CMP Associates Regulation Blog

Weak behavior of real private fixed investment from 2007 to 2013 is shown in Chart IA1-2. Growth rates of real private fixed investment were much lower during the initial phase of expansion in the current economic cycle and have entered sharp trend of decline.

Chart IA1-2, US, Real Private Fixed Investment, Seasonally-Adjusted Annual Rates Percent Change from Prior Quarter, 2007-2013

Source: US Bureau of Economic Analysis

Table IA1-2 provides real private fixed investment at seasonally adjusted annual rates from IVQ2007 to IVQ2013 or for the complete economic cycle. The first column provides the quarter, the second column percentage change relative to IVQ2007, the third column the quarter percentage change in the quarter relative to the prior quarter and the final column percentage change in a quarter relative to the same quarter a year earlier. In IQ1980, gross private domestic investment in the US was $951.6 billion of 2009 dollars, growing to $1,173.8 billion in IQ1987 or 23.4 percent. Real gross private domestic investment in the US increased 1.7 percent from $2,605.2 billion of 2009 dollars in IVQ2007 to $2,649.4 billion in IVQ2013. As shown in Table IAI-2, real private fixed investment fell 3.4 percent from $2,586.3 billion of 2009 dollars in IVQ2007 to $2,499.6 billion in IIIQ2013. Growth of real private investment in Table IA1-2 is mediocre for all but four quarters from IIQ2011 to IQ2012.

Table IA1-2, US, Real Private Fixed Investment and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions of Chained 2009 Dollars and ∆%

	Real PFI, Billions Chained 2009 Dollars	∆% Relative to IVQ2007	∆% Relative to Prior Quarter	∆% over Year Earlier
IVQ2007	2586.3	NA	-1.2	-1.4
IQ2008	2539.1	-1.8	-1.8	-3.0
IIQ2008	2503.4	-3.2	-1.4	-4.6
IIIQ2008	2424.1	-6.3	-3.2	-7.1
IV2008	2263.8	-12.5	-6.6	-12.5
IQ2009	2089.3	-19.2	-7.7	-17.7
IIQ2009	2011.0	-22.2	-3.7	-19.7
IIIQ2009	2008.4	-22.3	-0.1	-17.1
IVQ2009	1994.1	-22.9	-0.7	-11.9
IQ2010	1997.9	-22.8	0.2	-4.4
IIQ2010	2062.8	-20.2	3.2	2.6
IIIQ2010	2060.8	-20.3	-0.1	2.6
IVQ2010	2103.1	-18.7	2.1	5.5
IQ2011	2100.7	-18.8	-0.1	5.1
IIQ2011	2144.4	-17.1	2.1	4.0
IIIQ2011	2219.8	-14.2	3.5	7.7
IVQ2011	2273.4	-12.1	2.4	8.1
IQ2012	2320.8	-10.3	2.1	10.5
IIQ2012	2347.9	-9.2	1.2	9.5
IIIQ2012	2363.5	-8.6	0.7	6.5
IVQ2012	2429.1	-6.1	2.8	6.8
IQ2013	2420.0	-6.4	-0.4	4.3
IIQ2013	2458.4	-4.9	1.6	4.7
IIIQ2013	2,494.0	-3.6	1.4	5.5
IVQ2013	2,499.6	-3.4	0.2	2.9

PFI: Private Fixed Investment

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

Chart IA1-3 provides real private fixed investment in billions of chained 2009 dollars from IQ2007 to IIIQ2013. Real private fixed investment has not recovered, stabilizing at a level in IVQ2013 that is 3.4 percent below the level in IVQ2007.

Chart IA1-3, US, Real Private Fixed Investment, Billions of Chained 2009 Dollars, IQ2007 to IIIQ2013

Source: US Bureau of Economic Analysis

Chart IA1-4 provides real gross private domestic investment in chained dollars of 2009 from 1980 to 1986. Real gross private domestic investment climbed 23.4 percent to $1173.8 billion of 2009 dollars in IQ1987 above the level of $951.6 billion in IQ1980.

Chart IA1-4, US, Real Gross Private Domestic Investment, Billions of Chained 2009 Dollars at Seasonally Adjusted Annual Rate, 1980-1987

Source: US Bureau of Economic Analysis

Chart IA1-5 provides real gross private domestic investment in the United States in billions of dollars of 2009 from 2006 to 2013. Gross private domestic investment reached a level of $2649.4 in IVQ2013, which was 1.7 percent higher than the level of $2605.2 billion in IVQ2007 (http://www.bea.gov/iTable/index_nipa.cfm).

Chart IA1-5, US, Real Gross Private Domestic Investment, Billions of Chained 2009 Dollars at Seasonally Adjusted Annual Rate, 2007-2013

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

Table IA1-3 provides percentage shares in GDP of gross private domestic investment and its components in IVQ2013, IVQ2006 and IVQ2000. The share of gross private domestic investment in GDP has fallen from 19.7 percent in IVQ2000 and 18.8 percent in IVQ2006 to 16.2 percent in IVQ2013. There are declines in percentage shares in GDP of all components with sharp reduction of residential investment from 4.7 percent in IVQ2000 and 5.6 percent in IVQ2006 to 3.1 percent in IVQ2013. The share of fixed investment in GDP fell from 19.2 percent in IVQ2000 and 18.8 percent in IVQ2006 to 15.3 percent in IVQ2013.

Table IA1-3, Percentage Shares of Gross Private Domestic Investment and Components in Gross Domestic Product, % of GDP, IQ2013

	IVQ2013	IVQ2006	IVQ2000
Gross Private Domestic Investment	16.2	18.8	19.7
Fixed Investment	15.3	18.5	19.2
Nonresidential	12.2	12.9	14.5
Structures	2.8	3.1	3.2
Equipment and Software	5.6	6.1	7.3
Intellectual Property	3.9	3.7	4.0
Residential	3.1	5.6	4.7
Change in Private Inventories	0.9	0.3	0.5

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

Broader perspective is provided in Chart IA1-6 with the percentage share of gross private domestic investment in GDP in annual data from 1929 to 2013. There was sharp drop during the current economic cycle with almost no recovery in contrast with sharp recovery after the recessions of the 1980s.

Chart IA1-6, US, Percentage Share of Gross Private Domestic Investment in Gross Domestic Product, Annual, 1929-2013

Source: US Bureau of Economic Analysis

Chart IA1-7 provides percentage shares of private fixed investment in GDP with annual data from 1929 to 2013. The sharp contraction after the recessions of the 1980s was followed by sustained recovery while the sharp drop in the current economic cycle has not been recovered.

Chart IA1-7, US, Percentage Share of Private Fixed Investment in Gross Domestic Product, Annual, 1929-2013

Source: US Bureau of Economic Analysis

Chart IA1-8 provides percentage shares in GDP of nonresidential investment from 1929 to 2013. There is again recovery from sharp contraction in the 1980s but inadequate recovery in the current economic cycle.

Chart IA1-8, US, Percentage Share of Nonresidential Investment in Gross Domestic Product, Annual, 1929-2013

Source: US Bureau of Economic Analysis

Chart IA1-9 provides percentage shares of business equipment and software in GDP with annual data from 1929 to 2013. There is again inadequate recovery in the current economic cycle.

Chart IA1-9, US, Percentage Share of Business Equipment and Software in Gross Domestic Product, Annual, 1929-2012

Source: US Bureau of Economic Analysis

Chart IA1-10 provides percentage shares of residential investment in GDP with annual data from 1929 to 2013. The salient characteristic of Chart IA1-10 is the vertical increase of the share of residential investment in GDP up to 2006 and subsequent collapse.

Chart IA1-10, US, Percentage Share of Residential Investment in Gross Domestic Product, Annual, 1929-2012

Source: US Bureau of Economic Analysis

Finer detail is provided by the quarterly share of residential investment in GDP from 1979 to 2013 in Chart IA1-11. There was protracted growth of that share, accelerating sharply into 2006 followed with nearly vertical drop. The explanation of the sharp contraction of United States housing can probably be found in the origins of the financial crisis and global recession. Let V(T) represent the value of the firm’s equity at time T and B stand for the promised debt of the firm to bondholders and assume that corporate management, elected by equity owners, is acting on the interests of equity owners. Robert C. Merton (1974, 453) states:

“On the maturity date T, the firm must either pay the promised payment of B to the debtholders or else the current equity will be valueless. Clearly, if at time T, V(T) > B, the firm should pay the bondholders because the value of equity will be V(T) – B > 0 whereas if they do not, the value of equity would be zero. If V(T) ≤ B, then the firm will not make the payment and default the firm to the bondholders because otherwise the equity holders would have to pay in additional money and the (formal) value of equity prior to such payments would be (V(T)- B) < 0.”

Pelaez and Pelaez (The Global Recession Risk (2007), 208-9) apply this analysis to the US housing market in 2005-2006 concluding:

“The house market [in 2006] is probably operating with low historical levels of individual equity. There is an application of structural models [Duffie and Singleton 2003] to the individual decisions on whether or not to continue paying a mortgage. The costs of sale would include realtor and legal fees. There could be a point where the expected net sale value of the real estate may be just lower than the value of the mortgage. At that point, there would be an incentive to default. The default vulnerability of securitization is unknown.”

There are multiple important determinants of the interest rate: “aggregate wealth, the distribution of wealth among investors, expected rate of return on physical investment, taxes, government policy and inflation” (Ingersoll 1987, 405). Aggregate wealth is a major driver of interest rates (Ingersoll 1987, 406). Unconventional monetary policy, with zero fed funds rates and flattening of long-term yields by quantitative easing, causes uncontrollable effects on risk taking that can have profound undesirable effects on financial stability. Excessively aggressive and exotic monetary policy is the main culprit and not the inadequacy of financial management and risk controls.

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 restatement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption decisions 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 (1)

Equation (1) shows that as r goes to zero, r →0, W grows without bound, W→∞.

Lowering the interest rate near the zero bound in 2003-2004 caused the illusion of permanent increases in wealth or net worth in the balance sheets of borrowers and also of lending institutions, securitized banking and every financial institution and investor in the world. The discipline of calculating risks and returns was seriously impaired. The objective of monetary policy was to encourage borrowing, consumption and investment but the exaggerated stimulus resulted in a financial crisis of major proportions as the securitization that had worked for a long period was shocked with policy-induced excessive risk, imprudent credit, high leverage and low liquidity by the incentive to finance everything overnight at close to zero interest rates, from adjustable rate mortgages (ARMS) to asset-backed commercial paper of structured investment vehicles (SIV).

The consequences of inflating liquidity and net worth of borrowers were a global hunt for yields to protect own investments and money under management from the zero interest rates and unattractive long-term yields of Treasuries and other securities. Monetary policy distorted the calculations of risks and returns by households, business and government by providing central bank cheap money. Short-term zero interest rates encourage financing of everything with short-dated funds, explaining the SIVs created off-balance sheet to issue short-term commercial paper to purchase default-prone mortgages that were financed in overnight or short-dated sale and repurchase agreements (Pelaez and Pelaez, Financial Regulation after the Global Recession, 50-1, Regulation of Banks and Finance, 59-60, Globalization and the State Vol. I, 89-92, Globalization and the State Vol. II, 198-9, Government Intervention in Globalization, 62-3, International Financial Architecture, 144-9). ARMS were created to lower monthly mortgage payments by benefitting from lower short-dated reference rates. Financial institutions economized in liquidity that was penalized with near zero interest rates. There was no perception of risk because the monetary authority guaranteed a minimum or floor price of all assets by maintaining low interest rates forever or equivalent to writing an illusory put option on wealth. Subprime mortgages were part of the put on wealth by an illusory put on house prices. The housing subsidy of $221 billion per year created the impression of ever increasing house prices. The suspension of auctions of 30-year Treasuries was designed to increase demand for mortgage-backed securities, lowering their yield, which was equivalent to lowering the costs of housing finance and refinancing. Fannie and Freddie purchased or guaranteed $1.6 trillion of nonprime mortgages and worked with leverage of 75:1 under Congress-provided charters and lax oversight. The combination of these policies resulted in high risks because of the put option on wealth by near zero interest rates, excessive leverage because of cheap rates, low liquidity because of the penalty in the form of low interest rates and unsound credit decisions because the put option on wealth by monetary policy created the illusion that nothing could ever go wrong, causing the credit/dollar crisis and global recession (Pelaez and Pelaez, Financial Regulation after the Global Recession, 157-66, Regulation of Banks, and Finance, 217-27, International Financial Architecture, 15-18, The Global Recession Risk, 221-5, Globalization and the State Vol. II, 197-213, Government Intervention in Globalization, 182-4).

