CMP Associates Regulation Blog: Risks of Zero Interest Rates, Mediocre United States Economic Growth, Twenty Eight Million Unemployed/Underemployed, United States Trade, United States Housing Collapse, World Economic Slowdown and Global Recession Risk: Part IV

Longer Run

Risks of Zero Interest Rates, Mediocre United States Economic Growth, Twenty Eight Million Unemployed/Underemployed, United States Trade, United States Housing Collapse, World Economic Slowdown and Global Recession Risk

Carlos M. Pelaez

Executive Summary

I Mediocre and Decelerating United States Economic Growth

IA Mediocre and Decelerating United States Economic Growth

IA1 Contracting Real Private Fixed Investment

IA2 Swelling Undistributed Corporate Profits

IB Stagnating Real Disposable Income and Consumption Expenditures

IB1 Stagnating Real Disposable Income and Consumption Expenditures

IB2 Financial Repression

II Twenty Nine Million Unemployed or Underemployed

IIA1 Summary of the Employment Situation

IIA2 Number of People in Job Stress

IIA3 Long-term and Cyclical Comparison of Employment

IIA4 Job Creation

IIB Stagnating Real Wages

IIC United States International Trade

IID United States Housing Collapse

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

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

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IIIGA Monetary Policy with Deficit Financing of Economic Growth

IIIGB Adjustment during the Debt Crisis of the 1980s

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

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

	GDP	CPI	PPI	UNE
US	1.8	1.0	0.3	7.3
Japan	2.7	1.1	2.3	4.0
China	7.8	3.2	-1.5
UK	1.5	2.2* CPIH 2.0	0.8 output 0.9** input -0.3	7.6
Euro Zone	-0.4	0.7	-1.4	12.1
Germany	0.6	1.2	-0.7	5.2
France	0.2	0.7	-1.4	10.9
Nether-lands	-0.8	1.3	-3.7	7.0
Finland	-0.2	1.7	0.2	8.1
Belgium	0.4	0.7	-2.2	9.0
Portugal	-1.0	0.0	-1.7	15.7
Ireland	NA	-0.1	1.6	12.6
Italy	-1.9	0.8	-2.7	12.5
Greece	-3.0	-1.9	-1.3	NA
Spain	-1.1	0.0	-0.2	26.7

Notes: GDP: rate of growth of GDP; CPI: change in consumer price inflation; PPI: producer price inflation; UNE: rate of unemployment; all rates relative to year earlier

*Office for National Statistics http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/october-2013/index.html **Core

PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/october-2013/index.html

Source: EUROSTAT http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/; country statistical sources http://www.census.gov/aboutus/stat_int.html

Table IV-1 shows the simultaneous occurrence of low growth, inflation and unemployment in advanced economies. The US grew at 1.8 percent in IIIQ2013 relative to IIIQ2012 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html, Table 8 in http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf). Japan’s GDP grew 0.5 percent in IIIQ2013 relative to IIQ2013 and 2.7 percent relative to a year earlier. Japan’s grew at the seasonally adjusted annual rate (SAAR) of 1.9 percent in IIIQQ2013 (Section VB http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html). The UK grew at 0.8 percent in IIIQ2013 relative to IIQ2013 and GDP increased 1.5 percent in IIIQ2013 relative to IIIQ2012 (Section VH and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html). The Euro Zone grew at 0.1 percent in IIIQ2013 and minus 0.4 percent in IIIQ2013 relative to IIIQ2012 (Section VD http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/imf-view-collapse-of-united-states.html ). These are stagnating or “growth recession” rates, which are positive or about nil growth rates with some contractions that are insufficient to recover employment. The rates of unemployment are quite high: 7.0 percent in the US but 17.2 percent for unemployment/underemployment or job stress of 28.1 million (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html), 4.0 percent for Japan (http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/collapse-of-united-states-dynamism-of.html), 7.6 percent for the UK with high rates of unemployment for young people (Section VH http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html). Twelve-month rates of inflation have been quite high, even when some are moderating at the margin: 1.0 percent in the US, 1.1 percent for Japan, 3.2 percent for China, 0.7 percent for the Euro Zone and 2.2 percent for the UK. Stagflation is still an unknown event but the risk is sufficiently high to be worthy of consideration (see http://cmpassocregulationblog.blogspot.com/2011/06/risk-aversion-and-stagflation.html). The analysis of stagflation also permits the identification of important policy issues in solving vulnerabilities that have high impact on global financial risks. Six key interrelated vulnerabilities in the world economy have been causing global financial turbulence. (1) Sovereign risk issues in Europe resulting from countries in need of fiscal consolidation and enhancement of their sovereign risk ratings (see Section III and earlier http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html). (2) The tradeoff of growth and inflation in China now with change in growth strategy to domestic consumption instead of investment and political developments in a decennial transition. (3) Slow growth by repression of savings with de facto interest rate controls (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html), weak hiring with the loss of 10 million full-time jobs (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html) and continuing job stress of 24 to 30 million people in the US and stagnant wages in a fractured job market (Section II and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). (4) The timing, dose, impact and instruments of normalizing monetary and fiscal policies (see http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html http://cmpassocregulationblog.blogspot.com/2012/08/expanding-bank-cash-and-deposits-with.html http://cmpassocregulationblog.blogspot.com/2012/02/thirty-one-million-unemployed-or.html http://cmpassocregulationblog.blogspot.com/2011/08/united-states-gdp-growth-standstill.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html http://cmpassocregulationblog.blogspot.com/2011/03/global-financial-risks-and-fed.html http://cmpassocregulationblog.blogspot.com/2011/02/policy-inflation-growth-unemployment.html) in advanced and emerging economies. (5) The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 had repercussions throughout the world economy. Japan has share of about 9 percent in world output, role as entry point for business in Asia, key supplier of advanced components and other inputs as well as major role in finance and multiple economic activities (http://professional.wsj.com/article/SB10001424052748704461304576216950927404360.html?mod=WSJ_business_AsiaNewsBucket&mg=reno-wsj); and (6) geopolitical events in the Middle East.

In the effort to increase transparency, the Federal Open Market Committee (FOMC) provides both economic projections of its participants and views on future paths of the policy rate that in the US is the federal funds rate or interest on interbank lending of reserves deposited at Federal Reserve Banks. These policies and views are discussed initially followed with appropriate analysis.

Charles Evans, President of the Federal Reserve Bank of Chicago, proposed an “economic state-contingent policy” or “7/3” approach (Evans 2012 Aug 27):

“I think the best way to provide forward guidance is by tying our policy actions to explicit measures of economic performance. There are many ways of doing this, including setting a target for the level of nominal GDP. But recognizing the difficult nature of that policy approach, I have a more modest proposal: I think the Fed should make it clear that the federal funds rate will not be increased until the unemployment rate falls below 7 percent. Knowing that rates would stay low until significant progress is made in reducing unemployment would reassure markets and the public that the Fed would not prematurely reduce its accommodation.

Based on the work I have seen, I do not expect that such policy would lead to a major problem with inflation. But I recognize that there is a chance that the models and other analysis supporting this approach could be wrong. Accordingly, I believe that the commitment to low rates should be dropped if the outlook for inflation over the medium term rises above 3 percent.

The economic conditionality in this 7/3 threshold policy would clarify our forward policy intentions greatly and provide a more meaningful guide on how long the federal funds rate will remain low. In addition, I would indicate that clear and steady progress toward stronger growth is essential.”

Evans (2012Nov27) modified the “7/3” approach to a “6.5/2.5” approach:

“I have reassessed my previous 7/3 proposal. I now think a threshold of 6-1/2 percent for the unemployment rate and an inflation safeguard of 2-1/2 percent, measured in terms of the outlook for total PCE (Personal Consumption Expenditures Price Index) inflation over the next two to three years, would be appropriate.”

The Federal Open Market Committee (FOMC) decided at its meeting on Dec 12, 2012 to implement the “6.5/2.5” approach (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm):

“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

Another rising risk is division within the Federal Open Market Committee (FOMC) on risks and benefits of current policies as expressed in the minutes of the meeting held on Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):

“However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy.”

Jon Hilsenrath, writing on “Fed maps exit from stimulus,” on May 11, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887324744104578475273101471896.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the development of strategy for unwinding quantitative easing and how it can create uncertainty in financial markets. Jon Hilsenrath and Victoria McGrane, writing on “Fed slip over how long to keep cash spigot open,” published on Feb 20, 2013 in the Wall street Journal (http://professional.wsj.com/article/SB10001424127887323511804578298121033876536.html), analyze the minutes of the Fed, comments by members of the FOMC and data showing increase in holdings of riskier debt by investors, record issuance of junk bonds, mortgage securities and corporate loans. Jon Hilsenrath, writing on “Jobs upturn isn’t enough to satisfy Fed,” on Mar 8, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324582804578348293647760204.html), finds that much stronger labor market conditions are required for the Fed to end quantitative easing. Unconventional monetary policy with zero interest rates and quantitative easing is quite difficult to unwind because of the adverse effects of raising interest rates on valuations of risk financial assets and home prices, including the very own valuation of the securities held outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and adjustable-rate mortgages linked to the overnight fed funds rate. The zero interest rate has penalized liquidity and increased risks by inducing carry trades from zero interest rates to speculative positions in risk financial assets. There is no exit from zero interest rates without provoking another financial crash.

Unconventional monetary policy will remain in perpetuity, or QE→∞, changing to a “growth mandate.” There are two reasons explaining unconventional monetary policy of QE→∞: insufficiency of job creation to reduce unemployment/underemployment at current rates of job creation; and growth of GDP at around 1.8 percent, which is well below 3.0 percent estimated by Lucas (2011May) from 1870 to 2010. Unconventional monetary policy interprets the dual mandate of low inflation and maximum employment as mainly a “growth mandate” of forcing economic growth in the US at a rate that generates full employment. A hurdle to this “growth mandate” is that US economic growth has been at only 2.3 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

http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf) and the second estimate of GDP for IIIQ2013 (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 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 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.7 percent, 5.4 percent from IQ1983 to IIIQ1986 and at 7.8 percent from IQ1983 to IVQ1983 (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). As a result, there are 28.1 million unemployed or underemployed in the United States for an effective unemployment rate of 17.2 percent (Section II and earlier) http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). Zero interest rates and quantitative easing have not provided the impulse for growth and were not required in past successful cyclical expansions.

First, total nonfarm payroll employment seasonally adjusted (SA) increased 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.

Second, 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

The economy of the US can be summarized in growth of economic activity or GDP as decelerating from mediocre growth of 2.5 percent on an annual basis in 2010 to 1.8 percent in 2011 to 2.8 percent in 2012. The following calculations show that actual growth is around 1.9 to 2.4 percent per year. This rate is well below 3 percent per year in trend from 1870 to 2010, which the economy of the US always attained for entire cycles in expansions after events such as wars and recessions (Lucas 2011May).

Long-term. US GDP grew at the average yearly rate of 3.3 percent from 1929 to 2012 and at 3.2 percent from 1947 to 2012. There were periodic contractions or recessions in this period but the economy grew at faster rates in the subsequent expansions, maintaining long-term economic growth at trend.
Cycles. The combined contraction of GDP in the two almost consecutive recessions in the early 1980s is 4.7 percent. The contraction of US GDP from IVQ2007 to IIQ2009 during the global recession was 4.3 percent. The critical difference in the expansion is growth at average 7.8 percent in annual equivalent in the first four quarters of recovery from IQ1983 to IVQ1983. The average rate of growth of GDP in four cyclical expansions in the postwar period is 7.7 percent. In contrast, the rate of growth in the first four quarters from IIIQ2009 to IIQ2010 was only 2.7 percent. Average annual equivalent growth in the expansion from IQ1983 to IIIQ1986 was 5.4 percent. In contrast, average annual equivalent growth in the expansion from IIIQ2009 to IIIQ2013 was only 2.3 percent. The US appears to have lost its dynamism of income growth and employment creation.

Table Summary, Long-term and Cyclical Growth of GDP, Real Disposable Income and Real Disposable Income per Capita

	GDP
Long-Term
1929-2012	3.3
1947-2012	3.2
Cyclical Contractions ∆%
IQ1980 to IIIQ1980, IIIQ1981 to IVQ1982	-4.7
IVQ2007 to IIQ2009	-4.3
Cyclical Expansions Average Annual Equivalent ∆%
IQ1983 to IVQ1985 IQ1983-IQ1986 IQ1983-IIIQ1986 IQ1983-IV1986 IQ1983-IQ1987	5.9 5.7 5.4 5.2 5.0
First Four Quarters IQ1983 to IVQ1983	7.8
IIIQ2009 to IIIQ2013	2.3
First Four Quarters IIIQ2009 to IIQ2010	2.7
	Real Disposable Income	Real Disposable Income per Capita
Long-Term
1929-2012	3.2	2.0
1947-1999	3.7	2.3
Whole Cycles
1980-1989	3.5	2.6
2006-2012	1.4	0.6

Source: Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf

http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf

http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf

The revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_2nd.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_3rd.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0713.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0813.pdf http://bea.gov/newsreleases/national/pi/2013/pdf/pi0613.pdf http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_adv.pdf) also provide critical information in assessing the current rhythm of US economic growth. The economy appears to be moving at a pace from 1.9 to 2.4 percent per year. Table Summary GDP provides the data.

1. Average Annual Growth in the Past Six Quarters. GDP growth in the four quarters of 2012 and the first three quarters of 2013 accumulated to 3.8 percent. This growth is equivalent to 2.1 percent per year, obtained by dividing GDP in IIIQ2013 of $15,819.0 billion by GDP in IVQ2011 of $15,242.1 billion and compounding by 4/7: {[($15,819.0/$15,242.1)^4/6 -1]100 = 2.1.

2. Average Annual Growth in the First Three Quarters of 2013. GDP growth in the first three quarters of 2013 accumulated to 1.6 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)^4/3 -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, which is 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 Summary GDP, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions Chained 2005 Dollars and ∆%

	Real GDP, Billions Chained 2009 Dollars	∆% Relative to IVQ2007	∆% Relative to Prior Quarter	∆% over Year Earlier
IVQ2007	14,996.1	NA	NA	1.9
IVQ2011	15,242.1	1.6	1.2	2.0
IQ2012	15,381.6	2.6	0.9	3.3
IIQ2012	15,427.7	2.9	0.3	2.8
IIIQ2012	15,534.0	3.6	0.7	3.1
IVQ2012	15,539.6	3.6	0.0	2.0
IQ2013	15,583.9	3.9	0.3	1.3
IIQ2013	15,679.7	4.6	0.6	1.6
IIIQ2013	15,819.0	5.5	0.9	1.8
Cumulative ∆% IQ2012 to IIIQ2013	3.8		3.8
Annual Equivalent ∆%	2.1		2.1

Source: US Bureau of Economic Analysis

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

http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_2nd.pdf

In fact, it is evident to the public that this policy will be abandoned if inflation costs rise. There is concern of the production and employment costs of controlling future inflation. Even if there is no inflation, QE→∞ cannot be abandoned because of the fear of rising interest rates. The economy would operate in an inferior allocation of resources and suboptimal growth path, or interior point of the production possibilities frontier where the optimum of productive efficiency and wellbeing is attained, because of the distortion of risk/return decisions caused by perpetual financial repression. Not even a second-best allocation is feasible with the shocks to efficiency of financial repression in perpetuity.

The statement of the FOMC at the conclusion of its meeting on Dec 12, 2012, revealed policy intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm) practically unchanged in the statement at the conclusion of its meeting on Jan 30, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130130a.htm) and at its meeting on Oct 30, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20131030a.htm):

“Press Release

Release Date: October 30, 2013

For immediate release

Information received since the Federal Open Market Committee met in September generally suggests that economic activity has continued to expand at a moderate pace. Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”

There are several important issues in this statement.

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

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

Open-ended Quantitative Easing or QE_∞. Earlier programs are continued with an additional open-ended $85 billion of bond purchases per month: “However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.”
Advance Guidance on “6 ¼ 2 ½ “Rule. Policy will be accommodative even after the economy recovers satisfactorily: “To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
Monitoring and Policy Focus on Jobs. The FOMC reconsiders its policy continuously in accordance with available information: “In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”
No Present Course of Asset Purchases. Market participants focused on slightly different wording about asset purchases: “In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”
Growth. “The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.”

Current focus is on tapering quantitative easing by the Federal Open Market Committee (FOMC). There is sharp distinction between the two measures of unconventional monetary policy: (1) fixing of the overnight rate of fed funds at 0 to ¼ percent; and (2) outright purchase of Treasury and agency securities and mortgage-backed securities for the balance sheet of the Federal Reserve. Market are overreacting to the so-called “paring” of outright purchases of $85 billion of securities per month for the balance sheet of the Fed. What is truly important is the fixing of the overnight fed funds at 0 to ¼ percent for which there is no end in sight as evident in the FOMC statement for Oct 30, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20131030a.htm):

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent.” (emphasis added).

There is a critical phrase in the statement of Sep 19, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130918a.htm): “but mortgage rates have risen further.” Did the increase of mortgage rates influence the decision of the FOMC not to taper? Is FOMC “communication” and “guidance” successful?

At the confirmation hearing on nomination for Chair of the Board of Governors of the Federal Reserve System, Vice Chair Yellen (2013Nov14 http://www.federalreserve.gov/newsevents/testimony/yellen20131114a.htm), states needs and intentions of policy:

“We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time.

For these reasons, the Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”

In his classic restatement of the Keynesian demand function in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies the risks of low interest rates in terms of portfolio allocation (Tobin 1958, 86):

“The assumption that investors expect on balance no change in the rate of interest has been adopted for the theoretical reasons explained in section 2.6 rather than for reasons of realism. Clearly investors do form expectations of changes in interest rates and differfrom each other in their expectations. For the purposes of dynamic theory and of analysis of specific market situations, the theories of sections 2 and 3 are complementary rather than competitive. The formal apparatus of section 3 will serve just as well for a non-zero expected capital gain or loss as for a zero expected value of g. Stickiness of interest rate expectations would mean that the expected value of g is a function of the rate of interest r, going down when r goes down and rising when r goes up. In addition to the rotation of the opportunity locus due to a change in r itself, there would be a further rotation in the same direction due to the accompanying change in the expected capital gain or loss. At low interest rates expectation of capital loss may push the opportunity locus into the negative quadrant, so that the optimal position is clearly no consols, all cash. At the other extreme, expectation of capital gain at high interest rates would increase sharply the slope of the opportunity locus and the frequency of no cash, all consols positions, like that of Figure 3.3. The stickier the investor's expectations, the more sensitive his demand for cash will be to changes in the rate of interest (emphasis added).”

Tobin (1969) provides more elegant, complete analysis of portfolio allocation in a general equilibrium model. The major point is equally clear in a portfolio consisting of only cash balances and a perpetuity or consol. Let g be the capital gain, r the rate of interest on the consol and r^e the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+r^e). Thus, g = [(r/r^e) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dr^e>0, such that there is expectation of capital losses on the consol, dg<0. Investors move into positions combining only cash and no consols. Valuations of risk financial assets would collapse in reversal of long positions in carry trades with short exposures in a flight to cash. There is no exit from a central bank created liquidity trap without risks of financial crash and another global recession. The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Ibid). According to a subsequent statement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:

W = Y/r (10

Equation (1) shows that as r goes to zero, r→0, W grows without bound, W→∞. Unconventional monetary policy lowers interest rates to increase the present value of cash flows derived from projects of firms, creating the impression of long-term increase in net worth. An attempt to reverse unconventional monetary policy necessarily causes increases in interest rates, creating the opposite perception of declining net worth. As r→∞, W = Y/r →0. There is no exit from unconventional monetary policy without increasing interest rates with resulting pain of financial crisis and adverse effects on production, investment and employment.

In delivering the biannual report on monetary policy (Board of Governors 2013Jul17), Chairman Bernanke (2013Jul17) advised Congress that:

“Instead, we are providing additional policy accommodation through two distinct yet complementary policy tools. The first tool is expanding the Federal Reserve's portfolio of longer-term Treasury securities and agency mortgage-backed securities (MBS); we are currently purchasing $40 billion per month in agency MBS and $45 billion per month in Treasuries. We are using asset purchases and the resulting expansion of the Federal Reserve's balance sheet primarily to increase the near-term momentum of the economy, with the specific goal of achieving a substantial improvement in the outlook for the labor market in a context of price stability. We have made some progress toward this goal, and, with inflation subdued, we intend to continue our purchases until a substantial improvement in the labor market outlook has been realized. We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low--our second tool--to help maintain a high degree of monetary accommodation for an extended period after asset purchases end, even as the economic recovery strengthens and unemployment declines toward more-normal levels. In appropriate combination, these two tools can provide the high level of policy accommodation needed to promote a stronger economic recovery with price stability.

