United States Commercial Banks Assets and Liabilities, United States Housing Collapse, Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation, Collapse of United States Dynamism of Income Growth and Employment Creation, Peaking Valuations of Risk Financial Assets, World Economic Slowdown and Global Recession Risk: Part II

 

United States Commercial Banks Assets and Liabilities, United States Housing Collapse, Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation, 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

IA United States Commercial Banks Assets and Liabilities

IA1 Transmission of Monetary Policy

IA2 Functions of Banks

IA3 United States Commercial Banks Assets and Liabilities

IA4 Theory and Reality of Economic History and Monetary Policy Based on Fear of Deflation

IB Collapse of United States Dynamism of Income Growth and Employment Creation

II United States Housing Collapse

IIA1 United States New House Sales

IIA2 United States House Prices

IIA3 Factors of United States Housing Collapse

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IIIGA Monetary Policy with Deficit Financing of Economic Growth

IIIGB Adjustment during the Debt Crisis of the 1980s

IIIE Appendix Euro Zone Survival Risk. Professors Ricardo Caballero and Francesco Giavazzi (2012Jan15) find that the resolution of the European sovereign crisis with survival of the euro area would require success in the restructuring of Italy. Growth of the Italian economy would ensure that success. 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 5.0 percent in Jan-Mar 2013 relative to Jan-Mar 2012 while those to EMU are growing at minus 5.7 percent.

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

Mar 2013	Exports % Share	∆% Jan-Mar 2013/ Jan-Mar 2012	Imports % Share	∆% Jan-Mar 2013/ Jan-Mar 2012
EU	53.7	-5.1	52.9	-4.2
EMU 17	40.5	-5.7	42.7	-4.1
France	11.1	-3.3	8.3	-6.9
Germany	12.5	-6.7	14.6	-6.7
Spain	4.7	-12.5	4.4	-4.7
UK	4.9	-3.1	2.5	-2.6
Non EU	46.3	5.0	47.1	-10.9
Europe non EU	13.9	1.2	11.3	8.7
USA	6.8	4.7	3.3	-22.6
China	2.3	2.3	6.5	-5.8
OPEC	5.7	15.7	10.8	-20.5
Total	100.0	-0.7	100.0	-7.4

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

Source: Istituto Nazionale di Statistica

http://www.istat.it/it/archivio/90206

Table III-4 provides Italy’s trade balance by regions and countries. Italy had trade deficit of €473 million with the 17 countries of the euro zone (EMU 17) in Mar 2013 and cumulative deficit of €1159 million in Jan-Mar 2013. Depreciation to parity could permit greater competitiveness in improving the trade surplus of €1054 million in Jan-Mar 2013 with Europe non European Union, the trade surplus of €3230 million with the US and trade surplus with non-European Union of €1054 million in Jan-Mar 2013. There is significant rigidity in the trade deficits in Jan-Mar of €3792 million with China and €3099 million with members of the Organization of Petroleum Exporting Countries (OPEC). Higher exports could drive economic growth in the economy of Italy that would permit less onerous adjustment of the country’s fiscal imbalances, raising the country’s credit rating.

Table III-4, Italy, Trade Balance by Regions and Countries, Millions of Euro 

Regions and Countries	Trade Balance Mar 2013 Millions of Euro	Trade Balance Cumulative Jan-Mar 2013 Millions of Euro
EU	607	1,661
EMU 17	-473	-1,159
France	1,085	3,120
Germany	-771	-1,428
Spain	57	308
UK	762	2,031
Non EU	2,630	1,054
Europe non EU	828	1,168
USA	1,340	3,230
China	-946	-3,792
OPEC	-429	-3,099
Total	3,237	2,716

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

Source: Istituto Nazionale di Statistica

http://www.istat.it/it/archivio/90206

Growth rates of Italy’s trade and major products are provided in Table III-5 for the period Jan-Mar 2013 relative to Jan-Mar 2012. Growth rates of cumulative imports relative to a year earlier are negative for energy with minus 19.0 percent and minus 13.4 percent for durable goods. The higher rate of growth of exports of minus 0.7 percent in Jan-Mar 2013/Jan-Mar 2012 relative to imports of minus 7.4 percent may reflect weak demand in Italy with GDP declining during seven consecutive quarters from IIIQ2011 through IQ2013 together with softening commodity prices.

Table III-5, Italy, Exports and Imports % Share of Products in Total and ∆%

	Exports Share %	Exports ∆% Jan-Mar 2013/ Jan-Mar 2012	Imports Share %	Imports ∆% Jan-Mar 2013/ Jan-Mar 2012
Consumer Goods	29.3	5.4	25.6	-0.5
Durable	5.8	0.7	2.9	-13.4
Non-Durable	23.5	6.5	22.7	1.1
Capital Goods	31.6	0.3	19.5	-8.5
Inter- mediate Goods	33.6	-3.9	32.6	-3.7
Energy	5.5	-18.4	22.3	-19.0
Total ex Energy	94.5	0.4	77.7	-3.9
Total	100.0	-0.7	100.0	-7.4

Source: Istituto Nazionale di Statistica

http://www.istat.it/it/archivio/90206

Table III-6 provides Italy’s trade balance by product categories in Mar 2013 and cumulative Jan-Mar 2013. Italy’s trade balance excluding energy generated surplus of €7473 million in Mar 2013 and €16,976 million cumulative in Jan-Mar 2013 but the energy trade balance created deficit of €4236 million in Mar 2013 and cumulative €14,261 million in Jan-Mar 2013. The overall surplus in Mar 2013 was €3237 million with cumulative surplus of €2716 million in Jan-Mar 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

	Mar 2013	Cumulative Jan-Mar 2013
Consumer Goods	2,384	5,048
Durable	1,249	3,041
Nondurable	1,135	2,007
Capital Goods	4,175	10,887
Intermediate Goods	913	1,041
Energy	-4,236	-14,261
Total ex Energy	7,473	16,976
Total	3,237	2,716

Source: Istituto Nazionale di Statistica

http://www.istat.it/it/archivio/90206

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 USD Billions	Primary Net Lending Borrowing % GDP 2013	General Government Net Debt % GDP 2013
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  € Billions	Mar 12-Month ∆%	Cumulative Jan-Mar 2012 € Billions	Cumulative Jan-Mar 2013/ Jan-Mar 2012 ∆%
Total Exports	94.6	-4.2	271.8	-1.5
A. EU Members	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:

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

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

M_tV(i_t, ·) = P_tY_t (5)

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

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

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

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

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

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

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

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

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

	GDP	CPI	PPI	UNE
US	1.8	1.5	1.1	7.5
Japan	0.2	-0.9	-0.5	4.1
China	7.7	2.4	-2.6
UK	0.6	2.4* CPIH 2.2	1.1 output 0.8** input -0.1	7.8
Euro Zone	-1.0	1.2	0.7	12.1
Germany	-0.3	1.1	0.4	5.4
France	-0.4	0.8	1.9	11.0
Nether-lands	-1.3	2.8	-0.4	6.4
Finland	-2.0	2.4	1.3	8.2
Belgium	-0.5	1.1	3.7	8.2
Portugal	-3.9	0.4	1.5	17.5
Ireland	NA	0.5	2.6	14.1
Italy	-2.3	1.3	0.0	11.5
Greece	-5.3	-0.6	-1.3	NA
Spain	-2.0	1.5	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/april-2013/index.html **Core

PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/april-2013/stb-producer-price-index--april-2013.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 0.9 percent in IQ2013 relative to IQ2012 and 0.2 percent relative to a year earlier. Japan’s grew at the seasonally adjusted annual rate (SAAR) of 3.5 percent in IQQ2013 (http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/thirty-one-million-unemployed-or.htm). The UK grew at 0.3 percent in IQ2013 relative to IVQ2012 and GDP increased 0.6 percent in IQ2013 relative to IQ2012 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html). The Euro Zone grew at minus 0.2 percent in IQ2013 and minus 1.0 percent in IQ2013 relative to IQ2012 (http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or_8.html). These are stagnating or “growth recession” rates, which are positive or about nil growth rates with some contractions that are insufficient to recover employment. The rates of unemployment are quite high: 7.5 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), 7.8 percent for the UK with high rates of unemployment for young people (see the labor statistics of the UK in Subsection VH at http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html). Twelve-month rates of inflation have been quite high, even when some are moderating at the margin: 1.1 percent in the US, -0.9 percent for Japan, 2.4 percent for China, 1.2 percent for the Euro Zone and 2.4 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/word-inflation-waves-squeeze-of.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 (http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html

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 15 quarters from IIIQ2009 to IQ2013. 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.

1. Mandate. The FOMC pursues a policy of attaining its “dual mandate” of (http://www.federalreserve.gov/aboutthefed/mission.htm):

“Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates”

1. 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.”

1. 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.”

1. 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.”

1. 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 Tendency
2013  Dec PR	2.3 to 2.8 2.3 to 3.0	7.3 to 7.5 7.4 to 7.7	1.3 to 1.7 1.3 to 2.0	1.5 to 1.6 1.6 to 1.9
2014  Dec PR	2.9 to 3.4 3.0 to 3.5	6.7 to 7.0 6.8 to 7.3	1.5 to 2.0 1.5 to 2.0	1.7 to 2.0 1.6 to 2.0
2015 Dec	2.9 to 3.7 3.0 to 3.7	6.0 to 6.5 6.0 to 6.6	1.7 to 2.0 1.7 to 2.0	1.8 to 2.1 1.8 to 2.0
Longer Run Sep PR	2.3 to 2.5 2.3 to 2.5	5.2 to 6.0 5.2 to 6.0	2.0 2.0
Range
2013 Dec PR	2.0 to 3.0 2.0 to 3.2	6.9 to 7.6 6.9 to 7.8	1.3 to 2.0 1.3 to 2.0	1.5 to 2.0 1.5 to 2.0
2014 Dec PR	2.6 to 3.8 2.8 to 4.0	6.1 to 7.1 6.1 to 7.4	1.4 to 2.1 1.4 to 2.2	1.5 to 2.1 1.5 to 2.0
2015 Dec PR	2.5 to 3.8 2.5 to 4.2	5.7 to 6.5 5.7 to 6.8	1.6 to 2.6 1.5 to 2.2	1.7 to 2.6 1.7 to 2.2
Longer Run Dec PR	2.0 to 3.0 2.2 to 3.0	5.0 to 6.0 5.0 to 6.0	2.0 2.0

Notes: UEM: unemployment; PR: Projection

Source: Board of Governors of the Federal Reserve System, FOMC http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf

Another important decision at the FOMC meeting on Jan 25, 2012, is formal specification of the goal of inflation of 2 percent per year but without specific goal for unemployment (http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm):

“Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.

The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed decision making by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society.

Inflation, employment, and long-term interest rates fluctuate over time in response to economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag. Therefore, the Committee's policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of the balance of risks, including risks to the financial system that could impede the attainment of the Committee's goals.

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances.

The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments. Information about Committee participants' estimates of the longer-run normal rates of output growth and unemployment is published four times per year in the FOMC's Summary of Economic Projections. For example, in the most recent projections, FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent, roughly unchanged from last January but substantially higher than the corresponding interval several years earlier.

In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer-run goal and deviations of employment from the Committee's assessments of its maximum level. These objectives are generally complementary.  However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate. ”

The probable intention of this specific inflation goal is to “anchor” inflationary expectations. Massive doses of monetary policy of promoting growth to reduce unemployment could conflict with inflation control. Economic agents could incorporate inflationary expectations in their decisions. As a result, the rate of unemployment could remain the same but with much higher rate of inflation (see Kydland and Prescott 1977 and Barro and Gordon 1983; http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html See Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 99-116). Strong commitment to maintaining inflation at 2 percent could control expectations of inflation.

The FOMC continues its efforts of increasing transparency that can improve the credibility of its firmness in implementing its dual mandate. Table IV-3 provides the views by participants of the FOMC of the levels at which they expect the fed funds rate in 2012, 2013, 2014 and the in the longer term. Table IV-3 is inferred from a chart provided by the FOMC with the number of participants expecting the target of fed funds rate (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf). There are 18 participants expecting the rate to remain at 0 to ¼ percent in 2013 and one to be higher in the interval below 1.0 percent. The rate would still remain at 0 to ¼ percent in 2014 for 14 participants with three expecting the rate to be in the range of 1.0 to 2.0 percent, one participant expecting rates at 0.5 to 1.0 percent and one participant expecting rates from 2.0 to 3.0. This table is consistent with the guidance statement of the FOMC that rates will remain at low levels until late in 2014. For 2015, nine participants expect rates to be below 1.0 percent while nine expect rates from 1.0 to 4.5 percent. In the long run, all 19 participants expect 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

The producer price index of Germany decreased 0.2 percent in Apr 2013, calendar and seasonally adjusted (CSA), decreased 0.2 not seasonally adjusted (NS) in Apr 2013 and increased 0.1 percent in the 12 months ending in Apr 2013, as shown in Table IV-5. The producer price index of Germany has similar waves of inflation as in many other countries (http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html). In the first wave from Jan to Apr 2011, the annual equivalent rate of producer price inflation was 10.4 percent NSA and 6.5 percent CSA, propelled by carry trades from zero interest rates to exposures in commodity futures in a mood of risk appetite. In the second wave in May and Jun 2011, the annual equivalent rate of producer price inflation was only 0.6 percent NSA because of the collapse of the carry trade in fear of risks of European sovereign debt but 4.3 percent CSA. In the third wave from Jul to Sep 2011, annual-equivalent producer price inflation in Germany was 2.8 percent NSA and 2.8 percent CSA with fluctuations in commodity prices resulting from perceptions of the sovereign risk crisis in Europe. In the fourth wave from Oct to Nov 2011, annual equivalent inflation was 1.8 percent NSA and 3.7 percent CSA. In the fifth wave from Dec 2011 to Jan 2012, annual equivalent inflation was at 1.2 percent NSA and minus 0.6 percent CSA in return of risk aversion. In the sixth wave, annual equivalent inflation increased to 6.2 percent in Feb-Mar 2012 NSA and 4.9 percent in Feb-Apr and 2.4 percent CSA. In the seventh wave, annual equivalent inflation was minus 2.8 percent in May-Jul 2012 NSA and minus 0.8 percent SA. In the eighth wave, annual equivalent inflation was 4.9 percent in Aug-Sep 2012 NSA and 4.9 percent SA. In the ninth wave, renewed risk aversion resulted in annual equivalent inflation NSA of minus 1.6 percent in Oct-Dec 2012 and 1.2 percent CSA. In the tenth wave, annual equivalent inflation was 10.0 percent NSA and 1.2 percent CSA in Jan 2013. In the eleventh wave, annual equivalent inflation NSA was minus 2.0 percent in Feb-Apr 2013 and minus 2.8 percent CSA. Data in the bottom of Table IV-10 show that the producer price index fell 5.2 percent in the 12 months ending in Dec 2009 because of the fall of commodity prices originating in risk aversion after the panic beginning in late 2008.