Chart IA1-11, US, Percentage Share of Residential Investment in Gross Domestic Product, Quarterly, 1979-2013

Source: US Bureau of Economic Analysis

Chart IA1-12 provides the share of intellectual property products investment in GDP with annual data from 1929 to 2013. This is an important addition in the revision and enhancement of GDP provided by the Bureau of Economic Analysis. The share rose sharply over time but stabilized at a lower level in the past decade.

Chart IA1-12, US, Percentage Share of Intellectual Property Products Investment in Gross Domestic Product, Annual, 1929-2013

Source: US Bureau of Economic Analysis

Chart IA1-13 provides the percentage share of intellectual property investment in GDP on a quarterly basis from 1979 to 2013. The share stabilized in the 2000s.

Chart IA1-13, US, Percentage Share of Intellectual Property Investment in Gross Domestic Product, Quarterly, 1979-2013

Source: US Bureau of Economic Analysis

Table IA1-4 provides the seasonally adjusted annual rate of real GDP percentage change and contributions in percentage points in annual equivalent rate of gross domestic investment (GDI), real private fixed investment (PFI), nonresidential investment (NRES), business equipment and software (BES), residential investment (RES), intellectual property products (IPP) and change in inventories (∆INV) for the cyclical expansions from IQ1983 to IVQ1985 and from IIIQ2009 to IVQ2013. GDI provided strong percentage points contributions to GDP growth in the critical first year of expansion in 1983 and also in several quarters in 1984 and 1985 while it has been muted in the cyclical expansion since IIIQ2009 with contributions largely only from IQ2010 to IVQ2011. Gross domestic investment added 0.56 percentage points to GDP growth in IVQ2013. Nonresidential investment added 0.46 percentage points while residential investment subtracted 0.32 percentage points. Inventory investment contributed 0.42 percentage points. Gross domestic investment added 2.56 percentage points to GDP growth of 4.1 percent in IIIQ2013 partly because of change of inventories of 1.67 percentage points with PFI adding 0.81 percentage points. Nonresidential investment added 0.58 percentage points and residential investment added 0.31 percentage points to GDP growth of 4.1 percent in IIIQ2013. GDI added 1.38 percentage points to GDP growth of 2.5 percent in IIQ2013 with 0.41 percentage points from inventory change while nonresidential investment added 0.56 percentage points and residential investment 0.40 percentage points. GDI added 0.71 percentage points in IQ2013 mostly because of 0.93 percentage points of inventory investment while private fixed investment deducted 0.23 percentage points. Nonresidential investment deducted 0.57 percentage points. Business equipment and software added 0.09 percentage points and residential investment 0.34 percentage points. Intellectual property products (IPP) added 0.14 percentage points in IQ2013, deducted 0.06 percentage points in IIQ2013 and added 0.22 percentage points in IIIQ2013. Much of the strong performance of GDI in the cyclical expansion after IQ1983 originated in contributions by real private fixed investment (PFI). Nonresidential investment also contributed strongly to growth in the expansion of the 1980s but has been muted in the current expansion. The contribution of business equipment and software collapsed to negative 0.22 percentage points in IIIQ2012 as business scales down investment but rebounded with 0.47 percentage points in IVQ2012, 0.09 percentage points in IQ2013 and 0.18 percentage points in IIQ2013. Business equipment and software contributed 0.2 percentage points in IIIQ2013 and 0.38 percentage points in IVQ2013. Residential investment (RES) was relatively strong in 1983 but was muted in following quarters. Residential investment only contributed significantly to growth of GDP in the four quarters of 2012, IQ2013, IIQ2013 and IIIQ2013.

Table IA1-4, US, Contributions to the Rate of Growth of Real GDP in Percentage Points

	GDP	GDI	PFI	NRES	BES	IPP	RES	∆INV
2013
I	1.1	0.71	-0.23	-0.57	0.09	0.14	0.34	0.93
II	2.5	1.38	0.96	0.56	0.18	-0.06	0.40	0.41
III	4.1	2.56	0.89	0.58	0.02	0.22	0.31	1.67
IV	3.2	0.56	0.14	0.46	0.38	0.12	-0.32	0.42
2012
I	3.7	1.57	1.21	0.68	0.45	0.05	0.53	0.36
II	1.2	-0.23	0.68	0.53	0.29	0.07	0.15	-0.91
III	2.8	0.99	0.39	0.04	-0.22	0.11	0.35	0.60
IV	0.1	-0.36	1.63	1.13	0.47	0.21	0.50	-2.00
2011
I	-1.3	-1.11	-0.05	-0.09	0.59	0.14	0.04	-1.06
II	3.2	1.88	1.16	1.09	0.23	0.18	0.07	0.72
III	1.4	0.36	1.96	1.81	0.99	0.20	0.15	-1.60
IV	4.9	4.13	1.39	1.10	0.54	0.21	0.29	2.73
2010
I	1.6	1.77	0.11	0.46	1.25	-0.07	-0.35	1.66
II	3.9	2.86	1.77	1.21	1.02	-0.08	0.56	1.09
III	2.8	1.86	-0.04	0.90	0.83	0.22	-0.94	1.90
IV	2.8	-0.51	1.13	0.94	0.57	0.19	0.19	-1.64
2009
I	-5.4	-7.02	-4.75	-3.58	-2.25	-0.23	-1.17	-2.26
II	-0.4	-3.25	-2.13	-1.46	-0.60	0.16	-0.66	-1.12
III	1.3	-0.40	-0.02	-0.54	0.25	0.04	0.52	-0.38
IV	3.9	4.05	-0.36	-0.37	0.36	0.25	0.01	4.40
1982
I	-6.5	-7.60	-2.26	-1.45	-0.83	0.14	-0.81	-5.34
II	2.2	-0.06	-2.32	-1.89	-1.20	0.08	-0.44	2.26
III	-1.4	-0.62	-1.73	-1.71	-0.55	0.06	-0.02	1.11
IV	0.4	-5.37	-0.03	-1.05	-0.57	0.00	1.01	-5.33
1983
I	5.3	2.36	1.44	-0.92	-0.27	0.16	2.36	0.92
II	9.4	5.96	2.53	0.67	1.24	0.29	1.86	3.43
III	8.1	4.40	3.82	2.13	1.43	0.31	1.70	0.57
IV	8.5	6.94	3.93	3.14	2.32	0.35	0.79	3.01
1984
I	8.2	7.23	2.29	1.71	0.46	0.30	0.58	4.94
II	7.2	2.57	2.86	2.52	1.36	0.29	0.34	-0.29
III	4.0	1.69	1.48	1.70	0.88	0.25	-0.22	0.21
IV	3.2	-1.08	1.36	1.34	0.86	0.29	0.02	-2.44
1985
I	4.0	-2.14	0.72	0.67	-0.23	0.14	0.05	-2.86
II	3.7	1.34	0.99	0.83	0.64	0.20	0.16	0.35
III	6.4	-0.43	-0.28	-0.62	-0.38	0.13	0.34	-0.15
IV	3.0	2.80	1.40	1.00	0.53	0.26	0.40	1.40
1986
I	3.8	0.04	0.21	-0.55	-0.28	0.17	0.76	-0.17
II	1.9	-1.30	0.00	-1.12	0.34	0.15	1.12	-1.30
III	4.1	-1.97	-0.34	-0.63	-0.17	0.10	0.28	-1.62
IV	2.1	0.24	0.53	0.48	0.30	0.10	0.05	-0.29

GDP: Gross Domestic Product; GDI: Gross Domestic Investment; PFI: Private Fixed Investment; NRES: Nonresidential; BES: Business Equipment and Software; IPP: Intellectual Property Products; RES: Residential; ∆INV: Change in Private Inventories.

GDI = PFI + ∆INV, may not add exactly because of errors of rounding.

GDP: Seasonally adjusted annual equivalent rate of growth in a quarter; components: percentage points at annual rate.

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

I Stagnating Real Disposable Income and Consumption Expenditures. The Bureau of Economic Analysis (BEA) provides important revisions and enhancements of data on personal income and outlays since 1929 (http://www.bea.gov/iTable/index_nipa.cfm). There are waves of changes in personal income and expenditures in Table IB-1 that correspond somewhat to inflation waves observed worldwide (http://cmpassocregulationblog.blogspot.com/2014/01/world-inflation-waves-interest-rate.html) because of the influence through price indexes. Data are distorted in Nov and Dec 2012 by the rush to realize income of all forms in anticipation of tax increases beginning in Jan 2013. There is major distortion in Jan 2013 because of higher contributions in payrolls to government social insurance that caused sharp reduction in personal income and disposable personal income. The Bureau of Economic Analysis (BEA) explains as follows (page 3 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

“The February and January [2013] changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December [2012] in anticipation of changes in individual tax rates.”

In the first wave in Jan-Apr 2011 with relaxed risk aversion, nominal personal income (NPI) increased at the annual equivalent rate of 8.1 percent, nominal disposable personal income (NDPI) at 5.2 percent and nominal personal consumption expenditures (NPCE) at 5.5 percent. Real disposable income (RDPI) increased at the annual equivalent rate of 1.8 percent and real personal consumption expenditures (RPCE) rose at annual equivalent 2.1 percent. In the second wave in May-Aug 2011 under risk aversion, NPI rose at annual equivalent 4.3 percent, NPDI at 4.3 percent and NPCE at 4.0 percent. RDPI increased at 1.8 percent annual equivalent and RPCE at 1.5 percent annual equivalent. With mixed shocks of risk aversion in the third wave from Sep to Dec 2011, NPI rose at 1.5 percent annual equivalent, NDPI at 1.5 percent and NPCE at 3.3 percent. RDPI increased at 0.3 percent annual equivalent and RPCE at 2.1 percent annual equivalent. In the fourth wave from Jan to Mar 2012, NPI increased at 8.3 percent annual equivalent and NDPI at 7.0 percent. Real disposable income (RDPI) is more dynamic in the revisions, growing at 3.7 percent annual equivalent and RPCE at 3.7 percent. The policy of repressing savings with zero interest rates stimulated growth of nominal consumption (NPCE) at the annual equivalent rate of 6.6 percent and real consumption (RPCE) at 3.7 percent. In the fifth wave in Apr-Jul 2012, NPI increased at annual equivalent 1.2 percent, NDPI at 1.2 percent and RDPI at 0.6 percent. Financial repression failed to stimulate consumption with NPCE growing at 2.1 percent annual equivalent and RPCE at 2.1 percent. In the sixth wave in Aug-Oct 2012, in another wave of carry trades into commodity futures, NPI increased at 4.5 percent annual equivalent and NDPI increased at 3.7 percent while real disposable income (RDPI) increased at 0.4 percent annual equivalent. Data for Nov-Dec 2012 have illusory increases: “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). In the seventh wave, anticipations of tax increases in Jan 2013 caused exceptional income gains that increased personal income to annual equivalent 29.0 percent in Nov-Dec 2012, nominal disposable income at 29.0 percent and real disposable personal income at 29.8 percent with likely effects on nominal personal consumption that increased at 1.8 percent and real personal consumption at 2.4 percent with subdued prices. The numbers in parentheses show that without the exceptional effects NDPI (nominal disposable personal income) increased at 5.5 percent and RDPI (real disposable personal income) at 8.7 percent. In the eighth wave, nominal personal income fell 4.4 percent in Jan 2013 or at the annual equivalent rate of decline of 41.7 percent; nominal disposable personal income fell 5.1 percent or at the annual equivalent rate of decline of 46.6 percent; real disposable income fell 5.1 percent or at the annual rate of decline of 46.6 percent; nominal personal consumption expenditures increased 0.2 percent or at the annual equivalent rate of 2.4 percent; and real personal consumption expenditures increased 0.1 percent or at the annual equivalent rate of 1.2 percent. The savings rate fell significantly from 8.7 percent in Dec 2012 to 3.6 percent in Jan 2013. The Bureau of Economic Analysis explains as follows (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf 3):

