | 1.8 |
| Jan | 22.5 | 4.2 | 26.1 | 4.2 | 18.2 | 4.3 |
| 2010 | ||||||
| Dec | 21.8 | -2.9 | 26.8 | -4.1 | 15.4 | -1.4 |
| Nov | 21.4 | 5.4 | 27.1 | 8.6 | 15.0 | 1.6 |
| Oct | 14.2 | 0.7 | 18.2 | 0.2 | 10.0 | 1.3 |
| Sep | 13.9 | -1.2 | 15.6 | -3.0 | 11.9 | 1.0 |
| Aug | 22.2 | 2.3 | 29.7 | 4.3 | 14.5 | 0.0 |
| Jul | 14.1 | -1.1 | 21.4 | -1.3 | 6.4 | -0.9 |
| Jun | 27.6 | 3.3 | 30.6 | 4.4 | 24.2 | 1.9 |
| May | 24.8 | -0.3 | 29.6 | 0.2 | 19.4 | -1.1 |
| Apr | 29.9 | 2.8 | 34.0 | 2.9 | 25.7 | 2.9 |
| Mar | 29.4 | 5.0 | 32.9 | 5.1 | 25.8 | 5.0 |
| Feb | 24.0 | -0.2 | 28.7 | 0.3 | 18.6 | -0.9 |
| Jan | 17.0 | 4.1 | 23.8 | 4.7 | 9.8 | 3.3 |
| Dec 2009 | 9.1 | -1.7 | 10.5 | -2.6 | 7.3 | -0.5 |
| Dec 2008 | -28.3 | -6.7 | -31.5 | -9.5 | -23.7 | -2.9 |
| Dec 2007 | 7.1 | -0.9 | 9.1 | -2.0 | 4.4 | 0.2 |
| Dec 2006 | 2.8 | 0.8 | 3.4 | 0.5 | 2.2 | 1.1 |
| Dec 2005 | 5.0 | -0.5 | 10.4 | -1.1 | -1.4 | 0.3 |
| Dec 2004 | 12.7 | 6.5 | 13.0 | 8.5 | 12.7 | 4.9 |
| Dec 2003 | 10.7 | 2.4 | 16.4 | 5.4 | 5.1 | -0.8 |
| Dec 2002 | -0.2 | -3.4 | -0.8 | -6.6 | 0.2 | -0.3 |
| Average ∆% 2003-2007 | 7.6 | 10.4 | 4.5 | |||
| Average ∆% 2003-2012 | 2.3 | 3.9 | 0.3 |
Notes: AE: Annual Equivalent; M: Month; M: Calendar and seasonally adjusted; 12 M: Non-adjusted Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Orders for capital goods of Germany are shown in Table VE-2. Total capital goods orders increased 2.0 percent in Mar 2013 with increase in foreign orders of 3.1 percent and decline of domestic orders of 0.1 percent. Total capital goods orders increased 3.1 percent in Feb 2013 with increases of 4.0 percent of domestic orders and 2.6 percent of foreign orders. The rates of decline in 12 months in Mar 2013 are: minus 6.4 percent for total, minus 9.1 percent for domestic and minus 4.7 percent for foreign. The four-month period from Dec 2012 to Mar 2013 was quite strong with cumulative growth of total orders of 5.2 percent at annual equivalent 16.5 percent. There has been evident deceleration from 2010 and early 2011 with growth rates falling from two digit levels to single digits and multiple negative changes. An important aspect of Germany’s economy shown in Tables VE-5 and VE-6 is the success in increasing the competitiveness of its economic activities as shown by rapid growth of orders for industry after the recession of 2001 in the period before the global recession beginning in late 2007. Germany adopted fiscal and labor market reforms to increase productivity.
