CMP Associates Regulation Blog: Collapse of United States Dynamism of Income Growth and Employment Creation, Interest Rate Risk, Stagnating Real Disposable Income and Consumption Expenditures, Destruction of Household Nonfinancial Wealth with Stagnating Total Real Wealth, United States Commercial Banks Assets and Liabilities, United States Housing Collapse, World Economic Slowdown and Global Recession Risk: Part IV

Collapse of United States Dynamism of Income Growth and Employment Creation, Interest Rate Risk, Stagnating Real Disposable Income and Consumption Expenditures, Destruction of Household Nonfinancial Wealth with Stagnating Total Real Wealth, United States Commercial Banks Assets and Liabilities, United States Housing Collapse, World Economic Slowdown and Global Recession Risk

Carlos M. Pelaez

Executive Summary

I Stagnating Real Disposable Income and Consumption Expenditures

IA1 Stagnating Real Disposable Income and Consumption Expenditures

IA2 Financial Repression

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

IIA Destruction of Household Nonfinancial Wealth with Stagnating Total Real Wealth

IIB United States Commercial Banks Assets and Liabilities

IIA1 Transmission of Monetary Policy

IIB1 Functions of Banks

IIC United States Commercial Banks Assets and Liabilities

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

IIE 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

V World Economic Slowdown. Table V-1 is constructed with the database of the IMF (http://www.imf.org/external/pubs/ft/weo/2013/02/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 2.9 percent in 2013 but accelerating to 3.6 percent in 2014, 4.0 percent in 2015 and 4.1 percent in 2016. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $34,560 billion of world output of $72,216 billion, or 47.9 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 3.6 percent for the world as a whole. While the world would grow 15.4 percent in the four years from 2013 to 2016, the G7 as a whole would grow 8.6 percent. The difference in dollars of 2012 is rather high: growing by 15.4 percent would add $11.1 trillion of output to the world economy, or roughly, two times the output of the economy of Japan of $5,960 billion but growing by 8.6 percent would add $6.2 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 $27,221 billion, or 37.7 percent of world output. The EMDEs would grow cumulatively 21.9 percent or at the average yearly rate of 5.1 percent, contributing $6.0 trillion from 2013 to 2016 or the equivalent of somewhat less than the GDP of $8,221 billion of China in 2012. The final four countries in Table V-1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output in 2012 adds to $14,346 billion, or 19.9 percent of world output, which is equivalent to 41.5 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	72,216	2.9	3.6	4.0	4.1
G7	34,560	1.2	2.0	2.5	2.6
Canada	1,821	1.6	2.2	2.4	2.5
France	2,614	0.2	1.0	1.5	1.7
DE	3,430	0.5	1.4	1.4	1.3
Italy	2,014	-1.8	0.7	1.1	1.4
Japan	5,960	1.9	1.2	1.1	1.2
UK	2,477	1.4	1.9	2.0	2.0
US	16,245	1.6	2.6	3.4	3.5
Euro Area	12,199	-0.4	1.0	1.4	1.5
DE	3,430	0.5	1.4	1.4	1.3
France	2,614	0.2	1.0	1.5	1.7
Italy	2,014	-1.8	0.7	1.1	1.4
POT	212	-1.8	0.8	1.5	1.8
Ireland	211	0.6	1.8	2.5	2.5
Greece	249	-4.2	0.6	2.9	3.7
Spain	1,324	-1.3	0.2	0.5	0.7
EMDE	27,221	4.5	5.1	5.3	5.4
Brazil	2,253	2.5	2.5	3.2	3.3
Russia	2,030	1.5	3.0	3.5	3.5
India	1,842	3.8	5.1	6.3	6.5
China	8,221	7.6	7.3	7.0	7.0

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/2013/02/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/2013/02/weodata/index.aspx). Table V-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 V-2 are high for all countries: unusually high for countries with high rates most of the time and unusually high for countries with low rates most of the time. 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	7.3	7.3	7.0	6.6
Canada	7.3	7.2	7.1	7.0	6.9
France	10.3	11.0	11.1	10.9	10.5
DE	5.5	5.6	5.5	5.5	5.5
Italy	10.7	12.5	12.4	12.0	11.2
Japan	4.4	4.2	4.3	4.3	4.3
UK	8.0	7.7	7.5	7.3	7.0
US	8.1	7.6	7.4	6.9	6.4
Euro Area	11.4	12.3	12.2	12.0	11.5
DE	5.5	5.6	5.5	5.5	5.5
France	10.3	11.0	11.1	10.9	10.5
Italy	10.7	12.5	12.4	12.0	11.2
POT	15.7	17.4	17.7	17.3	16.8
Ireland	14.7	13.7	13.3	12.8	12.4
Greece	24.2	27.0	26.1	24.0	21.0
Spain	25.0	26.9	26.7	26.5	26.2
EMDE	NA	NA	NA	NA	NA
Brazil	5.5	5.8	6.0	6.5	6.5
Russia	6.0	5.7	5.7	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/2013/02/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 IIQ2013 available now for all countries. There are preliminary estimates for all countries for IIIQ2013. Growth is weak throughout most of the world. Japan’s GDP increased 0.9 percent in IQ2012 and 3.5 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 0.5 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of minus 2.0 percent, which is much lower than 3.5 percent in IQ2012. Growth of 3.2 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 0.8 percent in IIIQ2012 at the SAAR of minus 3.2 percent and decreased 0.2 percent relative to a year earlier. Japan’s GDP grew 0.1 percent in IVQ2012 at the SAAR of 0.6 percent and decreased 0.3 percent relative to a year earlier. Japan grew 1.1 percent in IQ2013 at the SAAR of 4.5 percent and 0.1 percent relative to a year earlier. Japan’s GDP increased 0.9 percent in IIQ2013 at the SAAR of 3.6 percent and increased 1.2 percent relative to a year earlier. Japan’s GDP grew 0.3 percent in IIIQ2013 at the SAAR of 1.1 percent and increased 2.4 pecent relative to a year earlier. China grew at 2.2 percent in IIQ2012, which annualizes to 9.1 percent and 7.6 percent relative to a year earlier. China grew at 2.0 percent in IIIQ2012, which annualizes at 8.2 percent and 7.4 percent relative to a year earlier. In IVQ2012, China grew at 1.9 percent, which annualizes at 7.8 percent, and 7.9 percent in IVQ2012 relative to IVQ2011. In IQ2013, China grew at 1.5 percent, which annualizes at 6.1 percent and 7.7 percent relative to a year earlier. In IIQ2013, China grew at 1.9 percent, which annualizes at 7.8 percent and 7.5 percent relative to a year earlier. China grew at 2.2 percent in IIIQ2013, which annualizes at 9.1 percent and 7.8 percent relative to a year earlier. There is decennial change in leadership in China (http://www.xinhuanet.com/english/special/18cpcnc/index.htm). Growth rates of GDP of China in a quarter relative to the same quarter a year earlier have been declining from 2011 to 2013. GDP fell 0.1 percent in the euro area in IQ2012 and decreased 0.2 in IQ2012 relative to a year earlier. Euro area GDP contracted 0.3 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 0.5 percent relative to the prior quarter and fell 1.0 percent relative to a year earlier. In IQ2013, the GDP of the euro area fell 0.2 percent and decreased 1.2 percent relative to a year earlier. The GDP of the euro area increased 0.3 percent in IIQ2013 and fell 0.6 percent relative to a year earlier. In IIIQ2013, euro area GDP increased 0.1 percent and fell 0.4 percent relative to a year earlier. Germany’s GDP increased 0.7 percent in IQ2012 and 1.8 percent relative to a year earlier. In IIQ2012, Germany’s GDP decreased 0.1 percent and increased 0.6 percent relative to a year earlier but 1.1 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 0.5 percent in IVQ2012 and increased 0.0 percent relative to a year earlier. In IQ2013, Germany’s GDP increased 0.0 percent and fell 1.6 percent relative to a year earlier. In IIQ2013, Germany’s GDP increased 0.7 percent and 0.9 percent relative to a year earlier. The GDP of Germany increased 0.3 percent in IIIQ2013 and 1.1 percent relative to a year earlier. Growth of US GDP in IQ2012 was 0.9 percent, at SAAR of 3.7 percent and higher by 3.3 percent relative to IQ2011. US GDP increased 0.3 percent in IIQ2012, 1.2 percent at SAAR and 2.8 percent relative to a year earlier. In IIIQ2012, US GDP grew 0.7 percent, 2.8 percent at SAAR and 3.1 percent relative to IIIQ2011. In IVQ2012, US GDP grew 0.0 percent, 0.1 percent at SAAR and 2.0 percent relative to IVQ2011. In IQ2013, US GDP grew at 1.1 percent SAAR, 0.3 percent relative to the prior quarter and 1.3 percent relative to the same quarter in 2013. In IIQ2013, US GDP grew at 2.5 percent in SAAR, 0.6 percent relative to the prior quarter and 1.6 percent relative to IIQ2012. US GDP grew at 4.1 percent in SAAR in IIIQ2013, 1.0 percent relative to the prior quarter and 2.0 percent relative to the same quarter a year earlier (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html) with weak hiring (http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html). In IQ2012, UK GDP changed 0.0 percent, increasing 0.6 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 0.8 percent in IIIQ2012 and increased 0.2 percent relative to a year earlier. UK GDP fell 0.1 percent in IVQ2012 relative to IIIQ2012 and increased 0.2 percent relative to a year earlier. UK GDP increased 0.5 percent in IQ2013 and 0.7 percent relative to a year earlier. UK GDP increased 0.8 percent in IIQ2013 and 2.0 percent relative to a year earlier. In IIIQ2013, UK GDP increased 0.8 percent and 1.9 percent relative to a year earlier. Italy has experienced decline of GDP in nine consecutive quarters from IIIQ2011 to IIIQ2013. Italy’s GDP fell 1.1 percent in IQ2012 and declined 1.8 percent relative to IQ2011. Italy’s GDP fell 0.6 percent in IIQ2012 and declined 2.6 percent relative to a year earlier. In IIIQ2012, Italy’s GDP fell 0.5 percent and declined 2.8 percent relative to a year earlier. The GDP of Italy contracted 0.9 percent in IVQ2012 and fell 3.0 percent relative to a year earlier. In IQ2013, Italy’s GDP contracted 0.6 percent and fell 2.5 percent relative to a year earlier. Italy’s GDP fell 0.3 percent in IIQ2013 and 2.2 percent relative to a year earlier. The GDP of Italy changed 0.0 percent in IIIQ2013 and declined 1.8 percent relative to a year earlier. France’s GDP changed 0.0 percent in IQ2012 and increased 0.4 percent relative to a year earlier. France’s GDP decreased 0.3 percent in IIQ2012 and increased 0.1 percent relative to a year earlier. In IIIQ2012, France’s GDP increased 0.2 percent and changed 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 0.1 percent and declined 0.4 percent relative to a year earlier. The GDP of France increased 0.6 percent in IIQ2013 and 0.5 percent relative to a year earlier. France’s GDP contracted 0.1 percent in IIIQ2013 and increased 0.2 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: 0.9 SAAR: 3.7	3.3
Japan	QOQ: 0.9 SAAR: 3.5	3.1
China	1.4	8.1
Euro Area	-0.1	-0.2
Germany	0.7	1.8
France	0.0	0.4
Italy	-1.1	-1.8
United Kingdom	0.0	0.6
	IIQ2012/IQ2012	IIQ2012/IIQ2011
United States	QOQ: 0.3 SAAR: 1.2	2.8
Japan	QOQ: -0.5 SAAR: -2.0	3.2
China	2.2	7.6
Euro Area	-0.3	-0.5
Germany	-0.1	0.6 1.1 CA
France	-0.3	0.1
Italy	-0.6	-2.6
United Kingdom	-0.4	0.0
	IIIQ2012/ IIQ2012	IIIQ2012/ IIIQ2011
United States	QOQ: 0.7 SAAR: 2.8	3.1
Japan	QOQ: –0.8 SAAR: –3.2	-0.2
China	2.0	7.4
Euro Area	-0.1	-0.7
Germany	0.2	0.4
France	0.2	0.0
Italy	-0.5	-2.8
United Kingdom	0.8	0.2
	IVQ2012/IIIQ2012	IVQ2012/IVQ2011
United States	QOQ: 0.0 SAAR: 0.1	2.0
Japan	QOQ: 0.1 SAAR: 0.6	-0.3
China	1.9	7.9
Euro Area	-0.5	-1.0
Germany	-0.5	0.0
France	-0.2	-0.3
Italy	-0.9	-3.0
United Kingdom	-0.1	0.2
	IQ2013/IVQ2012	IQ2013/IQ2012
United States	QOQ: 0.3 SAAR: 1.1	1.3
Japan	QOQ: 1.1 SAAR: 4.5	0.1
China	1.5	7.7
Euro Area	-0.2	-1.2
Germany	0.0	-1.6
France	-0.1	-0.4
Italy	-0.6	-2.5
UK	0.5	0.7
	IIQ2013/IQ2013	IIQ2013/IIQ2012
United States	QOQ: 0.6 SAAR: 2.5	1.6
Japan	QOQ: 0.9 SAAR: 3.6	1.2
China	1.9	7.5
Euro Area	0.3	-0.6
Germany	0.7	0.9
France	0.6	0.5
Italy	-0.3	-2.2
UK	0.8	2.0
	IIIQ2013/IIQ2013	III/Q2013/ IIIQ2012
USA	QOQ: 1.0 SAAR: 4.1	2.0
Japan	QOQ: 0.3 SAAR: 1.1	2.4
China	2.2	7.8
Euro Area	0.1	-0.4
Germany	0.3	1.1
France	-0.1	0.2
Italy	0.0	-1.8
UK	0.8	1.9

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

Source: Country Statistical Agencies http://www.census.gov/aboutus/stat_int.html

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 (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations_8763.html http://cmpass ocregulationblog.blogspot.com/2013/08/interest-rate-risks-duration-dumping.html and earlier http://cmpassocregulationblog.blogspot.com/2013/07/duration-dumping-steepening-yield-curve.html and earlier http://cmpassocregulationblog.blogspot.com/2013/06/paring-quantitative-easing-policy-and_4699.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html 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 http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.html and earlier http://cmpassocreulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html). In Nov 2013, Japan’s exports grew 18.4 percent in 12 months while imports increased 21.1 percent. The second part of Table V-4 shows that net trade deducted 1.3 percentage points from Japan’s growth of GDP in IIQ2012, deducted 2.1 percentage points from GDP growth in IIIQ2012 and deducted 0.6 percentage points from GDP growth in IVQ2012. Net trade added 0.4 percentage points to GDP growth in IQ2012, 1.6 percentage points in IQ2013 and 0.6 percentage points in IIQ2013. In IIIQ2013, net trade deducted 1.9 percentage points from GDP growth in Japan. In Nov 2013, China exports increased 12.6 percent relative to a year earlier and imports increased 5.2 percent. Germany’s exports increased 0.2 percent in the month of Oct 2013 and increased 0.6 percent in the 12 months ending in Oct 2013. Germany’s imports decreased 2.9 percent in the month of Oct and decreased 1.6 percent in the 12 months ending in Oct. Net trade contributed 0.8 percentage points to growth of GDP in IQ2012, contributed 0.4 percentage points in IIQ2012, contributed 0.3 percentage points in IIIQ2012, deducted 0.5 percentage points in IVQ2012, deducted 0.2 percentage points in IQ2012 and added 0.3 percentage points in IIQ2013. Net traded deducted 0.4 percentage points from Germany’s GDP growth in IIIQ2013. Net trade deducted 0.8 percentage points from UK value added in IQ2012, deducted 0.8 percentage points in IIQ2012, added 0.7 percentage points in IIIQ2012 and subtracted 0.5 percentage points in IVQ2012. In IQ2013, net trade added 0.5 percentage points to UK’s growth of value added and contributed 0.2 percentage points in IIQ2013. In IIIQ2013, net trade deducted 1.2 percentage points from UK GDP growth. France’s exports decreased 0.3 percent in Oct 2013 while imports decreased 2.5. Net traded added 0.1 percentage points to France’s GDP in IIIQ2012 and 0.1 percentage points in IVQ2012. Net trade deducted 0.1 percentage points from France’s GDP growth in IQ2013 and added 0.1 percentage points in IIQ2013, deducting 0.6 percentage points in IIIQ2013. US exports increased 1.8 percent in Oct 2013 and goods exports increased 2.0 percent in Jan-Oct 2013 relative to a year earlier but net trade deducted 0.03 percentage points from GDP growth in IIIQ2012 and added 0.68 percentage points in IVQ2012. Net trade deducted 0.28 percentage points from US GDP growth in IQ2013 and deducted 0.07 percentage points in IIQ2013. Net traded added 0.14 percentage points to US GDP growth in IIIQ2013. US imports increased 0.4 percent in Oct 2013 and goods imports decreased 0.3 percent in Jan-Oct 2013 relative to a year earlier. Industrial production increased 1.1 percent in Nov 2013 after increasing 0.1 percent in Oct 2013 and increasing 0.5 percent in Se 2013, as shown in Table I-1, with all data seasonally adjusted. The report of the Board of Governors of the Federal Reserve System states (http://www.federalreserve.gov/releases/g17/Current/default.htm):

“Industrial production increased 1.1 percent in November after having edged up 0.1 percent in October; output was previously reported to have declined 0.1 percent in October. The gain in November was the largest since November 2012, when production rose 1.3 percent. Manufacturing output increased 0.6 percent in November for its fourth consecutive monthly gain. Production at mines advanced 1.7 percent to more than reverse a decline of 1.5 percent in October. The index for utilities was up 3.9 percent in November, as colder-than-average temperatures boosted demand for heating. At 101.3 percent of its 2007 average, total industrial production was 3.2 percent above its year-earlier level. In November, industrial production surpassed for the first time its pre-recession peak of December 2007 and was 21 percent above its trough of June 2009. Capacity utilization for the industrial sector increased 0.8 percentage point in November to 79.0 percent, a rate 1.2 percentage points below its long-run (1972-2012) average.”

In the six months ending in Nov 2013, United States national industrial production accumulated increase of 2.2 percent at the annual equivalent rate of 4.5 percent, which is higher than growth of 3.2 percent in the 12 months ending in Nov 2013. Excluding growth of 1.1 percent in Nov 2013, growth in the remaining five months from Jun 2012 to Oct 2013 accumulated to 1.1 percent or 2.2 percent annual equivalent. Industrial production fell in one of the past six months. Business equipment accumulated growth of 1.4 percent in the six months from Jun to Nov 2013 at the annual equivalent rate of 2.8 percent, which is higher than growth of 2.2 percent in the 12 months ending in Nov 2013. The Fed analyzes capacity utilization of total industry in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm): “Capacity utilization for the industrial sector increased 0.8 percentage point in November to 79.0 percent, a rate 1.2 percentage points below its long-run (1972-2012) average.” United States industry apparently decelerated to a lower growth rate with possible acceleration in Nov 2013.