“Contributions for government social insurance -- a subtraction in calculating personal income -- increased $126.7 billion in January, compared with an increase of $6.3 billion in December. The

Further explanation is provided by the Bureau of Economic Analysis (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3):

“Contributions for government social insurance -- a subtraction in calculating personal income --increased $6.4 billion in February, compared with an increase of $126.8 billion in January. The

January estimate reflected increases in both employer and employee contributions for government social insurance. The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base; together, these changes added $12.9 billion to January. Employer contributions were boosted $5.9 billion in January, which reflected increases in the social security taxable wage base (from $110,100 to $113,700), in the tax rates paid by employers to state unemployment insurance, and in employer contributions for the federal unemployment tax and for pension guaranty. The total contribution of special factors to the January change in contributions for government social insurance was $132.9 billion. The January change in disposable personal income (DPI) mainly reflected the effect of special factors, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to December in anticipation of changes in individual tax rates. Excluding these special factors and others, which are discussed more fully below, DPI increased $46.8 billion in February, or 0.4 percent, after increasing $15.8 billion, or 0.1 percent, in January.”

The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf). In the ninth wave in Feb-Mar 2013, nominal personal income increased at 10.0 percent and nominal disposable income at 10.0 percent annual equivalent, while real disposable income increased at 8.1 percent annual equivalent. Nominal personal consumption expenditures grew at 5.5 annual equivalent and real personal consumption expenditures at 3.7 percent annual equivalent. The savings rate collapsed from 5.0 percent in Oct 2012, 5.9 percent in Nov 2012 and 8.7 percent in Dec 2012 to 3.6 percent in Jan 2013, 4.2 percent in Feb 2013 and 4.3 percent in Mar 2013. In the tenth wave from Apr to Sep 2013, personal income grew at 3.9 percent annual equivalent, nominal disposable income increased at annual equivalent 4.3 percent and nominal personal consumption expenditures at 2.8 percent. Real disposable income grew at 3.2 percent annual equivalent and real personal consumption expenditures at 1.6 percent. In the eleventh wave, nominal personal income fell at 1.2 percent annual equivalent in Oct 2013, nominal disposable income at 2.4 percent and real disposable income at 2.4 percent. Nominal personal consumption expenditures increased at 1.2 percent annual equivalent and real personal consumption expenditures at 1.2 percent. In the twelfth wave, nominal personal income increased at 2.4 percent annual equivalent in Nov 2013, nominal disposable income at 1.2 percent and nominal personal consumption expenditures at 7.4 percent. Real disposable income increased at annual equivalent 1.2 percent and real personal consumption expenditures at 7.4 percent. In the thirteenth wave, nominal personal income and nominal disposable income changed 0.0 percent in Dec 2013 while real disposable income fell at 2.4 percent annual equivalent. Nominal personal consumption expenditures increased at 4.9 percent annual equivalent and 2.4 percent for real personal consumption expenditures.

The United States economy has grown at the average yearly rate of 3 percent per year and 2 percent per year in per capita terms from 1870 to 2010, as measured by Lucas (2011May). An important characteristic of the economic cycle in the US has been rapid growth in the initial phase of expansion after recessions.

RDPI stagnated in Jan-Dec 2011 at 1.2 percent with the latest revised data compared with growth of 2.8 percent in Jan-Dec 2010 but grew at annual equivalent 3.7 percent in Jan-Mar 2012 and 0.6 percent in Apr-Jul 2012. The salient deceleration is the decline of the annual equivalent rate of NPCE (nominal personal consumption expenditures) to 2.1 percent annual equivalent in Apr-Jul 2012 and of RPCE (real personal consumption expenditures) to 2.1 percent. A bump occurred in Aug 2012 with increases of commodity prices by the carry trade from zero interest rates to exposures in commodity futures and other risk financial assets. Real disposable income fell 0.3 percent in Aug 2012 or at annual equivalent minus 3.5 percent. Nominal personal consumption expenditures increased 0.2 percent in Aug 2012 or at annual equivalent 2.4 percent but declined 0.1 percent in real terms. Nominal personal income increased 0.1 percent in Aug 2012 or 1.2 percent annual equivalent while nominal disposable income was flat at 0.0 percent. Real disposable income (RDPI) increased 0.2 percent in Oct 2012 while real personal consumption expenditures (RPCE) decreased 0.1 percent. RDPI increased 1.3 percent in Nov 2012 and 3.1 percent in Dec 2012 because of realization of incomes in anticipation of tax increases in Jan 2013 while RPCE increased 0.3 percent in Nov 2012 and 0.1 percent in Dec 2012. In Jan-Dec 2012, RDPI increased 5.9 percent and RPCE 2.2 percent. NPI contracted 4.4 percent in Jan 2013, NDPI 5.1 percent and RDPI 5.1 percent but NPCE increased 0.2 percent and RPCE 0.1 percent, probably by drawing on savings. There is strong recovery in Feb-Mar 2013 and renewed weakness in Apr 2013. While NPI increased at 3.9 percent and NDPI at 4.3 percent in annual equivalent in Apr-Sep 2013 and RDPI at 3.2 percent, NPCE stagnated in Apr-May 2013 and RPCE increased at 1.6 percent annual equivalent in Apr-Sep 2013.

Table IB-1, US, Percentage Change from Prior Month Seasonally Adjusted of Personal Income, Disposable Income and Personal Consumption Expenditures %

	NPI	NDPI	RDPI	NPCE	RPCE
2013
Dec	0.0	0.0	-0.2	0.4	0.2
AE ∆% Dec	0.0	0.0	-2.4	4.9	2.4
Nov	0.2	0.1	0.1	0.6	0.6
AE ∆% Nov	2.4	1.2	1.2	7.4	7.4
Oct	-0.1	-0.2	-0.2	0.1	0.1
AE ∆% Oct	-1.2	-2.4	-2.4	1.2	1.2
Sep	0.4	0.5	0.4	0.3	0.2
Aug	0.5	0.6	0.5	0.3	0.2
Jul	0.1	0.3	0.2	0.2	0.1
Jun	0.4	0.3	-0.1	0.6	0.2
May	0.4	0.4	0.3	0.2	0.1
Apr	0.1	0.0	0.3	-0.2	0.0
AE ∆% Apr-Sep	3.9	4.3	3.2	2.8	1.6
Mar	0.3	0.3	0.4	0.2	0.3
Feb	1.3	1.3	0.9	0.7	0.3
AE ∆% Feb-Mar	10.0	10.0	8.1	5.5	3.7
Jan	-4.4	-5.1 (0.1)^a	-5.1	0.2	0.1
AE ∆% Jan	-41.7	-46.6 (3.7)^a	-46.6	2.4	1.2
2012
∆% Jan-Dec 2012***	7.9	7.5	5.9	3.8	2.2
Dec	3.1	3.1 (0.3)*	3.1 (0.5)*	0.1	0.1
Nov	1.2	1.2 (0.6)*	1.3 (0.9)*	0.2	0.3
AE ∆% Nov-Dec	29.0	29.0 (5.5)*	29.8 (8.7)*	1.8	2.4
Oct	0.4	0.4	0.2	0.1	-0.1
Sep	0.6	0.5	0.2	0.7	0.4
Aug	0.1	0.0	-0.3	0.2	-0.1
AE ∆% Aug-Oct	4.5	3.7	0.4	4.1	0.8
Jul	-0.1	-0.1	-0.1	0.4	0.4
Jun	0.3	0.3	0.1	0.1	0.0
May	0.0	0.0	0.0	-0.1	0.0
Apr	0.2	0.2	0.2	0.3	0.3
AE ∆% Apr-Jul	1.2	1.2	0.6	2.1	2.1
Mar	0.4	0.3	0.1	0.2	0.0
Feb	0.7	0.6	0.3	0.8	0.5
Jan	0.9	0.8	0.5	0.6	0.4
AE ∆% Jan-Mar	8.3	7.0	3.7	6.6	3.7
2011
∆% Jan-Dec 2011*	4.6	3.6	1.2	4.3	1.8
Dec	0.7	0.6	0.6	0.0	0.0
Nov	-0.1	-0.1	-0.2	0.2	0.0
Oct	0.0	0.1	0.0	0.4	0.4
Sep	-0.1	-0.1	-0.3	0.5	0.3
AE ∆% Sep-Dec	1.5	1.5	0.3	3.3	2.1
Aug	0.1	0.1	-0.1	0.2	0.0
Jul	0.6	0.6	0.4	0.5	0.3
Jun	0.4	0.4	0.3	0.3	0.2
May	0.3	0.3	0.0	0.3	0.0
AE ∆% May-Aug	4.3	4.3	1.8	4.0	1.5
Apr	0.2	0.2	-0.1	0.4	0.0
Mar	0.2	0.2	-0.2	0.7	0.4
Feb	0.6	0.5	0.3	0.4	0.2
Jan	1.6	0.8	0.6	0.3	0.1
AE ∆% Jan-Apr	8.1	5.2	1.8	5.5	2.1
2010
∆% Jan-Dec 2010**	4.8	4.2	2.8	4.4	2.9
Dec	0.9	0.9	0.7	0.3	0.1
Nov	0.5	0.4	0.3	0.6	0.4
Oct	0.5	0.5	0.2	0.8	0.5
IVQ2010∆%	1.9	1.8	1.2	1.7	1.0
IVQ2010 AE ∆%	7.9	7.4	4.9	7.0	4.1

Notes: *Excluding exceptional income gains in Nov and Dec 2012 because of anticipated tax increases in Jan 2013 ((page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). ^aExcluding employee contributions for government social insurance (pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf )Excluding NPI: current dollars personal income; NDPI: current dollars disposable personal income; RDPI: chained (2005) dollars DPI; NPCE: current dollars personal consumption expenditures; RPCE: chained (2005) dollars PCE; AE: annual equivalent; IVQ2010: fourth quarter 2010; A: annual equivalent

Percentage change month to month seasonally adjusted

*∆% Dec 2011/Dec 2010 **∆% Dec 2010/Dec 2009 *** ∆% Dec 2012/Dec 2011

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

The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf)

The rates of growth of real disposable income decline in the final quarter of 2013 because of the increases in the last two months of 2012 in anticipation of the tax increases of the “fiscal cliff” episode. The 12-month rate of increase of real disposable income fell to 1.8 percent in Oct 2013 and 0.6 percent in Nov 2013 partly because of the much higher level in late 2012 in anticipation of incomes to avoid increases in taxes in 2013. Real disposable income fell 2.7 percent in the 12 months ending in Dec 2013 primarily because of the much higher level in late 2012 in anticipation of income to avoid increases in taxes in 2013.