Table IV-5, Germany, Index of Producer Prices for Industrial Products ∆%

	12 Months ∆% NSA	Month ∆% Calendar and SA	Month ∆%  NSA
Apr 2013	0.1	-0.2	-0.2
Mar	0.4	-0.3	-0.2
Feb	1.2	-0.2	-0.1
AE ∆% Feb-Apr		-2.8	-2.0
Jan	1.7	0.1	0.8
AE ∆% Jan		1.2	10.0
Dec 2012	1.5	0.1	-0.3
Nov	1.4	0.1	-0.1
Oct	1.5	0.1	0.0
AE ∆% Oct-Dec		1.2	-1.6
Sep	1.7	0.2	0.3
Aug	1.6	0.6	0.5
AE ∆% Aug-Sep		4.9	4.9
Jul	0.9	-0.2	0.0
Jun	1.6	0.0	-0.4
May	2.1	0.0	-0.3
AE ∆% May-Jul		-0.8	-2.8
Apr	2.4	0.0	0.2
Mar	3.3	0.4	0.6
Feb	3.2	0.2	0.4
AE ∆% Feb-Apr		2.4	4.9
Jan	3.4	0.0	0.6
Dec 2011	4.0	-0.1	-0.4
AE ∆% Dec-Jan		-0.6	1.2
Nov	5.2	0.3	0.1
Oct	5.3	0.3	0.2
AE ∆% Oct-Nov		3.7	1.8
Sep	5.5	0.2	0.3
Aug	5.5	0.0	-0.3
Jul	5.8	0.5	0.7
AE ∆% Jul-Sep		2.8	2.8
Jun	5.6	0.3	0.1
May	6.1	0.4	0.0
AE ∆% May-Jun		4.3	0.6
Apr	6.4	0.6	1.0
Mar	6.2	0.3	0.4
Feb	6.4	0.6	0.7
Jan	5.7	0.6	1.2
AE ∆% Jan-Apr		6.5	10.4
Dec 2010	5.3	0.8	0.7
Nov	4.4	0.4	0.2
Oct	4.3	0.4	0.4
Sep	3.9	0.5	0.3
Aug	3.2	0.2	0.0
Jul	3.7	0.6	0.5
Jun	1.7	0.5	0.6
May	0.9	0.3	0.3
Apr	0.6	0.5	0.8
Mar	-1.5	0.6	0.7
Feb	-2.9	0.1	0.0
Jan	-3.4	0.4	0.8
Dec 2009	-5.2	0.2	-0.1
Dec 2008	4.0	-0.2	-0.8
Dec 2007	1.9	0.4	-0.1
Dec 2006	4.2	0.3	0.1
Dec 2005	4.8	0.5	0.3
Dec 2004	2.9	0.3	0.1
Dec 2003	1.8		0.0
Dec 2002	0.5		0.1
Dec 2001	0.1		-0.2

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

Chart IV-1 of the Federal Statistical Agency of Germany Statistiche Bundesamt Deutschland provides the producer price index of Germany from 2005 to 2013. Producer price inflation peaked in 2008 with the rise of commodity prices induced by the carry trade from zero interest rates to commodity futures during a global contraction. Prices then declined with the flight away from risk financial assets to government obligations after the financial panic in Sep 2008. With zero interest rates and no risk aversion, the carry trade pushed commodity futures prices upwardly resulting in new rising trend of the producer price index. The right-hand side of the chart shows moderation and even decline in prices because of severe risk aversion frustrating carry trades from zero interest rates to commodity futures but then return of risk appetite with another surge of the index in annual equivalent rate at 6.2 percent in Feb-Mar 2012 and 4.9 percent annual equivalent in Feb-Apr 2012 but decline of 0.3 percent in May 2012 and 0.4 percent in Jun 2012 with flat prices in Jul 2012 with the pace at annual equivalent rate of minus 4.1 percent in May-Jun 2012 and flat prices in Jul 2012. Inflation returned in Aug and Sep 2012 with carry trades into commodity futures with 4.9 percent annual equivalent. Inflation then collapsed to zero in Oct 2012 NSA, minus 0.1 percent in Nov 2012 and minus 0.3 percent in Dec 2012 with increases of 0.8 percent in Jan 2013 but declines of 0.1 in Feb 2013 and 0.2 percent in Mar-Apr 2013.

Chart IV-1, Germany, Index of Producer Prices for Industrial Products, 2005=100

Source: Statistisches Bundesamt Deutschland

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

Chart IV-2 provides the index of producer finished goods in the US from 2005 to 2013. Chart IV-2 of the US mirrors behavior in Chart IV-1 of Germany. Carry trades from zero interest rates to exposures in commodity futures and risk financial assets have synchronized worldwide inflation during periods of risk appetite and disinflation during periods of risk aversion.

Chart IV-2, US, Producer Price Index, Finished Goods, NSA, 2005-2013

Source: US Bureau of Labor Statistics

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

Chart IV-3 of the Federal Statistical Agency of Germany Statistiche Bundesamt Deutschland provides the unadjusted producer price index, trend and trend ends. There is a clear upward trend of prices after the end of risk aversion with zero interest rates in 2009. The actual curve fell below trend in the current episode of severe risk aversion but rose again in Feb-Apr 2012, falling in May-Jun 2012 with flat prices in Jul 2012, another increase in Aug-Sep 2012 and flat prices in Oct 2012 with declines of 0.1 percent in Nov 2012 and 0.3 percent in Dec 2012 followed by sharp increase of 0.8 percent in Jan 2013 and declines of 0.1 percent in Feb 2013 and 0.2 percent in Mar-Apr 2013.

Chart IV-3, Germany, Producer Price Index, Non-adjusted Value and Trend, 2005=100

Source: Statistiche Bundesamt Deutschland

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

Inflation in the UK is somewhat higher than in many advanced economies, deserving more detailed analysis. Table IV-6 provides 12-month percentage changes of UK output prices for all manufactured products, excluding food, beverage and petroleum and excluding duty. The 12-month rates rose significantly in 2011 in all three categories, reaching 6.3 percent for all manufactured products in Sep 2011 but declining to 5.7 percent in Oct, 5.4 in Nov and down to 1.8 percent in Jul 2012/ Inflation of all manufactured products increased marginally to 2.3 percent in Aug 2012, 2.5 percent in Sep, 2.6 in Oct, 2.1 percent in Nov-Jan 2012, 2.3 percent in Feb 2013, 1.9 percent in Mar 2013 and 1.1 percent in Apr 2013. Output price inflation is highly sensitive to commodity prices as shown by the increase by 6.7 percent in 2008 when oil prices rose over $140/barrel even in the midst of a global recession driven by the carry trade from zero interest rates to oil futures. The mirage episode of false deflation in 2001 and 2002 is also captured by output prices for the UK, which was originated in decline of commodity prices (see Barsky and Killian 2004) but was used as an argument for unconventional monetary policy of zero interest rates and quantitative easing during the past decade.

Table IV-6, UK Output Prices 12 Months ∆% NSA

	All Manufactured Products	Excluding Food, Beverage, Tobacco and Petroleum	All Excluding Duty
Apr 2013	1.1	0.8	1.1
Mar	1.9	1.3	1.7
Feb	2.3	1.3	2.1
Jan	2.1	1.4	1.9
Dec 2012	2.1	1.5	1.8
Nov	2.1	1.4	1.8
Oct	2.6	1.4	2.3
Sep	2.5	1.2	2.2
Aug	2.3	1.2	1.9
Jul	1.8	1.2	1.5
Jun	2.0	1.7	1.7
May	2.8	2.1	2.5
Apr	3.3	2.3	3.1
Mar	3.7	2.5	3.5
Feb	4.1	3.0	4.1
Jan	4.0	2.4	4.0
Dec 2011	4.8	3.0	4.8
Nov	5.4	3.1	5.6
Oct	5.7	3.3	5.9
Sep	6.3	3.7	6.4
Aug	6.0	3.5	6.2
Jul	6.1	3.4	6.2
Jun	5.8	3.2	5.9
May	5.4	3.4	5.5
Apr	5.6	3.6	5.8
Mar	5.6	3.1	5.5
Feb	5.3	3.1	5.2
Jan	5.0	3.3	5.0
Dec 2010	4.2	2.7	4.0
Year ∆%
2012	2.8	1.8	2.5
2011	5.6	3.4	5.7
2010	4.2	3.0	3.9
2009	1.6	2.5	1.0
2008	6.7	3.7	6.7
2007	2.4	1.4	2.1
2006	2.0	1.5	2.0
2005	1.9	1.0	1.9
2004	1.0	-0.3	0.6
2003	0.6	0.1	0.5
2002	-0.1	-0.4	-0.1
2001	-0.3	-0.6	-0.3
2000	1.4	-0.5	0.8
1999	0.6	-1.0	-0.3
1998	0.0	-0.9	-0.9
1997	0.9	0.3	0.1

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

Monthly and annual equivalent rates of change of output prices are shown in Table IV-7. There are waves of inflation similar to those in other countries (http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html). In the first wave, annual equivalent inflation was 12.0 percent in Jan-Apr 2011 with relaxed risk aversion in commodity markets. In the second wave, intermittent risk aversion resulted in annual equivalent inflation of 2.0 percent in May-Oct 2011. In the third wave, alternation of risk aversion resulted in annual equivalent inflation of 1.6 percent in Nov 2011 to Jan 2012. In the fourth wave, the energy commodity shock processed through carry trades caused the jump of annual equivalent inflation to 7.9 percent in Feb-Apr 2012. A fifth wave occurred in May-Jun 2012 with decline of output inflation by 5.3 percent annual equivalent in an environment of risk aversion that caused decline of commodity prices. A sixth wave under commodity shocks induced by carry trades from zero interest rates resulted in annual equivalent inflation of 4.5 percent in Jul-Sep 2012 and 4.0 percent in Jul-Oct 2012. In the seventh wave, annual equivalent inflation in Nov-Dec 2012 fell to minus 3.0 percent. In the eighth wave, annual equivalent inflation returned at 5.3 percent in Jan-Mar 2013. In the ninth wave, risk aversion returned with annual equivalent inflation of minus 1.2 percent in Apr 2013.

Table IV-7, UK Output Prices Month ∆% NSA

	All Manufactured Products	Excluding Food, Beverage and Petroleum	All Excluding Duty
Apr 2013	-0.1	0.1	-0.2
∆% AE Apr	-1.2	1.2	2.4
Mar	0.2	0.1	0.2
Feb	0.7	0.3	0.8
Jan	0.4	0.3	0.4
∆% AE Jan-Mar	5.3	2.8	5.7
Dec 2012	-0.2	0.0	-0.2
Nov	-0.3	-0.1	-0.2
∆% AE Nov-Dec	-3.0	-0.6	-2.4
Oct	0.2	0.1	0.2
Sep	0.5	0.3	0.5
Aug	0.5	0.1	0.6
Jul	0.1	-0.1	0.1
∆% AE Jul-Oct	4.0	1.2	4.3
Jun	-0.6	-0.2	-0.6
May	-0.3	-0.1	-0.4
∆% AE May-Jun	-5.3	-1.8	-5.8
Apr	0.7	0.6	0.5
Mar	0.6	0.1	0.5
Feb	0.6	0.5	0.6
∆% AE Feb-Apr	7.9	4.9	6.6
Jan	0.4	0.3	0.3
Dec 2011	-0.2	-0.1	-0.2
Nov	0.2	-0.1	0.2
∆% AE Nov-Jan	1.6	0.4	1.2
Oct	0.0	-0.1	0.1
Sep	0.3	0.3	0.2
Aug	0.0	0.1	0.1
Jul	0.3	0.4	0.3
Jun	0.2	0.2	0.2
May	0.2	0.2	0.2
∆% AE May-Oct	2.0	2.2	2.2
Apr	1.1	0.8	0.9
Mar	1.1	0.5	1.1
Feb	0.5	0.0	0.5
Jan	1.1	0.8	1.1
Jan-Apr ∆% AE	12.0	6.5	11.4
Dec 2010	0.5	0.0	0.6

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

Input prices in the UK have been more dynamic than output prices until the current event of risk aversion, as shown by Table IV-8, but with sharp oscillations because of the commodity and raw material content. The 12-month rates of increase of input prices, even excluding food, tobacco, beverages and petroleum, are very high, reaching 18.1 percent in Sep 2011 for materials and fuels purchased and 13.3 percent excluding food, beverages and petroleum. Inflation in 12 months of materials and fuels purchased moderated to 5.4 percent in Mar 2012 and 4.1 percent excluding food, tobacco, beverages and petroleum with the rates falling further in Apr to 1.1 percent for materials and fuels purchased and 2.2 percent excluding food, tobacco, beverages and petroleum. Input-price inflation collapsed in the 12 months ending in Jul 2012 to minus 2.6 percent for materials and fuels purchased and minus 1.5 percent excluding food, beverages and tobacco. Inflation returned at 1.2 percent in the 12 months ending in Aug 2012 but minus 0.5 percent excluding food, tobacco, beverages and petroleum. Inflation of input prices in Sep 2012 was minus 0.8 percent and minus 0.8 percent excluding food, beverages and petroleum. In Nov 2012, inflation of input prices of all manufacturing and materials purchased was minus 0.1 percent in 12 months and minus 0.2 percent in 12 months excluding food, tobacco, beverages and petroleum. Inflation of materials and fuels purchased in 12 months was 0.6 percent in Dec 2012 and 0.1 percent excluding tobacco, beverages and petroleum. Inflation of inputs returned with 1.9 percent in the 12 months ending in Jan 2013 and 0.7 percent excluding various items, increasing to 2.3 percent in Feb 2013 and 1.8 percent excluding various items. In Mar 2013, inflation of all manufacturing materials and fuels increased 0.8 percent in 12 months and 1.9 percent excluding various items. Prices of all manufacturing materials and fuels fell 0.1 percent in the 12 months ending in Apr 2013 and increased 1.1 percent excluding food and other items. There is comparable experience with 22.2 percent inflation of materials and fuels purchased in 2008 and 16.9 percent excluding food, beverages and petroleum followed in 2009 by decline of 3.8 percent by materials and fuels purchased and increase of 1.6 percent for the index excluding items. UK input and output inflation is sensitive to commodity price increases driven by carry trades from zero interest rates. The mirage of false deflation is also observed in input prices in 1997-9 and then again from 2001 to 2003.