Manufacturing increased 0.3 percent in Oct 2013 after increasing 0.1 percent in Sep 2013 and increasing 0.7 percent in Aug 2013 seasonally adjusted, increasing 3.4 percent not seasonally adjusted in 12 months ending in Oct 2013, as shown in Table I-2 (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html). Manufacturing increased 0.6 percent in No 2013 after increasing 0.5 percent in Oct 2013 and increasing 0.1 percent in Sep 2013 seasonally adjusted, increasing 3.0 percent not seasonally adjusted in 12 months ending in Nov 2013, as shown in Table I-2. Manufacturing grew cumulatively 1.7 percent in the six months ending in Nov 2013 or at the annual equivalent rate of 3.4 percent. Excluding the increase of 0.6 percent in Nov 2013, manufacturing accumulated growth of 1.1 percent from Jun 2013 to Oct 2013 or at the annual equivalent rate of 2.2 percent. Table I-2 provides a longer perspective of manufacturing in the US. There has been evident deceleration of manufacturing growth in the US from 2010 and the first three months of 2011 into more recent months as shown by 12 months rates of growth. Growth rates appeared to be increasing again closer to 5 percent in Apr-Jun 2012 but deteriorated. The rates of decline of manufacturing in 2009 are quite high with a drop of 18.2 percent in the 12 months ending in Apr 2009. Manufacturing recovered from this decline and led the recovery from the recession. Rates of growth appeared to be returning to the levels at 3 percent or higher in the annual rates before the recession but the pace of manufacturing fell steadily in the past six months with some weakness at the margin. Manufacturing fell by 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increase by 16.8 percent from the trough in Apr 2009 to Dec 2012. Manufacturing grew 20.5 percent from the trough in Apr 2009 to Nov 2013. Manufacturing output in Nov 2013 is 5.9 percent below the peak in Jun 2007.

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	1.8 Oct	2.0 Jan-Oct	0.4 Oct	-0.3 Jan-Oct
Japan		Nov 2013 18.4 Oct 2013 18.6 Sep 2013 11.5 Aug 2013 14.7 Jul 2013 12.2 Jun 2013 7.4 May 2013 10.1 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		Nov 2013 21.1 Oct 2013 26.1 Sep 2013 16.5 Aug 2013 16.0 Jul 2013 19.6 Jun 2013 11.8 May 2013 10.0 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		12.6 Nov 5.6 Oct -0.3 Sep 7.2 Aug 5.1 Jul -3.1 Jun 1.0 May 14.7 Apr 10.0 Mar 21.8 Feb		5.2 Nov 7.6 Oct 7.4 Sep 10.9 Jul -0.7 Jun -0.3 May 16.8 Apr 14.1 Mar -15.2 Feb
Euro Area	1.2 12-M Oct	0.9 Jan-Oct	-3.4 12-M Oct	-3.4 Jan-Oct
Germany	0.2 Oct CSA	0.6 Oct	-2.9 Oct CSA	-1.6 Oct
France Oct	-0.3	-2.0	-2.5	-2.7
Italy Oct	-0.5	0.8	-2.6	-4.3
UK	-1.4 Oct	1.9 Aug-Oct 13 /Aug-Oct 12	-1.4 Oct	0.3 Aug-Oct 13/Aug-Oct 12
Net Trade % Points GDP Growth	% Points
USA	IIIQ2013 0.14 IIQ2013 -0.07 IQ2013 -0.28 IVQ2012 +0.68 IIIQ2012 -0.03 IIQ2012 +0.10 IQ2012 +0.44
Japan	0.4 IQ2012 -1.3 IIQ2012 -2.1 IIIQ2012 -0.6 IVQ2012 1.6 IQ2013 0.6 IIQ2013 -1.9 IIIQ2013
Germany	IQ2012 0.8 IIQ2012 0.4 IIIQ2012 0.3 IVQ2012 -0.5 IQ2013 -0.2 IIQ2013 0.3 IIIQ2013 -0.4
France	0.1 IIIQ2012 0.1 IVQ2012 -0.1 IQ2013 0.1 IIQ2013 -0.6 IIIQ2013
UK	-0.8 IQ2012 -0.8 IIQ2012 +0.7 IIIQ2012 -0.5 IVQ2012 0.5 IQ2013 0.2 IIQ2013 -1.2 IIIQ2013

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 VB-7 for Nov 2013. The share of Asia in Japan’s trade is more than one-half for 55.0 percent of exports and 45.4 percent of imports. Within Asia, exports to China are 19.4 percent of total exports and imports from China 23.4 percent of total imports. While exports to China increased 33.1 percent in the 12 months ending in Nov 2013, imports from China increased 19.4 percent. The second largest export market for Japan in Nov 2013 is the US with share of 19.2 percent of total exports, which is almost equal to that of China, and share of imports from the US of 9.0 percent in total imports. Western Europe has share of 10.2 percent in Japan’s exports and of 10.1 percent in imports. Rates of growth of exports of Japan in Nov 2013 are relatively high for several countries and regions with growth of 21.2 percent for exports to the US, 30.4 percent for exports to Brazil and 6.3 percent for exports to Australia. Comparisons relative to 2011 may have some bias because of the effects of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Deceleration of growth in China and the US and threat of recession in Europe can reduce world trade and economic activity. Growth rates of imports in the 12 months ending in Nov 2013 are positive for all trading partners with exception of France. Imports from Asia increased 19.8 percent in the 12 months ending in Nov 2013 while imports from China increased 19.4 percent. Data are in millions of yen, which may have 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 Yen

Nov 2013	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	5,900,458	18.4	7,193,325	21.1
Asia	3,243,626	18.9	3,268,586	19.8
China	1,142,599	33.1	1,679,702	19.4
USA	1,131,304	21.2	647,248	34.9
Canada	68,688	15.2	96,957	7.6
Brazil	43,821	30.4	96,632	5.4
Mexico	74,569	0.2	35,001	11.0
Western Europe	600,981	17.1	728,480	7.6
Germany	165,555	25.9	201,831	6.1
France	48,177	28.7	102,161	-4.9
UK	84,919	-5.1	55,180	-2.8
Middle East	228,322	24.7	1,379,683	33.4
Australia	128,145	6.3	387,037	14.3

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 2.9 percent in 2013 to 5.4 percent in 2015 and 5.1 percent on average from 2013 to 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, USD Billions, USD/Barrel and ∆%

	2013	2014	2015	Average ∆% 2013-2018
World Trade Volume (Goods and Services)	2.9	4.9	5.4	5.1
Exports Goods & Services	3.0	5.1	5.4	5.1
Imports Goods & Services	2.8	4.7	5.4	5.0
Oil Price USD/Barrel	104.49	101.35	NA	NA
Value of World Exports Goods & Services $B	23,164	24,367	NA	NA
Value of World Exports Goods $B	18,709	19,632	NA	NA
Exports Goods & Services
EMDE	3.5	5.8	6.3	5.9
G7	2.3	4.6	4.4	4.4
Imports Goods & Services
EMDE	5.0	5.9	6.7	6.2
G7	1.3	3.9	4.2	4.0
Terms of Trade of Goods & Services
EMDE	-0.5	-0.4	-0.6	-0.5
G7	0.1	-0.1	0.1	0.1
Terms of Trade of Goods
EMDE	-0.6	-0.9	-0.9	-0.8
G7	-0.5	0.2	0.2	-0.007

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/2013/02/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 to 54.3 in Nov from 52.1 in Oct, indicating expansion at a faster rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/7af9c543698844248210df3c25786468). This index has remained above the contraction territory of 50.0 during 52 consecutive months. The employment index decreased from 52.2 in Oct to 51.2 in Nov with input prices rising at a slower rate, new orders increasing at faster rate and output increasing at faster rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/7af9c543698844248210df3c25786468). The JP Morgan Global Manufacturing PMI^™, produced by JP Morgan and Markit in association with ISM and IFPSM, was higher at 53.2 in Nov from 52.1 in Oct, which is the highest reading since May 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/a4686697a9494286b96442f90b55d90f). New export orders expanded at the fastest pace in 32 months (http://www.markiteconomics.com/Survey/PressRelease.mvc/a4686697a9494286b96442f90b55d90f). David Hensley, Director of Global Economic Coordination at JP Morgan finds acceleration of global manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/a4686697a9494286b96442f90b55d90f). The HSBC Brazil Composite Output Index, compiled by Markit, decreased marginally from 52.0 in Oct to 51.8 in Nov, indicating moderate expansion of Brazil’s private sector (http://www.markiteconomics.com/Survey/PressRelease.mvc/c12bfb84a41d428fbccd1dac97d000e5). The HSBC Brazil Services Business Activity index, compiled by Markit increased marginally from 52.1 in Oct to 52.3 in Nov, indicating continuing improvement in business activity in an nine-month high (http://www.markiteconomics.com/Survey/PressRelease.mvc/c12bfb84a41d428fbccd1dac97d000e5). André Loes, Chief Economist, Brazil, at HSBC, finds that the reading is stronger than the average of 50.2 in IIIQ2013 but that intput prices increased at the highest rate since Feb 2012 (http://www.markiteconomics.com/Survey/PressRelease.mvc/c12bfb84a41d428fbccd1dac97d000e5). The HSBC Brazil Purchasing Managers’ Index^TM (PMI^™) decreased from 50.2 in Oct to 49.7 in Nov, indicating marginal deterioration in manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/e9b9f4da681c42aea8f00ce2170931fd). André Loes, Chief Economist, Brazil at HSBC, finds weakness in the second month of IIIQ2013 after marginal contraction in all months in IIQ2013 with improvement in Oct 2013 that is not sustained in Nov 2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/e9b9f4da681c42aea8f00ce2170931fd).

VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index^™ (PMI^™) seasonally adjusted decreased to 54.4 in Dec from 54.7 in Nov with the three-month average at 53.6 indicating moderate growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/409f3a8ff2a240c08dd65c2f747cab56). New export orders registered 51.4 in Dec unchanged from 51.4 in No, indicating marginal expansion. Chris Williamson, Chief Economist at Markit, finds that manufacturing output is growing at 4.0 percent per year with positive effects on employment (http://www.markiteconomics.com/Survey/PressRelease.mvc/409f3a8ff2a240c08dd65c2f747cab56). The Markit Flash US Services PMI™ Business Activity Index increased from 55.9 in Nov to 56.0 in Dec with the average at 53.7l, which is the lowest quarterly average in 2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/a3f2275774ad43e3b0e1b72f6b0b7b8b). Chris Williamson, Chief Economist at Markit, finds that the surveys are consistent with growth at around 3 percent per year in IVQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/a3f2275774ad43e3b0e1b72f6b0b7b8b). The Markit US Manufacturing Purchasing Managers’ Index^™ (PMI^™) increased to 54.3 in Nov from 51.8 in Oct, which is the best improvement since Jan (http://www.markiteconomics.com/Survey/PressRelease.mvc/f2489cf394d94b409e04a2ffa7a8e36b). The index of new exports orders increased from 51.3 in Oct to 51.4 in Nov while total new orders increased from 52.7 in Oct to 56.2 in Nov. Chris Williamson, Chief Economist at Markit, finds that the index suggests growth of production at 2.5 percent annual rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/f2489cf394d94b409e04a2ffa7a8e36b). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business^® increased 0.9 percentage points from 56.4 in Oct to 57.3 in Nov, which indicates growth at a higher rate (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders increased 3.0 percentage points from 60.6 in Oct to 63.6 in Nov. The index of exports increased 2.5 percentage point from 57.0 in Oct to 59.5 in Nov, growing at a faster rate. The Non-Manufacturing ISM Report on Business^® PMI decreased 4.2 percentage points from 59.7 in Oct to 55.5 in Nov, indicating growth of business activity/production during 52 consecutive months, while the index of new orders decreased 0.4 percentage points from 56.8 in Oct to 56.4 in Nov (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	Nov 12 months NSA ∆%: 1.2; ex food and energy ∆%: 1.7 Nov month SA ∆%: 0.0; ex food and energy ∆%: 0.2 Blog 12/22/13
Producer Price Index	Nov 12-month NSA ∆%: 0.7; ex food and energy ∆% 1.3 Nov month SA ∆% = -0.1; ex food and energy ∆%: 0.1 Blog 12/22/13
PCE Inflation	Nov 12-month NSA ∆%: headline 0.9; ex food and energy ∆% 1.1 Blog 12/29/13
Employment Situation	Household Survey: Nov Unemployment Rate SA 7.0% Blog calculation People in Job Stress Nov: 28.1 million NSA, 17.2% of Labor Force Establishment Survey: Nov Nonfarm Jobs +203,000; Private +196,000 jobs created Oct 12-month Average Hourly Earnings Inflation Adjusted ∆%: 1.2 Blog 12/8/13
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 Oct 2013 4.476 million lower by 0.788 million than 5.264 million in Oct 2007 Blog 12/15/13
GDP Growth	BEA Revised National Income Accounts IQ2012/IQ2011 ∆%: 3.3 IIQ2012/IIQ2011 2.8 IIIQ2012/IIIQ2011 3.1 IVQ2012/IVQ2011 2.0 IQ2013/IQ2012 1.3 IIQ2013/IIQ2012 1.6 IIIQ2013/IIIQ2012 2.0 IQ2012 SAAR 3.7 IIQ2012 SAAR 1.2 IIIQ2012 SAAR 2.8 IVQ2012 SAAR 0.1 IQ2013 SAAR 1.1 IIQ2013 SAAR 2.5 IIIQ2013 SAAR 4.1 Blog 12/22/13
Real Private Fixed Investment	SAAR IIIQ2013 5.9 ∆% IVQ2007 to IIIQ2013: minus 3.6% Blog 12/22/13
Personal Income and Consumption	Nov month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 0.1 Real Personal Consumption Expenditures (RPCE): 0.5 12-month Nov NSA ∆%: RDPI: 0.6; RPCE ∆%: 2.6 Blog 12/29/13
Quarterly Services Report	IIIQ13/IIQ12 NSA ∆%: Information 4.9 Financial & Insurance 0.6 Blog 12/15/13
Employment Cost Index	Compensation Private IIIQ2013 SA ∆%: 0.4 Sep 12 months ∆%: 1.9 Blog 11/24/13
Industrial Production	Nov month SA ∆%: 1.1 Nov 12 months SA ∆%: 3.2 Manufacturing Nov SA ∆% 0.6 Nov 12 months SA ∆% 2.9, NSA 3.0 Capacity Utilization: 79.0 Blog 12/22/13
Productivity and Costs	Nonfarm Business Productivity IIIQ2013∆% SAAE 3.0; IIIQ2013/IIIQ2012 ∆% 0.3; Unit Labor Costs SAAE IIIQ2013 ∆% -1.4; IIIQ2013/IIIQ2012 ∆%: 2.1 Blog 12/22/2013
New York Fed Manufacturing Index	General Business Conditions From Nov -2.21 to Dec 0.98 New Orders: From Nov minus 5.53 to Dec -3.54 Blog 12/22/13
Philadelphia Fed Business Outlook Index	General Index from Nov 6.5 to Dec 7.0 New Orders from Nov 11.8 to Dec 15.4 Blog 12/22/13
Manufacturing Shipments and Orders	New Orders SA Oct ∆% -0.9 Ex Transport 0.0 Jan-Oct NSA New Orders 2.4 Ex transport 1.5 Blog 12/15/13
Durable Goods	Nov New Orders SA ∆%: 3.5; ex transport ∆%: 1.2 Jan-Nov 13/Jan-Nov 12 New Orders NSA ∆%: 5.3; ex transport ∆% 3.6 Blog 12/29/13
Sales of New Motor Vehicles	Jan-Nov 2013 14,239,897; Jan-Nov 2012 13,135,875. Nov 13 SAAR 16.41 million, Oct 13 SAAR 15.23 million, Nov 2012 SAAR 15.32 million Blog 12/8/13
Sales of Merchant Wholesalers	Jan-Oct 2013/Jan-Oct 2012 NSA ∆%: Total 3.9; Durable Goods: 4.2; Nondurable Goods: 3.5 Blog 12/15/13
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Oct 13/Oct 12-M NSA ∆%: Sales Total Business 4.0; Manufacturers 1.6 Retailers 4.5; Merchant Wholesalers 6.4 Blog 12/15/13
Sales for Retail and Food Services	Jan-Nov 2013/Jan-Nov 2012 ∆%: Retail and Food Services 4.3; Retail ∆% 4.3 Blog 12/15/13
Value of Construction Put in Place	Oct SAAR month SA ∆%: 0.8 Oct 12-month NSA: 2.5 Jan-Oct 2013 ∆% 5.0 Blog 12/8/13
Case-Shiller Home Prices	Sep 2013/Sep 2012 ∆% NSA: 10 Cities 13.3; 20 Cities: 13.3 ∆% Sep SA: 10 Cities 0.9 ; 20 Cities: 1.0 Blog 12/1/13
FHFA House Price Index Purchases Only	Oct SA ∆% 0.5; 12 month NSA ∆%: 8.2 Blog 12/29/13
New House Sales	Nov 2013 month SAAR ∆%: minus 2.1 Jan-Nov 2013/Jan-Nov 2012 NSA ∆%: 18.1 Blog 12/29/13
Housing Starts and Permits	Nov Starts month SA ∆% 22.7; Permits ∆%: -3.1 Jan-Nov 2013/Jan-Nov 2012 NSA ∆% Starts 19.2; Permits ∆% 19.2 Blog 12/22/13
Trade Balance	Balance Oct SA -$40,641 million versus Sep -$38,945 million Exports Oct SA ∆%: 1.8 Imports Oct SA ∆%: 0.4 Goods Exports Jan-Oct 2013/2012 NSA ∆%: 2.0 Goods Imports Jan-Oct 2013/2012 NSA ∆%: -0.3 Blog 12/8/13
Export and Import Prices	Nov 12-month NSA ∆%: Imports -1.5; Exports -1.6 Blog 12/22/13
Consumer Credit	Oct ∆% annual rate: Total 7.1; Revolving 6.1; Nonrevolving 7.5 Blog 12/15/13
Net Foreign Purchases of Long-term Treasury Securities	Oct Net Foreign Purchases of Long-term US Securities: $35.4 billion Major Holders of Treasury Securities: China $1305 billion; Japan $1174 billion; Total Foreign US Treasury Holdings Oct $5654 billion Blog 12/22/13
Treasury Budget	Fiscal Year 2014/2013 ∆% Nov: Receipts 10.2; Outlays minus 4.7; Individual Income Taxes 2.7 Deficit Fiscal Year 2011 $1,296 billion Deficit Fiscal Year 2012 $1,087 billion Blog 12/15/2013
CBO Budget and Economic Outlook	2012 Deficit $1087 B 6.8% GDP Debt 11,281 B 70.1% GDP 2013 Deficit $642 B, Debt 12,036 B 72.5% GDP Blog 8/26/12 11/18/12 2/10/13 9/22/13
Commercial Banks Assets and Liabilities	Nov 2013 SAAR ∆%: Securities 4.6 Loans 1.0 Cash Assets 30.5 Deposits 3.7 Blog 12/29/13
Flow of Funds	IIIQ2013 ∆ since 2007 Assets +$8554.2 MM Nonfinancial -$1228.7 MM Real estate -$1838.9 MM Financial +9782.9 MM Net Worth +$9269.0 MM Blog 12/29/13
Current Account Balance of Payments	IIIQ2013 -110,055 MM %GDP 2.2 Blog 12/22/13

Links to blog comments in Table USA:

12/22/13 http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html

12/15/13 http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html

12/8/13 http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html

12/1/13 http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html

11/24/13 http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html

9/22/13 http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.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 increased 1.8 percent in Nov 2013 and 0.6 percent in Oct 2013, increasing 0.5 percent in Sep 2013. New orders increased 3.5 percent in Nov 2013 after decreasing 0.7 percent in Oct 2013 and increasing 4.2 percent in Sep 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 21.8 percent in Nov 2013 after decreasing 5.3 percent in Oct 2013 and increasing 59.2 percent in Nov 2013. New orders excluding transportation equipment increased 1.2 percent in Nov 2013, increased 0.7 percent in Oct 2013 and 0.3 percent in Sep 2013. Capital goods new orders, indicating investment increased 9.1 percent in Nov 2013, decreasing 2.7 percent in Oct 2013 but falling 8.2 percent in Sep 2013. New orders of nondefense capital goods increased 9.4 percent in Nov 2013, after decreasing 0.9 percent in Oct 2013 and increasing 7.0 percent in Sep 2013. Capital goods orders excluding volatile aircraft increased 4.5 percent in Nov 2013, decreasing 0.7 percent in Oct 2013 and 1.2 percent in Sep 2013.

