CMP Associates Regulation Blog

Chart VA-2 of the US Census Bureau provides total US sales of manufacturing, retailers and wholesalers not seasonally adjusted (NSA) in millions of dollars. The series without adjustment shows sharp jagged behavior because of monthly fluctuations following seasonal patterns. There is sharp recovery from the global recession in a robust trend, which is mixture of price and quantity effects because data are not adjusted for price changes. There is stability in the final segment with monthly marginal strength.

Chart VA-2, US, Total Business Sales of Manufacturers, Retailers and Merchant Wholesalers, NSA, Millions of Dollars, Jan 1992-Mar 2014

US Census Bureau

Businesses added cautiously to inventories to replenish stocks. Retailers’ inventories added 0.1 percent in Mar 2014 and fell 0.1 percent in Feb with growth of 6.1 percent in 12 months, as shown in Table VA-2. Total business increased inventories by 0.4 percent in Mar, 0.4 percent in Feb and 4.8 percent in 12 months. Inventories sales/ratios of total business continued at a level close to 1.30 under careful management to avoid costs and risks. Inventory/sales ratios of manufacturers and retailers are higher than for merchant wholesalers. There is stability in inventory/sales ratios in individual months and relative to a year earlier.

Table VA-2, US, Percentage Changes for Inventories of Manufacturers, Retailers and Merchant Wholesalers and Inventory/Sales Ratios

Inventory Change	Mar 14 Millions of Dollars NSA	Mar 14/ Feb 14 ∆% SA	Feb 14/ Jan 14 ∆% SA	Mar 14/ Mar 13 ∆% NSA
Total Business	1,724,859	0.4	0.5	4.8
Manufacturers	644,696	0.1	0.7	2.7
Retailers	548,138	-0.1	-0.1	6.1
Merchant Wholesalers	532,025	1.1	0.7	6.0
Inventory/ Sales Ratio NSA	Mar 14 Millions of Dollars NSA	Mar 2014 SA	Feb 2014 SA	Mar 2013 SA
Total Business	1,724,859	1.30	1.30	1.29
Manufacturers	644,696	1.30	1.30	1.30
Retailers	548,138	1.42	1.44	1.39
Merchant Wholesalers	532,025	1.18	1.19	1.19

Source: US Census Bureau http://www.census.gov/mtis/

Chart VA-3 of the US Census Bureau provides total business inventories of manufacturers, retailers and merchant wholesalers seasonally adjusted (SA) in millions of dollars from Jan 1992 to Mar 2014. The impact of the two recessions of 2001 and IVQ2007 to IIQ2009 is evident in the form of sharp reductions in inventories. Inventories have surpassed the peak before the global recession. Data are not adjusted for price changes.

Chart VA-3, US, Total Business Inventories of Manufacturers, Retailers and Merchant Wholesalers, SA, Millions of Dollars, Jan 1992-Mar 2014

US Census Bureau

Chart VA-4 provides total business inventories of manufacturers, retailers and merchant wholesalers not seasonally adjusted (NSA) from Jan 1992 to FMar 2014 in millions of dollars. The recessions of 2001 and IVQ2007 to IIQ2009 are evident in the form of sharp reductions of inventories. There is sharp upward trend of inventory accumulation after both recessions. Total business inventories are higher than in the peak before the global recession.

Chart VA-4, US, Total Business Inventories of Manufacturers, Retailers and Merchant Wholesalers, NSA, Millions of Dollars, Jan 1992-Mar 2014

US Census Bureau

http://www2.census.gov/retail/releases/historical/mtis/img/mtisbrf.gif

Inventories follow business cycles. When recession hits sales inventories pile up, declining with expansion of the economy. In a fascinating classic opus, Lloyd Meltzer (1941, 129) concludes:

“The dynamic sequences (i) through (6) were intended to show what types of behavior are possible for a system containing a sales output lag. The following conclusions seem to be the most important:

(i) An economy in which business men attempt to recoup inventory losses will always undergo cyclical fluctuations when equilibrium is disturbed, provided the economy is stable.

This is the pure inventory cycle.

(2) The assumption of stability imposes severe limitations upon the possible size of the marginal propensity to consume, particularly if the coefficient of expectation is positive.

(3) The inventory accelerator is a more powerful de-stabilizer than the ordinary acceleration principle. The difference in stability conditions is due to the fact that the former allows for replacement demand whereas the usual analytical formulation of the latter does not. Thus, for inventories, replacement demand acts as a de-stabilizer. Whether it does so for all types of capital goods is a moot question, but I believe cases may occur in which it does not.

(4) Investment for inventory purposes cannot alter the equilibrium of income, which depends only upon the propensity to consume and the amount of non-induced investment.

(5) The apparent instability of a system containing both an accelerator and a coefficient of expectation makes further investigation of possible stabilizers highly desirable.”

Chart VA-5 shows the increase in the inventory/sales ratios during the recession of 2007-2009. The inventory/sales ratio fell during the expansions. The inventory/sales ratio declined to a trough in 2011, climbed and then stabilized at current levels in 2012, 2013 and 2014.

Chart VA-5, Total Business Inventories/Sales Ratios 2005 to 2015

Source: US Census Bureau

Sales of retail and food services increased 0.1 percent in Apr 2014 after increasing 1.5 percent in Mar 2014 seasonally adjusted (SA), growing 3.0 percent in Jan-Apr 2014 relative to Jan-Apr 2013 not seasonally adjusted (NSA), as shown in Table VA-3. Excluding motor vehicles and parts, retail sales changed 0.0 percent in Apr 2014, increasing 1.0 percent in Mar 2014 SA and increasing 1.9 percent NSA in Jan-Apr 2014 relative to a year earlier. Sales of motor vehicles and parts increased 0.6 percent in Apr 2014 after increasing 3.6 percent in Mar 2014 SA and increasing 7.3 percent NSA in Jan-Apr 2014 relative to a year earlier. Gasoline station sales increased 0.8 percent SA in Apr 2014 after decreasing 1.0 percent in Mar 2014 in oscillating prices of gasoline that are moderating, decreasing 2.3 percent in Jan-Apr 2014 relative to a year earlier.