Table IV-8, UK, Input Prices 12-Month ∆% NSA

	All Manufacturing Materials and Fuels Purchased	Excluding Food, Tobacco, Beverages and Petroleum
Apr 2013	-0.1	1.1
Mar	0.8	1.9
Feb	2.3	1.8
Jan	1.9	0.7
Dec 2012	0.6	0.1
Nov	-0.1	-0.2
Oct	0.2	-0.4
Sep	-0.8	-0.8
Aug	1.2	-0.5
Jul	-2.6	-1.5
Jun	-2.2	-0.3
May	0.1	1.1
Apr	1.1	2.2
Mar	5.4	4.1
Feb	7.7	5.7
Jan	6.5	5.6
Dec 2011	8.9	7.2
Nov	13.8	10.2
Oct	14.5	11.0
Sep	18.1	13.3
Aug	16.3	13.0
Jul	18.5	13.3
Jun	16.8	12.6
May	16.3	11.4
Apr	17.9	12.2
Mar	14.8	10.3
Feb	14.9	10.7
Jan	14.2	10.5
Dec 2010	13.1	9.0
Year ∆%
2012	1.4	1.1
2011	15.4	11.5
2010	9.9	5.7
2009	-3.8	1.6
2008	22.2	16.9
2007	2.9	2.3
2006	9.8	7.3
2005	11.0	6.9
2004	3.3	1.6
2003	1.2	-0.6
2002	-4.4	-4.8
2001	-1.2	-1.2
2000	7.4	3.7
1999	-1.3	-3.6
1998	-9.1	-4.6
1997	-8.2	-6.3

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

Table IV-9 provides monthly percentage changes of UK input prices for materials and fuels purchased and excluding food, tobacco, beverages and petroleum. There are strong waves of inflation of input prices in the UK similar to those worldwide (http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html). In the first wave, input prices rose at the high annual equivalent rate of 35.6 percent in Jan-Apr 2011, driven by carry trades from unconventional monetary policy into commodity exposures. In the second wave, alternating risk aversion caused annual equivalent inflation of minus 3.1 percent in May-Oct 2011. In the third wave, renewed risk aversion resulted in annual equivalent inflation of minus 1.2 percent in Nov-Dec 2011. In the fourth wave, annual equivalent inflation of input prices in the UK surged at 18.1 percent in Jan-Mar 2012 under relaxed risk aversion. In the fifth wave, annual equivalent inflation was minus 21.9 percent in Apr-Jun 2012 because of collapse of commodity prices during increasing risk aversion. In the sixth wave, annual equivalent inflation of materials and fuels purchased jumped to 14.0 percent in Jul-Aug 2012. In the seventh wave, annual equivalent inflation moderated to 1.5 percent in Sep-Dec 2012. In the eighth wave, annual equivalent inflation in Jan-Feb 2013 jumped to 29.0 percent. In the eighth wave, annual equivalent inflation of materials and fuels purchased was minus 1.2 percent in Mar-Apr 2013.

Table IV-9, UK Input Prices Month ∆% 

	All Manufacturing Materials and Fuels Purchased NSA	Excluding Food, Tobacco, Beverages and Petroleum SA
Apr 2013	-2.3	-0.6
Mar	0.1	-0.5
∆% Mar	-12.5	-6.4
Feb	2.9	1.6
Jan	1.4	0.4
∆% Jan-Feb	29.0	12.7
Dec 2012	0.1	-0.2
Nov	0.1	0.2
Oct	0.2	0.3
Sep	0.1	0.2
∆% Sep-Dec	1.5	1.5
Aug	2.0	1.0
Jul	0.2	-0.3
∆% Jul-Aug	14.0	4.3
Jun	-2.1	-0.2
May	-2.6	-0.8
Apr	-1.4	0.1
∆% Apr-Jun	-21.9	-3.6
Mar	1.6	-0.5
Feb	2.5	0.7
Jan	0.1	-0.1
∆% AE Jan-Mar	18.1	0.4
Dec 2011	-0.6	-0.7
Nov	0.4	0.1
∆% AE Nov-Dec	-1.2	-3.6
Oct	-0.8	-0.5
Sep	2.1	0.6
Aug	-1.9	0.1
Jul	0.6	0.9
Jun	0.1	1.0
May	-1.6	-0.1
∆% AE May-Oct	-3.1	4.1
Apr	2.8	2.0
Mar	3.8	1.0
Feb	1.4	1.0
Jan	2.3	1.5
∆% AE Jan-Apr	35.6	17.8
Dec 2010	3.9	1.9

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

The UK Office for National Statistics also provides contributions in percentage points to the monthly and 12-month rates of inflation of manufactured products, shown in Table IV-10. There are high contributions to 12-month percentage changes of 0.71 percentage points by food products, 0.40 percentage points by tobacco and alcohol, 0.13 percentage points by computer, electrical and optical and 0.18 percentage points by other manufactured products. There are diversified sources of contributions to 12 months output price inflation such as 0.14 percentage points by clothing, textile and leather and 0.10 percentage points by transport equipment. Petroleum deducted 0.48 percentage points. In general, contributions by products rich in commodities are the drivers of price changes. There were diversified contributions in percentage points to monthly inflation: 0.15 percentage points by food products, 0.12 percentage points by tobacco and alcohol and 0.01 percentage points by other manufactured products. Decrease of petroleum prices by 2.7 percent deducted 0.40 percentage points to monthly inflation of manufactured products.

Table IV-10, UK, Contributions to Month and 12-Month Change in Prices of All Manufactured Products, Percentage Points, NSA

Apr 2013	12 Months % Points	12 Months ∆%	Month  % Points	Month ∆%
Total %		1.1		-0.1
Food Products	0.71	4.6	0.15	0.7
Tobacco & Alcohol	0.40	3.7	0.12	0.9
Clothing, Textile & Leather	0.14	1.3	0.03	0.2
Paper and Printing	-0.03	-1.0	0.00	0.0
Petroleum	-0.48	-4.1	-0.40	-2.7
Chemical & Pharmaceutical	-0.04	-0.5	-0.06	-0.5
Metal, Machinery & Equipment	0.01	0.4	0.00	0.1
Computer, Electrical & Optical	0.13	1.6	0.07	0.6
Transport Equipment	0.10	1.0	-0.01	-0.2
Other Manufactured Products	0.18	1.1	0.01	0.0

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

The UK Office for National Statistics also provides contributions in percentage points to the monthly and 12-month rates of inflation of input prices, shown in Table IV-11. Crude oil is a large factor with deduction of 3.81 percentage points to the 12-month rate and deduction of 1.70 percentage points to the monthly rate in Apr. Inflation also transfers to the domestic economy through the prices of imported inputs: imported metals deducted 0.49 percentage points from the 12-month rate and 0.22 percentage points to the Apr rate. Domestic food added 2.29 percentage points to the 12-month rate and 0.16 percentage points from the Apr rate. Exposures and reversals of commodity exposures in carry trades during risk aversion are a major source of financial instability.

Table IV-11, UK, Contributions to Month and 12-Month Change in Prices of Inputs, Percentage Points NSA

Apr 2013	12 Months % Points	12 Months ∆%	Month % Points	Month ∆%
Total		-0.1		-2.3
Fuel	0.84	6.9	-0.22	-2.1
Crude Oil	-3.81	-10.4	-1.70	-6.3
Domestic Food Materials	2.29	18.0	0.16	1.4
Imported Food Materials	0.31	4.6	-0.01	-0.1
Other Domestic Produced Materials	-0.06	-1.2	0.02	0.4
Imported Metals	-0.49	-5.0	-0.22	-3.0
Imported Chemicals	0.07	0.5	-0.09	-0.8
Imported Parts and Equipment	0.46	2.5	-0.18	-1.3
Other Imported Materials	0.28	2.2	-0.06	-0.6

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

Consumer price inflation in the UK is shown in Table IV-12. The CPI index increased 0.3 percent in Mar 2013 and 2.8 percent in 12 months. The same inflation waves (http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html) are present in UK CPI inflation. In the first wave in Jan-Apr 2011, annual equivalent inflation was at a high 6.5 percent. In the second wave in May-Jul 2011, annual equivalent inflation fell to only 0.4 percent. In the third wave in Aug-Nov 2011, annual equivalent inflation returned at 4.6 percent. In the fourth wave in Dec 2011 to Jan 2012, annual equivalent inflation was minus 0.6 percent because of decline of 0.5 percent in Jan 2012. In the fifth wave, annual equivalent inflation increased to 6.2 percent in Feb-Apr 2012. In the seventh wave, annual equivalent inflation was minus 3.0 percent in May-Jun 2012. In the eighth wave, annual equivalent inflation in Jul-Dec 2012 was 4.5 percent and 6.2 percent in Oct 2012 with the rate in Oct caused mostly by increases in university tuition payments. In the ninth wave, annual equivalent inflation was minus 5.8 percent in Jan 2013. In the tenth wave, annual equivalent inflation jumped to 4.9 percent in Feb-Apr 2013.

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

	Month ∆%	12 Months ∆%
Apr 2013	0.2	2.4
Mar	0.3	2.8
Feb	0.7	2.8
AE ∆% Feb-Apr	4.9
Jan 2013	-0.5	2.7
AE ∆% Jan	-5.8
Dec 2012	0.5	2.7
Nov	0.2	2.7
Oct	0.5	2.7
Sep	0.4	2.2
Aug	0.5	2.5
Jul	0.1	2.6
AE ∆% Jul-Dec	4.5
Jun	-0.4	2.4
May	-0.1	2.8
AE ∆% May-Jun	-3.0
Apr	0.6	3.0
Mar	0.3	3.5
Feb	0.6	3.4
AE ∆% Feb-Apr	6.2
Jan	-0.5	3.6
Dec 2011	0.4	4.2
AE ∆% Dec-Jan	-0.6
Nov	0.2	4.8
Oct	0.1	5.0
Sep	0.6	5.2
Aug	0.6	4.5
AE ∆% Aug-Nov	4.6
Jul	0.0	4.4
Jun	-0.1	4.2
May	0.2	4.5
May-Jul	0.4
Apr	1.0	4.5
Mar	0.3	4.0
Feb	0.7	4.4
Jan	0.1	4.0
AE ∆% Jan-Apr	6.5
Dec 2010	1.0	3.7
Nov	0.4	3.3
Oct	0.3	3.2
Sep	0.0	3.1
Aug	0.5	3.1
Jul	-0.2	3.1
Jun	0.1	3.2
May	0.2	3.4
Apr	0.6	3.7
Mar	0.6	3.4
Feb	0.4	3.0
Jan	-0.2	3.5

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

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

Table IV-13, UK, Consumer Price Index, Annual ∆%

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

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

Table IV-14 provides the analysis of inflation in Apr 2013 by the UK Office for National Statistics. Food & nonalcoholic beverages added 0.07 percentage points, alcohol and tobacco added 0.10 percentage points and housing and household services added 0.09 percentage points. Contributions of percentage points to the 12-month rate of consumer price inflation of 2.4 percent are in the third columns in Table IV-14. Food and nonalcoholic beverages added 0.50 percentage points, alcohol and tobacco 0.25 percentage points and housing and household services 0.59 percentage points. Education increased added 0.37 percentage points. The UK Office for National Statistics explains as follows (http://www.ons.gov.uk/ons/dcp171778_286398.pdf pages 3-4):

“The CPI rose by 0.5 per cent between September and October this year [2012]. By far the largest upward contribution to the 1-month change came from: education: prices, overall, rose by 19.1 per cent between September and October. This is more than twice the size of the next biggest monthly increase for education prices since CPI records began in 1996. The increase was due predominantly to a significant rise in undergraduate tuition fees, where the maximum annual tuition fees for new UK and EU students in England rose to £9,000.”

Table IV-14, UK, Consumer Price Index Month and Twelve-month Percentage Point Contributions to Change by Components

Apr 2013	Percentage Point Contribution	Percentage Point Contribution
CPI All Items	0.2	2.4
Food & Non-Alcoholic Beverages	0.07	0.50
Alcohol & Tobacco	0.10	0.25
Clothing & Footwear	0.00	-0.03
Housing & Household Services	0.09	0.59
Furniture & Household Goods	-0.08	0.01
Health	0.03	0.06
Transport	-0.09	-0.03
Communication	0.01	0.09
Recreation & Culture	0.00	0.20
Education	0.00	0.37
Restaurants & Hotels	0.05	0.29
Miscellaneous Goods & Services	0.01	0.11

Note: there are rounding effects in contributions

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

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 ∆% 2013	Real GDP ∆% 2014	Real GDP ∆% 2015	Real GDP ∆% 2016
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 from IQ2012 to IQ2013 available now for all countries. Growth is weak throughout most of the world. Japan’s GDP increased 1.3 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 5.3 percent in IQ2012. Growth of 4.0 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 3.5 percent and increased 0.3 percent relative to a year earlier. Japan’s GDP grew 0.3 percent in IVQ2012 at the SAAR of 1.0 percent and increased 0.5 percent relative to a year earlier. Japan grew 0.9 percent in IQ2013 at the SAAR of 3.5 percent and 0.2 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 decreased 0.1 in IQ2012 relative to a year earlier. Euro area GDP contracted 0.2 percent IIQ2012 and fell 0.5 percent relative to a year earlier. In IIIQ2012, euro area GDP fell 0.1 percent and declined 0.7 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. In IQ2013, the GDP of the euro area fell 0.2 percent and decreased 1.0 percent relative to a year earlier. Germany’s GDP increased 0.6 percent in IQ2012 and 1.8 percent relative to a year earlier. In IIQ2012, Germany’s GDP increased 0.2 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 0.7 percent in IVQ2012 and increased 0.0 percent relative to a year earlier. In IQ2013, Germany’s GDP increased 0.1 percent and fell 1.4 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 (http://cmpassocregulationblog.blogspot.com/2013/04/mediocre-and-decelerating-united-states_28.html) with weak hiring (http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/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 seven consecutive quarters from IIIQ2011 to IQ2013. Italy’s GDP fell 1.0 percent in IQ2012 and declined 1.7 percent relative to IQ2011. Italy’s GDP fell 0.6 percent in IIQ2012 and declined 2.5 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. In IQ2013, Italy’s GDP contracted 0.5 percent and fell 2.3 percent relative to a year earlier. France’s GDP changed 0.0 percent in IQ2012 and increased 0.3 percent relative to a year earlier. France’s GDP decreased 0.2 percent in IIQ2012 and increased 0.1 percent relative to a year earlier. In IIIQ2012, France’s GDP increased 0.1 percent and increased 0.0 percent relative to a year earlier. France’s GDP fell 0.2 percent in IVQ2012 and declined 0.3 percent relative to a year earlier. In IQ2013, France GDP fell 0.2 percent and declined 0.4 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: 1.3 SAAR: 5.3	3.4
China	1.6	8.1
Euro Area	-0.1	-0.1
Germany	0.6	1.8
France	0.0	0.3
Italy	-1.0	-1.7
United Kingdom	-0.1	0.5
	IIQ2012/IQ2012	IIQ2012/IIQ2011
United States	QOQ:0.3         SAAR: 1.3	2.1
Japan	QOQ: -0.2 SAAR: -0.9	4.0
China	1.9	7.6
Euro Area	-0.2	-0.5
Germany	0.2	0.5 1.0 CA
France	-0.2	0.1
Italy	-0.6	-2.5
United Kingdom	-0.4	0.0
	IIIQ2012/ IIQ2012	IIIQ2012/ IIIQ2011
United States	QOQ: 0.8  SAAR: 3.1	2.6
Japan	QOQ: –0.9 SAAR: –3.5	0.3
China	2.1	7.4
Euro Area	-0.1	-0.7
Germany	0.2	0.4
France	0.1	0.0
Italy	-0.2	-2.6
United Kingdom	0.9	0.4
	IVQ2012/IIIQ2012	IVQ2012/IVQ2011
United States	QOQ: 0.1 SAAR: 0.4	1.7
Japan	QOQ: 0.3 SAAR: 1.0	0.5
China	2.0	7.9
Euro Area	-0.6	-0.9
Germany	-0.7	0.0
France	-0.2	-0.3
Italy	-0.9	-2.8
United Kingdom	-0.3	0.2
	IQ2013/IVQ2012	IQ2013/IQ2012
United States	QOQ: 0.6 SAAR: 2.5	1.8
Japan	QOQ: 0.9 SAAR: 3.5	0.2
China	1.6	7.7
Euro Area	-0.2	-1.0
Germany	0.1	-1.4
France	-0.2	-0.4
Italy	-0.5	-2.3
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/2013/04/world-inflation-waves-squeeze-of.html 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 and earlier 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 Apr 2013, Japan’s exports grew 3.8 percent in 12 months while imports increased 9.4 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 1.3 percentage points in IIQ2012, contributed 1.4 percentage points in IIIQ2012, contributed 0.7 percentage points in IVQ2012 and contributed 1.0 percentage points in 2012. Net trade deducted 0.1 percentage points from Germany’s GDP growth. 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. In IQ2013, net trade deducted 0.1 percentage points from UK’s GDP growth. France’s exports increased 0.5 percent in Mar 2013 while imports decreased 1.1 percent and net trade added 0.2 percentage points to GDP growth in IIQ2012, adding 0.2 percentage points in IIIQ2012 and 0.2 percentage points in IVQ2012. Net trade deducted 0.2 percentage points from France’s GDP growth in IQ2013. 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 Apr 2013, United States national industrial production accumulated increase of 2.0 percent at the annual equivalent rate of 4.1 percent, which is higher than 1.9 percent growth in 12 months. Excluding 1.3 percent growth in Nov 2012 in the rebound from hurricane Sandy, growth in the five months from Dec 2012 to Apr 2013 accumulated to 0.7 percent or 1.7 percent annual equivalent. Business equipment decreased 0.5 percent in Apr 2013, growing 3.4 percent in the 12 months ending in Apr 2013 and at the annual equivalent rate of 5.6 percent in the six months ending in Apr 2013 and 0.9 percent annual equivalent in the five months ending in Apr 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 decreased 0.5 percentage point to 77.8 percent, a rate 0.1 percentage point above its level of a year earlier but 2.4 percentage points below its long-run (1972--2012) average.” United States industry is apparently decelerating with some strength at the margin. Manufacturing decreased 0.4 percent in Apr 2013 seasonally adjusted, increasing 2.1 percent not seasonally adjusted in 12 months. Manufacturing grew cumulatively 2.1 percent in the six months ending in Apr 2013 or at the annual equivalent rate of 4.3 percent. Excluding the increase of 1.4 percent in Nov 2012 because of recovery from hurricane Sandy, manufacturing accumulated growth of 0.7 percent from Dec 2012 to Apr 2013 or at the annual equivalent rate of 1.7 percent. Manufacturing fell 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increased 16.8 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. Manufacturing grew 18.5 percent from the trough in Apr 2009 to Apr 2013. Manufacturing output in Apr 2013 is 7.4 percent below the peak in Jun 2007. Data do suggest that world trade slowdown is accompanying world economic slowdown.