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

	Nov 2013 ∆%	Oct 2013 ∆%	Sep 2013 ∆%
Total
S	1.8	0.6	0.5
NO	3.5	-0.7	4.2
Excluding Transport
S	1.6	0.1	0.6
NO	1.2	0.7	0.3
Excluding Defense
S	1.4	0.8	0.6
NO	3.5	0.2	3.6
Machinery
S	4.5	0.4	0.6
NO	3.8	1.0	-1.7
Computers & Electronic Products
S	1.6	-1.8	0.8
NO	1.7	2.4	5.0
Computers
S	5.1	-10.2	5.4
NO	5.3	-8.8	8.5
Transport Equipment
S	2.0	1.6	0.5
NO	8.4	-3.5	13.1
Motor Vehicles
S	3.0	2.5	0.5
NO	3.3	2.4	0.0
Nondefense Aircraft
S	-7.5	1.8	4.0
NO	21.8	-5.3	59.2
Capital Goods
S	2.3	-0.4	0.0
NO	9.1	-2.7	8.2
Nondefense Capital Goods
S	1.3	-0.2	0.5
NO	9.4	-0.9	7.0
Capital Goods ex Aircraft
S	2.8	-0.4	-0.1
NO	4.5	-0.7	-1.2

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 clear 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 in Table VA-2. Values are cumulative millions of dollars in Jan-Nov 2013 not seasonally adjusted (NSA) and without adjustment for inflation. Shipments of all manufacturing industries in Jan-Oct 2013 total $2533.8 billion and new orders total $2504.7 billion, growing respectively by 3.4 percent and 5.3 percent relative to the same period in 2012. Excluding transportation equipment, shipments grew 1.6 percent and new orders increased 3.6 percent. Excluding defense, shipments grew 3.6 percent and new orders grew 6.4 percent. Important information not in Table VA-2 is the large share of nondurable goods: with shipments of $3 trillion in 2012, growing by 2.0 percent, and new orders of $3 trillion, growing by 2.0 percent, in part driven by higher prices for food and energy. Durable goods were lower in value in 2012, with shipments of $2.7 trillion, growing by 7.0 percent, and new orders of $2.6 trillion, growing by 4.1 percent. Capital goods have relatively high value of $909.6 billion for shipments, growing 2.0 percent, and new orders $954.9 billion, growing 5.7 percent. Excluding aircraft, capital goods shipments reached $718.4 billion, growing by 1.4 percent, and new orders $739.3 billion, growing 4.3 percent. Data weakened in 2013 with effects of lower inflation on nominal values with recovery later in the year.

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

Jan-Nov 2013	Shipments	∆% 2013/ 2012	New Orders	∆% 2013/ 2012
Total	2,533,775	3.4	2,504,660	5.3
Excluding Transport	1,779,503	1.6	1,725,220	3.6
Excluding Defense	2,400,700	3.6	2,392,345	6.4
Machinery	375,771	3.0	381,423	7.4
Computers & Electronic Products	301,469	-3.4	230,624	-2.3
Computers & Related Products	24,123	-7.2	24,283	-8.5
Transport Equipment	754,272	8.1	779,440	9.3
Motor Vehicles	501,766	10.3	500,986	10.5
Nondefense Aircraft	120,577	8.0	166,269	25.9
Capital Goods	909,609	2.0	954,923	5.7
Nondefense Capital Goods	801,584	2.1	864,559	7.9
Capital Goods ex Aircraft	718,376	1.4	739,251	4.3

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 of durable manufacturing 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 increased 27,000 in Nov 2013 relative to Oct 2013, seasonally adjusted (http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). Manufacturing jobs not seasonally adjusted increased 83,000 from Nov 2012 to Nov 2013 or at the average monthly rate of 6,917. There are effects of the weaker economy and international trade together with the yearly adjustment of labor statistics. Industrial production increased 1.1 percent in Nov 2013 after increasing 0.1 percent in Oct 2013 and increasing 0.5 percent in Se 2013, as shown in Table I-1, with all data seasonally adjusted. The report of the Board of Governors of the Federal Reserve System states (http://www.federalreserve.gov/releases/g17/Current/default.htm):

Table Table VA-3 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.8 percent in IIIQ2013. Most of US national income is in the form of services. In Nov 2013, there were 137.942 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 115.622 million NSA in Nov 2013 accounted for 83.8 percent of total nonfarm jobs of 137.942 million, of which 12.022 million, or 10.4 percent of total private jobs and 8.7 percent of total nonfarm jobs, were in manufacturing. Private service-producing jobs were 96.761 million NSA in Nov 2013, or 70.1 percent of total nonfarm jobs and 83.7 percent of total private-sector jobs. Manufacturing has share of 10.8 percent in US national income in IIQ2013, as shown in Table VA-3. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.

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

	SAAR IIQ2013	% Total	SAAR IQ2013	% Total
National Income WCCA	14,495.5	100.0	14,643.3	100.0
Domestic Industries	14,248.7	98.3	14,380.3	98.2
Private Industries	12,568.6	86.7	12,705.2	86.8
Agriculture	220.3	1.5	225.2	1.5
Mining	254.3	1.8	256.4	1.8
Utilities	216.5	1.5	221.2	1.5
Construction	629.0	4.3	639.1	4.4
Manufacturing	1558.9	10.8	1577.7	10.8
Durable Goods	888.1	6.1	910.1	6.2
Nondurable Goods	670.1	4.6	667.6	4.6
Wholesale Trade	874.4	6.0	884.0	6.0
Retail Trade	995.8	6.9	1000.2	6.8
Transportation & WH	436.3	3.0	443.6	3.0
Information	507.2	3.5	497.5	3.4
Finance, Insurance, RE	2448.1	16.9	2521.0	17.2
Professional, BS	2004.7	13.8	2004.0	13.7
Education, Health Care	1438.9	9.9	1439.2	9.8
Arts, Entertainment	577.1	4.0	585.2	4.0
Other Services	409.7	2.8	410.8	2.8
Government	1680.1	11.6	1675.1	11.4
Rest of the World	246.8	1.7	262.9	1.8

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://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/announcements/release_2013/k130711a.pdf). For fiscal 2013, the forecast is of growth of GDP between 2.6 and 3.0 percent, with the all items CPI less fresh food of 0.6 to 1.0 percent. The critical difference is forecast of the CPI excluding fresh food of 2.8 to 3.6 percent in 2014 and 1.6 to 2.9 percent in 2015. Consumer price inflation in Japan excluding fresh food was 0.3 percent in Oct 2013 and 0.9 percent in 12 months (http://www.stat.go.jp/english/data/cpi/1581.htm). The new monetary policy of the Bank of Japan aims to increase inflation to 2 percent. These forecasts are biannual in Apr and Oct. The Cabinet Office, Ministry of Finance and Bank of Japan released on Jan 22, 2013, a “Joint Statement of the Government and the Bank of Japan on Overcoming Deflation and Achieving Sustainable Economic Growth” (http://www.boj.or.jp/en/announcements/release_2013/k130122c.pdf) with the important change of increasing the inflation target of monetary policy from 1 percent to 2 percent:

“The Bank of Japan conducts monetary policy based on the principle that the policy shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy, and is responsible for maintaining financial system stability. The Bank aims to achieve price stability on a sustainable basis, given that there are various factors that affect prices in the short run.

The Bank recognizes that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening competitiveness and growth potential of Japan's economy make progress. Based on this recognition, the Bank sets the price stability target at 2 percent in terms of the year-on-year rate of change in the consumer price index.

Under the price stability target specified above, the Bank will pursue monetary easing and aim to achieve this target at the earliest possible time. Taking into consideration that it will take considerable time before the effects of monetary policy permeate the economy, the Bank will ascertain whether there is any significant risk to the sustainability of economic growth, including from the accumulation of financial imbalances.”

The Bank of Japan also provided explicit analysis of its view on price stability in a “Background note regarding the Bank’s thinking on price stability” (http://www.boj.or.jp/en/announcements/release_2013/data/rel130123a1.pdf http://www.boj.or.jp/en/announcements/release_2013/rel130123a.htm/). The Bank of Japan also amended “Principal terms and conditions for the Asset Purchase Program” (http://www.boj.or.jp/en/announcements/release_2013/rel130122a.pdf): “Asset purchases and loan provision shall be conducted up to the maximum outstanding amounts by the end of 2013. From January 2014, the Bank shall purchase financial assets and provide loans every month, the amount of which shall be determined pursuant to the relevant rules of the Bank.”

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

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

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

Fiscal Year Date of Forecast	Real GDP	CPI All Items Less Fresh Food	Excluding Effects of Consumption Tax Hikes
2013
Oct 2013	+2.6 to +3.0 [+2.7]	+0.6 to +1.0 [+0.7]
Jul 2013	+2.5 to +3.0 [+2.8]	+0.5 to +0.8 [+0.6]
2014
Oct 2013	+0.9 to +1.5 [+1.5]	+2.8 to +3.6 [+3.3]	+0.8 to +1.6 [+1.3]
Jul 2013	+0.8 to +1.5 [+1.3]	+2.7 to +3.6 [+3.3]	+0.7 to +1.6 [+1.3]
2015
Oct 2013	+1.3 to +1.8 [+1.5]	+1.6 to +2.9 [+2.6]	+0.9 to +2.2 [+1.9]
Jul 2013	+1.3 to +1.9 [+1.5]	+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/gor1310b.pdf

Private-sector activity in Japan expanded with the Markit Composite Output PMI^™ Index decreased from 56.0 in Oct, which was the highest reading in the six-year history of the survey, to 54.0 in Nov, (http://www.markiteconomics.com/Survey/PressRelease.mvc/84e5de2e85dc4979b44676d284eb3780). Claudia Tillbrooke, Economist at Markit and author of the report, finds that the survey data suggest continuing strong growth of the economy of Japan with strength in new orders for manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/84e5de2e85dc4979b44676d284eb3780). The Markit Business Activity Index of Services decreased from the record of 55.3 in Oct to 51.8 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/84e5de2e85dc4979b44676d284eb3780). Claudia Tillbrooke, Economist at Markit and author of the report, finds growth in services with strength in new orders but concern on possible effects of increase of sale taxes (http://www.markiteconomics.com/Survey/PressRelease.mvc/84e5de2e85dc4979b44676d284eb3780). The Markit/JMMA Purchasing Managers’ Index^™ (PMI™), seasonally adjusted, increased from 54.2 in Oct to 55.1 in Oct, which is the highest level since Jul 2006 (http://www.markiteconomics.com/Survey/PressRelease.mvc/f1337c0c4701495c8d63bc0be72aaa7e). New orders grew at the highest rate in 42 months in anticipation of the increase in the sales tax next year. New export orders increased from Thailand and Hong Kong. Claudia Tillbrooke, Economist at Markit and author of the report, finds improving manufacturing conditions at the highest levels in more 42 months with impulse originating in new orders at home and abroad (http://www.markiteconomics.com/Survey/PressRelease.mvc/f1337c0c4701495c8d63bc0be72aaa7e).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	Nov ∆% 0.1 12 months ∆% 2.7 Blog 12/15/13
Consumer Price Index	Nov NSA ∆% 0.0; Nov 12 months NSA ∆% 1.5 Blog 12/29/13
Real GDP Growth	IIIQ2013 ∆%: 0.3 on IIQ2013; IIIQ2013 SAAR 1.1; ∆% from quarter a year earlier: 2.4 % Blog 6/16/13 8/18/13 9/15/13 11/17/13 12/15/13
Employment Report	Nov Unemployed 2.49 million Change in unemployed since last year: minus 110 thousand Unemployment rate: 4.0 % Blog 12/29/13
All Industry Indices	Oct month SA ∆% -0.2 12-month NSA ∆% 1.9 Blog 12/22/13
Industrial Production	Nov SA month ∆%: 0.1 12-month NSA ∆% 5.0 Blog 12/29/13
Machine Orders	Total Oct ∆% -4.6 Private ∆%: 7.0 Oct ∆% Excluding Volatile Orders 0.6 Blog 12/15/13
Tertiary Index	Oct month SA ∆% -0.7 Oct 12 months NSA ∆% 0.3 Blog 12/15/13
Wholesale and Retail Sales	Nov 12 months: Total ∆%: 3.-0 Wholesale ∆%: 2.5 Retail ∆%: 4.0 Blog 12/29/13
Family Income and Expenditure Survey	Nov 12-month ∆% total nominal consumption 2.1, real 0.2 Blog 12/29/13
Trade Balance	Exports Nov 12 months ∆%: 18.4 Imports Nov 12 months ∆% 21.1 Blog 12/22/13

Links to blog comments in Table JPY:

12/22/13 http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html

12/15/13 http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html

11/17/13 http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html

9/15/13 http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html

8/18/13 http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.html

In Nov 2013, industrial production in Japan increased 0.1 percent and increased 5.0 percent in the 12 months ending in Nov 2013, as shown in Table VB-1. Decline of 3.1 percent in Jun interrupted four consecutive monthly increases from Feb through May 2013. Another interruption occurred in Aug with decrease of 0.9 percent and decline of 0.4 percent in 12 months. Japan’s industrial production is strengthening with growth of 1.4 percent in Dec 2012, 0.9 percent in Feb 2013, 0.1 percent in Mar 2013, 0.9 percent in Apr 2013, 1.9 percent in May 2013, 3.4 percent in Jul 2013, 1.3 percent in Sep 2013 and 1.0 percent in Oct 2013. Industrial production increased 0.1 percent in Nov 2013. Growth in 12 months improved from minus 10.1 percent in Feb 2013 to 5.0 percent in Nov 2013. Industrial production fell 21.9 percent in 2009 after falling 3.4 percent in 2008 but recovered by 15.6 percent in 2010. The annual average in calendar year 2011 fell 2.8 percent largely because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Industrial production increased 0.6 percent in 2012.

Table VB-1, Japan, Industrial Production ∆%

	∆% Month SA	∆% 12 Months NSA
Nov 2013	0.1	5.0
Oct	1.0	5.4
Sep	1.3	5.1
Aug	-0.9	-0.4
Jul	3.4	1.8
Jun	-3.1	-4.6
May	1.9	-1.1
Apr	0.9	-3.4
Mar	0.1	-7.2
Feb	0.9	-10.1
Jan	-0.6	-6.0
Dec 2012	1.4	-7.6
Nov	-1.0	-5.5
Oct	0.3	-4.7
Sep	-2.2	-7.6
Aug	-1.4	-4.1
Jul	-0.5	0.1
Jun	-0.8	-0.6
May	-1.8	7.6
Apr	-0.5	15.1
Mar	0.2	16.6
Calendar Year
2012		0.6
2011		-2.8
2010		15.6

Source: Japan, Ministry of Economy, Trade and Industry (METI)

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

The employment report for Japan in Nov 2013 is in Table VB-2. The rate of unemployment seasonally adjusted decreased to 4.2 percent in Sep 2012 from 4.3 percent in Jul 2012 and remained at 4.2 percent in Oct 2012, declining to 4.1 percent in Nov 2012, increasing to 4.2 percent in Dec 2012, stabilizing at 4.2 percent in Jan 2013 and increasing to 4.3 percent in Feb 2013. The seasonally adjusted rate of unemployment fell to 4.1 percent in Apr and May 2013. The rate of unemployment not seasonally adjusted stood at 4.1 percent in Apr 2013 and 0.3 percentage points lower from a year earlier. The rate of unemployment fell to 3.9 percent in Jun 2013 seasonally and not seasonally adjusted. In Jul 2013, the rate of unemployment fell to 3.8 percent seasonally adjusted and remained at 3.9 percent not seasonally adjusted. The rate of unemployment rose to 4.1 percent in Aug 2013 and fell to 4.0 percent seasonally adjusted in Sep 2013. The rate of unemployment stabilized at 4.0 percent in Oct 2013 and 4.0 percent in Nov 2013. The employment rate stood at 57.5 percent in Nov 2013 and increased 0.8 percentage points from a year earlier.

Table VB-2, Japan, Employment Report Sep 2013

Nov 2013 Unemployed	2.49 million
Change since last year	-110 thousand; ∆% –4.2
Unemployment rate	4.0% SA 0.0; NSA 3.8%, -0.2 from earlier year
Population ≥ 15 years	110.89 million
Change since last year	∆% -0.1
Labor Force	66.20 million
Change since last year	∆% 1.0
Employed	63.71 million
Change since last year	∆% 1.2
Labor force participation rate	59.7
Change since last year	0.6
Employment rate	57.5%
Change since last year	0.8

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

http://www.stat.go.jp/english/data/roudou/results/month/index.htm

Chart VB-1 of Japan’s Statistics Bureau at the Ministry of Internal Affairs and Communications provides the unemployment rate of Japan from 2010 to 2013. The sharp decline in Sep 2011 was the best reading in 2011 but the rate increased in the final quarter of the year, declining in Feb 2012 and stabilizing in Mar 2012 but increasing to 4.6 percent in Apr 2012 and declining again to 4.4 percent in May 2012 and 4.3 percent in both Jun and Jul 2012 with further decline to 4.2 percent in Aug, Sep and Oct 2012, 4.1 percent in Nov 2012, 4.2 percent in Dec 2012, 4.2 percent in Jan 2013, 4.3 percent in Feb 2013 and 4.1 percent in Mar-May 2013. The rate of unemployment fell to 3.9 percent in Jun 2013 and 3.8 percent in Jul 2013. The rate of unemployment rose to 4.1 percent in Aug 2013, falling to 4.0 percent in Sep 2013. The rate of unemployment stabilized at 4.0 percent in Oct 2013 and 4.0 percent in Nov 2013.

