CMP Associates Regulation Blog

The steep and consistent curve of growth of the US labor force is shown in Chart I-14. The contraction beginning in Dec 2007 flattened the path of the US civilian labor force and is now followed by a flatter curve during the current expansion.

Chart I-14, US, Civilian Labor Force, SA, 1948-2013, Thousands

Source: US Bureau of Labor Statistics

Chart I-15 for the period from 1948 to 2013. The labor force participation rate is influenced by numerous factors such as the age of the population. There is no comparable episode in the postwar economy to the sharp collapse of the labor force participation rate in Chart I-15 during the contraction and subsequent expansion after 2007. Aging can reduce the labor force participation rate as many people retire but many may have decided to work longer as their wealth and savings have been significantly reduced. There is an important effect of many people just exiting the labor force because they believe there is no job available for them.

Chart I-15, US, Civilian Labor Force Participation Rate, SA, 1948-2013, %

Source: US Bureau of Labor Statistics

The number of unemployed in the US jumped seasonally adjusted from 5.8 million in May 1979 to 12.1 million in Dec 1982, by 6.3 million, or 108.6 percent. The jump not seasonally adjusted was from 5.4 million in May 1979 to 12.5 million in Jan 1983, by 7.1 million or 131.5 percent. The number of unemployed seasonally adjusted jumped from 6.7 million in Mar 2007 to 15.4 million in Oct 2009, by 8.7 million, or 129.9 percent. The number of unemployed not seasonally adjusted jumped from 6.5 million in Apr 2007 to 16.1 million in Jan 2010, by 9.6 million or 147.7 percent. These are the two episodes with steepest increase in the level of unemployment in Chart I-16.

Chart I-16, US, Unemployed, SA, 1948-2013, Thousands

Source: US Bureau of Labor Statistics

Chart I-17 provides the rate of unemployment of the US from 1948 to 2013. The peak of the series is 10.8 percent in both Nov and Dec 1982. The second highest rates are 10.0 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009. The unadjusted rate of unemployment reached 10.6 percent in Jan 2010.

Chart I-17, US, Unemployment Rate, SA, 1948-2013

Source: US Bureau of Labor Statistics

Chart I-18 provides the number unemployed for 27 weeks and over from 1948 to 2013. The number unemployed for 27 weeks and over jumped from 510,000 in Dec 1978 to 2.885 million in Jun 1983, by 2.4 million, or 465.7 percent. The number of unemployed 27 weeks or over jumped from 1.132 million in May 2007 to 6.607 million in Jun 2010, by 5.475 million, or 483.7 percent.

Chart I-18, US, Unemployed for 27 Weeks or More, SA, 1948-2013, Thousands

Source: US Bureau of Labor Statistics

The employment-population ratio in Chart I-19 is an important indicator of wellbeing in labor markets, measuring the number of people with jobs. The US employment-population ratio fell from 63.5 in Dec 2006 to 58.6 in Jul 2011 and stands at 58.7 NSA in Nov 2013. There is no comparable decline followed by stabilization during an expansion in Chart I-19.

Chart I-19, US, Employment-Population Ratio, 1948-2013

Source: US Bureau of Labor Statistics

The number employed part-time for economic reasons in Chart I-20 increased in the recessions and declined during the expansions. In the current cycle, the number employed part-time for economic reasons increased sharply and has not returned to normal levels. Lower growth of economic activity in the expansion after IIIQ2009 failed to reduce the number desiring to work full time but finding only part-time occupations.

Chart I-20, US, Part-Time for Economic Reasons, NSA, 1955-2013, Thousands

Source: US Bureau of Labor Statistics

Table I-5 provides percentage change of real GDP in the United States in the 1930s, 1980s and 2000s. The recession in 1981-1982 is quite similar on its own to the 2007-2009 recession. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). Data are available for the 1930s only on a yearly basis. US GDP fell 4.7 percent in the two recessions (1) from IQ1980 to IIIQ1980 and (2) from III1981 to IVQ1981 to IVQ1982 and 4.3 percent cumulatively in the recession from IVQ2007 to IIQ2009. It is instructive to compare the first three years of the expansions in the 1980s and the current expansion. GDP grew at 4.6 percent in 1983, 7.3 percent in 1984 and 4.2 percent in 1985 while GDP grew, 2.5 percent in 2010, 1.8 percent in 2011 and 2.8 percent in 2012. Actual annual equivalent GDP growth in the four quarters of 2012 and first two quarters of 2013 is 1.9 percent and 1.8 percent in the first two quarters of 2013. GDP grew at 4.2 percent in 1985 and 3.5 percent in 1986 while the forecasts of the central tendency of participants of the Federal Open Market Committee (FOMC) are in the range of 2.0 to 2.3 percent in 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130918.pdf).

Table I-5, US, Percentage Change of GDP in the 1930s, 1980s and 2000s, ∆%

Year	GDP ∆%	Year	GDP ∆%	Year	GDP ∆%
1930	-8.5	1980	-0.2	2000	4.1
1931	-6.4	1981	2.6	2001	1.0
1932	-12.9	1982	-1.9	2002	1.8
1933	-1.3	1983	4.6	2003	2.8
1934	10.8	1984	7.3	2004	3.8
1935	8.9	1985	4.2	2005	3.4
1936	12.9	1986	3.5	2006	2.7
1937	5.1	1987	3.5	2007	1.8
1938	-3.3	1988	4.2	2008	-0.3
1930	8.0	1989	3.7	2009	-2.8
1940	8.8	1990	1.9	2010	2.5
1941	17.7	1991	-0.1	2011	1.8
1942	18.9	1992	3.6	2012	2.8

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

Characteristics of the four cyclical contractions are provided in Table I-6 with the first column showing the number of quarters of contraction; the second column the cumulative percentage contraction; and the final column the average quarterly rate of contraction. There were two contractions from IQ1980 to IIIQ1980 and from IIIQ1981 to IVQ1982 separated by three quarters of expansion. The drop of output combining the declines in these two contractions is 4.7 percent, which is almost equal to the decline of 4.3 percent in the contraction from IVQ2007 to IIQ2009. In contrast, during the Great Depression in the four years of 1930 to 1933, GDP in constant dollars fell 26.4 percent cumulatively and fell 45.3 percent in current dollars (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the State, Vol. II (2009b), 205-7 and revisions in http://bea.gov/iTable/index_nipa.cfm). The comparison of the global recession after 2007 with the Great Depression is entirely misleading.

Table I-6, US, Number of Quarters, GDP Cumulative Percentage Contraction and Average Percentage Annual Equivalent Rate in Cyclical Contractions

	Number of Quarters	Cumulative Percentage Contraction	Average Percentage Rate
IIQ1953 to IIQ1954	3	-2.4	-0.8
IIIQ1957 to IIQ1958	3	-3.0	-1.0
IVQ1973 to IQ1975	5	-3.1	-0.6
IQ1980 to IIIQ1980	2	-2.2	-1.1
IIIQ1981 to IVQ1982	4	-2.5	-0.64
IVQ2007 to IIQ2009	6	-4.3	-0.72

Sources: Source: Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm Reference Cycles National Bureau of Economic Research http://www.nber.org/cycles/cyclesmain.html

Cycles National Bureau of Economic Research http://www.nber.org/cycles/cyclesmain.html

Table I-7 shows the extraordinary contrast between the mediocre average annual equivalent growth rate of 2.3 percent of the US economy in the seventeen quarters of the current cyclical expansion from IIIQ2009 to IIIQ2013 and the average of 5.7 percent in the first thirteen quarters of expansion from IQ1983 to IQ1986, 5.3 percent in the first fifteen quarters of expansion from IQ1983 to IIIQ1986, 5.2 percent in the first sixteen quarters of expansion from IQ1983 to IVQ1986 and 5.0 percent in the first seventeen quarters of expansion from IQ1983 to IQ1987. The line “average first four quarters in four expansions” provides the average growth rate of 7.7 percent with 7.8 percent from IIIQ1954 to IIQ1955, 9.2 percent from IIIQ1958 to IIQ1959, 6.1 percent from IIIQ1975 to IIQ1976 and 7.8 percent from IQ1983 to IVQ1983. The United States missed this opportunity of high growth in the initial phase of recovery. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). Table I-5 provides an average of 7.7 percent in the first four quarters of major cyclical expansions while the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 is only 2.7 percent obtained by diving GDP of $14,738.0 billion in IIQ2010 by GDP of $14,356.9 billion in IIQ2009 {[$14,738.0/$14,356.9 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates. As a result, there are 28.1 million unemployed or underemployed in the United States for an effective unemployment rate 17.2 percent (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). BEA data show the US economy in standstill with annual growth of 2.4 percent in 2010 decelerating to 1.8 percent annual growth in 2011 and 2.8 percent in 2012 (http://www.bea.gov/iTable/index_nipa.cfm) The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent, 5.2 percent from IQ1983 to IVQ1986 and at 7.8 percent from IQ1983 to IVQ1983. GDP growth in the first three quarters of 2013 accumulated to 1.8 percent that is equivalent to 2.4 percent in a year. This is obtained by dividing GDP in IIIQ2013 of 15,819.0 by GDP in IVQ2012 of $15,539.6 and compounding by 4/3: {[(15,819.0/$15,539.6)^4/2 -1]100 = 2.4 %}. The US economy grew 1.8 percent in IIIQ2013 relative to the same quarter a year earlier in IIIQ2012. Another important revelation of the revisions and enhancements is that GDP was flat in IVQ2012, just at the borderline of contraction. The rate of growth of GDP in the second estimate of IIIQ2013 is 3.6 percent in seasonally adjusted annual rate (SAAR). Inventory accumulation contributed 1.68 percentage points to this rate of growth. The actual rate without this impulse of unsold inventories would have been 1.92 percent, or 0.5 percent in IIIQ2013, such that annual equivalent growth in 2013 is closer to 1.9 percent {[(1.003)(1.006)(1.005)^4/3-1]100 = 1.9%}, compounding the quarterly rates and converting into annual equivalent.

Table I-7, US, Number of Quarters, Cumulative Growth and Average Annual Equivalent Growth Rate in Cyclical Expansions

	Number of Quarters	Cumulative Growth ∆%	Average Annual Equivalent Growth Rate
IIIQ 1954 to IQ1957	11	12.8	4.5
First Four Quarters IIIQ1954 to IIQ1955	4	7.8
IIQ1958 to IIQ1959	5	10.0	7.9
First Four Quarters IIIQ1958 to IIQ1959	4	9.2
IIQ1975 to IVQ1976	8	8.3	4.1
First Four Quarters IIIQ1975 to IIQ1976	4	6.1
IQ1983-IQ1986 IQ1983-IIIQ1986 IQ1983-IQ1986 IQ1983-IQ1987	13 15 16 17	19.9 21.6 22.3 23.1	5.7 5.4 5.2 5.0
First Four Quarters IQ1983 to IVQ1983	4	7.8
Average First Four Quarters in Four Expansions*		7.7
IIIQ2009 to IIIQ2013	17	10.0	2.3
First Four Quarters IIIQ2009 to IIQ2010		2.7

*First Four Quarters: 7.8% IIIQ1954-IIQ1955; 9.2% IIIQ1958-IIQ1959; 6.1% IIIQ1975-IIQ1976; 7.8% IQ1983-IVQ1983

Source: Bureau of Economic Analysis http://bea.gov/iTable/index_nipa.cfm Reference Cycles National Bureau of Economic Research http://www.nber.org/cycles/cyclesmain.html

A group of charts from the database of the Bureau of Labor Statistics facilitate the comparison of employment in the 1980s and 2000s. The long-term charts and tables from I-5 to I-7 in the discussion above confirm the view that the comparison of the current expansion should be with that in the 1980s because of similar dimensions. Chart I-21 provides the level of employment in the US between 1979 and 1989. Employment surged after the contraction and grew rapidly during the decade.

Chart I-21, US, Employed, Thousands, 1979-1989

Source: US Bureau of Labor Statistics

There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs. Chart I-22 shows tepid recovery early in 2010 followed by near stagnation and marginal expansion. The number employed in Nov 2013 was 144.775 million (NSA) or 2.540 million fewer people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population increased from 231.958 million in Jul 2007 to 246.567 million in Nov 2013 or by 14.609 million. The number employed fell 1.7 percent from Jul 2007 to Nov 2013 while population increased 6.3 percent. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.

Chart I-22, US, Employed, Thousands, 2001-2013

Source: US Bureau of Labor Statistics

There was a steady upward trend in growth of the civilian labor force between 1979 and 1989 as shown in Chart I-23. There were fluctuations but strong long-term dynamism over an entire decade.

Chart I-23, US, Civilian Labor Force, Thousands, 1979-1989

Source: US Bureau of Labor Statistics

The civilian labor force in Chart I-24 grew steadily on an upward trend in the 2000s until it contracted together with the economy after 2007. There has not been recovery during the expansion but rather decline and marginal turn of the year 2011 into expansion in 2012 followed by stability and oscillation into 2013.