The Committee's decisions regarding the asset purchase program (and the overall stance of monetary policy) depend on our assessment of the economic outlook and of the cumulative progress toward our objectives. Of course, economic forecasts must be revised when new information arrives and are thus necessarily provisional.”

Friedman (1953) argues there are three lags in effects of monetary policy: (1) between the need for action and recognition of the need; (2) the recognition of the need and taking of actions; and (3) taking of action and actual effects. Friedman (1953) finds that the combination of these lags with insufficient knowledge of the current and future behavior of the economy causes discretionary economic policy to increase instability of the economy or standard deviations of real income σ_y and prices σ_p. Policy attempts to circumvent the lags by policy impulses based on forecasts. We are all naïve about forecasting. Data are available with lags and revised to maintain high standards of estimation. Policy simulation models estimate economic relations with structures prevailing before simulations of policy impulses such that parameters change as discovered by Lucas (1977). Economic agents adjust their behavior in ways that cause opposite results from those intended by optimal control policy as discovered by Kydland and Prescott (1977). Advance guidance attempts to circumvent expectations by economic agents that could reverse policy impulses but is of dubious effectiveness. There is strong case for using rules instead of discretionary authorities in monetary policy (http://cmpassocregulationblog.blogspot.com/search?q=rules+versus+authorities).

The key policy is maintaining fed funds rate between 0 and ¼ percent. An increase in fed funds rates could cause flight out of risk financial markets worldwide. There is no exit from this policy without major financial market repercussions. Indefinite financial repression induces carry trades with high leverage, risks and illiquidity.

Unconventional monetary policy drives wide swings in allocations of positions into risk financial assets that generate instability instead of intended pursuit of prosperity without inflation. There is insufficient knowledge and imperfect tools to maintain the gap of actual relative to potential output constantly at zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric targets appear to have been abandoned in favor of a self-imposed single jobs mandate of easing monetary policy even with the economy growing at or close to potential output that is actually a target of growth forecast. The impact on the overall economy and the financial system of errors of policy are magnified by large-scale policy doses of trillions of dollars of quantitative easing and zero interest rates. The US economy has been experiencing financial repression as a result of negative real rates of interest during nearly a decade and programmed in monetary policy statements until 2015 or, for practical purposes, forever. The essential calculus of risk/return in capital budgeting and financial allocations has been distorted. If economic perspectives are doomed until 2015 such as to warrant zero interest rates and open-ended bond-buying by “printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html; see Shultz et al 2012), rational investors and consumers will not invest and consume until just before interest rates are likely to increase. Monetary policy statements on intentions of zero interest rates for another three years or now virtually forever discourage investment and consumption or aggregate demand that can increase economic growth and generate more hiring and opportunities to increase wages and salaries. The doom scenario used to justify monetary policy accentuates adverse expectations on discounted future cash flows of potential economic projects that can revive the economy and create jobs. If it were possible to project the future with the central tendency of the monetary policy scenario and monetary policy tools do exist to reverse this adversity, why the tools have not worked before and even prevented the financial crisis? If there is such thing as “monetary policy science”, why it has such poor record and current inability to reverse production and employment adversity? There is no excuse of arguing that additional fiscal measures are needed because they were deployed simultaneously with similar ineffectiveness.

In remarkable anticipation in 2005, Professor Raghuram G. Rajan (2005) warned of low liquidity and high risks of central bank policy rates approaching the zero bound (Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 218-9). Professor Rajan excelled in a distinguished career as an academic economist in finance and was chief economist of the International Monetary Fund (IMF). Shefali Anand and Jon Hilsenrath, writing on Oct 13, 2013, on “India’s central banker lobbies Fed,” published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702304330904579133530766149484?KEYWORDS=Rajan), interviewed Raghuram G Rajan, who is the current Governor of the Reserve Bank of India, which is India’s central bank (http://www.rbi.org.in/scripts/AboutusDisplay.aspx). In this interview, Rajan argues that central banks should avoid unintended consequences on emerging market economies of inflows and outflows of capital triggered by monetary policy. Portfolio reallocations induced by combination of zero interest rates and risk events stimulate carry trades that generate wide swings in world capital flows.

Professor Ronald I. McKinnon (2013Oct27), writing on “Tapering without tears—how to end QE3,” on Oct 27, 2013, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702304799404579153693500945608?KEYWORDS=Ronald+I+McKinnon), finds that the major central banks of the world have fallen into a “near-zero-interest-rate trap.” World economic conditions are weak such that exist from the zero interest rate trap could have adverse effects on production, investment and employment. The maintenance of interest rates near zero creates long-term near stagnation. The proposal of Professor McKinnon is credible, coordinated increase of policy interest rates toward 2 percent. Professor John B. Taylor at Stanford University, writing on “Economic failures cause political polarization,” on Oct 28, 2013, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303442004579121010753999086?KEYWORDS=John+B+Taylor), analyzes that excessive risks induced by near zero interest rates in 2003-2004 caused the financial crash. Monetary policy continued in similar paths during and after the global recession with resulting political polarization worldwide.

Table IV-2 provides economic projections of governors of the Board of Governors of the Federal Reserve and regional presidents of Federal Reserve Banks released at the meeting of Sep 18, 2013. The Fed releases the data with careful explanations (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf). Columns “∆% GDP,” “∆% PCE Inflation” and “∆% Core PCE Inflation” are changes “from the fourth quarter of the previous year to the fourth quarter of the year indicated.” The GDP report for IIIQ2013 is analyzed in Section I (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html) and the PCE inflation data from the report on personal income and outlays in Section IV (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). The Bureau of Economic Analysis (BEA) provides the estimate of IIQ2013 GDP released on Sep 26 with revisions since 1929 (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). The BEA provides the first estimate of IIIQ2013 GDP released on Nov 8, 2013 and the second estimate of IIIQ2013 GDP on Dec 5, 2013 (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). PCE inflation is the index of personal consumption expenditures (PCE) of the report of the Bureau of Economic Analysis (BEA) on “Personal Income and Outlays” (http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm), which is analyzed in Section IV (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). The report on “Personal Income and Outlays” for Sep 2013 was released on Nov 8, 2013 and the report for Oct 2013 was released on Dec 6, 2013 (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/mediocre-and-decelerating-united-states.html). PCE core inflation consists of PCE inflation excluding food and energy. Column “UNEMP %” is the rate of unemployment measured as the average civilian unemployment rate in the fourth quarter of the year. The Bureau of Labor Statistics (BLS) provides the Employment Situation Report with the civilian unemployment rate in the first Friday of every month, which is analyzed in this blog. The report for Jul 2013 was released on Aug 2 and analyzed in this blog and the report for Aug 2013 was released on Sep 6, 2013 (http://cmpassocregulationblog.blogspot.com/2013/09/twenty-eight-million-unemployed-or.html

and earlier http://cmpassocregulationblog.blogspot.com/2013/08/risks-of-steepening-yield-curve-and.html). The report for Sep 2013 was released on Oct 22, 2013 (http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html

and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html). The report for Oct 2013 was released on Nov 8, 2013 and the report for Nov 2013 on Dec 6, 2013 (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). “Longer term projections represent each participant’s assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy” (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20121212.pdf).

It is instructive to focus on 2013 and 2014 because 2015, 2016 and longer term are too far away, and there is not much information even on what will happen in 2013-2014 and beyond. The central tendency should provide reasonable approximation of the view of the majority of members of the FOMC but the second block of numbers provides the range of projections by FOMC participants. The first row for each year shows the projection introduced after the meeting of Sep 18, 2013 and the second row “PR” the projection of the Jun 19, 2013 meeting. There are three major changes in the view.

1. Growth “∆% GDP.” The FOMC has reduced the forecast of GDP growth in 2013 from 2.3 to 2.6 percent at the meeting in Jun 2013 to 2.0 to 2.3 percent at the meeting on Sep 18, 2013. The FOMC decreased GDP growth in 2014 from 3.0 to 3.5 percent at the meeting in Jun 2013 to 2.9 to 3.1 percent at the meeting in Sep 2013.

2. Rate of Unemployment “UNEM%.” The FOMC reduced the forecast of the rate of unemployment from 7.2 to 7.3 percent at the meeting on Jun 19, 2013 to 7.1 to 7.3 percent at the meeting on Sep 18, 2013. The projection for 2014 decreased to the range of 6.4 to 6.8 in Sep 2013 from 6.5 to 6.8 in Jun 2013. Projections of the rate of unemployment are moving closer to the desire 6.5 percent or lower with 5.9 to 6.2 percent in 2015 after the meeting on Sep 18, 2013.

3. Inflation “∆% PCE Inflation.” The FOMC changed the forecast of personal consumption expenditures (PCE) inflation from 0.8 to 1.2 percent at the meeting on Jun 19, 2012 to 1.1 to 1.2 percent at the meeting on Sep 18, 2013. There are no projections exceeding 2.0 percent in the central tendency but some in the range reach 2.3 percent in 2015 and 2015. The longer run projection is at 2.0 percent.

4. Core Inflation “∆% Core PCE Inflation.” Core inflation is PCE inflation excluding food and energy. There is again not much of a difference of the projection, changing from 1.2 to 1.3 percent at the meeting on Jun 19, 2013 to 1.2 to 1.3 percent at the meeting Sep 13, 2013. In 2014, there is minor change in the projection from 1.5 to 1.8 percent in Jun 19, 2013 to 1.5 to 1.7 percent in Sep 18, 2013. The rate of change of the core PCE is below 2.0 percent in the central tendency with 2.3 percent at the top of the range in 2015 and 2016.

Table IV-2, US, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents in FOMC, Mar 2013 and Jun 19, 2013

	∆% GDP	UNEM %	∆% PCE Inflation	∆% Core PCE Inflation
Central Tendency
2013 Jun PR	2.0 to 2.3 2.3 to 2.6	7.1 to 7.3 7.2 to 7.3	1.1 to 1.2 0.8 to 1.2	1.2 to 1.3 1.2 to 1.3
2014 Jun PR	2.9 to 3.1 3.0 to 3.5	6.4 to 6.8 6.5 to 6.8	1.3 to 1.8 1.4 to 2.0	1.5 to 1.7 1.5 to 1.8
2015 Jun PR	3.0 to 3.5 2.9 to 3.6	5.9 to 6.2 5.8 to 6.2	1.6 to 2.0 1.7 to 2.0	1.7 to 2.0 1.7 to 2.0
2016 Jun PR	2.5 to 3.3 NA	5.4 to 5.9 NA	1.7 to 2.0 NA	1.9 to 2.0 NA
Longer Run Jun PR	2.2 to 2.5 2.3 to 2.5	5.2 to 5.8 5.2 to 6.0	2.0 2.0
Range
2013 Jun PR	1.8 to 2.4 2.0 to 2.6	6.9 to 7.3 6.9 to 7.5	1.0 to 1.3 0.8 to 1.5	1.2 to 1.4 1.1 to 1.5
2014 Jun PR	2.2 to 3.3 2.2 to 3.6	6.2 to 6.9 6.2 to 6.9	1.2 to 2.0 1.4 to 2.0	1.4 to 2.0 1.5 to 2.0
2015 Jun PR	2.2 to 3.7 2.3 to 3.8	5.3 to 6.3 5.7 to 6.4	1.4 to 2.3 1.6 to 2.3	1.6 to 2.3 1.7 to 2.3
2016 Jun PR	2.2 to 3.5 NA	5.2 to 6.0 NA	1.5 to 2.3 NA	1.7 to 2.3 NA
Longer Run Jun PR	2.1 to 2.5 2.0 to 3.0	5.2 to 6.0 5.0 to 6.0	2.0 2.0

Notes: UEM: unemployment; PR: Projection

Source: Board of Governors of the Federal Reserve System, FOMC

http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130918.pdf

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

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

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

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

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

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

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

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

The FOMC continues its efforts of increasing transparency that can improve the credibility of its firmness in implementing its dual mandate. Table IV-3 provides the views by participants of the FOMC of the levels at which they expect the fed funds rate in 2013, 2014, 2015, 2016 and the in the longer term. Table IV-3 is inferred from a chart provided by the FOMC with the number of participants expecting the target of fed funds rate (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130320.pdf). There are 17 participants expecting the rate to remain at 0 to ¼ percent in 2013. The rate would still remain at 0 to ¼ percent in 2014 for 13 participants with three expecting the rate to be in the range of 0.5 to 1.0 percent and one participant expecting rates at 1.0 to 1.5 percent. This table is consistent with the guidance statement of the FOMC that rates will remain at low levels. For 2015, eight participants expect rates to be below or at 1.0 percent while six expect rates from 1.0 to 1.5 percent and three expecting rates in excess of 2.0 percent. For 2016, nine participants expect rates between 1.0 and 2.0 percent, four between 2.0 and 3.0 percent and three between 3.0 and 4.4 percent. In the long term, all 17 participants expect the fed funds rate in the range of 3.0 to 4.5 percent.

Table IV-3, US, Views of Target Federal Funds Rate at Year-End of Federal Reserve Board

Members and Federal Reserve Bank Presidents Participating in FOMC, Jun 19, 2013

Source: Board of Governors of the Federal Reserve System, FOMC

http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130918.pdf

Additional information is provided in Table IV-4 with the number of participants expecting increasing interest rates in the years from 2013 to 2016. It is evident from Table IV-4 that the prevailing view of the FOMC is for interest rates to continue at low levels in future years. This view is consistent with the economic projections of low economic growth, relatively high unemployment and subdued inflation provided in Table IV-2. The FOMC states that rates will continue to be low even after return of the economy to potential growth.

Table IV-4, US, Views of Appropriate Year of Increasing Target Federal Funds Rate of Federal

Reserve Board Members and Federal Reserve Bank Presidents Participating in FOMC, June 19, 2013

Appropriate Year of Increasing Target Fed Funds Rate	Number of Participants
2014	3
2015	12
2016	2

Source: Board of Governors of the Federal Reserve System, FOMC

http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20130918.pdf

The revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) also provide critical information in assessing indexes of prices of personal consumption. There are waves of inflation similar to those worldwide (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html) in inflation of personal consumption expenditures (PCE) in Table IV-5. These waves are in part determined by commodity price shocks originating in the carry trade from zero interest rates to positions in risk financial assets, in particular in commodity futures, which increase the prices of food and energy when there is relaxed risk aversion. Return of risk aversion causes collapse in prices. Resulting fluctuations of prices confuse risk/return decisions, inducing financial instability with adverse financial and economic consequences. The first wave is in Jan-Apr 2011 when headline PCE inflation increased at the average annual equivalent rate of 3.7 percent and PCE inflation excluding food and energy (PCEX) at 1.5 percent. The drivers of inflation were increases in food prices (PCEF) at the annual equivalent rate of 7.8 percent and of energy prices (PCEE) at 26.4 percent. This behavior will prevail under zero interest rates and relaxed risk aversion because of carry trades from zero interest rates to leveraged positions in commodity futures. The second wave occurred in May-Jun 2011 when risk aversion from the European sovereign risk crisis interrupted the carry trade. PCE prices increased 2.4 percent in annual equivalent and 2.4 percent excluding food and energy. The third wave is captured by the annual equivalent rates in Jul-Sep 2011 of headline PCE inflation of 2.4 percent with subdued PCE inflation excluding food and energy of 2.0 percent while PCE food rose at 6.2 percent and PCE energy increased at 6.2 percent. In the fourth wave in Oct-Dec 2011, increased risk aversion explains the fall of the annual equivalent rate of inflation to 0.8 percent for headline PCE inflation and 2.0 percent for PCEX excluding food and energy. PCEF of prices of food rose at the annual equivalent rate of 1.2 percent in Oct-Dec 2011 while PCEE of prices of energy fell at the annual equivalent rate of 10.7 percent. In the fifth wave in Jan-Mar 2012, headline PCE in annual equivalent was 2.4 percent and 2.4 percent excluding food and energy (PCEX). Energy prices of personal consumption (PCEE) increased at the annual equivalent rate of 15.8 percent because of the jump of 2.3 percent in Feb 2012 followed by 1.3 percent in Mar 2012. In the sixth wave, renewed risk aversion caused reversal of carry trades with headline PCE inflation at the annual equivalent rate of 0.0 percent in Apr-May 2012 while PCE inflation excluding food and energy increased at the annual equivalent rate of 1.2 percent. In the seventh wave, further shocks of risk aversion resulted in headline PCE annual equivalent inflation at 1.2 percent in Jun-Jul 2012 with core PCE excluding food and energy at 1.8 percent. In the eighth wave, temporarily relaxed risk aversion with zero interest rates resulted in central PCE inflation at 3.7 percent annual equivalent in Aug-Sep 2012 with PCEX excluding food and energy at 0.6 percent while PCEE energy jumped at 67.6 percent annual equivalent. The program of outright monetary transactions (OTM) of the European Central Bank induced relaxed risk aversion (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html). In the ninth wave, prices collapsed with reversal of carry trade positions in a new episode of risk aversion with central PCE at annual equivalent 0.6 percent in Oct 2012 to Jan 2013 and PCEX at 1.8 percent while energy prices fell at minus 16.9 percent. In the tenth wave, central PCE increased at annual equivalent 4.9 percent in Feb 2013, PCEX at 1.2 percent and PCEE at 92.3 percent. In the eleventh wave, renewed risk aversion resulted in decline in annual equivalent of general PCE prices at 2.4 percent in Mar-Apr 2013 while PCEX increased at 0.6 percent and energy prices fell at 34.8 percent. In the twelfth wave, central PCE increased at 1.9 percent annual equivalent in May-Oct 2013 with PCEX increasing at 1.4 percent, food PCEF increasing at 0.8 percent and energy PCEE increasing at 5.8 percent with the jump of 3.4 percent in Jun 2013.

Table IV-5, US, Percentage Change from Prior Month of Prices of Personal Consumption Expenditures, Seasonally Adjusted Monthly ∆%

	PCE	PCEG	PCEG -D	PCES	PCEX	PCEF	PCEE
2013
Oct	0.0	-0.3	-0.2	0.1	0.1	0.1	-1.7
Sep	0.1	0.0	0.0	0.2	0.1	-0.1	0.8
Aug	0.1	0.0	-0.3	0.1	0.1	0.2	-0.2
Jul	0.1	0.1	-0.3	0.1	0.1	0.1	0.3
Jun	0.4	0.7	0.0	0.2	0.2	0.3	3.4
May	0.1	-0.1	-0.1	0.2	0.1	-0.2	0.3
∆% AE May-Oct	1.6	0.8	-1.8	1.8	1.4	0.8	5.8
Apr	-0.3	-0.9	-0.3	0.0	0.0	0.1	-4.4
Mar	-0.1	-0.6	-0.2	0.1	0.1	0.1	-2.6
∆% AE Mar-Apr	-2.4	-8.6	-3.0	0.6	0.6	1.2	-34.8
Feb	0.4	0.8	-0.1	0.2	0.1	0.2	5.6
∆% AE Feb	4.9	10.0	-1.2	2.4	1.2	2.4	92.3
Jan	0.1	-0.2	0.1	0.2	0.2	0.0	-1.8
2012
Dec	0.0	-0.3	-0.2	0.2	0.1	0.2	-0.9
Nov	-0.1	-0.7	-0.1	0.2	0.1	0.2	-3.5
Oct	0.2	0.1	-0.2	0.2	0.2	0.3	0.1
∆% AE Oct-Jan	0.6	-3.3	-1.2	2.4	1.8	2.1	-16.9
Sep	0.3	0.6	-0.2	0.1	0.1	-0.1	4.1
Aug	0.3	0.7	-0.2	0.1	0.0	0.1	4.7
∆% AE Aug-Sep	3.7	8.1	-2.4	1.2	0.6	0.0	67.6
Jul	0.0	-0.2	-0.3	0.1	0.1	0.0	-1.2
Jun	0.2	0.0	-0.1	0.3	0.2	0.2	-0.7
∆% AE Jun-Jul	1.2	-1.2	-2.4	2.4	1.8	1.2	-10.8
May	0.0	-0.5	0.0	0.2	0.1	0.0	-2.9
Apr	0.0	-0.3	-0.1	0.2	0.1	0.0	-1.9
∆% AE Apr- May	0.0	-4.7	-0.6	2.4	1.2	0.0	-25.3
Mar	0.2	0.3	-0.2	0.2	0.2	0.2	1.3
Feb	0.2	0.4	0.0	0.2	0.1	0.0	2.3
Jan	0.2	0.2	0.1	0.2	0.3	0.2	0.1
∆% AE Jan- Mar	2.4	3.7	-0.4	2.4	2.4	1.6	15.8
2011
Dec	0.1	-0.1	-0.2	0.2	0.1	0.2	-1.2
Nov	0.1	0.1	-0.2	0.2	0.2	-0.1	0.0
Oct	0.0	-0.2	0.0	0.1	0.1	0.2	-1.6
∆% AE Oct- Dec	0.8	-1.2	-1.6	2.0	2.0	1.2	-10.7
Sep	0.2	0.2	-0.4	0.2	0.1	0.5	1.3
Aug	0.2	0.3	-0.2	0.2	0.2	0.6	0.1
Jul	0.2	0.2	-0.1	0.2	0.2	0.4	0.1
∆% AE Jul-Sep	2.4	2.8	-2.8	2.4	2.0	6.2	6.2
Jun	0.1	0.1	0.2	0.1	0.2	0.2	-0.7
May	0.3	0.5	0.1	0.2	0.2	0.5	1.4
∆% AE May-Jun	2.4	3.7	1.8	1.8	2.4	4.3	4.2
Apr	0.3	0.5	0.3	0.2	0.2	0.4	1.8
Mar	0.4	0.8	-0.1	0.2	0.1	0.8	3.6
Feb	0.3	0.5	0.1	0.2	0.1	0.7	1.7
Jan	0.2	0.4	0.0	0.1	0.1	0.6	0.8
∆% AE Jan-Apr	3.7	6.8	0.9	2.1	1.5	7.8	26.4
2010
Dec	0.2	0.6	-0.3	0.1	0.0	0.1	4.1
Nov	0.2	0.2	-0.2	0.1	0.1	0.2	1.1
Oct	0.2	0.4	-0.2	0.1	0.1	0.1	3.1
Sep	0.1	0.2	-0.1	0.1	0.0	0.2	0.6
Aug	0.1	0.3	0.1	0.1	0.1	0.1	1.0
Jul	0.1	0.1	-0.3	0.1	0.1	0.1	1.2
Jun	0.1	-0.1	-0.4	0.1	0.1	-0.1	-0.5
May	0.0	-0.2	-0.2	0.2	0.1	0.1	-1.2
Apr	0.0	-0.3	-0.2	0.1	0.0	0.1	-0.8
Mar	0.1	-0.1	0.0	0.2	0.1	0.2	-0.5
Feb	0.0	-0.2	-0.3	0.1	0.1	0.1	-1.2
Jan	0.2	0.3	-0.1	0.1	0.1	0.1	1.7

Notes: percentage changes in price index relative to the same month a year earlier of PCE: personal consumption expenditures; PCEG: PCE goods; PCEG-D: PCE durable goods; PCES: PCE services; PCEX: PCE excluding food and energy; PCEF: PCE food; PCEE: PCE energy goods and services. AE: annual equivalent.