Chart VB-1, Japan, Unemployment Rate, Seasonally Adjusted

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

http://www.stat.go.jp/english/data/roudou/results/month/index.htm

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

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

	Participation Rate	Employment Rate	Unemployment Rate
1953	70.0	68.6	1.9
1960	69.2	68.0	1.7
1965	65.7	64.9	1.2
1970	65.4	64.6	1.1
1975	63.0	61.9	1.9
1980	63.3	62.0	2.0
1985	63.0	61.4	2.6
1990	63.3	61.9	2.1
1991	63.8	62.4	2.1
1992	64.0	62.6	2.2
1993	63.8	62.2	2.5
1994	63.6	61.8	2.9
1995	63.4	61.4	3.2
1996	63.5	61.4	3.4
1997	63.7	61.5	3.4
1998	63.3	60.7	4.1
1999	62.9	59.9	4.7
2000	62.4	59.5	4.7
2001	62.0	58.9	5.0
2002	61.2	57.9	5.4
2003	60.8	57.6	5.3
2004	60.4	57.6	4.7
2005	60.4	57.7	4.4
2006	60.4	57.9	4.1
2007	60.4	58.1	3.9
2008	60.2	57.8	4.0
2009	59.9	56.9	5.1
2010	59.6	56.6	5.1
2011	59.3	56.5	4.6
2012	59.1	56.5	4.3

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

http://www.stat.go.jp/english/data/roudou/results/month/index.htm

The survey of household income and consumption of Japan in Table VB-4 is showing noticeable improvement in recent months relative to earlier months. Table VB-4 shows growth of nominal consumption of 2.1 percent in the 12 months ending in Nov 2013 and 0.2 percent in real terms. There are multiple segments of increasing real consumption: housing increasing 3.5 percent in nominal terms and 3.7 percent in real terms and transportation/communications increasing 1.2 percent in real terms and 3.5 percent in nominal terms. Clothing and footwear decreased 0.5 percent in nominal terms and 1.1 percent in real terms. Education decreased 14.2 percent in real terms and 13.6 percent in nominal terms. Fuel, light and water charges increased 4.8 percent in nominal terms and decreased 0.9 percent in real terms. Real household income decreased 1.1 percent; real disposable income decreased 1.4 percent; and real consumption expenditures decreased 1.6 percent.

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

Nov 2013	Nominal	Real
Households of Two or More Persons
Total Consumption	2.1	0.2
Excluding Housing, Vehicles & Remittance		-1.2
Food	3.8	1.9
Housing	3.5	3.7
Fuel, Light & Water Charges	4.8	-0.9
Furniture & Household Utensils	5.3	5.5
Clothing & Footwear	-0.5	-1.1
Medical Care	1.9	2.3
Transport and Communications	3.5	1.2
Education	-13.6	-14.2
Culture & Recreation	2.7	1.5
Other Consumption Expenditures	0.4	-1.5*
Workers’ Households
Income	0.8	-1.1
Disposable Income	0.5	-1.4
Consumption Expenditures	0.3	-1.6

*Real: nominal deflated by CPI excluding imputed rent

Source: Ministry of Internal Affairs and Communications, Statistics Bureau, Director General for Policy Planning and Statistical Research and Training Institute

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

Chart VB-2 of the Ministry of Internal Affairs and Communication provides year-on-year change of real consumption expenditures. There is improvement followed by deterioration in the final segment with wide oscillations. There was deterioration in Nov 2011, renewed strength in Dec 2011, another decline in Jan 2012 and increase in Feb and Mar 2012 with stabilization in Apr and May 2012 but sharp decline into Jun 2012. Recovery in Jul and Aug 2012 was interrupted in Sep-Oct 2012 and new increases in Nov 2012, Jan 2013, Feb 2013, Mar 2013 and Apr 2013 (http://www.stat.go.jp/english/data/kakei/156.htm). Total consumption decreased 1.6 percent in real terms in May 2013 and decreased 1.9 percent in nominal terms relative to a year earlier. Real consumption fell 0.4 percent in Jun 2013 and nominal consumption declined 0.1 percent. Consumption rebounded in Jul 2013 with increase of real consumption by 0.1 percent and nominal consumption by 1.0 percent. In Aug 2013, real consumption fell 1.6 percent relative to a year earlier and 0.5 percent in nominal terms. There was marked improvement in Sep 2013 with growth of nominal consumption of 5.2 percent in 12 months and 3.7 percent in real consumption. Nominal consumption increased 2.1 in Nov 2013 and real consumption increased 0.2 percent.

Chart VB-2, Japan, Real Percentage Change of Consumption Year-on-Year

Source: Ministry of Internal Affairs and Communications, Statistics Bureau, Director General for Policy Planning and Statistical Research and Training Institute

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

Percentage changes in 12 months of nominal and real consumption expenditures in Japan are provided in Table VB-5. Real consumption expenditures increased 0.2 percent in the 12 months ending in Nov 2013 and nominal consumption expenditures increased 2.1 percent. Real consumption expenditures increased 0.9 percent in the 12 months ending in Oct 2013 and nominal consumption expenditures increased 2.3 percent. Real consumption expenditures increased 3.7 percent in the 12 months ending in Sep 2013 and nominal consumption expenditures 5.2 percent. Real consumption expenditures fell 1.6 percent in Aug 2013 relative to a year earlier and nominal consumption expenditures fell 0.5 percent. There is recovery in Jul 2013 with real consumption expenditures increasing 0.1 percent and nominal consumption expenditures increasing 1.0 percent. Real consumption expenditures decreased 0.4 percent in the 12 months ending in Jun 2013 and 0.1 percent in nominal terms. Declines in May and Jun 2013 interrupted growth from Jan to Apr 2013. There was sharp decline in nominal consumption of 8.8 percent in Mar 2011 and 8.2 percent in real consumption because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Dec was the first month in 2011 with increases in 12 months in both nominal and real consumption expenditures followed by Feb 2012 through Aug 2012. Nominal and real consumption fell in both Sep and Oct 2012 and increased in Nov 2012. Real consumption fell 0.7 percent in the 12 months ending in Dec 2012 and nominal consumption fell 0.8 percent. Real consumption expenditures increased 2.4 percent in the 12 months ending in Jan 2013 and 2.1 percent in nominal terms. Nominal consumption increased 0.8 percent in Feb 2013 and nominal consumption increased 0.1 percent. Real consumption increased 5.2 percent in the 12 months ending in Mar 2013 and nominal consumption 4.1 percent. Consumption was an important driver of GDP growth in Japan in IQ2012. Real GDP grew at the seasonally adjusted annual rate (SAAR) of 3.5 percent in IQ2012 with private consumption contributing 1.0 percentage points for the highest contribution to growth (Table VB-2 at http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html). There was deceleration in IIQ2012 with growth of GDP at SAAR of minus 2.0 percent and contribution of 0.9 percentage points of personal consumption. In IIIQ2012, Japan’s GDP contracted at the SAAR of 3.2 percent and personal consumption deducted 1.2 percentage points. Japan’s GDP grew at the SAAR of 0.6 percent in IVQ2012 with personal consumption contributing 1.4 percentage points. Japan’s GDP growth in IQ2013 was at 4.5 percent SAAR with highest contribution of 2.4 percentage points by personal consumption expenditures. In IIQ2013, Japan’s GDP grew at 3.6 percent SAAR with personal consumption expenditures contributing 1.6 percentage points. Japan’s GDP grew at 1.1 percent SAAR in IIIQ2013 with personal consumption expenditures contributing 0.5 percentage points.

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

	Nominal Consumption Expenditures ∆% Relative to a Year Earlier	Real Consumption Expenditures ∆% Relative to a Year Earlier
Nov 2013	2.1	0.2
Oct	2.3	0.9
Sep	5.2	3.7
Aug	-0.5	-1.6
Jul	1.0	0.1
Jun	-0.1	-0.4
May	-1.9	-1.6
Apr	0.8	1.5
Mar	4.1	5.2
Feb	0.1	0.8
Jan	2.1	2.4
Dec 2012	-0.8	-0.7
Nov	0.1	0.2
Oct	-0.5	-0.1
Sep	-1.2	-0.9
Aug	1.4	1.8
Jul	1.2	1.7
Jun	1.5	1.6
May	4.3	4.0
Apr	3.2	2.6
Mar	4.1	3.4
Feb	2.7	2.3
Jan	-2.1	-2.3
Dec 2011	0.3	0.5
Nov	-3.8	-3.2
Oct	-0.6	-0.4
Sep	-1.9	-1.9
Aug	-3.9	-4.1
Jul	-1.8	-2.1
Jun	-3.9	-3.5
May	-1.6	-1.2
Apr	-2.5	-2.0
Mar	-8.8	-8.2
Feb	-0.1	0.5
Jan	-0.9	-0.3
Dec 2010	-3.2	-3.3
Dec 2009	0.3	2.1

Source:

Source: Ministry of Internal Affairs and Communications, Statistics Bureau, Director General for Policy Planning and Statistical Research and Training Institute

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

Japan is experiencing weak internal demand as in most advanced economies, interrupted by strong growth in IQ2012 but renewed weakening at the end of IIQ2012, beginning of IIIQ2012 with recovery in IVQ2012, IQ2013, IIQ2013 and IIIQ2013. Table VB-6 provides Japan’s wholesale and retail sales. There is strong performance in May 2013 with growth of 0.8 percent for retail sales followed by 1.6 percent in Jun 2013. Retail sales fell 0.3 percent in Jul 2013, rebounding 1.1 percent in Aug 2013. Retail sales increased 3.0 percent in the 12 months ending in Sep 2013 and 2.4 percent in the 12 months ending in Oct 2013. Retail sales increased 4.0 percent in the 12 months ending in Nov 2013. Retail sales are recovering from deep drops in Mar and Apr 2011 following the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Retail sales have been increasing in 12-month percentage changes from Dec 2011 through May 2012. Retail sales fell again by 1.3 percent in Jul 2012, increasing 1.3 percent in Aug 2012 and 0.4 percent in Sep 2012 but declining 1.2 percent in Oct 2012, rebounding by 0.9 percent in Nov 2012 and only 0.2 percent in Dec 2012 but contracting 1.1 percent in Jan 2013 and 2.2 percent in Feb 2013. In May 2013, retail sales increased 0.8 percent relative to a year earlier and 1.6 percent in Jun 2013 followed by decline of 0.3 percent in Jul 2013. Retail sales rebounded 1.1 percent in Aug 2013, 3.0 percent in Sep 2013 and 2.4 percent in Oct 2013. Retail sales grew 4.0 percent in the 12 months ending in Nov 2013.

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

	Total	Wholesale	Retail
Nov 2013	3.0	2.5	4.0
Oct	2.0	1.8	2.4
Sep	2.8	2.7	3.0
Aug	0.6	0.4	1.1
Jul	1.3	2.0	-0.3
Jun	0.5	0.1	1.6
May	0.6	0.5	0.8
Apr	-0.1	-0.1	-0.2
Mar	-1.3	-1.8	-0.3
Feb	-1.6	-1.3	-2.2
Jan	-0.3	0.1	-1.1
Dec 2012	-1.7	-2.5	0.2
Nov	-0.9	-1.6	0.9
Oct	-1.6	-1.8	-1.2
Sep	-3.6	-5.1	0.4
Aug	-2.7	-4.4	1.3
Jul	-3.1	-4.0	-1.3
Jun	-2.6	-3.6	-0.2
May	2.7	2.6	3.0
Apr	1.8	0.4	5.0
Mar	3.2	0.9	9.3
Feb	-0.1	-1.3	3.1
Jan	-2.1	-3.8	1.6
Dec 2011	-0.8	-2.0	2.5
Nov	-2.3	-2.4	-2.2
Oct	1.1	0.8	1.9
Sep	0.3	0.8	-1.1
Aug	3.1	5.2	-2.6
Jul	2.3	3.0	0.6
Jun	3.1	3.8	1.2
May	1.3	2.3	-1.3
Apr	-2.6	-1.7	-4.8
Mar	-1.3	1.2	-8.3
Feb	5.3	7.2	0.1
Jan	3.3	4.6	0.1
Dec 2010	3.5	5.7	-2.1
Calendar Year
2012	-0.9	-2.0	1.8
2011	1.0	1.9	-1.0
2010	2.4	2.3	2.6
2009	-20.5	-25.6	-2.3
2008	1.2	1.5	0.3

Source: Japan, Ministry of Economy, Trade and Industry (METI)

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

VC China. China estimates an index of nonmanufacturing purchasing managers on the basis of a sample of 1200 nonmanufacturing enterprises across the country (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Table CIPMNM provides this index and components. The index fell from 58.0 in Mar 2012 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, 54.3 in May 2013 and 53.9 in Jun 2013, rebounding to 54.1 in Jul 2013. The index eased to 53.9 in Aug 2013. The index increased to 55.4 in Sep 2013 and 56.3 in Oct 2013.

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

	Total Index	New Orders	Interm. Input Prices	Subs Prices	Exp
Oct 2013	56.3	51.6	56.1	51.4	60.5
Sep	55.4	53.4	56.7	50.6	60.1
Aug	53.9	50.9	57.1	51.2	62.9
Jul	54.1	50.3	58.2	52.4	63.9
Jun	53.9	50.3	55.0	50.6	61.8
May	54.3	50.1	54.4	50.7	62.9
Apr	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, 54.3 in May 2013 and 53.9 in Jun 2013, rebounding to 54.1 in Jul 2013. The index stabilized at 53.9 in Aug 2013 climbing to 55.4 in Sep 2013 and 56.3 in Oct 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 increased to 50.8 in May 2013, falling to 50.1 in Jun 2013 and rebounding to 50.3 in Jul 2013. The index increased to 51.0 in Aug 2013 and 51.1 in Sep 2013 with marginal improvement to 51.4 in Oct 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 new orders increased to 51.8 in May 2013, falling to 50.4 in Jun 2013 and 50.6 in Jul 2013. The index of new orders increased to 52.4 in Aug 2013 and 52.8 in Sep 2013 with marginal decline to 52.5 in Oct 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. The index of employment fell to 48.8 in May 2013 and 48.7 in Jun 2013, increasing to 49.1 in Jul 2013. The index of employment increased to 49.3 in Aug 2013 and fell to 49.1 in Sep 2013 with marginal improvement to 49.2 in Oct 2013.

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

	IPM	PI	NOI	INV	EMP	SDEL
Oct 2013	51.4	54.4	52.5	48.6	49.2	50.8
Sep	51.1	52.9	52.8	48.5	49.1	50.8
Aug	51.0	52.6	52.4	48.0	49.3	50.4
Jul	50.3	52.4	50.6	47.6	49.1	50.1
Jun	50.1	52.0	50.4	47.4	48.7	50.3
May	50.8	53.3	51.8	47.6	48.8	50.8
Apr	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. The index increased to 50.8 in May 2013 and fell to 50.1 in Jun 2013, increasing to 50.3 in Jul 2013. The index increased to 51.0 in Aug 2013, 51.1 in Sep 2013 and 51.4 in Oct 2013.

Chart CIPMMFG, China, Manufacturing Index of Purchasing Managers, Seasonally Adjusted

Source: National Bureau of Statistics of China

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

Cumulative growth of China’s GDP in IIIQ2013 relative to the same period in 2012 was 7.7 percent, as shown in Table VC-GDP. Secondary industry accounts for 45.3 percent of GDP in IIIQ2013. In IIQ2013, industry alone accounts for 38.5 percent in IIQ2013 and construction with the remaining 6.8 percent in the first three quarters of 2012. Tertiary industry accounts for 45.5 percent of cumulative GDP in IIIQ2013 and primary industry for 9.2 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-GDP provides quarter-on-quarter growth rates of GDP and their annual equivalent. China’s GDP growth decelerated significantly from annual equivalent 10.8 percent in IIQ2011 to 7.4 percent in IVQ2011 and 5.7 percent in IQ2012, rebounding to 9.1 percent in IIQ2012, 8.2 percent in IIIQ2012 and 7.8 percent in IVQ2012. Annual equivalent growth in IQ2013 fell to 6.1 percent and to 7.8 percent in IIQ2013, rebounding to 9.1 percent in IIIQ2013.

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

Cumulative GDP IIIQ2013	Value Current CNY Billion	2013 Year-on-Year Constant Prices ∆%
GDP	38,676.2	7.7
Primary Industry	3,566.9	3.4
Farming	3,566.9	3.4
Secondary Industry	17,511.8	7.8
Industry	14,900.0	7.6
Construction	2,611.8	9.7
Tertiary Industry	17,597.5	8.4
Transport, Storage, Post	21,449.9	7.2
Wholesale, Retail Trades	3,056.7	10.4
Hotel & Catering Services	772.7	5.1
Financial Intermediation	2,623.8	10.4
Real Estate	2,454.6	7.3
Other	6,094.8	7.6
Growth in Quarter Relative to Prior Quarter	∆% on Prior Quarter	∆% Annual Equivalent
2013
IIIQ2013	2.2	9.1
IIQ2013	1.9	7.8
IQ2013	1.5	6.1
2012
IVQ2012	1.9	7.8
IIIQ2012	2.0	8.2
IIQ2012	2.2	9.1
IQ2012	1.4	5.7
2011
IVQ2011	1.8	7.4
IIIQ2011	2.2	9.1
IIQ2011	2.6	10.8
IQ2011	2.3	9.5

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

Growth of China’s GDP in IIIQ2013 relative to the same period in 2012 was 7.8 percent, as shown in Table VC-GDPA. Secondary industry accounts for 45.3 percent of GDP of which industry alone for 38.5 percent in cumulative IIIQ2013 and construction with the remaining 6.8 percent in the first three quarters of 2013. Tertiary industry accounts for 45.5 percent of GDP in the cumulative to IIIQ2013 and primary industry for 9.2 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). GDP growth decelerated from 12.1 percent in IQ2010 and 11.2 percent in IIQ2010 to 7.7 percent in IQ2013, 7.5 percent in IIQ2013 and 7.8 percent in IIIQ2013.

