Twenty Nine Million Unemployed or Underemployed, Stagnating Real Wages, United States International Trade, Collapse of United States Dynamism of Income Growth and Employment Creation, Theory and Reality of Secular Stagnation, World Economic Slowdown and Global Recession Risk
Carlos M. Pelaez
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014
Executive Summary
I Twenty Nine Million Unemployed or Underemployed
IA1 Summary of the Employment Situation
IA2 Number of People in Job Stress
IA3 Long-term and Cyclical Comparison of Employment
IA4 Job Creation
IB Stagnating Real Wages
IC Collapse of United States Dynamism of Income Growth and Employment Creation
II United States International Trade
III World Financial Turbulence
IIIA Financial Risks
IIIE Appendix Euro Zone Survival Risk
IIIF Appendix on Sovereign Bond Valuation
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt Crisis
IIIGA Monetary Policy with Deficit Financing of Economic Growth
IIIGB Adjustment during the Debt Crisis of the 1980s
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 | 2.0 | 1.2 | 0.7 | 7.0 |
| Japan | 2.4 | 1.5 | 2.7 | 4.0 |
| China | 7.8 | 2.5 | -1.4 | |
| UK | 1.9 | 2.1* CPIH 1.9 | 0.8 output | 7.4 |
| Euro Zone | -0.3 | 0.9 | -1.2 | 12.1 |
| Germany | 0.6 | 1.6 | -0.7 | 5.2 |
| France | 0.2 | 0.8 | -0.6 | 10.8 |
| Nether-lands | -0.6 | 1.2 | -3.4 | 6.9 |
| Finland | -1.0 | 1.8 | 0.2 | 8.4 |
| Belgium | 0.4 | 0.9 | -2.7 | 8.4 |
| Portugal | -1.0 | 0.1 | -0.9 | 15.5 |
| Ireland | 1.7 | 0.3 | 0.8 | 12.3 |
| Italy | -1.8 | 0.7 | -2.3 | 12.7 |
| Greece | -3.0 | -2.9 | -0.4 | 27.4 |
| Spain | -1.1 | 0.3 | -0.6 | 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/november-2013/index.html*Core
PPI http://www.ons.gov.uk/ons/rel/ppi2/producer-price-index/november-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 2.0 percent in IIIQ2013 relative to IIIQ2012 (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html, Table 8 in http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_3rd.pdf). Japan’s GDP grew 0.3 percent in IIIQ2013 relative to IIQ2013 and 2.4 percent relative to a year earlier. Japan’s grew at the seasonally adjusted annual rate (SAAR) of 1.1 percent in IIIQQ2013 (http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html). The UK grew at 0.8 percent in IIIQ2013 relative to IIQ2013 and GDP increased 1.9 percent in IIIQ2013 relative to IIIQ2012 (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html). The Euro Zone grew at 0.1 percent in IIIQ2013 and minus 0.3 percent in IIIQ2013 relative to IIIQ2012 (Section VD and earlier http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.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 18.0 percent for unemployment/underemployment or job stress of 29.3 million (Section I 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/collapse-of-united-states-dynamism-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world.html), 7.4 percent for the UK with high rates of unemployment for young people (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html). Twelve-month rates of inflation have been quite high, even when some are moderating at the margin: 1.2 percent in the US, 1.5 percent for Japan, 2.5 percent for China, 0.9 percent for the Euro Zone and 2.1 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/2014/01/theory-and-reality-of-secular.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/2013/12/collapse-of-united-states-dynamism-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html), weak hiring with the loss of 10 million full-time jobs (http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html
and earlier http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html) and continuing job stress of 24 to 30 million people in the US and stagnant wages in a fractured job market (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.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) and the third estimate of GDP for IIIQ2013 (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_3rd.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 (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.4 percent from IQ1983 to IVQ1986 and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html). As a result, there are 29.3 million unemployed or underemployed in the United States for an effective unemployment rate of 18.0 percent (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html). The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May).
First, total nonfarm payroll employment seasonally adjusted (SA) increased 74,000 in Dec 2013 and private payroll employment rose 87,000. The average number of nonfarm jobs created in Jan-Dec 2012 was 182,750, using seasonally adjusted data, while the average number of nonfarm jobs created in Jan-Dec 2013 was 182,167, or decrease by 0.3 percent. The average number of private jobs created in the US in Jan-Dec 2012 was 189,083, using seasonally adjusted data, while the average in Jan-Dec 2013 was 184,250, or decrease by 2.6 percent. This blog calculates the effective labor force of the US at 161.760 million in Dec 2012 and 163.345 million in Dec 2013 (Table I-4), for growth of 1.585 million at average 132,083 per month. The difference between the average increase of 182,167 new private nonfarm jobs per month in the US from Jan to Dec 2013 and the 132,083 average monthly increase in the labor force from is 50,084 monthly new jobs net of absorption of new entrants in the labor force. There are 29.3 million in job stress in the US currently. Creation of 50,084 new jobs per month net of absorption of new entrants in the labor force would require 586 months to provide jobs for the unemployed and underemployed (29.338 million divided by 50,084) or 49 years (586 divided by 12). The civilian labor force of the US in Dec 2013 not seasonally adjusted stood at 154.408 million with 9.984 million unemployed or effectively 18.921 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 163.345 million. Reduction of one million unemployed at the current rate of job creation without adding more unemployment requires 1.7 years (1 million divided by product of 50,084 by 12, which is 601,008). Reduction of the rate of unemployment to 5 percent of the labor force would be equivalent to unemployment of only 7.720 million (0.05 times labor force of 154.408 million) for new net job creation of 2.264 million (9.984 million unemployed minus 7.720 million unemployed at rate of 5 percent) that at the current rate would take 3.8 years (2.264 million divided by 0.601008). Under the calculation in this blog, there are 18.921 million unemployed by including those who ceased searching because they believe there is no job for them and effective labor force of 163.345 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 17.9 years (18.921 million minus 0.05(163.345 million) = 10.754 million divided by 0.601008, 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 Dec 2013 was 144.423 million (NSA) or 2.892 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 246.745 million in Dec 2013 or by 14.787 million. The number employed fell 2.0 percent from Jul 2007 to Dec 2013 while population increased 6.4 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 consideration to those factors and forces in our economy which tend to make business recoveries weak and anaemic (sic) and which tend to prolong and deepen the course of depressions. This is the essence of secular stagnation-sick recoveries 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 construction 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/2013/12/theory-and-reality-of-secular.html).
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) and the third estimate of GDP for IIIQ2013 (http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp3q13_3rd.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 (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.4 percent from IQ1983 to IVQ1986 and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html). As a result, there are 29.3 million unemployed or underemployed in the United States for an effective unemployment rate of 18.0 percent (Section I and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html). The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May).
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 2.0 to 2.6 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). 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) provide important information on long-term growth and cyclical behavior. Table Summary provides relevant data.
- 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 and 5.2 percent from IQ1983 to IVQ1986. 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-IVQ1986 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
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 the current rhythm of US economic growth. The economy appears to be moving at a pace from 2.0 to 2.6 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 3.9 percent. This growth is equivalent to 2.2 percent per year, obtained by dividing GDP in IIIQ2013 of $15,839.3 billion by GDP in IVQ2011 of $15,242.1 billion and compounding by 4/7: {[($15,839.3/$15,242.1)4/7 -1]100 = 2.2.
2. Average Annual Growth in the First Three Quarters of 2013. GDP growth in the first three quarters of 2013 accumulated to 1.9 percent that is equivalent to 2.6 percent in a year. This is obtained by dividing GDP in IIIQ2013 of $15,839.3 by GDP in IVQ2012 of $15,539.6 and compounding by 4/3: {[($15,839.3/$15,539.6)4/3 -1]100 = 2.6%}. The US economy grew 2.0 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 third estimate of IIIQ2013 is 4.1 percent in seasonally adjusted annual rate (SAAR). Inventory accumulation contributed 1.67 percentage points to this rate of growth. The actual rate without this impulse of unsold inventories would have been 2.43 percent, or 0.6 percent in IIIQ2013, such that annual equivalent growth in 2013 is closer to 2.0 percent {[(1.003)(1.006)(1.006)4/3-1]100 = 2.0%}, 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 | ∆% | |
| 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 | 15,839.3 | 5.6 | 1.0 | 2.0 |
| Cumulative ∆% IQ2012 to IIIQ2013 | 3.9 | 3.9 | ||
| Annual Equivalent ∆% | 2.2 | 2.2 |
Source: US Bureau of Economic Analysis
http://www.bea.gov/iTable/index_nipa.cfm
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 its meeting on Dec 18, 2013 with symbolic reduction of purchases of securities for the Fed’s balance sheet (http://www.federalreserve.gov/newsevents/press/monetary/20131218a.htm):
“Press Release
Release Date: December 18, 2013
For immediate release
Information received since the Federal Open Market Committee met in October indicates that economic activity is expanding at a moderate pace. Labor market conditions have shown further improvement; the unemployment rate has declined but remains elevated. 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, although the extent of restraint may be diminishing. 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 risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.
Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $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. The Committee's sizable and still-increasing holdings of longer-term securities 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. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation 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. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent 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. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. 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; Esther L. George; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Eric S. Rosengren, who believes that, with the unemployment rate still elevated and the inflation rate well below the target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate.”
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∞ with Symbolic Tapering. Earlier programs are continued with an additional lower open-ended $75 billion of bond purchases per month, increasing the stock of $2,739,919 million securities held outright and bank reserves deposited at the Fed of $2,465,932 million (http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1): “ In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $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. The Committee's sizable and still-increasing holdings of longer-term securities 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. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent 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.”
- No Present Course of Policy Accommodation. 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. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. 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. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced”
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 to $75 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 Dec 18, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20131218a.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. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent 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” (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? Will the FOMC increase purchases of mortgage-backed securities if mortgage rates increase?
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 re the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+re). Thus, g = [(r/re) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dre>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 σy and prices σp. 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 exit 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 Dec 18, 2013. The Fed releases the data with careful explanations (http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20131218.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/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html). and the PCE inflation data from the report on personal income and outlays in Section IV (http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html 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 third estimate of IIIQ2013 GDP on Dec 20, 2013 (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.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/2013/12/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html 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, the report for Oct 2013 was released on Dec 6, 2013 and the report for Nov 2013 was released on Dec 23, 2013 (http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/risks-of-zero-interest-rates-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-mediocre-united.html). 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/2013/12/risks-of-zero-interest-rates-mediocre.html). The report for Dec 2013 was released on Jan 10, 2014 (Section I). “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, 2014 and 2015 because 2016 and longer term are too far away, and there is not much information even on what will happen in 2013-2015 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 Dec 18, 2013 and the second row “PR” the projection of the Sep 18, 2013 meeting. There are three major changes in the view.
1. Growth “∆% GDP.” The FOMC has increased the forecast of GDP growth in 2013 from 2.0 to 2.3 percent at the meeting in Sep 2013 to 2.2 to 2.3 percent at the meeting on Dec 18, 2013. The FOMC increased GDP growth in 2014 from 2.9 to 3.1 percent at the meeting in Sep 2013 to 2.8 to 3.2 percent at the meeting in Dec 2013.
2. Rate of Unemployment “UNEM%.” The FOMC reduced the forecast of the rate of unemployment for 2013 from 7.1 to 7.3 percent at the meeting on Sep 18, 2013 to 7.0 to 7.1 percent at the meeting on Dec 18, 2013. The projection for 2014 decreased to the range of 6.3 to 6.6 in Dec 2013 from 6.4 to 6.8 in Sep 2013. Projections of the rate of unemployment are moving closer to the desire 6.5 percent or lower with 5.8 to 6.1 percent in 2015 after the meeting on Dec 18, 2013.