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

The charts of PCE inflation are also instructive. Chart IV-1 provides the monthly change of headline PCE price index. There is significant volatility in the monthly changes but excluding outliers fluctuations have been in a tight range between 1999 and 2013 around 0.2 percent per month.

Chart IV-1, US, Percentage Change of PCE Price Index from Prior Month, 1999-2013

Source: US Bureau of Economic Analysis

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

There is much less volatility in the PCE index excluding food and energy shown in Chart IV-2 with monthly percentage changes from 1999 to 2013. With the exception of 2001, there are no negative changes and again changes around 0.2 percent when excluding outliers.

Chart IV-2, US, Percentage Change of PCE Price Index Excluding Food and Energy from Prior Month, 1999-2013

Source: US Bureau of Economic Analysis

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

Fluctuations in the PCE index of food are much wider as shown in Chart IV-3 by monthly percentage changes from 1999 to 2013. There are also multiple negative changes and positive changes even exceeding 1.0 percent in three months.

Chart IV-3, US, Percentage Change of PCE Price Index Food from Prior Month, 1999-2013

Source: US Bureau of Economic Analysis

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

The band of fluctuation of the PCE price index of energy in Chart IV-4 is much wider. An interesting feature is the abundance of negative changes and large percentages.

Chart IV-4, US, Percentage Change of PCE Price Index Energy from Prior Month, 1999-2013

Source: US Bureau of Economic Analysis

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

Table IV-6 provides 12-month rates of PCE inflation from Jan 2012 to Oct 2013, annual inflation rates from 2000 to 2012 and average yearly rates of PCE inflation for various periods since 1929. Headline 12-month PCE inflation decreased from 2.5 percent in in the 12 months ending in Jan 2012 to 0.7 percent in the 12 months ending in Oct 2013. PCE inflation excluding food and energy (PCEX), used as indicator in monetary policy, decreased from 2.0 percent in the 12 months ending in Jan 2012 to 1.1 percent in the 12 months ending in Oct 2013, which is still below or at the tolerable maximum of 2.0-2.5 percent in monetary policy. The unintended effect of shocks of commodity prices from zero interest rates captured by PCE food prices (PCEF) and energy (PCEE) in the absence of risk aversion should be weighed in design and implementation of monetary policy. Annual PCE inflation in the second part of Table IV-6 shows significant fluctuations. Headline PCE inflation rose during the period of 1 percent interest rates from Jun 2003 to Jun 2005, reaching 2.9 percent in 2005. PCEE rose at very high two-digit rates after 2003. Headline PCE inflation increased 3.1 percent in 2008 while PCEE energy increased 14.3 percent in carry trades from zero interest rates to commodity derivatives during deep global recession. Flight away from risk financial assets to US government obligations fueled by proposals of TARP in Congress (Cochrane and Zingales 2009) caused decline of PCEE of 19.0 percent in 2009 and minus 0.1 percent in headline PCEE. There is no deflation in the US economy. Headline PCEE inflation increased at the average rate of 2.9 percent from 1929 to 2012, as shown in Table IV-6 using the revisions by the BEA. PCEE inflation was 6.8 percent on average during the Great Inflation episode from 1960 to 1981 (see http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html and Appendix I The Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB and http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). PCE inflation was 3.2 percent on average from 1947 to 2012 and 3.2 percent on average for PCEX. The long-term charts of PCEE and PCEX show almost identical behavior

Table IV-6, US, Percentage Change in 12 Months of Prices of Personal Consumption Expenditures ∆%

	PCE	PCEG	PCEG -D	PCES	PCEX	PCEF	PCEE
2013
Oct	0.7	-1.4	-1.8	1.8	1.1	1.0	-5.1
Sep	0.9	-1.0	-1.8	2.0	1.2	1.2	-3.3
Aug	1.1	-0.4	-2.0	1.9	1.2	1.2	-0.1
Jul	1.3	0.3	-1.8	1.9	1.1	1.2	4.8
Jun	1.3	0.0	-1.8	1.9	1.2	1.0	3.2
May	1.0	-0.7	-1.9	1.9	1.2	1.0	-0.9
Apr	0.9	-1.1	-1.8	1.9	1.2	1.2	-4.1
Mar	1.2	-0.5	-1.7	2.1	1.4	1.1	-1.6
Feb	1.5	0.4	-1.7	2.1	1.5	1.2	2.4
Jan	1.4	0.0	-1.6	2.1	1.5	1.1	-0.8
2012
Dec	1.5	0.4	-1.6	2.1	1.6	1.3	1.1
Nov	1.6	0.5	-1.5	2.1	1.7	1.3	0.8
Oct	1.8	1.3	-1.6	2.1	1.8	1.0	4.4
Sep	1.7	1.0	-1.5	2.0	1.7	0.9	2.7
Aug	1.6	0.6	-1.7	2.1	1.7	1.5	-0.2
Jul	1.5	0.2	-1.6	2.2	1.9	2.0	-4.6
Jun	1.6	0.5	-1.4	2.2	1.9	2.4	-3.3
May	1.6	0.7	-1.1	2.1	1.9	2.4	-3.3
Apr	2.0	1.6	-1.2	2.1	1.9	2.9	1.5
Mar	2.3	2.5	-0.6	2.0	2.0	3.3	4.9
Feb	2.4	2.9	-0.6	2.2	2.0	3.9	7.3
Jan	2.5	3.0	-0.4	2.2	2.0	4.7	6.8
Annual ∆%
2012	1.8	1.3	-1.2	2.2	1.8	2.3	1.4
2011	2.4	3.6	-1.0	1.8	1.4	4.0	15.8
2010	1.7	1.6	-1.4	1.7	1.3	0.3	10.1
2009	-0.1	-2.3	-1.7	1.1	1.2	1.2	-19.0
2008	3.1	3.0	-1.9	3.1	2.1	5.6	14.3
2007	2.5	1.1	-2.0	3.2	2.2	3.9	6.0
2006	2.7	1.4	-1.6	3.4	2.2	3.1	11.3
2005	2.9	2.0	-1.0	3.3	2.2	1.7	17.3
2004	2.4	1.4	-1.9	3.0	1.9	3.1	11.3
2003	2.0	-0.1	-3.6	3.1	1.5	1.9	12.6
2002	1.3	-0.9	-2.5	2.6	1.7	1.5	-5.8
2001	1.9	-0.1	-2.0	3.1	1.8	2.9	2.5
2000	2.5	2.0	-1.8	2.8	1.7	2.3	18.3
Average ∆%
2000-2012	2.0	1.0	-19.8*	2.6	1.8	2.5	6.0
1929-2012	2.9	3.4	1.4	3.3	2.9	2.9	3.4
1947-2012	3.2	2.4	1.2	3.9	3.2	3.1	4.3
1960-1981	6.8	6.4	4.9	7.2	6.3	7.3	11.1

*Percentage change from 2000 to 2012.

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

The headline PCE index is shown in Chart IV-5 from 1999 to 2013. There is an evident upward trend with the carry-trade bump in 2008-2009 during the global recession.

Chart IV-5, US, Price Index of Personal Consumption Expenditures 1999-2013

Source: US Bureau of Economic Analysis

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

The consumer price index in Chart IV-6 mirrors the behavior of the PCE price index in Chart IV-6. There is the same upward trend with the carry-trade bump in 2008 during the global recession.

Chart IV-6, US, Consumer Price Index, NSA, 1999-2013

Source: US Bureau of Labor Statistics

http://www.bls.gov/cpi/data.htm

Chart IV-7 provides the PCE price index excluding food and energy. There is milder upward trend with fewer oscillations.

Chart IV-7, US, Price Index of Personal Consumption Expenditures Excluding Food and Energy 1999-2013

Source: US Bureau of Economic Analysis

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

The core consumer price index, excluding food and energy, is shown in Chart IV-8. There is also an upward trend but with fluctuations.

Chart IV-8, US, Consumer Price Index Excluding Food and Energy, NSA, 1999-2012

Source: US Bureau of Labor Statistics

http://www.bls.gov/cpi/data.htm

The PCE price index of food is shown in Chart IV-9. There is a more pronounced upward trend and sharper fluctuations.

Chart IV-9, US, Price Index of Personal Consumption Expenditures Food 1999-2013

Source: US Bureau of Economic Analysis

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

There is similar behavior in the consumer price index of food in Chart IV-10. There is an upward trend from 1999 to 2011 with a major bump in 2009 when commodity futures positions were unwound. Zero interest rates with bouts of risk aversion dominate the trend into 2011. Risk aversion softens the trend toward the end of 2011 and in 2012-2013.

Chart IV-10, US, Consumer Price Index, Food, NSA, 1999-2013

Source: US Bureau of Labor Statistics

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

The most pronounced trend of PCE price indexes is that of energy in Chart IV-11. It is impossible to explain the hump in 2008 in the middle of the global recession without the carry trade from zero interest rates to leveraged positions in commodity futures. Risk aversion after Sep 2008 caused flight to the safe haven of government obligations. The return of risk appetite with zero interest rates caused a first wave of carry trades with another upward trend interrupted by the first European sovereign risk crisis in Apr-Jul 2010. Zero interest rates with risk appetite caused another sharp upward trend of commodity prices interrupted by risk aversion from the second sovereign crisis. In the absence of risk aversion, carry trades from zero interest rates to positions in risk financial assets will continue to cause distortions such as commodity price trends and fluctuations.

Chart IV-11, US, Price Index of Personal Consumption Expenditures Energy Goods and Services 1999-2013

Source: US Bureau of Economic Analysis

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

Chart IV-12 provides the consumer price index of energy commodities. Unconventional monetary policy of zero or near zero interest rates causes upward trends in commodity prices reflected in (1) increase from 2003 to 2007; (2) sharp increase during the global contraction in 2008; (3) collapse from 2008 into 2009 as positions in commodity futures were unwound in a flight to government obligations; (4) new upward trend after 2010; and (5) episodes of decline during risk aversion shocks such as the more recent segment during the worsening European debt crisis in Nov and Dec of 2011 and with new strength of commodity prices in the beginning of 2012 followed by softness in another episode of risk aversion and increases during risk appetite.

Chart IV-12, US, Consumer Price Index, Energy, NSA, 1999-2013

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

Chart IV-13 of the US Energy Information Administration provides prices of the crude oil futures contract. Unconventional monetary policy of very low interest rates and quantitative easing with suspension of the 30-year bond to lower mortgage rates caused a sharp upward trend of oil prices. There is no explanation for the jump of oil prices to $149/barrel in 2008 during a sharp global recession other than carry trades from zero interest rates to commodity futures. The peak in Chart IV-13 is $145.18 on Jul 14, 2008, in the midst of deep global recession, falling to $33.87/barrel on Dec 19, 2008 (data from the US Energy Information Administration (http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RCLC1&f=D). Prices collapsed in the flight to government obligations caused by proposals for withdrawing “toxic assets” in the Troubled Asset Relief Program (TARP) as analyzed by Cochrane and Zingales (2009). Risk appetite with zero interest rates after stress tests of US banks resulted in another upward trend of commodity prices after 2009 with fluctuations during periods of risk aversion. All price indexes are affected by unconventional monetary policy.

Chart IV-13, US, Crude Oil Futures Contract

Source: US Energy Information Administration

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RCLC1&f=D

Table IV-14 provides the annual PCE price index from the revised and enhanced dataset of the Bureau of Economic Analysis (BEA). The annual PCEE index increased at the average rate of 3.2 percent from 1929 to 2012. There is no support for fear of deflation.

Chart IV-14, US, Price Index of Personal Consumption Expenditures, Annual, 1929-2012

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

Chart IV-15 of the Bureau of Labor Statistics (BLS) provides the consumer price index from 1914 to 2012. There is long-term inflation and no evidence in support of fear of deflation.

Chart IV-15, US, Consumer Price Index, Annual, 1914-2012

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

Chart IV-16 provides the BEA annual index of PCE prices excluding food and energy. The average rate of increase from 1929 to 2012 is 3.2 percent.

Chart IV-16, US, Price Index of Personal Consumption Expenditures Excluding Food and Energy, Annual, 1929-2013

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

Chart IV-17 of the Bureau of Labor Statistics (BLS) provides the annual consumer price index excluding food and energy from 1957 to 2012. There is long-term, fluctuating inflation.

Chart IV-17, US, Consumer Price Index Excluding Food and Energy, Annual, 1957-2012

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

The producer price index of the euro zone fell 0.5 percent in Oct 2013. The producer price index of the euro zone decreased in three consecutive months, 0.3 percent in Mar, 0.6 percent in Apr and 0.3 percent in May, remaining unchanged in Jun 2013. The producer price index increased 0.2 percent in Jul 2013 and was unchanged in Aug 2013, increasing 0.2 percent in Sep 2013, as shown in Table IV-6. Energy inflation has oscillated with the shocks of risk aversion that cause unwinding of carry trade positions from zero interest rates to commodity futures. Energy prices fell 0.8 percent in Dec 2012 but increased 0.3 percent in Feb 2013 and 0.9 percent in Jan 2013. Energy prices fell 0.8 percent in Dec 2012, 0.5 percent in Nov 2012 and fell 0.4 percent in Oct 2012 after -0.1 percent in Sep 2012, increased 2.4 percent in Aug, and 1.4 percent in Jul 2012 or at the annual equivalent rate of 16.2 percent in the quarter Jul-Sep 2012 and at 25.3 percent in Jul-Aug 2012. Energy prices increased 5.2 percent cumulatively in Jan-Mar 2012 or at the annual equivalent rate of 22.5 percent. Energy prices increased 0.6 percent in Jul 2013, 0.1 percent in Aug 2013 and 0.6 percent in Sep 2013. Energy prices fell 1.4 percent in Oct 2013. During periods of relaxed risk aversion, carry trades from zero interest rates to commodity exposures drive high inflation waves. Portfolio reallocations created exposures in equities while reversing exposures in commodities. Prices of capital goods have barely moved. Prices of durable consumer goods have been subdued in 2013. Purchasing managers’ indexes worldwide reflect increasing prices of inputs for business while sales prices are stagnant or declining, squeezing economic activity (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html). Unconventional monetary policy causes uncertainty in business decisions with shocks of declining net revenue margins during worldwide inflation waves (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html http://cmpassocregulationblog.blogspot.com/2013/10/world-inflation-waves-regional-economic.html).

Table IV-6, Euro Area, Industrial Producer Prices Month ∆%

	Oct 2013	Sep 2013	Aug 2013	Jul 2013	Jun 2013	May 2013
Industry ex Construction	-0.5	0.2	0.0	0.2	0.0	-0.3
Industry ex Construction & Energy	-0.1	-0.1	0.1	-0.1	-0.1	-0.1
Intermediate Goods	-0.2	-0.2	-0.1	-0.2	-0.3	-0.3
Energy	-1.4	0.6	0.1	0.6	0.0	-0.9
Capital Goods	0.0	0.0	0.0	0.0	0.1	0.0
Durable Consumer Goods	0.0	0.1	0.0	0.0	-0.1	0.1
Nondurable Consumer Goods	-0.3	0.0	0.2	0.2	0.2	0.1

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

Twelve-month percentage changes of industrial prices in the euro zone have moderated significantly, as shown in Table IV-7. The 12-month percentage change of industrial prices excluding construction fell from 4.4 percent in Dec 2011 to minus 0.3 percent in Apr 2013 and minus 0.3 percent in May 2013. The 12-month percentage change of industrial producer prices increased 0.1 percent in Jun 2013 but was flat in Jul 2013 and fell 0.9 percent in Aug 2013. Industrial producer prices in the euro area fell 0.9 percent in the 12 months ending in Sep 2013 and fell 1.4 percent in the 12 months ending in Oct 2013. Energy prices increased 9.7 percent in the 12 months ending in Dec 2011 and Jan 2011 but the rate fell to 4.5 percent in the 12 months ending in Jul 2012, increasing to 7.5 percent in Aug 2012 and 6.4 percent in Sep 2012. Energy prices fell 5.2 percent in the 12 months ending in Oct 2012, 3.9 percent in Nov 2012, 3.6 percent in Dec 2012, 2.2 percent in Jan 2013 and 1.6 percent in Feb 2013. Energy prices fell 0.6 in the 12 months ending in Mar 2013, minus 2.3 percent in Apr 2013, minus 2.2 percent in May 2013 and minus 1.0 percent in Jun 2013. The 12-month percentage change of energy prices was minus 1.4 percent in Jul 2013 and minus 3.4 percent in Aug 2013. Energy prices fell 2.7 percent in the 12 months ending in Sep 2013 and fell 3.6 percent in the 12 months ending in Oct 2013. There is major vulnerability in producer price inflation that can return together with long positions in commodity futures with carry trades from zero interest during relaxation of risk aversion. Business net revenue or prices of goods sold less costs of inputs suffer wide oscillation preventing sound calculation of risk/returns and capital budgeting (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html).