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

	IQ 2013	IIQ 2013	IIIQ 2013
GDP	7.7	7.5	7.8
Primary Industry	3.4	3.0	3.4
Secondary Industry	7.8	7.6	7.8
Tertiary Industry	8.3	8.3	8.4
GDP ∆% Relative to a Prior Quarter	1.5	1.9	2.2
	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	2.6	2.2	1.8	1.4	2.2	2.0	1.9
	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/2d9203c17a714e2382ce2e5ea6555448) is slowing. The overall Flash HSBC China Manufacturing PMI^™ decreased from 50.8 in Nov to 50.5 in Dec, which is moderately above the contraction frontier of 50.0, while the Flash HSBC China Manufacturing Output Index decreased from 52.2 in Nov to 51.8 in Dec, moving into moderate expansion territory. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that the index is consistent with GDP growth at 7.8 percent in IVQ2013 relative to a year earlier (http://www.markiteconomics.com/Survey/PressRelease.mvc/2d9203c17a714e2382ce2e5ea6555448). The HSBC China Services PMI^™, compiled by Markit, shows marginal improvement in business activity in China with the HSBC Composite Output, combining manufacturing and services, increasing from 51.8 in Oct to 52.3 in Nov, indicating moderate growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/a7d6f88e711a42a09011498c599785ca). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds support of manufacturing combined with services (http://www.markiteconomics.com/Survey/PressRelease.mvc/a7d6f88e711a42a09011498c599785ca). The HSBC Business Activity index decreased from 52.6 in Oct to 52.5 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/a7d6f88e711a42a09011498c599785ca). Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds softening growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/a7d6f88e711a42a09011498c599785ca). The HSBC Purchasing Managers’ Index^™ (PMI^™), compiled by Markit, decreased marginally to 50.8 in Nov from 50.9 in Oct, indicating marginally improving manufacturing in China (http://www.markiteconomics.com/Survey/PressRelease.mvc/da14ac24941a473da5054be514db9e47). New export orders increased marginally with growth of total new orders originating in domestic demand. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds China moving in the path of moderate recovery of growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/da14ac24941a473da5054be514db9e47). Table CNY provides the country data table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry	Nov 12-month ∆%: minus 2.0 Nov month ∆%: 0.0 Blog 12/15/13
Consumer Price Index	Nov month ∆%: -0.1 Nov 12 months ∆%: 3.0 Blog 12/15/13
Value Added of Industry	Nov month ∆%: 0.76 Jan-Nov 2013/Jan-No 2012 ∆%: 9.7 Nov 12-Month ∆%: 10.0 Blog 12/15/13
GDP Growth Rate	Year IIIQ2013 ∆%: 7.8 Quarter IIQ2013 AE ∆%: 9.1 Blog 10/27/13
Investment in Fixed Assets	Total Jan-Nov 2013 ∆%: 19.9 Real estate development: 19.5 Blog 12/15/13
Retail Sales	Nov month ∆%: 1.32 Nov 12 month ∆%: 13.7 Jan-No ∆%: 13.0 Blog 12/15/13
Trade Balance	Nov balance $33.8 billion Exports 12M ∆% 12.7 Imports 12M ∆% 5.3 Cumulative Nov: $234.27 billion Blog 12/15/13

Links to blog comments in Table CNY:

12/15/13 http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html

10/27/13 http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.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 3.3 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 1.6 percent in 2011. EUROSTAT estimates growth of GDP of the euro area of minus 0.7 percent in 2012 and minus 0.4 percent in 2013 but 1.1 percent in 2014 and 1.7 percent in 2015.

Table VD-EUR, Euro Area, Yearly Percentage Change of Harmonized Index of Consumer Prices, Unemployment and GDP ∆%

Year	HICP ∆%	Unemployment %	GDP ∆%
1999	1.2	NA	2.9
2000	2.2	9.4	3.8
2001	2.4	8.3	2.0
2002	2.3	8.6	0.9
2003	2.1	9.0	0.7
2004	2.2	9.3	2.2
2005	2.2	9.1	1.7
2006	2.2	8.4	3.3
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	1.6
2012	2.5	11.4	-0.7
2013*			-0.4
2014*			1.1
2015*			1.7

*EUROSTAT forecast Source: EUROSTAT

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

The GDP of the euro area in 2012 in current US dollars in the dataset of the World Economic Outlook (WEO) of the International Monetary Fund (IMF) is $12,199.1 billion or 16.9 percent of world GDP of $72,216.4 billion (http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/index.aspx). The sum of the GDP of France $2613.9 billion with the GDP of Germany of $3429.5 billion, Italy of $2014.1 billion and Spain $1323.5 billion is $9381.0 billion or 76.9 percent of total euro area GDP and 13.0 percent of World 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, 2014 and 2015 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
2015*	1.7	1.9	1.7	1.2	1.7
2014*	1.1	1.7	0.9	0.7	0.5
2013*	-0.4	0.5	0.2	-1.8	-1.3
2012	-0.7	0.7	0.0*	-2.5	-1.6
2011	1.6	3.3	2.0	0.5	0.1
2010	2.0	4.0	1.7	1.7	-0.2
2009	-4.4	-5.1	-3.1	-5.5	-3.8
2008	0.4	1.1	-0.1	-1.2	0.9
2007	3.0	3.3	2.3	1.7	3.5
2006	3.3	3.7	2.5	2.2	4.1
2005	1.7	0.7	1.8	0.9	3.6
2004	2.2	1.2	2.5	1.7	3.3
2003	0.7	-0.4	0.9	0.0	3.1
2002	0.9	0.0	0.9	0.5	2.7
2001	2.0	1.5	1.8	1.9	3.7
2000	3.8	3.1	3.7	3.7	5.0
1999	2.9	1.9	3.3	1.5	4.7
1998	2.8	1.9	3.4	1.4	4.5
1997	2.6	1.7	2.2	1.9	3.9
1996	1.5	0.8	1.1	1.1	2.5

Source: EUROSTAT

http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ 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, increased from 51.7 in Nov to 52.1 in Dec, which is a three month high after a high in 27 months in Sep (http://www.markiteconomics.com/Survey/PressRelease.mvc/d92ab787877e4484849a94b75c6ebfff). Chris Williamson, Chief Economist at Markit, finds that the Markit Flash Eurozone PMI index suggests that the index is consistent with modest growth of GDP of 0.2 percent based on growth in two consecutive months in IVQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/d92ab787877e4484849a94b75c6ebfff). The Markit Eurozone PMI^® Composite Output Index, combining services and manufacturing activity with close association with GDP, decreased from 51.9 in Oct to 51.7 in Nov in the fifth consecutive monthly expansion (http://www.markiteconomics.com/Survey/PressRelease.mvc/9f5ed06473dc4a23b83e6a2eef32e2fa). Chris Williamson, Chief Economist at Markit, finds growth in IVQ2013 at the rate of about 0.2 percent similar to 0.1 percent IIIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/9f5ed06473dc4a23b83e6a2eef32e2fa). The Markit Eurozone Services Business Activity Index decreased from 51.6 in Oct to 51.2 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/9f5ed06473dc4a23b83e6a2eef32e2fa). The Markit Eurozone Manufacturing PMI^® increased to 51.6 in Nov from 51.3 in Oct for the highest reading since Jun and the average for IVQ2013 pointing to the highest reading since IIQ2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/be38e62ac89f4fc1a3c0079f1a4050f4). New orders increased for the fifth consecutive month with foreign orders at the highest in two-and-a-half years. Chris Williamson, Chief Economist at Markit, finds industrial growth in the euro area at a quarterly rate of 0.6 percent. (http://www.markiteconomics.com/Survey/PressRelease.mvc/be38e62ac89f4fc1a3c0079f1a4050f4). Table EUR provides the data table for the euro area.

Table EUR, Euro Area Economic Indicators

GDP	IIIQ2013 ∆% 0.1; IIIQ2013/IIIQ2012 ∆% -0.4 Blog 12/15/13
Unemployment	Oct 2013: 12.1 % unemployment rate Oct 2013: 19.298 million unemployed Blog 12/1/13
HICP	Nov month ∆%: -0.1 12 months Nov ∆%: 0.9 Blog 12/22/13
Producer Prices	Euro Zone industrial producer prices Oct ∆%: -0.5 Oct 12-month ∆%: -1.4 Blog 12/8/13
Industrial Production	Oct month ∆%: -1.1; Oct 12 months ∆%: 0.2 Blog 12/15/13
Retail Sales	Oct month ∆%: minus 0.2 Oct 12 months ∆%: minus 0.1 Blog 12/8/13
Confidence and Economic Sentiment Indicator	Sentiment 98.5 Nov 2013 Consumer minus 15.4 Nov 2013 Blog 12/1/13
Trade	Jan-Oct 2013/Jan-Oct 2012 Exports ∆%: 0.9 Imports ∆%: -3.4 Oct 2013 12-month Exports ∆% 1.2 Imports ∆% -3.4 Blog 12/22/13

Links to blog comments in Table EUR:

12/22/13 http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html

12/15/13 http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html

12/8/13 http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html

12/1/13 http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.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 4.0 percent in 2010, 3.3 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	3.3	3.4
2010	4.0	3.8
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/2013/08/PE13_278_811.html https://www.destatis.de/EN/PressServices/Press/pr/2013/11/PE13_381_811.html

The Flash Germany Composite Output Index of the Markit Flash Germany PMI^®, combining manufacturing and services, decreased from 55.4 in Nov to 55.2 in Dec. The index of manufacturing output reached 57.5 in Dec, for a 31-month high, from 54.9 in Nov, while the index of services decreased to 54.0 in Dec from 55.7 in Nov. The overall Flash Germany Manufacturing PMI^® increased from 52.7 in Nov to 54.2 in Dec, which is a 30-month high (http://www.markiteconomics.com/Survey/PressRelease.mvc/7b431b589cec404abbd8256d72ad1a6e). New export work volumes increased at the fastest pace in more than two and a half years. Tim Moore, Senior Economist at Markit, finds expansion of Germany’s private sector in eight consecutive months (http://www.markiteconomics.com/Survey/PressRelease.mvc/7b431b589cec404abbd8256d72ad1a6e). The Markit Germany Composite Output Index of the Markit Germany Services PMI^®, combining manufacturing and services with close association with Germany’s GDP, increased from 53.2 in Oct to 55.4 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/b84ee870740e4d1f920ab290a975c1eb). Tim Moore, Senior Economist at Markit and author of the report, finds that German private sector companies expanded output at the fastest rate since the middle of 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/b84ee870740e4d1f920ab290a975c1eb). The Germany Services Business Activity Index increased from 52.9 in Oct to 55.7 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/b84ee870740e4d1f920ab290a975c1eb). The Markit/BME Germany Purchasing Managers’ Index^® (PMI^®), showing close association with Germany’s manufacturing conditions, increased from 51.7 in Oct to 52.7 in Nov, in the best improvement since Jun 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/b561ae61327d45b48118474e10e22081). New export orders increased for the fifth consecutive month at the highest rate since Feb. Tim Moore, Senior Economist at Markit and author of the report, finds the highest growth of foreign orders for investment goods since Apr 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/b561ae61327d45b48118474e10e22081).Table DE provides the country data table for Germany.

Table DE, Germany, Economic Indicators

GDP	IIIQ2013 0.3 ∆%; III/Q2013/IIIQ2012 ∆% 1.1 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 8/18/13 8/25/13 11/17/13 11/24/13
Consumer Price Index	Nov month NSA ∆%: 0.2 Nov 12-month NSA ∆%: 1.3 Blog 12/15/13
Producer Price Index	Nov month ∆%: -0.1 CSA, -0.1 12-month NSA ∆%: -0.8 Blog 12/22/13
Industrial Production	MFG Oct month CSA ∆%: minus -1.1 12-month NSA: 1.3 Blog 12/15/13
Machine Orders	MFG Oct month ∆%: -2.2 Oct 12-month ∆%: 2.0 Blog 12/15/13
Retail Sales	Oct Month ∆% -0.8 12-Month ∆% -0.2 Blog 12/1/13
Employment Report	Unemployment Rate SA Sep 5.2% Blog 12/1/13
Trade Balance	Exports Oct 12-month NSA ∆%: 0.6 Imports Oct 12 months NSA ∆%: -1.6 Exports Oct month CSA ∆%: 0.2; Imports Oct month SA 2.9 Blog 12/15/13

Links to blog comments in Table DE:

12/22/13 http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html

12/15/13 http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html

12/1/13 http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html

11/24/13 http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html

11/17/13 http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html

8/25/13 http://cmpassocregulationblog.blogspot.com/2013/08/interest-rate-risks-duration-dumping.html

8/18/13 http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.html

http://cmpassocregulationblog.blogspot.com/2013/07/twenty-nine-million-unemployed-or.html

5/26/13 http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html

VF France. Table VF-FR provides growth rates of GDP of France with the estimates of Institut National de la Statistique et des Études Économiques (INSEE). The long-term rate of GDP growth of France from IVQ1949 to IVQ2012 is quite high at 3.2 percent. France’s growth rates were quite high in the four decades of the 1950s, 1960, 1970s and 1980s with an average growth rate of 4.0 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. The growth rate from 2000 to 2012 is 1.0 percent. 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	2.5
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=20131224

The Markit Flash France Composite Output Index decreased from 48.0 in Nov to 47.0 in Dec for a seven-month low (http://www.markiteconomics.com/Survey/PressRelease.mvc/29ff41a3c1d547a7ac763502a35efc35). Andrew Harker, Senior Economist at Markit and author of the report, finds economic weakness in the French private sector (http://www.markiteconomics.com/Survey/PressRelease.mvc/29ff41a3c1d547a7ac763502a35efc35). The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, fell from 50.5 in Oct to 48.0 in Nov, indicating moderate contraction (http://www.markiteconomics.com/Survey/PressRelease.mvc/9ae3c4978e5448f0bd6f5f9d5cbb41f4). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI^®, finds risks of contraction in IVQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/9ae3c4978e5448f0bd6f5f9d5cbb41f4). The Markit France Services Activity index decreased from 50.9 in Oct to 48.0 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/9ae3c4978e5448f0bd6f5f9d5cbb41f4). The Markit France Manufacturing Purchasing Managers’ Index^® decreased to 48.4 in Nov from 49.1 in Oct for the lowest reading since Jun (http://www.markiteconomics.com/Survey/PressRelease.mvc/d36e5325c9c8408a9291a7cc2685cde0). Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI^®, finds declines in output, new orders and employment with squeeze of the highest input price inflation in 20 months while sales prices stagnated (http://www.markiteconomics.com/Survey/PressRelease.mvc/d36e5325c9c8408a9291a7cc2685cde0). Table FR provides the country data table for France.

Table FR, France, Economic Indicators

CPI	Nov month ∆% 0.0 12 months ∆%: 0.7 12/15/13
PPI	Nov month ∆%: 0.5 Nov 12 months ∆%: -0.6 Blog 12/29/13
GDP Growth	IIIQ2013/IIQ2013 ∆%: minus 0.1 IIIQ2013/IIIQ2012 ∆%: 0.2 Blog 3/31/13 5/19/12 6/30/13 9/29/13 11/17/13 12/29/13
Industrial Production	Oct ∆%: Manufacturing 0.4 12-Month ∆%: Manufacturing 0.7 Blog 12/15/13
Consumer Spending	Manufactured Goods Nov ∆%: 0.1 Nov 12-Month Manufactured Goods ∆%: 1.3 Blog 12/29/13
Employment	Unemployment Rate: IIIQ2013 10.5% Blog 12/8/13
Trade Balance	Oct Exports ∆%: month -0.3, 12 months -2.0 Oct Imports ∆%: month -2.5, 12 months -2.7 Blog 11/17/13
Confidence Indicators	Historical averages 100 Dec Mfg Business Climate 100 Blog 12/22/13

Links to blog comments in Table FR:

12/22/13 http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html

12/15/13 http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html

12/8/13 http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html

11/17/13 http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html

9/29/13 http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html

6/30/13 http://cmpassocregulationblog.blogspot.com/2013/06/tapering-quantitative-easing-policy-and.html

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

Growth of GDP in a quarter relative to the prior quarter is provided for France in Table VF-1. GDP fell 0.2 percent in IVQ2012 and fell 0.1 percent in IQ2013, rebounding with growth of 0.6 percent in IIQ2013. GDP contracted 0.1 percent in IIIQ2013. The French economy grew 0.2 percent in IVQ2011, stagnating in IQ2012, contracting 0.3 percent in IIQ2011 and growing 0.2 percent in IIIQ2012. In the four quarters of 2012 and the first quarter of 2013, France’s GDP contracted in three quarters for combined decline of 0.4 percent. Growth in the ten quarters of expansion from IIIQ2009 to IVQ2011 accumulated 4.4 percent at the annual equivalent rate of 1.7 percent. Recovery has been much weaker than the cumulative 2.6 percent in the four quarters of 2006. Weak recoveries in advanced economies have prevented full utilization of labor, capital and productive resources.

Table VF-1, France, Quarterly Real GDP Growth, Quarter on Prior Quarter ∆%

	IQ	IIQ	IIIQ	IVQ
2013	-0.1	0.6	-0.1
2012	0.0	-0.3	0.2	-0.2
2011	1.1	0.0	0.3	0.2
2010	0.3	0.6	0.5	0.5
2009	-1.7	0.0	0.1	0.7
2008	0.4	-0.7	-0.4	-1.6
2007	0.7	0.6	0.4	0.2
2006	0.7	1.1	0.0	0.8
2005	0.2	0.3	0.7	0.7
2004	0.5	0.7	0.4	0.8
2003	0.2	0.0	0.6	0.7
2002	0.6	0.5	0.1	0.0
2001	0.6	0.1	0.3	-0.3
2000	1.2	0.7	0.5	0.9
1999	0.5	0.9	1.0	1.2

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20131224

Growth rates of France’s real GDP in a quarter relative to the same quarter a year earlier are shown in Table VF-2. France has not recovered the rates of growth in excess of 2 percent prior to the global recession. GDP fell 4.3 percent in IQ2009, 3.7 percent in IIQ2009, 3.2 percent in IIIQ2009 and 1.0 percent in IVQ2009. Growth in IVQ2011 relative to IVQ2010 was 1.5 percent and GDP growth declined to 0.4 percent in IQ2012, 0.1 percent in IIQ2012 relative to the same quarter a year earlier, 0.0 percent in IIIQ2012 relative to a year earlier and minus 0.3 percent in IVQ2012 relative to a year earlier. Growth in IQ2013 relative to a year earlier was minus 0.4 percent. France’s GDP increased 0.5 percent in IIQ2013 relative to a year earlier and 0.2 percent in IIIQ2013 relative to a year earlier.