Chart I-24, US, Civilian Labor Force, Thousands, 2001-2013

Source: US Bureau of Labor Statistics

The rate of participation of the labor force in population stagnated during the stagflation and conquest of inflation in the late 1970s and early 1980s, as shown in Chart I-25. Recovery was vigorous during the expansion and lasted through the remainder of the decade.

Chart I-25, US, Civilian Labor Force Participation Rate, 1979-1989, %

Source: US Bureau of Labor Statistics

The rate of participation in the labor force declined after the recession of 2001 and stagnated until 2007, as shown in Chart I-26. The rate of participation in the labor force continued to decline both during the contraction after 2007 and the expansion after 2009 with marginal expansion at the turn of the year into 2012 followed by trend of decline and stability.

Chart I-26, US, Civilian Labor Force Participation Rate, 2001-2013, %

Source: US Bureau of Labor Statistics

Chart I-27 provides the number unemployed during the 1980s. The number unemployed peaked at 12.051 million in Dec 1982 seasonally adjusted and 12.517 in Jan 1983 million not seasonally adjusted, declining to 8.358 million in Dec 1984 seasonally adjusted and 7.978 in Dec 1984 million not seasonally adjusted during the first two years of expansion from the contraction. The number unemployed then fell to 6.667 million in Dec 1989 seasonally adjusted and 6.300 million not seasonally adjusted.

Chart I-27, US, Unemployed Thousands 1979-1989

Source: US Bureau of Labor Statistics

Chart I-28 provides the number unemployed from 2001 to 2013. Using seasonally adjusted data, the number unemployed rose from 6.727 million in Oct 2006 to 15.382 million in Oct 2009, declining to 13.049 million in Dec 2011 and to 10.907 million in Nov 2013. Using data not seasonally adjusted, the number unemployed rose from 6.272 million in Oct 2006 to 16.147 million in Jan 2010, declining to 11.844 million in Dec 2012, increasing to 13.181 million in Jan 2013 and declining to 10.271 million in Nov 2013.

Chart I-28, US, Unemployed Thousands 2001-2013

Source: US Bureau of Labor Statistics

The rate of unemployment peaked at 10.8 percent in both Nov and Dec 1982 seasonally adjusted, as shown in Chart I-29. The rate of unemployment dropped sharply during the expansion after 1984 and continued to decline during the rest of the decade to 5.4 percent in Dec 1989. Using not seasonally adjusted data, the rate of unemployment peaked at 11.4 percent in Jan 1983, declining to 7.0 percent in Dec 1984 and 5.1 percent in Dec 1989.

Chart I-29, US, Unemployment Rate, 1979-1989, %

Source: US Bureau of Labor Statistics

The rate of unemployment in the US seasonally adjusted jumped from 4.4 percent in May 2007 to 10.0 percent in Oct 2009 and 9.9 percent in both Nov and Dec 2009, as shown in Chart I-30. The rate of unemployment fluctuated at around 9.0 percent in 2011, declining to 7.8 percent in Dec 2012 and 7.0 percent in Nov 2013.

Chart I-30, US, Unemployment Rate, 2001-2013, %

Source: US Bureau of Labor Statistics

The employment population ratio seasonally adjusted fell from around 60.1 in Dec 1979 to 57.1 in both Feb and Mar 1983, as shown in Chart I-31. The employment population ratio seasonally adjusted rose back to 59.9 in Dec 1984 and reached 63.0 later in the decade in Dec 1989. Using not seasonally adjusted data, the employment population ratio dropped from 60.4 percent in Oct 1979 to 56.1 percent in Jan 1983, increasing to 59.8 in Dec 1984 and to 62.9 percent in Dec 1989.

Chart I-31, US, Employment Population Ratio, 1979-1989, %

Source: US Bureau of Labor Statistics

The US employment-population ratio seasonally adjusted has fallen from 63.4 in Dec 2006 to 58.6 in Dec 2011, 58.6 in Dec 2012 and 58.6 in Nov 2013, as shown in Chart I-32. The employment population-ratio has stagnated during the expansion. Using not seasonally adjusted data, the employment population ratio fell from 63.6 percent in Jul 2006 to 57.6 percent in Jan 2011, 58.5 percent in Dec 2012 and 58.7 percent in Nov 2013.

Chart I-32, US, Employment Population Ratio, 2001-2013, %

Source: US Bureau of Labor Statistics

The number unemployed for 27 weeks or over peaked at 2.885 million SA in Jun 1983 as shown in Chart I-33. The number unemployed for 27 weeks or over fell sharply during the expansion to 1.393 million in Dec 1984 and continued to decline throughout the 1980s to 0.635 million in Dec 1989 SA and 0.598 million NSA.

Chart I-33, US, Number Unemployed for 27 Weeks or More 1979-1989, SA, Thousands

Source: US Bureau of Labor Statistics

The number unemployed for 27 weeks or over, seasonally adjusted, increased sharply during the contraction as shown in Chart I-34 from 1.131 million in Nov 2006 to 6.704 million in Apr 2010 seasonally adjusted. The number of unemployed for 27 weeks remained at around 6 million during the expansion compared with somewhat above 1 million before the contraction, falling to 4.066 million in Oct 2013 seasonally adjusted and 3.989 million not seasonally adjusted.

Chart I-34, US, Number Unemployed for 27 Weeks or More, 2001-2013, SA, Thousands

Source: US Bureau of Labor Statistics

The number of persons working part-time for economic reasons because they cannot find full-time work peaked during the contraction at 6.857 million SA in Oct 1982, as shown in Chart I-35. The number of persons at work part-time for economic reasons fell sharply during the expansion to 5.797 million in Dec 1984 and continued to fall throughout the decade to 4.817 million in Dec 1989 SA and 4.709 million NSA.

Chart I-35, US, Part-Time for Economic Reasons, 1979-1989, Thousands

Source: US Bureau of Labor Statistics

The number of people working part-time because they cannot find full-time employment, not seasonally adjusted, increased sharply during the contraction from 3.787 million in Apr 2006, not seasonally adjusted, to 9.354 million in Dec 2009, as shown in Chart I-36. The number of people working part-time because of failure to find an alternative occupation stagnated at a very high level during the expansion, declining to 7.7563 million not seasonally adjusted in Nov 2013.

Chart I-36, US, Part-Time for Economic Reasons, 2001-2013, Thousands

Source: US Bureau of Labor Statistics

The number marginally attached to the labor force in Chart I-37 jumped from 1.252 million in Dec 2006 to 2.800 million in Jan 2011, remaining at a high level of 2.540 million in Dec 2011, 2.809 million in Jan 2012, 2.614 million in Dec 2012 and 2.06 million in Nov 2013.

Chart I-37, US, Marginally Attached to the Labor Force, 2001-2013

Source: US Bureau of Labor Statistics

What is striking about the data in Table I-8 is that the numbers of monthly increases in jobs in 1983 and 1984 are several times higher than in 2010 to 2013. The civilian noninstitutional population grew by 39.6 percent from 174.215 million in 1983 to 243.284 million in 2012 and labor force higher by 38.9 percent, growing from 111.550 million in 1983 to 154.975 million in 2012. Total nonfarm payroll employment seasonally adjusted (SA) increased 203,000 in Nov 2013 and private payroll employment rose 196,000. The average number of nonfarm jobs created in Jan-Nov 2012 was 179,455 while the average number of nonfarm jobs created in Jan-Nov 2013 was 188,455, or increase by 5.0 percent. The average number of private jobs created in the US in Jan-Nov 2012 was 185,909 while the average in Jan-Nov 2013 was 190,091, or increase by 2.2 percent. The US labor force increased from 153.617 million in 2011 to 154.975 million in 2012 by 1.358 million or 113,167 per month. The average increase of nonfarm jobs in the ten months from Jan to Nov 2013 was 188,455, which is a rate of job creation inadequate to reduce significantly unemployment and underemployment in the United States because of 113,167 new entrants in the labor force per month with 28.1 million unemployed or underemployed. The difference between the average increase of 188,455 new private nonfarm jobs per month in the US from Jan to Nov 2013 and the 113,167 average monthly increase in the labor force from 2011 to 2012 is 75,288 monthly new jobs net of absorption of new entrants in the labor force. There are 28.1 million in job stress in the US currently. Creation of 75,288 new jobs per month net of absorption of new entrants in the labor force would require 373 months to provide jobs for the unemployed and underemployed (28.111 million divided by 75,288) or 31 years (373 divided by 12). The civilian labor force of the US in Nov 2013 not seasonally adjusted stood at 155.046 million with 10.271 million unemployed or effectively 18.452 million unemployed in this blog’s calculation by inferring those who are not searching because they believe there is no job for them for effective labor force of 163.227 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.1 years (1 million divided by product of 75,288 by 12, which is 903,456). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.752 million (0.05 times labor force of 155.046 million) for new net job creation of 2.499 million (10.271 million unemployed minus 7.772 million unemployed at rate of 5 percent) that at the current rate would take 2.8 years (2.499 million divided by 0.903456). Under the calculation in this blog, there are 18.452 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 163.227 million. Reduction of the rate of unemployment to 5 percent of the labor force would require creating 10.164 million jobs net of labor force growth that at the current rate would take 11.4 years (18.452 million minus 0.05(163.227 million) = 10.291 million divided by 0.903456, using LF PART 66.2% and Total UEM in Table I-4). These calculations assume that there are no more recessions, defying United States economic history with periodic contractions of economic activity when unemployment increases sharply. The number employed in Nov 2013 was 144.775 million (NSA) or 2.540 million fewer people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population increased from 231.958 million in Jul 2007 to 246.567 million in Nov 2013 or by 14.609 million. The number employed fell 1.7 percent from Jul 2007 to Nov 2013 while population increased 6.3 percent. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.

There is current interest in past theories of “secular stagnation.” Alvin H. Hansen (1939, 4, 7; see Hansen 1938, 1941; for an early critique see Simons 1942) argues:

“Not until the problem of full employment of our productive resources from the long-run, secular standpoint was upon us, were we compelled to give serious con-sideration to those factors and forces in our economy which tend to make business recoveries weak and anaemic and which tend to prolong and deepen the course of depressions. This is the essence of secular stagnation-sick re-coveries which die in their infancy and depressions which feed on them-selves and leave a hard and seemingly immovable core of unemployment. Now the rate of population growth must necessarily play an important role in determining the character of the output; in other words, the com-position of the flow of final goods. Thus a rapidly growing population will demand a much larger per capita volume of new residential building con-struction than will a stationary population. A stationary population with its larger proportion of old people may perhaps demand more personal services; and the composition of consumer demand will have an important influence on the quantity of capital required. The demand for housing calls for large capital outlays, while the demand for personal services can be met without making large investment expenditures. It is therefore not unlikely that a shift from a rapidly growing population to a stationary or declining one may so alter the composition of the final flow of consumption goods that the ratio of capital to output as a whole will tend to decline.”

The argument that anemic population growth causes “secular stagnation” in the US (Hansen 1938, 1939, 1941) is as misplaced currently as in the late 1930s (for early dissent see Simons 1942). There is currently population growth in the ages of 16 to 24 years but not enough job creation and discouragement of job searches for all ages (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html). This is merely another case of theory without reality with dubious policy proposals.

Inferior performance of the US economy and labor markets is the critical current issue of analysis and policy design. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. US economic growth has been at only 2.3 percent on average in the cyclical expansion in the 17 quarters from IIIQ2009 to IIIQ2013. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf

Table I-8, US, Monthly Change in Jobs, Number SA

Month	1981	1982	1983	2008	2009	2010	Private
Jan	95	-327	225	14	-794	-13	-17
Feb	67	-6	-78	-85	-695	-40	-26
Mar	104	-129	173	-79	-830	154	111
Apr	74	-281	276	-215	-704	229	170
May	10	-45	277	-186	-352	521	102
Jun	196	-243	378	-169	-472	-130	94
Jul	112	-343	418	-216	-351	-86	103
Aug	-36	-158	-308	-270	-210	-37	129
Sep	-87	-181	1114	-459	-233	-43	113
Oct	-100	-277	271	-472	-170	228	188
Nov	-209	-124	352	-775	-21	144	154
Dec	-278	-14	356	-705	-220	95	114
			1984			2011	Private
Jan			447			69	80
Feb			479			196	243
Mar			275			205	223
Apr			363			304	303
May			308			115	183
Jun			379			209	177
Jul			312			78	206
Aug			241			132	129
Sep			311			225	256
Oct			286			166	174
Nov			349			174	197
Dec			127			230	249
			1985			2012	Private
Jan			266			311	323
Feb			124			271	265
Mar			346			205	208
Apr			195			112	120
May			274			125	152
Jun			145			87	78
Jul			189			153	177
Aug			193			165	131
Sep			204			138	118
Oct			187			160	217
Nov			209			247	256
Dec			168			219	224
			1985			2013	Private
Jan			123			148	164
Feb			107			332	319
Mar			93			142	154
Apr			188			199	188
May			125			176	187
Jun			-93			172	194
Jul			318			89	100
Aug			113			238	207
Sep			346			175	168
Oct			187			200	214
Nov			186			203	196
Dec			204

Source: US Bureau of Labor Statistics http://www.bls.gov/

Charts numbered from I-38 to I-41 from the database of the Bureau of Labor Statistics provide a comparison of payroll survey data for the contractions and expansions in the 1980s and after 2007. Chart I-38 provides total nonfarm payroll jobs from 2001 to 2013. The sharp decline in total nonfarm jobs during the contraction after 2007 has been followed by initial stagnation and then inadequate growth in 2012 and 2013.