Table IV-7 Euro Area, Industrial Producer Prices 12-Month ∆%

	Oct 2013	Sep 2013	Aug 2013	Jul 2013	Jun 2013	May 2013
Industry ex Construction	-1.4	-0.9	-0.9	0.0	0.1	-0.3
Industry ex Construction & Energy	-0.3	-0.1	0.3	0.5	0.6	0.5
Intermediate Goods	-1.8	-1.6	-1.0	-0.5	-0.5	-0.6
Energy	-3.6	-2.7	-3.4	-1.4	-1.0	-2.2
Capital Goods	0.5	0.6	0.5	0.5	0.5	0.6
Durable Consumer Goods	0.5	0.6	0.5	0.6	0.7	0.8
Nondurable Consumer Goods	1.1	1.6	1.9	2.2	2.2	2.1

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

Industrial producer prices in the euro area are following similar inflation waves as in the rest of the world (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html), as shown in Table IV-8. In the first wave in Jan-Apr 2011, annual equivalent producer price inflation was 11.3 percent driven by carry trades from zero interest rates into commodity futures. In the second wave in May-Jun 2011, annual equivalent inflation of producer prices declined to minus 0.6 percent. In the third wave in Jul-Sep 2011, annual equivalent inflation increased at 2.4 percent. In the fourth wave in Oct-Dec 2011, risk aversion originating in the European sovereign debt crisis interrupted commodity carry trades, resulting in annual equivalent inflation of only 0.4 percent. In the fifth wave in Jan-Mar 2012, annual equivalent inflation jumped to 7.9 percent with a high annual equivalent rate of 8.7 percent in Jan-Feb 2012. In the sixth wave, risk aversion from the European sovereign debt event caused reversal of commodity carry trades with equivalent annual inflation of minus 2.4 percent in Apr-Jun 2012. In the seventh wave, annual equivalent inflation jumped to 6.8 percent in Jul-Aug 2012 while energy prices driven by carry trades increased at the annual equivalent rate of 25.3 percent. In the eighth wave, annual equivalent inflation retreated to 0.6 percent in Sep-Oct 2012. In the ninth wave, annual equivalent inflation was minus 2.4 percent in Nov-Dec 2012. In the tenth wave, annual equivalent inflation was 2.4 percent in Jan-Feb 2013. In the eleventh wave, annual equivalent inflation was minus 3.5 percent in Mar-Jun 2013. In the twelfth wave, annual equivalent inflation was 1.6 percent in Jul-Sep 2013. In the thirteenth wave, annual equivalent inflation was minus 5.8 percent in Oct 2013. The bottom part of Table IV-7 provides 12-month percentage changes from 1999 to 2012. The final row of Table IV-8 provides the average annual rate of producer-price inflation in the euro area at 2.5 percent in Dec from 1999 to 2012.

Table IV-8, Euro Area, Industrial Producer Prices Excluding Construction, Month and 12-Month ∆%

	Month ∆%	12-Month ∆%
Oct 2013	-0.5	-1.4
AE ∆% Oct	-5.8
Sep	0.2	-0.9
Aug	0.0	-0.9
Jul	0.2	0.0
AE ∆% Jul-Sep	1.6
Jun	0.0	0.1
May	-0.3	-0.3
Apr	-0.6	-0.3
Mar	-0.3	0.5
AE ∆% Mar-Jun	-3.5
Feb	0.1	1.3
Jan	0.3	1.7
AE ∆% Jan-Feb	2.4
Dec 2012	-0.2	2.2
Nov	-0.2	2.3
AE ∆% Nov-Dec	-2.4
Oct	0.0	2.6
Sep	0.1	2.8
AE ∆% Sep-Oct	0.6
Aug	0.8	2.9
Jul	0.3	1.9
AE ∆% Jul-Aug	6.8
Jun	-0.5	2.1
May	-0.3	2.7
Apr	0.2	2.9
AE ∆% Apr-Jun	-2.4
Mar	0.5	3.6
Feb	0.6	3.9
Jan	0.8	4.0
AE ∆% Jan-Mar	7.9
Dec 2011	-0.2	4.4
Nov	0.2	5.4
Oct	0.1	5.5
AE ∆% Oct-Dec	0.4
Sep	0.2	5.6
Aug	-0.1	5.7
Jul	0.5	5.8
AE ∆% Jul-Sep	2.4
Jun	0.0	5.5
May	-0.1	5.9
AE ∆% May-Jun	-0.6
Apr	0.9	6.4
Mar	0.8	6.3
Feb	0.7	6.1
Jan	1.2	5.4
AE ∆% Jan-Apr	11.3
Dec 2012		2.2
Dec 2011		4.4
Dec 2010		5.1
Dec 2009		-3.0
Dec 2008		1.5
Dec 2007		4.4
Dec 2006		3.8
Dec 2005		4.5
Dec 2004		3.7
Dec 2003		1.0
Dec 2002		1.5
Dec 2001		-0.5
Dec 2000		4.7
Dec 1999		2.6
Average ∆% 1999-2012		2.5

Source: EUROSTAT

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

V World Economic Slowdown. Table V-1 is constructed with the database of the IMF (http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx) to show GDP in dollars in 2012 and the growth rate of real GDP of the world and selected regional countries from 2013 to 2016. The data illustrate the concept often repeated of “two-speed recovery” of the world economy from the recession of 2007 to 2009. The IMF has lowered its forecast of the world economy to 2.9 percent in 2013 but accelerating to 3.6 percent in 2014, 4.0 percent in 2015 and 4.1 percent in 2016. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $34,560 billion of world output of $72,216 billion, or 47.9 percent, but are projected to grow at much lower rates than world output, 2.1 percent on average from 2013 to 2016 in contrast with 3.6 percent for the world as a whole. While the world would grow 15.4 percent in the four years from 2013 to 2016, the G7 as a whole would grow 8.6 percent. The difference in dollars of 2012 is rather high: growing by 15.4 percent would add $11.1 trillion of output to the world economy, or roughly, two times the output of the economy of Japan of $5,960 billion but growing by 8.6 percent would add $6.2 trillion of output to the world, or about the output of Japan in 2012. The “two speed” concept is in reference to the growth of the 150 countries labeled as emerging and developing economies (EMDE) with joint output in 2012 of $27,221 billion, or 37.7 percent of world output. The EMDEs would grow cumulatively 21.9 percent or at the average yearly rate of 5.1 percent, contributing $6.0 trillion from 2013 to 2016 or the equivalent of somewhat less than the GDP of $8,221 billion of China in 2012. The final four countries in Table V-1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output in 2012 adds to $14,346 billion, or 19.9 percent of world output, which is equivalent to 41.5 percent of the combined output of the major advanced economies of the G7.

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

	GDP USD 2012	Real GDP ∆% 2013	Real GDP ∆% 2014	Real GDP ∆% 2015	Real GDP ∆% 2016
World	72,216	2.9	3.6	4.0	4.1
G7	34,560	1.2	2.0	2.5	2.6
Canada	1,821	1.6	2.2	2.4	2.5
France	2,614	0.2	1.0	1.5	1.7
DE	3,430	0.5	1.4	1.4	1.3
Italy	2,014	-1.8	0.7	1.1	1.4
Japan	5,960	1.9	1.2	1.1	1.2
UK	2,477	1.4	1.9	2.0	2.0
US	16,245	1.6	2.6	3.4	3.5
Euro Area	12,199	-0.4	1.0	1.4	1.5
DE	3,430	0.5	1.4	1.4	1.3
France	2,614	0.2	1.0	1.5	1.7
Italy	2,014	-1.8	0.7	1.1	1.4
POT	212	-1.8	0.8	1.5	1.8
Ireland	211	0.6	1.8	2.5	2.5
Greece	249	-4.2	0.6	2.9	3.7
Spain	1,324	-1.3	0.2	0.5	0.7
EMDE	27,221	4.5	5.1	5.3	5.4
Brazil	2,253	2.5	2.5	3.2	3.3
Russia	2,030	1.5	3.0	3.5	3.5
India	1,842	3.8	5.1	6.3	6.5
China	8,221	7.6	7.3	7.0	7.0

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

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

Continuing high rates of unemployment in advanced economies constitute another characteristic of the database of the WEO (http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx). Table V-2 is constructed with the WEO database to provide rates of unemployment from 2012 to 2016 for major countries and regions. In fact, unemployment rates for 2012 in Table V-2 are high for all countries: unusually high for countries with high rates most of the time and unusually high for countries with low rates most of the time. The rates of unemployment are particularly high for the countries with sovereign debt difficulties in Europe: 15.7 percent for Portugal (POT), 14.7 percent for Ireland, 24.2 percent for Greece, 25.0 percent for Spain and 10.6 percent for Italy, which is lower but still high. The G7 rate of unemployment is 7.4 percent. Unemployment rates are not likely to decrease substantially if slow growth persists in advanced economies.

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

	% Labor Force 2012	% Labor Force 2013	% Labor Force 2014	% Labor Force 2015	% Labor Force 2016
World	NA	NA	NA	NA	NA
G7	7.4	7.3	7.3	7.0	6.6
Canada	7.3	7.2	7.1	7.0	6.9
France	10.3	11.0	11.1	10.9	10.5
DE	5.5	5.6	5.5	5.5	5.5
Italy	10.7	12.5	12.4	12.0	11.2
Japan	4.4	4.2	4.3	4.3	4.3
UK	8.0	7.7	7.5	7.3	7.0
US	8.1	7.6	7.4	6.9	6.4
Euro Area	11.4	12.3	12.2	12.0	11.5
DE	5.5	5.6	5.5	5.5	5.5
France	10.3	11.0	11.1	10.9	10.5
Italy	10.7	12.5	12.4	12.0	11.2
POT	15.7	17.4	17.7	17.3	16.8
Ireland	14.7	13.7	13.3	12.8	12.4
Greece	24.2	27.0	26.1	24.0	21.0
Spain	25.0	26.9	26.7	26.5	26.2
EMDE	NA	NA	NA	NA	NA
Brazil	5.5	5.8	6.0	6.5	6.5
Russia	6.0	5.7	5.7	5.5	5.5
India	NA	NA	NA	NA	NA
China	4.1	4.1	4.1	4.1	4.1

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

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

Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog from IQ2012 to IIQ2013 available now for all countries. There are preliminary estimates for all countries for IIIQ2013. Growth is weak throughout most of the world. Japan’s GDP increased 1.2 percent in IQ2012 and 3.4 percent relative to a year earlier but part of the jump could be the low level a year earlier because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan is experiencing difficulties with the overvalued yen because of worldwide capital flight originating in zero interest rates with risk aversion in an environment of softer growth of world trade. Japan’s GDP fell 0.2 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of minus 0.8 percent, which is much lower than 5.1 percent in IQ2012. Growth of 3.8 percent in IIQ2012 in Japan relative to IIQ2011 has effects of the low level of output because of Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan’s GDP contracted 0.9 percent in IIIQ2012 at the SAAR of minus 3.7 percent and increased 0.3 percent relative to a year earlier. Japan’s GDP grew 0.1 percent in IVQ2012 at the SAAR of 0.6 percent and increased 0.3 percent relative to a year earlier. Japan grew 1.1 percent in IQ2013 at the SAAR of 4.3 percent and 0.3 percent relative to a year earlier. Japan’s GDP increased 0.9 percent in IIQ2013 at the SAAR of 3.8 percent and increased 1.1 percent relative to a year earlier. Japan’s GDP grew 0.5 percent in IIIQ2013 at the SAAR of 1.9 percent and increased 2.7 pecent relative to a year earlier. China grew at 2.2 percent in IIQ2012, which annualizes to 9.1 percent and 7.6 percent relative to a year earlier. China grew at 2.0 percent in IIIQ2012, which annualizes at 8.2 percent and 7.4 percent relative to a year earlier. In IVQ2012, China grew at 1.9 percent, which annualizes at 7.8 percent, and 7.9 percent in IVQ2012 relative to IVQ2011. In IQ2013, China grew at 1.5 percent, which annualizes at 6.1 percent and 7.7 percent relative to a year earlier. In IIQ2013, China grew at 1.9 percent, which annualizes at 7.8 percent and 7.5 percent relative to a year earlier. China grew at 2.2 percent in IIIQ2013, which annualizes at 9.1 percent and 7.8 percent relative to a year earlier. There is decennial change in leadership in China (http://www.xinhuanet.com/english/special/18cpcnc/index.htm). Growth rates of GDP of China in a quarter relative to the same quarter a year earlier have been declining from 2011 to 2013. GDP fell 0.1 percent in the euro area in IQ2012 and decreased 0.2 in IQ2012 relative to a year earlier. Euro area GDP contracted 0.3 percent IIQ2012 and fell 0.5 percent relative to a year earlier. In IIIQ2012, euro area GDP fell 0.1 percent and declined 0.7 percent relative to a year earlier. In IVQ2012, euro area GDP fell 0.5 percent relative to the prior quarter and fell 1.0 percent relative to a year earlier. In IQ2013, the GDP of the euro area fell 0.2 percent and decreased 1.2 percent relative to a year earlier. The GDP of the euro area increased 0.3 percent in IIQ2013 and fell 0.6 percent relative to a year earlier. In III 2013, euro area GDP increased 0.1 percent and fell 0.4 percent relative to a year earlier. Germany’s GDP increased 0.7 percent in IQ2012 and 1.8 percent relative to a year earlier. In IIQ2012, Germany’s GDP decreased 0.1 percent and increased 0.6 percent relative to a year earlier but 1.1 percent relative to a year earlier when adjusted for calendar (CA) effects. In IIIQ2012, Germany’s GDP increased 0.2 percent and 0.4 percent relative to a year earlier. Germany’s GDP contracted 0.5 percent in IVQ2012 and increased 0.0 percent relative to a year earlier. In IQ2013, Germany’s GDP increased 0.0 percent and fell 1.6 percent relative to a year earlier. In IIQ2013, Germany’s GDP increased 0.7 percent and 0.9 percent relative to a year earlier. The GDP of Germany increased 0.3 percent in IIIQ2013 and 1.1 percent relative to a year earlier. Growth of US GDP in IQ2012 was 0.9 percent, at SAAR of 3.7 percent and higher by 3.3 percent relative to IQ2011. US GDP increased 0.3 percent in IIQ2012, 1.2 percent at SAAR and 2.8 percent relative to a year earlier. In IIIQ2012, GDP grew 0.7 percent, 2.8 percent at SAAR and 3.1 percent relative to IIIQ2011. In IVQ2012, GDP grew 0.0 percent, 0.1 percent at SAAR and 2.0 percent relative to IVQ2011. In IQ2013, US GDP grew at 1.1 percent SAAR, 0.3 percent relative to the prior quarter and 1.3 percent relative to the same quarter in 2013. In IIQ2013, US GDP grew at 2.5 percent in SAAR, 0.6 percent relative to the prior quarter and 1.6 percent relative to IIQ2012. US GDP grew at 3.6 percent in SAAR in IIIQ2013, 0.9 percent relative to the prior quarter and 1.8 percent relative to the same quarter a year earlier (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html) with weak hiring (http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html). In IQ2012, UK GDP changed 0.0 percent, increasing 0.6 percent relative to a year earlier. UK GDP fell 0.5 percent in IIQ2012 and changed 0.0 percent relative to a year earlier. UK GDP increased 0.6 percent in IIIQ2012 and changed 0.0 percent relative to a year earlier. UK GDP fell 0.3 percent in IVQ2012 relative to IIIQ2012 and fell 0.2 percent relative to a year earlier. UK GDP increased 0.4 percent in IQ2013 and 0.2 percent relative to a year earlier. UK GDP increased 0.7 percent in IIQ2013 and 1.3 percent relative to a year earlier. In IIIQ2013, UK GDP increased 0.8 percent and 1.5 percent relative to a year earlier. Italy has experienced decline of GDP in nine consecutive quarters from IIIQ2011 to IIIQ2013. Italy’s GDP fell 1.1 percent in IQ2012 and declined 1.8 percent relative to IQ2011. Italy’s GDP fell 0.6 percent in IIQ2012 and declined 2.6 percent relative to a year earlier. In IIIQ2012, Italy’s GDP fell 0.4 percent and declined 2.8 percent relative to a year earlier. The GDP of Italy contracted 0.9 percent in IVQ2012 and fell 3.0 percent relative to a year earlier. In IQ2013, Italy’s GDP contracted 0.6 percent and fell 2.5 percent relative to a year earlier. Italy’s GDP fell 0.3 percent in IIQ2013 and 2.2 percent relative to a year earlier. The GDP of Italy fell 0.1 percent in IIIQ2013 and declined 1.9 percent relative to a year earlier. France’s GDP changed 0.0 percent in IQ2012 and increased 0.4 percent relative to a year earlier. France’s GDP decreased 0.3 percent in IIQ2012 and increased 0.1 percent relative to a year earlier. In IIIQ2012, France’s GDP increased 0.2 percent and changed 0.0 percent relative to a year earlier. France’s GDP fell 0.2 percent in IVQ2012 and declined 0.3 percent relative to a year earlier. In IQ2013, France GDP fell 0.1 percent and declined 0.4 percent relative to a year earlier. The GDP of France increased 0.5 percent in IIQ2013 and 0.5 percent relative to a year earlier. France’s GDP contracted 0.1 percent in IIIQ2013 and increased 0.2 percent relative to a year earlier.

Table V-3, Percentage Changes of GDP Quarter on Prior Quarter and on Same Quarter Year Earlier, ∆%

	IQ2012/IVQ2011	IQ2012/IQ2011
United States	QOQ: 0.9 SAAR: 3.7	3.3
Japan	QOQ: 1.2 SAAR: 5.1	3.4
China	1.4	8.1
Euro Area	-0.1	-0.2
Germany	0.7	1.8
France	0.0	0.4
Italy	-1.1	-1.8
United Kingdom	0.0	0.6
	IIQ2012/IQ2012	IIQ2012/IIQ2011
United States	QOQ: 0.3 SAAR: 1.2	2.8
Japan	QOQ: -0.2 SAAR: -0.8	3.8
China	2.2	7.6
Euro Area	-0.3	-0.5
Germany	-0.1	0.6 1.1 CA
France	-0.3	0.1
Italy	-0.6	-2.6
United Kingdom	-0.5	0.0
	IIIQ2012/ IIQ2012	IIIQ2012/ IIIQ2011
United States	QOQ: 0.7 SAAR: 2.8	3.1
Japan	QOQ: –0.9 SAAR: –3.7	0.3
China	2.0	7.4
Euro Area	-0.1	-0.7
Germany	0.2	0.4
France	0.2	0.0
Italy	-0.4	-2.8
United Kingdom	0.6	0.0
	IVQ2012/IIIQ2012	IVQ2012/IVQ2011
United States	QOQ: 0.0 SAAR: 0.1	2.0
Japan	QOQ: 0.1 SAAR: 0.6	0.3
China	1.9	7.9
Euro Area	-0.5	-1.0
Germany	-0.5	0.0
France	-0.2	-0.3
Italy	-0.9	-3.0
United Kingdom	-0.3	-0.2
	IQ2013/IVQ2012	IQ2013/IQ2012
United States	QOQ: 0.3 SAAR: 1.1	1.3
Japan	QOQ: 1.1 SAAR: 4.3	0.3
China	1.5	7.7
Euro Area	-0.2	-1.2
Germany	0.0	-1.6
France	-0.1	-0.4
Italy	-0.6	-2.5
UK	0.4	0.2
	IIQ2013/IQ2013	IIQ2013/IIQ2012
United States	QOQ: 0.6 SAAR: 2.5	1.6
Japan	QOQ: 0.9 SAAR: 3.8	1.1
China	1.9	7.5
Euro Area	0.3	-0.6
Germany	0.7	0.9
France	0.5	0.5
Italy	-0.3	-2.2
UK	0.7	1.3
	IIIQ2013/IIQ2013	III/Q2013/ IIIQ2012
USA	QOQ: 0.9 SAAR: 3.6	1.8
Japan	QOQ: 0.5 SAAR: 1.9	2.7
China	2.2	7.8
Euro Area	0.1	-0.4
Germany	0.3	1.1
France	-0.1	0.2
Italy	-0.1	-1.9
UK	0.8	1.5

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

Source: Country Statistical Agencies http://www.census.gov/aboutus/stat_int.html http://www.bea.gov/national/index.htm#gdp