3. Inflation “∆% PCE Inflation.” The FOMC changed the forecast of personal consumption expenditures (PCE) inflation for 2014 from 1.3 to 1.8 percent at the meeting on Sep 18, 2013 to 1.4 to 1.6 percent at the meeting on Dec 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 2016. 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 for 2014, changing from 1.5 to 1.7 percent at the meeting on Sep 18, 2013 to 1.4 to 1.6 percent at the meeting Dec 18, 2013. In 2015, there is minor change in the projection from 1.7 to 2.0 percent at the meeting on Sep 18, 2013 to 1.6 to 2.0 percent on Dec 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, Sep 18, 2013 and Dec 18, 2013
| ∆% GDP | UNEM % | ∆% PCE Inflation | ∆% Core PCE Inflation | |
| Central | ||||
| 2013 | 2.2 to 2.3 | 7.0 to 7.1 | 0.9 to 1.0 | 1.1 to 1.2 1.2 to 1.3 |
| 2014 | 2.8 to 3.2 | 6.3 to 6.6 | 1.4 to 1.6 | 1.4 to 1.6 |
| 2015 Sep PR | 3.0 to 3.4 3.0 to 3.5 | 5.8 to 6.1 5.9 to 6.2 | 1.5 to 2.0 1.6 to 2.0 | 1.6 to 2.0 1.7 to 2.0 |
| 2016 Sep PR | 2.5 to 3.2 2.5 to 3.3 | 5.3 to 5.8 5.4 to 5.9 | 1.7 to 2.0 1.7 to 2.0 | 1.8 to 2.0 1.9 to 2.0 |
| Longer Run Sep PR | 2.2 to 2.4 2.2 to 2.5 | 5.2 to 5.8 5.2 to 5.8 | 2.0 2.0 | |
| Range | ||||
| 2013 | 2.2 to 2.4 | 7.0 to 7.1 | 0.9 to 1.2 | 1.1 to 1.2 |
| 2014 | 2.2 to 3.3 | 6.2 to 6.7 | 1.3 to 1.8 | 1.3 to 1.8 |
| 2015 Sep PR | 2.2 to 3.6 2.2 to 3.7 | 5.5 to 6.2 5.3 to 6.3 | 1.4 to 2.3 1.4 to 2.3 | 1.5 to 2.3 1.6 to 2.3 |
| 2016 Sep PR | 2.1 to 3.5 2.2 to 3.5 | 5.0 to 6.0 5.2 to 6.0 | 1.6 to 2.2 1.5 to 2.3 | 1.6 to 2.2 1.7 to 2.3 |
| Longer Run Jun PR | 1.8 to 2.5 2.1 to 2.5 | 5.2 to 6.0 5.2 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/fomcprojtabl20131218.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 15 participants with one 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, ten participants expect rates to be below or at 1.0 percent while four expect rates from 1.0 to 2.0 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 four between 3.0 and 4.5 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, Dec 18, 2013
| 0 to 0.25 | 0.5 to 1.0 | 1.0 to 1.5 | 1.0 to 2.0 | 2.0 to 3.0 | 3.0 to 4.5 | |
| 2013 | 17 | |||||
| 2014 | 15 | 1 | 1 | |||
| 2015 | 3 | 7 | 4 | 2 | 1 | |
| 2016 | 1 | 8 | 4 | 4 | ||
| Longer Run | 17 |
Source: Board of Governors of the Federal Reserve System, FOMC
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20131218.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, Dec 18, 2013
| Appropriate Year of Increasing Target Fed Funds Rate | Number of Participants |
| 2014 | 2 |
| 2015 | 12 |
| 2016 | 3 |
Source: Board of Governors of the Federal Reserve System, FOMC
http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20131218.pdf
China is experiencing similar inflation behavior as the advanced economies in several prior months in the form of declining commodity prices but differs in decreasing inflation of producer prices relative to a year earlier. As shown in Table IV-5, inflation of the price indexes for industry in Dec 2013 is 0.0 percent; 12-month inflation is minus 1.4 percent in Dec; and cumulative inflation in Jan-Dec 2013 relative to Jan-Dec 2012 is minus 1.9 percent. Inflation of segments in Dec 2013 in China is provided in Table IV-5 in column “Month Dec 2013 ∆%.” There were increases of prices of mining & quarrying of 0.0 percent in Dec and decrease of 4.0 percent in 12 months. Prices of consumer goods changed 0.0 percent in Dec and changed 0.0 percent in 12 months. Prices of inputs in the purchaser price index changed 0.0 percent in Dec and declined 1.4 percent in 12 months. Fuel and power increased 0.1 percent in Dec and declined 2.2 percent in 12 months. An important category of inputs for exports is textile raw materials, changing 0.0 percent in Dec and decreasing 0.8 percent in 12 months.
Table IV-5, China, Price Indexes for Industry ∆%
| Month Dec 2013 ∆% | 12-Month Dec 2013 ∆% | Jan-Dec 2013/Jan-Dec 2012 ∆% | |
| I Producer Price Indexes | 0.0 | -1.4 | -1.9 |
| Means of Production | 0.0 | -1.8 | -2.6 |
| Mining & Quarrying | 0.0 | -4.0 | -5.7 |
| Raw Materials | 0.2 | -2.0 | -3.1 |
| Processing | -0.1 | -1.4 | -2.0 |
| Consumer Goods | 0.0 | 0.0 | 0.2 |
| Food | 0.1 | 0.6 | 0.7 |
| Clothing | 0.0 | 1.1 | 1.2 |
| Daily Use Articles | 0.0 | -0.4 | -0.2 |
| Durable Consumer Goods | 0.0 | -1.1 | -0.9 |
| II Purchaser Price Indexes | 0.0 | -1.4 | -2.0 |
| Fuel and Power | 0.1 | -2.2 | -3.4 |
| Ferrous Metals | 0.1 | -1.7 | -4.3 |
| Nonferrous Metals | -0.4 | -6.0 | -4.6 |
| Chemical Raw Materials | 0.1 | -1.5 | -2.7 |
| Wood & Pulp | 0.0 | -0.1 | -0.4 |
| Building Materials | 0.7 | 0.0 | -1.3 |
| Other Industrial Raw Materials | 0.0 | -0.8 | -0.9 |
| Agricultural | 0.0 | 1.2 | 1.6 |
| Textile Raw Materials | -0.1 | 0.3 | -0.1 |
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
China’s producer price inflation follows waves similar to those around the world but with declining trend since May 2012, as shown in Table IV-6. In the first wave, annual equivalent inflation was 6.4 percent in Jan-Jun 2011, driven by carry trades from zero interest rates to commodity futures. In the second wave, risk aversion unwound carry trades, resulting in annual equivalent inflation of minus 3.1 percent in Jul-Nov 2011. In the third wave, renewed risk aversion resulted in annual equivalent inflation of minus 2.4 percent in Dec 2011-Jan 2012. In the fourth wave, new carry trades resulted in annual equivalent inflation of 2.4 percent in Feb-Apr 2012. In the fifth wave, annual equivalent inflation is minus 5.8 percent in May-Sep 2012. There are declining producer prices in China in Aug-Sep 2012 in contrast with increases worldwide. In a sixth wave, producer prices increased 0.2 percent in Oct 2012, which is equivalent to 2.4 percent in a year. In an eighth wave, annual equivalent inflation was minus 1.2 percent in Nov-Dec 2012. In the ninth wave, annual equivalent inflation in Jan-Feb 2013 is 2.4 percent. In the tenth wave, annual equivalent inflation was minus 4.9 percent in Mar-Jul 2013. In the eleventh wave, annual equivalent inflation was 1.8 percent in Aug-Sep 2013. In the twelfth wave, annual equivalent inflation was 0.0 percent in Oct-Dec 2013.
Table IV-6, China, Month and 12-Month Rate of Change of Producer Price Index, ∆%
| 12-Month ∆% | Month ∆% | |
| Dec 2013 | -1.4 | 0.0 |
| Nov | -2.0 | 0.0 |
| Oct | -1.5 | 0.0 |
| AE ∆% Oct-Dec | 0.0 | |
| Sep | -1.3 | 0.2 |
| Aug | -1.6 | 0.1 |
| AE ∆% Aug-Sep | 1.8 | |
| Jul | -2.3 | -0.3 |
| Jun | -2.7 | -0.6 |
| May | -2.9 | -0.6 |
| Apr | -2.6 | -0.6 |
| Mar | -1.9 | 0.0 |
| AE ∆% Mar-Jul | -4.9 | |
| Feb | -1.6 | 0.2 |
| Jan | -1.6 | 0.2 |
| AE ∆% Jan-Feb | 2.4 | |
| Dec 2012 | -1.9 | -0.1 |
| Nov | -2.2 | -0.1 |
| AE ∆% Nov-Dec | -1.2 | |
| Oct | -2.8 | 0.2 |
| AE ∆% Oct | 2.4 | |
| Sep | -3.6 | -0.1 |
| Aug | -3.5 | -0.5 |
| Jul | -2.9 | -0.8 |
| Jun | -2.1 | -0.7 |
| May | -1.4 | -0.4 |
| AE ∆% May-Sep | -5.8 | |
| Apr | -0.7 | 0.2 |
| Mar | -0.3 | 0.3 |
| Feb | 0.0 | 0.1 |
| AE ∆% Feb-Apr | 2.4 | |
| Jan | 0.7 | -0.1 |
| Dec 2011 | 1.7 | -0.3 |
| AE ∆% Dec-Jan | -2.4 | |
| Nov | 2.7 | -0.7 |
| Oct | 5.0 | -0.7 |
| Sep | 6.5 | 0.0 |
| Aug | 7.3 | 0.1 |
| Jul | 7.5 | 0.0 |
| AE ∆% Jul-Nov | -3.1 | |
| Jun | 7.1 | 0.0 |
| May | 6.8 | 0.3 |
| Apr | 6.8 | 0.5 |
| Mar | 7.3 | 0.6 |
| Feb | 7.2 | 0.8 |
| Jan | 6.6 | 0.9 |
| AE ∆% Jan-Jun | 6.4 | |
| Dec 2010 | 5.9 | 0.7 |
AE: Annual Equivalent
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Chart IV-1 of the National Bureau of Statistics of China provides monthly and 12-month rates of inflation of the price indexes for the industrial sector. Negative monthly rates in Oct, Nov, Dec 2011, Jan, Mar, Apr, May, Jun, Jul, Aug, Sep, Nov and Dec 2012 pulled down the 12-month rates to 5.0 percent in Oct 2011, 2.7 percent in Nov, 1.7 percent in Dec, 0.7 percent in Jan 2012, 0.0 percent in Feb, minus 0.3 percent in Mar, minus 0.7 percent in Apr, minus 1.4 percent in May, 2.1 in Jun, minus 2.9 percent in Jul, minus 3.5 percent in Aug, minus 3.6 percent in Sep. The increase of 0.2 percent in Oct 2012 pulled up the 12-month rate to minus 2.8 percent and the rate eased to minus 2.2 percent in Nov 2012 and minus 1.9 percent in Dec 2012. Increases of 0.2 percent in Jan and Feb 2013 pulled the 12-month rate to minus 1.6 percent while no change in Mar 2013 brought down the 12-month rate to minus 1.9 percent. Declines of prices of 0.6 percent in Apr, May and Jun 2013 pushed the 12-month rate to minus 2.7 percent. Producer prices fell 2.3 percent in the 12 months ending in Jul 2013 and minus 1.6 percent in Aug 2013 with increase of 0.1 percent in the month of Aug 2013. Producer price inflation was minus 1.3 percent in the 12 months ending in Sep 2013 and minus 1.5 percent in the 12 months ending in Oct 2013. Producer price inflation was minus 1.4 percent in the 12 months ending in Nov 2013 and minus 1.4 percent in the 12 months ending in Dec 2013.
Chart IV-1, China, Producer Prices for the Industrial Sector Month and 12 Months ∆%
Source: National Bureau of Statistics of China http://www.stats.gov.cn/english/
Chart IV-2 of the National Bureau of Statistics of China provides monthly and 12-month inflation of the purchaser product indices for the industrial sector. Decreasing monthly inflation with four successive contractions from Oct 2011 to Jan 2012 and May-Aug 2012 pulled down the 12-month rate to minus 4.1 percent in Aug and Sep. Consecutive increases of 0.1 percent in Sep and Oct 2012 raised the 12-month rate to minus 3.3 percent in Oct 2012. The rate eased to minus 2.8 in Nov 2012 with decrease of 0.2 percent in Nov 2012 and minus 2.4 percent in Dec 2012 with monthly decrease of 0.1 percent. Increase of 0.3 percent in Jan 2013 and 0.2 in Feb 2013 pulled the 12-month rate to minus 1.9 percent. Decrease of prices of 0.1 percent in Mar 2013 brought down the 12-month rate to minus 2.0 percent. Declining prices of 0.6 percent in Apr and May 2013 and 0.5 percent in Jun 2013 pushed down the 12-month rate to minus 2.6 percent. The index fell 2.2 percent in the 12 months ending in Jul 2013 and 1.6 percent in the 12 months ending in Aug 2013. The index fell 1.6 percent in the 12 months ending in Sep 2013 and 1.6 percent in the 12 months ending in Oct 2013. Purchaser price inflation was minus 1.5 percent in the 12 months ending in Nov 2013 and minus 1.4 percent in the 12 months ending in Dec 2013.
Chart IV-2, China, Purchaser Product Indices for Industrial Sector, Month and 12 Months ∆%
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
China is highly conscious of food price inflation because of its high weight in the basket of consumption of the population. Consumer price inflation in China in Dec 2013 was 0.3 percent and 2.5 percent in 12 months, as shown in Table IV-7. Food prices increased 0.6 percent in Dec 2013, 4.1 percent in 12 months and 4.7 percent in the cumulative Jan-Dec 2013 relative to a year earlier. Food prices fell 0.2 percent in Nov 2013, increasing 5.9 percent in 12 months and 4.7 percent in the cumulative to Nov 2013 relative to a year earlier. Food prices decreased 0.4 percent in Oct 2013, increasing 6.5 percent in 12 months in adjustment to sharp increase in Sep 2013. Adjustment from the prior shock had occurred in May with decline of food prices by 1.6 percent and increase of 3.8 percent in 12 months and 3.8 percent in Jan-May 2013 relative to a year earlier. Another area of concern is housing inflation, which was 0.3 percent in Dec and increased 2.8 percent in 12 months. Prices of services changed 0.0 percent in Dec and gained 3.3 percent in 12 months.