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

	Exports M ∆%	Exports 12 M ∆%	Imports M ∆%	Imports 12 M ∆%
USA	-0.9 Mar	2.2 Jan-Mar	-2.5 Jan	-0.1 Jan-Mar
Japan		Apr 2013 3.8 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		Apr 2013 9.4 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	0.1 12-M Mar	1.3 Jan-Mar	-9.9 12-Mar	-5.2 Jan-Mar
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 Mar	1.2	-6.0	0.2	-10.6
UK	3.5 Mar	-2.0 Jan-Mar13 12/Jan-Mar 13	2.6 Mar	-1.0 Jan-Mar 13/Jan-Mar 12
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 1.3 IIQ2012 1.4 IIIQ2012 0.7 IVQ2012 1.0 2012 IQ2013 -0.1
France	0.2 IIQ2012   0.1 IIIQ2012 0.2 IVQ2012 -0.2 IQ2013
UK	-0.7 IQ2012 -0.8 IIQ2012 +0.4 IIIQ2012 -0.2 IVQ2012 -0.1 IQ2013

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 Apr 2013. The share of Asia in Japan’s trade is more than one half, 54.5 percent of exports and 43.4 percent of imports. Within Asia, exports to China are 17.3 percent of total exports and imports from China 21.6 percent of total imports. While exports to China increased 0.3 percent in the 12 months ending in Apr 2013, imports from China increased 13.3 percent. The largest export market for Japan in Apr 2013 is the US with share of 19.1 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 9.7 percent in imports. Rates of growth of exports of Japan in Mar 2013 are low or negative for several countries and regions with the exception of growth of 14.8 percent for exports to the US, 12.0 for exports to Mexico, 20.7 percent for exports to Brazil and 16.9 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 3.8 percent in Apr 2013 while imports increased 9.4 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Apr 2013 are positive for most trading partners. Imports from Asia increased 13.1 percent in the 12 months ending in Apr 2013 while imports from China increased 13.3 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

Apr 2013	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	5,777,409	3.8	6,657,345	9.4
Asia	3,151,351	4.3	2,888,002	13.1
China	998,409	0.3	1,440,866	13.3
USA	1,101,287	14.8	538,297	0.8
Canada	67,974	-5.1	113,225	42.4
Brazil	47,383	20.7	71,162	-9.3
Mexico	82,091	12.0	34,516	31.7
Western Europe	568,417	-3.5	644,944	11.4
Germany	144,476	-1.3	175,918	18.4
France	59,019	12.5	95,282	12.1
UK	82,661	-5.9	50,925	1.0
Middle East	196,158	6.1	1,341,440	1.6
Australia	147,004	16.9	397,067	8.4

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 2005=100	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’ Index^TM (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	Apr 12 months NSA ∆%: 1.1; ex food and energy ∆%: 1.7 Apr month SA ∆%: -0.4; ex food and energy ∆%: 0.1 Blog 5/19/13
Producer Price Index	Apr 12-month NSA ∆%: 0.6; ex food and energy ∆% 1.7 Apr month SA ∆% = -0.7; ex food and energy ∆%: 0.1 Blog 5/19/13
PCE Inflation	Mar 12-month NSA ∆%: headline 1.0; ex food and energy ∆% 1.1 Blog 5/5/13
Employment Situation	Household Survey: Apr Unemployment Rate SA 7.5% Blog calculation People in Job Stress Apr: 28.6 million NSA, 17.6% of Labor Force Establishment Survey: Nov Nonfarm Jobs +165,000; Private +176,000 jobs created  Mar 12-month Average Hourly Earnings Inflation Adjusted ∆%: 0.4 Blog 5/5/13
Nonfarm Hiring	Nonfarm Hiring fell from 63.8 million in 2006 to 52.0 million in 2012 or by 11.8 million Private-Sector Hiring Mar 2013 3.869 million lower by 0.746 million than 4.615 million in Mar 2007 Blog 5/12/13
GDP Growth	BEA Revised National Income Accounts IQ2012/IQ2011 ∆%: 2.4 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 Blog 3/31/13 4/28/13
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 Real Personal Consumption Expenditures (RPCE): 0.3 12-month Mar NSA ∆%: RDPI: 1.1; RPCE ∆%: 2.0 Blog 5/5/2013
Quarterly Services Report	IVQ12/IVQ11 SA ∆%: Information 5.4 Financial & Insurance 6.2 Blog 3/10/13
Employment Cost Index	Compensation Private IQ2013 SA ∆%: 0.3 Jan 13 months ∆%: 1.7 Blog 5/5/13
Industrial Production	Apr month SA ∆%: -0.5 Apr 12 months SA ∆%: 1.9 Manufacturing Apr SA ∆% -0.4 Apr 12 months SA ∆% 1.3, NSA 2.1 Capacity Utilization: 77.8 Blog 5/19/13
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 Apr 3.05 to May -1.43 New Orders: From Apr 2.20 to May -1.17 Blog 5/19/13
Philadelphia Fed Business Outlook Index	General Index from Apr 1.3 to May -5.2 New Orders from Apr -1.0 to May -7.9 Blog 5/19/13
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 Blog 5/5/13
Durable Goods	Apr New Orders SA ∆%: minus 3.3; ex transport ∆%: 1.3 Jan-Apr 13/Jan-Apr 12 New Orders NSA ∆%: 0.7; ex transport ∆% 0.7 Blog 5/26/13
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 Goods: 1.8 Blog 5/12/13
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Mar 13/Mar 12 NSA ∆%: Sales Total Business 0.1; Manufacturers 0.2 Retailers 1.7; Merchant Wholesalers -1.5 Blog 5/19/13
Sales for Retail and Food Services	Jan-Apr 2013/Jan-Apr 2012 ∆%: Retail and Food Services 3.3; Retail ∆% 3.2 Blog 5/19/13
Value of Construction Put in Place	Mar SAAR month SA ∆%: -1.7 Mar 12-month NSA: 4.9 Jan-Mar 2013 ∆% 4.7 Blog 5/5/13
Case-Shiller Home Prices	Feb 2013/Feb 2012 ∆% NSA: 10 Cities 8.6; 20 Cities: 9.3 ∆% Feb SA: 10 Cities 1.2 ; 20 Cities: 1.2 Blog 5/5/13
FHFA House Price Index Purchases Only	Mar SA ∆% 1.3; 12 month NSA ∆%: 7.2 Blog 5/26/13
New House Sales	Apr 2013 month SAAR ∆%: minus 2.3 Jan-Apr 2013/Jan-Apr 2012 NSA ∆%: 26.8 Blog 5/26/13
Housing Starts and Permits	Apr Starts month SA ∆%: -16.5 ; Permits ∆%: +14.3 Jan-Apr 2013/Jan-Apr 2012 NSA ∆% Starts 28.9; Permits  ∆% 27.3 Blog 5/19/13
Trade Balance	Balance Mar SA -$38,829 million versus Feb -$42,960 million Exports Mar SA ∆%: -0.9 Imports Mar SA ∆%: -2.5 Goods Exports Jan-Mar 2013/2012 NSA ∆%: 0.5 Goods Imports Jan-Mar 2013/2012 NSA ∆%: -2.8 Blog 5/12/13
Export and Import Prices	Apr 12-month NSA ∆%: Imports -2.6; Exports -0.9 Blog 5/19/13
Consumer Credit	Mar ∆% annual rate: 3.4 Blog 5/12/13
Net Foreign Purchases of Long-term Treasury Securities	Mar Net Foreign Purchases of Long-term Treasury Securities: -$13.5 billion Major Holders of Treasury Securities: China $1251 billion; Japan $1105 billion; Total Foreign US Treasury Holdings Feb $5758 billion Blog 5/19/13
Treasury Budget	Fiscal Year 2013/2012 ∆% Apr: Receipts 15.9; Outlays minus 0.6; Individual Income Taxes 20.0 Deficit Fiscal Year 2011 $1,297 billion 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	Apr 2013 SAAR ∆%: Securities 1.0 Loans 5.1 Cash Assets 9.0 Deposits 2.4 Blog 5/26/13
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:

5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

5/12/13 http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html

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

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

Manufacturers’ shipments of durable goods decreased 0.6 percent in Apr 2013 after increasing 0.9 percent in Mar 2013 and increasing 0.7 percent in Feb 2013. New orders increased 3.3 percent in Apr 2013 after decreasing 5.9 percent in Mar 2013 and increasing 6.4 percent in Feb 2013, as shown in Table VA-1. These data are very volatile. Volatility is illustrated by decrease of 12.9 percent in Nov 2012 after increase of orders for nondefense aircraft of 2642.2 percent in Sep 2012 after decrease of 97.2 percent in Aug and increases of 51.1 percent in Jul 2012 and 32.5 percent in Jun 2012. Nondefense aircraft new orders increased 18.1 percent in Apr 2013 after decreasing 43.0 percent in Mar 2013 and increasing 112.8 percent in Feb 2013. New orders excluding transportation equipment increased 1.3 percent in Apr 2013, decreasing 1.7 percent in Mar 2013 and decreasing 0.2 percent in Feb 2013. Capital goods new orders, indicating investment, increased 5.4 percent in Apr 2013 and decreased 12.1 percent in Mar 2013 after increase of 12.3 percent in Feb 2013. New orders of nondefense capital goods increased 3.3 percent in Apr 2013, decreased 9.0 percent in Mar 2013 and increased 9.2 percent in Feb 2013. Excluding more volatile aircraft, capital goods orders increased 1.2 percent in Apr 2013, increasing 0.9 percent in Mar 2013 and decreasing 4.8 percent in Feb 2013.

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

	Apr 2013 ∆%	Mar 2013 ∆%	Feb 2013  ∆%
Total
S	-0.6	0.9	0.7
NO	3.3	-5.9	6.4
Excluding Transport
S	-0.4	0.1	0.4
NO	1.3	-1.7	-0.2
Excluding Defense
S	-0.3	0.7	0.6
NO	2.1	-4.4	5.4
Machinery
S	-1.3	0.6	2.4
NO	1.9	-1.8	-4.2
Computers & Electronic Products
S	-2.9	3.3	-1.1
NO	3.6	-0.5	-0.9
Computers
S	-5.6	12.1	-2.3
NO	-3.7	-0.2	9.0
Transport Equipment
S	-0.9	3.0	1.4
NO	8.1	-14.7	23.7
Motor Vehicles
S	2.0	0.7	3.9
NO	1.9	0.5	4.3
Nondefense Aircraft
S	-9.6	14.0	-11.7
NO	18.1	-43.0	112.8
Capital Goods
S	-3.3	2.6	0.3
NO	5.4	-12.1	12.3
Nondefense Capital Goods
S	-3.0	2.4	-0.4
NO	3.3	-9.0	9.2
Capital Goods ex Aircraft
S	-1.5	0.5	1.6
NO	1.2	0.9	-4.8

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

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

Chart VA-1 provides monthly changes in durable goods new orders. There is significant volatility in these data, preventing identification of trends.

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

Source: US Census Bureau

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

Additional perspective on manufacturers’ shipments and new orders of durable goods is provided by Table VA-2. Values are cumulative millions of dollars in Jan-Apr 2013 not seasonally adjusted (NSA). Shipments of all manufacturing industries in Jan-Apr 2013 total $886.7 billion and new orders total $876.8 billion, growing respectively by 2.5 percent and 0.7 percent relative to the same period in 2012. Excluding transportation equipment, shipments grew 0.8 percent and new orders increased 0.7 percent. Excluding defense, shipments grew 2.6 percent and new orders grew 2.0 percent. Important information not in Table VA-2 is the large share of nondurable goods: with shipments of $3 trillion in 2012, growing by 2.0 percent, and new orders of $3 trillion, growing by 2.0 percent, in part driven by higher prices for food and energy. Durable goods were lower in value in 2012, with shipments of $2.7 trillion, growing by 7.0 percent, and new orders of $2.6 trillion, growing by 4.1 percent. Capital goods have relatively high value of $317.2 billion for shipments, growing 1.1 percent, and new orders $330.5 billion, growing minus 2.7 percent. Excluding aircraft, capital goods shipments reached $255.3 billion, growing by 1.2 percent, and new orders $270.7 billion, growing 1.8 percent. Data weakened significantly in 2013.