There is evidence of deceleration of growth of world trade and even contraction in recent data. Table V-4 provides two types of data: growth of exports and imports in the latest available months and in the past 12 months; and contributions of net trade (exports less imports) to growth of real GDP. Japan provides the most worrisome data (Section VB and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations_8763.html http://cmpass ocregulationblog.blogspot.com/2013/08/interest-rate-risks-duration-dumping.html and earlier http://cmpassocregulationblog.blogspot.com/2013/07/duration-dumping-steepening-yield-curve.html and earlier http://cmpassocregulationblog.blogspot.com/2013/06/paring-quantitative-easing-policy-and_4699.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html and earlier http://cmpassocregulationblog.blogspot.com/2012/11/contraction-of-united-states-real_25.html and for GDP http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.html and earlier http://cmpassocreulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html). In Oct 2013, Japan’s exports grew 18.6 percent in 12 months while imports increased 26.1 percent. The second part of Table V-4 shows that net trade deducted 1.3 percentage points from Japan’s growth of GDP in IIQ2012, deducted 2.1 percentage points from GDP growth in IIIQ2012 and deducted 0.6 percentage points from GDP growth in IVQ2012. Net trade added 0.3 percentage points to GDP growth in IQ2012, 1.6 percentage points in IQ2013 and 0.6 percentage points in IIQ2013. In IIIQ2013, net trade deducted 1.8 percentage points from GDP growth in Japan. In Oct 2013, China exports increased 5.6 percent relative to a year earlier and imports increased 7.6 percent. Germany’s exports increased 1.7 percent in the month of Aug 2013 and fell 5.4 percent in the 12 months ending in Aug 2013. Germany’s imports increased 1.7 percent in the month of Sep and increased 3.6 percent in the 12 months ending in Sep. Net trade contributed 0.8 percentage points to growth of GDP in IQ2012, contributed 0.4 percentage points in IIQ2012, contributed 0.3 percentage points in IIIQ2012, deducted 0.5 percentage points in IVQ2012, deducted 0.2 percentage points in IQ2012 and added 0.3 percentage points in IIQ2013. Net traded deducted 0.4 percentage points from Germany’s GDP growth in IIIQ2013. Net trade deducted 0.8 percentage points from UK value added in IQ2012, deducted 0.6 percentage points in IIQ2012, added 0.4 percentage points in IIIQ2012 and subtracted 0.2 percentage points in IVQ2012. In IQ2013, net trade added 0.3 percentage points to UK’s growth of value added and contributed 0.0 percentage points in IIQ2013. In IIIQ2013, net trade deducted 0.9 percentage points from UK GDP growth. France’s exports increased 1.8 percent in Sep 2013 while imports increased 3.4. Net traded added 0.1 percentage points from France’s GDP in IIIQ2012 and 0.2 percentage points in IVQ2012. Net trade deducted 0.1 percentage points from France’s GDP growth in IQ2013 and was neutral in IIQ2013, deducting 0.7 percentage points in IIIQ2013. US exports increased 1.8 percent in Oct 2013 and goods exports increased 2.0 percent in Jan-Oct 2013 relative to a year earlier but net trade deducted 0.03 percentage points from GDP growth in IIIQ2012 and added 0.68 percentage points in IVQ2012. Net trade deducted 0.28 percentage points from US GDP growth in IQ2013 and deducted 0.07 percentage points in IIQ2013. Net traded added 0.07 percentage points to US GDP growth in IIIQ2013. US imports increased 0.4 percent in Oct 2013 and goods imports decreased 0.3 percent in Jan-Oct 2013 relative to a year earlier. Industrial production 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. 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 V-4, Growth of Trade and Contributions of Net Trade to GDP Growth, ∆% and % Points

	Exports M ∆%	Exports 12 M ∆%	Imports M ∆%	Imports 12 M ∆%
USA	1.8 Oct	2.0 Jan-Oct	0.4 Oct	-0.3 Jan-Oct
Japan		Oct 2013 18.6 Sep 2013 11.5 Aug 2013 14.7 Jul 2013 12.2 Jun 2013 7.4 May 2013 10.1 Apr 2013 3.8 Mar 2013 1.1 Feb 2013 -2.9 Jan 2013 6.4 Dec -5.8 Nov -4.1 Oct -6.5 Sep -10.3 Aug -5.8 Jul -8.1		Oct 2013 26.1 Sep 2013 16.5 Aug 2013 16.0 Jul 2013 19.6 Jun 2013 11.8 May 2013 10.0 Apr 2013 9.4 Mar 2013 5.5 Feb 2013 7.3 Jan 2013 7.3 Dec 1.9 Nov 0.8 Oct -1.6 Sep 4.1 Aug -5.4 Jul 2.1
China		5.6 Oct -0.3 Sep 7.2 Aug 5.1 Jul -3.1 Jun 1.0 May 14.7 Apr 10.0 Mar 21.8 Feb		7.6 Oct 7.4 Sep 10.9 Jul -0.7 Jun -0.3 May 16.8 Apr 14.1 Mar -15.2 Feb
Euro Area	2.7 12-M Sep	0.9 Jan-Sep	-0.2 12-M Sep	-3.5 Jan-Sep
Germany	1.7 Sep CSA	3.6 Sep	-1.9 Sep CSA	-0.3 Sep
France Sep	1.8	-1.3	3.4	0.7
Italy Sep	0.6	2.0	1.9	-0.1
UK	0.1 Sep	0.1 Jul-Sep 13 /Jul-Sep 12	0.2 Sep	1.8 Jul-Sep 13/Jul-Sep 12
Net Trade % Points GDP Growth	% Points
USA	IIIQ2013 0.07 IIQ2013 -0.07 IQ2013 -0.28 IVQ2012 +0.68 IIIQ2012 -0.03 IIQ2012 +0.10 IQ2012 +0.44
Japan	0.3 IQ2012 -1.3 IIQ2012 -2.1 IIIQ2012 -0.6 IVQ2012 1.6 IQ2013 0.6 IIQ2013 -1.8 IIIQ2013
Germany	IQ2012 0.8 IIQ2012 0.4 IIIQ2012 0.3 IVQ2012 -0.5 IQ2013 -0.2 IIQ2013 0.3 IIIQ2013 -0.4
France	0.1 IIIQ2012 0.2 IVQ2012 -0.1 IQ2013 0.0 IIQ2013 -0.7 IIIQ2013
UK	-0.8 IQ2012 -0.6 IIQ2012 +0.4 IIIQ2012 -0.2 IVQ2012 0.3 IQ2013 0.0 IIQ2013 -0.9 IIIQ2013

Sources: Country Statistical Agencies http://www.census.gov/foreign-trade/ http://www.bea.gov/iTable/index_nipa.cfm

The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table V-5 for Oct 2013. The share of Asia in Japan’s trade is more than one-half for 53.4 percent of exports and 46.1 percent of imports. Within Asia, exports to China are 18.8 percent of total exports and imports from China 23.0 percent of total imports. While exports to China increased 21.3 percent in the 12 months ending in Oct 2013, imports from China increased 22.0 percent. The largest export market for Japan in Oct 2013 is the US with share of 19.1 percent of total exports, which is almost equal to that of China, and share of imports from the US of 8.2 percent in total imports. Western Europe has share of 10.7 percent in Japan’s exports and of 10.1 percent in imports. Rates of growth of exports of Japan in Oct 2013 are relatively high for several countries and regions with growth of 26.4 percent for exports to the US, 20.6 percent for exports to Mexico, 15.5 percent for exports to Brazil and 29.1 percent for exports to Australia. Comparisons relative to 2011 may have some bias because of the effects of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Deceleration of growth in China and the US and threat of recession in Europe can reduce world trade and economic activity. Growth rates of imports in the 12 months ending in Oct 2013 are positive for all trading partners. Imports from Asia increased 23.5 percent in the 12 months ending in Oct 2013 while imports from China increased 22.0 percent. Data are in millions of yen, which may have effects of recent depreciation of the yen relative to the United States dollar (USD).

Table V-5, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yen

Oct 2013	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	6,104,509	18.6	7,195,191	26.1
Asia	3,261,087	14.9	3,317,938	23.5
China	1,147,898	21.3	1,654,281	22.0
USA	1,164,142	26.4	586,945	16.2
Canada	76,514	11.8	107,110	12.4
Brazil	47,134	15.5	99,248	14.9
Mexico	87,516	20.6	35,278	6.6
Western Europe	654,440	24.3	724,470	15.0
Germany	166,549	25.5	216,462	26.8
France	58,880	46.3	90,945	1.6
UK	92,372	7.9	53,538	7.8
Middle East	215,339	13.8	1,322,212	51.9
Australia	140,762	29.1	409,549	10.7

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

World trade projections of the IMF are in Table V-6. There is increasing growth of the volume of world trade of goods and services from 2.9 percent in 2013 to 5.4 percent in 2015 and 5.1 percent on average from 2013 to 2018. World trade would be slower for advanced economies while emerging and developing economies (EMDE) experience faster growth. World economic slowdown would more challenging with lower growth of world trade.

Table V-6, IMF, Projections of World Trade, USD Billions, USD/Barrel and ∆%

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

Notes: Commodity Price Index includes Fuel and Non-fuel Prices; Commodity Industrial Inputs Price includes agricultural raw materials and metal prices; Oil price is average of WTI, Brent and Dubai

Source: International Monetary Fund World Economic Outlook databank

http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx

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

VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index^™ (PMI^™) seasonally adjusted increased to 54.3 in Nov from 51.8 in Oct with the three-month average at 52.9 indicating moderate growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/18a5af682bef4cdeafb0caa1e50d9785). New export orders registered 52.6 in Nov up from 51.3 in Oct, indicating marginal expansion. Chris Williamson, Chief Economist at Markit, finds that manufacturing output is growing at 0.6 percent in IVQ2013, which is equivalent to annual rate of 2.3 percent per year (). The Markit US Manufacturing Purchasing Managers’ Index^™ (PMI^™) increased to 54.3 in Nov from 51.8 in Oct, which is the best improvement since Jan (http://www.markiteconomics.com/Survey/PressRelease.mvc/f2489cf394d94b409e04a2ffa7a8e36b). The index of new exports orders increased from 51.3 in Oct to 51.4 in Nov while total new orders increased from 52.7 in Oct to 56.2 in Nov. Chris Williamson, Chief Economist at Markit, finds that the index suggests growth of production at 2.5 percent annual rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/f2489cf394d94b409e04a2ffa7a8e36b). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business^® increased 0.9 percentage points from 56.4 in Oct to 57.3 in Nov, which indicates growth at a higher rate (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders increased 3.0 percentage points from 60.6 in Oct to 63.6 in Nov. The index of exports increased 2.5 percentage point from 57.0 in Oct to 59.5 in Nov, growing at a faster rate. The Non-Manufacturing ISM Report on Business^® PMI decreased 4.2 percentage points from 59.7 in Oct to 55.5 in Nov, indicating growth of business activity/production during 52 consecutive months, while the index of new orders decreased 0.4 percentage points from 56.8 in Oct to 56.4 in Nov (http://www.ism.ws/ISMReport/NonMfgROB.cfm?navItemNumber=12943). Table USA provides the country economic indicators for the US.

Table USA, US Economic Indicators

Consumer Price Index	Oct 12 months NSA ∆%: 1.0; ex food and energy ∆%: 1.7 Oct month SA ∆%: -0.1; ex food and energy ∆%: 0.1 Blog 11/24/13
Producer Price Index	Oct 12-month NSA ∆%: 0.3; ex food and energy ∆% 1.4 Oct month SA ∆% = -0.2; ex food and energy ∆%: 0.2 Blog 11/24/13
PCE Inflation	Oct 12-month NSA ∆%: headline 0.7; ex food and energy ∆% 1.1 Blog 12/8/13
Employment Situation	Household Survey: Nov Unemployment Rate SA 7.0% Blog calculation People in Job Stress Nov: 28.1 million NSA, 17.2% of Labor Force Establishment Survey: Nov Nonfarm Jobs +203,000; Private +196,000 jobs created Oct 12-month Average Hourly Earnings Inflation Adjusted ∆%: 1.2 Blog 12/8/13
Nonfarm Hiring	Nonfarm Hiring fell from 63.8 million in 2006 to 52.0 million in 2012 or by 11.8 million Private-Sector Hiring Sep 2013 4.381 million lower by 0.834 million than 5.215 million in Sep 2005 Blog 11/24/13
GDP Growth	BEA Revised National Income Accounts IQ2012/IQ2011 ∆%: 3.3 IIQ2012/IIQ2011 2.8 IIIQ2012/IIIQ2011 3.1 IVQ2012/IVQ2011 2.0 IQ2013/IQ2012 1.3 IIQ2013/IIQ2012 1.6 IIIQ2013/IIIQ2012 1.8 IQ2012 SAAR 3.7 IIQ2012 SAAR 1.2 IIIQ2012 SAAR 2.8 IVQ2012 SAAR 0.1 IQ2013 SAAR 1.1 IIQ2013 SAAR 2.5 IIIQ2013 SAAR 3.6 Blog 12/8/13
Real Private Fixed Investment	SAAR IIIQ2013 5.4 ∆% IVQ2007 to IIIQ2013: minus 3.7% Blog 12/8/13
Personal Income and Consumption	Oct month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% -0.2 Real Personal Consumption Expenditures (RPCE): 0.3 12-month Oct NSA ∆%: RDPI: 1.8; RPCE ∆%: 2.1 Blog 11/3/13
Quarterly Services Report	IIQ13/IIQ12 SA ∆%: Information 4.1 Financial & Insurance 4.2 Blog 9/8/13
Employment Cost Index	Compensation Private IIIQ2013 SA ∆%: 0.4 Sep 12 months ∆%: 1.9 Blog 11/24/13
Industrial Production	Oct month SA ∆%: -0.1 Oct 12 months SA ∆%: 3.2 Manufacturing Oct SA ∆% 0.3 Oct 12 months SA ∆% 3.3, NSA 3.4 Capacity Utilization: 78.1 Blog 11/17/13
Productivity and Costs	Nonfarm Business Productivity IIIQ2013∆% SAAE 1.9; IIIQ2013/IIIQ2012 ∆% 0.0; Unit Labor Costs SAAE IIIQ2013 ∆% -0.6; IIIQ2013/IIIQ2012 ∆%: 1.9 Blog 11/17/2013
New York Fed Manufacturing Index	General Business Conditions From Oct 1.52 to Nov -2.21 New Orders: From Oct 7.75 to Nov -5.53 Blog 11/24/13
Philadelphia Fed Business Outlook Index	General Index from Oct 19.8 to Nov 6.5 New Orders from Oct 27.5 to Nov 11.8 Blog 11/24/13
Manufacturing Shipments and Orders	New Orders SA Sep ∆% 1.7 Ex Transport -0.2 Jan-Sep NSA New Orders 2.4 Ex transport 1.5 Blog 11/10/13
Durable Goods	Oct New Orders SA ∆%: -2.0; ex transport ∆%: -0.1 Jan-Oct 13/Jan-Oct 12 New Orders NSA ∆%: 3.3; ex transport ∆% 1.4 Blog 12/1/13
Sales of New Motor Vehicles	Jan-Nov 2013 14,239,897; Jan-Nov 2012 13,135,875. Nov 13 SAAR 16.41 million, Oct 13 SAAR 15.23 million, Nov 2012 SAAR 15.32 million Blog 12/8/13
Sales of Merchant Wholesalers	Jan-Sep 2013/Jan-Sep 2012 NSA ∆%: Total 3.6; Durable Goods: 3.9; Nondurable Goods: 3.3 Blog 11/24/13
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Sep 13/Sep 12-M NSA ∆%: Sales Total Business 4.2; Manufacturers 2.5 Retailers 3.5; Merchant Wholesalers 6.8 Blog 11/24/13
Sales for Retail and Food Services	Jan-Oct 2013/Jan-Oct 2012 ∆%: Retail and Food Services 4.2; Retail ∆% 4.3 Blog 11/24/13
Value of Construction Put in Place	Oct SAAR month SA ∆%: 0.8 Oct 12-month NSA: 2.5 Jan-Oct 2013 ∆% 5.0 Blog 12/8/13
Case-Shiller Home Prices	Sep 2013/Sep 2012 ∆% NSA: 10 Cities 13.3; 20 Cities: 13.3 ∆% Sep SA: 10 Cities 0.9 ; 20 Cities: 1.0 Blog 12/1/13
FHFA House Price Index Purchases Only	Sep SA ∆% 0.3; 12 month NSA ∆%: 8.5 Blog 12/1/13
New House Sales	Oct 2013 month SAAR ∆%: 25.4 Jan-Oct 2013/Jan-Oct 2012 NSA ∆%: 15.8 Blog 12/8/13
Housing Starts and Permits	Aug Starts month SA ∆% (Oct NA) ; Permits Oct ∆%: 6.2 Jan-Aug 2013/Jan-Aug 2012 NSA ∆% Starts 22.8; Jan-Oct 2013/Jan-Oct 2012 Permits ∆% 20.1 Blog 12/1/13
Trade Balance	Balance Oct SA -$40,641 million versus Sep -$38,945 million Exports Oct SA ∆%: 1.8 Imports Oct SA ∆%: 0.4 Goods Exports Jan-Oct 2013/2012 NSA ∆%: 2.0 Goods Imports Jan-Oct 2013/2012 NSA ∆%: -0.3 Blog 12/8/13
Export and Import Prices	Oct 12-month NSA ∆%: Imports -2.0; Exports -2.1 Blog 11/17/13
Consumer Credit	Sep ∆% annual rate: Total 5.4; Revolving minus 2.9; Nonrevolving 8.7 Blog 11/10/13
Net Foreign Purchases of Long-term Treasury Securities	Sep Net Foreign Purchases of Long-term US Securities: $25.5 billion Major Holders of Treasury Securities: China $1294 billion; Japan $1178 billion; Total Foreign US Treasury Holdings Jul $5653 billion Blog 11/24/13
Treasury Budget	Fiscal Year 2014/2013 ∆% Oct: Receipts 7.9; Outlays minus 4.6; Individual Income Taxes minus 2.9 Deficit Fiscal Year 2011 $1,296 billion Deficit Fiscal Year 2012 $1,087 billion Blog 11/17/2013
CBO Budget and Economic Outlook	2012 Deficit $1087 B 6.8% GDP Debt 11,281 B 70.1% GDP 2013 Deficit $642 B, Debt 12,036 B 72.5% GDP Blog 8/26/12 11/18/12 2/10/13 9/22/13
Commercial Banks Assets and Liabilities	Oct 2013 SAAR ∆%: Securities 2.8 Loans 3.4 Cash Assets 59.9 Deposits 9.2 Blog 12/1/13
Flow of Funds	IIQ2013 ∆ since 2007 Assets +6079.8 MM Real estate -$2325.1 MM Financial +7835.2 MM Net Worth +$6902.3 MM Blog 9/29/13
Current Account Balance of Payments	IIQ2013 -178,171 MM %GDP 2.4 Blog 9/22/13

Links to blog comments in Table USA:

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

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

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

11/10/13 http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html

11/3/2013 http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html

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

9/22/13 http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html

9/8/13 http://cmpassocregulationblog.blogspot.com/2013/09/twenty-eight-million-unemployed-or.html

2/10/13 http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html

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

Motor vehicle sales and production in the US have been in long-term structural change. Table VA-1 provides the data on new motor vehicle sales and domestic car production in the US from 1990 to 2010. New motor vehicle sales grew from 14,137 thousand in 1990 to the peak of 17,806 thousand in 2000 or 29.5 percent. In that same period, domestic car production fell from 6,231 thousand in 1990 to 5,542 thousand in 2000 or -11.1 percent. New motor vehicle sales fell from 17,445 thousand in 2005 to 11,772 in 2010 or 32.5 percent while domestic car production fell from 4,321 thousand in 2005 to 2,840 thousand in 2010 or 34.3 percent. In Jan-Nov 2013, light vehicle sales accumulated to 14,239,897, which is higher by 8.4 percent relative to 13,135,875 a year earlier (http://motorintelligence.com/m_frameset.html). The seasonally adjusted annual rate of light vehicle sales in the US reached 16.41 million in Nov 2013, higher than 15.23 million in Oct 2013 and higher than 15.32 million in Nov 2012 (http://motorintelligence.com/m_frameset.html).

Table VA-1, US, New Motor Vehicle Sales and Car Production, Thousand Units

	New Motor Vehicle Sales	New Car Sales and Leases	New Truck Sales and Leases	Domestic Car Production
1990	14,137	9,300	4,837	6,231
1991	12,725	8,589	4,136	5,454
1992	13,093	8,215	4,878	5,979
1993	14,172	8,518	5,654	5,979
1994	15,397	8,990	6,407	6,614
1995	15,106	8,536	6,470	6,340
1996	15,449	8,527	6,922	6,081
1997	15,490	8,273	7,218	5,934
1998	15,958	8,142	7,816	5,554
1999	17,401	8,697	8,704	5,638
2000	17,806	8,852	8,954	5,542
2001	17,468	8,422	9,046	4,878
2002	17,144	8,109	9,036	5,019
2003	16,968	7,611	9,357	4,510
2004	17,298	7,545	9,753	4,230
2005	17,445	7,720	9,725	4,321
2006	17,049	7,821	9,228	4,367
2007	16,460	7,618	8,683	3,924
2008	13,494	6,814	6.680	3,777
2009	10,601	5,456	5,154	2,247
2010	11,772	5,729	6,044	2,840

Source: US Census Bureau http://www.census.gov/compendia/statab/cats/wholesale_retail_trade/motor_vehicle_sales.html

Chart VA-1 of the Board of Governors of the Federal Reserve provides output of motor vehicles and parts in the United States from 1972 to 2013. Output virtually stagnated since the late 1990s.