Table VA-3, US, Percentage Change in Monthly Sales for Retail and Food Services, ∆%

	Apr/Mar ∆% SA	Mar/Feb ∆% SA	Jan-Apr 2014 Million Dollars NSA	Jan-Apr 2014 from Jan-Apr 2013 ∆% NSA
Retail and Food Services	0.1	1.5	1,647,177	3.0
Excluding Motor Vehicles and Parts	0.0	1.0	1,312,258	1.9
Motor Vehicles & Parts Dealers	0.6	3.6	334,919	7.3
Retail	0.2	1.5	1,466,070	2.9
Building Materials	0.4	1.0	96,010	2.6
Food and Beverage	0.3	0.1	213,199	2.8
Grocery	0.1	0.0	191,275	2.3
Health & Personal Care Stores	0.6	0.7	96,061	4.6
Clothing & Clothing Accessories Stores	1.2	1.1	73,856	0.7
Gasoline Stations	0.8	-1.0	173,697	-2.3
General Merchandise Stores	0.2	2.0	202,890	1.2
Food Services & Drinking Places	-0.9	1.9	181,107	3.0

Source: US Census Bureau http://www.census.gov/retail/

Chart VA-6 provides monthly percentage changes of sales of retail and food services. There is significant volatility that prevents identification of clear trends.

Chart VA-6, US, Monthly Percentage Change of Retail and Food Services Sales, Jan 1992-Apr 2014

Source: US Census Bureau

http://www.census.gov/retail/

Chart VA-7 of the US Census Bureau provides total sales of retail trade and food services seasonally adjusted (SA) from Jan 1992 to Apr 2014 in millions of dollars. The impact on sales of the shallow recession of 2001 was much milder than the sharp contraction in the global recession from IVQ2007 to IIQ2009. There is flattening in the final segment of the series followed by another increase. Data are not adjusted for price changes.

Chart VA-7, US, Total Sales of Retail Trade and Food Services, SA, Jan 1992-Apr 2014, Millions of Dollars

Source: US Census Bureau

http://www.census.gov/retail/

Chart VA-8 of the US Census Bureau provides total sales of retail trade and food services not seasonally adjusted (NSA) in millions of dollars from Jan 1992 to Apr 2014. Data are not adjusted for seasonality, which explains sharp jagged behavior, or price changes. There was contraction during the global recession from IVQ2007 to IIQ2009 with strong rebound to a higher level and stability followed by strong increase in the final segment.

Chart VA-8, US, Total Sales of Retail Trade and Food Services, NSA, Jan 1992-Apr 2014, Millions of Dollars

Source: US Census Bureau

http://www.census.gov/retail/

Chart IIA2-1 provides prices of total US imports 2001-2014. Prices fell during the contraction of 2001. Import price inflation accelerated after unconventional monetary policy of near zero interest rates in 2003-2004 and quantitative easing by withdrawing supply with the suspension of 30-year Treasury bond auctions. Slow pace of adjusting fed funds rates from 1 percent by increments of 25 basis points in 17 consecutive meetings of the Federal Open Market Committee (FOMC) between Jun 2004 and Jun 2006 continued to give impetus to carry trades. The reduction of fed funds rates toward zero in 2008 fueled a spectacular global hunt for yields that caused commodity price inflation in the middle of a global recession. After risk aversion in 2009 because of the announcement of TARP (Troubled Asset Relief Program) creating anxiety on “toxic assets” in bank balance sheets (see Cochrane and Zingales 2009), prices collapsed because of unwinding carry trades. Renewed price increases returned with zero interest rates and quantitative easing. Monetary policy impulses in massive doses have driven inflation and valuation of risk financial assets in wide fluctuations over a decade.

Chart IIA2-1, US, Prices of Total US Imports 2001=100, 2001-2014

Source: Bureau of Labor Statistics

Chart IIA2-2 provides 12-month percentage changes of prices of total US imports from 2001 to 2014. The only plausible explanation for the wide oscillations is by the carry trade originating in unconventional monetary policy. Import prices jumped in 2008 during deep and protracted global recession driven by carry trades from zero interest rates to long, leveraged positions in commodity futures. Carry trades were unwound during the financial panic in the final quarter of 2008 that resulted in flight to government obligations. Import prices jumped again in 2009 with subdued risk aversion because US banks did not have unsustainable toxic assets. Import prices then fluctuated as carry trades were resumed during periods of risk appetite and unwound during risk aversion resulting from the European debt crisis.

Chart IIA2-2, US, Prices of Total US Imports, 12-Month Percentage Changes, 2001-2014

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

Chart IIA2-3 provides prices of US imports from 1982 to 2014. There is no similar episode to that of the increase of commodity prices in 2008 during a protracted and deep global recession with subsequent collapse during a flight into government obligations. Trade prices have been driven by carry trades created by unconventional monetary policy in the past decade.

Chart IIA2-3, US, Prices of Total US Imports, 2001=100, 1982-2014

Source: Bureau of Labor Statistics

Chart IIA2-4 provides 12-month percentage changes of US total imports from 1982 to 2014. There have not been wide consecutive oscillations as the ones during the global recession of IVQ2007 to IIQ2009.

Chart IIA2-4, US, Prices of Total US Imports, 12-Month Percentage Changes, 1982-2014

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

Chart IIA2-5 provides the index of US export prices from 2001 to 2014. Import and export prices have been driven by impulses of unconventional monetary policy in massive doses. The most recent segment in Chart IIA2-5 shows declining trend resulting from a combination of the world economic slowdown and the decline of commodity prices as carry trade exposures are unwound because of risk aversion to the sovereign debt crisis in Europe and slowdown in the world economy.

Chart IIA2-5, US, Prices of Total US Exports, 2001=100, 2001-2014

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

Chart IIA2-6 provides prices of US total exports from 1982 to 2014. The rise before the global recession from 2003 to 2008, driven by carry trades, is also unique in the series and is followed by another steep increase after risk aversion moderated in IQ2009.

Chart IIA2-6, US, Prices of Total US Exports, 2001=100, 1982-2014

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

Chart IIA2-7 provides 12-month percentage changes of total US exports from 1982 to 2014. The uniqueness of the oscillations around the global recession of IVQ2007 to IIQ2009 is clearly revealed.