Table VE-6, Germany, Volume of Orders Received of Capital Goods Industries, Total, Foreign and Domestic, ∆%
| Total 12 M | Total M | Foreign 12 M | Foreign M | Domestic 12 M | Domestic M | |
| 2013 | ||||||
| Mar | -6.4 | 2.0 | -4.7 | 3.1 | -9.1 | -0.1 |
| Feb | -0.7 | 3.1 | 1.6 | 2.6 | -4.3 | 4.0 |
| Jan | 1.3 | -2.3 | 3.6 | -3.0 | -2.3 | -1.1 |
| 2012 | ||||||
| Dec | -7.7 | 2.4 | -4.6 | 2.8 | -13.3 | 1.8 |
| Nov | -0.7 | -3.9 | 3.1 | -5.6 | -6.5 | -0.8 |
| Oct | 4.6 | 5.4 | 6.3 | 7.2 | 2.1 | 1.9 |
| Sep | -7.5 | -1.1 | -4.8 | -0.8 | -11.6 | -1.4 |
| Aug | -4.6 | -2.0 | -2.6 | -1.4 | -7.4 | -2.9 |
| Jul | -0.3 | 0.1 | 1.2 | 0.2 | -2.7 | -0.3 |
| Jun | -7.1 | -0.8 | -9.9 | -0.4 | -1.9 | -1.3 |
| May | -12.0 | 0.3 | -2.8 | 0.7 | -23.9 | -0.4 |
| Apr | -3.3 | -3.9 | -4.2 | -4.7 | -1.7 | -2.3 |
| Mar | 2.2 | 5.4 | 3.3 | 7.6 | 0.2 | 1.9 |
| Feb | -5.9 | 1.2 | -7.0 | 1.2 | -4.2 | 1.2 |
| Jan | -3.7 | -3.6 | -6.5 | -4.2 | 1.0 | -2.8 |
| 2011 | ||||||
| Dec | 1.2 | 2.7 | -0.1 | 4.1 | 3.5 | 0.6 |
| Nov | -6.5 | -3.6 | -10.5 | -6.8 | 0.7 | 1.8 |
| Oct | 3.1 | 3.3 | 6.2 | 5.3 | -2.0 | 0.2 |
| Sep | 2.9 | -3.6 | 2.2 | -3.9 | 4.0 | -3.0 |
| Aug | 6.7 | -0.4 | 4.5 | 0.5 | 10.6 | -1.6 |
| Jul | 7.2 | -6.8 | 6.4 | -10.9 | 8.8 | 0.6 |
| Jun | 9.1 | 2.6 | 13.3 | 16.2 | 2.0 | -15.4 |
| May | 27.5 | 4.0 | 17.7 | -5.7 | 43.5 | 20.5 |
| Apr | 11.0 | 3.3 | 14.1 | 4.3 | 6.3 | 1.4 |
| Mar | 12.0 | -5.7 | 14.4 | -5.3 | 8.5 | -6.2 |
| Feb | 29.3 | 2.4 | 32.5 | 0.7 | 24.8 | 5.3 |
| Jan | 26.8 | 3.9 | 32.8 | 4.4 | 17.7 | 2.9 |
| 2010 | ||||||
| Dec | 27.4 | -5.1 | 31.2 | -6.8 | 21.1 | -2.0 |
| Nov | 30.4 | 9.5 | 37.0 | 13.8 | 20.1 | 2.6 |
| Oct | 20.5 | 0.1 | 24.9 | -1.4 | 14.3 | 2.5 |
| Sep | 18.2 | -2.3 | 20.3 | -4.0 | 14.7 | 0.7 |
| Aug | 27.5 | 5.3 | 40.0 | 7.1 | 11.5 | 2.3 |
| Jul | 14.1 | -2.8 | 28.1 | -3.0 | -2.5 | -2.5 |
| Jun | 32.0 | 4.8 | 38.7 | 7.2 | 22.1 | 1.2 |
| May | 26.2 | 1.1 | 36.6 | 0.7 | 12.8 | 1.6 |
| Apr | 31.0 | 2.6 | 41.4 | 3.2 | 18.1 | 1.6 |
| Mar | 25.8 | 6.5 | 33.8 | 7.4 | 15.7 | 5.1 |
| Feb | 21.2 | -1.1 | 31.3 | -0.1 | 8.3 | -2.7 |
| Jan | 17.0 | 4.6 | 29.6 | 3.1 | 2.8 | 7.1 |
| Dec 2009 | 8.1 | -1.2 | 13.6 | -1.5 | 0.3 | -1.0 |
| Dec 2008 | -32.2 | -7.2 | -36.8 | -10.0 | -24.5 | -3.6 |
| Dec 2007 | 9.4 | -0.6 | 11.6 | -2.3 | 6.1 | 2.2 |
| Dec 2006 | 3.5 | 2.2 | 3.9 | 2.9 | 2.9 | 1.2 |
| Dec 2005 | 1.8 | -2.1 | 9.7 | -2.5 | -8.4 | -1.6 |
| Dec 2004 | 19.5 | 11.2 | 18.6 | 12.2 | 20.6 | 9.7 |
| Dec 2003 | 11.7 | 2.1 | 17.2 | 5.0 | 5.4 | -1.6 |
| Dec 2002 | -2.8 | -4.3 | -3.7 | -8.1 | -1.8 | 0.2 |
| Average ∆% 2003-2007 | 9.0 | 12.1 | 4.9 | |||