Chart VA-1, US, Motor Vehicles and Parts Output, 1972-2013

Source: Board of Governors of the Federal Reserve System

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

Construction spending at seasonally adjusted annualized rate (SAAR) reached $908.5 billion in Oct 2013, which was higher by 0.8 percent than in the prior month of Sep 2013, as shown in Table VA-2. Residential investment, with $332.9 billion accounting for 36.6 percent of total value of construction, decreased 0.5 percent in Sep and nonresidential investment, with $575.6 billion accounting for 63.4 percent of the total, increased 1.6 percent. Public construction increased 3.9 percent while private construction decreased 0.5 percent. Data in Table VA-2 show that nonresidential construction at $575.6 billion is much higher in value than residential construction at $332.9 billion while total private construction at $625.7 billion is much higher than public construction at $282.7 billion, all in SAAR. Residential and nonresidential construction contributed positively to growth of GDP in the US in all quarters in 2012. Nonresidential investment deducted 0.57 percentage points from GDP growth in IQ2013 while residential construction added 0.34 percentage points. Nonresidential construction added 0.56 percentage points to GDP growth in IIQ2013 with residential construction adding 0.40 percentage points. Nonresidential construction added 0.20 percentage points to GDP growth in IIIQ2013 while residential construction added 0.43 percentage points. In 2012, residential construction added 0.32 percentage points to GDP growth and added 0.01 percentage points in 2011. Nonresidential construction added 0.85 percentage points to GDP growth in 2012 and 0.84 percentage points in 2011. Residential construction added 0.32 percentage points to GDP growth in 2012 and 0.01 percentage points in 2011 (http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html http://www.bea.gov/iTable/index_nipa.cfm).

Table VA-2, Construction Put in Place in the United States Seasonally Adjusted Annual Rate Million Dollars and Month and 12-Month ∆%

Oct 2013	Oct 2013 SAAR $ Millions	Month ∆%	12-Month ∆%
Total	908,448	0.8	5.3
Residential	332,885	-0.5	17.4
Nonresidential	575,563	1.6	-0.7
Total Private	625,725	-0.5	6.6
Private Residential	326,863	-0.6	17.8
New Single Family	170,343	-0.6	17.8
New Multi-Family	34,459	2.2	37.8
Private Nonresidential	298,862	-0.5	-3.4
Total Public	282,723	3.9	2.3
Public Residential	6,021	4.6	-1.0
Public Nonresidential	276,701	3.8	2.4

SAAR: seasonally adjusted annual rate; B: billions

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

Further information on construction spending is provided in Table VA-3. The original monthly estimates not-seasonally adjusted (NSA) and their 12-month rates of change are provided in the first two columns while the SAARs and their monthly changes are provided in the final two columns. There has been improvement in construction in the US. There are only five declines in the monthly rate from Dec 2011 to Aug 2013. Growth in 12 months fell from 12.0 percent in Nov 2012 to 2.5 percent in Oct 2013.

Table VA-3, US, Value and Percentage Change in Value of Construction Put in Place, Dollars Millions and ∆%

	Value NSA Month $ Millions	12-Month ∆% NSA	Value SAAR $ Millions	Month ∆% SA*
Oct 2013	83,567	2.5	908,448	0.8
Sep	83,456	3.3	901,155	-0.3
Aug	85,677	4.9	903,786	0.1
Jul	83,104	5.3	902,854	0.6
Jun	81,722	4.9	897,113	0.1
May	77,327	7.0	896,134	2.0
Apr	70,535	6.5	878,396	1.1
Mar	64,036	5.3	869,164	-0.1
Feb	58,395	4.3	869,909	0.8
Jan	59,143	6.2	863,136	-2.3
Dec 2012	68,136	9.5	883,550	0.1
Nov	77091	12.0	882,685	2.3
Oct	81,520	9.8	863,065	-1.2
Sep	80,812	7.2	873,259	2.2
Aug	81,712	6.0	854,048	-0.3
Jul	78,897	9.4	856,348	0.1
Jun	77,876	6.9	855,779	1.3
May	72,240	9.8	844,709	1.4
Apr	66,223	7.8	833,243	0.8
Mar	60,796	7.5	826,641	0.4
Feb	55,981	10.8	823,331	0.7
Jan	55,671	9.3	817,616	0.0
Dec 2011	62,242	3.4	817,569	1.0

SAAR: Seasonally Adjusted Annual Rate

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

The sharp contraction of the value of construction in the US is revealed by Table VA-4. Construction spending in Jan-Oct 2013, not seasonally adjusted, reached $746.9 billion, which is higher by 5.0 percent than $711.7 billion in the same period in 2012. The depth of the contraction is shown by the decline of construction spending from $1005.3 billion in Jan-Oct 2006 to only $746.9 billion in the same period in 2013, or decline by minus 25.7 percent. The decline in inflation-adjusted terms is much higher. The all-items not seasonally adjusted CPI (consumer price index) increased from 201.8 in Oct 2006 to 233.546 in Oct 2013 (http://www.bls.gov/cpi/data.htm) or by 15.7 percent. The comparable decline from Jan-Sep 2005 to Jan-Sep 2013 is minus 21.4 percent. Construction spending in Jan-Oct 2013 decreased by 2.2 percent relative to the same period in 2003. Construction spending is lower by 3.1 percent in Jan-Oct 2013 relative to the same period in 2009. Construction has been weaker than the economy as a whole.

Table VA-4, US, Value of Construction Put in Place in the United States, Not Seasonally Adjusted, $ Millions and ∆%

Jan-Oct 2013 $ MM	746,962
Jan-Oct 2012	711,727
∆% to 2013	5.0
Jan-Oct 2011 $ MM	646,936
∆% to 2013	15.5
Jan-Oct 2010 $ MM	675,392
∆% to 2013	10.6
Jan-Oct 2009 $MM	770,617
∆% to 2013	-3.1
Jan-Oct 2006 $ MM	1,005,319
∆% to 2013	-25.7
Jan-Oct 2005 $ MM	952,493
∆% to 2013	-21.6
Jan-Oct 2003 $ MM	763,646
∆% to 2013	-2.2

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

Chart VA-2 of the US Census Bureau provides value of construction spending in the US not seasonally adjusted from 2002 to 2013. There are wide oscillations requiring seasonal adjustment to compare adjacent data. There was sharp decline during the global recession followed in recent periods by a stationary series that may be moving upward again with vacillation in the final segment.

Chart VA-2, Value of Construction Spending not Seasonally Adjusted, Millions of Dollars, 2002-2013

Source: US Census Bureau

http://www.census.gov/construction/c30/c30index.html

Monthly construction spending in the US in May-Oct not seasonally adjusted is shown in Table VA-5 for the years between 2002 and 2013. The value of $83.6 billion in Oct 2013 is higher by 2.5 percent than $81.5 billion in Oct 2012. Construction fell by 17.7 percent from the peak of $101.6 billion in Oct 2006 to $83.6 billion in Oct 2013. The data are not adjusted for inflation or changes in quality.

Table VA-5, US, Value of Construction Spending Not Seasonally Adjusted, Millions of Dollars

Year	May	Jun	Jul	Aug	Sep	Oct
2002	73,384	77,182	78,863	79,460	76,542	75,710
2003	74,473	80,377	82,971	85,191	83,841	83,133
2004	83,736	89,932	93,614	96,164	92,538	90,582
2005	92,959	99,632	103,158	106,706	103,269	102,339
2006	102,495	107,607	108,423	110,434	104,191	101,582
2007	100,534	105,399	107,090	110,430	105,150	103,847
2008	92,781	96,338	98,483	99,786	96,755	95,612
2009	76,808	81,429	83,379	84,368	81,213	79,949
2010	68,906	74,035	73,077	75,834	74,764	73,470
2011	65,814	72,850	72,113	77,104	75,372	74,222
2012	72,240	77,876	78,897	81,712	80,812	81,520
2013	77,327	81,722	83,104	85,677	83,456	83,567

Source: US Census Bureau

http://www.census.gov/construction/c30/c30index.html

Chart VA-3 of the US Census Bureau shows SAARs of construction spending for the US since 1993. Construction spending surged in nearly vertical slope after the stimulus of 2003 combining near zero interest rates and subsequent slow adjustment in 17 doses of increases by 25 basis points between Jun 2004 and Jun 2006 together with other housing subsidies. Construction spending collapsed after subprime mortgages defaulted with the fed funds rate increasing from 1.00 percent in Jun 2004 to 5.25 percent in Jun 2006. Subprime mortgages were programmed for refinancing in two years after increases in homeowner equity in the assumption that fed funds rates would remain low forever or increase in small increments (Gorton 2009EFM see http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Price declines of houses or even uncertainty prevented refinancing of subprime mortgages that defaulted, causing the financial crisis that eventually triggered the global recession. Chart VA-3 shows a trend of increase in the final segment but it is difficult to assess if it will be sustained.

Chart VA-3, US, Construction Expenditures SAAR 1993-2013

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr050.html

Construction spending at SAARs in the four months Jul-Aug is shown in Table VA-6 for the years between 2002 and 2013. There is a peak in 2005 to 2007 with subsequent collapse of SAARs and rebound in 2012-2013.

Table VA-6, US, Value of Construction Spending SAAR Millions of Dollars

Year	Jul	Aug	Sep	Oct
2002	847,129	839,008	832,134	839,690
2003	891,264	901,839	911,589	925,732
2004	1,006,119	1,013,724	1,012,290	1,015,562
2005	1,109,691	1,119,782	1,131,739	1,145,663
2006	1,165,093	1,158,193	1,151,104	1,139,292
2007	1,154,018	1,160,593	1,165,162	1,152,511
2008	1,066,919	1,057,459	1,056,666	1,050,690
2009	899,601	889,643	880,259	869,374
2010	788,524	791,653	798,916	800,266
2011	789,297	801,196	805,519	806,514
2012	856,348	854,048	873,259	863,065
2013	902,854	903,786	901,155	908,448

Source: US Census Bureau

http://www.census.gov/construction/c30/c30index.html

Chart VA-4 of the US Census Bureau provides SAARs of value of construction from 2002 to 2013. There is clear acceleration after 2003 when fed funds rates were fixed at 1.0 percent from Jun 2003 until Jun 2004. Construction peaked in 2005-2006, stabilizing in 2007 at a lower level and then collapsed in a nearly vertical drop until 2011 with increases into 2012 and marginal drop in Jan 2013 followed by increase in Feb 2013 and decline in Mar 2013 followed by continuing increase in Apr-May 2013. Construction stabilized in Jun 2013 and increased in Jul-Aug 2013. Construction declined in Sep 2013 and increased in Oct 2013.

Chart VA-4, US, Construction Expenditures SAAR 2002-2013

Source: US Census Bureau

http://www.census.gov/construction/c30/c30index.html

Chart VA-5 of the US Census Bureau provides monthly residential construction in the US not seasonally adjusted from 2002 to 2013. There was steep increase until 2006 followed by sharp contraction. The series stabilized at the bottom and increased in the final segment with subsequent stability.

Chart VA-5, US, Residential Construction, Not Seasonally Adjusted, Millions of Dollars, 2002-2013

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

Chart VA-6 of the US Census Bureau provides monthly nonresidential construction in the US not seasonally adjusted. There is similar acceleration until 2006 followed by milder contraction than for residential construction. The final segment is stationary/declining.

Chart VA-6, US, Nonresidential Construction, Not Seasonally Adjusted, Millions of Dollars, 2002-2013

http://www.census.gov/construction/c30/c30index.html

Annual available data for the value of construction put in place in the US between 1993 and 2012 are provided in Table VA-7. Data from 1993 to 2001 are available for public and private construction with breakdown in residential and nonresidential only for private construction. Data beginning in 2002 provide aggregate residential and nonresidential values. Total construction value put in place in the US increased 76.5 percent between 1993 and 2012 but most of the growth, 65.3 percent, was concentrated in 1993 to 2000 with increase of 6.8 percent between 2000 and 2012. Total value of construction increased 1.1 percent between 2002 and 2012 with value of nonresidential construction increasing 27.9 percent while value of residential construction fell 28.7 percent. Value of total construction fell 22.4 percent between 2005 and 2012, with value of residential construction declining 53.6 percent while value of nonresidential construction rose 17.2 percent. Value of total construction fell 26.6 percent between 2006 and 2012, with value of nonresidential construction increasing 4.2 percent while value of residential construction fell 53.8 percent. In 2002, nonresidential construction had a share of 52.6 percent in total construction while the share of residential construction was 47.4 percent. In 2012, the share of nonresidential construction in total value rose to 66.6 percent while that of residential construction fell to 33.4 percent.

Table VA-7, Annual Value of Construction Put in Place 1993-2012, Millions of Dollars and ∆%

	Total	Private Nonresidential	Private Residential
1993	485,548	150,006	208,180
1994	531,892	160,438	241,033
1995	548,666	180,534	228,121
1996	599,693	195,523	257,495
1997	631,853	213,720	264,696
1998	688,515	237,394	296,343
1999	744,551	249,167	326,302
2000	802,756	275,293	346,138
2001	840,249	273,922	364,414
	Total	Total Nonresidential	Total Residential
2002	847,874	445,914	401,960
2003	891,497	440,246	451,251
2004	991,356	452,948	538,408
2005	1,104,136	486,629	617,507
2006	1,167,222	547,408	619,814
2007	1,152,351	651,883	500,468
2008	1,067,564	709,818	357,746
2009	903,201	649,273	253,928
2010	804,561	555,449	249,112
2011	788,014	535,357	252,657
2012	856,953	570,429	286,524
∆% 1993-2012	76.5
∆% 1993-2000	65.3
∆% 2000-2012	6.8
∆% 2002-2012	1.1	27.9	-28.7
∆% 2005-2012	-22.4	17.2	-53.6
∆% 2006-2012	-26.6	4.2	-53.8

Source: US Census Bureau http://www.census.gov/construction/c30/c30index.html

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

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

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

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

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

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

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

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

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

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

Source: Policy Board, Bank of Japan

http://www.boj.or.jp/en/mopo/outlook/gor1310b.pdf

Private-sector activity in Japan expanded with the Markit Composite Output PMI^™ Index decreased from 56.0 in Oct, which was the highest reading in the six-year history of the survey, to 54.0 in Nov, (http://www.markiteconomics.com/Survey/PressRelease.mvc/84e5de2e85dc4979b44676d284eb3780). Claudia Tillbrooke, Economist at Markit and author of the report, finds that the survey data suggest continuing strong growth of the economy of Japan with strength in new orders for manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/84e5de2e85dc4979b44676d284eb3780). The Markit Business Activity Index of Services decreased from the record of 55.3 in Oct to 51.8 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/84e5de2e85dc4979b44676d284eb3780). Claudia Tillbrooke, Economist at Markit and author of the report, finds growth in services with strength in new orders but concern on possible effects of increase of sale taxes (http://www.markiteconomics.com/Survey/PressRelease.mvc/84e5de2e85dc4979b44676d284eb3780). The Markit/JMMA Purchasing Managers’ Index^™ (PMI™), seasonally adjusted, increased from 54.2 in Oct to 55.1 in Oct, which is the highest level since Jul 2006 (http://www.markiteconomics.com/Survey/PressRelease.mvc/f1337c0c4701495c8d63bc0be72aaa7e). New orders grew at the highest rate in 42 months in anticipation of the increase in the sales tax next year. New export orders increased from Thailand and Hong Kong. Claudia Tillbrooke, Economist at Markit and author of the report, finds improving manufacturing conditions at the highest levels in more 42 months with impulse originating in new orders at home and abroad (http://www.markiteconomics.com/Survey/PressRelease.mvc/f1337c0c4701495c8d63bc0be72aaa7e).Table JPY provides the country data table for Japan.

Table JPY, Japan, Economic Indicators

Historical GDP and CPI	1981-2010 Real GDP Growth and CPI Inflation 1981-2010 Blog 8/9/11 Table 26
Corporate Goods Prices	Oct ∆% -0.1 12 months ∆% 2.5 Blog 11/24/13
Consumer Price Index	Oct NSA ∆% 0.1; Sep 12 months NSA ∆% 1.1 Blog 12/1/13
Real GDP Growth	IIIQ2013 ∆%: 0.5 on IIQ2013; IIIQ2013 SAAR 2.7; ∆% from quarter a year earlier: 1.2 % Blog 6/16/13 8/18/13 9/15/13 11/17/13
Employment Report	Oct Unemployed 2.63 million Change in unemployed since last year: minus 80 thousand Unemployment rate: 4.0 % Blog 12/1/13
All Industry Indices	Sep month SA ∆% 0.4 12-month NSA ∆% 2.2 Blog 11/24/13
Industrial Production	Oct SA month ∆%: 0.5 12-month NSA ∆% 4.7 Blog 12/1/13
Machine Orders	Total Sep ∆% 13.2 Private ∆%: -0.9 Sep ∆% Excluding Volatile Orders -2.1 Blog 11/17/13
Tertiary Index	Sep month SA ∆% -0.2 Sep 12 months NSA ∆% 1.1 Blog 11/17/13
Wholesale and Retail Sales	Oct 12 months: Total ∆%: 1.7 Wholesale ∆%: 1.5 Retail ∆%: 2.3 Blog 12/1/13
Family Income and Expenditure Survey	Oct 12-month ∆% total nominal consumption 2.3, real 0.9 Blog 12/1/13
Trade Balance	Exports Oct 12 months ∆%: 18.6 Imports Oct 12 months ∆% 26.1 Blog 11/24/13

Links to blog comments in Table JPY:

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

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

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

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

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

VC China. China estimates an index of nonmanufacturing purchasing managers on the basis of a sample of 1200 nonmanufacturing enterprises across the country (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Table CIPMNM provides this index and components. The index fell from 58.0 in Mar 2012 to 55.2 in May but climbed to 56.7 in Jun, which is lower than 58.0 in Mar and 57.3 in Feb but higher than in any other of the months in 2012. In Jul 2012 the index fell marginally to 55.6 and then to 56.3 in Aug and 53.7 in Sep but rebounded to 55.5 in Oct and 55.6 in Nov 2012. Improvement continued with 56.1 in Dec 2012 and 56.2 in Jan 2013, declining marginally to 54.5 in Feb 2013 and 55.6 in Mar 2013. The index fell to 54.5 in Apr 2013, 54.3 in May 2013 and 53.9 in Jun 2013, rebounding to 54.1 in Jul 2013. The index eased to 53.9 in Aug 2013. The index increased to 55.4 in Sep 2013 and 56.3 in Oct 2013, stabilizing at 56.0 in Nov 2013.

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

	Total Index	New Orders	Interm. Input Prices	Subs Prices	Exp
Nov 2013	56.0	51.0	54.8	49.5	61.3
Oct	56.3	51.6	56.1	51.4	60.5
Sep	55.4	53.4	56.7	50.6	60.1
Aug	53.9	50.9	57.1	51.2	62.9
Jul	54.1	50.3	58.2	52.4	63.9
Jun	53.9	50.3	55.0	50.6	61.8
May	54.3	50.1	54.4	50.7	62.9
Apr	54.5	50.9	51.1	47.6	62.5
Mar	55.6	52.0	55.3	50.0	62.4
Feb	54.5	51.8	56.2	51.1	62.7
Jan	56.2	53.7	58.2	50.9	61.4
Dec 2012	56.1	54.3	53.8	50.0	64.6
Nov	55.6	53.2	52.5	48.4	64.6
Oct	55.5	51.6	58.1	50.5	63.4
Sep	53.7	51.8	57.5	51.3	60.9
Aug	56.3	52.7	57.6	51.2	63.2
Jul	55.6	53.2	49.7	48.7	63.9
Jun	56.7	53.7	52.1	48.6	65.5
May	55.2	52.5	53.6	48.5	65.4
Apr	56.1	52.7	57.9	50.3	66.1
Mar	58.0	53.5	60.2	52.0	66.6
Feb	57.3	52.7	59.0	51.2	63.8
Jan	55.7	52.2	58.2	51.1	65.3

Notes: Interm.: Intermediate; Subs: Subscription; Exp: Business Expectations

Source: National Bureau of Statistics of China

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

Chart CIPMNM provides China’s nonmanufacturing purchasing managers’ index. There was slowing of the general index in Apr 2012 after the increase in Jan-Mar 2012 and further decline to 55.2 in May 2012 but increase to 56.7 in Jun 2012 with marginal decline to 55.6 in Jul 2012 and 56.3 in Aug 2012 and sharper drop to 53.7 in Sep 2012, rebounding to 55.5 in Oct 2012, 55.6 in Nov 2012, 56.1 in Dec 2012 and 55.6 in Mar 2013. The index fell again to 54.5 in Apr 2013, 54.3 in May 2013 and 53.9 in Jun 2013, rebounding to 54.1 in Jul 2013. The index stabilized at 53.9 in Aug 2013 climbing to 55.4 in Sep 2013 and 56.3 in Oct 2013. The index stabilized at 56.0 in Nov 2013.