Chart IIA2-7, US, Prices of Total US Exports, 12-Month Percentage Changes, 1982-2014

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

Twelve-month percentage changes of US prices of exports and imports are provided in Table IIA2-1. Import prices have been driven since 2003 by unconventional monetary policy of near zero interest rates influencing commodity prices according to moods of risk aversion and portfolio reallocations. In a global recession without risk aversion until the panic of Sep 2008 with flight to government obligations, import prices increased 21.4 percent in the 12 months ending in Jul 2008, 18.1 percent in the 12 months ending in Aug 2008, 13.1 percent in the 12 months ending in Sep 2008, 4.9 percent in the twelve months ending in Oct 2008. Import prices fell 10.1 percent in the 12 months ending in Dec 2008 when risk aversion developed in 2008 until mid 2009 (http://www.bls.gov/mxp/data.htm). Import prices rose again sharply in Dec 2009 by 8.6 percent and in Dec 2010 by 5.3 percent in the presence of zero interest rates with relaxed mood of risk aversion. Carry trades were unwound in May 2011 and following months as shown by decrease of import prices by 2.0 percent in the 12 months ending in Dec 2012 and 1.3 percent in Dec 2013. Import prices increased 16.9 percent in the 12 months ending in Apr 2008, fell 16.4 percent in the 12 months ending in Apr 2009 and increased 11.2 percent in the 12 months ending in Apr 2010. Fluctuations are much sharper in imports because of the high content of oil that as all commodities futures contracts increases sharply with zero interest rates and risk appetite, contracting under risk aversion. There is similar behavior of prices of imports ex fuels, exports and exports ex agricultural goods but less pronounced than for commodity-rich prices dominated by carry trades from zero interest rates. A critical event resulting from unconventional monetary policy driving higher commodity prices by carry trades is the deterioration of the terms of trade, or export prices relative to import prices, that has adversely affected US real income growth relative to what it would have been in the absence of unconventional monetary policy. Europe, Japan and other advanced economies have experienced similar deterioration of their terms of trade. Because of unwinding carry trades of commodity futures because of risk aversion and portfolio reallocations, import prices decreased 0.3 percent in the 12 months ending in Apr 2014, export prices increased 0.1 percent and prices of nonagricultural exports decreased 0.1 percent. Imports excluding fuel fell 0.7 percent in the 12 months ending in Apr 2014. At the margin, price changes over the year in world exports and imports are decreasing or increasing moderately because of unwinding carry trades in a temporary mood of risk aversion and relative allocation of asset classes toward equities that reverses exposures in commodity futures.

Table IIA2-1, US, Twelve-Month Percentage Rates of Change of Prices of Exports and Imports

	Imports	Imports Ex Fuels	Exports	Exports Non-Ag
Apr 2014	-0.3	-0.7	0.1	-0.1
Apr 2013	-2.7	-0.7	-0.8	-1.5
Apr 2012	0.8	1.3	0.7	1.2
Apr 2011	11.9	4.6	9.2	6.8
Apr 2010	11.2	3.2	5.5	5.7
Apr 2009	-16.4	-3.8	-6.7	-5.4
Apr 2008	16.9	6.0	8.0	5.7
Apr 2007	2.1	2.7	5.1	4.0
Apr 2006	5.8	0.6	2.5	2.6
Apr 2005	8.4	2.4	3.1	4.5
Apr 2004	4.6	2.4	4.1	2.4
Apr 2003	1.8	0.4	1.6	1.2
Apr 2002	-3.6	NA	-1.9	-2.0
Apr 2001	-0.7	NA	-0.1	-0.1

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

Table IIA2-2 provides 12-month percentage changes of the import price index all commodities from 2001 to 2014. Interest rates moving toward zero during unconventional monetary policy in 2008 induced carry trades into highly leveraged commodity derivatives positions that caused increases in 12-month percentage changes of import prices of around 20 percent. The flight into dollars and Treasury securities by fears of toxic assets in banks in the proposal of TARP (Cochrane and Zingales 2009) caused reversion of carry trades and collapse of commodity futures explaining sharp declines in trade prices in 2009. Twelve-month percentage changes of import prices at the end of 2012 and into 2013 occurred during another bout of risk aversion and portfolio reallocation. There is a new shock of risk aversion in late 2013 with marginally increasing exposures in commodities followed by reversals of exposures into 2014.

Table IIA2-2, US, Twelve-Month Percentage Changes of Import Price Index All Commodities, 2001-2014

Year	Jan	Feb	Mar	Apr	Aug	Sep	Oct	Nov	Dec
2001	2.8	0.2	-1.6	-0.7	-4.4	-5.6	-7.4	-8.8	-9.1
2002	-8.9	-8.3	-5.6	-3.6	-1.3	-0.4	1.9	2.5	4.2
2003	5.8	7.5	6.8	1.8	2.0	0.7	0.8	2.3	2.4
2004	2.2	0.9	1.1	4.6	7.1	8.2	9.9	9.0	6.7
2005	5.7	6.1	7.6	8.4	8.2	9.9	8.2	6.4	8.0
2006	8.7	6.9	4.5	5.8	6.0	1.6	-1.0	1.3	2.5
2007	0.0	1.2	2.8	2.1	1.9	4.8	9.1	12.0	10.6
2008	13.6	13.5	15.2	16.9	18.1	13.1	4.9	-5.9	-10.1
2009	-12.5	-12.7	-14.9	-16.4	-15.3	-12.0	-5.6	3.4	8.6
2010	11.4	11.3	11.2	11.2	3.8	3.6	3.9	4.1	5.3
2011	5.6	7.6	10.3	11.9	12.9	12.7	11.1	10.1	8.5
2012	6.9	5.1	3.5	0.8	-1.8	-0.6	0.0	-1.4	-2.0
2013	-1.5	-0.6	-2.1	-2.7	0.0	-0.7	-1.6	-1.8	-1.1
2014	-1.3	-1.1	-0.6	-0.3