RPCE growth decelerated less sharply from close to 3 percent in IVQ 2010 to 2.1 percent in Mar 2012, 1.8 percent in Oct 2012, 2.1 percent in Nov 2012, 2.2 percent in Dec 2012 perhaps also with some effects of anticipations of tax increases in Jan 2013, 2.0 percent in Jan 2013 by burning savings, 1.7 percent in Feb 2013 and 2.0 percent in Mar 2013. RPCE increased 1.7 percent in the 12 months ending in Apr 2013, 1.8 percent in the 12 months ending in May 2013 and 2.0 percent in the 12 months ending in Jun 2013. RPCE increased 2.1 percent in the 12 months ending in Aug 2013 and 1.9 percent in the 12 months ending in Sep 2013. RPCE increased 2.4 percent in the 12 months ending in Oct 2013. RPCE increased 2.4 percent in the 12 months ending in Nov 2013 and 2.5 percent in the 12 months ending in Dec 2013 because anticipations of income in late 2012 did not affect consumption sharply. Subdued growth of RPCE could affect revenues of business. Growth rates of personal consumption have weakened. Goods and especially durable goods have been driving growth of PCE as shown by the much higher 12-month rates of growth of real goods PCE (RPCEG) and durable goods real PCE (RPCEGD) than services real PCE (RPCES). Growth of consumption of goods and, in particular, of consumer durable goods drives the faster expansion of the economy while growth of consumption of services is much more moderate. The 12-month rates of growth of RPCEGD have fallen from around 10 percent and even higher in several months from Sep 2010 to Feb 2011 to the range of 4.8 to 9.1 percent from Jan 2012 to Dec 2013. RPCEG growth rates have fallen from around 5 percent late in 2010 and early Jan-Feb 2011 to the range of 2.8 to 4.1 percent from Jan 2012 to Dec 2013. Growth rates in 12 months of goods and durable goods increased again toward the end of 2012 with strength continuing into 2013. In Dec 2013, RPCEG increased 4.1 percent in 12 months and RPCEGD 4.8 percent while RPCES increased only 1.7 percent. There are limits to sustained growth based on financial repression in an environment of weak labor markets and real labor remuneration.

Table IB-2, Real Disposable Personal Income and Real Personal Consumption Expenditures

Percentage Change from the Same Month a Year Earlier %

	RDPI	RPCE	RPCEG	RPCEGD	RPCES
2013
Dec	-2.7	2.5	4.1	4.8	1.7
Nov	0.6	2.4	4.2	7.3	1.5
Oct	1.8	2.1	3.9	7.3	1.2
Sep	2.2	1.9	3.5	5.9	1.1
Aug	2.0	2.1	3.9	8.9	1.2
Jul	1.3	1.8	3.9	8.0	0.7
Jun	0.9	2.0	4.1	8.3	1.0
May	1.1	1.8	3.6	7.7	0.9
Apr	0.8	1.7	3.0	7.1	1.1
Mar	0.8	2.0	3.1	6.3	1.4
Feb	0.5	1.7	3.2	6.6	0.9
Jan	-0.1	2.0	3.7	7.7	1.1
2012
Dec	5.9	2.2	4.2	9.0	1.2
Nov	3.2	2.1	3.6	8.4	1.4
Oct	1.7	1.8	2.8	6.1	1.3
Sep	1.6	2.3	4.1	8.8	1.4
Aug	1.1	2.1	4.0	9.1	1.2
Jul	1.2	2.2	3.4	7.9	1.6
Jun	1.7	2.2	3.2	8.9	1.7
May	1.9	2.4	3.5	7.7	1.8
Apr	1.8	2.4	3.0	6.7	2.1
Mar	1.5	2.1	2.9	6.5	1.7
Feb	1.2	2.5	3.0	7.5	2.2
Jan	1.1	2.1	2.3	6.4	1.9
Dec 2011	1.2	1.8	1.9	5.8	1.7
Dec 2010	2.8	2.9	4.7	8.4	2.1

Notes: RDPI: real disposable personal income; RPCE: real personal consumption expenditures (PCE); RPCEG: real PCE goods; RPCEGD: RPCEG durable goods; RPCES: RPCE services

Numbers are percentage changes from the same month a year earlier

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

Chart IB-1 shows US real personal consumption expenditures (RPCE) between 1995 and 2013. There is an evident drop in RPCE during the global recession in 2007 to 2009 but the slope is flatter during the current recovery than in the period before 2007.

Chart IB-1, US, Real Personal Consumption Expenditures, Quarterly Seasonally Adjusted at Annual Rates 1999-2013

Source: US Bureau of Economic Analysis

Percent changes from the prior period in seasonally adjusted annual equivalent quarterly rates (SAAR) of real personal consumption expenditures (RPCE) are provided in Chart IB-2 from 1995 to 2013. The average rate could be visualized as a horizontal line. Although there are not yet sufficient observations, it appears from Chart II-2 that the average rate of growth of RPCE was higher before the recession than during the past eighteen quarters of expansion that began in IIIQ2009.

Chart IB-2, Percent Change from Prior Period in Real Personal Consumption Expenditures, Quarterly Seasonally Adjusted at Annual Rates 1995-2013

Source: US Bureau of Economic Analysis

Personal income and its disposition are shown in Table IB-3. The latest estimates and revisions have changed movements in four forms. (1) Increase in Dec 2013 of personal income by $2.3 billion or 0.0 percent and decline of disposable income of $3.8 billion or 0.0 percent with increase of wages and salaries of 0.0 percent. (2) Decrease of personal income of $628.5 billion from Dec 2012 to Dec 2013 or by 4.4 percent and decrease of disposable income of $650.5 billion or by 5.1 percent. Wages and salaries decreased $199.3 billion from Dec 2012 to Dec 2013 or by 1.4 percent. Large part of these declines occurred because of the comparison of high levels in late 2012 in anticipation of tax increases in 2013. In 2012, personal income increased $1060.8 billion or 7.9 percent while salaries increased 7.6 percent and disposable income 7.5 percent. Significant part of these gains occurred in Dec 2012 in anticipation of incomes because of tax increases beginning in Jan 2013. (3) Increase of $591.6 billion of personal income in 2011 or by 4.6 percent with increase of salaries of 2.8 percent and disposable income of 3.6 percent. (4) Decline of the rate of savings as percent of disposable income from 5.8 percent in Dec 2010 to 5.4 percent in Dec 2011 and 3.9 percent in Dec 2013.

Table IB-3, US, Personal Income and its Disposition, Seasonally Adjusted at Annual Rates USD Billions

	Personal Income	Wages & Salaries	Personal Taxes	DPI	Savings Rate %
Dec 2013	14,307.1	7,242.6	1,690.7	12,616.4	3.9
Nov 2013	14,304.8	7,241.0	1,684.7	12,620.2	4.3
Change Dec 2013/ Nov 2013	2.3 ∆% 0.0	1.6 ∆% 0.0	6.0 ∆% 0.4	-3.8 ∆% 0.0
Jan 2013	13,791.7	7,001.5	1,612.9	12,178.7	3.6
Dec 2012	14,420.2	7,200.8	1,591.0	12,829.2	8.7
Change Dec 2013/ Dec 2012	-628.5 ∆% -4.4	-199.3 ∆% -2.8	21.9 ∆% 1.4	-650.5 ∆% -5.1
Change Dec 2012/ Dec 2011	1060.8 ∆% 7.9	510.7 ∆% 7.6	163.3 ∆% 11.4	897.6 ∆% 7.5
Dec 2011	13,359.4	6,690.1	1,427.7	11,931.6	5.4
Dec 2010	12,767.8	6,506.0	1,254.2	11,513.7	5.8
Change Dec 2011/ Dec 2010	591.6 ∆% 4.6	184.1 ∆% 2.8	173.5 ∆% 13.8	417.9 ∆% 3.6

Source: US Bureau of Economic Analysis

The Bureau of Economic Analysis (BEA) provides a wealth of revisions and enhancements of US personal income and outlays since 1929 (http://www.bea.gov/iTable/index_nipa.cfm). Table IB-4 provides growth rates of real disposable income and real disposable income per capita in the long-term and selected periods. Real disposable income consists of after-tax income adjusted for inflation. Real disposable income per capita is income per person after taxes and inflation. There is remarkable long-term trend of real disposable income of 3.2 percent per year on average from 1929 to 2013 and 2.0 percent in real disposable income per capita. Real disposable income increased at the average yearly rate of 3.7 percent from 1947 to 1999 and real disposable income per capita at 2.3 percent. These rates of increase broadly accompany rates of growth of GDP. Institutional arrangements in the United States provided the environment for growth of output and income after taxes, inflation and population growth. There is significant break of growth by much lower 2.3 percent for real disposable income on average from 1999 to 2013 and 1.4 percent in real disposable per capita income. Real disposable income grew at 3.5 percent from 1980 to 1989 and real disposable per capita income at 2.6 percent. In contrast, real disposable income grew at only 1.3 percent on average from 2006 to 2013 and real disposable income at 0.5 percent. The United States has interrupted its long-term and cyclical dynamism of output, income and employment growth. Recovery of this dynamism could prove to be a major challenge.

Table IB-4, Average Annual Growth Rates of Real Disposable Income (RDPI) and Real Disposable Income per Capita (RDPIPC), Percent per Year

RDPI Average ∆%
1929-2013	3.2
1947-1999	3.7
1999-2013	2.3
1999-2006	3.2
1980-1989	3.5
2006-2013	1.3
RDPIPC Average ∆%
1929-2013	2.0
1947-1999	2.3
1999-2013	1.4
1999-2006	2.2
1980-1989	2.6
2006-2013	0.5

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

Chart IB-3 provides personal income in the US between 1980 and 1989. These data are not adjusted for inflation that was still high in the 1980s in the exit from the Great Inflation of the 1960s and 1970s. Personal income grew steadily during the 1980s after recovery from two recessions from Jan IQ1980 to Jul IIIQ1980 and from Jul IIIQ1981 to Nov IVQ1982.

Chart IB-3, US, Personal Income, Billion Dollars, Quarterly Seasonally Adjusted at Annual Rates, 1980-1989

Source: US Bureau of Economic Analysis

A different evolution of personal income is shown in Chart IB-4. Personal income also fell during the recession from Dec IVQ2007 to Jun IIQ2009 (http://www.nber.org/cycles.html). Growth of personal income during the expansion has been tepid even with the new revisions. In IVQ2012, nominal disposable personal income grew at the SAAR of 10.7 percent and real disposable personal income at 9.0 percent http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi1213.pdf Table 6), which the BEA explains as: “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf). The Bureau of Economic Analysis explains as (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3): “The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base.”

The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf).

In IQ2013, personal income fell at the SAAR of minus 4.1 percent; real personal income excluding current transfer receipts at minus 7.2 percent; and real disposable personal income at minus 7.9 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1113.pdf). The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

“The February and January changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December in anticipation of changes in individual tax rates.”

In IIQ2013, personal income grew at 4.7 percent, real personal income excluding current transfer receipts at 5.6 percent and real disposable income at 4.1 percent (http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi1213.pdf). In IIIQ2013, personal income grew at 4.0 percent, real personal income excluding current transfers at 2.0 percent and real disposable income at 3.0 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi1213.pdf). In IVQ2013, personal income grew at 2.0 percent and real disposable income at 0.8 percent.

Chart IB-4, US, Personal Income, Current Billions of Dollars, Quarterly Seasonally Adjusted at Annual Rates, 2007-2013

Source: US Bureau of Economic Analysis

Real or inflation-adjusted disposable personal income is provided in Chart IB-5 from 1980 to 1989. Real disposable income after allowing for taxes and inflation grew steadily at high rates during the entire decade.

Chart IB-5, US, Real Disposable Income, Billions of Chained 2009 Dollars, Quarterly Seasonally Adjusted at Annual Rates 1980-1989

Source: US Bureau of Economic Analysis

In IQ2013, personal income fell at the SAAR of minus 4.1 percent; real personal income excluding current transfer receipts at minus 7.2 percent; and real disposable personal income at minus 7.9 percent (http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi1213.pdf). The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

This is the explanation for the decline in IQ2013 in Chart IB-6. In IIQ2013, personal income increased at 4.7 percent, real disposable income excluding current transfer receipts at 5.6 percent and real disposable income at 4.1 percent. In IIIQ2013, personal income increased at 4.0 percent, real personal income excluding current transfer receipts at 2.0 percent and real disposable income at 3.0 percent (http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi1213.pdf). In IVQ2013, personal income increased at 2.0 percent, real personal income excluding current transfers at 1.4 percent and real disposable personal income at 0.8 percent (http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi1213.pdf).