Table IV-7, China, Consumer Price Index
| 2013 | Dec 2013 Month ∆% | Dec 2013 12-Month ∆% | Jan-Dec 2013 ∆%/ Jan-Dec 2012 |
| Consumer Prices | 0.3 | 2.5 | 2.6 |
| Urban | 0.3 | 2.5 | 2.6 |
| Rural | 0.3 | 2.5 | 2.8 |
| Food | 0.6 | 4.1 | 4.7 |
| Non-food | 0.1 | 1.7 | 1.6 |
| Consumer Goods | 0.4 | 2.2 | 2.5 |
| Services | 0.0 | 3.3 | 2.9 |
| Excluding Food and Energy | 0.0 | 1.8 | 1.7 |
| Excluding Fresh Vegetables and Fresh Fruits | 0.2 | 2.2 | 2.4 |
| Commodity Categories: | |||
| Food | 0.6 | 4.1 | 4.7 |
| Tobacco, Liquor | 0.0 | -0.4 | 0.3 |
| Clothing | 0.1 | 2.1 | 2.3 |
| Household | 0.1 | 1.4 | 1.5 |
| Healthcare & Personal Articles | 0.0 | 0.9 | 1.3 |
| Transportation & Communication | 0.3 | -0.1 | -0.4 |
| Recreation, Education, Culture & Services | -0.1 | 2.9 | 1.8 |
| Residence | 0.3 | 2.8 | 2.8 |
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Month and 12-month rates of change of consumer prices are provided in Table IV-8. There are waves of consumer price inflation in China similar to those around the world (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html). In the first wave, consumer prices increased at the annual equivalent rate of 8.3 percent in Jan-Mar 2011, driven by commodity price increases resulting from unconventional monetary policy of zero interest rates. In the second wave, risk aversion unwound carry trades with annual equivalent inflation falling to the rate of 2.0 percent in Apr-Jun 2011. In the third wave, inflation returned at 2.9 percent with renewed interest in commodity exposures in Jul-Nov 2011. In the fourth wave, inflation returned at a high 5.8 percent annual equivalent in Dec 2011 to Mar 2012. In the fifth wave, annual equivalent inflation was minus 3.9 percent in Apr to Jun 2012. In the sixth wave, annual equivalent inflation rose to 4.1 percent in Jul-Sep 2012. In the seventh wave, inflation was minus 1.2 percent annual equivalent in Oct 2012 and 0.0 percent in Oct-Nov 2012. In the eighth wave, annual equivalent inflation was 12.2 percent in Dec 2012-Feb 2013 primarily because of winter weather that caused increases in food prices. In the ninth wave, collapse of food prices resulted in annual equivalent inflation of minus 10.3 percent in Mar 2013. In the tenth wave, annual equivalent inflation returned at 2.4 percent in Apr 2013. In the eleventh wave, annual equivalent inflation was minus 3.5 percent in May-Jun 2013. In the twelfth wave, inflation rose at annual equivalent 4.6 percent in Jul-Oct 2013 with sharp increase of food prices in Sep 2013. In the thirteenth wave, annual equivalent inflation was minus 1.2 percent in Nov 2013. In the fourteenth wave, annual equivalent inflation was 3.7 percent in Dec 2013. Inflation volatility originating in unconventional monetary policy clouds investment and consumption decisions by business and households. There is local problem in China with food prices.
Table IV-8, China, Month and 12-Month Rates of Change of Consumer Price Index ∆%
| Month ∆% | 12-Month ∆% | |
| Dec 2013 | 0.3 | 2.5 |
| AE ∆% Dec | 3.7 | |
| Nov | -0.1 | 3.0 |
| AE ∆% Nov | -1.2 | |
| Oct | 0.1 | 3.2 |
| Sep | 0.8 | 3.1 |
| Aug | 0.5 | 2.6 |
| Jul | 0.1 | 2.7 |
| AE ∆% Jul-Oct | 4.6 | |
| Jun | 0.0 | 2.7 |
| May | -0.6 | 2.1 |
| AE ∆% May-Jun | -3.5 | |
| Apr | 0.2 | 2.4 |
| AE ∆% Apr | 2.4 | |
| Mar 2013 | -0.9 | 2.1 |
| AE ∆% Mar | -10.3 | |
| Feb | 1.1 | 3.2 |
| Jan | 1.0 | 2.0 |
| Dec 2012 | 0.8 | 2.5 |
| AE ∆% Dec-Feb | 12.2 | |
| Nov | 0.1 | 2.0 |
| Oct | -0.1 | 1.7 |
| AE ∆% Oct-Nov | 0.0 | |
| Sep | 0.3 | 1.9 |
| Aug | 0.6 | 2.0 |
| Jul | 0.1 | 1.8 |
| AE ∆% Jul-Sep | 4.1 | |
| Jun | -0.6 | 2.2 |
| May | -0.3 | 3.0 |
| Apr | -0.1 | 3.4 |
| AE ∆% Apr to Jun | -3.9 | |
| Mar | 0.2 | 3.6 |
| Feb | -0.1 | 3.2 |
| Jan | 1.5 | 4.5 |
| Dec 2011 | 0.3 | 4.1 |
| AE ∆% Dec to Mar | 5.8 | |
| Nov | -0.2 | 4.2 |
| Oct | 0.1 | 5.5 |
| Sep | 0.5 | 6.1 |
| Aug | 0.3 | 6.2 |
| Jul | 0.5 | 6.5 |
| AE ∆% Jul to Nov | 2.9 | |
| Jun | 0.3 | 6.4 |
| May | 0.1 | 5.5 |
| Apr | 0.1 | 5.3 |
| AE ∆% Apr to Jun | 2.0 | |
| Mar | -0.2 | 5.4 |
| Feb | 1.2 | 4.9 |
| Jan | 1.0 | 4.9 |
| AE ∆% Jan to Mar | 8.3 | |
| Dec 2010 | 0.5 | 4.6 |
AE: Annual Equivalent
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
Chart IV-3 of the National Bureau of Statistics of China provides monthly and 12-month rates of consumer price inflation. In contrast with producer prices, consumer prices had not moderated at the monthly marginal rates. Consumer prices fell 0.2 percent in Nov 2011 after increasing only 0.1 percent in Oct but increased 0.3 percent in Dec and a high 1.5 percent in Jan 2012, declining 0.1 percent in Feb, rising 0.2 percent in Mar and declining 0.1 percent in Apr, 0.3 percent in May and 0.6 percent in Jun 2012 but increasing 0.1 percent in Jul, 0.6 percent in Aug 2012 and 0.3 percent in Sep 2012. Consumer prices fell 0.1 percent in Oct 2012. The decline of 0.1 percent in Feb 2012 pulled down the 12-month rate to 3.2 percent, which bounced back to 3.6 percent in Mar with the monthly increase of 0.2 percent and fell to 2.2 percent in Jun with increasing pace of monthly decline from Apr to Jun 2012. Even with increase of 0.1 percent in Jul 2012, consumer price inflation in 12 months fell to 1.8 percent in Jul 2012 but bounced back to 2.0 percent with increase of 0.6 percent in Aug. In Sep, increase of 0.3 percent still maintained 12-month inflation at 1.9 percent. The decline of 0.1 percent in Oct 2012 pulled down the 12-month rate to 1.7 percent, which is the lowest in Chart IV-3. Increase of 0.1 percent in Nov 2012 pulled up the 12-month rate to 2.0 percent. Abnormal increase of 0.8 percent in Dec 2012 because of winter weather pulled up the 12-month rate to 2.5 percent. Even with increase of 1.0 percent in Jan 2013 12-month inflation fell to 2.0 percent. Inflation of 1.1 percent in Feb 2013 pulled the 12-month rate to 3.2 percent. Collapse of food prices with decline of consumer prices by 0.9 percent in Mar 2013 brought down the 12-month rate to 2.1 percent. Renewed inflation of 0.2 percent in Apr 2013 raised the 12-month rate to 2.4 percent. Decline of inflation by 0.6 percent in May reduced 12-month inflation to 2.1 percent. Inflation rose to 2.7 percent in the 12 months ending in Jun 2013 with unchanged monthly inflation. Consumer prices increased 0.1 percent in Jul 2013 and 2.7 percent in 12 months. In combination of increases of food prices and other prices, inflation returned with 0.5 percent in Aug 2013 and 2.6 percent in 12 months. Consumer prices increased 0.8 percent in Sept 2013 and 3.1 percent in 12 months with increase in food prices of 1.5 in the month of Sep 2013. Consumer prices increased 0.1 percent in Oct 2013 and 3.2 percent in 12 months. Consumer prices fell 0.1 percent in Nov 2013 and increased 3.0 percent in 12 months. Consumer prices increased 0.3 percent in Dec 2013 and increased 2.5 percent in 12 months.
Chart IV-3, China, Consumer Prices ∆% Month and 12 Months
Source: National Bureau of Statistics of China
http://www.stats.gov.cn/english/
The producer price index of the euro zone fell 0.1 percent in Nov 2013 and 0.5 percent in Oct 2013, as shown in Table IV-9. 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. 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 1.2 percent in Oct 2013 and changed 0.0 percent in Nov 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/2013/12/tapering-quantitative-easing-mediocre.html). Unconventional monetary policy causes uncertainty in business decisions with shocks of declining net revenue margins during worldwide inflation waves (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html).
Table IV-9, Euro Area, Industrial Producer Prices Month ∆%
| Nov 2013 | Oct 2013 | Sep 2013 | Aug 2013 | Jul 2013 | Jun 2013 | |
| Industry ex | -0.1 | -0.5 | 0.2 | 0.0 | 0.2 | 0.0 |
| Industry ex | -0.1 | -0.1 | -0.1 | 0.1 | -0.1 | -0.1 |
| Intermediate | -0.2 | -0.2 | -0.2 | -0.1 | -0.2 | -0.3 |
| Energy | 0.0 | -1.2 | 0.6 | 0.1 | 0.6 | 0.0 |
| Capital Goods | 0.0 | 0.0 | -0.1 | 0.0 | 0.0 | 0.1 |
| Durable Consumer Goods | 0.0 | 0.0 | 0.1 | 0.0 | 0.0 | -0.1 |
| Nondurable Consumer Goods | 0.0 | -0.3 | 0.1 | 0.2 | 0.2 | 0.2 |
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-10. 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 1.3 percent in the 12 months ending in Oct 2013. Industrial producer prices fell 1.2 percent in the 12 months ending in Nov 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 3.5 percent in Aug 2013. Energy prices fell 2.7 percent in the 12 months ending in Sep 2013, 3.5 percent in the 12 months ending in Oct 2013 and 3.2 percent in the 12 months ending in Nov 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/2013/12/tapering-quantitative-easing-mediocre.html).