| Average ∆% 2003-2012 | 3.0 | 4.7 | 0.5 |
Notes: AE: Annual Equivalent; M: Month; M: Calendar and seasonally-adjusted; 12 M: Non-adjusted
Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.htm
Chart VE-4 of the German Statistisches Bundesamt Deutschland shows the sharp upward trend of total orders in manufacturing before the global recession. There is also an obvious upward trend in the recovery from the recession with Germany’s economy being among the most dynamic in the advanced economies until the slowdown beginning in the final months of 2011 and what could be stationary series from late 2011 into 2012 but risk of decline in the final segment.
Chart VE-4, Germany, Volume of Total Orders in Manufacturing, Non-Adjusted, 2005=100
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart VE-5 of the German Statistisches Bundesamt Deutschland provides unadjusted volume of total orders in manufacturing and a trend curve. The final segment on the right could be the beginning of declining trend but it may be early to reach conclusions.
Chart VE-5, Germany, Volume of Total Orders in Manufacturing and Trend, Non-Adjusted, 2005=100
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Twelve-month rates of growth Germany’s exports and imports are shown in Table VE-5. There was sharp decline in the rates in Jun and Jul 2011 to single-digit levels especially for exports. In the 12 months ending in Aug 2011, exports rose 14.6 percent and imports 13.2 percent. In Sep 2011, exports grew 10.5 percent relative to a year earlier and imports grew 11.7 percent. Growth rates in 12 months ending in Oct 2011 fell significantly to 3.6 percent for exports and 9.2 percent for imports. Lower prices may explain part of the decline in nominal values. Exports fell 3.4 percent in 12 months ending in Sep 2012, rebounding to growth of 10.5 percent in Oct 2012 and minus 0.1 percent in Nov 2012 but sharp decline of 6.9 percent in Dec 2012 followed by rebound of 3.0 percent in Jan 2013. Exports fell 2.8 percent in the 12 months ending in Feb 2013 and declined 4.2 percent in the 12 months ending in Mar 2013. Imports decreased 3.6 percent in the 12 months ending in Sep 2012, rebounding to growth of 6.0 percent in Oct 2012, decreasing 1.2 percent in Nov 2012 and 7.5 percent in Dec 2012 and rebounding 2.9 percent in Jan 2013. Imports fell 5.9 percent in the 12 months ending in Feb 2013 and declined 6.9 percent in Mar 2013. Growth was much stronger in the recovery during 2010 and 2011 from the fall from 2007 to 2009. Germany’s trade grew at high rates in 2006 and 2005.