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

Jan-Apr 2013	Shipments	∆% 2013/ 2012	New Orders	∆% 2013/  2012
Total	886,706	2.5	876,784	0.7
Excluding Transport	626,383	0.8	620,850	0.7
Excluding Defense	840,552	2.6	838,324	2.0
Machinery	135,375	5.0	139,529	3.6
Computers & Electronic Products	105,668	-3.6	80,780	-8.9
Computers & Related Products	8,127	-6.7	8,351	-4.1
Transport Equipment	260,323	6.9	255,934	0.7
Motor Vehicles	176,176	10.0	176,683	10.4
Nondefense Aircraft	37,921	1.1	43,231	-10.8
Capital Goods	317,230	1.1	330,539	-2.7
Nondefense Capital Goods	279,658	0.9	299,842	-0.4
Capital Goods ex Aircraft	255,280	1.2	270,677	1.8

Note: Transport: transportation

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

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

Chart VA-2, US, Output of Durable Manufacturing, 1972-2013

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/g17/Current/default.htm

Manufacturing jobs were unchanged in Apr 2013 relative to Mar 2013, seasonally adjusted and increased 15,000 in Apr 2013 relative to Mar 2013, not seasonally adjusted, as shown in Table II-3 (and earlier at http://cmpassocregulationblog.blogspot.com/2013/04/thirty-million-unemployed-or.html). Manufacturing jobs not seasonally adjusted increased 80,000 from Apr 2012 to Apr 2013 or at the average monthly rate of 6,667. There are effects of the weaker economy and international trade together with the yearly adjustment of labor statistics. In the six months ending in Apr 2013, United States national industrial production accumulated increase of 2.0 percent at the annual equivalent rate of 4.1 percent, which is higher than 1.9 percent growth in 12 months. Excluding 1.3 percent growth in Nov 2012 in the rebound from hurricane Sandy, growth in the five months from Dec 2012 to Apr 2013 accumulated to 0.7 percent or 1.7 percent annual equivalent. Business equipment decreased 0.5 percent in Apr 2013, growing 3.4 percent in the 12 months ending in Apr 2013 and at the annual equivalent rate of 5.6 percent in the six months ending in Apr 2013 and 0.9 percent annual equivalent in the five months ending in Apr 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 decreased 0.5 percentage point to 77.8 percent, a rate 0.1 percentage point above its level of a year earlier but 2.4 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 decreased 0.4 percent in Apr 2013 seasonally adjusted, increasing 2.1 percent not seasonally adjusted in 12 months. Manufacturing grew cumulatively 2.1 percent in the six months ending in Apr 2013 or at the annual equivalent rate of 4.3 percent. Excluding the increase of 1.4 percent in Nov 2012 because of recovery from hurricane Sandy, manufacturing accumulated growth of 0.7 percent from Dec 2012 to Apr 2013 or at the annual equivalent rate of 1.7 percent. Manufacturing fell 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increased 16.8 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. Manufacturing grew 18.5 percent from the trough in Apr 2009 to Apr 2013. Manufacturing output in Apr 2013 is 7.4 percent below the peak in Jun 2007.

Table II-3 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.3 percent in US national income in IVQ2012 and 86.4 percent in IIIQ2012. Most of US national income is in the form of services. In Mar 2013, there were 134.485 million nonfarm jobs NSA in the US, according to estimates of the establishment survey of the Bureau of Labor Statistics (BLS) (http://www.bls.gov/news.release/empsit.nr0.htm Table B-1). Total private jobs of 113.232 million NSA in Apr 2013 accounted for 83.6 percent of total nonfarm jobs of 134.494 million, of which 11.930 million, or 10.5 percent of total private jobs and 8.8 percent of total nonfarm jobs, were in manufacturing. Private service-producing jobs were 94.803 million NSA in Apr 2013, or 70.0 percent of total nonfarm jobs and 83.7 percent of total private-sector jobs. Manufacturing has share of 11.1 percent in US national income in IVQ2011 and 11.1 percent in IIIQ2012, as shown in Table I-13. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.

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

	SAAR IIIQ2012	% Total	SAAR IVQ2012	% Total
National Income WCCA	13,976.7	100.0	14,122.2	100.0
Domestic Industries	13,733.6	98.3	13,855.6	98.1
Private Industries	12,075.0	86.4	12,192.5	86.3
Agriculture	138.6	1.0	138.9	1.0
Mining	205.3	1.5	214.7	1.5
Utilities	216.6	1.6	209.5	1.5
Construction	589.3	4.2	603.5	4.3
Manufacturing	1548.9	11.1	1563.1	11.1
Durable Goods	892.8	6.4	893.8	6.3
Nondurable Goods	656.1	4.7	669.3	4.7
Wholesale Trade	837.8	6.0	857.8	6.1
Retail Trade	957.4	6.9	972.8	6.9
Transportation & WH	415.5	3.0	415.8	2.9
Information	504.4	3.6	490.5	3.5
Finance, Insurance, RE	2330.6	16.7	2352.0	16.7
Professional, BS	2003.4	14.3	2029.0	14.4
Education, Health Care	1385.6	9.9	1395.5	9.9
Arts, Entertainment	539.4	3.9	544.4	3.9
Other Services	402.3	2.9	405.1	2.9
Government	1658.6	11.9	1663.0	11.8
Rest of the World	243.1	1.7	266.6	1.9

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

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

VB Japan. Table VB-BOJF provides the forecasts of economic activity and inflation in Japan by the majority of members of the Policy Board of the Bank of Japan, which is part of their Outlook for Economic Activity and Prices (http://www.boj.or.jp/en/mopo/outlook/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:

1. 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).
2. 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.
3. 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).
4. Diversification of Asset Purchases. The BOJ will engage in transactions of exchange traded funds (ETF) and real estate investment trusts (REITS) and not solely on purchases of JGBs. Purchases of ETFs will be at an annual rate of increase of one trillion yen and purchases of REITS at 30 billion yen.

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

Fiscal Year Date of Forecast	Real GDP	CPI All Items Less Fresh Food	Excluding Effects of Consumption Tax Hikes
2012
Apr 2013	+1.0 to +1.0 [+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 Blog 8/9/11 Table 26
Corporate Goods Prices	Apr ∆% +0.3 12 months ∆% 0.0 Blog 5/19/13
Consumer Price Index	Mar NSA ∆% 0.2; Mar 12 months NSA ∆% -0.9 Blog 4/28/13
Real GDP Growth	IQ2013 ∆%: 0.9 on IVQ2012;  IQ2013 SAAR 3.5; ∆% from quarter a year earlier: 0.2 % Blog 5/19/13
Employment Report	Mar Unemployed 2.8 million Change in unemployed since last year: minus 270 thousand Unemployment rate: 4.1% Blog 5/5/13
All Industry Indices	Mar month SA ∆% -0.3 12-month NSA ∆% -1.0 Blog 5/26/13
Industrial Production	Mar SA month ∆%: 0.2 12-month NSA ∆% -7.3 Blog 5/5/13
Machine Orders	Total Mar ∆% 27.8 Private ∆%: 22.3 Mar ∆% Excluding Volatile Orders 14.2 Blog 5/19/13
Tertiary Index	Mar month SA ∆% -1.3 Mar 12 months NSA ∆% -0.1 Blog 5/19/13
Wholesale and Retail Sales	Mar 12 months: Total ∆%: -1.2 Wholesale ∆%: -1.5 Retail ∆%: -0.3 Blog 5/5/13
Family Income and Expenditure Survey	Mar 12-month ∆% total nominal consumption 4.1, real 5.2 Blog 5/5/13
Trade Balance	Exports Apr 12 months ∆%: 3.8 Imports Apr 12 months ∆% 9.4 Blog 5/26/13

Links to blog comments in Table JPY:

5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

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

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

The indices of all industry activity of Japan, which is an approximation of GDP or economic activity, fell to levels close to the worst point of the recession, showing the brutal impact of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Table VB-1 with the latest revisions shows the quarterly index, which permits comparison with the movement of real GDP. The first row provides weights of the various components of the index: AG (agriculture) 1.4 percent (not shown), CON (construction) 5.7 percent, IND (industrial production) 18.3 percent, TERT (services) 63.2 percent, and GOVT (government) 11.4 percent. GDP increased 0.9 percent in IQ2013 (Table VB-1 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html), industry increased 2.2 percent, the tertiary sector decreased 0.5 percent, government increased 0.5 percent and construction increased 3.5 percent. The report shows that the all industry index decreased 0.4 percent in IQ2013. Industry added 0.33 percentage points to growth of the all industry index and the tertiary index deducted 0.33 percentage points. Japan had already experienced a very weak quarter in IVQ2010, with decline of the all industry index of 0.2 percent and decline of GDP of 0.3 percent (Table VB-1 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html), when it was unexpectedly hit by the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. The worst impact of the natural disaster was on construction with drop of 7.5 percent in IIQ2011 relative to IQ2011 but recovery at 3.3 percent in IIIQ2011. Industrial production fell 4.2 percent from IQ2011 into IIQ2011 but grew 5.4 percent in IIIQ2011. Many accounts had already been closed when the earthquake occurred, but there is visible decline of the index of all industry by 1.3 percent in IQ2011 caused by decline of industrial production by 1.5 percent and services by 1.0 percent with GDP falling revised 1.9 percent (Table VB-1 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html).

Table VB-1, Japan, Indices of All Industry Activity Percentage Change from Prior Quarter SA ∆%

	CON	IND	TERT	GOVT	ALL IND	REAL GDP
Weight %	5.7	18.3	63.2	11.4	100.0
2013
IQ2013	3.5	2.2	-0.5	0.5	-0.4	0.9
Cont to IQ % Change	0.17	0.37	-0.33	0.06
2012
IVQ2012	2.1	-1.9	0.5	-0.2	0.3	0.3
IIIQ	1.6	-4.2	0.1	0.0	-0.5	-0.9
IIQ	-1.5	-2.0	0.0	-0.1	-0.1	-0.2
IQ	5.7	1.3	0.0	0.1	-0.1	1.3
2011
IVQ	-1.5	0.4	0.5	0.2	0.5	0.2
IIIQ	3.3	5.4	1.5	0.2	2.1	2.7
IIQ	-7.5	-4.2	-0.5	0.1	-0.9	-1.0

AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity

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

There are more details in Table VB-2. In Mar 2013, the all industry activity index decreased 0.3 percent with industry growing 0.9 percent and services contracting 1.3 percent while construction decreased 4.2 percent and government decreased 0.7 percent. Industry contributed 0.15 percentage points and services deducted 0.87 percentage points while construction subtracted 0.21 percentage points and government deducted 0.08 percentage points. Weakness in Sep and Aug 2011 had interrupted the sharp recovery from Apr to Jul with renewed strength in Oct but weakness again in Nov followed by strong rebound in Dec 2011. Recovery was interrupted in Jan-Mar 2012 with modest growth in Apr, new decline in May 2012, moderate increase in Jun 2012 and new decline of 0.5 percent in Jul 2012, nil growth in Aug 2012, decline of 0.4 percent in Sep 2012 and increase of 0.3 percent in Oct 2012 interrupted by decline of 0.4 percent in Nov 2012 with increase of 1.7 percent in Dec 2012 followed by decline of 1.6 percent in Jan 2013. The index of all industry activity increased 0.6 percent in Feb 2013 and fell 0.3 percent in Mar 2013. The highest risk to Japan is if weakening world growth would affect Japanese exports.

Table VB-2, Japan, Indices of All Industry Activity Percentage Change from Prior Month SA ∆%

	CON	IND	TERT	GOVT	ALL IND
Mar 2013	-4.2	0.9	-1.3	-0.7	-0.3
Cont to Mar % Change	-0.21	0.15	-0.87	-0.08
Feb  2013	1.5	0.6	1.2	-1.2	0.6
Jan	2.7	0.3	-1.6	1.8	-1.6
Dec 2012	-0.4	2.4	1.3	-0.6	1.7
Nov	4.8	-1.4	-0.5	0.2	-0.4
Oct	-2.7	1.6	0.2	0.6	0.3
Sep	2.6	-4.1	0.2	-1.2	-0.4
Aug	-0.3	-1.6	0.3	0.4	0.0
Jul	-2.7	-1.0	-0.6	0.0	-0.5
Jun	1.0	0.4	0.1	0.2	0.3
May	9.5	-3.4	0.9	-0.1	-0.2
Apr	-5.5	-0.2	-0.2	0.1	0.1
Mar	-5.4	1.3	-0.6	-0.1	-0.3
Feb	4.2	-1.6	0.0	-0.4	-0.1
Jan	5.6	0.9	-0.6	0.5	-0.7
Dec 2011	-1.4	2.3	1.6	-0.2	1.7
Nov	0.3	-1.7	-0.8	0.1	-0.9
Oct	-2.6	1.8	0.6	0.1	0.6
Sep	1.6	-1.9	-0.2	0.2	-0.1
Aug	1.1	0.9	0.1	-0.1	0.2
Jul	0.1	1.1	0.4	-0.2	0.5
Jun	-0.1	3.8	1.2	0.2	1.5
May	6.5	5.8	0.9	0.7	1.6
Apr	-5.1	2.4	2.1	-0.9	2.0
Mar	-10.6	-16.2	-5.4	0.7	-6.6
Feb	2.3	1.1	0.3	0.0	0.1
Jan	6.3	1.2	0.5	-0.5	0.6
Dec 2010	-0.5	2.4	-0.2	0.3	0.1
Nov	-1.4	1.6	0.6	-0.4	0.3
Oct	0.1	-1.4	0.2	-0.1	0.0
Sep	-1.9	-0.8	-0.4	-0.1	-0.4
Aug	1.6	-0.1	0.1	0.1	-0.5
Jul	0.8	0.3	0.7	0.1	1.1
Jun	-2.1	-1.5	0.1	-0.1	0.2
May	6.3	-0.1	-0.3	0.0	0.0
Apr	-3.1	0.6	1.6	-0.2	0.9

AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity

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

Percentage changes from a year earlier in calendar years and relative to the same quarter a year earlier of the all industry activity indices are provided in Table VB-3. The first row shows that services contribute 63.2 percent of the total index and industry contributes 18.3 percent for joint contribution of 81.5 percent. The all industry activity index decreased 1.3 percent in IQ2013 relative to a year earlier and GDP increased 0.2 percent relative to a year earlier (Table VB-4 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html). Industry decreased 7.7 percent relative to a year earlier while the tertiary sector decreased 0.5 percent, deducting combined 1.73 percentage points from growth of the all industry activity index of minus 1.3 percent while construction added 0.27 percentage points and government added 0.07 percentage points. The fall of industrial production in 2009 was by a catastrophic 21.9 percent. Japan emerged from the crisis with industrial growth of 16.4 percent in 2010. Quarterly data show that industry is the most dynamic sector of the Japanese economy. The all-industry index increased 1.2 percent in 2012 and real GDP increased 2.0 percent. Industry fell 0.3 percent, deducting 0.06 percentage points, while the tertiary sector increased 1.4 percent, adding 0.94 percentage points. The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 201, declining world trade and revaluation of the yen in fear of world financial risks interrupted the recovery of the Japanese economy from the global recession.