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

There is finer detail in one-month percentage changes of imports of the US in Table IIA2-3. Carry trades into commodity futures induced by interest rates moving to zero in unconventional monetary policy caused sharp monthly increases in import prices for cumulative increase of 13.8 percent from Mar to Jul 2008 at average rate of 2.6 percent per month or annual equivalent in five months of 36.4 percent (3.1 percent in Mar 2008, 2.8 percent in Apr 2008, 2.8 percent in May 2008, 3.0 percent in Jun 2008 and 1.4 percent in Jul 2008, data from http://www.bls.gov/mxp/data.htm). There is no other explanation for increases in import prices during sharp global recession and contracting world trade. Import prices then fell 23.4 percent from Aug 2008 to Jan 2009 or at the annual equivalent rate of minus 41.4 percent in the flight to US government securities in fear of the need to buy toxic assets from banks in the TARP program (Cochrane and Zingales 2009). Risk aversion during the first sovereign debt crisis of the euro area in May-Jun 2010 caused decline of US import prices at the annual equivalent rate of 11.4 percent. US import prices have been driven by combinations of carry trades induced by unconventional monetary policy and bouts of risk aversion and portfolio reallocation (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/04/imf-view-world-inflation-waves-squeeze.html). US import prices increased 0.5 percent in Jan 2013 and 0.9 percent in Feb 2013 for annual equivalent rate of 8.7 percent, similar to those in national price indexes worldwide, originating in carry trades from zero interest rates to commodity futures. Import prices fell 0.1 percent in Mar 2013, 0.7 percent in Apr 2013, 0.6 percent in May 2013 and 0.4 percent in Jun 2013. Import prices changed 0.1 percent in Jul 2013, increased 0.4 percent in Aug 2013 and increased 0.3 percent in Sep 2013. Portfolio reallocations into asset classes other than commodities explains declines of import prices by 0.6 percent in Oct 2013 and 0.9 percent in Nov 2013. Import prices increased 0.1 percent in Dec 2013, 0.4 percent in Jan 2014, 1.1 percent in Feb 2014 and 0.4 percent in Mar 2014. Import prices fell 0.4 percent in Apr 2014.

Table IIA2-3, US, One-Month Percentage Changes of Import Price Index All Commodities, 2001-2014

Year	Jan	Feb	Mar	Apr	Jun	Jul	Aug	Sep	Oct	Nov	Dec
2001	0.0	-0.6	-1.6	-0.5	-0.4	-1.5	-0.1	-0.1	-2.3	-1.5	-1.0
2002	0.2	0.0	1.3	1.6	-0.3	0.4	0.3	0.7	0.0	-0.9	0.6
2003	1.8	1.7	0.6	-3.1	0.9	0.5	0.0	-0.5	0.1	0.5	0.7
2004	1.5	0.4	0.8	0.2	-0.2	0.4	1.5	0.5	1.6	-0.3	-1.4
2005	0.6	0.9	2.2	0.9	1.2	1.2	1.4	2.1	0.1	-1.9	0.0
2006	1.2	-0.8	-0.1	2.1	0.1	0.8	0.5	-2.2	-2.5	0.4	1.1
2007	-1.2	0.4	1.6	1.4	1.2	1.3	-0.3	0.6	1.5	3.2	-0.2
2008	1.5	0.2	3.1	2.8	3.0	1.4	-3.1	-3.6	-6.0	-7.4	-4.6
2009	-1.3	0.0	0.5	1.1	2.7	-0.6	1.5	0.2	0.8	1.5	0.2
2010	1.2	-0.1	0.4	1.1	-1.2	0.0	0.4	0.0	1.1	1.7	1.4
2011	1.5	1.7	3.0	2.6	-0.6	0.1	-0.4	-0.1	-0.4	0.7	0.0
2012	0.0	0.0	1.4	-0.1	-2.3	-0.7	1.2	1.0	0.3	-0.7	-0.6
2013	0.5	0.9	-0.1	-0.7	-0.4	0.1	0.4	0.3	-0.6	-0.9	0.1
2014	0.4	1.1	0.4	-0.4

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

Chart IIA2-8 shows the US monthly import price index of all commodities excluding fuels from 2001 to 2014. All curves of nominal values follow the same behavior under the influence of unconventional monetary policy. Zero interest rates without risk aversion result in jumps of nominal values while under strong risk aversion even with zero interest rates there are declines of nominal values.

Chart IIA2-8, US, Import Price Index All Commodities Excluding Fuels, 2001=100, 2001-2014

Source: US Bureau of Labor Statistics

Chart IIA2-9 provides 12-month percentage changes of the US import price index excluding fuels between 2001 and 2014. There is the same behavior of carry trades driving up without risk aversion and down with risk aversion prices of raw materials, commodities and food in international trade during the global recession of IVQ2007 to IIQ2009 and in previous and subsequent periods.

Chart IIA2-9, US, Import Price Index All Commodities Excluding Fuels, 12-Month Percentage Changes, 2002-2014

Source: US Bureau of Labor Statistics

Chart IIA2-10 provides the monthly US import price index ex petroleum from 2001 to 2014. Prices including or excluding commodities follow the same fluctuations and trends originating in impulses of unconventional monetary policy of zero interest rates.

Chart IIA2-10, US, Import Price Index ex Petroleum, 2001=100, 2000-2014

Source: US Bureau of Labor Statistics

Chart IIA2-11 provides the US import price index ex petroleum from 1985 to 2014. There is the same unique hump in 2008 caused by carry trades from zero interest rates to prices of commodities and raw materials.

Chart IIA2-11, US, Import Price Index ex Petroleum, 2001=100, 1985-2014

Source: US Bureau of Labor Statistics

Chart IIA2-12 provides 12-month percentage changes of the import price index ex petroleum from 1986 to 2014. The oscillations caused by the carry trade in increasing prices of commodities and raw materials without risk aversion and subsequently decreasing them during risk aversion are unique.

Chart IIA2-12, US, Import Price Index ex Petroleum, 12-Month Percentage Changes, 1986-2014

Source: US Bureau of Labor Statistics

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

Chart IIA2-13 of the US Energy Information Administration shows the price of WTI crude oil since the 1980s. Chart IA2-13 captures commodity price shocks during the past decade. The costly mirage of deflation was caused by the decline in oil prices during the recession of 2001. The upward trend after 2003 was promoted by the carry trade from near zero interest rates. The jump above $140/barrel during the global recession in 2008 at $145.29/barrel on Jul 3, 2008, can only be explained by the carry trade promoted by monetary policy of zero fed funds rate. After moderation of risk aversion, the carry trade returned with resulting sharp upward trend of crude prices. Risk aversion resulted in another drop in recent weeks followed by some recovery and renewed deterioration/increase.

Chart IIA2-13, US, Crude Oil Futures Contract

Source: US Energy Information Administration

The price index of US imports of petroleum and petroleum products in shown in Chart IIA2-14. There is similar behavior of the curves all driven by the same impulses of monetary policy.

Chart IIA2-14, US, Import Price Index of Petroleum and Petroleum Products, 2001=100, 2001-2014

Source: US Bureau of Labor Statistics

Chart IIA2-15 provides the price index of petroleum and petroleum products from 1982 to 2014. The rise in prices during the global recession in 2008 and the decline after the flight to government obligations is unique in the history of the series. Increases in prices of trade in petroleum and petroleum products were induced by carry trades and declines by unwinding carry trades in flight to government obligations.