Table VE-7, Germany, Exports and Imports NSA Euro Billions and 12-Month ∆%
| Exports EURO Billions | 12- Month | Imports | 12-Month | |
| Mar 2013 | 94.6 | -4.2 | 75.8 | -6.9 |
| Feb | 88.6 | -2.8 | 71.8 | -5.9 |
| Jan | 88.5 | 3.0 | 74.9 | 2.9 |
| Dec 2012 | 79.0 | -6.9 | 66.9 | -7.5 |
| Nov | 94.0 | -0.1 | 77.1 | -1.2 |
| Oct | 98.4 | 10.5 | 82.7 | 6.0 |
| Sep | 91.7 | -3.4 | 74.8 | -3.6 |
| Aug | 90.2 | 5.7 | 73.9 | 0.5 |
| Jul | 93.5 | 9.2 | 76.6 | 2.1 |
| Jun | 94.7 | 7.5 | 76.8 | 2.1 |
| May | 92.7 | 0.4 | 77.2 | -0.5 |
| Apr | 87.1 | 3.1 | 72.7 | -1.4 |
| Mar | 98.8 | 0.1 | 81.4 | 2.0 |
| Feb | 91.2 | 7.9 | 76.4 | 5.4 |
| Jan | 86.0 | 8.4 | 72.8 | 4.9 |
| Dec 2011 | 84.8 | 4.7 | 72.3 | 5.6 |
| Nov | 94.1 | 7.4 | 78.0 | 5.8 |
| Oct | 89.1 | 3.6 | 78.1 | 9.2 |
| Sep | 95.0 | 10.5 | 77.7 | 11.7 |
| Aug | 85.3 | 14.6 | 73.5 | 13.2 |
| Jul | 85.6 | 5.2 | 75.0 | 9.7 |
| Jun | 88.1 | 3.3 | 75.2 | 5.6 |
| May | 92.4 | 21.2 | 77.5 | 17.4 |
| Apr | 84.5 | 12.4 | 73.7 | 18.5 |
| Mar | 98.7 | 15.3 | 79.8 | 15.1 |
| Feb | 84.5 | 20.8 | 72.5 | 27.6 |
| Jan | 79.3 | 25.2 | 69.4 | 26.0 |
| Dec 2010 | 81.0 | 20.0 | 68.4 | 24.4 |
| Nov | 87.6 | 21.2 | 73.7 | 30.9 |
| Oct | 86.0 | 18.7 | 71.5 | 19.2 |
| Sep | 86.0 | 21.2 | 69.5 | 17.0 |
| Aug | 74.4 | 23.8 | 64.9 | 27.1 |
| Jul | 81.4 | 15.3 | 68.4 | 24.4 |
| Jun | 85.3 | 27.5 | 71.2 | 33.9 |
| May | 76.2 | 25.6 | 66.1 | 31.3 |
| Apr | 75.2 | 16.8 | 62.2 | 14.4 |
| Mar | 85.6 | 22.0 | 69.3 | 18.0 |
| Feb | 70.0 | 9.7 | 56.8 | 3.2 |
| Jan | 63.4 | -0.3 | 55.1 | -1.9 |
| Dec 2009 | 67.5 | 1.2 | 55.0 | -7.3 |
| Dec 2008 | 66.7 | -8.6 | 59.4 | -5.1 |
| Dec 2007 | 73.0 | -0.6 | 62.5 | -0.1 |
| Dec 2006 | 73.4 | 10.2 | 62.6 | 8.5 |
| Dec 2005 | 66.6 | 11.5 | 57.7 | 18.1 |
| Dec 2004 | 59.7 | 9.2 | 48.9 | 10.8 |
| Dec 2003 | 54.7 | 7.6 | 44.1 | 3.9 |
| Dec 2002 | 50.8 | 5.5 | 42.5 | 6.4 |
| Dec 2001 | 48.2 | -3.7 | 39.9 | -17.5 |
| Dec 2000 | 50.0 | 48.4 |
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart VE-6 of the Statistisches Bundesamt Deutschland shows exports and trend of German exports. Growth has been with fluctuations around a strong upward trend that is milder than earlier in the recovery but could be flattening.
Chart VE-6, Germany, Exports Original Value and Trend 2008-2012
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart VE-7 of the Statistisches Bundesamt Deutschland provides German imports and trend. Imports also fell sharply and have been recovering with fluctuations around a strong upward trend that could be flattening.
Chart VE-7, Germany, Imports Original Value and Trend 2008-2012
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Chart VE-8 of the Statistisches Bundesamt Deutschland shows the trade balance of Germany since 2008. There was sharp decline during the global recession and fluctuations around a mild upward trend during the recovery with stabilization followed by stronger trend in recent months and flattening/declining recently.