Table VF-2, France, Real GDP Growth Current Quarter Relative to Same Quarter Year Earlier ∆%

	IQ	IIQ	IIIQ	IVQ
2013	-0.4	0.5	0.2
2012	0.4	0.1	0.0	-0.3
2011	2.7	2.1	1.8	1.5
2010	1.0	1.6	2.1	1.9
2009	-4.3	-3.7	-3.2	-1.0
2008	1.6	0.4	-0.5	-2.3
2007	2.6	2.1	2.4	1.9
2006	2.3	3.2	2.6	2.6
2005	2.1	1.6	1.8	1.8
2004	1.9	2.6	2.4	2.5
2003	0.8	0.3	0.8	1.6
2002	0.6	1.0	0.9	1.2
2001	2.7	2.1	1.8	0.6
2000	4.3	4.2	3.6	3.3
1999	2.9	2.9	3.2	3.7

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20131224

Chart VF-1 of the Institut National de la Statistique et des Études Économiques provides France’s quarterly real GDP from IQ1949 to IIIQ2013. France’s economy has grown dynamically over decades. Recovery from the global recession in 2008-2009 has flattened.

Chart VF-1, France, Quarterly Real GDP, Seasonally and Working Day Adjusted, IQ1949-IIIQ2013

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20131224

Percentage changes and contributions of segments of GDP in France are provided in Table VF-3. Internal demand deducted 0.1 percentage points from GDP growth in IQ2013 and added 0.4 percentage points in IIQ2013. Internal demand did not contribute to growth in IIIQ2013. Net foreign trade deducted 0.1 percentage from growth in IQ2013, added 0.1 percentage points in IIQ2013 and deducted 0.6 percentage points in IIIQ2013.

Table VF-3, France, Contributions to GDP Growth, Calendar and Seasonally Adjusted, %

∆% from Prior Period	IVQ 2012	IQ 2013	IIQ 2013	IIIQ 2013	2012	2013 OVHG
GDP	-0.2	-0.1	0.6	-0.1	0.0	0.1
Imports	-1.2	0.1	1.5	0.9	-0.9	0.9
Household Consump.	0.0	-0.1	0.4	0.1	-0.4	0.3
Govt. Consump.	0.4	0.4	0.7	0.2	1.4	1.6
GFCF	-0.6	-0.9	-0.4	-0.4	-1.2	-2.3
Exports	-0.8	-0.3	1.9	-1.3	2.5	0.2
% Point Contribs.
Internal Demand ex Inventory Changes	0.0	-0.1	0.4	0.0	-0.1	0.1
Inventory Changes	-0.3	0.2	0.1	0.5	-0.8	0.2
Net Foreign Trade	0.1	-0.1	0.1	-0.6	1.0	-0.2

Notes: Consump.: Consumption; Gvt.: Government; GFCF: Gross Fixed Capital Formation; Contribus.: Contributions; OVHG: “annual growth rate carried over at the mid-year point.

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20131224

Chart VF-2 of France’s Institut National de la Statistique et des Études Économiques provides percentage point contributions to GDP growth. The economy was driven in IQ2013 by changes in inventories with net trade and gross fixed capital formation (GFCF) deducting from growth. Final consumption drove the economy in IIQ2013 together with inventory changes while net trade was neutral and gross fixed capital formation deducted from growth. Gross fixed capital formation and net trade contracted the economy in IIIQ2013.

Chart VF-2, France, Percentage Point Contributions to GDP Growth

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=28&date=20131224

The monthly report of household expenditures in consumption goods for France is in Table VF-4. Total consumption increased 1.4 percent in Nov 2013 after decreasing 0.1 percent in Oct 2013 and changing 0.0 percent in Sep 2013. Consumption of manufactured products increased 0.1 percent in Nov 2013 after increasing 0.8 percent in Oct 2013 and decreasing 0.1 percent in Sep 2013. Total consumption increased 1.5 percent in Nov 2013 relative to Nov 2012 and consumption of manufactured goods increased 1.3 percent in Nov 2013 relative to Nov 2012. Consumption of energy increased 7.5 percent in Nov 2013 and 1.1 percent in 12 months, partly explaining the increase in total consumption and in the producer price index. Internal demand is weak throughout most advanced economies.

Table VF-4, France, Household Expenditures in Consumption Goods, Month ∆% Chained Billion Euros Trading-Days SA

	Total	Food	Eng. Goods	Energy	Mfg Goods
Nov 2013	1.4	-0.6	0.5	7.5	0.1
Nov 2013/Nov 2012	1.5	1.3	1.7	1.1	1.3
Oct 2013	-0.1	1.5	0.5	-4.9	0.8
Sep	0.0	0.0	0.2	-0.7	-0.1
Aug	-0.2	-0.6	0.3	-0.7	-0.2
Jul	0.4	0.6	0.2	0.4	0.6
Jun	-0.7	-0.3	0.7	-4.6	-0.5
May	0.7	1.4	0.0	1.1	0.9
Apr	-0.7	-3.3	1.2	0.3	-0.5
Mar	1.3	2.7	-0.8	3.6	1.1
Feb	-0.3	-0.9	-0.8	1.8	-0.7
Jan	-0.4	0.6	-2.1	1.6	-1.0
Dec 2012	0.2	0.2	1.9	-3.7	0.8
Nov	0.2	-0.4	-0.6	2.0	-0.3
Oct	-0.2	-0.9	0.2	0.3	0.0
Sep	0.1	-0.1	0.1	0.5	0.0
Aug	-0.6	0.2	-0.6	-2.1	-0.7
Jul	0.1	-0.3	0.4	0.0	0.1
Jun	0.5	1.3	-0.3	1.2	0.5
May	0.1	-0.4	1.8	-2.8	1.0
Apr	0.2	0.0	-2.9	9.2	-1.5
Mar	-3.0	-2.0	1.0	-13.9	-0.9
Feb	2.8	1.8	-0.2	12.4	1.2
Jan	-0.2	1.0	-1.6	1.5	-0.5
Dec 2011	-0.1	-0.8	0.6	-0.6	-0.2
Nov	-0.3	0.3	-0.1	-2.1	-0.2
Oct	-0.2	-0.8	0.4	-0.6	-0.2
Sep	-0.4	0.5	0.0	-3.1	-0.3
Aug	0.9	0.6	0.6	2.7	1.0
Jul	-0.2	-0.1	-0.4	0.5	-0.3
Jun	0.2	-0.4	0.3	1.5	0.4
May	0.3	-0.6	-0.3	4.1	-0.6
Apr	-2.1	0.5	-2.6	-6.2	-1.5
Mar	-0.7	-0.4	-0.8	-1.1	-0.9
Feb	0.8	0.8	1.8	-1.8	1.4
Jan	-1.2	-0.7	-0.2	-5.1	-0.5
Dec 2010	0.9	0.4	0.4	3.6	0.5

Eng. Goods: Engineered Goods

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=19&date=20131224

Chart VF-3 of the Institut National de la Statistique et des Études Économiques of France provides consumption of manufactured goods in France in volumes of chained 2005 billion euro from Jan 1980 to Nov 2013. Consumption of manufactured goods increased above the level before the global recession but shows declining trend in recent months with possible stabilization.

Chart VF-3, France, Consumption of Manufactured Goods, Volume Chained 2005 Billion, Seasonally and Working Day Adjusted, Jan 1980 to Nov 2013

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=19&date=20131224

Chart VF-4 of Institut National de la Statistique et des Études Économiques of France provides growth of total consumption in France. Internal demand is not supporting higher rates of economic growth. There is downward trend of monthly consumption with fluctuations and stability in the final segment followed by another drop in Jan-Feb 2013 and increase in Mar 2013 but renewed decrease in Apr 2013. Consumption rose again in May 2013 and fell in Jun 2013. Consumption increased in Jul 2013 and fell in Aug-Oct 2013. Consumption rose in Nov 2013 driven by electricity.

Chart VF-4, France, Total Consumption of Goods, Billions of Euros Trading and Seasonally Adjusted and Quarterly ∆%

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=19&date=20131224

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 0.6 percent in IVQ2011 to minus 3.0 percent in IVQ2012, minus 2.5 percent in IQ2013, minus 2.2 percent in IIQ2013 and minus 1.8 percent in IIIQ2013. The aggregate demand components of consumption and gross fixed capital formation (GFCF) have been declining at faster rates. The rates of decline of GDP, consumption and GFCF were somewhat milder in IIIQ2013, IIQ2013 than in IQ2013 and the final three quarters of 2012.

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

	GDP	Imports	Consumption	GFCF	Exports
2013
IIIQ	-1.8	-1.2	-1.5	-5.1	0.0
IIQ	-2.2	-4.7	-2.5	-5.8	0.2
IQ	-2.5	-4.8	-2.6	-7.3	-0.6
2012
IVQ	-3.0	-6.9	-4.0	-8.1	0.8
IIIQ	-2.8	-7.5	-4.1	-8.7	1.8
IIQ	-2.6	-7.3	-3.6	-8.8	2.1
IQ	-1.8	-8.2	-3.4	-8.1	2.8
2011
IVQ	-0.6	-6.8	-2.0	-3.8	3.5
IIIQ	0.5	0.5	-1.0	-2.4	6.0
IIQ	1.1	3.7	0.4	-0.7	7.5
IQ	1.4	9.1	0.7	0.6	11.0
2010
IVQ	2.3	15.6	1.1	1.3	13.4
IIIQ	1.8	13.2	1.3	2.4	12.1
IIQ	1.8	13.4	0.8	0.9	12.0
IQ	0.9	7.0	1.0	-2.4	7.1
2009
IVQ	-3.5	-6.3	0.2	-8.2	-9.3
IIIQ	-5.0	-12.2	-0.8	-12.6	-16.4
IIQ	-6.6	-17.9	-1.4	-13.6	-21.4
IQ	-6.9	-17.2	-1.8	-12.4	-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/106657

The Markit/ADACI Business Activity Index decreased from 50.5 in Oct to 47.2 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/27e3c87dec6e4903a5c1c97d6247b44f). Phil Smith, Economist at Markit and author of the Italy Services PMI^®, finds the index suggesting doubts of Italy’s rebounding from recession (http://www.markiteconomics.com/Survey/PressRelease.mvc/27e3c87dec6e4903a5c1c97d6247b44f). The Markit/ADACI Purchasing Managers’ Index^® (PMI^®), increased from 50.7 in Oct to 51.4 in Nov for the highest reading in two-and-a-half years (http://www.markiteconomics.com/Survey/PressRelease.mvc/53345dfaaf1a40a8908cbf1d37a76343). New export orders grew at the fastest rate since Mar 2011. Phil Smith, Economist at Markit and author of the Italian Manufacturing PMI^®, finds squeeze of economic activity by pressure of input price inflation even with declining demand for inputs (http://www.markiteconomics.com/Survey/PressRelease.mvc/53345dfaaf1a40a8908cbf1d37a76343). Table IT provides the country data table for Italy.

Table IT, Italy, Economic Indicators

Consumer Price Index	Nov month ∆%: -0.3 Nov 12-month ∆%: 0.7 Blog 12/15/13
Producer Price Index	Oct month ∆%: -1.3 Oct 12-month ∆%: -2.7 Blog 12/1/13
GDP Growth	IIIQ2013/IIQ2013 SA ∆%: 0.0 IIIQ2013/IIIQ2012 NSA ∆%: minus 1.8 Blog 3/17/13 6/16/13 8/11/13 9/15/13 11/17/13 12/15/13
Labor Report	Oct 2013 Participation rate 63.6% Employment ratio 55.5% Unemployment rate 12.5% Blog 12/1/13
Industrial Production	Oct month ∆%: 0.5 12 months CA ∆%: -0.5 Blog 12/15/13
Retail Sales	Oct month ∆%: -0.1 Oct 12-month ∆%: -1.6 Blog 12/22/13
Business Confidence	Mfg Nov 98.1, Jun 92.3 Construction Nov 80.0, Jun 77.1 Blog 12/1/13
Trade Balance	Balance Oct SA €2832 million versus Sep €2198 Exports Oct month SA ∆%: -0.5; Imports Oct month ∆%: -2.6 Exports 12 months Oct NSA ∆%: 0.8 Imports 12 months NSA ∆%: -4.3 Blog 12/22/13

Links to blog comments in Table IT:

12/22/13 http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html

12/15/13 http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html

12/1/13 http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html

11/17/13 http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html

9/15/13 http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html

8/11/13 http://cmpassocregulationblog.blogspot.com/2013/08/recovery-without-hiring-loss-of-full.html

6/16/13 http://cmpassocregulationblog.blogspot.com/2013/06/recovery-without-hiring-seven-million.html

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

VH United Kingdom. Annual data in Table VH-UK show the strong impact of the global recession in the UK with decline of GDP of 5.2 percent in 2009 after dropping 0.8 percent in 2008. Recovery of 1.7 percent in 2010 is relatively low in comparison with annual growth rates in 2007 and earlier years. Growth was only 1.1 percent in 2011 and 0.1 percent in 2012. The bottom part of Table VH-UK provides average growth rates of UK GDP since 1948. The UK economy grew at 2.6 percent per year on average between 1948 and 2012, which is relatively high for an advanced economy. The growth rate of GDP between 2000 and 2007 is higher at 3.1 percent. Growth in the current cyclical expansion has been only at 1.0 percent as advanced economies struggle with weak internal demand and world trade. GDP in 2012 was lower by 3.1 percent relative to 2007.

Table VH-UK, UK, Gross Domestic Product, ∆%

	∆% on Prior Year
1998	3.6
1999	2.9
2000	4.4
2001	2.2
2002	2.3
2003	3.9
2004	3.2
2005	3.2
2006	2.8
2007	3.4
2008	-0.8
2009	-5.2
2010	1.7
2011	1.1
2012	0.1
Average Growth Rates ∆% per Year
1948-2012	2.6
1950-1959	2.7
1960-1969	3.3
1970-1979	2.5
1980-1989	3.2
1990-1999	2.9
2000-2007	3.0
2007-2012*	-3.1
2000-2012	1.5

*Absolute change from 2007 to 2012

Source: UK Office for National Statistics

http://www.ons.gov.uk/ons/rel/naa2/quarterly-national-accounts/q3-2013/index.html

The Business Activity Index of the Markit/CIPS UK Services PMI^® decreased from 62.5 in Oct, indicating increase in activity in every month since the beginning of 2013 at the highest rate since May 1997, to 60.0 in Nov, at a historically fast rate of growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/6a58c44af9df4ae9ba48586f1d74697a). Chris Williamson, Chief Economist at Markit, finds continuing improvement in the UK’s economy with possible higher growth of GDP in IVQ2013 at the quarterly rate above 1.0 percent, which would be the highest since the period before the 2007 financial crisis while creation of new jobs exceeds 100,000 per quarter (http://www.markiteconomics.com/Survey/PressRelease.mvc/6a58c44af9df4ae9ba48586f1d74697a). The Markit/CIPS UK Manufacturing Purchasing Managers’ Index^® (PMI^®) incresed to 58.4 in Nov from 56.5 in Oct with continuing strength at the highest reading since Feb 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/55bd22f380fd46cfb6900bc563d34e2b). Respondents indicated increase in new foreign orders after the highest rate in the prior month of Oct since Feb 2011 with growth of foreign orders in Nov among the highest in the expansion after the global recession. New orders increased from Asia, USA, Germany, France, Ireland, Belgium and the Middle East. Rob Dobson, Senior Economist at Markit that compiles the Markit/CIPS Manufacturing PMI^®, finds that manufacturing conditions continue around the levels in Nov with output and new orders close to the fastest pace in 19 years and growth in IVQ2013 probably above 1.0 percent (http://www.markiteconomics.com/Survey/PressRelease.mvc/55bd22f380fd46cfb6900bc563d34e2b). Table UK provides the economic indicators for the United Kingdom.

Table UK, UK Economic Indicators

CPI	Nov month ∆%: 0.1 Nov 12-month ∆%: 2.1 Blog 12/22/13
Output/Input Prices	Output Prices: Nov 12-month NSA ∆%: 0.8; excluding food, petroleum ∆%: 0.7 Input Prices: Nov 12-month NSA ∆%: -1.0 Excluding ∆%: -0.9 Blog 12/22/13
GDP Growth	IIIQ2013 prior quarter ∆% 0.8; year earlier same quarter ∆%: 1.9 Blog 3/31/13 4/28/13 5/26/13 7/28/13 8/25/13 9/29/13 10/27/13 12/1/13 12/22/13
Industrial Production	Oct 2013/Oct 2012 ∆%: Production Industries 3.2; Manufacturing 2.7 Blog 12/15/13
Retail Sales	Nov month ∆%: 0.2 Oct 12-month ∆%: 2.0 Blog 12/22/13
Labor Market	Aug-Oct Unemployment Rate: 7.4%; Claimant Count 3.8%; Earnings Growth 0.9% Blog 12/22/13 LMGDP
GDP and the Labor Market	IIIQ2013 Weekly Hours 101.4, GDP 98.0, Employment 101.5 IQ2008 =100 Blog 12/22/13
Trade Balance	Balance SA Oct minus ₤2619 million Exports Oct ∆%: -1.4; Aug-Oct ∆%: 1.9 Imports Oct ∆%: -1.4 Aug-Oct ∆%: 0.3 Blog 12/15/13

Links to blog comments in Table UK:

12/22/13 http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html

12/15/13 http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html

12/1/13 http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html

10/27/13 http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html

9/29/13 http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html

8/25/13 http://cmpassocregulationblog.blogspot.com/2013/08/interest-rate-risks-duration-dumping.html

7/28/13 http://cmpassocregulationblog.blogspot.com/2013/07/duration-dumping-steepening-yield-curve.html

5/26/13 http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.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

VI Valuation of Risk Financial Assets. The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html

Table VI-1 shows the phenomenal impulse to valuations of risk financial assets originating in the initial shock of near zero interest rates in 2003-2004 with the fed funds rate at 1 percent, in fear of deflation that never materialized, and quantitative easing in the form of suspension of the auction of 30-year Treasury bonds to lower mortgage rates. World financial markets were dominated by monetary and housing policies in the US. Between 2002 and 2008, the DJ UBS Commodity Index rose 165.5 percent largely because of unconventional monetary policy encouraging carry trades from low US interest rates to long leveraged positions in commodities, exchange rates and other risk financial assets. The charts of risk financial assets show sharp increase in valuations leading to the financial crisis and then profound drops that are captured in Table VI-1 by percentage changes of peaks and troughs. The first round of quantitative easing and near zero interest rates depreciated the dollar relative to the euro by 39.3 percent between 2003 and 2008, with revaluation of the dollar by 25.1 percent from 2008 to 2010 in the flight to dollar-denominated assets in fear of world financial risks. The dollar devalued 15.3 percent by Fri Dec 27, 2013. Dollar devaluation is a major vehicle of monetary policy in reducing the output gap that is implemented in the probably erroneous belief that devaluation will not accelerate inflation, misallocating resources toward less productive economic activities and disrupting financial markets. The last row of Table VI-1 shows CPI inflation in the US rising from 1.9 percent in 2003 to 4.1 percent in 2007 even as monetary policy increased the fed funds rate from 1 percent in Jun 2004 to 5.25 percent in Jun 2006.