Table IV-10 Euro Area, Industrial Producer Prices 12-Month ∆%
| Nov 2013 | Oct 2013 | Sep 2013 | Aug | Jul 2013 | Jun 2013 | |
| Industry ex | -1.2 | -1.3 | -0.9 | -0.9 | 0.0 | 0.1 |
| Industry ex | -0.3 | -0.3 | -0.1 | 0.3 | 0.5 | 0.6 |
| Intermediate | -1.7 | -1.7 | -1.6 | -1.0 | -0.5 | -0.5 |
| Energy | -3.2 | -3.5 | -2.7 | -3.5 | -1.4 | -1.0 |
| Capital Goods | 0.5 | 0.5 | 0.6 | 0.6 | 0.5 | 0.5 |
| Durable Consumer Goods | 0.5 | 0.5 | 0.6 | 0.5 | 0.6 | 0.7 |
| Nondurable Consumer Goods | 0.8 | 1.0 | 1.6 | 1.9 | 2.2 | 2.2 |
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/2013/12/tapering-quantitative-easing-mediocre.html), as shown in Table IV-11. 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 3.5 percent in Oct-Nov 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-11, Euro Area, Industrial Producer Prices Excluding Construction, Month and 12-Month ∆%
| Month ∆% | 12-Month ∆% | |
| Nov 2013 | -0.1 | -1.2 |
| Oct | -0.5 | -1.3 |
| AE ∆% Oct-Nov | -3.5 | |
| 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 | 2.0 |
| AE ∆% Jul-Aug | 6.8 | |
| Jun | -0.5 | 2.2 |
| 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 ∆% | Real GDP ∆% | Real GDP ∆% | Real GDP ∆% | |
| World | 72,216 | 2.9 | 3.6 | 4.0 | 4.1 |
| G7 | 34,560 | 1.2 | 2.0 | 2.5 | 2.6 |
| Canada | 1,821 | 1.6 | 2.2 | 2.4 | 2.5 |
| France | 2,614 | 0.2 | 1.0 | 1.5 | 1.7 |
| DE | 3,430 | 0.5 | 1.4 | 1.4 | 1.3 |
| Italy | 2,014 | -1.8 | 0.7 | 1.1 | 1.4 |
| Japan | 5,960 | 1.9 | 1.2 | 1.1 | 1.2 |
| UK | 2,477 | 1.4 | 1.9 | 2.0 | 2.0 |
| US | 16,245 | 1.6 | 2.6 | 3.4 | 3.5 |
| Euro Area | 12,199 | -0.4 | 1.0 | 1.4 | 1.5 |
| DE | 3,430 | 0.5 | 1.4 | 1.4 | 1.3 |
| France | 2,614 | 0.2 | 1.0 | 1.5 | 1.7 |
| Italy | 2,014 | -1.8 | 0.7 | 1.1 | 1.4 |
| POT | 212 | -1.8 | 0.8 | 1.5 | 1.8 |
| Ireland | 211 | 0.6 | 1.8 | 2.5 | 2.5 |
| Greece | 249 | -4.2 | 0.6 | 2.9 | 3.7 |
| Spain | 1,324 | -1.3 | 0.2 | 0.5 | 0.7 |
| EMDE | 27,221 | 4.5 | 5.1 | 5.3 | 5.4 |
| Brazil | 2,253 | 2.5 | 2.5 | 3.2 | 3.3 |
| Russia | 2,030 | 1.5 | 3.0 | 3.5 | 3.5 |
| India | 1,842 | 3.8 | 5.1 | 6.3 | 6.5 |
| China | 8,221 | 7.6 | 7.3 | 7.0 | 7.0 |
Notes; DE: Germany; EMDE: Emerging and Developing Economies (150 countries); POT: Portugal
Source: IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx
Continuing high rates of unemployment in advanced economies constitute another characteristic of the database of the WEO (http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx). Table V-2 is constructed with the WEO database to provide rates of unemployment from 2012 to 2016 for major countries and regions. In fact, unemployment rates for 2012 in Table V-2 are high for all countries: unusually high for countries with high rates most of the time and unusually high for countries with low rates most of the time. The rates of unemployment are particularly high for the countries with sovereign debt difficulties in Europe: 15.7 percent for Portugal (POT), 14.7 percent for Ireland, 24.2 percent for Greece, 25.0 percent for Spain and 10.6 percent for Italy, which is lower but still high. The G7 rate of unemployment is 7.4 percent. Unemployment rates are not likely to decrease substantially if slow growth persists in advanced economies.
Table V-2, IMF World Economic Outlook Database Projections of Unemployment Rate as Percent of Labor Force
| % Labor Force 2012 | % Labor Force 2013 | % Labor Force 2014 | % Labor Force 2015 | % Labor Force 2016 | |
| World | NA | NA | NA | NA | NA |
| G7 | 7.4 | 7.3 | 7.3 | 7.0 | 6.6 |
| Canada | 7.3 | 7.2 | 7.1 | 7.0 | 6.9 |
| France | 10.3 | 11.0 | 11.1 | 10.9 | 10.5 |
| DE | 5.5 | 5.6 | 5.5 | 5.5 | 5.5 |
| Italy | 10.7 | 12.5 | 12.4 | 12.0 | 11.2 |
| Japan | 4.4 | 4.2 | 4.3 | 4.3 | 4.3 |
| UK | 8.0 | 7.7 | 7.5 | 7.3 | 7.0 |
| US | 8.1 | 7.6 | 7.4 | 6.9 | 6.4 |
| Euro Area | 11.4 | 12.3 | 12.2 | 12.0 | 11.5 |
| DE | 5.5 | 5.6 | 5.5 | 5.5 | 5.5 |
| France | 10.3 | 11.0 | 11.1 | 10.9 | 10.5 |
| Italy | 10.7 | 12.5 | 12.4 | 12.0 | 11.2 |
| POT | 15.7 | 17.4 | 17.7 | 17.3 | 16.8 |
| Ireland | 14.7 | 13.7 | 13.3 | 12.8 | 12.4 |
| Greece | 24.2 | 27.0 | 26.1 | 24.0 | 21.0 |
| Spain | 25.0 | 26.9 | 26.7 | 26.5 | 26.2 |
| EMDE | NA | NA | NA | NA | NA |
| Brazil | 5.5 | 5.8 | 6.0 | 6.5 | 6.5 |
| Russia | 6.0 | 5.7 | 5.7 | 5.5 | 5.5 |
| India | NA | NA | NA | NA | NA |
| China | 4.1 | 4.1 | 4.1 | 4.1 | 4.1 |
Notes; DE: Germany; EMDE: Emerging and Developing Economies (150 countries)
Source: IMF World Economic Outlook databank http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx
Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog from IQ2012 to IIQ2013 available now for all countries. There are preliminary estimates for all countries for IIIQ2013. Growth is weak throughout most of the world. Japan’s GDP increased 0.9 percent in IQ2012 and 3.5 percent relative to a year earlier but part of the jump could be the low level a year earlier because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan is experiencing difficulties with the overvalued yen because of worldwide capital flight originating in zero interest rates with risk aversion in an environment of softer growth of world trade. Japan’s GDP fell 0.5 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of minus 2.0 percent, which is much lower than 3.5 percent in IQ2012. Growth of 3.2 percent in IIQ2012 in Japan relative to IIQ2011 has effects of the low level of output because of Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan’s GDP contracted 0.8 percent in IIIQ2012 at the SAAR of minus 3.2 percent and decreased 0.2 percent relative to a year earlier. Japan’s GDP grew 0.1 percent in IVQ2012 at the SAAR of 0.6 percent and decreased 0.3 percent relative to a year earlier. Japan grew 1.1 percent in IQ2013 at the SAAR of 4.5 percent and 0.1 percent relative to a year earlier. Japan’s GDP increased 0.9 percent in IIQ2013 at the SAAR of 3.6 percent and increased 1.2 percent relative to a year earlier. Japan’s GDP grew 0.3 percent in IIIQ2013 at the SAAR of 1.1 percent and increased 2.4 pecent relative to a year earlier. China grew at 2.2 percent in IIQ2012, which annualizes to 9.1 percent and 7.6 percent relative to a year earlier. China grew at 2.0 percent in IIIQ2012, which annualizes at 8.2 percent and 7.4 percent relative to a year earlier. In IVQ2012, China grew at 1.9 percent, which annualizes at 7.8 percent, and 7.9 percent in IVQ2012 relative to IVQ2011. In IQ2013, China grew at 1.5 percent, which annualizes at 6.1 percent and 7.7 percent relative to a year earlier. In IIQ2013, China grew at 1.9 percent, which annualizes at 7.8 percent and 7.5 percent relative to a year earlier. China grew at 2.2 percent in IIIQ2013, which annualizes at 9.1 percent and 7.8 percent relative to a year earlier. There is decennial change in leadership in China (http://www.xinhuanet.com/english/special/18cpcnc/index.htm). Growth rates of GDP of China in a quarter relative to the same quarter a year earlier have been declining from 2011 to 2013. GDP fell 0.1 percent in the euro area in IQ2012 and decreased 0.2 in IQ2012 relative to a year earlier. Euro area GDP contracted 0.3 percent IIQ2012 and fell 0.5 percent relative to a year earlier. In IIIQ2012, euro area GDP fell 0.2 percent and declined 0.7 percent relative to a year earlier. In IVQ2012, euro area GDP fell 0.5 percent relative to the prior quarter and fell 1.0 percent relative to a year earlier. In IQ2013, the GDP of the euro area fell 0.2 percent and decreased 1.2 percent relative to a year earlier. The GDP of the euro area increased 0.3 percent in IIQ2013 and fell 0.6 percent relative to a year earlier. In IIIQ2013, euro area GDP increased 0.1 percent and fell 0.3 percent relative to a year earlier. Germany’s GDP increased 0.7 percent in IQ2012 and 1.8 percent relative to a year earlier. In IIQ2012, Germany’s GDP decreased 0.1 percent and increased 0.6 percent relative to a year earlier but 1.1 percent relative to a year earlier when adjusted for calendar (CA) effects. In IIIQ2012, Germany’s GDP increased 0.2 percent and 0.4 percent relative to a year earlier. Germany’s GDP contracted 0.5 percent in IVQ2012 and increased 0.0 percent relative to a year earlier. In IQ2013, Germany’s GDP increased 0.0 percent and fell 1.6 percent relative to a year earlier. In IIQ2013, Germany’s GDP increased 0.7 percent and 0.9 percent relative to a year earlier. The GDP of Germany increased 0.3 percent in IIIQ2013 and 1.1 percent relative to a year earlier. Growth of US GDP in IQ2012 was 0.9 percent, at SAAR of 3.7 percent and higher by 3.3 percent relative to IQ2011. US GDP increased 0.3 percent in IIQ2012, 1.2 percent at SAAR and 2.8 percent relative to a year earlier. In IIIQ2012, US GDP grew 0.7 percent, 2.8 percent at SAAR and 3.1 percent relative to IIIQ2011. In IVQ2012, US GDP grew 0.0 percent, 0.1 percent at SAAR and 2.0 percent relative to IVQ2011. In IQ2013, US GDP grew at 1.1 percent SAAR, 0.3 percent relative to the prior quarter and 1.3 percent relative to the same quarter in 2013. In IIQ2013, US GDP grew at 2.5 percent in SAAR, 0.6 percent relative to the prior quarter and 1.6 percent relative to IIQ2012. US GDP grew at 4.1 percent in SAAR in IIIQ2013, 1.0 percent relative to the prior quarter and 2.0 percent relative to the same quarter a year earlier (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html) with weak hiring (http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html). In IQ2012, UK GDP changed 0.0 percent, increasing 0.6 percent relative to a year earlier. UK GDP fell 0.4 percent in IIQ2012 and changed 0.0 percent relative to a year earlier. UK GDP increased 0.8 percent in IIIQ2012 and increased 0.2 percent relative to a year earlier. UK GDP fell 0.1 percent in IVQ2012 relative to IIIQ2012 and increased 0.2 percent relative to a year earlier. UK GDP increased 0.5 percent in IQ2013 and 0.7 percent relative to a year earlier. UK GDP increased 0.8 percent in IIQ2013 and 2.0 percent relative to a year earlier. In IIIQ2013, UK GDP increased 0.8 percent and 1.9 percent relative to a year earlier. Italy has experienced decline of GDP in nine consecutive quarters from IIIQ2011 to IIIQ2013. Italy’s GDP fell 1.1 percent in IQ2012 and declined 1.8 percent relative to IQ2011. Italy’s GDP fell 0.6 percent in IIQ2012 and declined 2.6 percent relative to a year earlier. In IIIQ2012, Italy’s GDP fell 0.5 percent and declined 2.8 percent relative to a year earlier. The GDP of Italy contracted 0.9 percent in IVQ2012 and fell 3.0 percent relative to a year earlier. In IQ2013, Italy’s GDP contracted 0.6 percent and fell 2.5 percent relative to a year earlier. Italy’s GDP fell 0.3 percent in IIQ2013 and 2.2 percent relative to a year earlier. The GDP of Italy changed 0.0 percent in IIIQ2013 and declined 1.8 percent relative to a year earlier. France’s GDP changed 0.0 percent in IQ2012 and increased 0.4 percent relative to a year earlier. France’s GDP decreased 0.3 percent in IIQ2012 and increased 0.1 percent relative to a year earlier. In IIIQ2012, France’s GDP increased 0.2 percent and changed 0.0 percent relative to a year earlier. France’s GDP fell 0.2 percent in IVQ2012 and declined 0.3 percent relative to a year earlier. In IQ2013, France GDP fell 0.1 percent and declined 0.4 percent relative to a year earlier. The GDP of France increased 0.6 percent in IIQ2013 and 0.5 percent relative to a year earlier. France’s GDP contracted 0.1 percent in IIIQ2013 and increased 0.2 percent relative to a year earlier.