Chart I-38, US, Total Nonfarm Payroll Jobs SA 2001-2013

Source: US Bureau of Labor Statistics

Chart I-39 provides total nonfarm jobs SA from 1979 to 1989. Recovery is strong throughout the decade with the economy growing at trend over the entire economic cycle.

Chart I-39, US, Total Nonfarm Payroll Jobs SA 1979-1989

Source: US Bureau of Labor Statistics

Most job creation in the US is by the private sector. Chart I-40 shows the sharp destruction of private payroll jobs during the contraction after 2007. There has been growth after 2010 but insufficient to recover higher levels of employment prevailing before the contraction. At current rates, recovery of employment may spread over several years in contrast with past expansions of the business cycle in the US.

Chart I-40, US, Total Private Payroll Jobs SA 2001-2013

Source: US Bureau of Labor Statistics

In contrast, growth of private payroll jobs in the US recovered vigorously during the expansion in 1983 through 1985, as shown in Chart I-41. Rapid growth of creation of private jobs continued throughout the 1980s.

Chart I-41, US, Total Private Payroll Jobs SA 1979-1989

Source: US Bureau of Labor Statistics

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

IA4 Creation of Jobs. Types of jobs created, and not only the pace of job creation, may be important. Aspects of growth of payroll jobs from Nov 2012 to Nov 2013, not seasonally adjusted (NSA), are provided in Table I-9. Total nonfarm employment increased by 2,306,000 (row A, column Change), consisting of growth of total private employment by 2,338,000 (row B, column Change) and decrease by 32,000 of government employment (row C, column Change). Monthly average growth of private payroll employment has been 194,833, which is mediocre relative to 24 to 30 million in job stress, while total nonfarm employment has grown on average by only 192,167 per month, which barely keeps with 113,167 new entrants per month in the labor force. These monthly rates of job creation are insufficient to meet the demands of new entrants in the labor force and thus perpetuate unemployment and underemployment. Manufacturing employment increased by 83,000, at the monthly rate of 6,917 while private service providing employment grew by 2,048,000, at the monthly rate of 170,667. An important feature in Table I-9 is that jobs in professional and business services increased by 626,000 with temporary help services increasing by 212,000. This episode of jobless recovery is characterized by part-time jobs and creation of jobs that are inferior to those that have been lost. Monetary and fiscal stimuli fail to increase consumption in a fractured job market. The segment leisure and hospitality added 411,000 jobs in 12 months. An important characteristic is that the loss of government jobs has stabilized in federal government with loss of 94,000 jobs while states added 20,000 jobs and local government added 42,000 jobs. Local government provides the bulk of government jobs, 14.384 million, while federal government provides 2.694 million and states government 5.242 million.

Table I-9, US, Employees in Nonfarm Payrolls Not Seasonally Adjusted, in Thousands

	Nov 2012	Nov 2013	Change
A Total Nonfarm	135,636	137,942	2,306
B Total Private	113,284	115,622	2,338
B1 Goods Producing	18,571	18,861	290
B1a Manufacturing	11,939	12,022	83
B2 Private service providing	94,713	96,761	2,048
B2a Wholesale Trade	5,720	5,802	82
B2b Retail Trade	15,430	15,773	343
B2c Transportation & Warehousing	4,506	4,601	95
B2d Financial Activities	7,821	7,900	79
B2e Professional and Business Services	18,266	18,892	626
B2e1 Temporary help services	2,668	2,880	212
B2f Health Care & Social Assistance	17,145	17,467	322
B2g Leisure & Hospitality	13,598	14,009	411
C Government	22,352	22,320	-32
C1 Federal	2,788	2,694	-94
C2 State	5,222	5,242	20
C3 Local	14,342	14,384	42

Note: A = B+C, B = B1 + B2, C=C1 + C2 + C3

Source: US Bureau of Labor Statistics http://www.bls.gov/

Greater detail on the types of jobs created is provided in Table I-10 with data for Oct and Nov 2013. Strong seasonal effects are shown by the significant difference between seasonally adjusted (SA) and not-seasonally-adjusted (NSA) data. The purpose of adjusting for seasonality is to isolate nonseasonal effects. The 203,000 SA total nonfarm jobs created in Nov 2013 relative to Oct 2013 actually correspond to increase of 421,000 jobs NSA, as shown in row A. The 196,000 total private payroll jobs SA created in Nov 2013 relative to Oct 2013 actually correspond to increase of 309,000 jobs NSA. The analysis of NSA job creation in the prior Table I-9 does show improvement over the 12 months ending in Nov 2013 that is not clouded by seasonal variations but is inadequate number of jobs created. In fact, the 12-month rate of job creation without seasonal adjustment is stronger indication of marginal improvement in the US job market but that is insufficient in even making a dent in about 30 million people unemployed or underemployed. Benchmark and seasonal adjustments affect comparability of data over time.

Table I-10, US, Employees on Nonfarm Payrolls and Selected Industry Detail, Thousands, SA and NSA

	Oct 2013 SA	Nov 2013 SA	∆	Oct 2013 NSA	Nov 2013 NSA	∆
A Total Nonfarm	136,562	136,765	203	137,521	137,942	421
B Total Private	114,712	114,908	196	115,313	115,622	309
B1 Goods Producing	18,705	18,749	44	18,972	18,861	-111
B1a Constr.	5,834	5,851	17	6,052	5,955	-97
B Mfg	11,987	12,014	27	12,025	12,022	-3
B2 Private Service Providing	96,007	96,159	152	96,341	96,761	420
B2a Wholesale Trade	5,783	5,790	7	5,795	5,802	7
B2b Retail Trade	15,298	15,320	22	15,302	15,773	471
B2c Couriers & Mess.	545	553	8	527	580	53
B2d Health-care & Social Assistance	17,399	17,429	30	17,431	17,467	36
B2De Profess. & Business Services	18,725	18,760	35	18,893	18,892	-1
B2De1 Temp Help Services	2,760	2,776	16	2,867	2,880	13
B2f Leisure & Hospit.	14,266	14,283	17	14,223	14,009	-214

Notes: ∆: Absolute Change; Constr.: Construction; Mess.: Messengers; Temp: Temporary; Hospit.: Hospitality. SA aggregates do not add because of seasonal adjustment.

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart I-42 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 I-42, US, Output of Durable Manufacturing, 1972-2013

Source: Board of Governors of the Federal Reserve

Manufacturing jobs increased 27,000 in Nov 2013 relative to Oct 2013, seasonally adjusted (Section I 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 decreased 0.1 percent in Oct 2013 after increasing 0.7 percent in Sep 2013 and increasing 0.5 percent in Aug 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 edged down 0.1 percent in October after having increased 0.7 percent in September. Manufacturing production rose 0.3 percent in October for its third consecutive monthly gain. The index for mining fell 1.6 percent after having risen for six consecutive months, and the output of utilities dropped 1.1 percent after having jumped 4.5 percent in September. The level of the index for total industrial production in October was equal to its 2007 average and was 3.2 percent above its year-earlier level. Capacity utilization for the industrial sector declined 0.2 percentage point in October to 78.1 percent, a rate 1.1 percentage points above its level of a year earlier and 2.1 percentage points below its long-run (1972-2012) average.“

In the six months ending in Oct 2013, United States national industrial production accumulated increase of 1.3 percent at the annual equivalent rate of 2.6 percent, which is lower than growth of 3.2 percent in the 12 months ending in Oct 2013. Excluding growth of 0.7 percent in Sep 2013, growth in the remaining five months from May 2012 to Oct 2013 accumulated to 0.6 percent or 1.2 percent annual equivalent. Industrial production fell in two of the past six months. Business equipment accumulated growth of 1.7 percent in the six months from May to Oct 2013 at the annual equivalent rate of 3.4 percent, which is much lower than growth of 5.1 percent in the 12 months ending in Oct 2013. Growth of business equipment accumulated 0.1 percent from Apr to Aug 2013 at the annual equivalent rate of minus 0.2 percent. 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 declined 0.2 percentage point in October to 78.1 percent, a rate 1.1 percentage points above its level of a year earlier and 2.1 percentage points below its long-run (1972-2012) average.” United States industry apparently decelerated to a lower growth rate. 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 grew cumulatively 1.2 percent in the six months ending in Oct 2013 or at the annual equivalent rate of 2.4 percent. Excluding the increase of 0.7 percent in Aug 2013, manufacturing accumulated growth of 0.5 percent from May 2013 to Oct 2013 or at the annual equivalent rate of 1.0 percent. Manufacturing fell 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increased 16.8 percent from the trough in Apr 2009 to Dec 2012. Manufacturing grew 21.2 percent from the trough in Apr 2009 to Oct 2013. Manufacturing output in Oct 2013 is 5.3 percent below the peak in Jun 2007.

Table I-11 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.7 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 I-11. 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 I-11, 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	14,630.0	100.0
Domestic Industries	14,248.7	98.3	14,365.9	98.2
Private Industries	12,568.6	86.7	12,690.7	86.7
Agriculture	220.3	1.5
Mining	254.3	1.8
Utilities	216.5	1.5
Construction	629.0	4.3
Manufacturing	1558.9	10.8
Durable Goods	888.1	6.1
Nondurable Goods	670.1	4.6
Wholesale Trade	874.4	6.0
Retail Trade	995.8	6.9
Transportation & WH	436.3	3.0
Information	507.2	3.5
Finance, Insurance, RE	2448.1	16.9
Professional, BS	2004.7	13.8
Education, Health Care	1438.9	9.9
Arts, Entertainment	577.1	4.0
Other Services	409.7	2.8
Government	1680.1	11.6	1675.2	11.5
Rest of the World	246.8	1.7	264.1	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

The NBER dates recessions in the US from peaks to troughs as: IQ80 to IIIQ80, IIIQ81 to IV82 and IVQ07 to IIQ09 (http://www.nber.org/cycles/cyclesmain.html). Table I-12 provides total annual level nonfarm employment in the US for the 1980s and the 2000s, which is different from 12 months comparisons. Nonfarm jobs rose by 4.853 million from 1982 to 1984, or 5.4 percent, and continued rapid growth in the rest of the decade. In contrast, nonfarm jobs are down by 7.728 million in 2010 relative to 2007 and fell by 959,000 in 2010 relative to 2009 even after six quarters of GDP growth. Monetary and fiscal stimuli have failed in increasing growth to rates required for mitigating job stress. The initial growth impulse reflects a flatter growth curve in the current expansion. Nonfarm jobs declined from 137.645 million in 2007 to 133.739 million in 2012, by 3.906 million or 2.8 percent.

Table I-12, US, Total Nonfarm Employment in Thousands

Year	Total Nonfarm	Year	Total Nonfarm
1980	90,528	2000	131,881
1981	91,289	2001	131,919
1982	89,677	2002	130,450
1983	90,280	2003	130,100
1984	94,530	2004	131,509
1985	97,511	2005	133,747
1986	99,474	2006	136,125
1987	102,088	2007	137,645
1988	105,345	2008	136,852
1989	108,014	2009	130,876
1990	109,487	2010	129,917
1991	108,377	2011	131,497
1992	108,745	2012	133,739

Source: US Bureau of Labor Statistics http://www.bls.gov/data/

The highest average yearly percentage of unemployed to the labor force since 1940 was 14.6 percent in 1940 followed by 9.9 percent in 1941, 8.5 percent in 1975, 9.7 percent in 1982 and 9.6 percent in 1983 (ftp://ftp.bls.gov/pub/special.requests/lf/aa2006/pdf/cpsaat1.pdf). The rate of unemployment remained at high levels in the 1930s, rising from 3.2 percent in 1929 to 22.9 percent in 1932 in one estimate and 23.6 percent in another with real wages increasing by 16.4 percent (Margo 1993, 43; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 214-5). There are alternative estimates of 17.2 percent or 9.5 percent for 1940 with real wages increasing by 44 percent. Employment declined sharply during the 1930s. The number of hours worked remained in 1939 at 29 percent below the level of 1929 (Cole and Ohanian 1999). Private hours worked fell in 1939 to 25 percent of the level in 1929. The policy of encouraging collusion through the National Industrial Recovery Act (NIRA), to maintain high prices, together with the National Labor Relations Act (NLRA), to maintain high wages, prevented the US economy from recovering employment levels until Roosevelt abandoned these policies toward the end of the 1930s (for review of the literature analyzing the Great Depression see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 198-217).

The Bureau of Labor Statistics (BLS) makes yearly revisions of its establishment survey (Harris 2011BA):

“With the release of data for January 2011, the Bureau of Labor Statistics (BLS) introduced its annual revision of national estimates of employment, hours, and earnings from the Current Employment Statistics (CES) monthly survey of nonfarm establishments. Each year, the CES survey realigns its sample-based estimates to incorporate universe counts of employment—a process known as benchmarking. Comprehensive counts of employment, or benchmarks, are derived primarily from unemployment insurance (UI) tax reports that nearly all employers are required to file with State Workforce Agencies.”