Chart IIA2-15, US, Import Price Index of Petroleum and Petroleum Products, 2001=100, 1982-2014

Source: US Bureau of Labor Statistics

Chart IIA2-16 provides 12-month percentage changes of the price index of US imports of petroleum and petroleum products from 1982 to 2014. There were wider oscillations in this index from 1999 to 2001 (see Barsky and Killian 2004 for an explanation).

Chart IIA2-16, US, Import Price Index of Petroleum and Petroleum Products, 12-Month Percentage Changes, 1982-2014

Source: US Bureau of Labor Statistics

The price index of US exports of agricultural commodities is in Chart IIA2-17 from 2001 to 2014. There are similar fluctuations and trends as in all other price index originating in unconventional monetary policy repeated over a decade. The most recent segment in 2011 has declining trend in a new flight from risk resulting from the sovereign debt crisis in Europe followed by declines in Jun 2012 and Nov 2012 with stability/decline in Dec 2012 into 2013. Prices rebounded into 2014.

Chart IIA2-17, US, Exports Price Index of Agricultural Commodities, 2001=100, 2001-2014

Source: US Bureau of Labor Statistics

Chart IIA2-18 provides the price index of US exports of agricultural commodities from 1982 to 2014. The increase in 2008 in the middle of deep, protracted contraction was induced by unconventional monetary policy. The decline from 2008 into 2009 was caused by unwinding carry trades in a flight to government obligations. The increase into 2011 and current pause with marginal rebound were also induced by unconventional monetary policy in waves of increases during relaxed risk aversion and declines during unwinding of positions because of aversion to financial risk.

Chart IIA2-18, US, Exports Price Index of Agricultural Commodities, 2001=100, 1982-2014

Source: US Bureau of Labor Statistics

Chart IIA2-19 provides 12-month percentage changes of the index of US exports of agricultural commodities from 1986 to 2014. The wide swings in 2008, 2009 and 2011 are only explained by unconventional monetary policy inducing carry trades from zero interest rates to commodity futures and reversals during risk aversion.

Chart IIA2-19, US, Exports Price Index of Agricultural Commodities, 12-Month Percentage Changes, 1986-2014

Source: US Bureau of Labor Statistics

Chart IIA2-20 shows the export price index of nonagricultural commodities from 2001 to 2014. Unconventional monetary policy of zero interest rates drove price behavior during the past decade. Policy has been based on the myth of stimulating the economy by climbing the negative slope of an imaginary short-term Phillips curve.

Chart IIA2-20, US, Exports Price Index of Nonagricultural Commodities, 2001=100, 2001-2014

Source: US Bureau of Labor Statistics

Chart IIA2-21 provides a longer perspective of the price index of US nonagricultural commodities from 1982 to 2014. Increases and decreases around the global contraction after 2007 were caused by carry trade induced by unconventional monetary policy.

Chart IIA2-21, US, Exports Price Index of Nonagricultural Commodities, 2001=100, 1982-2014

Source: US Bureau of Labor Statistics

Finally, Chart IIA2-22 provides 12-month percentage changes of the price index of US exports of nonagricultural commodities from 1986 to 2014. The wide swings before, during and after the global recession beginning in 2007 were caused by carry trades induced by unconventional monetary policy.

Chart IIA2-22, US, Exports Price Index of Nonagricultural Commodities, 12-Month Percentage Changes, 1986-2014

Source: US Bureau of Labor Statistics

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

Risk aversion channels funds toward US long-term and short-term securities that finance the US balance of payments and fiscal deficits benefitting from risk flight to US dollar denominated assets. There are now temporary interruptions because of fear of rising interest rates that erode prices of US government securities because of mixed signals on monetary policy and exit from the Fed balance sheet of three trillion dollars of securities held outright. Net foreign purchases of US long-term securities (row C in Table VA-4) decreased from $90.3 billion in Feb 2013 to $4.0 billion in Mar 2014. Foreign (residents) purchases minus sales of US long-term securities (row A in Table VA-4) in Feb 2014 of $91.0 billion decreased to $9.3 billion in Mar 2014. Net US (residents) purchases of long-term foreign securities (row B in Table VA-4) deteriorated from minus $0.7 billion in Feb 2014 to minus $5.3 billion in Mar 2014. In Mar 2014,

C = A + B = $9.3 billion - $5.3 billion = $4.0 billion

There are minor rounding errors. There is weakening demand in Table VA-4 in Feb in A1 private purchases by residents overseas of US long-term securities of $2.9 billion of which deterioration in A11 Treasury securities of $13.8 billion, deterioration in A12 of minus $7.7 billion in agency securities, improvement of $6.0 billion of corporate bonds and deterioration of minus $9.2 billion in equities. Worldwide risk aversion causes flight into US Treasury obligations with significant oscillations. Official purchases of securities in row A2 increased $6.4 billion with increase of Treasury securities of $12.1 billion in Mar 2014. Official purchases of agency securities decreased $1.4 billion in Mar. Row D shows decrease in Mar 2013 of $3.0 billion in purchases of short-term dollar denominated obligations. Foreign private holdings of US Treasury bills increased $14.5 billion (row D11) with foreign official holdings decreasing $4.7 billion while the category “other” decreased $12.8 billion. Foreign private holdings of US Treasury bills increased $14.5 billion in what could be arbitrage of duration exposures. Risk aversion of default losses in foreign securities dominates decisions to accept zero interest rates in Treasury securities with no perception of principal losses. In the case of long-term securities, investors prefer to sacrifice inflation and possible duration risk to avoid principal losses with significant oscillations in risk perceptions.