Table VB-3, Japan, Indices of All Industry Activity Percentage Change from Earlier Calendar Year and Same Quarter Year Earlier NSA ∆%

	CON	IND	TERT	GOVT	ALL IND	REAL GDP
Weight %	5.7	18.3	63.2	11.4	100.0
Calendar Year
2012	4.3	-0.3	1.4	0.1	1.2	2.0
Cont to 2012 % Change	0.19	-0.06	0.94	0.01
2011	-2.0	-2.3	0.1	-0.2	-0.5	-0.6
2010	-7.0	16.4	1.3	-0.7	3.1	4.7
2009	-5.6	-21.9	-5.2	0.1	-7.7	-5.5
2008	-7.6	-3.4	-1.0	-1.4	-1.9	-1.0
2013
IQ	5.8	-7.7	-0.5	0.6	-1.3	0.2
Cont to IQ % Change	0.27	-1.40	-0.33	0.07
2012
IVQ	7.8	-5.9	0.8	-0.4	-0.2	0.5
IIIQ	4.2	-4.6	0.5	0.3	-0.2	0.3
IIQ	5.8	5.3	2.2	0.4	2.6	4.0
IQ	-0.3	4.8	2.4	0.1	2.4	3.4
2011
IVQ	-2.8	-1.6	0.6	0.6	0.0	-0.3
IIIQ	-3.2	-0.9	0.3	-0.1	-0.1	-0.5
IIQ	-5.1	-5.8	-0.5	-0.4	-1.6	-1.6
IQ	2.3	-1.3	-0.3	-1.0	-0.5	0.0
2010
IVQ	-0.6	5.9	1.6	-0.8	2.1	3.3
IIIQ	-3.2	14.0	1.8	-0.6	3.2	6.0
IIQ	-11.3	21.3	1.4	-0.7	3.5	4.4
IQ	-12.4	28.0	0.8	-0.5	3.9	4.9

AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity

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

Percentage changes of a month relative to the same month a year earlier for the indices of all industry activity of Japan are shown in Table VB-4. The all industry activity index decreased 1.0 percent in Mar 2013 relative to Mar 2012. Industry fell 6.7 percent in Mar 2013 relative to a year earlier, subtracting 1.21 percentage points to growth of the all industry activity index. The tertiary sector decreased 0.1 percent, deducting 0.06 percentage points. Construction added 0.26 percentage points to the index and government added 0.01 percentage points.

Table VB-4, Japan, Indices of All Industry Activity Percentage Change from Same Month Year Earlier NSA ∆%

	CON	IND	TERT	GOVT	ALL IND
Mar 2013	5.6	-6.7	-0.1	0.1	-1.0
Cont to Mar % Change	0.26	-1.21	-0.06	0.01
Feb 2013	4.5	-10.5	-1.6	1.4	-2.5
Jan	7.2	-5.8	0.1	0.2	-0.7
Dec 2012	9.9	-7.9	0.0	0.3	-0.9
Nov	8.8	-5.5	1.0	0.0	0.1
Oct	4.6	-4.5	1.4	-1.4	0.2
Sep	4.1	-8.1	0.1	0.6	-1.2
Aug	3.5	-4.6	0.6	0.8	-0.1
Jul	4.9	-0.8	0.9	-0.3	0.6
Jun	7.6	-1.5	0.8	0.8	0.6
May	6.4	6.0	3.2	-0.6	3.3
Apr	3.7	12.9	2.6	0.8	4.1
Mar	4.1	14.2	4.2	0.6	5.5
Feb	-1.6	1.5	2.4	-0.7	1.6
Jan	-3.4	-1.6	0.4	0.4	-0.1
Dec 2011	-3.0	-3.0	1.2	0.8	0.2
Nov	-1.2	-2.9	-0.3	0.8	-0.7
Oct	-4.0	0.9	0.9	0.2	0.5
Sep	-0.4	-2.4	0.1	0.1	-0.3
Aug	-4.3	1.6	0.8	-1.1	0.4
Jul	-4.8	-1.7	0.1	0.5	-0.4
Jun	-4.6	-0.6	1.0	0.3	0.4
May	-6.5	-4.6	-0.2	-0.8	-1.3
Apr	-4.1	-12.7	-2.3	-0.6	-4.0
Mar	-2.8	-12.4	-3.4	0.0	-4.6
Feb	4.4	4.5	2.0	-1.4	2.1
Jan	5.9	6.1	1.0	-1.4	1.8
Dec 2010	-0.5	5.9	1.8	-0.7	2.1
Nov	-0.5	7.0	2.5	-1.9	2.7
Oct	-1.1	5.0	0.5	0.3	1.3
Sep	-2.8	12.1	1.3	-0.6	2.7
Aug	-1.7	15.5	2.3	-1.1	3.8
Jul	-5.3	14.6	1.6	-0.1	3.3
Jun	-8.3	16.6	1.0	-0.7	3.0
May	-8.1	20.7	1.2	-0.9	3.4
Apr	-17.0	27.0	1.9	-0.4	-

AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity

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

The structure of exports and imports of Japan is in Table VB-5. Japan imports all types of raw materials and fuels at rapidly increasing prices caused by the carry trade from zero interest rates to commodities, oscillating under shocks of risk aversion. Mineral fuels account for 34.9 percent of Japan’s imports and increased 3.6 percent in the 12 months ending in Apr 2013 because of alternating carry trades into commodity futures in accordance with risk aversion. Weakness of world demand depresses prices of industrial goods. Manufactured products contribute 13.5 percent of Japan’s exports with increase of 7.8 percent in the 12 months ending in Apr 2013. Machinery contributes 18.7 percent of Japan’s exports with decrease of 5.9 percent in the 12 months ending in Apr 2013. Electrical machinery contributes 17.2 percent of Japan’s exports with decrease of 4.0 percent in the 12 months ending in Apr 2013. Exports of transport equipment with share of 23.4 percent in total exports decreased 2.1 percent in the 12 months ending in Apr 2013 but had been increasing sharply largely because of the low level after the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. The breakdown of transport equipment in Table VB-5 shows increase of the major categories of motor vehicles of 6.5 percent: cars increased 7.9 percent with decrease of 1.6 percent in the minor category of buses and trucks, increase of 6.8 percent for parts of motor vehicles, increase of 2.3 percent for motorcycles and decrease of 51.2 percent for ships. The result of rising commodity prices and stable or declining prices of industrial products is pressure on Japan’s terms of trade with oscillations when risk aversion causes reversal of carry trades from zero interest rates to commodity prices. Data in Table VB-1 are in millions of yen that have been affected by recent depreciation of the yen relative to the USD with invoicing of many products in dollars.

Table VB-5, Japan, Structure and Growth of Exports and Imports % and ∆% Millions Yens

Apr 2013	Value JPY Millions	% of Total	12 Months ∆%	Contribution Degree %
Exports	5,777,409	100.0	3.8	3.8
Foodstuffs	35,322	0.6	13.8	0.1
Raw Materials	113,773	2.0	24.5	0.4
Mineral Fuels	131,087	2.3	58.6	0.9
Chemicals	635,292	11.0	13.6	1.4
Manufactured Goods	779,595	13.5	7.8	1.0
Machinery	1,078,047	18.7	-5.9	-1.2
Electrical Machinery	991,324	17.2	4.0	0.7
Transport Equipment	1,350,314	23.4	-2.1	-0.5
Motor Vehicles	868,994	15.0	6.5	1.0
Cars	741,700	12.8	7.9	1.0
Buses & Trucks	116,151	2.0	-1.6	0.0
Parts of Motor Vehicles	305,975	5.3	6.8	0.3
Motorcycles	23,594	0.4	2.3	0.0
Ships	90,138	1.6	-51.2	-1.7
Other	662,656	11.5	10.4	1.1
Imports	6,657,345	100.0	9.4	9.4
Foodstuffs	554,903	8.3	9.6	0.8
Raw Materials	426,633	6.4	10.6	0.7
Mineral Fuels	2,326,578	34.9	3.6	1.3
Chemicals	538,366	8.1	9.1	0.7
Manufactured Goods	532,814	8.0	15.1	1.1
Machinery	468,049	7.0	8.9	0.6
Electrical Machinery	753,018	11.3	16.6	1.8
Transport Equipment	190,580	2.9	-0.1	0.0
Other	866,403	13.0	20.0	2.4

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

Table VB-6 provides Japan’s exports, imports and trade balance in five-year intervals from 1950 to 1975 and then yearly from 1979 to 2012. Exports grew at the average yearly rate of 3.2 percent while imports grew at 3.3 percent per year in the years from 1979 to 2012. Abstracting from the global recession and the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011, exports grew at the average annual rate of 4.8 percent between 1979 and 2007 and imports at 4.0 percent. The global recession had a brutal impact on Japan’s trade. Exports fell 35.5 percent from 2007 to 2009 while imports fell 29.6 percent. Japan had the first trade deficit in 2011 since 1980 and the highest deficit in 2012.

Table VB-6, Japan, Exports and Imports Calendar Year 1979-2010 Billion Yens

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

Source: Japan, Ministry of Finance

http://www.customs.go.jp/toukei/info/index_e.htm

The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table VB-7 for Apr 2013. The share of Asia in Japan’s trade is more than one half, 54.5 percent of exports and 43.4 percent of imports. Within Asia, exports to China are 17.3 percent of total exports and imports from China 21.6 percent of total imports. While exports to China increased 0.3 percent in the 12 months ending in Apr 2013, imports from China increased 13.3 percent. The largest export market for Japan in Apr 2013 is the US with share of 19.1 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 9.7 percent in imports. Rates of growth of exports of Japan in Mar 2013 are low or negative for several countries and regions with the exception of growth of 14.8 percent for exports to the US, 12.0 for exports to Mexico, 20.7 percent for exports to Brazil and 16.9 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 3.8 percent in Apr 2013 while imports increased 9.4 percent but higher levels after the earthquake and declining prices may be another factor. Growth rates of imports in the 12 months ending in Apr 2013 are positive for most trading partners. Imports from Asia increased 13.1 percent in the 12 months ending in Apr 2013 while imports from China increased 13.3 percent. Data are in millions of yen, which has effects of recent depreciation of the yen relative to the United States dollar (USD).

Table VB-7, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yens

Apr 2013	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	5,777,409	3.8	6,657,345	9.4
Asia	3,151,351	4.3	2,888,002	13.1
China	998,409	0.3	1,440,866	13.3
USA	1,101,287	14.8	538,297	0.8
Canada	67,974	-5.1	113,225	42.4
Brazil	47,383	20.7	71,162	-9.3
Mexico	82,091	12.0	34,516	31.7
Western Europe	568,417	-3.5	644,944	11.4
Germany	144,476	-1.3	175,918	18.4
France	59,019	12.5	95,282	12.1
UK	82,661	-5.9	50,925	1.0
Middle East	196,158	6.1	1,341,440	1.6
Australia	147,004	16.9	397,067	8.4

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

Japan registered another deficit in the trade balance of JPY 879,936 million, as shown in Table VB-8. The significantly large deficits of JPY 1,145,282 million with the Middle East, JPY 442,457 million with China, JPY 250,063 million with Australia and JPY 76,257 million with Western Europe are not compensated by surpluses of JPY 263,349 with Asia and JPY 562,990 with the US.

Table VB-8, Japan, Trade Balance, Millions of Yen

Apr 2013	Millions of Yen
Total	-879,936
Asia	263,349
China	-442,457
USA	562,990
Canada	-45,251
Brazil	-23,779
Mexico	47,575
Western Europe	-76,527
Germany	-31,442
France	-36,263
UK	31,736
Middle East	-1,145,282
Australia	-250,063

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

VC China. China estimates an index of nonmanufacturing purchasing managers on the basis of a sample of 1200 nonmanufacturing enterprises across the country (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Table CIPMNM provides this index and components. 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. Input Prices	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 Blog 5/12/13
Consumer Price Index	Apr month ∆%: 0.2 Apr 12 months ∆%: 2.4 Blog 5/12/13
Value Added of Industry	Apr month ∆%: 0.87 Jan-Apr 2013/Jan-Apr 2012 ∆%: 9.4 Blog 5/19/13
GDP Growth Rate	Year IQ2013 ∆%: 7.9 Quarter IQ2013 ∆%: 7.7 Blog 4/21/13
Investment in Fixed Assets	Apr month ∆%: 1.63 Total Jan-Apr 2012 ∆%: 20.6 Real estate development: 21.2 Blog 5/19/13
Retail Sales	Apr month ∆%: 1.23 Apr 12 month ∆%: 12.8 Jan-Apr ∆%: 12.5 Blog 5/19/13
Trade Balance	Apr balance $18.2 billion Exports 12M ∆% 14.7 Imports 12M ∆% 16.8 Cumulative Apr: $61.27 billion Blog 5/12/13

Links to blog comments in Table CNY:

5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

5/12/13 http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html

4/21/13 http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html

VD Euro Area. Table VD-EUR provides yearly growth rates of the combined GDP of the members of the European Monetary Union (EMU) or euro area since 1996. Growth was very strong at 3.2 percent in 2006 and 3.0 percent in 2007. The global recession had strong impact with growth of only 0.4 percent in 2008 and decline of 4.4 percent in 2009. Recovery was at lower growth rates of 2.0 percent in 2010 and 1.4 percent in 2011. EUROSTAT forecasts growth of GDP of the euro area of minus 0.6 percent in 2012 and minus 0.4 percent in 2013 but 1.2 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*			-0.4
2014*			1.2

*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*	1.2	1.8	1.1	0.7	0.9
2013*	-0.4	0.4	-0.1	-1.3	-1.5
2012	-0.6	0.7	0.0*	-2.4	-1.4*
2011	1.4	3.0	2.0	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	IQ2013 ∆% -0.2; IQ2013/IQ2012 ∆% -1.0 Blog 5/19/13
Unemployment	Mar 2013: 12.1% unemployment rate Mar 2013: 19.211 million unemployed Blog 5/5/13
HICP	Apr month ∆%: -0.1 12 months Apr ∆%: 1.2 Blog 5/19/13
Producer Prices	Euro Zone industrial producer prices Mar ∆%: -0.2 Mar 12-month ∆%: 0.7 Blog 5/5/13
Industrial Production	Mar month ∆%: 1.0; Mar 12 months ∆%: -1.7 Blog 5/19/13
Retail Sales	Mar month ∆%: -0.1 Mar 12 months ∆%: minus 2.4 Blog 5/12/13
Confidence and Economic Sentiment Indicator	Sentiment 88.6 Apr 2013 Consumer minus 22.2 Apr 2013 Blog 5/5/13
Trade	Jan-Mar 2013/Jan-Mar 2012 Exports ∆%: 1.3 Imports ∆%: -5.2 Mar 2013 12-month Exports ∆% 0.1 Imports ∆% -9.9 Blog 5/19/13

Links to blog comments in Table EUR:

5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

5/12/13 http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html

5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html

VE Germany. Table VE-DE provides yearly growth rates of the German economy from 1992 to 2012, price adjusted chain-linked and price and calendar-adjusted chain-linked. Germany’s GDP fell 5.1 percent in 2009 after growing below trend at 1.1 percent in 2008. Recovery has been robust in contrast with other advanced economies. The German economy grew at 4.2 percent in 2010, 3.0 percent in 2011 and 0.7 percent in 2012.