Chart VE-8, Germany, Trade Balance Original and Trend 2008-2012
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
Table VE-8 provides monthly rates of growth of exports and imports of Germany. Exports decreased 2.0 percent in Sep 2012 after increasing 1.8 percent in Aug 2012, remaining unchanged 0.1 percent in Oct 2012, decreasing 2.2 percent in Nov 2012 and increasing 0.4 percent in Dec 2012 and 1.6 percent in Jan 2013. Exports fell 1.2 percent in Feb 2013 and increased 0.5 percent in Mar 2013. Imports decreased 0.8 percent in Sep 2012 after being flat in Aug 2012, growing 2.8 percent in Oct 2012 and declining 3.8 percent in Nov 2012 and 1.5 percent in Dec 2012, rebounding 3.3 percent in Jan 2013. Imports fell 3.9 percent in Feb 2013 and increased 0.8 percent in Mar 2013. Export growth and import growth were vigorous in Jan-Mar 2011 when Germany’s economy outperformed most advanced economies but less dynamic and consistently in following months as world trade weakens.
Table VE-8, Germany, Exports and Imports Month ∆% Calendar and Seasonally Adjusted
| Exports | Imports | |
| Mar 2013 | 0.5 | 0.8 |
| Feb | -1.2 | -3.9 |
| Jan | 1.6 | 3.3 |
| Dec 2012 | 0.4 | -1.5 |
| Nov | -2.2 | -3.8 |
| Oct | 0.1 | 2.8 |
| Sep | -2.0 | -0.8 |
| Aug | 1.8 | 0.0 |
| Jul | 0.0 | 0.2 |
| Jun | -0.5 | -2.0 |
| May | 3.3 | 5.0 |
| Apr | -1.0 | -4.0 |
| Mar | -0.2 | 0.6 |
| Feb | 1.2 | 2.9 |
| Jan | 2.8 | 0.2 |
| Dec 2011 | -2.8 | -1.8 |
| Nov | 2.8 | -0.2 |
| Oct | -3.4 | -0.3 |
| Sep | 1.8 | 0.1 |
| Aug | 2.8 | -0.1 |
| Jul | -1.4 | 0.3 |
| Jun | -0.1 | 0.1 |
| May | 1.5 | 1.1 |
| Apr | -3.0 | -0.3 |
| Mar | 4.7 | 2.1 |
| Feb | 1.2 | 1.7 |
| Jan | 1.0 | 3.3 |
| Dec 2010 | -0.1 | -1.9 |
Source: Statistisches Bundesamt Deutschland
https://www.destatis.de/EN/FactsFigures/Indicators/ShortTermIndicators/ShortTermIndicators.html
There is extremely important information in Table VE-9 for the current sovereign risk crisis in the euro zone. Table VE-9 provides the structure of regional and country relations of Germany’s exports and imports with newly available data for Mar 2013. German exports to other European Union (EU) members are 53.8 percent of total exports in Mar 2013 and 57.8 percent in cumulative Jan-Mar 2013. Exports to the euro area are 37.3 percent in Mar and 38.0 percent cumulative in Jan-Mar. Exports to third countries are 40.8 percent of the total in Mar and 42.1 percent cumulative in Jan-Mar. There is similar distribution for imports. Exports to non-euro countries are decreasing 2.2 percent in Mar 2013, increasing 0.3 percent cumulative in Jan-Mar 2013 while exports to the euro area are decreasing 7.0 percent in Mar 2013, and decreasing 3.9 percent cumulative in Jan-Mar 2013. Exports to third countries, accounting for 40.8 percent of the total in Mar 2013, are decreasing 2.6 percent in Mar 2013 and decreasing 0.2 percent cumulative in Jan-Mar 2013, accounting for 42.1 percent of the cumulative total in Jan-Mar 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 VE-9, Germany, Structure of Exports and Imports by Region, € Billions and ∆%
| Mar 2013 | Mar 12-Month | Cumulative Jan-Mar 2012 € Billions | Cumulative Jan-Mar 2013/ | |
| Total | 94.6 | -4.2 | 271.8 | -1.5 |
| A. EU | 53.8 % 56.9 | -5.4 | 157.2 % 57.8 | -2.5 |
| Euro Area | 35.3 % 37.3 | -7.0 | 103.3 % 38.0 | -3.9 |
| Non-euro Area | 18.5 % 19.6 | -2.2 | 53.9 % 19.8 | 0.3 |
| B. Third Countries | 40.8 % 43.1 | -2.6 | 114.5 % 42.1 | -0.2 |
| Total Imports | 75.8 | -6.9 | 222.5 | -3.5 |
| C. EU Members | 50.4 % 66.5 | -3.7 | 143.7 % 64.5 | -1.4 |
| Euro Area | 35.5 % 46.8 | -4.6 | 99.9 % 44.9 | -2.6 |
| Non-euro Area | 15.0 % 19.8 | -1.5 | 43.8 % 19.7 | 1.5 |
| D. Third Countries | 25.3 % 33.4 | -12.8 | 78.8 % 35.4 | -7.0 |
Notes: Total Exports = A+B; Total Imports = C+D
Source: Statistisches Bundesamt Deutschland https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_159_51.html;jsessionid=31CEB4069FD614D4281C2D321DB67FFC.cae4
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 increased from 41.9 in Mar, which was the lowest reading in four years, to 44.2 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/6dafcd8352ea42db99a917747050e63b). Jack Kennedy, Senior Economist at Markit and author of the report, finds that the data suggest the index in Apr improved the sharpest decline of overall output in about four years since IQ2009 conditions of the private sector in France continue struggling (http://www.markiteconomics.com/Survey/PressRelease.mvc/6dafcd8352ea42db99a917747050e63b).