Table V-3, Percentage Changes of GDP Quarter on Prior Quarter and on Same Quarter Year Earlier, ∆%
| IQ2012/IVQ2011 | IQ2012/IQ2011 | |
| United States | QOQ: 0.9 SAAR: 3.7 | 3.3 |
| Japan | QOQ: 0.9 SAAR: 3.5 | 3.1 |
| China | 1.4 | 8.1 |
| Euro Area | -0.1 | -0.2 |
| Germany | 0.7 | 1.8 |
| France | 0.0 | 0.4 |
| Italy | -1.1 | -1.8 |
| United Kingdom | 0.0 | 0.6 |
| IIQ2012/IQ2012 | IIQ2012/IIQ2011 | |
| United States | QOQ: 0.3 SAAR: 1.2 | 2.8 |
| Japan | QOQ: -0.5 | 3.2 |
| China | 2.2 | 7.6 |
| Euro Area | -0.3 | -0.5 |
| Germany | -0.1 | 0.6 1.1 CA |
| France | -0.3 | 0.1 |
| Italy | -0.6 | -2.6 |
| United Kingdom | -0.4 | 0.0 |
| IIIQ2012/ IIQ2012 | IIIQ2012/ IIIQ2011 | |
| United States | QOQ: 0.7 | 3.1 |
| Japan | QOQ: –0.8 | -0.2 |
| China | 2.0 | 7.4 |
| Euro Area | -0.2 | -0.7 |
| Germany | 0.2 | 0.4 |
| France | 0.2 | 0.0 |
| Italy | -0.5 | -2.8 |
| United Kingdom | 0.8 | 0.2 |
| IVQ2012/IIIQ2012 | IVQ2012/IVQ2011 | |
| United States | QOQ: 0.0 | 2.0 |
| Japan | QOQ: 0.1 SAAR: 0.6 | -0.3 |
| China | 1.9 | 7.9 |
| Euro Area | -0.5 | -1.0 |
| Germany | -0.5 | 0.0 |
| France | -0.2 | -0.3 |
| Italy | -0.9 | -3.0 |
| United Kingdom | -0.1 | 0.2 |
| IQ2013/IVQ2012 | IQ2013/IQ2012 | |
| United States | QOQ: 0.3 | 1.3 |
| Japan | QOQ: 1.1 SAAR: 4.5 | 0.1 |
| China | 1.5 | 7.7 |
| Euro Area | -0.2 | -1.2 |
| Germany | 0.0 | -1.6 |
| France | -0.1 | -0.4 |
| Italy | -0.6 | -2.5 |
| UK | 0.5 | 0.7 |
| IIQ2013/IQ2013 | IIQ2013/IIQ2012 | |
| United States | QOQ: 0.6 SAAR: 2.5 | 1.6 |
| Japan | QOQ: 0.9 SAAR: 3.6 | 1.2 |
| China | 1.9 | 7.5 |
| Euro Area | 0.3 | -0.6 |
| Germany | 0.7 | 0.9 |
| France | 0.6 | 0.5 |
| Italy | -0.3 | -2.2 |
| UK | 0.8 | 2.0 |
| IIIQ2013/IIQ2013 | III/Q2013/ IIIQ2012 | |
| USA | QOQ: 1.0 | 2.0 |
| Japan | QOQ: 0.3 SAAR: 1.1 | 2.4 |
| China | 2.2 | 7.8 |
| Euro Area | 0.1 | -0.3 |
| Germany | 0.3 | 1.1 |
| France | -0.1 | 0.2 |
| Italy | 0.0 | -1.8 |
| UK | 0.8 | 1.9 |
QOQ: Quarter relative to prior quarter; SAAR: seasonally adjusted annual rate
Source: Country Statistical Agencies http://www.census.gov/aboutus/stat_int.html
Table V-4 provides two types of data: growth of exports and imports in the latest available months and in the past 12 months; and contributions of net trade (exports less imports) to growth of real GDP. Japan provides the most worrisome data (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations_8763.html http://cmpass ocregulationblog.blogspot.com/2013/08/interest-rate-risks-duration-dumping.html and earlier http://cmpassocregulationblog.blogspot.com/2013/07/duration-dumping-steepening-yield-curve.html and earlier http://cmpassocregulationblog.blogspot.com/2013/06/paring-quantitative-easing-policy-and_4699.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html and earlier http://cmpassocregulationblog.blogspot.com/2012/11/contraction-of-united-states-real_25.html and for GDP http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.html and earlier http://cmpassocreulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html). In Nov 2013, Japan’s exports grew 18.4 percent in 12 months while imports increased 21.1 percent. The second part of Table V-4 shows that net trade deducted 1.3 percentage points from Japan’s growth of GDP in IIQ2012, deducted 2.1 percentage points from GDP growth in IIIQ2012 and deducted 0.6 percentage points from GDP growth in IVQ2012. Net trade added 0.4 percentage points to GDP growth in IQ2012, 1.6 percentage points in IQ2013 and 0.6 percentage points in IIQ2013. In IIIQ2013, net trade deducted 1.9 percentage points from GDP growth in Japan. In Dec 2013, China exports increased 4.3 percent relative to a year earlier and imports increased 8.3 percent. Germany’s exports increased 0.2 percent in the month of Nov 2013 and increased 1.0 percent in the 12 months ending in Nov 2013. Germany’s imports decreased 1.1 percent in the month of Nov and decreased 0.4 percent in the 12 months ending in Nov. Net trade contributed 0.8 percentage points to growth of GDP in IQ2012, contributed 0.4 percentage points in IIQ2012, contributed 0.3 percentage points in IIIQ2012, deducted 0.5 percentage points in IVQ2012, deducted 0.2 percentage points in IQ2012 and added 0.3 percentage points in IIQ2013. Net traded deducted 0.4 percentage points from Germany’s GDP growth in IIIQ2013. Net trade deducted 0.8 percentage points from UK value added in IQ2012, deducted 0.8 percentage points in IIQ2012, added 0.7 percentage points in IIIQ2012 and subtracted 0.5 percentage points in IVQ2012. In IQ2013, net trade added 0.5 percentage points to UK’s growth of value added and contributed 0.2 percentage points in IIQ2013. In IIIQ2013, net trade deducted 1.2 percentage points from UK GDP growth. France’s exports decreased 2.1 percent in Nov 2013 while imports increased 0.2. Net traded added 0.1 percentage points to France’s GDP in IIIQ2012 and 0.1 percentage points in IVQ2012. Net trade deducted 0.1 percentage points from France’s GDP growth in IQ2013 and added 0.1 percentage points in IIQ2013, deducting 0.6 percentage points in IIIQ2013. US exports increased 1.8 percent in Oct 2013 and goods exports increased 2.0 percent in Jan-Oct 2013 relative to a year earlier but net trade deducted 0.03 percentage points from GDP growth in IIIQ2012 and added 0.68 percentage points in IVQ2012. Net trade deducted 0.28 percentage points from US GDP growth in IQ2013 and deducted 0.07 percentage points in IIQ2013. Net traded added 0.14 percentage points to US GDP growth in IIIQ2013. US imports increased 0.4 percent in Oct 2013 and goods imports decreased 0.3 percent in Jan-Oct 2013 relative to a year earlier. Industrial production increased 1.1 percent in Nov 2013 after increasing 0.1 percent in Oct 2013 and increasing 0.5 percent in Se 2013, as shown in Table I-1, with all data seasonally adjusted. The report of the Board of Governors of the Federal Reserve System states (http://www.federalreserve.gov/releases/g17/Current/default.htm):
“Industrial production increased 1.1 percent in November after having edged up 0.1 percent in October; output was previously reported to have declined 0.1 percent in October. The gain in November was the largest since November 2012, when production rose 1.3 percent. Manufacturing output increased 0.6 percent in November for its fourth consecutive monthly gain. Production at mines advanced 1.7 percent to more than reverse a decline of 1.5 percent in October. The index for utilities was up 3.9 percent in November, as colder-than-average temperatures boosted demand for heating. At 101.3 percent of its 2007 average, total industrial production was 3.2 percent above its year-earlier level. In November, industrial production surpassed for the first time its pre-recession peak of December 2007 and was 21 percent above its trough of June 2009. Capacity utilization for the industrial sector increased 0.8 percentage point in November to 79.0 percent, a rate 1.2 percentage points below its long-run (1972-2012) average.”
In the six months ending in Nov 2013, United States national industrial production accumulated increase of 2.2 percent at the annual equivalent rate of 4.5 percent, which is higher than growth of 3.2 percent in the 12 months ending in Nov 2013. Excluding growth of 1.1 percent in Nov 2013, growth in the remaining five months from Jun 2012 to Oct 2013 accumulated to 1.1 percent or 2.2 percent annual equivalent. Industrial production fell in one of the past six months. Business equipment accumulated growth of 1.4 percent in the six months from Jun to Nov 2013 at the annual equivalent rate of 2.8 percent, which is higher than growth of 2.2 percent in the 12 months ending in Nov 2013. The Fed analyzes capacity utilization of total industry in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm): “Capacity utilization for the industrial sector increased 0.8 percentage point in November to 79.0 percent, a rate 1.2 percentage points below its long-run (1972-2012) average.” United States industry apparently decelerated to a lower growth rate with possible acceleration in Nov 2013.
Manufacturing increased 0.3 percent in Oct 2013 after increasing 0.1 percent in Sep 2013 and increasing 0.7 percent in Aug 2013 seasonally adjusted, increasing 3.4 percent not seasonally adjusted in 12 months ending in Oct 2013, as shown in Table I-2 (http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-unwinding-monetary-policy.html). Manufacturing increased 0.6 percent in No 2013 after increasing 0.5 percent in Oct 2013 and increasing 0.1 percent in Sep 2013 seasonally adjusted, increasing 3.0 percent not seasonally adjusted in 12 months ending in Nov 2013, as shown in Table I-2. Manufacturing grew cumulatively 1.7 percent in the six months ending in Nov 2013 or at the annual equivalent rate of 3.4 percent. Excluding the increase of 0.6 percent in Nov 2013, manufacturing accumulated growth of 1.1 percent from Jun 2013 to Oct 2013 or at the annual equivalent rate of 2.2 percent. Table I-2 provides a longer perspective of manufacturing in the US. There has been evident deceleration of manufacturing growth in the US from 2010 and the first three months of 2011 into more recent months as shown by 12 months rates of growth. Growth rates appeared to be increasing again closer to 5 percent in Apr-Jun 2012 but deteriorated. The rates of decline of manufacturing in 2009 are quite high with a drop of 18.2 percent in the 12 months ending in Apr 2009. Manufacturing recovered from this decline and led the recovery from the recession. Rates of growth appeared to be returning to the levels at 3 percent or higher in the annual rates before the recession but the pace of manufacturing fell steadily in the past six months with some weakness at the margin. Manufacturing fell by 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increase by 16.8 percent from the trough in Apr 2009 to Dec 2012. Manufacturing grew 20.5 percent from the trough in Apr 2009 to Nov 2013. Manufacturing output in Nov 2013 is 5.9 percent below the peak in Jun 2007.