Chart IB-6, US, Real Disposable Income, Billions of Chained 2009 Dollars, Quarterly Seasonally Adjusted at Annual Rates, 2007-2013

Chart IB-7 provides percentage quarterly changes in real disposable income from the preceding period at seasonally adjusted annual rates from 1980 to 1989. Rates of changes were high during the decade with few negative changes.

Chart IB-7, US, Real Disposable Income Percentage Change from Preceding Period at Quarterly Seasonally-Adjusted Annual Rates, 1980-1989

Source: US Bureau of Economic Analysis

Chart IB-8 provides percentage quarterly changes in real disposable income from the preceding period at seasonally adjusted annual rates from 2007 to 2013. There has been a period of positive rates followed by decline of rates and then negative and low rates in 2011. Recovery in 2012 has not reproduced the dynamism of the brief early phase of expansion. In IVQ2012, nominal disposable personal income grew at the SAAR of 10.7 percent and real disposable personal income at 9.0 percent (http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi1213.pdf), which the BEA explains as: “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

Personal income fell at 4.1 percent in IQ2013, nominal disposable personal income fell at 7.0 percent while real disposable income fell at 7.2 percent. In IIQ2013, personal income increased at 4.7 percent, real personal income excluding current transfer receipts at 5.6 percent and real disposable income at 4.1 percent. In IIIQ2013, personal income increased at 4.0 percent, real personal income excluding current transfer receipts at 2.0 percent and real disposable income at 3.0 percent. In IVQ2013, nominal personal income increased at 2.0 percent, nominal disposable income at 1.5 percent, real personal income excluding current transfers at 1.4 percent and real disposable income at 0.8 percent.

Chart IB-8 provides percentage quarterly changes in real disposable income

Chart, IB-8, US, Real Disposable Income, Percentage Change from Preceding Period at Seasonally-Adjusted Annual Rates, 2007-2013

Source: US Bureau of Economic Analysis

The Bureau of Economic Analysis (BEA) estimates US personal income in Dec 2013 at the seasonally adjusted annual rate of $14,307.1 billion, as shown in Table IB-3 above (see Table 1 at http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi1213.pdf). The major portion of personal income is compensation of employees of $8,980.5 billion, or 62.8 percent of the total. Wages and salaries are $7,242.6 billion, of which $6,043.6 billion by private industries and supplements to wages and salaries of $1,737.9 billion (employer contributions to pension and insurance funds are $1,200.8 billion and contributions to social insurance are $537.1 billion). In Dec 1985, US personal income was $3,626.8 billion at SAAR (http://www.bea.gov/iTable/index_nipa.cfm). Compensation of employees was $2,479.8 billion, or 68.4 percent of the total. Wages and salaries were $2,056.3 billion of which $1671.0 billion by private industries. Supplements to wages and salaries were $423.5 billion with employer contributions to pension and insurance funds of $270.7 billion and $152.9 billion to government social insurance. Chart IB-9 provides US wages and salaries by private industries in the 1980s. Growth was robust after the interruption of the recessions.

Chart IB-9, US, Wages and Salaries, Private Industries, Quarterly, Seasonally Adjusted at Annual Rates Billions of Dollars, 1980-1989

Source: US Bureau of Economic Analysis

Chart IB-10 shows US wages and salaries of private industries from 2007 to 2013. There is a drop during the contraction followed by initial recovery in 2010 and then the current much weaker relative performance in 2011, 2012 and 2013.

Chart IB-10, US, Wage and Salary Disbursement, Private Industries, Quarterly, Seasonally Adjusted at Annual Rates, Billions of Dollars 2007-2013

Source: US Bureau of Economic Analysis

Chart IB-11 provides finer detail with monthly wages and salaries of private industries from 2007 to 2013. Total wages and salaries decreased 2.8 percent from Dec 2012 to Dec 2013, as shown in Table IB-3. Anticipations of income in late 2012 to avoid tax increases in 2013 cloud comparisons.

Chart IB-11, US, Wages and Salaries, Private Industries, Monthly, Seasonally Adjusted at Annual Rates, Billions of Dollars 2007-2013

Source: US Bureau of Economic Analysis

Chart IB-12 provides monthly real disposable personal income per capita from 1980 to 1989. This is the ultimate measure of wellbeing in receiving income by obtaining the value per inhabitant. The measure cannot adjust for the distribution of income. Real disposable personal income per capita grew rapidly during the expansion after 1983 and continued growing during the rest of the decade.

Chart IB-12, US, Real Disposable Per Capita Income, Monthly, Seasonally Adjusted at Annual Rates, Chained 2009 Dollars 1980-1989

Source: US Bureau of Economic Analysis

Chart IB-13 provides monthly real disposable personal income per capita from 2007 to 2013. There was initial recovery from the drop during the global recession followed by stagnation. Real per capita disposable income increased 1.2 percent from $36,580 in chained dollars of 2009 in Oct 2012 to $37,030 in Nov 2012 and 3.1 percent to $38,170 in Dec 2012 for cumulative increase of 4.3 percent from Oct 2012 to Dec 2012. Real per capita disposable income fell 5.2 percent from $38,170 in Dec 2012 to $36,190 in Jan 2013, increasing marginally 0.8 percent to $36,497 in Feb 2013 for cumulative change of minus 0.2 percent from Oct 2012 (data at http://www.bea.gov/iTable/index_nipa.cfm). This increase is shown in a jump in the final segment in Chart II-13 with Nov-Dec 2012, decline in Jan 2013 and recovery in Feb 2013. Real per capita disposable income increased 0.4 percent from $36,497 in Feb 2013 in chained dollars of 2009 to $36,626 in Mar 2013 for cumulative increase of 0.1 percent relative to Oct 2012. Real per capita disposable income increased to $36,786 in May 2013 for gain of 0.2 percent relative to $36,708 in Apr 2013 and 0.6 percent from Oct 2012. Real disposable per capita income eased to $36,736 in Jun 2013 for decrease of 0.1 percent relative to May 2013 and increase of 0.4 percent relative to Oct 2012. Real disposable income per capita increased 0.2 percent from $36,736 in Jun 2013 to $36,800 in Jul 2013 and 0.6 percent relative to $36,580 in Oct 2013. Real per capita disposable income increased to $36,957 in Aug 2013 or 0.4 percent higher than in Jul 2013 and 1.0 percent above Oct 2012. Real per capita disposable income increased 0.3 percent from $36,957 in Aug 2013 to $37,073 in Sep 2013 and increased 1.3 percent relative to $36,580 in Oct 2012. Real per capita disposable income decreased 0.3 percent from $37,073 in Sep 2013 to $36,970 in Oct 2013 and increased 1.1 percent relative to $36,580 in Oct 2012. Real per capita disposable income changed 0.0 percent from $36,970 in Oct 2013 to $36,984 in Nov 2013 and increased 1.1 percent relative to $36,580 in Oct 2012. Real per capita income fell 0.2 percent in Dec 2013 to $36,877 and increased 0.8 percent from $36,580 in Oct 2012. Real disposable income fell 3.4 percent from $38,170 in Dec 2012 to $36,877 in Dec 2013, largely because of anticipations of income in late 2012. BEA explains as: “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf). The Bureau of Economic Analysis explains as (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3): “The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base.”

The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf).

The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

Chart IB-13, US, Real Disposable Per Capita Income, Monthly, Seasonally Adjusted at Annual Rates, Chained 2009 Dollars 2007-2013

Source: US Bureau of Economic Analysis

IA2 Financial Repression. McKinnon (1973) and Shaw (1974) argue that legal restrictions on financial institutions can be detrimental to economic development. “Financial repression” is the term used in the economic literature for these restrictions (see Pelaez and Pelaez, Globalization and the State, Vol. II (2008b), 81-6; for historical analysis see Pelaez 1975). Interest rate ceilings on deposits and loans have been commonly used. The Banking Act of 1933 imposed prohibition of payment of interest on demand deposits and ceilings on interest rates on time deposits. These measures were justified by arguments that the banking panic of the 1930s was caused by competitive rates on bank deposits that led banks to engage in high-risk loans (Friedman, 1970, 18; see Pelaez and Pelaez, Regulation of Banks and Finance (2009b), 74-5). The objective of policy was to prevent unsound loans in banks. Savings and loan institutions complained of unfair competition from commercial banks that led to continuing controls with the objective of directing savings toward residential construction. Friedman (1970, 15) argues that controls were passive during periods when rates implied on demand deposit were zero or lower and when Regulation Q ceilings on time deposits were above market rates on time deposits. The Great Inflation or stagflation of the 1960s and 1970s changed the relevance of Regulation Q.

Most regulatory actions trigger compensatory measures by the private sector that result in outcomes that are different from those intended by regulation (Kydland and Prescott 1977). Banks offered services to their customers and loans at rates lower than market rates to compensate for the prohibition to pay interest on demand deposits (Friedman 1970, 24). The prohibition of interest on demand deposits was eventually lifted in recent times. In the second half of the 1960s, already in the beginning of the Great Inflation (DeLong 1997), market rates rose above the ceilings of Regulation Q because of higher inflation. Nobody desires savings allocated to time or savings deposits that pay less than expected inflation. This is a fact currently with zero interest rates and consumer price inflation of 1.2 percent in the 12 months ending in Nov 2013 (http://www.bls.gov/cpi/) but rising during waves of carry trades from zero interest rates to commodity futures exposures (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html). Funding problems motivated compensatory measures by banks. Money-center banks developed the large certificate of deposit (CD) to accommodate increasing volumes of loan demand by customers. As Friedman (1970, 25) finds:

“Large negotiable CD’s were particularly hard hit by the interest rate ceiling because they are deposits of financially sophisticated individuals and institutions who have many alternatives. As already noted, they declined from a peak of $24 billion in mid-December, 1968, to less than $12 billion in early October, 1969.”

Banks created different liabilities to compensate for the decline in CDs. As Friedman (1970, 25; 1969) explains:

“The most important single replacement was almost surely ‘liabilities of US banks to foreign branches.’ Prevented from paying a market interest rate on liabilities of home offices in the United States (except to foreign official institutions that are exempt from Regulation Q), the major US banks discovered that they could do so by using the Euro-dollar market. Their European branches could accept time deposits, either on book account or as negotiable CD’s at whatever rate was required to attract them and match them on the asset side of their balance sheet with ‘due from head office.’ The head office could substitute the liability ‘due to foreign branches’ for the liability ‘due on CDs.”

Friedman (1970, 26-7) predicted the future:

“The banks have been forced into costly structural readjustments, the European banking system has been given an unnecessary competitive advantage, and London has been artificially strengthened as a financial center at the expense of New York.”

In short, Depression regulation exported the US financial system to London and offshore centers. What is vividly relevant currently from this experience is the argument by Friedman (1970, 27) that the controls affected the most people with lower incomes and wealth who were forced into accepting controlled-rates on their savings that were lower than those that would be obtained under freer markets. As Friedman (1970, 27) argues:

“These are the people who have the fewest alternative ways to invest their limited assets and are least sophisticated about the alternatives.”