Table VI-1, Volatility of Assets

DJIA	10/08/02-10/01/07	10/01/07-3/4/09	3/4/09- 4/6/10
∆%	87.8	-51.2	60.3
NYSE Financial	1/15/04- 6/13/07	6/13/07- 3/4/09	3/4/09- 4/16/07
∆%	42.3	-75.9	121.1
Shanghai Composite	6/10/05- 10/15/07	10/15/07- 10/30/08	10/30/08- 7/30/09
∆%	444.2	-70.8	85.3
STOXX EUROPE 50	3/10/03- 7/25/07	7/25/07- 3/9/09	3/9/09- 4/21/10
∆%	93.5	-57.9	64.3
UBS Com.	1/23/02- 7/1/08	7/1/08- 2/23/09	2/23/09- 1/6/10
∆%	165.5	-56.4	41.4
10-Year Treasury	6/10/03	6/12/07	12/31/08	4/5/10
%	3.112	5.297	2.247	3.986
USD/EUR	6/26/03	7/14/08	6/07/10	12/27/2013
Rate	1.1423	1.5914	1.192	1.3746
CNY/USD	01/03 2000	07/21 2005	7/15 2008	12/27/ 2013
Rate	8.2798	8.2765	6.8211	6.0678
New House	1963	1977	2005	2009
Sales 1000s	560	819	1283	375
New House	2000	2007	2009	2010
Median Price $1000	169	247	217	203
	2003	2005	2007	2010
CPI	1.9	3.4	4.1	1.5

Sources: http://professional.wsj.com/mdc/page/marketsdata.html?mod=WSJ_hps_marketdata

http://www.census.gov/const/www/newressalesindex_excel.html

http://federalreserve.gov/releases/h10/Hist/dat00_eu.htm

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

Chinese Yuan/Dollar (CNY/USD) exchange rate that reveal pursuit of exchange rate policies resulting from monetary policy in the US and capital control/exchange rate policy in China. The ultimate intentions are the same: promoting internal economic activity at the expense of the rest of the world. The easy money policy of the US was deliberately or not but effectively to devalue the dollar from USD 1.1423/EUR on Jun 26, 2003 to USD 1.5914/EUR on Jul 14, 2008, or by 39.3 percent. The flight into dollar assets after the global recession caused revaluation to USD 1.192/EUR on Jun 7, 2010, or by 25.1 percent. After the temporary interruption of the sovereign risk issues in Europe from Apr to Jul, 2010, shown in Table VI-4 below, the dollar has devalued again to USD 1.3746/EUR on Dec 27, 2013 or by 15.3 percent {[(1.3746/1.192)-1]100 = 15.3%}. Yellen (2011AS, 6) admits that Fed monetary policy results in dollar devaluation with the objective of increasing net exports, which was the policy that Joan Robinson (1947) labeled as “beggar-my-neighbor” remedies for unemployment. Risk aversion erodes devaluation of the dollar. China fixed the CNY to the dollar for a long period at a highly undervalued level of around CNY 8.2765/USD subsequently revaluing to CNY 6.8211/USD until Jun 7, 2010, or by 17.6 percent. After fixing again the CNY to the dollar, China revalued to CNY 6.0725/USD on Fri Dec 27, 2013, or by an additional 11.0 percent, for cumulative revaluation of 26.7 percent. The final row of Table VI-2 shows change of 0.0 percent in the week of Nov 29, 2013; revaluation of 0.2 percent in the week of Dec 6, 2013; revaluation of 0.2 percent the week of Dec 13, 2013; and devaluation of 0.1 percent in the week of Dec 20, 2013.

Table VI-2, Dollar/Euro (USD/EUR) Exchange Rate and Chinese Yuan/Dollar (CNY/USD) Exchange Rate

USD/EUR	12/26/03	7/14/08	6/07/10	12/27/13
Rate	1.1423	1.5914	1.192	1.3746
CNY/USD	01/03 2000	07/21 2005	7/15 2008	12/27/ 2013
Rate	8.2798	8.2765	6.8211	6.0678
Weekly Rates	12/6/2013	12/13/2013	12/20/2013	12/27/ 2013
CNY/USD	6.0801	6.0691	6.0725	6.0678
∆% from Earlier Week*	0.2	0.2	-0.1	0.1

*Negative sign is depreciation; positive sign is appreciation

Source: http://professional.wsj.com/mdc/public/page/mdc_currencies.html?mod=mdc_topnav_2_3000

The Dow Jones Newswires informs on Oct 15, 2011, that the premier of China Wen Jiabao announced that the Chinese yuan will not be further appreciated to prevent adverse effects on exports (http://professional.wsj.com/article/SB10001424052970203914304576632790881396896.html?mod=WSJ_hp_LEFTWhatsNewsCollection). Bob Davis and Lingling Wei, writing on “China shifts course, lets Yuan drop,” on Jul 25, 2012, published in the Wall Street Journal (http://professional.wsj.com/article/SB10000872396390444840104577548610131107868.html?mod=WSJPRO_hpp_LEFTTopStories), find that China is depreciating the CNY relative to the USD in an effort to diminish the impact of appreciation of the CNY relative to the EUR. Table VI-2A provides the CNY/USD rate from Oct 28, 2011 to Apr 5, 2013 in selected intervals on Fridays. The CNY/USD revalued by 0.9 percent from Oct 28, 2012 to Apr 27, 2012. The CNY was virtually unchanged relative to the USD by Aug 24, 2012 to CNY 6.3558/USD from the rate of CNY 6.3588/USD on Oct 28, 2011 and then revalued slightly by 1.1 percent to CNY 6.2858/USD on Sep 28, 2012. Devaluation of 0.6 percent from CNY 6.2858/USD on Sep 28, 2012 to CNY 6.3240/USD on Oct 5, 2012, reduced to 0.5 percent the cumulative revaluation from Oct 28, 2011 to Oct 5, 2012. Revaluation by 0.2 percent to CNY 6.2546/USD on Oct 12, 2012 and revalued the CNY by 1.6 percent relative to the dollar from CNY 6.3588/USD on Oct 29, 2011. By Dec 27, 2013, the CNY revalued 4.5 percent to CNY 6.0678/USD relative to CNY 6.3588/USD on Oct 29, 2011. Meanwhile, the Senate of the US periodically considers a bill on China’s trade that could create a confrontation but may not be approved by the entire Congress. An important statement by the People’s Bank of China (PBC), China’s central bank, on Apr 14, 2012, announced the widening of the daily maximum band of fluctuation of the renminbi (RMB) yuan (http://www.pbc.gov.cn/publish/english/955/2012/20120414090756030448561/20120414090756030448561_.html):

“Along with the development of China’s foreign exchange market, the pricing and risk management capabilities of market participants are gradually strengthening. In order to meet market demands, promote price discovery, enhance the flexibility of RMB exchange rate in both directions, further improve the managed floating RMB exchange rate regime based on market supply and demand with reference to a basket of currencies, the People’s Bank of China has decided to enlarge the floating band of RMB’s trading prices against the US dollar and is hereby making a public announcement as follows:

Effective from April 16, 2012 onwards, the floating band of RMB’s trading prices against the US dollar in the inter-bank spot foreign exchange market is enlarged from 0.5 percent to 1 percent, i.e., on each business day, the trading prices of the RMB against the US dollar in the inter-bank spot foreign exchange market will fluctuate within a band of ±1 percent around the central parity released on the same day by the China Foreign Exchange Trade System. The spread between the RMB/USD selling and buying prices offered by the foreign exchange-designated banks to their customers shall not exceed 2 percent of the central parity, instead of 1 percent, while other provisions in the Circular of the PBC on Relevant Issues Managing the Trading Prices in the Inter-bank Foreign Exchange Market and Quoted Exchange Rates of Exchange-Designated Banks (PBC Document No.[2010]325) remain valid.

In view of the domestic and international economic and financial conditions, the People’s Bank of China will continue to fulfill its mandates in relation to the RMB exchange rate, keeping RMB exchange rate basically stable at an adaptive and equilibrium level based on market supply and demand with reference to a basket of currencies to preserve stability of the Chinese economy and financial markets.”

Table VI-2A, Renminbi Yuan US Dollar Rate

	CNY/USD	∆% from 10/28/2011
12/27/13	6.0678	4.6
12/20/13	6.0725	4.5
12/13/13	6.0691	4.6
12/6/13	6.0801	4.4
11/29/13	6.0914	4.2
11/22/13	6.0911	4.2
11/15/13	6.0928	4.2
11/8/13	6.0912	4.2
11/1/13	6.0996	4.1
10/25/13	6.0830	4.3
10/18/2013	6.0973	4.1
10/11/2013	6.1210	3.7
10/4/2013	6.1226	3.7
9/27/2013	6.1196	3.8
9/20/2013	6.1206	3.7
9/13/13	6.1190	3.8
9/6/13	6.1209	3.7
8/30/13	6.1178	3.8
8/23/13	6.1211	3.7
8/16/13	6.1137	3.9
8/9/13	6.1225	3.7
8/2/13	6.1295	3.6
7/26/13	6.1305	3.6
7/19/13	6.1380	3.5
7/12/13	6.1382	3.5
7/5/13	6.1316	3.6
6/28/13	6.1910	2.6
6/21/13	6.1345	3.5
6/14/13	6.1323	3.6
6/7/13	6.1334	3.5
5/31/13	6.1347	3.5
5/24/13	6.1314	3.6
5/17/13	6.1395	3.4
5/10/13	6.1395	3.4
5/3/13	6.1553	3.2
4/26/13	6.1636	3.1
4/19/13	6.1788	2.8
4/12/13	6.1947	2.6
4/5/13	6.2051	2.4
3/29/13	6.2119	2.3
3/22/13	6.2112	2.3
3/15/13	6.2131	2.3
3/8/13	6.2142	2.3
3/1/13	6.2221	2.1
2/22/15	6.2350	1.9
2/15/13	6.2328	2.0
2/8/13	6.2323	2.0
2/1/13	6.2316	2.0
1/25/13	6.2228	2.1
1/18/13	6.2182	2.2
1/11/13	6.2168	2.2
1/4/13	6.2316	2.0
12/28/12	6.2358	1.9
12/21/12	6.2352	1.9
12/14/12	6.2460	1.8
12/7/12	6.2254	2.1
11/30/12	6.2310	2.0
11/23/12	6.2328	2.0
11/16/12	6.2404	1.9
11/9/12	6.2452	1.8
11/2/12	6.2458	1.8
10/26/12	6.2628	1.5
10/19/12	6.2546	1.6
10/12/12	6.2670	1.4
10/5/12	6.3240	0.5
9/28/12	6.2858	1.1
9/21/12	6.3078	0.8
9/14/12	6.3168	0.7
9/7/12	6.3438	0.2
8/31/12	6.3498	0.1
8/24/12	6.3558	0.0
8/17/12	6.3589	0.0
8/10/12	6.3604	0.0
8/3/12	6.3726	-0.2
7/27/12	6.3818	-0.4
7/20/12	6.3750	-0.3
7/13/12	6.3868	-0.4
7/6/12	6.3658	-0.1
6/29/12	6.3552	0.1
6/22/12	6.3650	-0.1
6/15/12	6.3678	-0.1
6/8/2012	6.3752	-0.3
6/1/2012	6.3708	-0.2
4/27/2012	6.3016	0.9
3/23/2012	6.3008	0.9
2/3/2012	6.3030	0.9
12/30/2011	6.2940	1.0
11/25/2011	6.3816	-0.4
10/28/2011	6.3588	-

Source:

http://professional.wsj.com/mdc/public/page/mdc_currencies.html?mod=mdc_topnav_2_3000

http://federalreserve.gov/releases/h10/Hist/dat00_ch.htm

Professor Edward P Lazear (2013Jan7), writing on “Chinese ‘currency manipulation’ is not the problem,” on Jan 7, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887323320404578213203581231448.html), provides clear thought on the role of the yuan in trade between China and the United States and trade between China and Europe. There is conventional wisdom that Chinese exchange rate policy causes the loss of manufacturing jobs in the United States, which is shown by Lazear (2013Jan7) to be erroneous. The fact is that manipulation of the CNY/USD rate by China has only minor effects on US employment. Lazear (2013Jan7) shows that the movement of monthly exports of China to its major trading partners, United States and Europe, since 1995 cannot be explained by the fixing of the CNY/USD rate by China. The period is quite useful because it includes rapid growth before 2007, contraction until 2009 and weak subsequent expansion. Chart VI-1 of the Board of Governors of the Federal Reserve System provides the CNY/USD exchange rate from Jan 3, 1995 to Dec 20, 2013 together with US recession dates in shaded areas. China fixed the CNY/USD rate for a long period as shown in the horizontal segment from 1995 to 2005. There was systematic revaluation of 17.6 percent from CNY 8.2765 on Jul 21, 2005 to CNY 6.8211 on Jul 15, 2008. China fixed the CNY/USD rate until Jun 7, 2010, to avoid adverse effects on its economy from the global recession, which is shown as a horizontal segment from 2009 until mid 2010. China then continued the policy of appreciation of the CNY relative to the USD with oscillations until the beginning of 2012 when the rate began to move sideways followed by a final upward slope of devaluation that is measured in Table VI-2A but virtually disappeared in the rate of CNY 6.3589/USD on Aug 17, 2012 and was nearly unchanged at CNY 6.3558/USD on Aug 24, 2012. China then appreciated 0.2 percent in the week of Dec 21, 2012, to CNY 6.2352/USD for cumulative 1.9 percent revaluation from Oct 28, 2011 and left the rate virtually unchanged at CNY 6.2316/USD on Jan 11, 2013, appreciating to CNY 6.0711/USD on Dec 20, 2013, which is the last data point in Chart VI-1. Revaluation of the CNY relative to the USD by 26.6 percent by Nov 29, 2013 has not reduced the trade surplus of China but reversal of the policy of revaluation could result in international confrontation. The interruption with upward slope in the final segment on the right of Chart VI-I is measured as virtually stability in Table VI-2A followed with decrease or revaluation.

Chart VI-1, Chinese Yuan (CNY) per US Dollar (US), Jan 3, 1995-Dec 20, 2013

Note: US Recessions in Shaded Areas

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/H10/default.htm

Chart VI-1A provides the daily CNY/USD rate from Jan 5, 1981 to Dec 20, 2013. The exchange rate was CNY 1.5418/USD on Jan 5, 1981. There is sharp cumulative depreciation 107.8 percent to CNY 3.2031 by Jul 2, 1986, continuing to CNY 5.8145/USD on Dec 29, 1993 for cumulative 277.1 percent since Jan 5, 1981. China then devalued sharply to CNY 8.7117/USD on Jan 7, 1994 for 49.8 percent relative to Dec 29, 1993 and cumulative 465.0 percent relative to Jan 5, 1981. China then fixed the rate at CNY 8.2765/USD until Jul 21, 2005 and revalued as analyzed in Chart VI-1. The final data point in Chart VI-1A is CNY 6.0711/USD on Dec 20, 2013. To be sure, China fixed the exchange rate after substantial prior devaluation. It is unlikely that the devaluation could have been effective after many years of fixing the exchange rate with high inflation and multiple changes in the world economy. The argument of Lazear (2013Jan7) is still valid in view of the lack of association between monthly exports of China to the US and Europe since 1995 and the exchange rate of China.

Chart VI-1A, Chinese Yuan (CNY) per US Dollar (US), Business Days, Jan 5, 1981-Dec 20, 2013

Note: US Recessions in Shaded Areas

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/H10/default.htm

Inflation and unemployment in the period 1966 to 1985 is analyzed by Cochrane (2011Jan, 23) by means of a Phillips circuit joining points of inflation and unemployment. Chart VI-1B for Brazil in Pelaez (1986, 94-5) was reprinted in The Economist in the issue of Jan 17-23, 1987 as updated by the author. Cochrane (2011Jan, 23) argues that the Phillips circuit shows the weakness in Phillips curve correlation. The explanation is by a shift in aggregate supply, rise in inflation expectations or loss of anchoring. The case of Brazil in Chart VI-1B cannot be explained without taking into account the increase in the fed funds rate that reached 22.36 percent on Jul 22, 1981 (http://www.federalreserve.gov/releases/h15/data.htm) in the Volcker Fed that precipitated the stress on a foreign debt bloated by financing balance of payments deficits with bank loans in the 1970s. The loans were used in projects, many of state-owned enterprises with low present value in long gestation. The combination of the insolvency of the country because of debt higher than its ability of repayment and the huge government deficit with declining revenue as the economy contracted caused adverse expectations on inflation and the economy. This interpretation is consistent with the case of the 24 emerging market economies analyzed by Reinhart and Rogoff (2010GTD, 4), concluding that “higher debt levels are associated with significantly higher levels of inflation in emerging markets. Median inflation more than doubles (from less than seven percent to 16 percent) as debt rises from the low (0 to 30 percent) range to above 90 percent. Fiscal dominance is a plausible interpretation of this pattern.”

The reading of the Phillips circuits of the 1970s by Cochrane (2011Jan, 25) is doubtful about the output gap and inflation expectations:

“So, inflation is caused by ‘tightness’ and deflation by ‘slack’ in the economy. This is not just a cause and forecasting variable, it is the cause, because given ‘slack’ we apparently do not have to worry about inflation from other sources, notwithstanding the weak correlation of [Phillips circuits]. These statements [by the Fed] do mention ‘stable inflation expectations. How does the Fed know expectations are ‘stable’ and would not come unglued once people look at deficit numbers? As I read Fed statements, almost all confidence in ‘stable’ or ‘anchored’ expectations comes from the fact that we have experienced a long period of low inflation (adaptive expectations). All these analyses ignore the stagflation experience in the 1970s, in which inflation was high even with ‘slack’ markets and little ‘demand, and ‘expectations’ moved quickly. They ignore the experience of hyperinflations and currency collapses, which happen in economies well below potential.”

Chart VI-1B provides the tortuous Phillips Circuit of Brazil from 1963 to 1987. There were no reliable consumer price index and unemployment data in Brazil for that period. Chart VI-1B used the more reliable indicator of inflation, the wholesale price index, and idle capacity of manufacturing as a proxy of unemployment in large urban centers.

©Carlos Manuel Pelaez, O Cruzado e o Austral: Análise das Reformas Monetárias do Brasil e da Argentina. São Paulo: Editora Atlas, 1986, pages 94-5. Reprinted in: Brazil. Tomorrow’s Italy, The Economist, 17-23 January 1987, page 25.