The number of not seasonally adjusted total private jobs in the US in Dec 2010 is 108.464 million, declining to 106.079 million in Jan 2011, or by 2.385 million, because of the adjustment of a different benchmark and not actual job losses. The not seasonally adjusted number of total private jobs in Dec 1984 is 80.250 million, declining to 78.704 million in Jan 1985, or by 1.546 million for the similar adjustment. Table I-13 attempts to measure job losses and gains in the recessions and expansions of 1981-1985 and 2007-2011. The final ten rows provide job creation from May 1983 to May 1984 and from May 2010 to May 2011, that is, at equivalent stages of the recovery from two comparable strong recessions. The row “Change ∆%” for May 1983 to May 1984 shows an increase of total nonfarm jobs by 4.9 percent and of 5.9 percent for total private jobs. The row “Change ∆%” for May 2010 to May 2011 shows an increase of total nonfarm jobs by 0.7 percent and of 1.7 percent for total private jobs. The last two rows of Table 7 provide a calculation of the number of jobs that would have been created from May 2010 to May 2011 if the rate of job creation had been the same as from May 1983 to May 1984. If total nonfarm jobs had grown between May 2010 and May 2011 by 4.9 percent, as between May 1983 and May 1984, 6.409 million jobs would have been created in the past 12 months for a difference of 5.457 million more total nonfarm jobs relative to 0.952 million jobs actually created. If total private jobs had grown between May 2010 and May 2011 by 5.9 percent as between May 1983 and May 1984, 6.337 million private jobs would have been created for a difference of 4.539 million more total private jobs relative to 1.798 million jobs actually created.

Table I-13, US, Total Nonfarm and Total Private Jobs Destroyed and Subsequently Created in

Two Recessions IIIQ1981-IVQ1982 and IVQ2007-IIQ2009, Thousands and Percent

	Total Nonfarm Jobs	Total Private Jobs
06/1981 #	92,288	75,969
11/1982 #	89,482	73,260
Change #	-2,806	-2,709
Change ∆%	-3.0	-3.6
12/1982 #	89,383	73,185
05/1984 #	94,471	78,049
Change #	5,088	4,864
Change ∆%	5.7	6.6
11/2007 #	139,090	116,291
05/2009 #	131,626	108,601
Change %	-7,464	-7,690
Change ∆%	-5.4	-6.6
12/2009 #	130,178	107,338
05/2011 #	131,753	108,494
Change #	1,575	1,156
Change ∆%	1.2	1.1
05/1983 #	90,005	73,667
05/1984 #	94,471	78,049
Change #	4,466	4,382
Change ∆%	4.9	5.9
05/2010 #	130,801	107,405
05/2011 #	131,753	109,203
Change #	952	1,798
Change ∆%	0.7	1.7
Change # by ∆% as in 05/1984 to 05/1985	6,409*	6,337**
Difference in Jobs that Would Have Been Created	5,457 = 6,409-952	4,539 = 6,337-1,798

*[(130,801x1.049)-130,801] = 6,409 thousand

**[(107,405)x1.059 – 107,405] = 6,337 thousand

Source: http://www.bls.gov/data/

IB Stagnating Real Wages. The wage bill is the product of average weekly hours times the earnings per hour. Table IB-1 provides the estimates by the Bureau of Labor Statistics (BLS) of earnings per hour seasonally adjusted, increasing from $24.11/hour in Oct 2013 to $24.15/hour in Nov 2013, or by 0.2 percent. There has been disappointment about the pace of wage increases because of rising food and energy costs that inhibit consumption and thus sales and similar concern about growth of consumption that accounts for about 68.2 percent of GDP (Table I-10 and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). Growth of consumption by decreasing savings by means of controlling interest rates in what is called financial repression may not be lasting and sound for personal finances (See Pelaez and Pelaez, Globalization and the State, Vol. II (2008c), 81-6, Pelaez (1975), Section IB and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html

http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk.html http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html http://cmpassocregulationblog.blogspot.com/2013/06/tapering-quantitative-easing-policy-and.html

http://cmpassocregulationblog.blogspot.com/2013/06/mediocre-united-states-economic-growth.html

{[(wage bill in Oct 2013)/(wage bill in Oct 2012)]-1}100 =

{[($24.06x34.4)/($23.55x34.3)]-1]}100

= {[($827.66)/($807.77)]-1}100 = 2.5%

CPI inflation was 1.0 percent in the 12 months ending in Oct 2013 (http://www.bls.gov/cpi/) for an inflation-adjusted wage-bill change of 1.5 percent :{[(1.0.25/1.010)-1]100} (see Table IB-5 below for Oct 2013). The wage bill for Nov 2013 before inflation adjustment increased 2.4 percent relative to the wage bill for Nov 2012:

{[(wage bill in Nov 2013)/(wage bill in Nov 2012)]-1}100 =

{[($24.11x34.4)/23.62x34.3)]-1]}100

= {[($829.38/$810.17)]-1}100 = 2.4%

Average hourly earnings increased 2.2 percent from Nov 2012 to Nov 2013 {[($24.11/$23.62) – 1]100 = 2.1%} while hours worked increased 0.3 percent {[(34.4/34.3) – 1]100 = 0.3%}. The increase of the wage bill is the product of the increase of hourly earnings of 2.1 percent and change of hours worked of 0.3 percent {[(1.021x1.003) -1]100 = 2.4%}.

Energy and food price increases are similar to a “silent tax” that is highly regressive, harming the most those with lowest incomes. There are concerns that the wage bill would deteriorate in purchasing power because of renewed raw materials shocks in the form of increases in prices of commodities such as the 31.1 percent steady increase in the DJ-UBS Commodity Index from Jul 2, 2010 to Sep 2, 2011. The charts of four commodity price indexes by Bloomberg show steady increase since Jul 2, 2010 that was interrupted briefly only in Nov 2010 with the sovereign issues in Europe triggered by Ireland; in Mar 2011 by the earthquake and tsunami in Japan; and in the beginning of May 2011 by the decline in oil prices and sovereign risk difficulties in Europe (http://www.bloomberg.com/markets/commodities/futures/). Renewed risk aversion because of the sovereign risks in Europe had reduced the rate of increase of the DJ UBS commodity index to 1.1 percent on Dec 6, 2013, relative to Jul 2, 2010 (see Table VI-4) but there has been a shift in investor preferences into equities. Inflation has been rising in waves with carry trades driven by zero interest rates to commodity futures during periods of risk appetite with interruptions during risk aversion (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html). Inflation-adjusted wages fall sharply during carry trades from zero interest rates to long positions in commodity futures during periods of risk appetite.

Table IB-1, US, Earnings per Hour and Average Weekly Hours SA

Earnings per Hour	Nov 2012	Sep 2013	Oct 2013	Nov 2013
Total Private	$23.67	$24.09	$24.11	$24.15
Goods Producing	$24.84	$25.32	$25.34	$25.40
Service Providing	$23.39	$23.79	$23.82	$23.85
Average Weekly Earnings
Total Private	$814.25	$828.70	$829.38	$833.18
Goods Producing	$1,001.05	$1,025.46	$1,023.74	$1,031.24
Service Providing	$778.89	$792.21	$790.82	$794.21
Average Weekly Hours
Total Private	34.4	34.4	34.4	34.5
Goods Producing	40.3	40.5	40.4	40.6
Service Providing	33.3	33.3	33.2	33.3

Source: US Bureau of Labor Statistics http://www.bls.gov/

Average weekly hours in Table IB-2 fell from 35.0 in Dec 2007 at the beginning of the contraction to 33.8 in Jun 2009, which was the last month of the contraction. Average weekly hours rose to 34.4 in Dec 2011 and oscillated to 34.9 in Dec 2012 and 34.4 in Nov 2013.

Table IB-2, US, Average Weekly Hours of All Employees, NSA 2006-2013

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
2006			34.2	34.6	34.3	34.6	34.9	34.6	34.5	34.9	34.4	34.6
2007	34.1	34.2	34.3	34.7	34.4	34.7	34.9	34.7	35.0	34.5	34.5	35.0
2008	34.2	34.2	34.8	34.4	34.4	34.9	34.5	34.6	34.4	34.4	34.6	34.1
2009	33.8	34.3	34.0	33.6	33.7	33.8	33.8	34.3	33.7	33.8	34.3	33.9
2010	33.7	33.6	33.8	34.0	34.4	34.1	34.2	34.7	34.1	34.3	34.2	34.2
2011	34.2	34.0	34.1	34.3	34.6	34.4	34.4	34.4	34.4	34.9	34.3	34.4
2012	34.5	34.2	34.3	34.7	34.3	34.4	34.8	34.5	34.9	34.3	34.3	34.9
2013	34.0	34.2	34.3	34.3	34.3	34.9	34.4	34.6	34.9	34.4	34.4

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-1 provides average weekly hours monthly from Mar 2006 to Nov 2013. Average weekly hours remained relatively stable in the period before the contraction and fell sharply during the contraction as business could not support lower production with the same labor input. Average weekly hours rose rapidly during the expansion but have stabilized at a level below that prevailing before the contraction.

Chart IB-1, US, Average Weekly Hours of All Employees, SA 2006-2013

Source: US Bureau of Labor Statistics

Calculations using BLS data of inflation-adjusted average hourly earnings are in Table IB-3. The final column of Table IB-3 (“12 Month Real ∆%”) provides inflation-adjusted average hourly earnings of all employees in the US. Average hourly earnings rose above inflation throughout the first nine months of 2007 just before the global recession that began in the final quarter of 2007 when average hourly earnings began to lose to inflation. In contrast, average hourly earnings of all US workers have risen less than inflation in five months in 2010 and in all but the first month in 2011 and the loss accelerated at 1.8 percent in Sep 2011, declining to a real loss of 1.1 percent in Feb 2012 and 0.6 percent in Mar 2012. There was a gain of 0.6 percent in Apr 2012 in inflation-adjusted average hourly earnings but another fall of 0.5 percent in May 2012 followed by increases of 0.3 percent in Jun and 1.0 percent in Jul 2012. Real hourly earnings stagnated in the 12 months ending in Aug 2012 with increase of only 0.1 percent, and increased 0.7 percent in the 12 months ending in Sep 2012. Real hourly earnings fell 1.3 percent in Oct 2012 and gained 1.1 percent in Dec 2012 but declined 0.2 percent in Jan 2012 and stagnated at change of 0.1 percent in Feb 2013. Real hourly earnings increased 0.4 percent in the 12 months ending in Mar 2013 and stagnated at 0.1 percent in Apr 2013, increasing 0.5 percent in May 2013. In Jun 2013, real hourly earnings increased 1.0 percent relative to Jun 2012. Real hourly earnings fell 0.7 percent in the 12 months ending in Jul 2013 and increased 0.7 percent in the 12 months ending in Aug 2013. Real hourly earnings increased 1.2 percent in the 12 months ending in Oct 2013. Real hourly earnings are oscillating in part because of world inflation waves caused by carry trades from zero interest rates to commodity futures (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html) and in part because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html) originating in weak economic growth (Section I and earlier at http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html).

Table IB-3, US, Average Hourly Earnings Nominal and Inflation Adjusted, Dollars and % NSA

	AHE ALL	12 Month Nominal ∆%	∆% 12 Month CPI	12 Month Real ∆%
2007
Jan*	$20.70*	4.2*	2.1	2.1*
Feb*	$20.79*	4.1*	2.4	1.7*
Mar	$20.82	3.7	2.8	0.9
Apr	$21.05	3.3	2.6	0.7
May	$20.83	3.7	2.7	1.0
Jun	$20.82	3.8	2.7	1.1
Jul	$20.99	3.4	2.4	1.0
Aug	$20.85	3.5	2.0	1.5
Sep	$21.19	4.1	2.8	1.3
Oct	$21.07	2.7	3.5	-0.8
Nov	$21.13	3.3	4.3	-0.9
Dec	$21.37	3.7	4.1	-0.4
2010
Jan	$22.55	1.9	2.6	-0.7
Feb	$22.61	1.4	2.1	-0.7
Mar	$22.52	1.2	2.3	-1.1
Apr	$22.57	1.8	2.2	-0.4
May	$22.64	2.5	2.0	0.5
Jun	$22.38	1.8	1.1	0.7
Jul	$22.44	1.8	1.2	0.6
Aug	$22.58	1.7	1.1	0.6
Sep	$22.63	1.8	1.1	0.7
Oct	$22.73	1.9	1.2	0.7
Nov	$22.72	1.0	1.1	-0.1
Dec	$22.79	1.7	1.5	0.2
2011
Jan	$23.20	2.9	1.6	1.3
Feb	$23.03	1.9	2.1	-0.2
Mar	$22.93	1.8	2.7	-0.9
Apr	$22.99	1.9	3.2	-1.3
May	$23.09	2.0	3.6	-1.5
Jun	$22.84	2.1	3.6	-1.4
Jul	$22.97	2.4	3.6	-1.2
Aug	$22.88	1.3	3.8	-2.4
Sep	$23.08	2.0	3.9	-1.8
Oct	$23.33	2.6	3.5	-0.9
Nov	$23.18	2.0	3.4	-1.4
Dec	$23.25	2.0	3.0	-1.0
2012
Jan	$23.59	1.7	2.9	-1.2
Feb	$23.44	1.8	2.9	-1.1
Mar	$23.42	2.1	2.7	-0.6
Apr	$23.65	2.9	2.3	0.6
May	$23.36	1.2	1.7	-0.5
Jun	$23.30	2.0	1.7	0.3
Jul	$23.52	2.4	1.4	1.0
Aug	$23.30	1.8	1.7	0.1
Sep	$23.70	2.7	2.0	0.7
Oct	$23.55	0.9	2.2	-1.3
Nov	$23.62	1.9	1.8	0.1
Dec	$23.89	2.8	1.7	1.1
2013
Jan	$23.92	1.4	1.6	-0.2
Feb	$23.94	2.1	2.0	0.1
Mar	$23.86	1.9	1.5	0.4
Apr	$23.94	1.2	1.1	0.1
May	$23.81	1.9	1.4	0.5
Jun	$23.95	2.8	1.8	1.0
Jul	$23.83	1.3	2.0	-0.7
Aug	$23.81	2.2	1.5	0.7
Sep	$24.18	2.0	1.2	0.8
Oct	$24.06	2.2	1.0	1.2
Nov	$24.11	2.1