Chart IB-14 of the Bureau of Economic Analysis (BEA) provides quarterly savings as percent of disposable income or the US savings rate from 1980 to 2013. There was a long-term downward sloping trend from 12 percent in the early 1980s to 2.0 percent in Jul 2005. The savings rate then rose during the contraction and in the expansion. In 2011 and into 2012 the savings rate declined as consumption is financed with savings in part because of the disincentive or frustration of receiving a few pennies for every $10,000 of deposits in a bank. The savings rate increased in the final segment of Chart IB-14 in 2012 followed by another decline because of the pain of the opportunity cost of zero remuneration for hard-earned savings. Swelling realization of income in Oct-Dec 2012 in anticipation of tax increases in Jan 2012 caused the jump of the savings rate to 8.7 percent in Dec 2012. The BEA explains as: Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). The savings rate then collapsed to 3.6 percent in Jan 2013 in part because of the decline of 5.1 percent in real disposable personal income and to 4.2 percent with increase of real disposable income by 0.9 percent in Feb 2013. The savings rate increased to 4.3 percent in Mar 2013 with increase of real disposable income by 0.4 percent and at 4.6 percent in Apr 2013 with increase of real disposable income by 0.3 percent. The savings rate rose to 4.8 percent in May 2013 with increase of real disposable income by 0.3 percent. The savings rate fell to 4.6 percent in Jun 2013 with decline of real disposable personal income by 0.1 percent. The savings rate increased to 4.7 percent in Jul 2013 with increase of real disposable income by 0.2 percent. In Aug 2013, real disposable income increased 0.5 percent and the savings rate increased to 4.9 percent. In Sep 2013, the savings rate increased to 5.1 percent with increase of real disposable income of 0.4 percent. The savings rate fell to 4.8 percent in Oct 2013 with decrease of real disposable income by 0.2 percent. The savings rate fell to 4.3 percent in Nov 2013 with increase of real disposable income of 0.1 percent. In Dec 2013, the savings rate fell to 3.9 percent with decrease of real disposable income by 0.2 percent. The decline of personal income was caused by increasing contributions to government social insurance (page 1 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf). The objective of monetary policy is to reduce borrowing rates to induce consumption but it has collateral disincentive of reducing savings and misallocating resources away from their best uses. The zero interest rate of monetary policy is a tax on saving. This tax is highly regressive, meaning that it affects the most people with lower income or wealth and retirees. The long-term decline of savings rates in the US has created a dependence on foreign savings to finance the deficits in the federal budget and the balance of payments (http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html).

Chart IB-14, US, Personal Savings as a Percentage of Disposable Personal Income, Quarterly, 1980-2013

Source: US Bureau of Economic Analysis

Chart IB-15 of the US Bureau of Economic Analysis provides personal savings as percent of personal disposable income, or savings ratio, from Jan 2007 to Nov 2013. The uncertainties caused by the global recession resulted in sharp increase in the savings ratio that peaked at 8.0 percent in May 2008 (http://www.bea.gov/iTable/index_nipa.cfm). The second peak occurred at 8.1 percent in May 2009. There was another rising trend until 5.9 percent in Jun 2010 and then steady downward trend until 4.8 percent in Nov 2011. This was followed by an upward trend with 5.6 percent in Jun 2012 but decline to 4.9 percent in Aug 2012 followed by jump to 8.7 percent in Dec 2012. Swelling realization of income in Oct-Dec 2012 in anticipation of tax increases in Jan 2013 caused the jump of the savings rate to 8.7 percent in Dec 2012. The BEA explains as: Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf). There was a reverse effect in Jan 2013 with decline of the savings rate to 3.6 percent. Real disposable personal income fell 5.1 percent and real disposable per capita income fell from $38,170 in Dec 2012 to $36,190 in Jan 2013 or by 5.2 percent, which is explained by the Bureau of Economic Analysis as follows (page 3 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf):

“Contributions for government social insurance -- a subtraction in calculating personal income --increased $6.4 billion in February, compared with an increase of $126.8 billion in January. The

The savings rate then collapsed to 3.6 percent in Jan 2013 in part because of the decline of 5.1 percent in real disposable personal income and to 4.2 percent with increase of real disposable income by 0.9 percent in Feb 2013. The savings rate increased to 4.3 percent in Mar 2013 with increase of real disposable income by 0.4 percent and at 4.6 percent in Apr 2013 with increase of real disposable income by 0.3 percent. The savings rate rose to 4.8 percent in May 2013 with increase of real disposable income by 0.3 percent. The savings rate fell to 4.6 percent in Jun 2013 with decline of real disposable personal income by 0.1 percent. The savings rate increased to 4.7 percent in Jul 2013 with increase of real disposable income by 0.2 percent. In Aug 2013, real disposable income increased 0.5 percent and the savings rate increased to 4.9 percent. In Sep 2013, the savings rate increased to 5.1 percent with increase of real disposable income of 0.4 percent. The savings rate fell to 4.5 percent in Oct 2013 with decrease of real disposable income by 0.2 percent. The savings rate fell to 4.3 percent in Nov 2013 with increase of real disposable income of 0.1 percent. In Dec 2013, the savings rate fell to 3.9 percent with decrease of real disposable income by 0.2 percent. The decline of personal income was caused by increasing contributions to government social insurance (page 1 http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf). Permanent manipulation of the entire spectrum of interest rates with monetary policy measures distorts the compass of resource allocation with inferior outcomes of future growth, employment and prosperity and dubious redistribution of income and wealth worsening the most the personal welfare of people without vast capital and financial relations to manage their savings.

Chart IB-15, US, Personal Savings as a Percentage of Disposable Income, Monthly 2007-2013

Source: US Bureau of Economic Analysis

II United States Housing Collapse. The objective of this section is to provide the latest data and analysis of US housing. Subsection IIB1 United New House Sales analyzes the collapse of US new house sales. Subsection IIB2 United States House Prices considers the latest available data on house prices. Subsection IIB3 Factors of US Housing Collapse provides the analysis of the causes of the housing crisis of the US. IIB4 US Housing Prices provides the prices of houses.

IIB1 United States New House Sales. Data and other information continue to provide depressed conditions in the US housing market in a longer perspective, with recent improvement at the margin. Table IIB-1 shows sales of new houses in the US at seasonally adjusted annual equivalent rate (SAAR). House sales fell in eighteen of thirty-six months from Jan 2011 to Dec 2013 but mostly concentrated in Jan-Feb 2011 and May-Aug 2011. In Jan-Apr 2012, house sales increased at the annual equivalent rate of 10.3 percent and at 23.5 percent in May-Sep 2012. There was significant strength in Sep-Dec 2011 with annual equivalent rate of 48.4 percent. Sales of new houses fell 0.5 percent in Dec 2012 and 4.9 percent in Oct 2012 with increase of 9.0 percent in Nov 2012. Sales of new houses rebounded 15.7 percent in Jan 2013 with annual equivalent rate of 69.9 percent from Oct 2012 to Jan 2013 because of the increase of 15.7 percent in Jan 2013. New house sales fell at annual equivalent 17.7 percent in Feb-Mar 2013. New house sales weakened, decreasing at 8.6 percent in annual equivalent from Apr to Dec 2013 with significant volatility illustrated by decline of 17.1 percent in Jul 2013 and increase of 14.9 percent in Oct 2013. House sales fell 7.0 percent in Dec 2013. Robbie Whelan and Conor Dougherty, writing on “Builders fuel home sale rise,” on Feb 26, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324338604578327982067761860.html), analyze how builders have provided financial assistance to home buyers, including those short of cash and with weaker credit background, explaining the rise in new home sales and the highest gap between prices of new and existing houses. The 30-year conventional mortgage rate increased from 3.40 on Apr 25, 2013 to 4.58 percent on Aug 22, 2013 (http://www.federalreserve.gov/releases/h15/data.htm), which could also be a factor in recent weakness with improvement after the rate fell to 4.26 in Nov 2013. The conventional mortgage rate rose to 4.48 percent on Dec 26, 2013 and fell to 4.32 percent on Jan 30, 2014. The conventional mortgage rate measured in a survey by Freddie Mac (http://www.freddiemac.com/pmms/release.html) is the “contract interest rate on commitments for fixed-rate first mortgages” (http://www.federalreserve.gov/releases/h15/data.htm).

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

	SA Annual Rate Thousands	∆%
Dec 2013	414	-7.0
Nov	445	-3.9
Oct	463	14.9
Sep	403	3.9
Aug	388	4.0
Jul	373	-17.1
Jun	450	4.9
May	429	-3.8
Apr	446	0.7
AE ∆% Apr-Dec		-8.6
Mar	443	-0.4
Feb	445	-2.8
AE ∆% Feb-Mar		-17.7
Jan	458	15.7
Dec 2012	396	-0.5
Nov	398	9.0
Oct	365	-4.9
AE ∆% Oct-Jan		69.9
Sep	384	2.7
Aug	374	1.4
Jul	369	2.5
Jun	360	-2.4
May	369	4.8
AE ∆% May-Sep		23.5
Apr	352	0.9
Mar	349	-4.6
Feb	366	8.3
Jan	338	-0.9
AE ∆% Jan-Apr		10.3
Dec 2011	341	4.0
Nov	328	3.8
Oct	316	3.9
Sep	304	1.7
AE ∆% Sep-Dec		48.4
Aug	299	-1.7
Jul	296	-2.3
Jun	301	-1.3
May	305	-1.6
AE ∆% May-Aug		-18.9
Apr	310	3.3
Mar	300	11.1
Feb	270	-12.1
Jan	307	-5.8
AE ∆% Jan-Apr		-14.2
Dec 2010	326	13.6

AE: Annual Equivalent

Source: US Census Bureau

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

There is additional information of the report of new house sales in Table IIB-2. The stock of unsold houses stabilized in Apr-Aug 2011 at average 6.6 monthly equivalent sales at current sales rates and then dropped to 4.6 in Jul-Aug 2012, increasing to 4.8 in Oct 2012, 4.5 in Nov 2012 and 4.5 percent in Dec 2012. Inventories dropped to 3.9 in Jan 2013 and 4.1 in Feb 2013. Inventories stabilized at 4.2-4.5 in Mar-Jun 2013 and increased to 5.5 in Jul 2013. Inventories fell to 5.4 in Aug 2013 and 5.4 in Sep 2013 but fell to 4.6 in Oct 2013. Inventories stood at 4.7 in Nov 2013 and 5.0 in Dec 2013. Robbie Whelan and Conor Dougherty, writing on “Builders fuel home sale rise,” on Feb 26, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324338604578327982067761860.html), find that inventories of houses have declined as investors acquire distressed houses of higher quality. Median and average house prices oscillate. In Dec 2013, median prices of new houses sold not seasonally adjusted (NSA) increased 0.6 percent after increasing 3.2 percent in Nov 2013. Average prices decreased 6.9 percent in Dec 2013 and increased 2.2 percent in Nov 2013. Between Dec 2010 and Dec 2013 median prices increased 12.0 percent and average prices increased 6.8 percent. Between Dec 2010 and Dec 2012, median prices increased 7.1 percent and average prices increased 2.6 percent. Price increases concentrated in 2012 with increase of median prices of 18.2 percent from Dec 2011 to Dec 2012 and of average prices of 13.8 percent. Median prices increased 4.6 percent from Dec 2012 to Dec 2013 while average prices increased 4.1 percent. Robbie Williams, writing on “New homes hit record as builders cap supply,” on May 24, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887323475304578500973445311276.html?mod=WSJ_economy_LeftTopHighlights), finds that homebuilders are continuing to restrict the number of new homes for sale. Restriction of available new homes for sale increases prices paid by buyers.