The key to success in stabilizing an economy with significant risk aversion is finding parity of internal and external interest rates. Brazil implemented fiscal consolidation and reforms that are advisable in explosive foreign debt environments. In addition, Brazil had the capacity to find parity in external and internal interest rates to prevent capital flight and disruption of balance sheets (for analysis of balance sheets, interest rates, indexing, devaluation, financial instruments and asset/liability management in that period see Pelaez and Pelaez (2007), The Global Recession Risk: Dollar Devaluation and the World Economy, 178-87). Table VI-2C provides monthly percentage changes of inflation, devaluation and indexing and the monthly percent overnight interest rate. Parity was attained by means of a simple inequality:

Cost of Domestic Loan ≥ Cost of Foreign Loan

This ordering was attained in practice by setting the domestic interest rate of the overnight interest rate plus spread higher than indexing of government securities with lower spread than loans in turn higher than devaluation plus spread of foreign loans. Interest parity required equality of inflation, devaluation and indexing. Brazil devalued the cruzeiro by 30 percent in 1983 because the depreciation of the German mark DM relative to the USD had eroded the competitiveness of Brazil’s products in Germany and in competition with German goods worldwide. The database of the Board of Governors of the Federal Reserve System quotes DM 1.7829/USD on Mar 3 1980 and DM 2.4425/USD on Mar 15, 1983 (http://www.federalreserve.gov/releases/h10/hist/dat89_ge.htm) for devaluation of 37.0 percent. Parity of costs and rates of domestic and foreign loans and assets required ensuring that there would not be appreciation of the exchange rate, inducing capital flight in expectation of future devaluation that would have reversed stabilization. Table VI-2C provides inflation, devaluation, overnight interest rate and indexing. One of the main problems of adjustment of members of the euro area with high debts is that they cannot adjust the exchange rate because of the common euro currency. This is not an argument in favor of breaking the euro area because there would be also major problems of adjustment such as exiting the euro in favor of a new Drachma in the case of Greece. Another hurdle of adjustment in the euro area is that Brazil could have moved swiftly to adjust its economy in 1983 but the euro area has major sovereignty and distribution of taxation hurdles in moving rapidly.

Table VI-2C, Brazil, Inflation, Devaluation, Overnight Interest Rate and Indexing, Percent per Month, 1984

1984	Inflation IGP ∆%	Devaluation ∆%	Overnight Interest Rate %	Indexing ∆%
Jan	9.8	9.8	10.0	9.8
Feb	12.3	12.3	12.2	12.3
Mar	10.0	10.1	11.3	10.0
Apr	8.9	8.8	10.1	8.9
May	8.9	8.9	9.8	8.9
Jun	9.2	9.2	10.2	9.2
Jul	10.3	10.2	11.9	10.3
Aug	10.6	10.6	11.0	10.6
Sep	10.5	10.5	11.9	10.5
Oct	12.6	12.6	12.9	12.6
Nov	9.9	9.9	10.9	9.9
Dec	10.5	10.5	11.5	10.5

Source: Carlos Manuel Pelaez, O Cruzado e o Austral: Análise das Reformas Monetárias do Brasil e da Argentina. São Paulo, Editora Atlas, 1986, 86.

The G7 meeting in Washington on Apr 21 2006 of finance ministers and heads of central bank governors of the G7 established the “doctrine of shared responsibility” (G7 2006Apr):

“We, Ministers and Governors, reviewed a strategy for addressing global imbalances. We recognized that global imbalances are the product of a wide array of macroeconomic and microeconomic forces throughout the world economy that affect public and private sector saving and investment decisions. We reaffirmed our view that the adjustment of global imbalances:

Is shared responsibility and requires participation by all regions in this global process;
Will importantly entail the medium-term evolution of private saving and investment across countries as well as counterpart shifts in global capital flows; and
Is best accomplished in a way that maximizes sustained growth, which requires strengthening policies and removing distortions to the adjustment process.

In this light, we reaffirmed our commitment to take vigorous action to address imbalances. We agreed that progress has been, and is being, made. The policies listed below not only would be helpful in addressing imbalances, but are more generally important to foster economic growth.

In the United States, further action is needed to boost national saving by continuing fiscal consolidation, addressing entitlement spending, and raising private saving.
In Europe, further action is needed to implement structural reforms for labor market, product, and services market flexibility, and to encourage domestic demand led growth.
In Japan, further action is needed to ensure the recovery with fiscal soundness and long-term growth through structural reforms.

Others will play a critical role as part of the multilateral adjustment process.

In emerging Asia, particularly China, greater flexibility in exchange rates is critical to allow necessary appreciations, as is strengthening domestic demand, lessening reliance on export-led growth strategies, and actions to strengthen financial sectors.

In oil-producing countries, accelerated investment in capacity, increased economic diversification, enhanced exchange rate flexibility in some cases.

Other current account surplus countries should encourage domestic consumption and investment, increase micro-economic flexibility and improve investment climates.

We recognized the important contribution that the IMF can make to multilateral surveillance.”

The concern at that time was that fiscal and current account global imbalances could result in disorderly correction with sharp devaluation of the dollar after an increase in premiums on yields of US Treasury debt (see Pelaez and Pelaez, The Global Recession Risk (2007)). The IMF was entrusted with monitoring and coordinating action to resolve global imbalances. The G7 was eventually broadened to the formal G20 in the effort to coordinate policies of countries with external surpluses and deficits.

The database of the WEO (http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx) is used to contract Table VI-3 with fiscal and current account imbalances projected for 2014 and 2016. The WEO finds the need to rebalance external and domestic demand (IMF 2011WEOSep xvii):

“Progress on this front has become even more important to sustain global growth. Some emerging market economies are contributing more domestic demand than is desirable (for example, several economies in Latin America); others are not contributing enough (for example, key economies in emerging Asia). The first set needs to restrain strong domestic demand by considerably reducing structural fiscal deficits and, in some cases, by further removing monetary accommodation. The second set of economies needs significant currency appreciation alongside structural reforms to reduce high surpluses of savings over investment. Such policies would help improve their resilience to shocks originating in the advanced economies as well as their medium-term growth potential.”

The IMF (2012WEOApr, XVII) explains decreasing importance of the issue of global imbalances as follows:

“The latest developments suggest that global current account imbalances are no longer expected to widen again, following their sharp reduction during the Great Recession. This is largely because the excessive consumption growth that characterized economies that ran large external deficits prior to the crisis has been wrung out and has not been offset by stronger consumption in surplus economies. Accordingly, the global economy has experienced a loss of demand and growth in all regions relative to the boom years just before the crisis. Rebalancing activity in key surplus economies toward higher consumption, supported by more market-determined exchange rates, would help strengthen their prospects as well as those of the rest of the world.”

Table VI-3, Fiscal Deficit, Current Account Deficit and Government Debt as % of GDP and 2011 Dollar GDP

	GDP $B 2013	FD %GDP 2014	CAD %GDP 2014	Debt %GDP 2014	FD%GDP 2016	CAD%GDP 2016	Debt %GDP 2016
US	16245	-2.6	-2.8	88.3	-1.9	-2.9	87.1
Japan	5007	-6.1	1.7	141.8	-3.9	1.8	145.9
UK	2490	-5.8	-1.9	88.0	-0.8	-0.4	91.2
Euro	12685	0.2	2.5	75.6	1.2	2.6	74.4
Ger	3593	1.8	5.7	54.6	1.9	5.1	51.2
France	2739	-1.5	-1.6	88.5	0.1	-0.6	87.5
Italy	2068	3.1	0.2	111.2	4.4	-0.4	108.0
Can	1825	-2.4	-3.1	38.0	-1.5	-2.7	38.9
China	8939	-2.1	2.7	20.9	-1.0	3.4	17.7
Brazil	2396	3.3	-2.4	33.6	3.1	-3.3	30.8

Note: GER = Germany; Can = Canada; FD = fiscal deficit; CAD = current account deficit

FD is primary except total for China; Debt is net except gross for China

Source: IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx

The current account of the US balance of payments is provided in Table VI-IIIA for IIIQ2012 and IIIQ2013. The US has a large deficit in goods or exports less imports of goods but it has a surplus in services that helps to reduce the trade account deficit or exports less imports of goods and services. The current account deficit of the US not seasonally adjusted decreased from $122.5 billion in IIIQ2012 to $110.1 billion in IIIQ2013. The current account deficit seasonally adjusted at annual rate fell from 2.6 percent of GDP in IIIQ2012 to 2.3 percent of GDP in IIQ2013 and 2.2 percent of GDP in IIIQ2013. The ratio of the current account deficit to GDP has stabilized around 3 percent of GDP compared with much higher percentages before the recession but is combined now with much higher imbalance in the Treasury budget (see Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State, Vol. II (2008b), 183-94, Government Intervention in Globalization (2008c), 167-71).

Table VI-3A, US, Balance of Payments, Millions of Dollars NSA

	IIIQ2012	IIIQ2013	Difference
Goods Balance	-197,538	-197,137	4,010
X Goods	382,343	392,155	2.6 ∆%
M Goods	-579,881	-589,292	1.6 ∆%
Services Balance	52,940	61,771	8,813
X Services	166,800	177,595	6.5 ∆%
M Services	-113,860	-115,824	1.7 ∆%
Balance Goods and Services	-144,599	-135,366	-9,233
Balance Income	55,269	60,519	5,250
Unilateral Transfers	-33,140	-35,208	2,068
Current Account Balance	-122,470	-110,055	-12,415
% GDP	IIIQ2012	IIIQ2013	IIQ2013
	2.6	2.2	2.3

X: exports; M: imports

Balance on Current Account = Balance on Goods and Services + Balance on Income + Unilateral Transfers

Source: Bureau of Economic Analysis

http://www.bea.gov/international/index.htm#bop

In their classic work on “unpleasant monetarist arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of monetary policy by fiscal policy (emphasis added):

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

The alternative fiscal scenario of the CBO (2012NovCDR, 2013Sep17) resembles an economic world in which eventually the placement of debt reaches a limit of what is proportionately desired of US debt in investment portfolios. This unpleasant environment is occurring in various European countries.

The current real value of government debt plus monetary liabilities depends on the expected discounted values of future primary surpluses or difference between tax revenue and government expenditure excluding interest payments (Cochrane 2011Jan, 27, equation (16)). There is a point when adverse expectations about the capacity of the government to generate primary surpluses to honor its obligations can result in increases in interest rates on government debt.

This analysis suggests that there may be a point of saturation of demand for United States financial liabilities without an increase in interest rates on Treasury securities. A risk premium may develop on US debt. Such premium is not apparent currently because of distressed conditions in the world economy and international financial system. Risk premiums are observed in the spread of bonds of highly indebted countries in Europe relative to bonds of the government of Germany.

The issue of global imbalances centered on the possibility of a disorderly correction (Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State Vol. II (2008b) 183-94, Government Intervention in Globalization (2008c), 167-71). Such a correction has not occurred historically but there is no argument proving that it could not occur. The need for a correction would originate in unsustainable large and growing United States current account deficits (CAD) and net international investment position (NIIP) or excess of financial liabilities of the US held by foreigners net relative to financial liabilities of foreigners held by US residents. The IMF estimated that the US could maintain a CAD of two to three percent of GDP without major problems (Rajan 2004). The threat of disorderly correction is summarized by Pelaez and Pelaez, The Global Recession Risk (2007), 15):

“It is possible that foreigners may be unwilling to increase their positions in US financial assets at prevailing interest rates. An exit out of the dollar could cause major devaluation of the dollar. The depreciation of the dollar would cause inflation in the US, leading to increases in American interest rates. There would be an increase in mortgage rates followed by deterioration of real estate values. The IMF has simulated that such an adjustment would cause a decline in the rate of growth of US GDP to 0.5 percent over several years. The decline of demand in the US by four percentage points over several years would result in a world recession because the weakness in Europe and Japan could not compensate for the collapse of American demand. The probability of occurrence of an abrupt adjustment is unknown. However, the adverse effects are quite high, at least hypothetically, to warrant concern.”

The United States could be moving toward a situation typical of heavily indebted countries, requiring fiscal adjustment and increases in productivity to become more competitive internationally. The CAD and NIIP of the United States are not observed in full deterioration because the economy is well below potential. There are two complications in the current environment relative to the concern with disorderly correction in the first half of the past decade. In the release of Jun 14, 2013, the Bureau of Economic Analysis (http://www.bea.gov/newsreleases/international/transactions/2013/pdf/trans113.pdf) informs of revisions of US data on US international transactions since 1999:

“The statistics of the U.S. international transactions accounts released today have been revised for the first quarter of 1999 to the fourth quarter of 2012 to incorporate newly available and revised source data, updated seasonal adjustments, changes in definitions and classifications, and improved estimating methodologies.”

Table VI-IIIB provides data on the US fiscal and balance of payments imbalances. In 2007, the federal deficit of the US was $161 billion corresponding to 1.1 percent of GDP while the Congressional Budget Office (CBO 2013Sep11) estimates the federal deficit in 2012 at $1087 billion or 6.8 percent of GDP. The combined record federal deficits of the US from 2009 to 2012 are $5090 billion or 31.6 percent of the estimate of GDP for fiscal year 2012 implicit in the CBO (CBO 2013Sep11) estimate of debt/GDP. The deficits from 2009 to 2012 exceed one trillion dollars per year, adding to $5.090 trillion in four years, using the fiscal year deficit of $1087 billion for fiscal year 2012, which is the worst fiscal performance since World War II. Federal debt in 2007 was $5035 billion, less than the combined deficits from 2009 to 2012 of $5090 billion. Federal debt in 2012 was 70.1 percent of GDP (CBO 2013Sep11). This situation may worsen in the future (CBO 2013Sep17):

“Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing federal debt to soar. Federal debt held by the public is now about 73 percent of the economy’s annual output, or gross domestic product (GDP). That percentage is higher than at any point in U.S. history except a brief period around World War II, and it is twice the percentage at the end of 2007. If current laws generally remained in place, federal debt held by the public would decline slightly relative to GDP over the next several years, CBO projects. After that, however, growing deficits would ultimately push debt back above its current high level. CBO projects that federal debt held by the public would reach 100 percent of GDP in 2038, 25 years from now, even without accounting for the harmful effects that growing debt would have on the economy. Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely.

The gap between federal spending and revenues would widen steadily after 2015 under the assumptions of the extended baseline, CBO projects. By 2038, the deficit would be 6½ percent of GDP, larger than in any year between 1947 and 2008, and federal debt held by the public would reach 100 percent of GDP, more than in any year except 1945 and 1946. With such large deficits, federal debt would be growing faster than GDP, a path that would ultimately be unsustainable.

Incorporating the economic effects of the federal policies that underlie the extended baseline worsens the long-term budget outlook. The increase in debt relative to the size of the economy, combined with an increase in marginal tax rates (the rates that would apply to an additional dollar of income), would reduce output and raise interest rates relative to the benchmark economic projections that CBO used in producing the extended baseline. Those economic differences would lead to lower federal revenues and higher interest payments. With those effects included, debt under the extended baseline would rise to 108 percent of GDP in 2038.”

Table VI-3B, US, Current Account, NIIP, Fiscal Balance, Nominal GDP, Federal Debt and Direct Investment, Dollar Billions and %

	2007	2008	2009	2010	2011	2012
Goods & Services	-699	-702	-384	-499	-557	-535
Income	101	146	124	178	233	224
UT	-115	-125	-122	-128	-134	-130
Current Account	-713	-681	-382	-449	-458	-440
NGDP	14480	14720	14418	14958	15534	16245
Current Account % GDP	-4.9	-4.6	-2.6	-3.0	-2.9	-2.7
NIIP	-1796	-3260	-2275	-2250	-3730	-3863
US Owned Assets Abroad	18400	19464	18558	20555	21636	21638
Foreign Owned Assets in US	20196	22724	20833	22805	25366	25501
NIIP % GDP	-12.4	-22.1	-15.8	-15.0	-24.0	-23.8
Exports Goods Services Income	2487	2654	2185	2523	2874	2987
NIIP % Exports Goods Services Income	-72	-123	-104	-89	-130	-129
DIA MV	5274	3102	4322	4809	4514	5249
DIUS MV	3551	2486	2995	3422	3510	3924
Fiscal Balance	-161	-459	-1413	-1294	-1296	-1087
Fiscal Balance % GDP	-1.1	-3.1	-9.8	-8.7	-8.4	-6.8
Federal Debt	5035	5803	7545	9019	10128	11281
Federal Debt % GDP	35.1	39.3	52.3	61.0	65.8	70.1
Federal Outlays	2729	2983	3518	3456	3598	3537
∆%	2.8	9.3	17.9	-1.8	4.1	-1.7
% GDP	19.0	20.2	24.4	23.4	23.4	22.0
Federal Revenue	2568	2524	2105	2162	2302	2450
∆%	6.7	-1.7	-16.6	2.7	6.5	6.4
% GDP	17.9	17.1	14.6	14.6	15.0	15.2

Sources:

Notes: UT: unilateral transfers; NGDP: nominal GDP or in current dollars; NIIP: Net International Investment Position; DIA MV: US Direct Investment Abroad at Market Value; DIUS MV: Direct Investment in the US at Market Value. There are minor discrepancies in the decimal point of percentages of GDP between the balance of payments data and federal debt, outlays, revenue and deficits in which the original number of the CBO source is maintained. These discrepancies do not alter conclusions. Budget http://www.cbo.gov/ Balance of Payments and NIIP http://www.bea.gov/international/index.htm#bop Gross Domestic Product, Bureau of Economic Analysis (BEA). http://www.bea.gov/iTable/index_nipa.cfm

Table VI-IIIC provides quarterly estimates NSA of the external and internal imbalances of the United States. The current account deficit seasonally adjusted falls from 3.0 percent of GDP in IQ2012 to 2.5 percent in IQ2013 and 2.3 percent of GDP in IIQ2013. The net international investment position increases from $3.9 trillion in IQ2012 to $4.3 trillion in IQ2013 and $4.5 trillion in IIQ2013.

Table VI-IIIC, US, Current Account, NIIP, Fiscal Balance, Nominal GDP, Federal Debt and Direct Investment, Dollar Billions and % NSA

	IIQ2012	IIIQ2012	IVQ2012	IQ2013	IIQ2013
Goods & Services	-145	-145	-122	-100	-126
Income	58	55	55	52	57
UT	-31	-33	-32	-34	-33
Current Account	-118	-123	-99	-82	-102
Current Account % GDP	-2.7	-2.6	-2.5	-2.5	-2.3
NIIP	-4332	-4109	-3863	-4236	-4504
US Owned Assets Abroad	20948	21551	21638	21590	20984
Foreign Owned Assets in US	-25280	-25660	-25501	-25826	-25488
DIA MV	4679	5059	5249	5501	5430
DIUS MV	3765	3962	3924	4251	4343

Sources:

Notes: UT: unilateral transfers; NIIP: Net International Investment Position; DIA MV: US Direct Investment Abroad at Market Value; DIUS MV: Direct Investment in the US at Market Value.

Sources: US Bureau of Economic Analysis http://www.bea.gov/international/index.htm#bop

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