Note: AHE ALL: average hourly earnings of all employees; CPI: consumer price index; Real: adjusted by CPI inflation; NA: not available

*AHE of production and nonsupervisory employees because of unavailability of data for all employees for Jan-Feb 2006

Source: US Bureau of Labor Statistics http://www.bls.gov/

Average hourly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table IB-4. Average hourly earnings fell 0.5 percent after adjusting for inflation in the 12 months ending in Mar 2012 and gained 0.6 percent in the 12 months ending in Apr 2012 but then lost 0.6 percent in the 12 months ending in May 2012. Average hourly earnings in the US in constant dollars of 1982-1984 increased 0.3 percent in the 12 months ending in Jun 2012 and 1.0 percent in Jul 2012 followed by 0.1 percent in Aug 2012 and 0.7 percent in Sep 2012. Average hourly earnings adjusted by inflation fell 1.2 percent in the 12 months ending in Oct 2012. Average hourly earnings adjusted by inflation increased 0.1 percent in the 12 months ending in Nov 2012 and 1.1 percent in the 12 months ending in Dec 2012 but fell 0.2 percent in the 12 months ending in Jan 2013 and stagnated with gain of 0.1 percent in the 12 months ending in Feb 2013. Average hourly earnings adjusted for inflation increased 0.4 percent in the 12 months ending in Mar 2013 and increased 0.2 percent in the 12 months ending in Apr 2013. Average hourly earnings adjusted for inflation increased 0.6 percent in the 12 months ending in May 2013 and 1.1 percent in the 12 months ending in Jun 2013. Average hourly earnings of all employees adjusted for inflation fell 0.7 percent in the 12 months ending in Jul 2013 and increased 0.7 percent in the 12 months ending in Aug 2013. Average hourly earnings adjusted for inflation increased 0.9 percent in the 12 months ending in Sep 2013 and increased 1.2 percent in the 12 months ending in Oct 2013. Table IB-4 confirms the trend of deterioration of purchasing power of average hourly earnings in 2011 and into 2012 with 12-month percentage declines in three of the first three months of 2012 (-1.1 percent in Jan, -1.1 percent in Feb and -0.5 percent in Mar), declines of 0.6 percent in May and 1.2 percent in Oct and increase in five (0.6 percent in Apr, 0.3 percent in Jun, 1.0 percent in Jul, 0.7 percent in Sep and 1.1 percent in Dec) and stagnation in two (0.1 percent in Aug and 0.1 percent in Nov). Average hourly earnings adjusted for inflation fell 0.2 percent in the 12 months ending in Jan 2013, stagnated with gain of 0.1 percent in the 12 months ending in Feb 2013 and gained 0.4 percent in the 12 months ending Mar 2013. Real average hourly earnings increased 0.2 percent in the 12 months ending in Apr 2013 and 0.6 percent in the 12 months ending in May 2013. Average hourly earnings increased 1.1 percent in the 12 months ending in Jun 2013 and fell 0.7 percent in the 12 months ending in Jul 2013. Annual data are revealing: -0.7 percent in 2008 during carry trades into commodity futures in a global recession, 3.2 percent in 2009 with reversal of carry trades, no change in 2010 and 2012 and decline by 1.1 percent in 2011. Annual average hourly earnings of all employees in the United States adjusted for inflation increased 1.4 percent from 2007 to 2012 at the yearly average rate of 0.3 percent (from $10.11 in 2007 to $10.25 in 2012 in dollars of 1982-1984 using data in http://www.bls.gov/data/). Those who still work bring back home a paycheck that buys fewer goods than a year earlier and savings in bank deposits do not pay anything because of financial repression (Section IB and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html).

Table IB-4, US, Average Hourly Earnings of All Employees NSA in Constant Dollars of 1982-1984

Year	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct
2006	10.05	10.11	9.92	9.89	9.97	9.88	10.03	10.17
2007	10.14	10.18	10.02	9.99	10.08	10.03	10.16	10.08
2008	10.11	10.00	9.91	9.84	9.77	9.83	9.94	10.06
2009	10.47	10.40	10.32	10.20	10.23	10.29	10.30	10.32
2010	10.35	10.35	10.38	10.27	10.29	10.34	10.36	10.39
2011	10.26	10.22	10.22	10.12	10.17	10.10	10.17	10.30
2012	10.21	10.28	10.16	10.15	10.27	10.11	10.24	10.18
∆%12M	-0.5	0.6	-0.6	0.3	1.0	0.1	0.7	-1.2
2013	10.25	10.30	10.22	10.26	10.20	10.18	10.33	10.30
∆%12M	0.4	0.2	0.6	1.1	-0.7	0.7	0.9	1.2

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-2 of the US Bureau of Labor Statistics plots average hourly earnings of all US employees in constant 1982-1984 dollars with evident decline from annual earnings of $10.36 in 2009 and $10.36 again in 2010 to $10.25 in 2011 and $10.25 again in 2012 or loss of 1.1 percent (data in http://www.bls.gov/data/). The economic welfare or wellbeing of United States workers deteriorated in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html), stagnating/declining real wages and 28.1 million unemployed or underemployed (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html) because of mediocre economic growth (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html).

Chart IB-2, US, Average Hourly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-3 provides 12-month percentage changes of average hourly earnings of all employees in constant dollars of 1982-1984, that is, adjusted for inflation. There was sharp contraction of inflation-adjusted average hourly earnings of US employees during parts of 2007 and 2008. Rates of change in 12 months became positive in parts of 2009 and 2010 but then became negative again in 2011 and into 2012 with temporary increase in Apr 2012 that was reversed in May with another gain in Jun and Jul 2012 followed by stagnation in Aug 2012. There was marginal gain in Sep 2012 with sharp decline in Oct 2012, stagnation in Nov 2012, increase in Dec 2012 and renewed decrease in Jan 2013 with near stagnation in Feb 2013 followed by mild increase in Mar-Apr 2013. Hourly earnings adjusted for inflation increased in Jun 2013 and fell in Jul 2013, increasing in Aug-Oct 2013.

Chart IB-3, Average Hourly Earnings of All Employees NSA 12-Month Percent Change, 1982-1984 Dollars, NSA 2007-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/

Average weekly earnings of all US employees in the US in constant dollars of 1982-1984 from the dataset of the US Bureau of Labor Statistics (BLS) are provided in Table IB-5. Average weekly earnings fell 3.2 percent after adjusting for inflation in the 12 months ending in Aug 2011, decreased 0.9 percent in the 12 months ending in Sep 2011 and increased 0.9 percent in the 12 months ending in Oct 2011. Average weekly earnings fell 1.0 percent in the 12 months ending in Nov 2011 and 0.3 in the 12 months ending in Dec 2011. Average weekly earnings declined 0.3 percent in the 12 months ending in Jan 2012 and 0.5 percent in the 12 months ending in Feb 2012. Average weekly earnings in constant dollars were virtually flat in Mar 2012 relative to Mar 2011, increasing 0.1 percent. Average weekly earnings in constant dollars increased 1.7 percent in Apr 2012 relative to Apr 2011 but fell 1.4 percent in May 2012 relative to May 2011, increasing 0.3 percent in the 12 months ending in Jun and 2.1 percent in Jul 2012. Real weekly earnings increased 0.4 percent in the 12 months ending in Aug 2012 and 2.1 percent in the 12 months ending in Sep 2012. Real weekly earnings fell 2.9 percent in the 12 months ending in Oct 2012 and increased 0.1 percent in the 12 months ending in Nov 2012 and 2.5 percent in the 12 months ending in Dec 2012. Real weekly earnings fell 1.6 percent in the 12 months ending in Jan 2013 and virtually stagnated with gain of 0.2 percent in the 12 months ending in Feb 2013, increasing 0.4 percent in the 12 months ending in Mar 2013. Real weekly earnings fell 1.0 percent in the 12 months ending in Apr 2013 and increased 0.6 percent in the 12 months ending in May 2013. Average weekly earnings increased 2.5 percent in the 12 months ending in Jun 2013 and fell 1.8 percent in the 12 months ending in Jul 2013. Real weekly earnings increased 1.0 percent in the 12 months ending in Aug 2013, 0.8 percent in the 12 months ending in Sep 2013 and 1.5 percent in the 12 months ending in Oct 2013. Table I-5 confirms the trend of deterioration of purchasing power of average weekly earnings in 2011 and into 2012 with oscillations according to carry trades causing world inflation waves (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html). On an annual basis, average weekly earnings in constant 1982-1984 dollars increased from $349.78 in 2007 to $353.66 in 2012, by 1.1 percent or at the average rate of 0.2 percent per year (data in http://www.bls.gov/data/). Annual average weekly earnings in constant dollars of $353.50 in 2010 were virtually unchanged at $353.66 in 2012. Those who still work bring back home a paycheck that buys fewer high-quality goods than a year earlier. The fractured US job market does not provide an opportunity for advancement as in past booms following recessions because of poor job creation with 28.1 million unemployed or underemployed (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html) in a recovery without hiring (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html).

Table IB-5, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, NSA 2007-2013

Year	May	Jun	Jul	Aug	Sep	Oct
2006	340.12	342.08	347.97	341.76	346.19	354.88
2007	344.58	346.74	351.68	347.98	355.72	347.92
2008	340.93	343.40	337.06	340.18	341.83	345.95
2009	347.94	344.59	345.92	352.80	347.04	348.83
2010	356.97	350.13	352.02	358.90	353.27	356.47
2011	353.56	348.08	349.75	347.42	349.93	359.60
2012	348.65	349.28	357.26	348.93	357.44	349.20
∆%12M	-1.4	0.3	2.1	0.4	2.1	-2.9
2013	350.59	357.96	350.93	352.25	360.40	354.39
∆%12M	0.6	2.5	-1.8	1.0	0.8	1.5

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-4 provides average weekly earnings of all employees in constant dollars of 1982-1984. The same pattern emerges of sharp decline during the contraction, followed by recovery in the expansion and continuing fall with oscillations caused by carry trades from zero interest rates into commodity futures from 2010 to 2011 and into 2012 and 2013.

Chart IB-4, US, Average Weekly Earnings of All Employees in Constant Dollars of 1982-1984, SA 2006-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/

Chart IB-5 provides 12-month percentage changes of average weekly earnings of all employees in the US in constant dollars of 1982-1984. There is the same pattern of contraction during the global recession in 2008 and then again trend of deterioration in the recovery without hiring and inflation waves in 2011 and 2012. (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.html http://cmpassocregulationblog.blogspot.com/2013/07/tapering-quantitative-easing-policy-and.html

Chart IB-5, US, Average Weekly Earnings of All Employees NSA in Constant Dollars of 1982-1984 12-Month Percent Change, NSA 2007-2013

Source: US Bureau of Labor Statistics http://www.bls.gov/

IIC United States International Trade. Table IIA-1 provides the trade balance of the US and monthly growth of exports and imports seasonally adjusted with the latest release and revisions (http://www.census.gov/foreign-trade/). Because of heavy dependence on imported oil, fluctuations in the US trade account originate largely in fluctuations of commodity futures prices caused by carry trades from zero interest rates into commodity futures exposures in a process similar to world inflation waves (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html). The Census Bureau revised data for 2012 and 2013. The US trade balance improved from deficit of 42,969 million in Sep 2013 to deficit of $40,641 million in Oct 2013 but lower deficit of $39.945 million in Aug 2013. The deterioration in the trade account in Jul 2013 originated in decline of exports by 0.7 percent while imports increased 1.3 percent. Exports and imports did not change in Aug 2013. Exports decreased 0.1 percent in Sep 2012 while imports increased 1.6 percent. Exports increased 1.8 percent in Oct 2013 while imports increased 0.4 percent. The trade balance deteriorated from cumulative deficit of $499,379 million in Jan-Dec 2010 to deficit of $556,838 million in Jan-Dec 2011 and improved to marginally lower deficit of $534,656 million in Jan-Dec 2012.