The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, increased from 41.9 in Mar to 44.3 in Apr, indicating of private sector activity at the slowest rate of deterioration in 2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/e36516ccd4cb42b980b63e9370857958). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI®, finds that composite data for manufacturing and services indicate weak expectations of business activity (http://www.markiteconomics.com/Survey/PressRelease.mvc/e36516ccd4cb42b980b63e9370857958). The Markit France Services Activity index increased from 41.3 in Mar to 44.3 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/e36516ccd4cb42b980b63e9370857958). The Markit France Manufacturing Purchasing Managers’ Index® increased marginally to 44.4 in Apr from 44.0 in Mar, for the highest reading since Dec 2012 but remaining deeply below the neutral level of 50.0 (http://www.markiteconomics.com/Survey/PressRelease.mvc/6991f050ab1b42e497b80087c06ada32). Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI®, finds continuing weakness in manufacturing with favorable decline in input costs (http://www.markiteconomics.com/Survey/PressRelease.mvc/6991f050ab1b42e497b80087c06ada32). Table FR provides the country data table for France.
Table FR, France, Economic Indicators
| CPI | Mar month ∆% 0.8 |
| PPI | Mar month ∆%: 0.0 Blog 5/5/13 |
| GDP Growth | IVQ2012/IIIQ2012 ∆%: -0.3 |
| Industrial Production | Mar ∆%: |
| Consumer Spending | Manufactured Goods |
| Employment | IVQ2012 Unemployed 2.944 million |
| Trade Balance | Mar Exports ∆%: month 1.4, 12 months -0.4 Mar Imports ∆%: month -1.1, 12 months -3.1 Blog 5/12/13 |
| Confidence Indicators | Historical averages 100 Apr Mfg Business Climate 88 Blog 4/28/13 |
Links to blog comments in Table FR: 5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html
4/28/13 http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html
4/14/13 http://cmpassocregulationblog.blogspot.com/2013/04/recovery-without-hiring-ten-million.html
3/10/13 http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.html
Table VF-1 provides longer historical perspective of manufacturing in France. Output of manufacturing decreased 1.0 percent in Mar 2013 and fell 4.9 percent in the 12 months ending in Mar 2013. Manufacturing fell 1.5 percent in Jan 2013 and 5.3 percent relative to a year earlier. Growth of 1.1 percent in Dec 2012 pulled down the 12-month rate of decline from 6.5 percent in Nov 2012 to 3.7 percent in Dec 2012. Manufacturing in France fell 14.1 percent in Dec 2008 and 4.1 percent in Dec 2009.