Chart CIPMNM, China, Nonmanufacturing Index of Purchasing Managers, Seasonally Adjusted

Source: National Bureau of Statistics of China

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

Table CIPMMFG provides the index of purchasing managers of manufacturing seasonally adjusted of the National Bureau of Statistics of China. The general index (IPM) rose from 50.5 in Jan 2012 to 53.3 in Apr and declined to 50.1 in Jul and to the contraction zone at 49.2 in Aug and 49.8 in Sep, climbing above 50.0 to 50.2 in Oct, 50.6 in Nov-Dec 2012, 50.9 in Mar 2013 and 50.6 in Apr 2013. The index increased to 50.8 in May 2013, falling to 50.1 in Jun 2013 and rebounding to 50.3 in Jul 2013. The index increased to 51.0 in Aug 2013 and 51.1 in Sep 2013 with marginal improvement to 51.4 in Oct 2013. The index stabilized at 51.4 in Nov 2013. The index of new orders (NOI) fell from 54.5 in Apr 2012 to 49.0 in Jul and 48.7 in Aug, climbing above 50.0, 51.2 in Nov 2012-Dec 2012, 52.3 in Mar 2013 and 51.7 in Apr 2013. The index of new orders increased to 51.8 in May 2013, falling to 50.4 in Jun 2013 and 50.6 in Jul 2013. The index of new orders increased to 52.4 in Aug 2013 and 52.8 in Sep 2013 with marginal decline to 52.5 in Oct 2013 and 52.3 in Nov 2013. The index of employment also fell from 51.0 in Apr to 49.1 in Aug and further down to 48.7 in Nov 2012, 49.9 in Dec 2012, 49.8 in Mar 2013 and 49.0 in Apr 2013. The index of employment fell to 48.8 in May 2013 and 48.7 in Jun 2013, increasing to 49.1 in Jul 2013. The index of employment increased to 49.3 in Aug 2013 and fell to 49.1 in Sep 2013 with marginal improvement to 49.2 in Oct 2013. The index of employment rose to 49.6 in Nov 2013.

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

	IPM	PI	NOI	INV	EMP	SDEL
Nov 2013	51.4	54.5	52.3	47.8	49.6	50.6
Oct	51.4	54.4	52.5	48.6	49.2	50.8
Sep	51.1	52.9	52.8	48.5	49.1	50.8
Aug	51.0	52.6	52.4	48.0	49.3	50.4
Jul	50.3	52.4	50.6	47.6	49.1	50.1
Jun	50.1	52.0	50.4	47.4	48.7	50.3
May	50.8	53.3	51.8	47.6	48.8	50.8
Apr	50.6	52.6	51.7	47.5	49.0	50.8
Mar	50.9	52.7	52.3	47.5	49.8	51.1
Feb	50.1	51.2	50.1	49.5	47.6	48.3
Jan	50.4	51.3	51.6	50.1	47.8	50.0
Dec 2012	50.6	52.0	51.2	47.3	49.0	48.8
Nov	50.6	52.5	51.2	47.9	48.7	49.9
Oct	50.2	52.1	50.4	47.3	49.2	50.1
Sep	49.8	51.3	49.8	47.0	48.9	49.5
Aug	49.2	50.9	48.7	45.1	49.1	50.0
Jul	50.1	51.8	49.0	48.5	49.5	49.0
Jun	50.2	52.0	49.2	48.2	49.7	49.1
May	50.4	52.9	49.8	45.1	50.5	49.0
Apr	53.3	57.2	54.5	48.5	51.0	49.6
Mar	53.1	55.2	55.1	49.5	51.0	48.9
Feb	51.0	53.8	51.0	48.8	49.5	50.3
Jan	50.5	53.6	50.4	49.7	47.1	49.7

IPM: Index of Purchasing Managers; PI: Production Index; NOI: New Orders Index; EMP: Employed Person Index; SDEL: Supplier Delivery Time Index

Source: National Bureau of Statistics of China

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

China estimates the manufacturing index of purchasing managers on the basis of a sample of 820 enterprises (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Chart CIPMMFG provides the manufacturing index of purchasing managers. There is deceleration from 51.2 in Sep 2011 to marginal contraction at 49.0 in Nov 2011. Manufacturing activity recovered to 53.3 in Apr 2012 but then declined to 50.4 in May 2012 and 50.1 in Jun 2012, which is the lowest in a year with exception of contraction at 49.0 in Nov 2011. The index then fell to contraction at 49.2 in Aug 2012 and improved to 49.8 in Sep with movement to 50.2 in Oct 2012, 50.6 in Nov 2012, 50.9 in Mar 2013 and 50.6 in Apr 2013 above the neutral zone of 50.0. The index increased to 50.8 in May 2013 and fell to 50.1 in Jun 2013, increasing to 50.3 in Jul 2013. The index increased to 51.0 in Aug 2013, 51.1 in Sep 2013 and 51.4 in Oct 2013. The index stabilized at 51.4 in Nov 2013.

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

Source: National Bureau of Statistics of China

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

Cumulative growth of China’s GDP in IIIQ2013 relative to the same period in 2012 was 7.7 percent, as shown in Table VC-GDP. Secondary industry accounts for 45.3 percent of GDP in IIIQ2013. In IIQ2013, industry alone accounts for 38.5 percent in IIQ2013 and construction with the remaining 6.8 percent in the first three quarters of 2012. Tertiary industry accounts for 45.5 percent of cumulative GDP in IIIQ2013 and primary industry for 9.2 percent. China’s growth strategy consisted of rapid increases in productivity in industry to absorb population from agriculture where incomes are lower (Pelaez and Pelaez, The Global Recession Risk (2007), 56-80). The bottom block of Table VC-GDP provides quarter-on-quarter growth rates of GDP and their annual equivalent. China’s GDP growth decelerated significantly from annual equivalent 10.8 percent in IIQ2011 to 7.4 percent in IVQ2011 and 5.7 percent in IQ2012, rebounding to 9.1 percent in IIQ2012, 8.2 percent in IIIQ2012 and 7.8 percent in IVQ2012. Annual equivalent growth in IQ2013 fell to 6.1 percent and to 7.8 percent in IIQ2013, rebounding to 9.1 percent in IIIQ2013.

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

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

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

Growth of China’s GDP in IIIQ2013 relative to the same period in 2012 was 7.8 percent, as shown in Table VC-GDPA. Secondary industry accounts for 45.3 percent of GDP of which industry alone for 38.5 percent in cumulative IIIQ2013 and construction with the remaining 6.8 percent in the first three quarters of 2013. Tertiary industry accounts for 45.5 percent of GDP in the cumulative to IIIQ2013 and primary industry for 9.2 percent. China’s growth strategy consisted of rapid increases in productivity in industry to absorb population from agriculture where incomes are lower (Pelaez and Pelaez, The Global Recession Risk (2007), 56-80). GDP growth decelerated from 12.1 percent in IQ2010 and 11.2 percent in IIQ2010 to 7.7 percent in IQ2013, 7.5 percent in IIQ2013 and 7.8 percent in IIIQ2013.

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

	IQ 2013	IIQ 2013	IIIQ 2013
GDP	7.7	7.5	7.8
Primary Industry	3.4	3.0	3.4
Secondary Industry	7.8	7.6	7.8
Tertiary Industry	8.3	8.3	8.4
GDP ∆% Relative to a Prior Quarter	1.5	1.9	2.2
	IQ 2011	IIQ 2011	IIIQ 2011	IVQ 2011	IQ 2012	IIQ 2012	IIIQ 2012	IVQ 2012
GDP	9.7	9.5	9.1	8.9	8.1	7.6	7.4	7.9
Primary Industry	3.5	3.2	3.8	4.5	3.8	4.3	4.2	4.5
Secondary Industry	11.1	11.0	10.8	10.6	9.1	8.3	8.1	8.1
Tertiary Industry	9.1	9.2	9.0	8.9	7.5	7.7	7.9	8.1
GDP ∆% Relative to a Prior Quarter	2.3	2.6	2.2	1.8	1.4	2.2	2.0	1.9
	IQ 2010	IIQ 2010	IIIQ 2010	IVQ 2010
GDP	12.1	11.2	10.7	12.1
Primary Industry	3.8	3.6	4.0	3.8
Secondary Industry	14.5	13.3	12.6	14.5
Tertiary Industry	10.5	9.9	9.7	10.5

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

Chart VC-GDP of the National Bureau of Statistics of China provides annual value and growth rates of GDP. China’s GDP growth in 2012 is still high at 7.8 percent but at the lowest rhythm in five years

Chart VC-GDP, China, Gross Domestic Product, Million Yuan and ∆%, 2008-2012

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

The HSBC Flash China Manufacturing Purchasing Managers’ Index^™ (PMI^™) compiled by Markit (http://www.markiteconomics.com/Survey/PressRelease.mvc/982f1d1602014fc4a5f7ef4b4394f8e3) is slowing. The overall Flash HSBC China Manufacturing PMI^™ decreased from 50.9 in Oct to 50.4 in Nov, which is moderately above the contraction frontier of 50.0, while the Flash HSBC China Manufacturing Output Index decreased from 51.3 in Oct to 51.1 in Nov, moving into moderate expansion territory. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that the flash manufacturing index slowed because of weakness in new export orders and replenishment of stocks (http://www.markiteconomics.com/Survey/PressRelease.mvc/982f1d1602014fc4a5f7ef4b4394f8e3). The HSBC China Services PMI^™, compiled by Markit, shows marginal improvement in business activity in China with the HSBC Composite Output, combining manufacturing and services, increasing from 51.8 in Oct to 52.3 in Nov, indicating moderate growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/a7d6f88e711a42a09011498c599785ca). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds support of manufacturing combined with services (http://www.markiteconomics.com/Survey/PressRelease.mvc/a7d6f88e711a42a09011498c599785ca). The HSBC Business Activity index decreased from 52.6 in Oct to 52.5 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/a7d6f88e711a42a09011498c599785ca). Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds softening growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/a7d6f88e711a42a09011498c599785ca). The HSBC Purchasing Managers’ Index^™ (PMI^™), compiled by Markit, decreased marginally to 50.8 in Nov from 50.9 in Oct, indicating marginally improving manufacturing in China (http://www.markiteconomics.com/Survey/PressRelease.mvc/da14ac24941a473da5054be514db9e47). New export orders increased marginally with growth of total new orders originating in domestic demand. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds China moving in the path of moderate recovery of growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/da14ac24941a473da5054be514db9e47). Table CNY provides the country data table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry	Oct 12-month ∆%: minus 1.5 Oct month ∆%: 0.0 Blog 11/17/13
Consumer Price Index	Oct month ∆%: 0.1 Oct 12 months ∆%: 3.2 Blog 11/17/13
Value Added of Industry	Oct month ∆%: 0.86 Jan-Oct 2013/Jan-Oct 2012 ∆%: 9.7 Oct 12-Month ∆%: 10.3 Blog 11/17/13
GDP Growth Rate	Year IIIQ2013 ∆%: 7.8 Quarter IIQ2013 AE ∆%: 9.1 Blog 10/27/13
Investment in Fixed Assets	Total Jan-Oct 2013 ∆%: 20.1 Real estate development: 19.2 Blog 11/17/13
Retail Sales	Oct month ∆%: 1.19 Oct 12 month ∆%: 13.3 Jan-Oct ∆%: 13.0 Blog 11/17/13
Trade Balance	Oct balance $31.1 billion Exports 12M ∆% 5.6 Imports 12M ∆% 7.6 Cumulative Oct: $200.46 billion Blog 11/10/13

Links to blog comments in Table CNY:

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

11/10/13 http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html

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

VD Euro Area. Table VD-EUR provides yearly growth rates of the combined GDP of the members of the European Monetary Union (EMU) or euro area since 1996. Growth was very strong at 3.3 percent in 2006 and 3.0 percent in 2007. The global recession had strong impact with growth of only 0.4 percent in 2008 and decline of 4.4 percent in 2009. Recovery was at lower growth rates of 2.0 percent in 2010 and 1.6 percent in 2011. EUROSTAT estimates growth of GDP of the euro area of minus 0.7 percent in 2012 and minus 0.4 percent in 2013 but 1.1 percent in 2014 and 1.7 percent in 2015.

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

Year	HICP ∆%	Unemployment %	GDP ∆%
1999	1.2	NA	2.9
2000	2.2	9.4	3.8
2001	2.4	8.3	2.0
2002	2.3	8.6	0.9
2003	2.1	9.0	0.7
2004	2.2	9.3	2.2
2005	2.2	9.1	1.7
2006	2.2	8.4	3.3
2007	2.1	7.6	3.0
2008	3.3	7.6	0.4
2009	0.3	9.6	-4.4
2010	1.6	10.1	2.0
2011	2.7	10.2	1.6
2012	2.5	11.4	-0.7
2013*			-0.4
2014*			1.1
2015*			1.7

*EUROSTAT forecast Source: EUROSTAT

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

The GDP of the euro area in 2012 in current US dollars in the dataset of the World Economic Outlook (WEO) of the International Monetary Fund (IMF) is $12,199.1 billion or 16.9 percent of world GDP of $72,216.4 billion (http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/index.aspx). The sum of the GDP of France $2613.9 billion with the GDP of Germany of $3429.5 billion, Italy of $2014.1 billion and Spain $1323.5 billion is $9381.0 billion or 76.9 percent of total euro area GDP and 13.0 percent of World GDP. The four largest economies account for slightly more than three quarters of economic activity of the euro area. Table VD-EUR1 is constructed with the dataset of EUROSTAT, providing growth rates of the euro area as a whole and of the largest four economies of Germany, France, Italy and Spain annually from 1996 to 2011 with the estimate of 2012 and forecasts for 2013, 2014 and 2015 by EUROSTAT. The impact of the global recession on the overall euro area economy and on the four largest economies was quite strong. There was sharp contraction in 2009 and growth rates have not rebounded to earlier growth with exception of Germany in 2010 and 2011.

Table VD-EUR1, Euro Area, Real GDP Growth Rate, ∆%

	Euro Area	Germany	France	Italy	Spain
2015*	1.7	1.9	1.7	1.2	1.7
2014*	1.1	1.7	0.9	0.7	0.5
2013*	-0.4	0.5	0.2	-1.8	-1.3
2012	-0.7	0.7	0.0*	-2.5	-1.6
2011	1.6	3.3	2.0	0.5	0.1
2010	2.0	4.0	1.7	1.7	-0.2
2009	-4.4	-5.1	-3.1	-5.5	-3.8
2008	0.4	1.1	-0.1	-1.2	0.9
2007	3.0	3.3	2.3	1.7	3.5
2006	3.3	3.7	2.5	2.2	4.1
2005	1.7	0.7	1.8	0.9	3.6
2004	2.2	1.2	2.5	1.7	3.3
2003	0.7	-0.4	0.9	0.0	3.1
2002	0.9	0.0	0.9	0.5	2.7
2001	2.0	1.5	1.8	1.9	3.7
2000	3.8	3.1	3.7	3.7	5.0
1999	2.9	1.9	3.3	1.5	4.7
1998	2.8	1.9	3.4	1.4	4.5
1997	2.6	1.7	2.2	1.9	3.9
1996	1.5	0.8	1.1	1.1	2.5

Source: EUROSTAT

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

The Flash Eurozone PMI Composite Output Index of the Markit Flash Eurozone PMI^®, combining activity in manufacturing and services, decreased from 51.9 in Oct to 51.5 in Nov, which is a three month low after a high in 27 months in Sep (http://www.markiteconomics.com/Survey/PressRelease.mvc/e05fef5f15ae4a84bc2a2da46660a8f3). Chris Williamson, Chief Economist at Markit, finds that the Markit Flash Eurozone PMI index suggests that the index is consistent with modest growth of GDP of 0.2 percent based on the first two months of IVQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/e05fef5f15ae4a84bc2a2da46660a8f3). The Markit Eurozone PMI^® Composite Output Index, combining services and manufacturing activity with close association with GDP, decreased from 51.9 in Oct to 51.7 in Nov in the fifth consecutive monthly expansion (http://www.markiteconomics.com/Survey/PressRelease.mvc/9f5ed06473dc4a23b83e6a2eef32e2fa). Chris Williamson, Chief Economist at Markit, finds growth in IVQ2013 at the rate of about 0.2 percent similar to 0.1 percent IIIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/9f5ed06473dc4a23b83e6a2eef32e2fa). The Markit Eurozone Services Business Activity Index decreased from 51.6 in Oct to 51.2 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/9f5ed06473dc4a23b83e6a2eef32e2fa). The Markit Eurozone Manufacturing PMI^® increased to 51.6 in Nov from 51.3 in Oct for the highest reading since Jun and the average for IVQ2013 pointing to the highest reading since IIQ2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/be38e62ac89f4fc1a3c0079f1a4050f4). New orders increased for the fifth consecutive month with foreign orders at the highest in two-and-a-half years. Chris Williamson, Chief Economist at Markit, finds industrial growth in the euro area at a quarterly rate of 0.6 percent. (http://www.markiteconomics.com/Survey/PressRelease.mvc/be38e62ac89f4fc1a3c0079f1a4050f4). Table EUR provides the data table for the euro area.

Table EUR, Euro Area Economic Indicators

GDP	IIIQ2013 ∆% 0.1; IIIQ2013/IIIQ2012 ∆% -0.4 Blog 11/17/13
Unemployment	Oct 2013: 12.1 % unemployment rate Oct 2013: 19.298 million unemployed Blog 12/1/13
HICP	Oct month ∆%: -0.1 12 months Oct ∆%: 0.7 Blog 11/17/13
Producer Prices	Euro Zone industrial producer prices Oct ∆%: -0.5 Oct 12-month ∆%: -1.4 Blog 12/8/13
Industrial Production	Sep month ∆%: -0.5; Sep 12 months ∆%: 1.1 Blog 11/17/13
Retail Sales	Oct month ∆%: minus 0.2 Oct 12 months ∆%: minus 0.1 Blog 12/8/13
Confidence and Economic Sentiment Indicator	Sentiment 98.5 Nov 2013 Consumer minus 15.4 Nov 2013 Blog 12/1/13
Trade	Jan-Sep 2013/Jan-Sep 2012 Exports ∆%: 0.9 Imports ∆%: -3.5 Sep 2013 12-month Exports ∆% 2.7 Imports ∆% -0.2 Blog 11/24/13

Links to blog comments in Table EUR:

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

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

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

Advanced economies are experiencing weak demand. Table VD-1 provides month and 12-month percentage changes of the volume of retail sales in the euro zone from Jan 2011 to Oct 2013. Retail sales decreased 0.2 percent in Oct 2013 and decreased 0.1 percent in 12 months. The 12-month rates of growth have become negative since Mar 2011 with exception of 1.0 percent in Apr 2011, Aug 2011 at 0.1 percent, in Mar 2012 at 0.0 percent and growth of 0.1 percent in May 2013 and 0.3 percent in Sep 2013. The lower part of Table VD-1 provides annual percentage changes of inflation-adjusted retail sales in the euro zone since 2001. Retail sales fell 0.5 percent in 2010 after falling 0.4 percent in 2009 and 1.7 percent in 2008 and fell again by 1.4 percent in 2011 and 2.7 percent in 2012.

Table VD-1, Euro Zone, Volume of Retail Sales, Deflated ∆%

	Month ∆%	12-Month CA ∆%
Oct 2013	-0.2	-0.1
Sep	-0.6	0.3
Aug	0.6	-0.1
Jul	0.4	-0.7
Jun	-0.8	-1.3
May	1.1	0.1
Apr	0.0	-1.1
Mar	-0.1	-2.2
Feb	-0.3	-1.9
Jan	0.9	-1.8
Dec 2012	-0.7	-2.7
Nov	0.1	-2.0
Oct	-0.3	-3.2
Sep	-1.3	-1.9
Aug	0.3	-0.8
Jul	-0.2	-1.5
Jun	0.3	-1.0
May	0.5	-0.7
Apr	-1.5	-3.5
Mar	0.3	0.0
Feb	-0.2	-2.2
Jan	-0.1	-1.0
Dec 2011	0.0	-1.4
Nov	-0.7	-1.1
Oct	0.3	-0.3
Sep	-0.2	-0.9
Aug	-0.1	0.1
Jul	0.0	-0.1
Jun	0.9	-0.5
May	-1.8	-1.5
Apr	1.4	1.0
Mar	-1.6	-1.1
Feb	0.7	1.6
Jan	0.1	1.0
Dec ∆%
2012		-2.7
2011		-1.4
2010		-0.5
2009		-0.4
2008		-1.7
2007		-0.9
2006		2.5
2005		0.8
2004		2.3
2003		0.7
2002		-0.3
2001		1.9

Source: EUROSTAT

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

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

Growth rates of retail sales of the euro zone by major segments are in Table VD-2. Total sales decreased 0.2 percent in Oct 2013 and decreased 0.1 percent in the 12 months ending in Oct 2013. Food sales increased 0.7 percent and fell 0.1 percent in 12 months and nonfood products decreased 0.8 percent in Oct and decreased 0.6 percent in 12 months. Sales of automotive fuel stores fell 1.1 percent in Oct and increased 1.7 percent in 12 months.