Table IIA-1, US, Trade Balance of Goods and Services Seasonally Adjusted Millions of Dollars and ∆%

	Trade Balance	Exports	Month ∆%	Imports	Month ∆%
Oct 2013	-40,641	192,673	1.8	233,314	0.4
Sep	-42,969	189,312	-0.1	232,281	1.6
Aug	-38,945	189,579	0.0	228,524	0.0
Jul	-38,824	189,630	-0.7	228,455	1.3
Jun	-34,637	190,875	2.2	225,512	-2.2
May	-43,886	186,727	-0.2	230,613	1.7
Apr	-39,599	187,126	1.4	226,725	2.4
Mar	-36,787	184,578	-1.1	221,365	-3.8
Feb	-43,481	186,698	0.0	230,180	0.5
Jan	-42,364	186,607	-1.1	228,971	0.9
Dec 2012	-38,307	188,686	1.9	226,994	-2.0
Nov	-46,422	185,220	1.4	231,641	2.8
Oct	-42,650	182,655	-2.2	225,304	-1.4
Sep	-41,570	186,829	2.6	228,400	1.0
Aug	-44,007	182,071	-0.7	226,078	-0.3
Jul	-43,451	183,375	-1.0	226,826	-0.4
Jun	-42,430	185,218	0.5	227,648	-1.2
May	-46,247	184,217	0.0	230,464	-0.2
Apr	-46,625	184,267	-1.2	230,892	-1.5
Mar	-47,790	186,505	2.4	234,295	3.7
Feb	-43,763	182,064	1.4	225,827	-2.2
Jan	-51,393	179,477	0.2	230,871	0.2
Jan-Dec 2012	-534,656	2,210,585		2,745,240
Jan-Dec 2011	-556,838	2,112,825		2,669,663
Jan-Dec 2010	-499,379	1,844,468		2,343,847

Note: Trade Balance of Goods and Services = Exports of Goods and Services less Imports of Goods and Services. Trade balance may not add exactly because of errors of rounding and seasonality. Source: US Census Bureau

Table IIA-2 provides the US international trade balance, exports and imports on an annual basis from 1992 to 2012. The trade balance deteriorated sharply over the long term. 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 decreased from $118.3 billion in IIQ2012, or 2.7 percent of GDP to $104.6 billion in IIQ2013, or 2.4 percent of GDP (http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html). The ratio of the current account deficit to GDP has stabilized around 3 percent of GDP compared with much higher percentages before the recession (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). The last row of Table IIA-2 shows marginal improvement of the trade deficit from $556,838 million in 2011 to lower $534,656 million in 2012 with exports growing 4.6 percent and imports 2.8 percent. Growth and commodity shocks under alternating inflation waves (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html) have deteriorated the trade deficit from the low of $383,657 million in 2009.

Table IIA-2, US, International Trade Balance of Goods and Services, Exports and Imports of Goods and Services, SA, Millions of Dollars

Period	Balance	Exports	Imports
1960	3,508	25,940	22,432
1961	4,195	26,403	22,208
1962	3,370	27,722	24,352
1963	4,210	29,620	25,410
1964	6,022	33,341	27,319
1965	4,664	35,285	30,621
1966	2,939	38,926	35,987
1967	2,604	41,333	38,729
1968	250	45,543	45,293
1969	91	49,220	49,129
1970	2,254	56,640	54,386
1971	-1,302	59,677	60,979
1972	-5,443	67,222	72,665
1973	1,900	91,242	89,342
1974	-4,293	120,897	125,190
1975	12,404	132,585	120,181
1976	-6,082	142,716	148,798
1977	-27,246	152,301	179,547
1978	-29,763	178,428	208,191
1979	-24,565	224,131	248,696
1980	-19,407	271,834	291,241
1981	-16,172	294,398	310,570
1982	-24,156	275,236	299,391
1983	-57,767	266,106	323,874
1984	-109,072	291,094	400,166
1985	-121,880	289,070	410,950
1986	-138,538	310,033	448,572
1987	-151,684	348,869	500,552
1988	-114,566	431,149	545,715
1989	-93,141	487,003	580,144
1990	-80,864	535,233	616,097
1991	-31,135	578,344	609,479
1992	-39,212	616,882	656,094
1993	-70,311	642,863	713,174
1994	-98,493	703,254	801,747
1995	-96,384	794,387	890,771
1996	-104,065	851,602	955,667
1997	-108,273	934,453	1,042,726
1998	-166,140	933,174	1,099,314
1999	-263,755	967,008	1,230,764
2000	-377,337	1,072,782	1,450,119
2001	-362,339	1,007,725	1,370,065
2002	-418,165	980,879	1,399,044
2003	-490,545	1,023,937	1,514,482
2004	-604,897	1,163,724	1,768,622
2005	-707,914	1,288,257	1,996,171
2006	-752,399	1,460,792	2,213,191
2007	-699,065	1,652,859	2,351,925
2008	-702,302	1,840,332	2,542,634
2009	-383,657	1,578,187	1,961,844
2010	-499,379	1,844,468	2,343,847
2011	-556,838	2,112,825	2,669,663
2012	-534,656	2,210,585	2,745,240

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr042.html

Chart IIA-1 of the US Census Bureau of the Department of Commerce shows that the trade deficit (gap between exports and imports) fell during the economic contraction after 2007 but has grown again during the expansion. The low average rate of growth of GDP of 2.3 percent during the expansion beginning in IIIQ2009 does not deteriorate further the trade balance. Higher rates of growth may cause sharper deterioration.

Chart IIA-1, US, International Trade Balance, Exports and Imports of Goods and Services USD Billions

Source: US Census Bureau

Chart IIA-2 of the US Census Bureau provides the US trade account in goods and services SA from Jan 1992 to Oct 2013. There is long-term trend of deterioration of the US trade deficit shown vividly by Chart IIA-2. The trend of deterioration was reversed by the global recession from IVQ2007 to IIQ2009. Deterioration resumed together with incomplete recovery and was influenced significantly by the carry trade from zero interest rates to commodity futures exposures (these arguments are elaborated in 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 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). Earlier research focused on the long-term external imbalance of the US in the form of trade and current account deficits (Pelaez and Pelaez, The Global Recession Risk (2007), Globalization and the State Vol. II (2008b) 183-94, Government Intervention in Globalization (2008c), 167-71). US external imbalances have not been fully resolved and tend to widen together with improving world economic activity and commodity price shocks.

Chart IIA-2, US, Balance of Trade SA, Monthly, Millions of Dollars, Jan 1992-Oct 2013

Source: US Census Bureau

Chart IIA-3 of the US Census Bureau provides US exports SA from Jan 1992 to Oct 2013. There was sharp acceleration from 2003 to 2007 during worldwide economic boom and increasing inflation. Exports fell sharply during the financial crisis and global recession from IVQ2007 to IIQ2009. Growth picked up again together with world trade and inflation but stalled in the final segment with less rapid global growth and inflation.

Chart IIA-3, US, Exports SA, Monthly, Millions of Dollars Jan 1992-Oct 2013

Source: US Census Bureau

Chart IIA-4 of the US Census Bureau provides US imports SA from Jan 1992 to Oct 2013. Growth was stronger between 2003 and 2007 with worldwide economic boom and inflation. There was sharp drop during the financial crisis and global recession. There is stalling import levels in the final segment resulting from weaker world economic growth and diminishing inflation because of risk aversion.

Chart IIA-4, US, Imports SA, Monthly, Millions of Dollars Jan 1992-Oct 2013

Source: US Census Bureau

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

The balance of international trade in goods of the US seasonally adjusted is shown in Table IIA-3. The US has a dynamic surplus in services that reduces the large deficit in goods for a still very sizeable deficit in international trade of goods and services. The deficit in the balance in international trade of goods increased from deficit of $60,360 million in Oct 2012 to $60,223 million in Oct 2013. The relative deterioration of the goods balance in Oct 2013 relative to Oct 2012 occurred mostly in the nonpetroleum balance, exports less imports of nonpetroleum goods, in the magnitude of increasing the deficit by $4130 million, while there was improvement in the petroleum balance, exports less imports of petroleum goods, in the magnitude of decreasing the deficit by $4130 million. US terms of trade, export prices relative to import prices, and the US trade account fluctuate in accordance with the carry trade from zero interest rates to commodity futures exposures, especially oil futures. Exports increased 5.7 percent with nonpetroleum exports increasing 4.9 percent. Total imports increased 3.8 percent with petroleum imports decreasing 7.5 percent and nonpetroleum imports increasing 6.5 percent. Details do not add because of seasonal adjustment and rounding.

Table IIA-3, US, International Trade in Goods Balance, Exports and Imports $ Millions and ∆% SA

	Oct 2013	Oct 2012	∆%
Total Balance	-60,223	-60,360
Petroleum	-19,649	-24,221
Non Petroleum	-39,272	-35,142
Total Exports	135,267	127,987	5.7
Petroleum	12,523	10,492	19.4
Non Petroleum	121,945	116,212	4.9
Total Imports	195,491	188,346	3.8
Petroleum	32,171	34,713	-7.3
Non Petroleum	161,217	151,354	6.5

Details may not add because of rounding and seasonal adjustment

Source: US Census Bureau http://www.census.gov/foreign-trade/

US exports and imports of goods not seasonally adjusted in Jan-Oct 2013 and Jan-Oct 2012 are shown in Table IIA-4. The rate of growth of exports was 2.0 percent and minus 0.3 percent for imports. The US has partial hedge of commodity price increases in exports of agricultural commodities that changed 0.0 percent and of mineral fuels that increased 6.6 percent both because prices of raw materials and commodities increase and fall recurrently as a result of shocks of risk aversion and portfolio reallocations. The US exports an insignificant amount of crude oil. US exports and imports consist mostly of manufactured products, with less rapidly increasing prices. US manufactured exports rose 1.9 percent while manufactured imports rose 1.4 percent. Significant part of the US trade imbalance originates in imports of mineral fuels decreasing 10.5 percent and petroleum decreasing 11.3 percent with wide oscillations in oil prices. The limited hedge in exports of agricultural commodities and mineral fuels compared with substantial imports of mineral fuels and crude oil results in waves of deterioration of the terms of trade of the US, or export prices relative to import prices, originating in commodity price increases caused by carry trades from zero interest rates. These waves are similar to those in worldwide inflation (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html).

Table IIA-4, US, Exports and Imports of Goods, Not Seasonally Adjusted Millions of Dollars and %

	Jan-Oct 2013 $ Millions	Jan-Oct 2012 $ Millions	∆%
Exports	1,311,045	1,284,770	2.0
Manufactured	986,528	968,380	1.9
Agricultural Commodities	114,030	114,019	0.0
Mineral Fuels	118,702	111,397	6.6
Petroleum	98,598	91,017	8.3
Imports	1,897,866	1,903,914	-0.3
Manufactured	1,526,538	1,505,211	1.4
Agricultural Commodities	87,621	86,392	1.4
Mineral Fuels	323,470	361,252	-10.5
Petroleum	309,386	348,724	-11.3

Source: US Census Bureau http://www.census.gov/foreign-trade/

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 IIA2-6 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 IIA2-6, 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 IIA2-7 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. The net international investment position increases from $3.9 trillion in IQ2012 to $4.3 trillion in IQ2013.

Table IIA2-7, US, Current Account, NIIP, Fiscal Balance, Nominal GDP, Federal Debt and Direct Investment, Dollar Billions and % NSA

	IQ2012	IIQ2012	IIIQ2012	IVQ2012	IQ2013
Goods & Services	-122	-145	-144	-122	-100
Income	55	58	55	55	52
UT	-33	-31	-33	-32	-34
Current Account	-100	-118	-122	-99	-82
Current Account % GDP	-3.0	-2.7	-2.6	-2.5	-2.5
NIIP	-3886	-4332	-4109	-3863	-4277
US Owned Assets Abroad	21349	20948	21551	21638	21619
Foreign Owned Assets in US	-25235	-25280	-25660	-25501	-25896
DIA MV	4976	4679	5059	5249	5518
DIUS MV	3856	3765	3962	3924	4261

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

Chart IIA-5 of the Bureau of Economic Analysis shows the US balance on current account from 1960 to 2012. The sharp devaluation of the dollar resulting from unconventional monetary policy of zero interest rates and suspension of auctions of 30-year Treasury bonds did not adjust the US balance of payments. Adjustment only occurred after the contraction of economic activity during the global recession.

Chart IIA-5, US, Balance on Current Account, 1960-2012, Millions of Dollars

Source: Bureau of Economic Analysis

Chart IISA-6 of the Bureau of Economic Analysis provides real GDP in the US from 1960 to 2012. The contraction of economic activity during the global recession was a major factor in the reduction of the current account deficit as percent of GDP.