Table VF-1, France, Manufacturing, Month and 12-Month ∆%
| Month ∆% | 12-Month ∆% | |
| Mar 2013 | -1.0 | -4.9 |
| Feb | 0.8 | -2.5 |
| Jan | -1.5 | -5.3 |
| Dec 2012 | 1.1 | -3.7 |
| Nov | -0.9 | -6.5 |
| Oct | -1.3 | -3.1 |
| Sep | -2.8 | -2.1 |
| Aug | 1.9 | -0.3 |
| Jul | 1.6 | -2.2 |
| Jun | -0.7 | -3.2 |
| May | -1.1 | -4.9 |
| Apr | -1.0 | -2.5 |
| Mar | 1.5 | -1.9 |
| Feb | -2.0 | -4.6 |
| Jan | 0.1 | -1.9 |
| Dec 2011 | -1.8 | -0.2 |
| Nov | 2.8 | 2.3 |
| Oct | -0.3 | 1.8 |
| Sep | -1.1 | 1.1 |
| Aug | -0.1 | 3.5 |
| Jul | 0.6 | 3.2 |
| Jun | -2.5 | 3.0 |
| May | 1.4 | 4.5 |
| Apr | -0.4 | 3.8 |
| Mar | -1.3 | 5.1 |
| Feb | 0.8 | 8.7 |
| Jan | 1.9 | 7.8 |
| Dec 2010 | 0.6 | 5.7 |
| Dec 2009 | -4.1 | |
| Dec 2008 | -14.1 | |
| Dec 2007 | -1.0 | |
| Dec 2006 | 2.7 | |
| Dec 2005 | 0.7 | |
| Dec 2004 | 1.0 | |
| Dec 2003 | 0.1 | |
| Dec 2002 | -1.0 | |
| Dec 2001 | -5.5 | |
| Dec 2000 | 4.7 |
Source:
Institut National de la Statistique et des Études Économique
http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20130507
Chart VF-1 of the Institut National de la Statistique et des Études Économique provides France’s index of manufacturing, adjusted for working days and seasonal effects, from Jan 1990 to Mar 2013. Growth was robust in the 1990s and in recovery from the 2001 recession. Manufacturing output fell sharply during the global recession followed by recovery and another trend of decline.
Chart VF-1, France, Index of Manufacturing 2010=100, Jan 1990-Mar 2013, Seasonal and Working-Day Adjusted
Source:
Institut National de la Statistique et des Études Économique
http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20130507
Chart VF-2 of France’s Institut National de la Statistique et des Études Économiques shows indices of manufacturing in France from 2009 to 2013. Manufacturing, which is CZ in Chart VF-2, fell deeply in 2008 and part of 2009. All curves of industrial indices tend to flatten recently with oscillations and declines and marginal improvement followed by renewed decline/stability in the final segment.
Chart VF-2, France, Industrial Production Indices 2007-2011
Legend : CZ : Manufacturing - (C1) : Manufacture of food products and beverages - (C3) : Electrical and electronic equipment; machine equipment - (C4) : Manufacture of transport equipment - (C5) : Other manufacturing
Source: Institut National de la Statistique et des Études Économiques
http://www.insee.fr/en/themes/info-rapide.asp?id=10&date=20130507
France has been running a trade deficit fluctuating around €6,000 million as shown in Table VF-2. Exports increased 1.4 percent in Mar 2013 while imports decreased 1.1 percent, resulting in reduction of the trade deficit from revised €6645 million in Feb 2013 to €4696 million in Mar 2013.
Table VF-2, France, Exports, Imports and Trade Balance, € Millions
| Exports | Imports | Trade Balance | |
| Mar 2013 | 36,204 | 40,900 | -4,696 |
| Feb | 35,703 | 41,348 | -6,645 |
| Jan | 36,450 | 41,993 | -5,543 |
| Dec 2012 | 37,359 | 42,841 | -5,482 |
| Nov | 36,201 | 41,068 | -4,867 |
| Oct | 37,337 | 42,416 | -5,079 |
| Sep | 37,233 | 42,548 | -5,315 |
| Aug | 38,230 | 44,048 | -5,818 |
| Jul | 36,764 | 41,423 | -4,659 |
| Jun | 36,312 | 42,892 | -6,580 |
| May | 37,529 | 43,219 | -5,690 |
| Apr | 36,604 | 42,839 | -6,235 |
| Mar | 36,348 | 42,212 | -5,864 |
| Feb | 37,135 | 43,466 | -6,331 |
| Jan | 36,626 | 42,220 | -5,594 |
| Dec 2011 | 35,956 | 41,432 | -5,476 |
| Dec 2010 | 33,776 | 39,451 | -5,693 |
Source: France, Direction générale des douanes et droits indirects
http://lekiosque.finances.gouv.fr/Appchiffre/portail_default.asp
Table VF-3 provides month and 12-month percentage changes of France’s exports and imports. Exports increased 1.4 percent in Mar 2013 and decreased 0.4 percent in the 12 months ending in Mar 2013. Imports decreased 1.1 percent in Mar 2013 and decreased 3.1 percent in 12 months. Growth of exports and imports has fluctuated in 2011 and 2012 because of price surges of commodities and raw materials.