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

	Unsold* Stocks in Equiv. Months of Sales SA %	Median New House Sales Price USD NSA	Month ∆%	Average New House Sales Price USD NSA	Month ∆%
Dec 2013	5.0	270,200	0.6	311,400	-6.9
Nov	4.7	268,500	3.2	334,600	2.2
Oct	4.6	260,300	-3.5	327,400	1.9
Sep	5.4	269,800	5.7	321,400	3.4
Aug	5.4	255,300	-2.6	310,800	-5.8
Jul	5.5	262,200	0.9	329,900	7.8
Jun	4.3	259,800	-1.5	306,100	-2.5
May	4.5	263,700	-5.6	314,000	-6.8
Apr	4.3	279,300	8.5	337,000	12.3
Mar	4.2	257,500	-2.9	300,200	-3.9
Feb	4.1	265,100	5.4	312,500	1.8
Jan	3.9	251,500	-2.6	306,900	2.6
Dec 2012	4.5	258,300	5.4	299,200	2.9
Nov	4.5	245,000	-0.9	290,700	1.9
Oct	4.8	247,200	-2.9	285,400	-4.1
Sep	4.5	254,600	0.6	297,700	-2.6
Aug	4.6	253,200	6.7	305,500	8.2
Jul	4.6	237,400	2.1	282,300	3.9
Jun	4.8	232,600	-2.8	271,800	-3.2
May	4.7	239,200	1.2	280,900	-2.4
Apr	4.9	236,400	-1.4	287,900	1.5
Mar	5.0	239,800	0.0	283,600	3.5
Feb	4.8	239,900	8.2	274,000	3.1
Jan	5.3	221,700	1.4	265,700	1.1
Dec 2011	5.3	218,600	2.0	262,900	5.2
Nov	5.7	214,300	-4.7	250,000	-3.2
Oct	6.0	224,800	3.6	258,300	1.1
Sep	6.3	217,000	-1.2	255,400	-1.5
Aug	6.5	219,600	-4.5	259,300	-4.1
Jul	6.7	229,900	-4.3	270,300	-1.0
Jun	6.6	240,200	8.2	273,100	3.9
May	6.6	222,000	-1.2	262,700	-2.3
Apr	6.7	224,700	1.9	268,900	3.1
Mar	7.2	220,500	0.2	260,800	-0.8
Feb	8.1	220,100	-8.3	262,800	-4.7
Jan	7.3	240,100	-0.5	275,700	-5.5
Dec 2010	7.0	241,200	9.8	291,700	3.5

*Percent of new houses for sale relative to houses sold

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

The depressed level of residential construction and new house sales in the US is evident in Table IIB-3 providing new house sales not seasonally adjusted in Jan-Dec of various years. Sales of new houses in Jan-Dec 2013 are substantially lower than in any year between 1963 and 2013 with the exception of the years from 2009 to 2012. There are only four increases of 16.4 percent relative to Jan-Dec 2012, 39.9 percent relative to Jan-Dec 2011, 32.5 percent relative to Jan-Dec 2010 and 14.1 percent relative to Jan-Dec 2009. Sales of new houses in Jan-Dec 2013 are lower by 11.8 percent relative to Jan-Dec 2008, 44.8 percent relative to 2007, 59.3 percent relative to 2006 and 66.6 percent relative to 2005. The housing boom peaked in 2005 and 2006 when increases in fed funds rates to 5.25 percent in Jun 2006 from 1.0 percent in Jun 2004 affected subprime mortgages that were programmed for refinancing in two or three years on the expectation that price increases forever would raise home equity. Higher home equity would permit refinancing under feasible mortgages incorporating full payment of principal and interest (Gorton 2009EFM; see other references in http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Sales of new houses in Jan-Dec 2013 relative to the same period in 2004 fell 64.4 percent and 60.6 percent relative to the same period in 2003. Similar percentage declines are also observed for 2013 relative to years from 2000 to 2004. Sales of new houses in Jan-Dec 2013 fell 35.8 per cent relative to the same period in 1995. The population of the US was 179.3 million in 1960 and 281.4 million in 2000 (Hobbs and Stoops 2002, 16). Detailed historical census reports are available from the US Census Bureau at (http://www.census.gov/population/www/censusdata/hiscendata.html). The US population reached 308.7 million in 2010 (http://2010.census.gov/2010census/data/). The US population increased by 129.4 million from 1960 to 2010 or 72.2 percent. The final row of Table IIB-3 reveals catastrophic data: sales of new houses in Jan-Dec 2013 of 428 thousand units are lower by 23.6 percent relative to 560 thousand units of houses sold in Jan-Dec 1963, the first year when data become available. The civilian noninstitutional population increased from 123.360 million in Dec 1963 to 246.745 million in Dec 2013, or 100.0 percent (http://www.bls.gov/data/). The Bureau of Labor Statistics (BLS) defines the civilian noninstitutional population (http://www.bls.gov/lau/rdscnp16.htm#cnp): “The civilian noninstitutional population consists of persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces.”

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

	Not Seasonally Adjusted Thousands
Jan-Dec 2013	428
Jan-Dec 2012	368
∆% Jan-Dec 2013/Jan-Dec 2012	16.4*
Jan-Dec 2011	306
∆% Jan-Dec 2013/Jan-Dec 2011	39.9
Jan-Dec 2010	323
∆% Jan-Dec 2013/ Jan-Dec 2010	32.5
Jan-Dec 2009	375
∆% Jan-Dec 2013/ Jan-Dec 2009	14.1
Jan-Dec 2008	485
∆% Jan-Dec 2013/ Jan-Dec 2008	-11.8
Jan-Dec 2007	776
∆% Jan-Dec 2013/ Jan-Dec 2007	-44.8
Jan-Dec 2006	1,051
∆% Jan-Dec 2013/Jan-Dec 2006	-59.3
Jan-Dec 2005	1,283
∆% Jan-Dec 2013/Jan-Dec 2005	-66.6
Jan-Dec 2004	1,203
∆% Jan-Dec 2013/Jan-Dec 2004	-64.4
Jan-Dec 2003	1,086
∆% Jan-Dec 2013/ Jan-Dec 2003	-60.6
Jan-Dec 2002	973
∆% Jan-Dec 2013/ Jan-Dec 2002	-56.0
Jan-Dec 2001	908
∆% Jan-Dec 2013/ Jan-Dec 2001	-52.9
Jan-Dec 2000	877
∆% Jan-Dec 2013/ Jan-Dec 2000	-51.2
Jan-Dec 1995	667
∆% Jan-Dec 2013/ Jan-Dec 1995	-35.8
Jan-Dec 1963	560
∆% Jan-Dec 2013/ Jan-Dec 1963	-23.6

*Computed using unrounded data

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

Table IIB-4 provides the entire available annual series of new house sales from 1963 to 2013. The revised level of 306 thousand new houses sold in 2011 is the lowest since 560 thousand in 1963 in the 48 years of available data while the level of 368 thousand in 2012 is only higher than 323 thousand in 2010. The level of sales of new houses of 428 thousand in 2013 is the lowest from 1963 to 2009 with exception of 412 thousand in 1982. The population of the US increased 129.4 million from 179.3 million in 1960 to 308.7 million in 2010, or 72.2 percent. The civilian noninstitutional population of the US increased from 122.416 million in 1963 to 245.679 million in 2013 or 100.7 percent (http://www.bls.gov/data/). The Bureau of Labor Statistics (BLS) defines the civilian noninstitutional population (http://www.bls.gov/lau/rdscnp16.htm#cnp): “The civilian noninstitutional population consists of persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces.”

The civilian noninstitutional population is the universe of the labor force. In fact, there is no year from 1963 to 2013 in Table IIA-4 with sales of new houses below 400 thousand with the exception of the immediately preceding years of 2009, 2010, 2011 and 2012.

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

Year	Houses Sold Thousands
1963	560
1964	565
1965	575
1966	461
1967	487
1968	490
1969	448
1970	485
1971	656
1972	718
1973	634
1974	519
1975	549
1976	646
1977	819
1978	817
1979	709
1980	545
1981	436
1982	412
1983	623
1984	639
1985	688
1986	750
1987	671
1988	676
1989	650
1990	534
1991	509
1992	610
1993	666
1994	670
1995	667
1996	757
1997	804
1998	886
1999	880
2000	877
2001	908
2002	973
2003	1,086
2004	1,203
2005	1,283
2006	1,051
2007	776
2008	485
2009	375
2010	323
2011	306
2012	368
2013	428

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

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

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

Source: US Census Bureau

Percentage changes and average rates of growth of new house sales for selected periods are shown in Table IIB-5. The percentage change of new house sales from 1963 to 2013 is minus 23.6 percent. Between 1991 and 2001, sales of new houses rose 78.4 percent at the average yearly rate of 5.9 percent. Between 1995 and 2005 sales of new houses increased 92.4 percent at the yearly rate of 6.8 percent. There are similar rates in all years from 2000 to 2005. The boom in housing construction and sales began in the 1980s and 1990s. The collapse of real estate culminated several decades of housing subsidies and policies to lower mortgage rates and borrowing terms (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009b), 42-8). Sales of new houses sold in 2013 fell 35.8 percent relative to the same period in 1995 and 66.6 percent relative to 2005.

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

	∆%	Average Yearly % Rate
1963-2013	-23.6	NA
1991-2001	78.4	6.0
1995-2005	92.4	6.8
2000-2005	46.3	7.9
1995-2013	-35.8	NA
2000-2013	-51.2	NA
2005-2013	-66.6	NA

NA: Not Applicable

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

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

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

Source: US Census Bureau

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

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

Period	Median	Average
1963	$18,000	$19,300
1964	$18,900	$20,500
1965	$20,000	$21,500
1966	$21,400	$23,300
1967	$22,700	$24,600
1968	$24,700	$26,600
1969	$25,600	$27,900
1970	$23,400	$26,600
1971	$25,200	$28,300
1972	$27,600	$30,500
1973	$32,500	$35,500
1974	$35,900	$38,900
1975	$39,300	$42,600
1976	$44,200	$48,000
1977	$48,800	$54,200
1978	$55,700	$62,500
1979	$62,900	$71,800
1980	$64,600	$76,400
1981	$68,900	$83,000
1982	$69,300	$83,900
1983	$75,300	$89,800
1984	$79,900	$97,600
1985	$84,300	$100,800
1986	$92,000	$111,900
1987	$104,500	$127,200
1988	$112,500	$138,300
1989	$120,000	$148,800
1990	$122,900	$149,800
1991	$120,000	$147,200
1992	$121,500	$144,100
1993	$126,500	$147,700
1994	$130,000	$154,500
1995	$133,900	$158,700
1996	$140,000	$166,400
1997	$146,000	$176,200
1998	$152,500	$181,900
1999	$161,000	$195,600
2000	$169,000	$207,000
2001	$175,200	$213,200
2002	$187,600	$228,700
2003	$195,000	$246,300
2004	$221,000	$274,500
2005	$240,900	$297,000
2006	$246,500	$305,900
2007	$247,900	$313,600
2008	$232,100	$292,600
2009	$216,700	$270,900
2010	$221,800	$272,900
2011	$227,200	$267,900
2012	$245,200	$292,200
2013	$265,800	$320,900

Source: US Census Bureau

Percentage changes of median and average prices of new houses sold in selected years are shown in Table IIB-7. Prices rose sharply between 2000 and 2005. In fact, prices in 2013 are higher than in 2000. Between 2006 and 2013, median prices of new houses sold increased 7.8 percent and average prices increased 4.9 percent. Between 2012 and 2013, median prices increased 8.4 percent and average prices increased 9.8 percent.

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

	Median New Home Sales Prices ∆%	Average New Home Sales Prices ∆%
∆% 2000 to 2003	15.4	18.9
∆% 2000 to 2005	42.5	43.5
∆% 2000 to 2013	57.3	55.0
∆% 2005 to 2013	10.4	8.0
∆% 2000 to 2006	45.9	47.8
∆% 2006 to 2013	7.8	4.9
∆% 2009 to 2013	22.7	18.5
∆% 2010 to 2013	19.8	17.6
∆% 2011 to 2013	17.0	19.8
∆% 2012 to 2013	8.4	9.8

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

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

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

Source: US Census Bureau

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

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

Source: US Census Bureau

http://www.federalreserve.gov/releases/H15/default.htm

Chart IIB-5 of the Board of Governors of the Federal Reserve System provides the rate for the 30-year conventional mortgage, the yield of the 30-year Treasury bond and the rate of the overnight federal funds rate, monthly, from 1971 to 2013. All rates decline throughout the period from the Great Inflation of the 1970s through the following Great Moderation and until currently. In Apr 1971, the fed funds rate was 4.15 percent and the conventional mortgage rate 7.31 percent. In November 2012, the fed funds rate was 0.16 percent, the yield of the 30-year Treasury 2.80 percent and the conventional mortgage rate 3.35. The final segment shows an increase in the yield of the 30-year Treasury to 3.61 percent in July 2013 with the fed funds rate at 0.09 percent and the conventional mortgage at 4.37 percent. The final data point shows increase of the conventional mortgage rate to 4.46 percent in Dec 2012 with the yield of the 30-year Treasury bond at 3.89 percent and overnight rate on fed funds at 0.09 percent. The recent increase in interest rates if sustained could affect the US real estate market.