Table VD-2, Euro Zone, Volume of Retail Sales by Products, ∆%

Oct 2013	Month ∆%	12-Month ∆%
Total	-0.2	-0.1
Food, Drinks, Tobacco	0.7	-0.1
Nonfood Products ex Automotive Fuel	-0.8	-0.6
Automotive Fuel in Specialized Stores	-1.1	1.7

Source: EUROSTAT

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

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

Month and 12-month percentage rates of change of retail sales by member countries of the euro zone are shown in Table VD-3 for Sep 2013. Retail sales are weak throughout the euro zone. The 12-month percentage changes are positive for some members in Table VD-3 such as 0.5 percent for Finland and 1.8 percent for France. The 12-month percentage change for the UK, which is not a member of the euro zone, was 1.5 percent. The European Union’s 12-month percentage change was 0.5 percent.

Table VD-3, Euro Zone, Volume of Retail Sales by Member Countries, ∆%

Oct 2013	Month ∆%	12-Month ∆%
Euro Zone	-0.2	-0.1
Germany	-0.8	-0.2
France	1.2	1.8
Netherlands	NA	NA
Finland	0.1	0.5
Belgium	-0.6	-3.8
Portugal	-1.1	-0.2
Ireland	0.4	-1.5
Italy	NA	NA
Greece	NA	NA
Spain	-1.8	-0.5
UK	-1.1	1.6
European Union	-0.4	0.5

Source: EUROSTAT

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

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

VE Germany. Table VE-DE provides yearly growth rates of the German economy from 1992 to 2012, price adjusted chain-linked and price and calendar-adjusted chain-linked. Germany’s GDP fell 5.1 percent in 2009 after growing below trend at 1.1 percent in 2008. Recovery has been robust in contrast with other advanced economies. The German economy grew at 4.0 percent in 2010, 3.3 percent in 2011 and 0.7 percent in 2012.

The Federal Statistical Agency of Germany analyzes the fall and recovery of the German economy (http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/VolkswirtschaftlicheGesamtrechnungen/Inlandsprodukt/Aktuell,templateId=renderPrint.psml):

“The German economy again grew strongly in 2011. The price-adjusted gross domestic product (GDP) increased by 3.0% compared with the previous year. Accordingly, the catching-up process of the German economy continued during the second year after the economic crisis. In the course of 2011, the price-adjusted GDP again exceeded its pre-crisis level. The economic recovery occurred mainly in the first half of 2011. In 2009, Germany experienced the most serious post-war recession, when GDP suffered a historic decline of 5.1%. The year 2010 was characterised by a rapid economic recovery (+3.7%).”

Table VE-DE, Germany, GDP Year ∆%

	Price Adjusted Chain-Linked	Price- and Calendar-Adjusted Chain Linked
2012	0.7	0.9
2011	3.3	3.4
2010	4.0	3.8
2009	-5.1	-5.1
2008	1.1	0.8
2007	3.3	3.4
2006	3.7	3.9
2005	0.7	0.8
2004	1.2	0.7
2003	-0.4	-0.4
2002	0.0	0.0
2001	1.5	1.6
2000	3.1	3.3
1999	1.9	1.8
1998	1.9	1.7
1997	1.7	1.8
1996	0.8	0.8
1995	1.7	1.8
1994	2.5	2.5
1993	-1.0	-1.0
1992	1.9	1.5

Source: Statistisches Bundesamt Deutschland (Destatis) https://www.destatis.de/EN/PressServices/Press/pr/2013/08/PE13_278_811.html https://www.destatis.de/EN/PressServices/Press/pr/2013/11/PE13_381_811.html

The Flash Germany Composite Output Index of the Markit Flash Germany PMI^®, combining manufacturing and services, increased from 53.2 in Oct to 54.3 in Nov for the highest reading in ten months. The index of manufacturing output reached 54.0 in Nov from 53.6 in Oc, which is a three-month high, while the index of services increased to 54.5 in Nov from 52.9 in Oct for a nine-month high. The overall Flash Germany Manufacturing PMI^® increased from 51.7 in Oct to 52.5 in Nov, which is a 29-month high (http://www.markiteconomics.com/Survey/PressRelease.mvc/e5eae384809e48d6bf621cfbec90f758). New work volumes increased marginally. Tim Moore, Senior Economist at Markit, finds potential for growth of around 0.5 percent in the calendar year (http://www.markiteconomics.com/Survey/PressRelease.mvc/e5eae384809e48d6bf621cfbec90f758). The Markit Germany Composite Output Index of the Markit Germany Services PMI^®, combining manufacturing and services with close association with Germany’s GDP, increased from 53.2 in Oct to 55.4 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/b84ee870740e4d1f920ab290a975c1eb). Tim Moore, Senior Economist at Markit and author of the report, finds that German private sector companies expanded output at the fastest rate since the middle of 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/b84ee870740e4d1f920ab290a975c1eb). The Germany Services Business Activity Index increased from 52.9 in Oct to 55.7 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/b84ee870740e4d1f920ab290a975c1eb). The Markit/BME Germany Purchasing Managers’ Index^® (PMI^®), showing close association with Germany’s manufacturing conditions, increased from 51.7 in Oct to 52.7 in Nov, in the best improvement since Jun 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/b561ae61327d45b48118474e10e22081). New export orders increased for the fifth consecutive month at the highest rate since Feb. Tim Moore, Senior Economist at Markit and author of the report, finds the highest growth of foreign orders for investment goods since Apr 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/b561ae61327d45b48118474e10e22081).Table DE provides the country data table for Germany.

Table DE, Germany, Economic Indicators

GDP	IIIQ2013 0.3 ∆%; III/Q2013/IIIQ2012 ∆% 1.1 2012/2011: 0.7% GDP ∆% 1992-2012 Blog 8/26/12 5/27/12 11/25/12 2/24/13 5/19/13 5/26/13 8/18/13 8/25/13 11/17/13 11/24/13
Consumer Price Index	Oct month NSA ∆%: -0.2 Sep 12-month NSA ∆%: 1.2 Blog 11/17/13
Producer Price Index	Oct month ∆%: -0.2 CSA, -0.2 12-month NSA ∆%: -0.7 Blog 11/24/13
Industrial Production	MFG Sep month CSA ∆%: minus 1.1 12-month NSA: 5.0 Blog 11/17/13
Machine Orders	MFG Sep month ∆%: 3.3 Sep 12-month ∆%: 11.0 Blog 11/10/13
Retail Sales	Oct Month ∆% -0.8 12-Month ∆% -0.2 Blog 12/1/13
Employment Report	Unemployment Rate SA Sep 5.2% Blog 12/1/13
Trade Balance	Exports Sep 12-month NSA ∆%: 3.6 Imports Sep 12 months NSA ∆%: -0.3 Exports Sep month CSA ∆%: 1.7; Imports Sep month SA minus 1.9 Blog 11/17/13

Links to blog comments in Table DE:

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

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

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

11/10/13 http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html

10/13/13 http://cmpassocregulationblog.blogspot.com/2013/10/imf-view-collapse-of-united-states.html

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

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

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

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

VF France. Table VF-FR provides growth rates of GDP of France with the estimates of Institut National de la Statistique et des Études Économiques (INSEE). The long-term rate of GDP growth of France from IVQ1949 to IVQ2012 is quite high at 3.2 percent. France’s growth rates were quite high in the four decades of the 1950s, 1960, 1970s and 1980s with an average growth rate of 4.0 percent compounding the average rates in the decades and discounting to one decade. The growth impulse diminished with 1.9 percent in the 1990s and 1.7 percent from 2000 to 2007. The average growth rate from 2000 to 2012, using fourth quarter data, is 1.0 percent because of the sharp impact of the global recession from IVQ2007 to IIQ2009. The growth rate from 2000 to 2012 is 1.0 percent. Cobet and Wilson (2002) provide estimates of output per hour and unit labor costs in national currency and US dollars for the US, Japan and Germany from 1950 to 2000 (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). The average yearly rate of productivity change from 1950 to 2000 was 2.9 percent in the US, 6.3 percent for Japan and 4.7 percent for Germany while unit labor costs in USD increased at 2.6 percent in the US, 4.7 percent in Japan and 4.3 percent in Germany. From 1995 to 2000, output per hour increased at the average yearly rate of 4.6 percent in the US, 3.9 percent in Japan and 2.6 percent in Germany while unit labor costs in US fell at minus 0.7 percent in the US, 4.3 percent in Japan and 7.5 percent in Germany. There was increase in productivity growth in the G7 in Japan and France in the second half of the 1990s but significantly lower than the acceleration of 1.3 percentage points per year in the US. Lucas (2011May) compares growth of the G7 economies (US, UK, Japan, Germany, France, Italy and Canada) and Spain, finding that catch-up growth with earlier rates for the US and UK stalled in the 1970s.

Table VF-FR, France, Average Growth Rates of GDP Fourth Quarter, 1949-2012

Period	Average ∆%
1949-2012	3.2
2000-2012	1.0
2000-2011	1.1
2000-2007	1.7
1990-1999	1.9
1980-1989	2.5
1970-1979	3.8
1960-1969	5.7
1950-1959	4.2

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=26&date=20131114

The Markit Flash France Composite Output Index decreased from 50.5 in Oct to 48.5 in Nov for a five-month low (http://www.markiteconomics.com/Survey/PressRelease.mvc/7c0ea79cfd254761bc386fa76177d900). Jack Kennedy, Senior Economist at Markit and author of the report, finds that the data point to risk of decline of 0.1 percent of GDP in France in IVQ2013 after decline of 0.1 percent in IIIQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/7c0ea79cfd254761bc386fa76177d900). The Markit France Composite Output Index, combining services and manufacturing with close association with French GDP, fell from 50.5 in Oct to 48.0 in Nov, indicating moderate contraction (http://www.markiteconomics.com/Survey/PressRelease.mvc/9ae3c4978e5448f0bd6f5f9d5cbb41f4). Jack Kennedy, Senior Economist at Markit and author of the France Services PMI^®, finds risks of contraction in IVQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/9ae3c4978e5448f0bd6f5f9d5cbb41f4). The Markit France Services Activity index decreased from 50.9 in Oct to 48.0 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/9ae3c4978e5448f0bd6f5f9d5cbb41f4). The Markit France Manufacturing Purchasing Managers’ Index^® decreased to 48.4 in Nov from 49.1 in Oct for the lowest reading since Jun (http://www.markiteconomics.com/Survey/PressRelease.mvc/d36e5325c9c8408a9291a7cc2685cde0). Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI^®, finds declines in output, new orders and employment with squeeze of the highest input price inflation in 20 months while sales prices stagnated (http://www.markiteconomics.com/Survey/PressRelease.mvc/d36e5325c9c8408a9291a7cc2685cde0). Table FR provides the country data table for France.

Table FR, France, Economic Indicators

CPI	Oct month ∆% -0.1 12 months ∆%: 0.6 11/17/13
PPI	Oct month ∆%: -0.2 Oct 12 months ∆%: -1.4 Blog 12/1/13
GDP Growth	IIIQ2013/IIQ2013 ∆%: minus 0.1 IIIQ2013/IIIQ2012 ∆%: 0.2 Blog 3/31/13 5/19/12 6/30/13 9/29/13 11/17/13
Industrial Production	Sep ∆%: Manufacturing minus 0.7 12-Month ∆%: Manufacturing minus 1.3 Blog 11/17/13
Consumer Spending	Manufactured Goods Oct ∆%: 0.7 Oct 12-Month Manufactured Goods ∆%: 0.6 Blog 12/1/13
Employment	Unemployment Rate: IIIQ2013 10.5% Blog 12/8/13
Trade Balance	Sep Exports ∆%: month 1.8, 12 months -1.3 Sep Imports ∆%: month 3.4, 12 months 0.7 Blog 11/17/13
Confidence Indicators	Historical averages 100 Oct Mfg Business Climate 98 Blog 12/1/13

Links to blog comments in Table FR:

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

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

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

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

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

The number of unemployed in France rose from 2.098 million in IV2007, for a rate of unemployment of 7.5 percent, to 3.011 million in IIIQ2013, for a rate of unemployment of 10.5 percent, as shown in Table VF-1. At the same time, the rate of employment fell from 64.6 percent in IV2007 to 63.9 percent in IIIQ2013.

Table VF-1, France, Metropolitan France, Employment Rate, Unemployed and Unemployment Rate, Millions and %

	Unemployed Millions	Unemployed Percent	Employment Rate
IIIQ2013	3.011	10.5	63.9
IIQ2013	2.980	10.4	63.9
IQ2013	2.975	10.4	64.0
IVQ2012	2.914	10.1	64.0
IIIQ2012	2.827	9.9	63.9
IIQ2012	2.784	9.8	63.8
IQ2012	2.714	9.5	63.8
IVQ2011	2.656	9.3	63.8
IIIQ2011	2.613	9.2	63.8
IIQ2011	2.564	9.1	63.9
IQ2011	2.584	9.1	63.8
IVQ2010	2.616	9.2	63.8
IIIQ2010	2.634	9.3	63.9
IIQ2010	2.625	9.3	63.9
IQ2010	2.663	9.4	63.9
IVQ2009	2.705	9.6	63.7
IIIQ2009	2.588	9.2	63.9
IIQ2009	2.591	9.2	64.1
IQ2009	2.412	8.6	64.4
IVQ2008	2.181	7.8	64.8
IIIQ2008	2.063	7.4	64.8
IIQ2008	2.029	7.3	64.8
IQ2008	1.983	7.1	64.9
IV2007	2.098	7.5	64.6
IIIQ2007	2.215	8.0	64.4
IIQ2007	2.251	8.1	64.1
IQ2007	2.336	8.4	63.9
IVQ2006	2.326	8.4	63.9
IVQ2005	2.494	9.1	63.5
IVQ2004	2.434	8.9	63.7
IVQ2003	2.373	8.8	63.8
IVQ2002	2.143	8.0
IVQ2001	2.067	7.8
IVQ2000	2.115	8.0
IVQ1999	2.476	9.5
IVQ1995	2.546	10.0
IVQ1990	1.958	8.0
IVQ1985	2.173	8.9
IVQ1980	1.331	5.6
IVQ1975	0.847	3.7

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=14&date=20131205

Chart VF-1 of the Institut National de la Statistique et des Études Économiques of France provides the unemployment rate according to the ILO (International Labor Organization) quarterly from 1975 to 2013. The preliminary estimate for IIQ2013 is 10.5 percent. The rate of unemployment had decline before the global recession, rising again recently.

Chart VF-2, France, Unemployment Rate According to ILO, Quarterly SA, 1975-2013

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=14&date=20131205

Chart VF-2 of the Institut National de la Statistique et des Études Économiques of France provides an excellent view of the unemployment rate in France. The rate of unemployment rose from 2003 to 2006 and then fell sharply in 2007. The global recession caused sharp increase in the French rate of unemployment that has declined from the peak, stabilized at a high level and is climbing again.

Chart VF-2, France, Unemployment Rate International Labor Organization Criterion, Seasonally Adjusted Average over Quarter, Percent

Source: Institut National de la Statistique et des Études Économiques

http://www.insee.fr/en/themes/info-rapide.asp?id=14&date=20131205

VG Italy. Table VG-IT provides percentage changes in a quarter relative to the same quarter a year earlier of Italy’s expenditure components in chained volume measures. GDP has been declining at sharper rates from minus 0.6 percent in IVQ2011 to minus 3.0 percent in IVQ2012, minus 2.5 percent in IQ2013, minus 2.2 percent in IIQ2013 and minus 1.9 percent in IIIQ2013. The aggregate demand components of consumption and gross fixed capital formation (GFCF) have been declining at faster rates. The rates of decline of GDP, consumption and GFCF were somewhat milder in IIQ2013 than in IQ2013 and the final three quarters of 2012.

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

	GDP	Imports	Consumption	GFCF	Exports
2013
IIIQ2013	-1.9
II	-2.2	-4.6	-2.4	-5.9	0.2
IQ	-2.5	-5.0	-2.7	-7.1	-0.4
2012
IVQ	-3.0	-6.8	-4.3	-7.9	1.7
IIIQ	-2.8	-8.1	-4.3	-8.1	2.5
IIQ	-2.6	-7.5	-3.8	-8.3	2.5
IQ	-1.8	-8.9	-3.3	-7.6	2.1
2011
IVQ	-0.6	-6.9	-1.8	-3.2	3.1
IIIQ	0.5	0.1	-0.7	-2.1	5.6
IIQ	1.1	3.1	0.6	-0.7	7.0
IQ	1.4	8.8	0.9	0.6	10.9
2010
IVQ	2.3	15.3	1.1	0.8	13.2
IIIQ	1.8	13.2	1.3	2.4	12.0
IIQ	1.8	13.5	0.8	1.1	12.0
IQ	0.9	7.2	0.8	-2.0	7.3
2009
IVQ	-3.5	-6.4	0.2	-7.8	-9.3
IIIQ	-5.0	-12.2	-0.8	-12.6	-16.4
IIQ	-6.6	-17.9	-1.5	-13.6	-21.4
IQ	-6.9	-17.2	-1.7	-12.6	-22.8
2008
IVQ	-3.0	-8.2	-0.9	-8.3	-10.3
IIIQ	-1.9	-5.0	-0.8	-4.5	-3.9
IIQ	-0.2	-0.1	-0.3	-1.5	0.4
IQ	0.5	1.7	0.1	-1.0	2.9

GFCF: Gross Fixed Capital Formation

Source: Istituto Nazionale di Statistica http://www.istat.it/it/archivio/98480

http://www.istat.it/it/archivio/103477

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

Table IT, Italy, Economic Indicators

Consumer Price Index	Nov month ∆%: -0.4 Nov 12-month ∆%: 0.6 Blog 12/17/13
Producer Price Index	Oct month ∆%: -1.3 Oct 12-month ∆%: -2.7 Blog 12/1/13
GDP Growth	IIIQ2013/IIQ2013 SA ∆%: minus 0.1 IIIQ2013/IIIQ2012 NSA ∆%: minus 1.9 Blog 3/17/13 6/16/13 8/11/13 9/15/13 11/17/13
Labor Report	Oct 2013 Participation rate 63.6% Employment ratio 55.5% Unemployment rate 12.5% Blog 12/1/13
Industrial Production	Sep month ∆%: 0.2 12 months CA ∆%: -3.0 Blog 11/17/13
Retail Sales	Sep month ∆%: -0.3 Sep 12-month ∆%: -2.8 Blog 11/24/13
Business Confidence	Mfg Nov 98.1, Jun 92.3 Construction Nov 80.0, Jun 77.1 Blog 12/1/13
Trade Balance	Balance Sep SA €2131 million versus Aug €2506 Exports Sep month SA ∆%: 0.6; Imports Sep month ∆%: 1.9 Exports 12 months Sep NSA ∆%: 2.0 Imports 12 months NSA ∆%: -0.1 Blog 11/24/13

Links to blog comments in Table IT:

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

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

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

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

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

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

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

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

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

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

*Absolute change from 2007 to 2012

Source: UK Office for National Statistics

http://www.ons.gov.uk/ons/rel/gva/gross-domestic-product--preliminary-estimate/q3-2013/index.html

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

Table UK, UK Economic Indicators

CPI	Oct month ∆%: 0.1 Oct 12-month ∆%: 2.2 Blog 11/17/13
Output/Input Prices	Output Prices: Oct 12-month NSA ∆%: 0.8; excluding food, petroleum ∆%: 0.9 Input Prices: Oct 12-month NSA ∆%: -0.3 Excluding ∆%: -0.4 Blog 11/17/13
GDP Growth	IIIQ2013 prior quarter ∆% 0.8; year earlier same quarter ∆%: 1.5 Blog 3/31/13 4/28/13 5/26/13 7/28/13 8/25/13 9/29/13 10/27/13 12/1/13
Industrial Production	Sep 2013/Sep 2012 ∆%: Production Industries 2.2; Manufacturing 0.8 Blog 11/10/13
Retail Sales	Oct month ∆%: -0.7 Oct 12-month ∆%: 1.8 Blog 11/24/13
Labor Market	Jul-Sep Unemployment Rate: 7.6%; Claimant Count 3.9%; Earnings Growth 0.7% Blog 11/17/13 LMGDP
GDP and the Labor Market	IIIQ2013 Weekly Hours 101.4, GDP 97.5, Employment 101.5 IQ2008 =100 Blog 12/1/13
Trade Balance	Balance SA Aug minus ₤3268 million Exports Sep ∆%: 0.1; Jul-Sep ∆%: 0.1 Imports Sep ∆%: 0.2 Jul-Sep ∆%: 1.8 Blog 11/17/13