Table V-4, Growth of Trade and Contributions of Net Trade to GDP Growth, ∆% and % Points
| Exports | Exports 12 M ∆% | Imports | Imports 12 M ∆% | |
| USA | 0.9 Nov | 2.4 Jan-Nov | -1.4 Nov | -0.6 Jan-Nov |
| Japan | Nov 2013 18.4 Oct 2013 18.6 Sep 2013 11.5 Aug 2013 14.7 Jul 2013 12.2 Jun 2013 7.4 May 2013 10.1 Apr 2013 3.8 Mar 2013 1.1 Feb 2013 -2.9 Jan 2013 6.4 Dec -5.8 Nov -4.1 Oct -6.5 Sep -10.3 Aug -5.8 Jul -8.1 | Nov 2013 21.1 Oct 2013 26.1 Sep 2013 16.5 Aug 2013 16.0 Jul 2013 19.6 Jun 2013 11.8 May 2013 10.0 Apr 2013 9.4 Mar 2013 5.5 Feb 2013 7.3 Jan 2013 7.3 Dec 1.9 Nov 0.8 Oct -1.6 Sep 4.1 Aug -5.4 Jul 2.1 | ||
| China | 2013 4.3 Dec 12.7 Nov 5.6 Oct -0.3 Sep 7.2 Aug 5.1 Jul -3.1 Jun 1.0 May 14.7 Apr 10.0 Mar 21.8 Feb 25.0 Jan | 2013 8.3 Dec 5.3 Nov 7.6 Oct 7.4 Sep 7.0 Aug 10.9 Jul -0.7 Jun -0.3 May 16.8 Apr 14.1 Mar -15.2 Feb 28.8 Jan | ||
| Euro Area | 1.2 12-M Oct | 0.9 Jan-Oct | -3.4 12-M Oct | -3.4 Jan-Oct |
| Germany | 0.2 Nov CSA | 1.0 Nov | -1.1 Nov CSA | -0.4 Nov |
| France Nov | -2.1 | -2.6 | 0.2 | -0.1 |
| Italy Oct | -0.5 | 0.8 | -2.6 | -4.3 |
| UK | 1.2 Nov | 0.5 Sep-Nov 13 /Sep-Nov 12 | 0.6 Nov | 2.1 Sep-Nov 13/Sep-Nov 12 |
| Net Trade % Points GDP Growth | % Points | |||
| USA | IIIQ2013 0.14 IIQ2013 -0.07 IQ2013 -0.28 IVQ2012 +0.68 IIIQ2012 -0.03 IIQ2012 +0.10 IQ2012 +0.44 | |||
| Japan | 0.4 IQ2012 -1.3 IIQ2012 -2.1 IIIQ2012 -0.6 IVQ2012 1.6 IQ2013 0.6 IIQ2013 -1.9 IIIQ2013 | |||
| Germany | IQ2012 0.8 IIQ2012 0.4 IIIQ2012 0.3 IVQ2012 -0.5 IQ2013 -0.2 IIQ2013 0.3 IIIQ2013 -0.4 | |||
| France | 0.1 IIIQ2012 0.1 IVQ2012 -0.1 IQ2013 0.1 IIQ2013 -0.6 IIIQ2013 | |||
| UK | -0.8 IQ2012 -0.8 IIQ2012 +0.7 IIIQ2012 -0.5 IVQ2012 0.5 IQ2013 0.2 IIQ2013 -1.2 IIIQ2013 |
Sources: Country Statistical Agencies http://www.census.gov/foreign-trade/ http://www.bea.gov/iTable/index_nipa.cfm
The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table VB-7 for Nov 2013. The share of Asia in Japan’s trade is more than one-half for 55.0 percent of exports and 45.4 percent of imports. Within Asia, exports to China are 19.4 percent of total exports and imports from China 23.4 percent of total imports. While exports to China increased 33.1 percent in the 12 months ending in Nov 2013, imports from China increased 19.4 percent. The second largest export market for Japan in Nov 2013 is the US with share of 19.2 percent of total exports, which is almost equal to that of China, and share of imports from the US of 9.0 percent in total imports. Western Europe has share of 10.2 percent in Japan’s exports and of 10.1 percent in imports. Rates of growth of exports of Japan in Nov 2013 are relatively high for several countries and regions with growth of 21.2 percent for exports to the US, 30.4 percent for exports to Brazil and 6.3 percent for exports to Australia. Comparisons relative to 2011 may have some bias because of the effects of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Deceleration of growth in China and the US and threat of recession in Europe can reduce world trade and economic activity. Growth rates of imports in the 12 months ending in Nov 2013 are positive for all trading partners with exception of France. Imports from Asia increased 19.8 percent in the 12 months ending in Nov 2013 while imports from China increased 19.4 percent. Data are in millions of yen, which may have effects of recent depreciation of the yen relative to the United States dollar (USD).
Table V-5, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yen
| Nov 2013 | Exports | 12 months ∆% | Imports Millions Yen | 12 months ∆% |
| Total | 5,900,458 | 18.4 | 7,193,325 | 21.1 |
| Asia | 3,243,626 | 18.9 | 3,268,586 | 19.8 |
| China | 1,142,599 | 33.1 | 1,679,702 | 19.4 |
| USA | 1,131,304 | 21.2 | 647,248 | 34.9 |
| Canada | 68,688 | 15.2 | 96,957 | 7.6 |
| Brazil | 43,821 | 30.4 | 96,632 | 5.4 |
| Mexico | 74,569 | 0.2 | 35,001 | 11.0 |
| Western Europe | 600,981 | 17.1 | 728,480 | 7.6 |
| Germany | 165,555 | 25.9 | 201,831 | 6.1 |
| France | 48,177 | 28.7 | 102,161 | -4.9 |
| UK | 84,919 | -5.1 | 55,180 | -2.8 |
| Middle East | 228,322 | 24.7 | 1,379,683 | 33.4 |
| Australia | 128,145 | 6.3 | 387,037 | 14.3 |
Source: Japan, Ministry of Finance http://www.customs.go.jp/toukei/info/index_e.htm
World trade projections of the IMF are in Table V-6. There is increasing growth of the volume of world trade of goods and services from 2.9 percent in 2013 to 5.4 percent in 2015 and 5.1 percent on average from 2013 to 2018. World trade would be slower for advanced economies while emerging and developing economies (EMDE) experience faster growth. World economic slowdown would more challenging with lower growth of world trade.
Table V-6, IMF, Projections of World Trade, USD Billions, USD/Barrel and ∆%
| 2013 | 2014 | 2015 | Average ∆% 2013-2018 | |
| World Trade Volume (Goods and Services) | 2.9 | 4.9 | 5.4 | 5.1 |
| Exports Goods & Services | 3.0 | 5.1 | 5.4 | 5.1 |
| Imports Goods & Services | 2.8 | 4.7 | 5.4 | 5.0 |
| Oil Price USD/Barrel | 104.49 | 101.35 | NA | NA |
| Value of World Exports Goods & Services $B | 23,164 | 24,367 | NA | NA |
| Value of World Exports Goods $B | 18,709 | 19,632 | NA | NA |
| Exports Goods & Services | ||||
| EMDE | 3.5 | 5.8 | 6.3 | 5.9 |
| G7 | 2.3 | 4.6 | 4.4 | 4.4 |
| Imports Goods & Services | ||||
| EMDE | 5.0 | 5.9 | 6.7 | 6.2 |
| G7 | 1.3 | 3.9 | 4.2 | 4.0 |
| Terms of Trade of Goods & Services | ||||
| EMDE | -0.5 | -0.4 | -0.6 | -0.5 |
| G7 | 0.1 | -0.1 | 0.1 | 0.1 |
| Terms of Trade of Goods | ||||
| EMDE | -0.6 | -0.9 | -0.9 | -0.8 |
| G7 | -0.5 | 0.2 | 0.2 | -0.007 |
Notes: Commodity Price Index includes Fuel and Non-fuel Prices; Commodity Industrial Inputs Price includes agricultural raw materials and metal prices; Oil price is average of WTI, Brent and Dubai
Source: International Monetary Fund World Economic Outlook databank
http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/index.aspx
The JP Morgan Global All-Industry Output Index of the JP Morgan Manufacturing and Services PMI™, produced by JP Morgan and Markit in association with ISM and IFPSM, with high association with world GDP, decreased to 54.0 in Dec from 54.2 in Nov, indicating expansion at almost unchanged rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/ebfdf95d51b2401aae0936330ea3bd7e). This index has remained above the contraction territory of 50.0 during 53 consecutive months. The employment index increased from 51.3 in Nov to 52.4 in Dec with input prices rising at a slower rate, new orders increasing at faster rate and output increasing at slower rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/ebfdf95d51b2401aae0936330ea3bd7e). David Hensley, Director of Global Economics Coordination at JP Morgan finds expectations of continuing growth in 2014 (http://www.markiteconomics.com/Survey/PressRelease.mvc/ebfdf95d51b2401aae0936330ea3bd7e). The JP Morgan Global Manufacturing PMI™, produced by JP Morgan and Markit in association with ISM and IFPSM, was higher at 53.3 in Dec from 53.1 in Nov, which is the highest reading since May 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/7757ef12fcdf458ab9f3e1c2d7c0811a). New export orders expanded for the sixth consecutive month (http://www.markiteconomics.com/Survey/PressRelease.mvc/7757ef12fcdf458ab9f3e1c2d7c0811a). David Hensley, Director of Global Economic Coordination at JP Morgan finds acceleration of global manufacturing with output at the highest rate in about three years (http://www.markiteconomics.com/Survey/PressRelease.mvc/7757ef12fcdf458ab9f3e1c2d7c0811a). The HSBC Brazil Composite Output Index, compiled by Markit, decreased marginally from 51.8 in Nov to 51.7 in Dec, indicating moderate expansion of Brazil’s private sector (http://www.markiteconomics.com/Survey/PressRelease.mvc/8e4e1a9551684016a6014835860005eb). The HSBC Brazil Services Business Activity index, compiled by Markit, decreased marginally from 52.3 in Nov to 51.7 in Dec, indicating continuing improvement in business activity at slower rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/8e4e1a9551684016a6014835860005eb). André Loes, Chief Economist, Brazil, at HSBC, finds slower growth with decreasing confidence but slower rate of increase of prices (http://www.markiteconomics.com/Survey/PressRelease.mvc/8e4e1a9551684016a6014835860005eb). The HSBC Brazil Purchasing Managers’ IndexTM (PMI™) increased from 49.7 in Nov to 50.5 in Dec, indicating marginal improvement in manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/22c84c0c32a1483db57c2ec93cfb5ebc). André Loes, Chief Economist, Brazil at HSBC, finds improvement with growth of production and new orders (http://www.markiteconomics.com/Survey/PressRelease.mvc/22c84c0c32a1483db57c2ec93cfb5ebc).
VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index™ (PMI™) seasonally adjusted decreased to 54.4 in Dec from 54.7 in Nov with the three-month average at 53.6 indicating moderate growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/409f3a8ff2a240c08dd65c2f747cab56). New export orders registered 51.4 in Dec unchanged from 51.4 in No, indicating marginal expansion. Chris Williamson, Chief Economist at Markit, finds that manufacturing output is growing at 4.0 percent per year with positive effects on employment (http://www.markiteconomics.com/Survey/PressRelease.mvc/409f3a8ff2a240c08dd65c2f747cab56). The Markit Flash US Services PMI™ Business Activity Index increased from 55.9 in Nov to 56.0 in Dec with the average at 53.7l, which is the lowest quarterly average in 2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/a3f2275774ad43e3b0e1b72f6b0b7b8b). Chris Williamson, Chief Economist at Markit, finds that the surveys are consistent with growth at around 3 percent per year in IVQ2013 (http://www.markiteconomics.com/Survey/PressRelease.mvc/a3f2275774ad43e3b0e1b72f6b0b7b8b). The Markit US Composite PMI™ Output Index of Manufacturing and Services fell marginally to 56.1 in Dec from 56.2 in Nov (http://www.markiteconomics.com/Survey/PressRelease.mvc/546ebdb0665349ea89f47dc9955c4d91). The Markit US Services PMI™ Business Activity Index fell marginally from 55.9 in Nov to 55.7 in Dec (http://www.markiteconomics.com/Survey/PressRelease.mvc/546ebdb0665349ea89f47dc9955c4d91). Chris Williamson, Chief Economist at Markit, finds renewed optimism by business (http://www.markiteconomics.com/Survey/PressRelease.mvc/546ebdb0665349ea89f47dc9955c4d91). The Markit US Manufacturing Purchasing Managers’ Index™ (PMI™) increased to 55.0 in Dec from 54.7 in Nov, which indicates solid expansion (http://www.markiteconomics.com/Survey/PressRelease.mvc/3c6c524ef8474099a853c9cc449b5f1c). The index of new exports orders was unchanged from 51.4 in Nov to 51.4 in Dec while total new orders decreased from 56.2 in Dec to 56.1 in Dec. Chris Williamson, Chief Economist at Markit, finds that the index suggests growth of production at 3.0 percent annual rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/3c6c524ef8474099a853c9cc449b5f1c). 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 0.9 percentage points from 53.9 in Nov to 53.0 in Dec, indicating growth of business activity/production during 53 consecutive months, while the index of new orders decreased 7.0 percentage points from 56.4 in Nov to 49.4 in Dec (http://www.ism.ws/ISMReport/NonMfgROB.cfm?navItemNumber=12943). Table USA provides the country economic indicators for the US.