Table VA-4, Net Cross-Borders Flows of US Long-Term Securities, Billion Dollars, NSA

	Mar 2013 12 Months	Mar 2014 12 Months	Feb 2014	Mar 2014
A Foreign Purchases less Sales of US LT Securities	545.6	110.4	91.0	9.3
A1 Private	337.3	88.3	72.5	2.9
A11 Treasury	162.5	163.4	75.9	13.8
A12 Agency	100.8	-16.8	-2.5	-7.7
A13 Corporate Bonds	-14.5	-0.1	0.0	6.0
A14 Equities	88.5	-58.2	-0.8	-9.2
A2 Official	208.3	22.1	18.5	6.4
A21 Treasury	158.5	-25.6	16.6	12.1
A22 Agency	22.7	50.9	2.5	-1.4
A23 Corporate Bonds	13.1	10.8	-0.5	1.0
A24 Equities	14.0	-13.9	0.0	-5.2
B Net US Purchases of LT Foreign Securities	-105.8	-129.1	-0.7	-5.3
B1 Foreign Bonds	-13.0	-0.4	0.8	2.1
B2 Foreign Equities	-92.8	-128.6	-1.5	-7.3
C Net Foreign Purchases of US LT Securities	439.8	-18.7	90.3	4.0
D Increase in Foreign Holdings of Dollar Denominated Short-term	110.1	-91.0	6.1	-3.0
D1 US Treasury Bills	89.7	-35.0	2.8	9.8
D11 Private	43.9	-14.7	8.3	14.5
D12 Official	45.8	-20.3	-5.5	-4.7
D2 Other	20.4	-56.0	3.3	-12.8

C = A + B;

A = A1 + A2

A1 = A11 + A12 + A13 + A14

A2 = A21 + A22 + A23 + A24

B = B1 + B2

D = D1 + D2

Sources: United States Treasury

Table VA-5 provides major foreign holders of US Treasury securities. China is the largest holder with $1272.1 billion in Mar 2014, increasing 0.1 percent from $1270.3 billion in Mar 2013 while decreasing $0.8 billion from Feb 2014 or 0.1 percent. Japan increased its holdings from $1105.3 billion in Feb 2013 to $1210.5 billion in Feb 2014 or by 9.5 percent. Japan increased its holdings from $1114.3 billion in Mar 2014 to $1200.2 billion in Mar 2014 by $85.9 billion or 7.7 percent. Total foreign holdings of Treasury securities rose from $5725.0 billion in Mar 2013 to $5949.4 billion in Mar 2014, or 3.9 percent. The US continues to finance its fiscal and balance of payments deficits with foreign savings (see Pelaez and Pelaez, The Global Recession Risk (2007)). A point of saturation of holdings of US Treasury debt may be reached as foreign holders evaluate the threat of reduction of principal by dollar devaluation and reduction of prices by increases in yield, including possibly risk premium. Shultz et al (2012) find that the Fed financed three-quarters of the US deficit in fiscal year 2011, with foreign governments financing significant part of the remainder of the US deficit while the Fed owns one in six dollars of US national debt. Concentrations of debt in few holders are perilous because of sudden exodus in fear of devaluation and yield increases and the limit of refinancing old debt and placing new debt. In their classic work on “unpleasant monetarist arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of monetary policy by fiscal policy (emphasis added):

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

Table VA-5, US, Major Foreign Holders of Treasury Securities $ Billions at End of Period

	Mar 2014	Feb 2014	Mar 2013
Total	5949.4	5890.1	5725.0
China	1272.1	1272.9	1270.3
Japan	1200.2	1210.8	1114.3
Belgium	381.4	341.2	188.4
Caribbean Banking Centers	312.5	301.0	286.9
Oil Exporters	247.4	243.8	265.1
Brazil	245.3	243.9	257.9
Taiwan	176.4	180.0	188.9
United Kingdom	176.4	175.6	159.1
Switzerland	175.7	168.2	183.6
Hong Kong	155.7	160.4	146.6
Luxembourg	145.1	136.8	154.5
Ireland	113.3	112.3	113.5
Russia	100.4	126.2	153.0
Foreign Official Holdings	4053.7	4069.3	4093.8
A. Treasury Bills	383.8	388.5	404.0
B. Treasury Bonds and Notes	3670.0	3680.9	3689.7

Source: United States Treasury

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

Table VA-6 provides additional information required for understanding the deficit/debt situation of the United States. The table is divided into four parts: Treasury budget in the 2014 fiscal year beginning on Oct 1, 2013 and ending on Sep 30, 2014; federal fiscal data for the years from 2009 to 2013; federal fiscal data for the years from 2005 to 2008; and Treasury debt held by the public from 2005 to 2013. Receipts increased 8.2 percent in the cumulative fiscal year 2014 ending in Apr 2014 relative to the cumulative in fiscal year 2013. Individual income taxes increased 3.5 percent relative to the same fiscal period a year earlier. Outlays decreased 2.4 percent relative to a year earlier. There are also receipts, outlays, deficit and debt for fiscal year 2013. Total revenues of the US from 2009 to 2012 accumulate to $9021 billion, or $9.0 trillion, while expenditures or outlays accumulate to $14,109 billion, or $14.1 trillion, with the deficit accumulating to $5090 billion, or $5.1 trillion. Revenues decreased 6.5 percent from $9653 billion in the four years from 2005 to 2008 to $9021 billion in the years from 2009 to 2012. Decreasing revenues were caused by the global recession from IVQ2007 (Dec) to IIQ2009 (Jun) and also by growth of only 2.2 percent on average in the cyclical expansion from IIIQ2009 to IQ2014. In contrast, the expansion from IQ1983 to IIIQ1987 was at the average annual growth rate of 4.9 percent and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html). Because of mediocre GDP growth, there are 27.4 million unemployed or underemployed in the United States for an effective unemployment rate of 16.8 percent (http://cmpassocregulationblog.blogspot.com/2014/04/interest-rate-risks-twenty-eight.html). Weakness of growth and employment creation is analyzed in II Collapse of United States Dynamism of Income Growth and Employment Creation (http://cmpassocregulationblog.blogspot.com/2014/04/financial-fluctuations-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2014/03/interest-rate-risks-world-inflation.html). In contrast with the decline of revenue, outlays or expenditures increased 30.2 percent from $10,839 billion, or $10.8 trillion, in the four years from 2005 to 2008, to $14,109 billion, or $14.1 trillion, in the four years from 2009 to 2012. Increase in expenditures by 30.2 percent while revenue declined by 6.5 percent caused the increase in the federal deficit from $1186 billion in 2005-2008 to $5090 billion in 2009-2012. Federal revenue was 14.9 percent of GDP on average in the years from 2009 to 2012, which is well below 17.4 percent of GDP on average from 1973 to 2012. Federal outlays were 23.3 percent of GDP on average from 2009 to 2012, which is well above 20.4 percent of GDP on average from 1973 to 2012. The lower part of Table I-2 shows that debt held by the public swelled from $5803 billion in 2008 to $11,982 billion in 2013, by $5478 billion or 106.5 percent. Debt held by the public as percent of GDP or economic activity jumped from 39.3 percent in 2008 to 72.1 percent in 2013, which is well above the average of 38.0 percent from 1973 to 2012. The United States faces tough adjustment because growth is unlikely to recover, creating limits on what can be obtained by increasing revenues, while continuing stress of social programs restricts what can be obtained by reducing expenditures.