Chart IIA-6, US, Balance on Current Account, Quarterly 1979-2013, Millions of Dollars, NSA

Source: Bureau of Economic Analysis

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

Risk aversion channels funds toward US long-term and short-term securities that finance the US balance of payments and fiscal deficits benefitting from risk flight to US dollar denominated assets. There are now temporary interruptions because of fear of rising interest rates that erode prices of US government securities because of mixed signals on monetary policy and exit from the Fed balance sheet of three trillion dollars of securities held outright. Net foreign purchases of US long-term securities (row C in Table VA-9) improved from minus $9.8 billion in Aug 2013 to $25.5 billion in Sep 2013. Foreign (residents) purchases minus sales of US long-term securities (row A in Table VA-9) in Aug 2013 of minus $8.5 billion increased to $62.3 billion in Sep 2013. Net US (residents) purchases of long-term foreign securities (row B in Table VA-9) decreased from minus $1.3 billion in Aug 2013 to minus $36.8 billion in Sep 2013. In Sep 2013,

C = A + B = $62.3 billion - $36.8 billion = $25.5 billion

There are minor rounding errors. There is increasing demand in Table IIA2-8 in Sep in A1 private purchases by residents overseas of US long-term securities of $77.6 billion of which increases in A11 Treasury securities of $51.0 billion, increase in A12 of $10.1 billion in agency securities, increase by $5.4 billion of corporate bonds and increase of $11.1 billion in equities. Worldwide risk aversion causes flight into US Treasury obligations with significant oscillations. Official purchases of securities in row A2 decreased $15.3 billion with decrease of Treasury securities of $23.2 billion in Sep 2013. Official purchases of agency securities increased $4.7 billion in Jul. Row D shows decrease in Sep 2013 of $28.2 billion in purchases of short-term dollar denominated obligations. Foreign private holdings of US Treasury bills decreased $23.5 billion (row D11) with foreign official holdings decreasing $2.8 billion while the category “other” decreased $2.0 billion. Foreign private holdings of US Treasury bills increased $7.5 billion in Aug in what could be decrease of duration exposures. Risk aversion of default losses in foreign securities dominates decisions to accept zero interest rates in Treasury securities with no perception of principal losses. In the case of long-term securities, investors prefer to sacrifice inflation and possible duration risk to avoid principal losses with significant oscillations in risk perceptions.

Table VA-9, Net Cross-Borders Flows of US Long-Term Securities, Billion Dollars, NSA

	Sep 2012 12 Months	Sep 2013 12 Months	Aug 2013	Sep 2013
A Foreign Purchases less Sales of US LT Securities	525.6	246.5	-8.5	62.3
A1 Private	310.9	140.8	-3.7	77.6
A11 Treasury	222.1	66.5	0.1	51.0
A12 Agency	124.3	39.7	8.7	10.1
A13 Corporate Bonds	-68.5	15.6	1.4	5.4
A14 Equities	33.2	19.0	-13.8	11.1
A2 Official	214.6	105.7	-4.8	-15.3
A21 Treasury	195.3	7.0	-10.9	-23.2
A22 Agency	7.3	75.3	8.1	4.7
A23 Corporate Bonds	3.2	17.5	1.0	1.9
A24 Equities	8.9	5.9	-3.1	1.4
B Net US Purchases of LT Foreign Securities	63.0	-203.8	-1.3	-36.8
B1 Foreign Bonds	83.1	-54.3	11.1	-29.8
B2 Foreign Equities	-20.1	-149.5	-12.4	-7.0
C Net Foreign Purchases of US LT Securities	588.5	42.7	-9.8	25.5
D Increase in Foreign Holdings of Dollar Denominated Short-term	39.1	-60.0	-5.8	-28.2
D1 US Treasury Bills	43.9	-33.9	17.5	-26.2
D11 Private	47.5	-20.4	7.5	-23.5
D12 Official	-3.5	-13.6	10.0	-2.8
D2 Other	-4.8	-26.1	-23.3	-2.0

C = A + B;

A = A1 + A2

A1 = A11 + A12 + A13 + A14

A2 = A21 + A22 + A23 + A24

B = B1 + B2

D = D1 + D2

Sources: United States Treasury

http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx

Table VA-10 provides major foreign holders of US Treasury securities. China is the largest holder with $1293.8 billion in Sep 2013, increasing 12.2 percent from $1153.6 billion in Sep 2012 while increasing $25.7 billion from Aug 2013 or 2.0 percent. Japan increased its holdings from $1128.5 billion in Sep 2012 to $1178.1 billion in Sep 2013 or by 4.4 percent. Japan increased its holdings from $1149.1 billion in Aug 2013 to $1178.1 billion in Sep 2013 by $29.0 billion or 2.5 percent. Total foreign holdings of Treasury securities rose from $5472.7 billion in Sep 2012 to $5652.9 billion in Sep 2013, or 3.3 percent. Foreign holdings of Treasury securities fell from $5721.3 in Mar 2013 to $5708.4 in Apr 2013 or 0.2 percent. Foreign holdings of US Treasury securities fell from $5595.4 billion in Jun 2013 to $5593.9 billion in Jul 2013, by $1.5 billion or 0.0 percent. The US continues to finance its fiscal and balance of payments deficits with foreign savings (see Pelaez and Pelaez, The Global Recession Risk (2007)). A point of saturation of holdings of US Treasury debt may be reached as foreign holders evaluate the threat of reduction of principal by dollar devaluation and reduction of prices by increases in yield, including possibly risk premium. Shultz et al (2012) find that the Fed financed three-quarters of the US deficit in fiscal year 2011, with foreign governments financing significant part of the remainder of the US deficit while the Fed owns one in six dollars of US national debt. Concentrations of debt in few holders are perilous because of sudden exodus in fear of devaluation and yield increases and the limit of refinancing old debt and placing new debt. In their classic work on “unpleasant monetarist arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of monetary policy by fiscal policy (emphasis added):

Table VA-10, US, Major Foreign Holders of Treasury Securities $ Billions at End of Period

	Sep 2013	Aug 2013	Sep 2012
Total	5652.9	5595.8	5472.7
China	1293.8	1268.1	1153.6
Japan	1178.1	1149.1	1128.5
Caribbean Banking Centers	300.9	301.9	261.1
Brazil	249.2	252.9	251.2
Oil Exporters	245.7	246.5	267.2
Taiwan	185.9	183.6	201.7
Switzerland	177.2	181.2	193.5
Belgium	172.5	166.8	133.2
United Kingdom	158.3	159.2	137.9
Luxembourg	141.1	143.8	147.5
Russia	140.5	136.0	163.5
Hong Kong	126.5	126.5	137.1
Foreign Official Holdings	4014.3	3973.6	3958.1
A. Treasury Bills	370.2	373.0	383.8
B. Treasury Bonds and Notes	3644.1	3600.6	3574.4

Source: United States Treasury

http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx

IID United States Housing Collapse. The objective of this section is to provide the latest data and analysis of US housing. Subsection IIB1 United New House Sales analyzes the collapse of US new house sales. Subsection IIB2 United States House Prices considers the latest available data on house prices. Subsection IIB3 Factors of US Housing Collapse provides the analysis of the causes of the housing crisis of the US.

IIB1 United States New House Sales. Data and other information continue to provide depressed conditions in the US housing market in a longer perspective, with recent improvement at the margin. Table IIB-1 shows sales of new houses in the US at seasonally adjusted annual equivalent rate (SAAR). House sales fell in sixteen of thirty-four months from Jan 2011 to Oct 2013 but mostly concentrated in Jan-Feb 2011 and May-Aug 2011. In Jan-Apr 2012, house sales increased at the annual equivalent rate of 10.3 percent and at 23.5 percent in May-Sep 2012. There was significant strength in Sep-Dec 2011 with annual equivalent rate of 48.4 percent. Sales of new houses fell 0.5 percent in Dec 2012 and 4.9 percent in Oct 2012 with increase of 9.0 percent in Nov 2012. Sales of new houses rebounded 15.7 percent in Jan 2013 with annual equivalent rate of 69.9 percent from Oct 2012 to Jan 2013 because of the increase of 15.7 percent in Jan 2013. New house sales fell at annual equivalent 17.7 percent in Feb-Mar 2013. New house sales weakened with increase of 0.4 percent in annual equivalent from Apr to Oct 2013, mostly because of the declines of 17.1 percent in Jul 2013, 3.8 percent in May 2013 and 6.6 percent in Sep 2013 not compensated by increase of 25.4 percent in Oct 2013. Robbie Whelan and Conor Dougherty, writing on “Builders fuel home sale rise,” on Feb 26, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324338604578327982067761860.html), analyze how builders have provided financial assistance to home buyers, including those short of cash and with weaker credit background, explaining the rise in new home sales and the highest gap between prices of new and existing houses. The 30-year conventional mortgage rate increased from 3.40 on Apr 25, 2013 to 4.58 percent on Aug 22, 2013 (http://www.federalreserve.gov/releases/h15/data.htm), which could also be a factor in recent weakness with improvement after the rate fell to 4.26 in Nov 2013. The conventional mortgage rate measured in a survey by Freddie Mac (http://www.freddiemac.com/pmms/release.html) is the “contract interest rate on commitments for fixed-rate first mortgages” (http://www.federalreserve.gov/releases/h15/data.htm).

Table IIB-1, US, Sales of New Houses at Seasonally-Adjusted (SA) Annual Equivalent Rate, Thousands and %

	SA Annual Rate Thousands	∆%
Oct 2013	444	25.4
Sep	354	-6.6
Aug	379	1.6
Jul	373	-17.1
Jun	450	4.9
May	429	-3.8
Apr	446	0.7
AE ∆% Apr-Oct		0.4
Mar	443	-0.4
Feb	445	-2.8
AE ∆% Feb-Mar		-17.7
Jan	458	15.7
Dec 2012	396	-0.5
Nov	398	9.0
Oct	365	-4.9
AE ∆% Oct-Jan		69.9
Sep	384	2.7
Aug	374	1.4
Jul	369	2.5
Jun	360	-2.4
May	369	4.8
AE ∆% May-Sep		23.5
Apr	352	0.9
Mar	349	-4.6
Feb	366	8.3
Jan	338	-0.9
AE ∆% Jan-Apr		10.3
Dec 2011	341	4.0
Nov	328	3.8
Oct	316	3.9
Sep	304	1.7
AE ∆% Sep-Dec		48.4
Aug	299	-1.7
Jul	296	-2.3
Jun	301	-1.3
May	305	-1.6
AE ∆% May-Aug		-18.9
Apr	310	3.3
Mar	300	11.1
Feb	270	-12.1
Jan	307	-5.8
AE ∆% Jan-Apr		-14.2
Dec 2010	326	13.6

AE: Annual Equivalent

Source: US Census Bureau

There is additional information of the report of new house sales in Table IIB-2. The stock of unsold houses stabilized in Apr-Aug 2011 at average 6.6 monthly equivalent sales at current sales rates and then dropped to 4.6 in Jul-Aug 2012, increasing to 4.8 in Oct 2012, 4.5 in Nov 2012 and 4.5 percent in Dec 2012. Inventories dropped to 3.9 in Jan 2013 and 4.1 in Feb 2013. Inventories stabilized at 4.2-4.5 in Mar-Jun 2013 and increased to 5.5 in Jul 2013. Inventories increased to 5.6 in Aug 2013 and 6.4 in Sep 2013 but fell to 4.9 in Oct 2013. Robbie Whelan and Conor Dougherty, writing on “Builders fuel home sale rise,” on Feb 26, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324338604578327982067761860.html), find that inventories of houses have declined as investors acquire distressed houses of higher quality. Median and average house prices oscillate. In Aug 2013, median prices of new houses sold not seasonally adjusted (NSA) decreased 0.7 percent. Average prices increased 6.0 percent in Jul 2013 and 0.1 percent in Aug 2013. Between Dec 2010 and Aug 2013 median prices increased 6.6 percent and average prices increased 10.6 percent. Between Dec 2010 and Dec 2012, median prices increased 5.6 percent and average prices increased 9.3 percent. Price increases concentrated in 2012 with increase of median prices of 18.2 percent from Dec 2011 to Dec 2012 and of average prices of 13.8 percent. Robbie Williams, writing on “New homes hit record as builders cap supply,” on May 24, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887323475304578500973445311276.html?mod=WSJ_economy_LeftTopHighlights), finds that homebuilders are continuing to restrict the number of new homes for sale. Restriction of available new homes for sale increases prices paid by buyers.