Table USA, US Economic Indicators
| Consumer Price Index | Nov 12 months NSA ∆%: 1.2; ex food and energy ∆%: 1.7 Nov month SA ∆%: 0.0; ex food and energy ∆%: 0.2 |
| Producer Price Index | Nov 12-month NSA ∆%: 0.7; ex food and energy ∆% 1.3 |
| PCE Inflation | Nov 12-month NSA ∆%: headline 0.9; ex food and energy ∆% 1.1 |
| Employment Situation | Household Survey: Dec Unemployment Rate SA 6.7% |
| Nonfarm Hiring | Nonfarm Hiring fell from 63.8 million in 2006 to 52.0 million in 2012 or by 11.8 million |
| GDP Growth | BEA Revised National Income Accounts IIQ2012/IIQ2011 2.8 IIIQ2012/IIIQ2011 3.1 IVQ2012/IVQ2011 2.0 IQ2013/IQ2012 1.3 IIQ2013/IIQ2012 1.6 IIIQ2013/IIIQ2012 2.0 IQ2012 SAAR 3.7 IIQ2012 SAAR 1.2 IIIQ2012 SAAR 2.8 IVQ2012 SAAR 0.1 IQ2013 SAAR 1.1 IIQ2013 SAAR 2.5 IIIQ2013 SAAR 4.1 |
| Real Private Fixed Investment | SAAR IIIQ2013 5.9 ∆% IVQ2007 to IIIQ2013: minus 3.6% Blog 12/22/13 |
| Personal Income and Consumption | Nov month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 0.1 |
| Quarterly Services Report | IIIQ13/IIQ12 NSA ∆%: Financial & Insurance 0.6 |
| Employment Cost Index | Compensation Private IIIQ2013 SA ∆%: 0.4 |
| Industrial Production | Nov month SA ∆%: 1.1 Manufacturing Nov SA ∆% 0.6 Nov 12 months SA ∆% 2.9, NSA 3.0 |
| Productivity and Costs | Nonfarm Business Productivity IIIQ2013∆% SAAE 3.0; IIIQ2013/IIIQ2012 ∆% 0.3; Unit Labor Costs SAAE IIIQ2013 ∆% -1.4; IIIQ2013/IIIQ2012 ∆%: 2.1 Blog 12/22/2013 |
| New York Fed Manufacturing Index | General Business Conditions From Nov -2.21 to Dec 0.98 |
| Philadelphia Fed Business Outlook Index | General Index from Nov 6.5 to Dec 7.0 |
| Manufacturing Shipments and Orders | New Orders SA Nov ∆% 1.8 Ex Transport 0.6 Jan-Nov NSA New Orders 2.4 Ex transport 1.4 |
| Durable Goods | Nov New Orders SA ∆%: 3.5; ex transport ∆%: 1.2 |
| Sales of New Motor Vehicles | Jan-Dec 2013 15,600,199; Jan-Dec 2012 14,491,873. Dec 13 SAAR 16.40 million, Nov 13 SAAR 16.41 million, Dec 2012 SAAR 15.24 million Blog 1/5/14 |
| Sales of Merchant Wholesalers | Jan-Nov 2013/Jan-Nov 2012 NSA ∆%: Total 3.7; Durable Goods: 3.9; Nondurable |
| Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers | Oct 13/Oct 12-M NSA ∆%: Sales Total Business 4.0; Manufacturers 1.6 |
| Sales for Retail and Food Services | Jan-Nov 2013/Jan-Nov 2012 ∆%: Retail and Food Services 4.3; Retail ∆% 4.3 |
| Value of Construction Put in Place | Nov SAAR month SA ∆%: 1.0 Nov 12-month NSA: 1.1 Jan-Nov 2013 ∆% 5.0 |
| Case-Shiller Home Prices | Oct 2013/Oct 2012 ∆% NSA: 10 Cities 13.6; 20 Cities: 13.6 |
| FHFA House Price Index Purchases Only | Oct SA ∆% 0.5; |
| New House Sales | Nov 2013 month SAAR ∆%: minus 2.1 |
| Housing Starts and Permits | Nov Starts month SA ∆% 22.7; Permits ∆%: -3.1 |
| Trade Balance | Balance Nov SA -$24,252 million versus Oct -$39,328 million |
| Export and Import Prices | Nov 12-month NSA ∆%: Imports -1.5; Exports -1.6 |
| Consumer Credit | Nov ∆% annual rate: Total 4.8; Revolving 0.6; Nonrevolving 6.4 |
| Net Foreign Purchases of Long-term Treasury Securities | Oct Net Foreign Purchases of Long-term US Securities: $35.4 billion |
| Treasury Budget | Fiscal Year 2014/2013 ∆% Nov: Receipts 10.2; Outlays minus 4.7; Individual Income Taxes 2.7 Deficit Fiscal Year 2012 $1,087 billion Blog 12/15/2013 |
| CBO Budget and Economic Outlook | 2012 Deficit $1087 B 6.8% GDP Debt 11,281 B 70.1% GDP 2013 Deficit $642 B, Debt 12,036 B 72.5% GDP Blog 8/26/12 11/18/12 2/10/13 9/22/13 |
| Commercial Banks Assets and Liabilities | Nov 2013 SAAR ∆%: Securities 4.6 Loans 1.0 Cash Assets 30.5 Deposits 3.7 Blog 12/29/13 |
| Flow of Funds | IIIQ2013 ∆ since 2007 Assets +$8554.2 MM Nonfinancial -$1228.7 MM Real estate -$1838.9 MM Financial +9782.9 MM Net Worth +$9269.0 MM Blog 12/29/13 |
| Current Account Balance of Payments | IIIQ2013 -110,055 MM %GDP 2.2 Blog 12/22/13 |
Links to blog comments in Table USA:
1/5/14 http://cmpassocregulationblog.blogspot.com/2014/01/theory-and-reality-of-secular.html
12/29/13 http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html
12/22/13 http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html
12/15/13 http://cmpassocregulationblog.blogspot.com/2013/12/theory-and-reality-of-secular.html
11/24/13 http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html
9/22/13 http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations.html
2/10/13 http://cmpassocregulationblog.blogspot.com/2013/02/united-states-unsustainable-fiscal.html
11/18/12 http://cmpassocregulationblog.blogspot.com/2012/11/united-states-unsustainable-fiscal.html
Manufacturers’ shipments increased 1.0 percent in Nov 2013 and 0.1 percent in Oct 2013 after increasing 0.1 percent in Sep 2013. New orders increased 1.8 percent in Nov 2013, after decreasing 0.5 percent in Oct 2013 and increasing 1.8 percent in Sep 2013, as shown in Table VA-1. These data are very volatile. Volatility is illustrated by increase of 2642.2 percent of new orders of nondefense aircraft in Sep 2012 following decline by 97.2 percent in Aug. New orders excluding transportation equipment increased 0.6 percent in Nov 2013 after increasing 0.1 percent in Oct 2013 and decreasing 0.1 percent in Sep 2013. Capital goods new orders, indicating investment, increased 8.8 percent in Nov 2013 after decreasing 2.6 percent in Oct 2013 and increasing 8.2 percent in Sep 2013. New orders of nondefense capital goods increased 9.1 percent in Oct 2013 after decreasing 0.8 percent in Oct 2013 and increasing 7.0 percent in Sep 2013. Excluding more volatile aircraft, capital goods orders increased 4.1 percent in Nov 2013 after decreasing 0.6 percent in Oct 2013 and decreasing 1.2 percent in Sep 2013.
Table VA-1, US, Value of Manufacturers’ Shipments and New Orders, SA, Month ∆%
| Nov 2013 | Oct 2013 | Sep 2013 ∆% | |
| Total | |||
| S | 1.0 | 0.1 | 0.1 |
| NO | 1.8 | -0.5 | 1.8 |
| Excluding | |||
| S | 0.8 | -0.1 | 0.0 |
| NO | 0.6 | 0.1 | -0.1 |
| Excluding | |||
| S | 0.8 | 0.2 | 0.1 |
| NO | 1.8 | 0.0 | 1.4 |
| Durable Goods | |||
| S | 1.8 | 0.6 | 0.5 |
| NO | 3.4 | -0.7 | 4.2 |
| Machinery | |||
| S | 4.2 | 0.3 | 0.6 |
| NO | 3.3 | 0.9 | -1.7 |
| Computers & Electronic Products | |||
| S | 1.6 | -1.8 | 0.8 |
| NO | 1.8 | 2.4 | 5.0 |
| Computers | |||
| S | 11.7 | -9.8 | -2.8 |
| NO | 10.1 | -2.8 | 11.2 |
| Transport | |||
| S | 2.0 | 1.6 | 0.5 |
| NO | 8.3 | -3.5 | 13.1 |
| Automobiles | |||
| S | 0.5 | 2.4 | 2.0 |
| Motor Vehicles | |||
| S | 1.8 | 0.5 | 0.6 |
| NO | 2.4 | 0.1 | -0.6 |
| Nondefense | |||
| S | -7.5 | 1.8 | 4.0 |
| NO | 21.8 | -5.3 | 59.2 |
| Capital Goods | |||
| S | 2.2 | -0.2 | 0.0 |
| NO | 8.8 | -2.6 | 8.2 |
| Nondefense Capital Goods | |||
| S | 1.2 | -0.1 | 0.5 |
| NO | 9.1 | -0.8 | 7.0 |
| Capital Goods ex Aircraft | |||
| S | 2.7 | -0.2 | -0.1 |
| NO | 4.1 | -0.6 | -1.2 |
| Nondurable Goods | |||
| S | 0.3 | -0.3 | -0.3 |
| NO | -0.6 | -0.2 | -0.3 |
Note: Mfg: manufacturing; S: shipments; NO: new orders; Transport: transportation
Source: US Census Bureau http://www.census.gov/manufacturing/m3/
Chart VA-1 of the US Census Bureau provides new orders of manufacturers from Dec 2012 to Nov 2013. There is significant volatility that prevents discerning clear trends.
Chart VA-1, US, Manufacturers’ New Orders 2012-2013 Seasonally Adjusted, Month ∆%
Source: US Census Bureau
http://www.census.gov/briefrm/esbr/www/esbr022.html
Chart VA-2 of the US Census Bureau provides total value of manufacturers’ new orders, seasonally adjusted, from 1992 to 2013. Seasonal adjustment reduces sharp oscillations. The series dropped nearly vertically during the global recession but rose along a path even steeper than in the high-growth period before the recession. The final segment suggests deceleration but similar segments occurred in earlier periods followed with continuing growth and stability currently.
Chart VA-2, US, Value of Total Manufacturers’ New Orders, Seasonally Adjusted, 1992-2013
Source: US Census Bureau
http://www.census.gov/manufacturing/m3/
Additional perspective on manufacturers’ shipments and new orders is provided by Table VA-2. Values are cumulative millions of dollars in Jan-Nov 2013 not seasonally adjusted (NSA). Shipments of all manufacturing industries in Jan-Nov 2013 total $5355.4 billion and new orders total $5326.3 billion, growing respectively by 1.7 percent and 2.5 percent relative to the same period in 2012. Excluding transportation equipment, shipments grew 0.7 percent and new orders increased 1.4 percent. Excluding defense, shipments grew 1.7 percent and new orders grew 2.9 percent. Durable goods shipments reached $2533.8 billion in Jan-Nov 2013, or 47.3 percent of the total, growing by 3.4 percent, and new orders $2504.7 billion, or 47.0 percent of the total, growing by 5.3 percent. Important information in Table VA-2 is the large share of nondurable goods with shipments of $2821.6 billion or 52.7 percent of the total, growing by 0.2 percent. Capital goods have relatively high value of $909.8 billion for shipments, growing 2.1 percent, and new orders $954.9 billion, increasing 5.7 percent, which could be an indicator of future investment. Excluding aircraft, capital goods shipments reached $718.6 billion, growing 1.4 percent, and new orders $739.2 billion, increasing 4.3 percent. There is no suggestion in these data that the US economy is close to recession but manufacturing accounts for 10.8 percent of US national income in IIIQ2013. These data are not adjusted for inflation.
Table VA-2, US, Value of Manufacturers’ Shipments and New Orders, NSA, Millions of Dollars
| Jan-Nov 2013 | Shipments | ∆% 2013/ | New Orders | ∆% 2013/ |
| Total | 5,355,394 | 1.7 | 5,326,283 | 2.5 |
| Excluding Transport | 4,601,204 | 0.7 | 4,546,917 | 1.4 |
| Excluding Defense | 5,222,307 | 1.7 | 5,213,980 | 2.9 |
| Durable Goods | 2,533,770 | 3.4 | 2,504,659 | 5.3 |
| Machinery | 375,590 | 3.0 | 381,178 | 7.3 |
| Computers & Electronic Products | 301,441 | -3.4 | 230,663 | -2.3 |
| Computers | 5,570 | -27.8 | 5,718 | -30.9 |
| Transport Equipment | 754,190 | 8.1 | 779,366 | 9.3 |
| Automobiles | 117,767 | 20.3 | ||
| Motor Vehicles | 216,740 | 5.6 | 215,960 | 6.0 |
| Nondefense Aircraft | 120,566 | 8.0 | 166,257 | 25.9 |
| Capital Goods | 909,807 | 2.1 | 954,896 | 5.7 |
| Nondefense Capital Goods | 801,770 | 2.1 | 864,544 | 7.9 |
| Capital Goods ex Aircraft | 718,562 | 1.4 | 739,236 | 4.3 |
| Nondurable Goods | 2,821,624 | 0.2 | 2,821,624 | 0.2 |
| Food Products | 683,602 | 2.7 | ||
| Petroleum Refineries | 758,002 | -1.6 | ||
| Chemical Products | 703,902 | -0.5 |
Note: Transport: transportation Source: US Census Bureau
Source: US Census Bureau http://www.census.gov/manufacturing/m3/
Chart VA-3 of the US Census Bureau provides value of manufacturer’s new orders not seasonally adjusted from Jan 1992 to Nov 2013. Fluctuations are evident, which are smoothed by seasonal adjustment in the earlier Chart VA-7. The series drops nearly vertically during the global contraction and then resumes growth in a steep upward trend, flattening recently.