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	IQ2013 0.1 ∆%; I/Q2013/IQ2012 ∆% -1.4 2012/2011: 0.7% GDP ∆% 1992-2012 Blog 8/26/12 5/27/12 11/25/12 2/24/13 5/19/13 5/26/13
Consumer Price Index	Apr month NSA ∆%: -0.5 Apr 12-month NSA ∆%: 1.2 Blog 5/19/13
Producer Price Index	Apr month ∆%: -0.2 CSA, -0.2 NSA 12-month NSA ∆%: 0.1 Blog 5/26/13
Industrial Production	MFG Mar month CSA ∆%: 1.4 12-month NSA: -8.2 Blog 5/12/13
Machine Orders	MFG Mar month ∆%: 2.2 Mar 12-month ∆%: -6.0 Blog 5/12/13
Retail Sales	Mar Month ∆% -0.3 12-Month ∆% -2.7 Blog 5/5/13
Employment Report	Unemployment Rate SA Mar 5.4% Blog 5/5/13
Trade Balance	Exports Mar 12-month NSA ∆%: -4.2 Imports Mar 12 months NSA ∆%: -6.9 Exports Mar month CSA ∆%: 0.5; Imports Mar month SA 0.8 Blog 5/12/13

Links to blog comments in Table DE:

5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

5/12/13 http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html

5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.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

Table VE-1 provides percentage change of Germany’s GDP in one quarter relative to the prior quarter from 2003 to 2013. Germany’s GDP contracted during four consecutive quarters from IIQ2008 to IQ2009. The deepest contraction was 4.1 percent in IQ2009. Growth was quite strong from IIIQ2009 to IQ2011 for cumulative growth of 7.3 percent in seven quarters or at the average rate of 1.0 percent per quarter, which is equivalent to 4.1 percent per year. Economic growth decelerated in IIQ2011 to 0.5 percent and 0.4 percent in IIIQ2011. The economy contracted mildly by 0.1 percent in IVQ2011 and grew 0.6 percent in IQ2012 and 0.2 percent in IIQ2012. GDP growth in IIIQ2012 was 0.4 percent relative to IIQ2012. Germany’s GDP contracted 0.7 percent in IVQ2012 relative to IIIQ2012. GDP increased 0.1 percent in IQ2013.

Table VE-1, Germany Quarter GDP ∆% Relative to Prior Quarter, Seasonally and Calendar Adjusted 

	IQ	IIQ	IIIQ	IV
2013	0.1
2012	0.6	0.2	0.2	-0.7
2011	1.2	0.5	0.4	-0.1
2010	0.7	2.2	0.7	0.6
2009	-4.1	0.2	0.8	0.9
2008	1.0	-0.4	-0.4	-2.0
2007	0.6	0.5	0.9	0.4
2006	1.1	1.5	1.0	1.3
2005	-0.1	0.6	0.8	0.3
2004	0.0	0.3	-0.2	0.0
2003	-0.8	-0.1	0.5	0.4
2002	-0.4	0.3	0.4	-0.2
2001	1.5	0.1	-0.3	0.2

Seasonal and calendar adjusted

Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_174_811.html

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

Table VE-2 provides percentage changes of Germany’s GDP in a quarter relative to the same quarter a year earlier. Growth was weak in the recovery from the recession of 2001 through 2005, as in most of the euro area (see Pelaez and Pelaez, The Global Recession Risk (2007), 116-46). Germany’s economy then grew robustly in 2006 and 2007 until the global recession after 2007. Germany recovered with strong growth in 2010 and vigorous 5.2 percent in IQ2011. The economy decelerated in the final three quarters of 2011, growing 1.8 percent in IQ2012 relative to IQ2011. Growth decelerated further to 0.5 percent in IIQ2012 without calendar adjustment and 1.0 percent with calendar adjustment and to 0.4 percent in IIIQ2012. Growth in IVQ2012 relative to IVQ2011 was 0.0 percent. GDP fell 1.4 percent in IQ2013 relative to a year earlier.

Table VE-2, Germany, Quarter GDP ∆% Relative to Same Quarter a Year Earlier, Price Adjusted NCSA 

	IQ	IIQ	IIIQ	IV
2013	-1.4
2012	1.8	0.5	0.4	0.0
2011	5.2	3.1	2.6	1.4
2010	2.8	5.0	4.5	4.2
2009	-6.5	-7.4	-5.0	-1.6
2008	2.1	3.1	1.1	-1.9
2007	4.3	3.4	3.3	2.2
2006	4.3	2.4	3.5	4.6
2005	-0.8	1.2	1.2	1.0
2004	1.5	1.6	0.6	0.9
2003	0.0	-1.1	-0.5	0.1

Price adjusted NSA Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_174_811.html

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

There are strong calendar effects in economic activity in Germany. Table VE-3 provides Germany’s percentage change in a quarter relative to the same quarter a year earlier adjusting for price changes and calendar effects. Germany’s GDP increased 1.0 percent in IIQ2012 calendar-adjusted in contrast with only 0.5 percent without calendar adjustment. GDP growth adjusting for calendar effects was 0.9 percent in IIIQ2012 relative to IIIQ2011 and 0.4 percent without calendar adjustment. Growth in IVQ2012 was 0.3 percent calendar and price adjusted in contrast with 0.0 percent without calendar adjustment. Growth in IQ2013 was minus 0.2 percent relative to a year earlier with adjustment for calendar effects and minus 1.4 percent without adjustment.

Table VE-3, Germany, Quarter GDP ∆% Relative to Same Quarter a Year Earlier, Calendar and Price Adjusted NSA 

	IQ	IIQ	IIIQ	IV
2013	-0.2
2012	1.3	1.0	0.9	0.3
2011	4.9	3.0	2.7	1.9
2010	2.7	4.6	4.5	4.2
2009	-6.7	-6.2	-5.1	-2.3

Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_174_811.html

Table VE-4 provides annual 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 economies. The German economy grew at 4.2 percent in 2010, 3.0 percent in 2011 and 0.7 percent in 2012.

Table VE-4, Germany, GDP Year ∆%

	Price Adjusted Chain-Linked	Price- and Calendar-Adjusted Chain Linked
2012	0.7	0.9
2011	3.0	3.1
2010	4.2	4.0
2009	-5.1	-5.1
2008	1.1	0.8
2007	3.3	3.4
2006	3.7	3.9
2005	0.7	0.8
2004	1.2	0.7
2003	-0.4	-0.4
2002	0.0	0.0
2001	1.5	1.6
2000	3.1	3.3
1999	1.9	1.8
1998	1.9	1.7
1997	1.7	1.8
1996	0.8	0.8
1995	1.7	1.8
1994	2.5	2.5
1993	-1.0	-1.0
1992	1.9	1.5

Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_174_811.html

The Statistisches Bundesamt provides the analysis of percentage point contributions to GDP on growth from the same quarter a year earlier, shown in Table VE-5. The original data are adjusted for price but not for seasonality. There is strong internal demand, or consumption and investment, which is uncommon in advanced economies. Consumption provided 0.8 percentage points to growth in IIQ2012 and grew 0.8 percent from the same quarter a year earlier; provided 0.2 percentage points in IIIQ2012 with growth of 0.3 percent; provided 0.4 percentage points in IVQ2012 with growth of 0.6 percent; and deducted 0.2 percentage points in IQ2013with growth of minus 0.2 percent. Growth of fixed capital formation (GFCF) deducted 0.4 percentage points from growth of GDP in IIQ2012 and fell 2.3 percent from the same quarter a year earlier; deducted 0.5 percentage points in IIIQ2012 and declined 3.0 percent relative to a year earlier; deducted 1.0 percentage points in IVQ2012 and declined 5.4 percent relative to a year earlier; and deducted 1.2 percentage points in IQ2013 and declined 7.3 percent relative to a year earlier (https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_174_811.html). Domestic uses deducted 0.7 percentage points in IIQ2012 and fell 0.8 percent from the same quarter a year earlier; deducted 1.0 percentage points in IIIQ2012 and fell 0.7 percent relative to a year earlier; deducted 0.7 percentage points in IVQ2012, declining 0.8 percent relative to a year earlier; and deducted 1.3 percentage points in IQ2013, declining 1.4 percent relative to a year earlier. Net exports contributed 1.3 percentage points in IIQ2012; added 1.4 percentage points in IIIQ2012; added 0.7 percentage points in IVQ2012; and added 0.1 percentage points in IQ2013. The rates of growth of exports and imports fell from over 10 percent to single digits with 5.2 percent growth of exports and 3.0 percent growth of imports in IIQ2012; 4.4 percent growth of exports and 1.8 percent growth of imports in IIIQ2012; 1.8 percent growth of exports in IVQ2012 and 0.4 percent growth of imports; and export growth of minus 1.9 percent in IQ2013 and minus 2.0 percent of imports. GDP per person in employment grew minus 0.6 percent in IIQ2012, minus 0.6 percent in IIIQ2012, minus 0.8 percent in IVQ2012 and minus 2.1 percent in IQ2013.

Table VE-5, Germany, Percentage Point Contributions of Use of Gross Domestic Product on Growth from Same Quarter Year earlier, Price Adjusted  

	IIQ 12 PP	∆% IIQ 12	IIIQ 11 PP	∆% IIIQ 12	IVQ 12  PP	∆% IVQ 12	IQ13 PP	∆% IQ 13
Consumption Total	0.6	0.8	0.2	0.3	0.4	0.6	-0.2	-0.2
Households Consumption	0.5	0.8	0.0	0.0	0.2	0.4	-0.2	-0.4
Government Consumption	0.1	0.7	0.2	1.2	0.2	0.9	0.1	0.3
Gross Capital Formation	-1.3	-7.4	-1.2	-6.0	-1.2	-6.8	-1.1	-6.2
Gross Fixed Capital Formation (GFCF)	-0.4	-2.3	-0.5	-3.0	-1.0	-5.4	-1.2	-7.3
GFCF in Machinery & Equipment	-0.3	-3.8	-0.5	-7.2	-0.7	-9.3	-0.7	-10.3
GFCF in Construction	-0.2	-2.0	-0.1	-1.0	-0.3	-3.1	-0.5	-6.2
Change in Inventories	-0.9		-0.7		-0.2		0.1
Domestic Uses	-0.7	-0.8	-1.0	-1.0	-0.7	-0.8	-1.3	-1.4
Net Exports	1.3		1.4		0.7		-0.1
Exports		5.2		4.4		1.8		-1.9
Imports		3.0		1.8		0.4		-2.0
GDP		0.5		0.4		0.0		-1.4
GDP per Person in Employment		-0.6		-0.6		-0.8		-2.1
GDP per Hour Worked		0.4		0.2		0.5		0.2

PP: Percentage Points

Source: Statistisches Bundesamt Deutschland (Destatis https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_174_811.html

Table VE-6 provides segments of Germany’s GDP with growth in IQ2013 and contributions to growth in percentage points. Contributions to growth of GDP in IQ2013 were driven by percentage point deductions of 0.2 by total consumption and 0.1 by net exports. Gross capital formation deducted 0.5 percentage points and change in inventories added 0.1 percentage points.

Table VE-6, Germany, Percentage Point Contributions of Use of Gross Domestic Product on Growth from Year Earlier, Price Adjusted  

	IQ2013 PP	∆% IQ2013
Consumption Total	-0.2	-0.2
Households Consumption	-0.2	-0.4
Government Consumption	0.1	0.3
Gross Capital Formation	-1.1	-6.2
Gross Fixed Capital Formation (GFCF)	-1.2	-7.3
GFCF in Machinery & Equipment	-0.7	-10.3
GFCF in Construction	-0.5	-6.2
Change in Inventories	0.1
Domestic Uses	-1.3	-1.4
Net Exports	-0.1
Exports		-1.9
Imports		-2.0
GDP		-1.4
GDP per Person in Employment		-2.1
GDP per Hour Worked		0.2

PP Percntage Points

Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_174_811.html

Percentage changes from year earlier of gross value added by economic sectors are shown for Germany in Table VE-7. The two rows of industry ex construction and manufacturing reveal sharp reductions in yearly growth rates from double digits in 2010, upper single digits in 2011, and lower single digits in IQ2012 and contractions in IIQ2012, IIIQ2012, IVQ2012 and IQ2013. Finance and insurance rebounded from decline of 1.7 percent in 2007 to growth of 1.9 percent in IQ2012, 1.9 percent in IIQ2012 and 1.6 percent in IIIQ2012 but only 0.5 percent in IVQ2012 and 0.9 percent in IQ2013. Business services also grew at relatively higher rates from minus 12.3 percent in 2007 to 4.1 percent in IQ2012, 3.2 percent in IIQ2012, 2.7 percent in IIIQ2012, 1.6 percent in IVQ2012 and 1.2 percent in IQ2013.

Table VE-7, Germany, Percentage Change from Year Earlier of Gross Value Added by Economic Sector, Price Adjusted NSA

	IQ 2012	IIQ 2012	IIIQ 2012	IVQ 2012	IQ   2013
Agriculture	2.8	0.0	2.1	1.3	0.8
Industry ex Construction	1.8	-0.9	-1.2	-1.1	-4.5
Manufacturing	2.4	-0.7	-2.0	-2.2	-4.4
Construction	1.0	-2.6	-2.4	-6.1	-7.2
Trade, Transport, Accommodation & Food Services	2.5	1.2	-0.4	0.2	-1.2
Information & Communications.	3.5	2.9	3.8	4.0	2.8
Finance & Insurance	1.9	1.9	1.6	0.5	0.9
Real Estate	1.6	1.6	1.5	0.9	0.9
Business Services	4.1	3.2	2.7	1.6	1.2
Public Services, Education & Health	0.7	0.8	0.7	0.3	0.0
Other Services	1.4	1.4	1.5	-0.1	-1.2
Total Gross Value Added	1.9	0.8	0.4	0.0	-1.4

Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_174_811.html

Chart VE-1 of the Statistisches Bundesamt Deutschland (Federal Statistics Agency of Germany) provides GDP at current prices from 2005 to 2012. The German economy is productive with significant dynamism over the long term. There are fluctuations in an increasing trend since 2009.

Chart VE-1, Germany, GDP, Current Prices, Billion Euro

Source: Statistisches Bundesamt Deutschland (Destatis)

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

Table VE-1A provides US GDP in current prices at seasonally adjusted annual rates (SAAR) from 2005 to 2013. There is sharp decline with the recession beginning in IVQ2007 and upward trend during the expansion after IIIQ2009.

Chart VE-1A, US, Gross Domestic Product, Current Prices, Seasonally Adjusted at Annual Rates, Billions of Dollars, 2005-2013

Sources: Bureau of Economic Analysis

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

Chart VE-2 of the Statistisches Bundesamt Deutschland (Federal Statistics Agency of Germany) provides the index of price-adjusted chain-linked GDP of Germany from 2009 to 2012. Germany was growing rapidly before the global contraction and rebounded with significant strength along a strong upward trend that could be flattening.