Table VF-3, France, Exports and Imports, Month and 12-Month ∆%
| Exports | Exports | Imports | Imports 12-Month ∆% | |
| Mar 2013 | 1.4 | -0.4 | -1.1 | -3.1 |
| Feb | -2.0 | -3.9 | -1.5 | -4.9 |
| Jan | -2.4 | -0.5 | -2.0 | -0.5 |
| Dec 2012 | 3.2 | 3.9 | 4.3 | 3.4 |
| Nov | -3.0 | -2.8 | -3.2 | -2.2 |
| Oct | 0.3 | 4.4 | -0.3 | 0.9 |
| Sep | -2.6 | 4.6 | -3.4 | -0.1 |
| Aug | 4.0 | 3.3 | 6.3 | 4.5 |
| Jul | 1.2 | 4.1 | -3.4 | -1.0 |
| Jun | -3.2 | 2.8 | -0.8 | 4.6 |
| May | 2.5 | 7.3 | 0.9 | 3.4 |
| Apr | 0.7 | 5.4 | 1.5 | 2.6 |
| Mar | -2.1 | 2.8 | -2.9 | 1.1 |
| Feb | 1.4 | 6.5 | 2.9 | 5.2 |
| Jan | 1.9 | 6.5 | 1.9 | 2.9 |
| Dec 2011 | 6.5 | 5.0 | ||
| Dec 2012 | 3.9 | 3.4 | ||
| Dec 2011 | 6.5 | 5.0 | ||
| Dec 2010 | 13.3 | 14.8 | ||
| Dec 2009 | -9.7 | -2.1 | ||
| Dec 2008 | -6.7 | -10.8 | ||
| Dec 2007 | 5.9 | 8.1 | ||
| Dec 2006 | 6.3 | 6.7 | ||
| Dec 2005 | 11.5 | 15.1 | ||
| Dec 2004 | -3.7 | 5.8 | ||
| Dec 2003 | 7.1 | 1.6 |
Source: France, Direction générale des douanes et droits indirects
http://lekiosque.finances.gouv.fr/Appchiffre/portail_default.asp
Annual data for France’s exports, imports and trade balance are provided in Table VF-4. France’s trade balance deteriorated sharply from 2007 to 2011 with the deficit increasing from €42,494 million in 2007 to €73,934 million in 2011. Annual growth rates of exports have not been sufficiently high to compensate for growth of imports driven in part by commodity price increases. In 2012, the trade deficit declined to €67,673 million with growth of exports of 3.1 percent and of imports of 1.4 percent.
Table VF-4, France, Exports, Imports and Balance Year € Millions and ∆%
| Exports € Millions | ∆% | Imports € Millions | ∆% | Balance € Millions | |
| Mar 2013 12 Months | 438,030 | 503,856 | -65,826 | ||
| Year | |||||
| 2012 | 441,395 | 3.1 | 509,068 | 1.4 | -67,673 |
| 2011 | 428,054 | 8.4 | 501,988 | 12.2 | -73,934 |
| 2010 | 394,851 | 13.9 | 447,215 | 14.1 | -52,364 |
| 2009 | 346,481 | -17.0 | 391,872 | -17.3 | -45,391 |
| 2008 | 417,636 | 2.7 | 473,853 | 5.5 | -56,217 |
| 2007 | 406,487 | 3.0 | 448,981 | 5.8 | -42,494 |
| 2006 | 394,621 | 9.5 | 424,549 | 10.4 | -29,928 |
| 2005 | 360,376 | 4.4 | 384,588 | 9.6 | -24,212 |
| 2004 | 345,256 | 5.4 | 350,996 | 7.0 | -5,740 |
| 2003 | 327,653 | 327,884 | -231 |
Source: France, Direction générale des douanes et droits indirects
http://lekiosque.finances.gouv.fr/Appchiffre/portail_default.asp
© Carlos M. Pelaez, 2010, 2011, 2012, 2013
No comments:
Post a Comment