Chart VA-3, US, Value of Total Manufacturers’ New Orders, Not Seasonally Adjusted, 1992-2013
Source: US Census Bureau
http://www.census.gov/manufacturing/m3/
Sales and inventories of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-3 for Jan-Nov 2013 NSA and percentage changes from the prior month SA and for Jan-Nov 2013 relative to Jan-Nov 2012. These data are volatile, aggregating diverse categories of durable and nondurable goods without adjustment for price changes. Total sales for the US rose 3.7 percent in Jan-Nov 2013 relative to Jan-Nov 2012 and increased 1.0 percent in Nov 2013 relative to Oct 2013. The value of total sales is quite high at $4682.7 billion, approaching five trillion dollars in a year. Value in the breakdown is useful in identifying relative importance of individual categories. Sales of durable goods in Jan-Nov 2013 reached $2158.3 billion, over two trillion dollars for a year, decreasing 0.4 percent in Nov 2013 relative to Oct 2013 and increasing 3.9 percent in Jan-Nov 2013 relative to Jan-Nov 2012. Sales of automotive products reached $371.8 billion in Jan-Nov 2013, increasing 0.7 percent in the month and increasing 3.0 percent relative to a year earlier. There is strong performance of 11.3 percent in machinery but lower of 4.2 percent in electrical products. Sales of nondurable goods rose 3.6 percent over a year earlier. The influence of commodity prices returned as suggested by increase of 7.7 percent in Nov 2013 and increase of 1.5 percent in Jan-Nov 2013 relative to a year earlier in farm products with increase of 5.7 percent in petroleum products in Nov 2013 and increase of 2.8 percent relative to a year earlier. The final three columns in Table VA-4 provide the value of inventories and percentage changes from the prior month and relative to the same month a year earlier. US total inventories of wholesalers increased 0.5 percent in Nov 2013 and increased 3.2 percent relative to a year earlier. Inventories of durable goods of $315.3 billion are 60.5 percent of total inventories of $521.1 billion and rose 4.1 percent relative to a year earlier. Automotive inventories decreased 0.4 percent relative to a year earlier. Machinery inventories of $92.6 billion rose 8.8 percent relative to a year earlier. Inventories of nondurable goods of $205.8 billion are 39.5 percent of the total and increased 1.9 percent relative to a year earlier. Inventories of farm products increased 6.6 percent in Nov relative to Oct and decreased 12.4 percent relative to a year earlier. Inventories of petroleum products decreased 5.0 percent in Nov and decreased 4.9 percent relative to a year earlier.
Table VA-3, US, Sales and Inventories of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, Month ∆%
| 2013 | Sales $ Billions Jan-Nov 2013 | Sales Nov ∆% SA | Sales∆% Jan-Nov 2013 from Jan-Nov 2012 NSA | INV $ Billions Nov 2013 NSA | INV Nov ∆% SA | INV ∆% Nov 2013 from Nov 2012 NSA |
| US Total | 4682.7 | 1.0 | 3.7 | 521.1 | 0.5 | 3.2 |
| Durable | 2158.3 | -0.4 | 3.9 | 315.3 | 0.5 | 4.1 |
| Automotive | 371.8 | 0.7 | 3.0 | 51.2 | -0.8 | -0.4 |
| Prof. Equip. | 438.3 | 0.5 | 2.5 | 38.4 | 1.0 | 4.6 |
| Computer Equipment | 255.5 | -1.4 | 2.0 | 16.8 | 3.0 | 2.7 |
| Electrical | 343.6 | -1.4 | 4.2 | 37.8 | -0.2 | 3.5 |
| Machinery | 379.5 | -1.3 | 11.3 | 92.6 | 1.6 | 8.8 |
| Not Durable | 2524.5 | 2.1 | 3.6 | 205.8 | 0.5 | 1.9 |
| Drugs | 387.8 | 0.2 | 4.9 | 39.6 | 0.4 | 11.2 |
| Apparel | 137.1 | 4.5 | 1.0 | 22.0 | 1.6 | 7.1 |
| Groceries | 541.8 | -1.7 | 5.1 | 35.4 | -0.4 | 5.2 |
| Farm Products | 220.1 | 7.7 | 1.5 | 30.6 | 6.6 | -12.4 |
| Petroleum | 687.6 | 5.7 | 2.8 | 20.9 | -5.0 | -4.9 |
Note: INV: inventories
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Chart VA-4 of the US Census Bureau provides sales of wholesale trade NSA from Jan 1992 to Nov 2013. The jagged curve of wholesale trade sales without adjustment shows strong seasonal variations. There is a strong long-term trend interrupted by sharp drop during the global recession. Growth resumed along a stronger upward trend and the level surpasses the peak before the global recession with stability in the final segment.
Chart VA-4, US, Wholesale Trade Sales, Monthly, NSA, Jan 1992-Nov 2013, Millions of Dollars
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Chart VA-5 of the US Census Bureau provides US wholesale trade sales with seasonal adjustment from Jan 1992 to Nov 2013. The elimination of seasonality permits enhanced comparison of adjacent sales. The final segment identifies another drop followed by increase to a higher level with stability.
Chart VA-5, US, Wholesale Trade Sales, Monthly, SA, Jan 1992-Nov 2013, Millions of Dollars
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Inventory/sales ratios of merchant wholesalers except manufacturers’ sales branches and offices are shown in Table VA-4. The total for the US has remained almost without change at 1.17 in Nov 2013, 1.18 in Oct 2013 and 1.20 in Nov 2012. Inventory/sales ratios are higher in durable goods industries but remain relatively stable with 1.57 in Nov 2013, 1.56 in Oct 2013 and 1.57 in Nov 2012. Computer equipment operates with low inventory/sales ratios of 0.69 in Nov 2013, 0.66 in Oct 2013 and 0.68 in Nov 2012 because of the capacity to fill orders on demand. As expected because of perishable nature, nondurable inventory/sales ratios are quite low with 0.84 in Nov 2013 and 0.85 in Oct 2013, which are close to 0.88 in Nov 2012. There are exceptions such as 1.75 in Nov 2013 in apparel that is close to 1.80 in Oct 2013 and higher than 1.74 in Nov 2012.
Table VA-4, Inventory/Sales Ratios of Merchant Wholesalers except Manufacturers’ Sales Branches and Offices, % SA
| Nov 2013 | Oct 2013 | Nov 2012 | |
| US Total | 1.17 | 1.18 | 1.20 |
| Durable | 1.57 | 1.56 | 1.57 |
| Automotive | 1.43 | 1.45 | 1.48 |
| Prof. Equip. | 0.93 | 0.92 | 0.90 |
| Comp. Equip. | 0.69 | 0.66 | 0.68 |
| Electrical | 1.20 | 1.18 | 1.18 |
| Machinery | 2.54 | 2.47 | 2.70 |
| Not Durable | 0.84 | 0.85 | 0.88 |
| Drugs | 1.10 | 1.09 | 1.06 |
| Apparel | 1.75 | 1.80 | 1.74 |
| Groceries | 0.68 | 0.67 | 0.69 |
| Farm Products | 1.20 | 1.21 | 1.32 |
| Petroleum | 0.32 | 0.36 | 0.39 |
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Inventories of merchant wholesalers except manufacturers’ sales branches in millions of dollars SA are provided in Chart VA-6 of the US Census Bureau. There is evident acceleration in inventory building in the final segment at a sharper slope than before the global recession with recent downward turn followed by stability.
Chart VA-6, US, Inventories of Merchant Wholesalers, Millions of Dollars, NSA, Jan 1992-Nov 2013
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Inventories of merchant wholesalers except manufacturers’ sales branches in millions of dollars SA are provided in Chart VA-7 of the US Census Bureau. There is evident acceleration in inventory building in the final segment at a sharper slope than before the global recession with recent downward turn followed by increase.
Chart VA-7, US, Inventories of Merchant Wholesalers, Millions of Dollars, SA, Jan 1992-Nov 2013
Source: US Census Bureau
http://www.census.gov/wholesale/index.html
Chart VA-8 provides the chart of the US Census Bureau with inventories/sales ratios of merchant wholesalers from 2004 to 2013 seasonally adjusted. Inventory/sales ratios rise during contractions as merchants are caught with increasing inventories because of weak sales and fall during expansions as merchants attempt to fill sales with existing stocks. There is an increase in the inventory/sales ratio in 2012 but not yet significantly higher with declining trend in the final segment followed by an increase and new decline/stability.
Chart VA-8, US, Monthly Inventories/Sales Ratios of Merchant Wholesalers, SA, 2004-2013
Source: US Census Bureau
http://www2.census.gov/wholesale/img/mwtsbrf.jpg
The report of consumer credit outstanding of the Board of Governors of the Federal Reserve System is provided in Table VA-5. The data are in seasonally adjusted annual rates both percentage changes and billions of dollars. The estimate of consumer credit “covers most short- and intermediate-term credit extended to individuals, excluding loans secured by real estate (http://www.federalreserve.gov/releases/g19/current/default.htm). Consumer credit is divided into two categories. (1) Revolving consumer credit (REV in Table VA-5) consists mainly of unsecured credit cards. (2) Non-revolving consumer credit (NREV in Table VA-5) “includes automobile loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers or vacations” (http://www.federalreserve.gov/releases/g19/current/default.htm). In Nov 2013, revolving credit was $857 billion, or 27.8 percent of total consumer credit of $3087 billion, and non-revolving credit was $2230 billion, or 72.2 percent of total consumer credit outstanding. Consumer credit grew at relatively high rates before the recession beginning in IVQ2007 (Dec) and extending to IIQ2009 (Jun) as dated by the National Bureau of Economic Research or NBER (http://www.nber.org/cycles/cyclesmain.html). Percentage changes of consumer credit outstanding fell already in 2009. Rates were still negative in 2010 with decline of 1.0 percent in annual data and sharp decline of 7.6 percent in revolving credit. In IVQ 2012, total consumer credit grew at 6.5 percent with increase of revolving credit at 0.3 percent and increase of non-revolving credit at 9.1 percent. Growth continued in Nov 2013 with total credit at 4.8 percent, revolving at 0.6 percent and non-revolving at 6.4 percent.
Table VA-5, US, Consumer Credit Outstanding, SA, Annual Rate and Billions of Dollars
| Total ∆% | REV ∆% | NRV ∆% | Total $B | REV $B | NREV $B | |
| 2013 | ||||||
| Nov | 4.8 | 0.6 | 6.4 | 3087 | 857 | 2230 |
| Oct | 7.0 | 5.6 | 7.6 | 3075 | 856 | 2219 |
| Sep | 6.3 | -1.2 | 9.2 | 3057 | 852 | 2205 |
| IIIQ | 5.9 | 0.4 | 8.1 | 3057 | 852 | 2205 |
| IIQ | 5.8 | 1.2 | 7.6 | 3012 | 851 | 2161 |
| IQ | 6.2 | 1.5 | 8.1 | 2969 | 849 | 2120 |
| 2012 | ||||||
| IVQ | 6.5 | 0.3 | 9.1 | 2924 | 846 | 2078 |
| IIIQ | 4.8 | 0.4 | 6.7 | 2878 | 845 | 2033 |
| 2012 | 6.1 | 0.4 | 8.7 | 2924 | 846 | 2078 |
| 2011 | 4.1 | 0.2 | 5.9 | 2757 | 842 | 1915 |
| 2010 | -1.0 | -7.6 | 2.7 | 2648 | 841 | 1807 |
| 2009 | -3.9 | -8.8 | -1.0 | 2553 | 917 | 1636 |
| 2008 | 1.3 | 0.2 | 2.0 | 2651 | 1005 | 1646 |
| 2007 | 5.9 | 8.5 | 4.3 | 2529 | 1008 | 1521 |
Note: REV: Revolving; NREV: Non-revolving; ∆%: simple annual rate from unrounded data; Total may not add exactly because of rounding
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g19/current/default.htm
Chart VA-9 of the Board of Governors of the Federal Reserve System total consumer credit outstanding in millions of dollars measured in the right axis and the finance rate on 24-month personal loans at commercial banks, not seasonally adjusted, measured on the left axis. There was sharp decline of total consumer loans outstanding during the global recession followed by strong recovery. There is long-term decline of the financing rate.
Chart VA-9, US, Total Consumer Credit Owned and Securitized NSA and Financing Rate on 24-month Personal Loans at Commercial Banks NSA, Millions of Dollars and Percent, Feb 1972-Nov 2013
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g19/current/default.htm
Chart VA-10 of the Board of Governors of the Federal Reserve System provides percentage changes of total consumer credit outstanding in the US and the financing rate on 24-month personal consumer loans at commercial banks, since 1972. The shaded bars are the cyclical contraction dates of the National Bureau of Economic Research (http://www.nber.org/cycles/cyclesmain.html). Consumer credit is cyclical, declining during contractions as shown by negative percentage changes during economic contractions. There is clear upward trend in 2012-2013 but with significant fluctuations.
Chart VA-10, US, Percent Change of Total Consumer Credit, Seasonally Adjusted at an Annual Rate and Finance Rate on 24-month Personal Loans at Commercial Banks NSA, Feb 1972-Nov 2013
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/g19/current/default.htm
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014
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