Chart IIB-5, US, Thirty-year Conventional Mortgage, Thirty-year Treasury Bond and Overnight Federal Funds Rate, Monthly, 1971-2013

Source: Board of Governors of the Federal Reserve System

Table IIB-8 provides the monthly data in Chart IIB-5 from Dec 2012 to Dec 2013. While the fed funds rate fell from 0.16 percent in Dec 2012 to 0.09 percent in Dec 2013, the yield of the constant maturity 30-year Treasury bond rose from 2.88 percent in Dec 2012 to 3.89 percent in Dec 2013 and the conventional mortgage rate increased from 3.35 percent in Dec 2012 to 4.46 percent in Dec 2013.

Table IIB-8, US, Fed Funds Rate, Thirty Year Treasury Bond and Conventional Mortgage Rate, Monthly, Percent Per Year, Dec 2012 to Dec 2013

Year-Month	Fed Funds Rate	Thirty-Year Treasury Constant Maturity Yield	Conventional Mortgage Rate
2012-12	0.16	2.88	3.35
2013-01	0.14	3.08	3.41
2013-02	0.15	3.17	3.53
2013-03	0.14	3.16	3.57
2013-04	0.15	2.93	3.45
2013-05	0.11	3.11	3.54
2013-06	0.09	3.4	4.07
2013-07	0.09	3.61	4.37
2013-08	0.08	3.76	4.46
2013-09	0.08	3.79	4.49
2013-10	0.09	3.68	4.19
2013-11	0.08	3.8	4.26
2013-12	0.09	3.89	4.46

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/H15/default.htm

IIB4 United States House Prices. The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, provides the FHFA House Price Index (HPI) that “is calculated using home sales price information from Fannie Mae and Freddie Mac-acquired mortgages” (http://fhfa.gov/webfiles/24216/q22012hpi.pdf 1). Table IIA2-1 provides the FHFA HPI for purchases only, which shows behavior similar to that of the Case-Shiller index but with lower magnitudes. House prices catapulted from 2000 to 2003, 2005 and 2006. From IIIQ2000 to IIIQ2006, the index for the US as a whole rose 57.4 percent, with 68.4 percent for New England, 75.5 percent for Middle Atlantic, 72.1 percent for South Atlantic but only by 32.6 percent for East South Central. Prices fell relative to 2013 for all years from 2005 and from 2006. Prices for the US increased 8.5 percent in IIIQ2013 relative to IIIQ2012 and 12.9 percent from IIIQ2011 to IIIQ2013. From IIIQ2000 to IIIQ2013, prices rose for the US and the four regions in Table IIA2-1.

Table IIA2-1, US, FHFA House Price Index Purchases Only NSA ∆%

	United States	New England	Middle Atlantic	South Atlantic	East South Central
IIIQ2000 to IIIQ2003	23.5	40.4	35.3	25.1	10.7
IIIQ2000 to IIIQ2005	50.2	69.5	68.7	60.8	23.7
IIIQ2000 to IIIQ2006	57.4	68.4	75.5	72.1	32.5
IIIQ2005 t0 IIIQ2013	-3.9	-9.7	-1.9	-9.0	7.2
IIIQ2006 to IIIQ2013	-8.3	-9.2	-5.8	-15.0	0.1
IIIQ2007 to IIIQ2013	-8.1	-7.6	-6.6	-14.8	-3.1
IIIQ2011 to IIIQ2013	12.9	5.0	3.5	13.9	6.9
IIIQ2012 to IIIQ2013	8.5	5.0	3.8	8.7	4.8
IIIQ2000 to IIIQ2013	44.3	53.0	65.4	46.3	32.6

Source: Federal Housing Finance Agency

Data of the FHFA HPI for the remaining US regions are in Table IIA2-2. Behavior is not very different from that in Table IIA2-1 with the exception of East North Central. House prices in the Pacific region doubled between 2000 and 2006. Although prices of houses declined sharply from 2005 and 2006 to 2013 with exception of South Central, there was still appreciation relative to 2000.

Table IIA2-2, US, FHFA House Price Index Purchases Only NSA ∆%

	West South Central	West North Central	East North Central	Mountain	Pacific
IIIQ2000 to IIIQ2003	11.6	18.4	14.5	18.4	42.5
IIIQ2000 to IIIQ2005	22.9	31.3	24.4	55.3	109.5
IIIQ2000 to IIIQ2006	31.4	35.8	26.0	69.3	118.0
IIIQ2005 to IIIQ2013	21.7	3.0	-7.8	-5.3	-19.3
IIIQ2006 to IIIQ2013	13.8	-0.4	-8.9	-13.1	-22.5
IIIQ2007 to IIIQ2013	8.6	-1.3	-7.1	-14.1	-18
IIIQ2011 to IIIQ2013	11.5	9.5	9.2	24.0	26.7
IIIQ2012 to IIIQ2013	6.0	6.1	6.3	12.3	19.2
IIIQ2000 to IIIQ2013	49.5	35.2	14.6	47.0	69.2

Source: Federal Housing Finance Agency

Chart IIA2-1 of the Federal Housing Finance Agency shows the Housing Price Index four-quarter price change from IIIQ2003 to IIIQ2013. House prices appreciated sharply from 1998 to 2005 and then fell rapidly. Recovery began already after IIQ2008 but there was another decline after IIIQ2010. The rate of decline improved in the second half of 2011 and into 2012 with movement into positive territory in successive quarter from IIQ2012 to IIIQ2013.

Chart IIA2-1, US, Federal Housing Finance Agency House Price Index Four Quarter Price Change

Source: Federal Housing Finance Agency

Monthly and 12-month percentage changes of the FHFA House Price Index are in Table IIA2-3. Percentage monthly increases of the FHFA index were positive from Apr to Jul 2011 with exception of declines in May and Aug 2011 while 12 months percentage changes improved steadily from around minus 6 percent in Mar to May 2011 to minus 4.4 percent in Jun 2011. The FHFA house price index fell 0.6 percent in Oct 2011 and fell 3.0 percent in the 12 months ending in Oct. There was significant recovery in Nov 2012 with increase in the house price index of 0.5 percent and reduction of the 12-month rate of decline to 2.2 percent. The house price index rose 0.4 percent in Dec 2011 and the 12-month percentage change improved to minus 1.2 percent. There was further improvement with revised decline of 0.2 percent in Jan 2012 and decline of the 12-month percentage change to minus 1.0 percent. The index improved to positive change of 0.5 percent in Feb 2012 and increase of 0.4 percent in the 12 months ending in Feb 2012. There was strong improvement in Mar 2012 with gain in prices of 0.9 percent and 2.3 percent in 12 months. The house price index of FHFA increased 0.7 percent in Apr 2012 and 3.0 percent in 12 months and improvement continued with increase of 0.6 percent in May 2012 and 3.8 percent in the 12 months ending in May 2012. Improvement consolidated with increase of 0.4 percent in Jun 2012 and 3.8 percent in 12 months. In Jul 2012, the house price index increased 0.1 percent and 3.7 percent in 12 months. Strong increase of 0.5 percent in Aug 2012 pulled the 12-month change to 4.4 percent. There was another increase of 0.7 percent in Oct and 5.6 percent in 12 months followed by increase of 0.5 percent in Nov 2012 and 5.6 percent in 12 months. The FHFA house price index increased 0.6 percent in Jan 2013 and 6.6 percent in 12 months. Improvement continued with increase of 0.4 percent in Apr 2013 and 7.3 percent in 12 months. In May 2013, the house price indexed increased 1.0 percent and 7.7 percent in 12 months. The FHFA house price index increased 0.7 percent in Jun 2013 and 8.0 percent in 12 months. In Jul 2013, the FHFA house price index increased 0.7 percent and 8.7 percent in 12 months. Improvement continued with increase of 0.4 percent in Aug 2013 and 8.5 percent in 12 months. In Sep 2013, the house price index increased 0.2 percent and 8.4 percent in 12 months. The house price index increased 0.5 percent in Oct 2013 and 8.0 percent in 12 months. In Nov 2013, the house price index increased 0.1 percent and 7.6 percent in 12 months.

Table IIA2-3, US, FHFA House Price Index Purchases Only SA. Month and NSA 12-Month ∆%

	Month ∆% SA	12 Month ∆% NSA
Nov 2013	0.1	7.6
Oct	0.5	8.0
Sep	0.2	8.4
Aug	0.4	8.5
Jul	0.7	8.7
Jun	0.7	8.0
May	1.0	7.7
Apr	0.4	7.3
Mar	1.4	7.6
Feb	0.9	7.0
Jan	0.6	6.6
Dec 2012	0.5	5.8
Nov	0.5	5.6
Oct	0.7	5.6
Sep	0.3	4.3
Aug	0.5	4.4
Jul	0.1	3.7
Jun	0.4	3.8
May	0.6	3.8
Apr	0.7	3.0
Mar	0.9	2.3
Feb	0.5	0.4
Jan	-0.2	-1.0
Dec 2011	0.4	-1.2
Nov 2011	0.5	-2.2
Oct 2011	-0.6	-3.0
Sep 2011	0.5	-2.3
Aug 2011	-0.3	-3.7
Jul 2011	0.3	-3.4
Jun 2011	0.4	-4.4
May 2011	-0.1	-5.9
Apr 2011	0.1	-5.8
Mar 2011	-0.9	-5.9
Feb 2011	-1.0	-5.1
Jan 2011	-0.5	-4.6
Dec 2010		-3.8
Dec 2009		-2.0
Dec 2008		-10.0
Dec 2007		-3.2
Dec 2006		2.5
Dec 2005		9.8
Dec 2004		10.2
Dec 2003		8.0
Dec 2002		7.8
Dec 2001		6.7
Dec 2000		7.2
Dec 1999		6.2
Dec 1998		5.9
Dec 1997		3.4
Dec 1996		2.8
Dec 1995		3.0
Dec 1994		2.6
Dec 1993		3.1
Dec 1992		2.4

Source: Federal Housing Finance Agency

The bottom part of Table IIA2-3 provides 12-month percentage changes of the FHFA house price index since 1992 when data become available for 1991. Table IIA2-4 provides percentage changes and average rates of percent change per year for various periods. Between 1992 and 2012, the FHFA house price index increased 84.4 percent at the yearly average rate of 3.1 percent. In the period 1992-2000, the FHFA house price index increased 39.4 percent at the average yearly rate of 4.2 percent. The average yearly rate of price increase accelerated to 7.5 percent in the period 2000-2003 and to 8.5 percent in 2000-2005 and 7.5 percent in 2000-2006. At the margin, the average rate jumped to 10.0 percent in 2003-2005 and 7.5 percent in 2003-2006. House prices measured by the FHFA house price index declined 14.2 percent between 2006 and 2012 and 12.0 percent between 2005 and 2012.

Table IIA2-4, US, FHFA House Price Index, Percentage Change and Average Rate of Percentage Change per Year, Selected Dates 1992-2012

Dec	∆%	Average ∆% per Year
1992-2012	84.4	3.1
1992-2000	39.4	4.2
2000-2003	24.2	7.5
2000-2005	50.4	8.5
2003-2005	21.1	10.0
2005-2012	-12.0	NA
2000-2006	54.2	7.5
2003-2006	24.1	7.5
2006-2012	-14.2	NA

Source: Source: Federal Housing Finance Agency