Table IIB-2, US, New House Stocks and Median and Average New Homes Sales Price

	Unsold* Stocks in Equiv. Months of Sales SA %	Median New House Sales Price USD NSA	Month ∆%	Average New House Sales Price USD NSA	Month ∆%
Oct 2013	4.9	245,800	-4.5	321,700	2.5
Sep	6.4	257,400	-0.5	313,900	-0.3
Aug	5.6	258,600	-1.4	314,800	-4.6
Jul	5.5	262,200	0.9	329,900	7.8
Jun	4.3	259,800	-1.5	306,100	-2.5
May	4.5	263,700	-5.6	314,000	-6.8
Apr	4.3	279,300	8.5	337,000	12.3
Mar	4.2	257,500	-2.9	300,200	-3.9
Feb	4.1	265,100	5.4	312,500	1.8
Jan	3.9	251,500	-2.6	306,900	2.6
Dec 2012	4.5	258,300	5.4	299,200	2.9
Nov	4.5	245,000	-0.9	290,700	1.9
Oct	4.8	247,200	-2.9	285,400	-4.1
Sep	4.5	254,600	0.6	297,700	-2.6
Aug	4.6	253,200	6.7	305,500	8.2
Jul	4.6	237,400	2.1	282,300	3.9
Jun	4.8	232,600	-2.8	271,800	-3.2
May	4.7	239,200	1.2	280,900	-2.4
Apr	4.9	236,400	-1.4	287,900	1.5
Mar	5.0	239,800	0.0	283,600	3.5
Feb	4.8	239,900	8.2	274,000	3.1
Jan	5.3	221,700	1.4	265,700	1.1
Dec 2011	5.3	218,600	2.0	262,900	5.2
Nov	5.7	214,300	-4.7	250,000	-3.2
Oct	6.0	224,800	3.6	258,300	1.1
Sep	6.3	217,000	-1.2	255,400	-1.5
Aug	6.5	219,600	-4.5	259,300	-4.1
Jul	6.7	229,900	-4.3	270,300	-1.0
Jun	6.6	240,200	8.2	273,100	3.9
May	6.6	222,000	-1.2	262,700	-2.3
Apr	6.7	224,700	1.9	268,900	3.1
Mar	7.2	220,500	0.2	260,800	-0.8
Feb	8.1	220,100	-8.3	262,800	-4.7
Jan	7.3	240,100	-0.5	275,700	-5.5
Dec 2010	7.0	241,200	9.8	291,700	3.5

*Percent of new houses for sale relative to houses sold

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr051.html

The depressed level of residential construction and new house sales in the US is evident in Table IIB-3 providing new house sales not seasonally adjusted in Jan-Oct of various years. Sales of new houses in Jan-Oct 2013 are substantially lower than in any year between 1963 and 2013 with the exception of the years from 2009 to 2012. There are only four increases of 15.8 percent relative to Jan-Oct 2012, 39.4 percent relative to Jan-Oct 2011, 29.4 percent relative to Jan-Oct 2010 and 11.4 percent relative to Jan-Oct 2009. Sales of new houses in Jan-Oct 2013 are lower by 16.4 percent relative to Jan-Aug 2008, 47.5 percent relative to 2007, 60.3 percent relative to 2006 and 67.5 percent relative to 2005. The housing boom peaked in 2005 and 2006 when increases in fed funds rates to 5.25 percent in Jun 2006 from 1.0 percent in Jun 2004 affected subprime mortgages that were programmed for refinancing in two or three years on the expectation that price increases forever would raise home equity. Higher home equity would permit refinancing under feasible mortgages incorporating full payment of principal and interest (Gorton 2009EFM; see other references in http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Sales of new houses in Jan-Oct 2013 relative to the same period in 2004 fell 65.2 percent and 61.4 percent relative to the same period in 2003. Similar percentage declines are also observed for 2013 relative to years from 2000 to 2004. Sales of new houses in Jan-Oct 2013 fell 37.1 per cent relative to the same period in 1995. The population of the US was 179.3 million in 1960 and 281.4 million in 2000 (Hobbs and Stoops 2002, 16). Detailed historical census reports are available from the US Census Bureau at (http://www.census.gov/population/www/censusdata/hiscendata.html). The US population reached 308.7 million in 2010 (http://2010.census.gov/2010census/data/). The US population increased by 129.4 million from 1960 to 2010 or 72.2 percent. The final row of Table IIB-3 reveals catastrophic data: sales of new houses in Jan-Oct 2013 of 361 thousand units are lower by 26.3 percent relative to 490 thousand units of houses sold in Jan-Oct 1963, the first year when data become available. The civilian noninstitutional population increased from 123.014 million in Oct 1963 to 246.381 million in Oct 2013, or 100.3 percent (http://www.bls.gov/data/). The Bureau of Labor Statistics (BLS) defines the civilian noninstitutional population (http://www.bls.gov/lau/rdscnp16.htm#cnp): “The civilian noninstitutional population consists of persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces.”

Table IIB-3, US, Sales of New Houses Not Seasonally Adjusted, Thousands and %

	Not Seasonally Adjusted Thousands
Jan-Oct 2013	361
Jan-Oct 2012	312
∆% Jan-Oct 2013/Jan-Oct 2012	15.8*
Jan-Oct 2011	259
∆% Jan-Oct 2013/Jan-Oct 2011	39.4
Jan-Oct 2010	279
∆% Jan-Oct 2013/ Jan-Oct 2010	29.4
Jan-Oct 2009	324
∆% Jan-Oct 2013/ Jan-Oct 2009	11.4
Jan-Oct 2008	432
∆% Jan-Oct 2013/ Jan-Oct 2008	-16.4
Jan-Oct 2007	687
∆% Jan-Oct 2013/ Jan-Oct 2007	-47.5
Jan-Oct 2006	909
∆% Jan-Oct 2013/Jan-Oct 2006	-60.3
Jan-Oct 2005	1,110
∆% Jan-Oct 2013/Jan-Oct 2005	-67.5
Jan-Oct 2004	1,036
∆% Jan-Oct 2013/Jan-Oct 2004	-65.2
Jan-Oct 2003	935
∆% Jan-Oct 2013/ Jan-Oct 2003	-61.4
Jan-Oct 2002	829
∆% Jan-Oct 2013/ Jan-Oct 2002	-56.5
Jan-Oct 2001	775
∆% Jan-Oct 2013/ Jan-Oct 2001	-53.4
Jan-Oct 2000	749
∆% Jan-Oct 2013/ Jan-Oct 2000	-51.8
Jan-Oct 1995	574
∆% Jan-Oct 2013/ Jan-Oct 1995	-37.1
Jan-Oct 1963	490
∆% Jan-Oct 2013/ Jan-Oct 1963	-26.3

*Computed using unrounded data

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

Table IIB-4 provides the entire available annual series of new house sales from 1963 to 2012. The revised level of 306 thousand new houses sold in 2011 is the lowest since 560 thousand in 1963 in the 48 years of available data while the level of 368 thousand in 2012 is only higher than 323 thousand in 2010. The population of the US increased 129.4 million from 179.3 million in 1960 to 308.7 million in 2010, or 72.2 percent. The civilian noninstitutional population of the US increased from 122.416 million in 1963 to 243.284 million in 2012 or 98.7 percent (http://www.bls.gov/data/). The Bureau of Labor Statistics (BLS) defines the civilian noninstitutional population (http://www.bls.gov/lau/rdscnp16.htm#cnp): “The civilian noninstitutional population consists of persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces.”

The civilian noninstitutional population is the universe of the labor force. In fact, there is no year from 1963 to 2012 in Table IIA-4 with sales of new houses below 400 thousand with the exception of the immediately preceding years of 2009, 2010, 2011 and 2012.

Table IIB-4, US, New Houses Sold, NSA Thousands

Year	Houses Sold Thousands
1963	560
1964	565
1965	575
1966	461
1967	487
1968	490
1969	448
1970	485
1971	656
1972	718
1973	634
1974	519
1975	549
1976	646
1977	819
1978	817
1979	709
1980	545
1981	436
1982	412
1983	623
1984	639
1985	688
1986	750
1987	671
1988	676
1989	650
1990	534
1991	509
1992	610
1993	666
1994	670
1995	667
1996	757
1997	804
1998	886
1999	880
2000	877
2001	908
2002	973
2003	1,086
2004	1,203
2005	1,283
2006	1,051
2007	776
2008	485
2009	375
2010	323
2011	306
2012	368

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

Chart IIB-1 of the US Bureau of the Census shows the sharp decline of sales of new houses in the US. Sales rose temporarily until about mid 2010 but then declined to a lower plateau followed by increase and stability.

Chart IIB-1, US, New One-Family Houses Sold in the US, SAAR (Seasonally Adjusted Annual Rate)

Source: US Census Bureau

Percentage changes and average rates of growth of new house sales for selected periods are shown in Table IIB-5. The percentage change of new house sales from 1963 to 2012 is minus 34.3 percent. Between 1991 and 2001, sales of new houses rose 78.4 percent at the average yearly rate of 5.9 percent. Between 1995 and 2005 sales of new houses increased 92.4 percent at the yearly rate of 6.8 percent. There are similar rates in all years from 2000 to 2005. The boom in housing construction and sales began in the 1980s and 1990s. The collapse of real estate culminated several decades of housing subsidies and policies to lower mortgage rates and borrowing terms (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009b), 42-8). Sales of new houses sold in 2012 fell 44.8 percent relative to the same period in 1995 and 71.3 percent relative to 2005.

Table IIB-5, US, Percentage Change and Average Yearly Rate of Growth of Sales of New One-Family Houses

	∆%	Average Yearly % Rate
1963-2012	-34.3	NA
1991-2001	78.4	5.9
1995-2005	92.4	6.8
2000-2005	46.3	7.9
1995-2012	-44.8	NA
2000-2012	-58.0	NA
2005-2012	-71.3	NA

NA: Not Applicable

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

Chart IIB-2 of the US Bureau of the Census provides the entire monthly sample of new houses sold in the US between Jan 1963 and Oct 2013 without seasonal adjustment. The series is almost stationary until the 1990s. There is sharp upward trend from the early 1990s to 2005-2006 after which new single-family houses sold collapse to levels below those in the beginning of the series in the 1960s.

Chart IIB-2, US, New Single-family Houses Sold, NSA, 1963-2013

Source: US Census Bureau

The available historical annual data of median and average prices of new houses sold in the US between 1963 and 2012 is provided in Table IIB-6. On a yearly basis, median and average prices reached a peak in 2007 and then fell substantially.

Table IIB-6, US, Median and Average Prices of New Houses Sold, Annual Data

Year	Median Price	Average Price
1963	18,000	19,300
1964	18,900	20,500
1965	20,000	21,500
1966	21,400	23,300
1967	22,700	24,600
1968	24,700	26,600
1969	25,600	27,900
1970	23,400	26,600
1971	25,200	28,300
1972	27,600	30,500
1973	32,500	35,500
1974	35,900	38,900
1975	39,300	42,600
1976	44,200	48,000
1977	48,800	54,200
1978	55,700	62,500
1979	62,900	71,800
1980	64,600	76,400
1981	68,900	83,000
1982	69,300	83,900
1983	75,300	89,800
1984	79,900	97,600
1985	84,300	100,800
1986	92,000	111,900
1987	104,500	127,200
1988	112,500	138,300
1989	120,000	148,800
1990	122,900	149,800
1991	120,000	147,200
1992	121,500	144,100
1993	126,500	147,700
1994	130,000	154,500
1995	133,900	158,700
1996	140,000	166,400
1997	146,000	176,200
1998	152,500	181,900
1999	161,000	195,600
2000	169,000	207,000
2001	175,200	213,200
2002	187,600	228,700
2003	195,000	246,300
2004	221,000	274,500
2005	240,900	297,000
2006	246,500	305,900
2007	247,900	313,600
2008	232,100	292,600
2009	216,700	270,900
2010	221,800	272,900
2011	227,200	267,900
2012	245,200	292,200

Source: US Census Bureau

Percentage changes of median and average prices of new houses sold in selected years are shown in Table IIB-7. Prices rose sharply between 2000 and 2005. In fact, prices in 2012 are higher than in 2000. Between 2006 and 2012, median prices of new houses sold fell 0.5 percent and average prices fell 4.5 percent. Between 2011 and 2012, median prices increased 7.9 percent and average prices increased 9.1 percent.

Table IIB-7, US, Percentage Change of New Houses Median and Average Prices, NSA, ∆%

	Median New Home Sales Prices ∆%	Average New Home Sales Prices ∆%
∆% 2000 to 2003	15.4	18.9
∆% 2000 to 2005	42.5	43.5
∆% 2000 to 2012	45.1	41.2
∆% 2005 to 2012	1.8	-1.6
∆% 2000 to 2006	45.9	47.8
∆% 2006 to 2012	-0.5	-4.5
∆% 2009 to 2012	13.2	7.9
∆% 2010 to 2012	10.6	7.1
∆% 2011 to 2012	7.9	9.1

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

Chart IIB-3 of the US Census Bureau provides the entire series of new single-family sales median prices from Jan 1963 to Oct 2013. There is long-term sharp upward trend with few declines until the current collapse. Median prices increased sharply during the Great Inflation of the 1960s and 1970s and paused during the savings and loans crisis of the late 1980s and the recession of 1991. Housing subsidies throughout the 1990s caused sharp upward trend of median new house prices that accelerated after the fed funds rate of 1 percent from 2003 to 2004. There was sharp reduction of prices after 2006 with recovery recently toward earlier prices.

Chart IIB-3, US, Median Sales Price of New Single-family Houses Sold, US Dollars, NSA, 1963-2013

Source: US Census Bureau

Chart IIB-4 of the US Census Bureau provides average prices of new houses sold from the mid-1970s to Oct 2013. There is similar behavior as with median prices of new houses sold in Chart IIB-3. The only stress occurred in price pauses during the savings and loans crisis of the late 1980s and the collapse after 2006 with recent recovery.

Chart IIB-4, US, Average Sales Price of New Single-family Houses Sold, US Dollars, NSA, 1975-2013

Source: US Census Bureau