Chart VE-2, Germany, Index of Price-Adjusted Chain-Linked GDP, 2000=100

Source: Statistisches Bundesamt Deutschland (Destatis)

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

Chart VE-2A provides US real GDP, seasonally adjusted at annual rates (SAAR) in billions of chained dollars of 2005 from 2009 to 2013. US GDP growth has been mediocre in the current expansion at average 2.1 percent per year in 15 quarters of expansion from IIIQ2009 to IQ2013. 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).

Chart VE-2A, US, Real Gross Domestic Product, Seasonally Adjusted at Annual Rates, Billions of Chained 2005 Dollars, 2009-2013

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

Table VE-8 provides Germany’s GDP of €662.0 billion in IVQ2012 and €669.92 billion in IQ2013 and its uses. Private consumption is 57.7 percent of GDP in IQ2013 and gross capital formation 16.7 percent with government consumption of 19.7 percent and net exports 5.9 percent. Germany’s savings ratio has been in the range of 8.8 percent to 13.1 percent. Structural reforms in the early 2000s provided strength and dynamism to Germany’s economic performance.

Table VE-8, Germany, GDP and Uses, Euro Billions and %

	IVQ2012	IQ2013
GDP Euro Billions	662.20	669.92
Percent Distribution of Uses
Gross Capital Formation	16.9	16.7
Household and NPISH Consumption	57.8	57.7
Balance of Exports and Imports	5.6	5.9
Government Consumption	19.7	19.7
Memo: Savings Ratio %	8.8	13.1
IIIQ2012		8.8
IIQ2012		10.0
IQ2012		13.6
IVQ2011		9.1
IIIQ2011		8.8
2012		10.3
2011		10.4
2010		10.9
2009		10.9
2008		11.5

Source: Statistisches Bundesamt Deutschland (Destatis)

https://www.destatis.de/EN/PressServices/Press/pr/2013/05/PE13_174_811.html

Chart VE-3 provides US personal savings as a percentage of disposable personal income from IQ1980 to IQ2013. The US savings ratio recovered during the global recession but fell again because of financial repression of zero interest rates.

Chart VE-3, US, Personal Savings as Percent of Disposable Personal Income, Quarterly, 1980-2013

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

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	Apr month ∆% -0.1 12 months ∆%: 0.7 5/19/13
PPI	Mar month ∆%: 0.0 Mar 12 months ∆%: 1.9 Blog 5/5/13
GDP Growth	IQ2013/IQ2012 ∆%: -0.2 IVQ2012/IVQ2011 ∆%: -0.4 Blog 3/31/13 5/19/12
Industrial Production	Mar ∆%: Manufacturing -1.0 12-Month ∆%: Manufacturing minus 4.9 Blog 5/12/13
Consumer Spending	Manufactured Goods Mar ∆%: 1.2 Feb 12-Month Manufactured Goods ∆%: -0.6 Blog 5/5/13
Employment	IVQ2012 Unemployed 2.944 million Unemployment Rate: 10.2% Employment Rate: 64.1% Blog 3/10/13
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 92 Blog 5/26/13

Links to blog comments in Table FR: 5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

5/12/13 http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html

5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html

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

Table VF-1 shows the INSEE business climate manufacturing indicator. The headline synthetic index decreased from 92 in Jan 2013 to 88 in Apr 2013 but rebounded to 92 in May 2013. The final row shows general production expectations deteriorating from minus 34 in Feb 2013 to minus 49 in Apr 2013 and minus 47 in May 2013. The indicator of demand and export order levels improved from minus 30 in Feb 2013 to minus 29 in May 2013.

Table VF-1, France, Business Climate Indicators of INSEE

Mfg 2012-2013	Average since 1976	Feb 13	Mar 13	Apr 13	May 13
Synthetic Index	100	92	91	88	92
Recent Changes in Output	5	-15	-13	-17	-4
Finished- Goods Inventory Level	13	10	6	10	11
Demand and Total Order Levels	-18	-32	-34	-40	-33
Demand and Export Order Levels	-13	-30	-25	-26	-29
Personal Production Expectations	5	5	1	-2	-2
General Production Expectations	-9	-34	-45	-49	-47

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=11&date=20130524

Chart VF-1 of the Institut National de la Statistique et des Études Économiques (INSEE) provides the history of the business climate synthetic index of INSEE since 1992. The index fell during the contractions of 1991, 2001 and 2008. After rapid recovery beginning in 2009 the synthetic index shows declining trend in 2011 with upward reversal in 2012 interrupted in Apr through Jul 2012 and a marginal upward move in Aug-Sep 2012 but new decline in Oct 2012, marginally reversed in Nov 2012 with stability in Dec 2012 and decline in Jan 2013 but improvement in Feb 2013 and stability in Mar 2013, deteriorating in Apr 2013 and recovering in May 2013.

Chart VF-1, France, INSEE Industrial Business Climate Synthetic Index

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=11&date=20130524

Chart VF-2 of the Institut National de la Statistique et des Études Économiques (INSEE) shows strong drops of the turning point indicator in the recessions of 1991, 2001 and 2008. There have been other drops of this index. The turning point indicator has fallen to levels in the direction of past contractions and after rebounding in Oct and Nov 2011 is showing declining trend in Jan 2012 with slight reversal in Feb followed by significant improvement in Mar and deterioration in Apr through Jul 2012 with new improvement in Aug 2012 followed by decline in Sep-Oct 2012 followed by rebound in Nov 2012 and stability in Dec 2012 to Jan-Mar 2013, deteriorating in Apr-May 2013.

Chart VF-2, INSEE Business Climate Manufacturing Turning Point Indicator

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=11&date=20130524

Chart VF-3 of the Institut National de la Statistique et des Études Économiques (INSEE) of France shows the indexes of general production expectations, personal production expectations and recent changes in output. All three indexes fell during the past three contractions after 1991, 2001 and 2008. The indexes are showing downward trend in 2011 that continued in Nov, Dec and Jan 2012 with slight reversal in Feb and significant improvement in Mar followed by weakens in Apr through Jul 2012 and stability in Aug-Sep 2012 and new decline in Oct 2012 followed by improvement in Nov 2012 and stability in Dec 2012 with some improvement in Jan-Feb 2013 and deterioration in Mar-Apr 2013 with stability in May 2013.

Chart VF-3, Climate Manufacturing General Production, Personal Production and Recent Changes in Output of INSEE, SA %

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=11&date=20130524

VG Italy. Table VG-IT provides percentage changes in a quarter relative to the same quarter a year earlier of Italy’s expenditure components in chained volume measures. GDP has been declining at sharper rates from minus 0.5 percent in IVQ2011 to minus 2.8 percent in IIIQ2012. The aggregate demand components of consumption and gross fixed capital formation (GFCF) have been declining at faster rates.

Table VG-IT, Italy, GDP and Expenditure Components, Chained Volume Measures, Quarter ∆% on Same Quarter Year Earlier

	GDP	Imports	Consumption	GFCF	Exports
2012
IVQ	-2.8	-6.6	-3.9	-7.6	1.9
IIIQ	-2.6	-8.0	-4.3	-8.5	2.5
IIQ	-2.6	-7.5	-4.1	-8.6	2.5
IQ	-2.6	-9.0	-3.4	-7.2	1.9
2011
IVQ	-0.5	-6.8	-1.9	-3.2	3.2
IIIQ	0.4	0.1	-0.6	-2.2	5.7
IIQ	0.9	3.1	0.6	-0.3	7.0
IQ	1.2	8.8	1.0	0.3	10.8
2010
IVQ	1.9	15.4	1.0	0.9	13.3
IIIQ	1.7	13.2	1.2	2.7	12.1
IIQ	1.9	13.5	0.9	0.8	12.0
IQ	1.2	7.1	0.9	-2.1	7.1
2009
IVQ	-3.4	-6.4	0.2	-7.8	-9.3
IIIQ	-4.9	-12.2	-0.8	-12.6	-16.4
IIQ	-6.6	-17.9	-1.5	-13.6	-21.4
IQ	-7.0	-17.2	-1.7	-12.6	-22.8
2008
IVQ	-3.0	-8.2	-0.9	-8.3	-10.3
IIIQ	-1.9	-5.0	-0.8	-4.5	-3.9
IIQ	-0.2	-0.1	-0.3	-1.5	0.4
IQ	0.5	1.7	0.1	-1.0	2.9

GFCF: Gross Fixed Capital Formation

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/84408

The Markit/ADACI Business Activity Index increased from 45.5 in Mar to 47.0 in Apr, indicating contraction of output of Italy’s services sector for 23 consecutive months of decline since Jun 2011 but at a high in 20 months and above the average for the period of contraction (http://www.markiteconomics.com/Survey/PressRelease.mvc/48355ce5432a42259bbb65b5397deb81). Phil Smith, economist at Markit and author of the Italy Services PMI^®, finds that the index suggests a bottom for the contraction in Italy (http://www.markiteconomics.com/Survey/PressRelease.mvc/48355ce5432a42259bbb65b5397deb81). The Markit/ADACI Purchasing Managers’ Index^® (PMI^®), increased from 44.5 in Mar to 45.5 in Apr for 21 consecutive months of contraction of Italy’s manufacturing below 50.0 with the Apr reading marginally below the average in
IQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/51837a55ad9c42eeb4bed079157e67bd). Phil Smith, economist at Markit and author of the Italian Manufacturing PMI^®, finds renewed deterioration with continuing decline in new orders and the contraction extending in a longer period than during the global recession in 2008 to 2009 (http://www.markiteconomics.com/Survey/PressRelease.mvc/51837a55ad9c42eeb4bed079157e67bd). Table IT provides the country data table for Italy.

Table IT, Italy, Economic Indicators

Consumer Price Index	Apr month ∆%: 0.0 Apr 12-month ∆%: 1.1 Blog 5/19/13
Producer Price Index	Mar month ∆%: 0.0 Mar 12-month ∆%: 0.0 Blog 5/5/13
GDP Growth	IQ2013/IVQ2012 SA ∆%: minus 0.5 IQ2013/IQ2012 NSA ∆%: minus 2.3 Blog 3/17/13 5/19/13
Labor Report	Nov 2012 Participation rate 63.9% Employment ratio 56.8% Unemployment rate 11.1% Blog 1/13/13
Industrial Production	Mar month ∆%: -0.8 12 months CA ∆%: -5.2 Blog 5/12/13
Retail Sales	Mar month ∆%: -0.3 Mar 12-month ∆%: -3.0 Blog 5/26/13
Business Confidence	Mfg Apr 87.6, Dec 89.0 Construction Apr 78.2, Dec 79.4 Blog 5/5/13
Trade Balance	Balance Mar SA €2384 million versus Feb €2067 Exports Mar month SA ∆%: 1.2; Imports Mar month ∆%: 0.2 Exports 12 months Mar NSA ∆%: -6.0 Imports 12 months NSA ∆%: -10.6 Blog 5/19/13

Links to blog comments in Table IT:

5/19/13 http://cmpassocregulationblog.blogspot.com/2013/05/word-inflation-waves-squeeze-of.html

5/12/13 http://cmpassocregulationblog.blogspot.com/2013/05/recovery-without-hiring-collapse-of.html

5/5/13 http://cmpassocregulationblog.blogspot.com/2013/05/twenty-nine-million-unemployed-or.html

3/17/13 http://cmpassocregulationblog.blogspot.com/2013/03/recovery-without-hiring-ten-million.html

1/13/13 http://cmpassocregulationblog.blogspot.com/2013/01/peaking-valuation-of-risk-financial.html

An important part of the analysis of Blanchard (2011WEOSep, 2012WEOApr) is the much more difficult adjustment of economies with need of fiscal consolidation in the presence of weak economic growth. Demand has significantly weakened throughout the advanced economies. There are many sound fundamentals in Italy such as high income and competitive companies. The restraints consist of low economic growth with high debt/GDP ratio. Table VG-1 provides growth of retail sales for Italy. Retail sales decreased 0.3 percent in Mar 2013 relative to Feb 2013, decreased 0.8 percent in Jan-Mar 2013 relative to Oct-Dec 2012, decreased 3.0 percent in Mar 2013 relative to Mar 2012 and decreased 3.4 percent cumulatively in Jan-Mar 2013 relative to Jan-Mar 2012. Food retail sales outperform non-food retail sales.

Table VG-1, Italy, Retail Sales ∆%

	Mar 2013/  Feb 2013 SA	Jan-Mar 13/   Oct-Dec 12 SA	Mar 2013/ Mar 2012 NSA	Jan-Mar 2013/ Jan-Mar 2012
Food	0.4	-0.1	2.0	-1.2
Non-food	-0.8	-1.3	-6.1	-4.9
Total	-0.3	-0.8	-3.0	-3.4

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/90924

Chart VG-1 provides 12-month percentage changes of retail sales in Italy. There are only positive changes in Dec 2010 and Apr 2011. Retail sales fell relative to a year earlier in most months of 2011 with improvement in Feb and Mar 2012 but sharp decline in Apr 2012 followed by improvements in May and Jun 2012, another sharp drop in Jul 2012 and improvement in Aug- 2012 with marginal deterioration in Sep 2012 followed by sharper deterioration in Oct 2012 and marginal improvement in Nov 2012 with further deterioration in Dec 2012 and mild recovery in Jan 2013 followed by deterioration in Feb 2013. There is marginal improvement in Mar 2013.

Chart VG-1, Italy, Percentage Changes of Retail Sales in 12 Months

Source: Istituto Nazionale di Statistica

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

A longer perspective of retail sales in Italy is provided by monthly and 12-month percentage changes in 2011, Jan-Dec 2012, Jan-Mar 2013 and annual rates for 2011 and 2012 in Table VG-2. Retail sales did not decline very sharply during the global recession but 0.8 percent in 2011 and 1.7 percent in 2012. There is an evident declining trend in 2011 with few monthly increases and similar weakness in 2012 with multiple monthly declines. Percentage changes in 12 months have increased to more than 3 percent with decrease of 3.0 percent in the 12 months ending in Mar 2013.

Table VG-2, Italy, Retail Sales Month and 12-Month ∆%

	Month ∆% SA	12-Month ∆% NSA
Mar 2013	-0.3	-3.0
Feb	-0.2	-4.8
Jan	-0.5	-2.8
Dec 2012	-0.2	-3.4
Nov	0.0	-2.4
Oct	-0.9	-3.4
Sep	-0.1	-1.0
Aug	0.0	-0.4
Jul	-0.3	-3.1
Jun	-0.1	0.2
May	0.1	-1.1
Apr	-1.1	-6.3
Mar	0.1	2.3
Feb	-0.3	0.7
Jan	1.0	-0.9
Dec 2011	-0.9	-3.2
Nov	-0.5	-1.5
Oct	0.7	-0.9
Sep	-0.3	-1.1
Aug	-0.4	0.1
July	0.0	-1.7
Jun	-0.4	-0.6
May	-0.5	-0.3
Apr	1.0	3.3
Mar	-0.2	-1.9
Feb	-0.4	0.1
Jan	-0.2	-0.5
Dec 2010	0.5	0.6
2012		-1.7
2011		-0.8

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/90924

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