Table VA-6, US, Treasury Budget in Fiscal Year to Date Million Dollars

Apr 2014	Fiscal Year 2014	Fiscal Year 2013	∆%
Receipts	1,735,030	1,603,334	8.2
Outlays	2,041,440	2,090,926	-2.4
Deficit	-306,411	-487,592
Individual Income Tax	823,079	795,422	3.5
Corporation Income Tax	156,808	136,370	15.0
Social Insurance	434,616	381,819	13.8
	Receipts	Outlays	Deficit (-), Surplus (+)
$ Billions
Fiscal Year 2013	2,775	3,455	-680
% GDP	16.7	20.8	-4.1
Fiscal Year 2012	2,450	3,537	-1,087
% GDP	15.2	22.0	-6.8
Fiscal Year 2011	2,304	3,603	-1,300
% GDP	15.0	23.4	-8.4
Fiscal Year 2010	2,163	3,457	-1,294
% GDP	14.6	23.4	-8.8
Fiscal Year 2009	2,105	3,518	-1,413
% GDP	14.6	24.4	-9.8
Total 2009-2012	9,021	14,109	-5,090
Average % GDP 2009-2012	14.9	23.3	-8.4
Fiscal Year 2008	2,524	2,983	-459
% GDP	17.1	20.2	-3.1
Fiscal Year 2007	2,568	2,729	-161
% GDP	17.9	19.0	-1.1
Fiscal Year 2006	2,407	2,655	-248
% GDP	17.6	19.4	-1.8
Fiscal Year 2005	2,154	2,472	-318
% GDP	16.7	19.2	-2.5
Total 2005-2008	9,653	10,839	-1,186
Average % GDP 2005-2008	17.3	19.5	-2.1
Debt Held by the Public	Billions of Dollars	Percent of GDP
2005	4,592	35.6
2006	4,829	35.3
2007	5,035	35.1
2008	5,803	39.3
2009	7,545	52.3
2010	9,019	61.0
2011	10,128	65.8
2012	11,281	70.1
2013	11,982	72.1

Source: http://www.fms.treas.gov/mts/index.html CBO (2012NovMBR). CBO (2011AugBEO); Office of Management and Budget 2011. Historical Tables. Budget of the US Government Fiscal Year 2011. Washington, DC: OMB; CBO. 2011JanBEO. Budget and Economic Outlook. Washington, DC, Jan. CBO. 2012AugBEO. Budget and Economic Outlook. Washington, DC, Aug 22. CBO. 2012Jan31. Historical budget data. Washington, DC, Jan 31. CBO. 2012NovCDR. Choices for deficit reduction. Washington, DC. Nov. CBO. 2013HBDFeb5. Historical budget data—February 2013 baseline projections. Washington, DC, Congressional Budget Office, Feb 5. CBO. 2013HBDFeb5. Historical budget data—February 2013 baseline projections. Washington, DC, Congressional Budget Office, Feb 5. CBO (2013Aug12). 2013AugHBD. Historical budget data—August 2013. Washington, DC, Congressional Budget Office, Aug. CBO, Historical Budget Data—February 2014, Washington, DC, Congressional Budget Office, Feb. CBO, Historical budget data—April 2014 release. Washington, DC, Congressional Budget Office, Apr.

VB Japan. The GDP of Japan grew at 1.0 percent per year on average from 1991 to 2002, with the GDP implicit deflator falling at 0.8 percent per year on average. The average growth rate of Japan’s GDP was 4 percent per year on average from the middle of the 1970s to 1992 (Ito 2004). Low growth in Japan in the 1990s is commonly labeled as “the lost decade” (see Pelaez and Pelaez, The Global Recession Risk (2007), 81-115). Table VB-GDP provides yearly growth rates of Japan’s GDP from 1995 to 2013. Growth weakened from 2.7 per cent in 1995 and 1996 to contractions of 1.5 percent in 1999 and 0.4 percent in 2001 and growth rates below 2 percent with exception of 2.3 percent in 2003. Japan’s GDP contracted sharply by 3.7 percent in 2006 and 2.0 percent in 2009. As in most advanced economies, growth was robust at 3.4 percent in 2010 but mediocre at 0.3 percent in 2011 and 0.7 percent in 2013. Japan’s GDP grew 2.3 percent in 2013.

Table VB-GDP, Japan, Yearly Percentage Change of GDP ∆%

Calendar Year	∆%
1995	2.7
1996	2.7
1997	0.1
1998	-1.5
1999	0.5
2000	2.0
2001	-0.4
2002	1.1
2003	2.3
2004	1.5
2005	1.9
2006	1.8
2007	1.8
2008	-3.7
2009	-2.0
2010	3.4
2011	0.3
2012	0.7
2013	2.3

Source: Source: Japan Economic and Social Research Institute, Cabinet Office

http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

Table VB-BOJF provides the forecasts of economic activity and inflation in Japan by the majority of members of the Policy Board of the Bank of Japan, which is part of their Outlook for Economic Activity and Prices (https://www.boj.or.jp/en/mopo/outlook/gor1404b.pdf). For fiscal 2013, the forecast is of growth of GDP between 2.2 and 2.3 percent, with the all items CPI less fresh food of 0.8 percent (https://www.boj.or.jp/en/mopo/outlook/gor1404b.pdf). The critical difference is forecast of the CPI excluding fresh food of 3.0 to 3.5 percent in 2014, 1.9 to 2.8 percent in 2015 and 2.0 to 3.0 in 2016. Consumer price inflation in Japan excluding fresh food was 0.3 percent in Mar 2013 and 1.3 percent in 12 months (http://www.stat.go.jp/english/data/cpi/1581.htm). The new monetary policy of the Bank of Japan aims to increase inflation to 2 percent. These forecasts are biannual in Apr and Oct. The Cabinet Office, Ministry of Finance and Bank of Japan released on Jan 22, 2013, a “Joint Statement of the Government and the Bank of Japan on Overcoming Deflation and Achieving Sustainable Economic Growth” (http://www.boj.or.jp/en/announcements/release_2013/k130122c.pdf) with the important change of increasing the inflation target of monetary policy from 1 percent to 2 percent:

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

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

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

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

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

Monetary Base Control. Most central banks in the world pursue interest rates instead of monetary aggregates, injecting bank reserves to lower interest rates to desired levels. The Bank of Japan (BOJ) has shifted back to monetary aggregates, conducting money market operations with the objective of increasing base money, or monetary liabilities of the government, at the annual rate of 60 to 70 trillion yen. The BOJ estimates base money outstanding at “138 trillion yen at end-2012) and plans to increase it to “200 trillion yen at end-2012 and 270 trillion yen at end 2014” (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf).
Maturity Extension of Purchases of Japanese Government Bonds. Purchases of bonds will be extended even up to bonds with maturity of 40 years with the guideline of extending the average maturity of BOJ bond purchases from three to seven years. The BOJ estimates the current average maturity of Japanese government bonds (JGB) at around seven years. The BOJ plans to purchase about 7.5 trillion yen per month (http://www.boj.or.jp/en/announcements/release_2013/rel130404d.pdf). Takashi Nakamichi, Tatsuo Ito and Phred Dvorak, wiring on “Bank of Japan mounts bid for revival,” on Apr 4, 2013, published in the Wall Street Journal (http://online.wsj.com/article/SB10001424127887323646604578401633067110420.html), find that the limit of maturities of three years on purchases of JGBs was designed to avoid views that the BOJ would finance uncontrolled government deficits.
Seigniorage. The BOJ is pursuing coordination with the government that will take measures to establish “sustainable fiscal structure with a view to ensuring the credibility of fiscal management” (http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf).
Diversification of Asset Purchases. The BOJ will engage in transactions of exchange traded funds (ETF) and real estate investment trusts (REITS) and not solely on purchases of JGBs. Purchases of ETFs will be at an annual rate of increase of one trillion yen and purchases of REITS at 30 billion yen.
Bank Lending Facility and Growth Supporting Funding Facility. At the meeting on Feb 18, the Bank of Japan doubled the scale of these lending facilities to prevent their expiration in the near future (http://www.boj.or.jp/en/announcements/release_2014/k140218a.pdf).

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

Fiscal Year Date of Forecast	Real GDP	CPI All Items Less Fresh Food	Excluding Effects of Consumption Tax Hikes
2013
Apr 2014	+2.2 to +2.3 [+2.2]	+0.8
Jan 2014	+2.5 to +2.9 [+2.7]	+0.7 to +0.9 [+0.7]
Oct 2013	+2.6 to +3.0 [+2.7]	+0.6 to +1.0 [+0.7]
Jul 2013	+2.5 to +3.0 [+2.8]	+0.5 to +0.8 [+0.6]
2014
Apr 2014	+0.8 to +1.3 [+1.1]	+3.0 to +3.5 [+3.3]	+1.0 to +1.5 [+1.3]
Jan 2014	+0.9 to 1.5 [+1.4]	+2.9 to +3.6 [+3.3]	+0.9 to +1.6 [+1.3]
Oct 2013	+0.9 to +1.5 [+1.5]	+2.8 to +3.6 [+3.3]	+0.8 to +1.6 [+1.3]
Jul 2013	+0.8 to +1.5 [+1.3]	+2.7 to +3.6 [+3.3]	+0.7 to +1.6 [+1.3]
2015
Apr 2014	+1.2 to +1.5 [+1.5]	+1.9 to +2.8 [+2.6]	+1.2 to +2.1 [+1.9]
Jan 2014	+1.2 to +1.8 [+1.5]	+1.7 to +2.9 [+2.6]	+1.0 to +2.2 [+1.9]
Oct 2013	+1.3 to +1.8 [+1.5]	+1.6 to +2.9 [+2.6]	+0.9 to +2.2 [+1.9]
Jul 2013	+1.3 to +1.9 [+1.5]	+1.6 to +2.9 [+2.6]	+0.9 to +2.2 [+1.9]
2016
Apr 2014	+1.0 to +1.5 [+1.3]	+2.0 to +3.0 [+2.8]	+1.3 to +2.3 [+2.1]

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

Source: Policy Board, Bank of Japan

https://www.boj.or.jp/en/mopo/outlook/gor1404b.pdf

Private-sector activity in Japan contracted with the Markit Composite Output PMI^™ Index decreasing from 52.8 in Mar to 46.3 in Apr, indicating contraction (http://www.markiteconomics.com/Survey/PressRelease.mvc/50dfe4858cb94ce69e38e3c456a0fa2d). Amy Bronwbill, Economist at Markit and author of the report, finds contraction of private sector activity with the sharpest decline since Sep 2011 (http://www.markiteconomics.com/Survey/PressRelease.mvc/50dfe4858cb94ce69e38e3c456a0fa2d). The Markit Business Activity Index of Services decreased to 46.4 in Apr from 52.2 in Mar (http://www.markiteconomics.com/Survey/PressRelease.mvc/50dfe4858cb94ce69e38e3c456a0fa2d). Amy Brownbill, Ecoomist at Markit and author of the report, finds concerns with the increase in sales taxes implemented in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/50dfe4858cb94ce69e38e3c456a0fa2d). The Markit/JMMA Purchasing Managers’ Index^™ (PMI™), seasonally adjusted, decreased from 53.9 in Mar to 49.4 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/4786eaed9e824f26b646f9286624726e). New orders and output fell because of demand effects caused by the sales tax increase in Apr. Amy Brownbill, Economist at Markit and author of the report, finds deteriorating manufacturing conditions with manufacturers attributing declines of output and new orders to the increase in the value added tax on consumption (http://www.markiteconomics.com/Survey/PressRelease.mvc/4786eaed9e824f26b646f9286624726e).Table JPY provides the country data table for Japan.

Table JPY, Japan, Economic Indicators

Historical GDP and CPI	1981-2010 Real GDP Growth and CPI Inflation 1981-2010 Blog 8/9/11 Table 26
Corporate Goods Prices	Apr ∆% 2.8 12 months ∆% 4.1 Blog 5/18/14
Consumer Price Index	Mar NSA ∆% 0.3; Mar 12 months NSA ∆% 1.6 Blog 4/27/14
Real GDP Growth	IQ2014 ∆%: 1.5 on IVQ2013; IQ2014 SAAR 5.9; ∆% from quarter a year earlier: 3.0 % Blog 6/16/13 8/18/13 9/15/13 11/17/13 12/15/13 2/23/14 3/16/14 5/18/14
Employment Report	Mar Unemployed 2.46 million Change in unemployed since last year: minus 340 thousand Unemployment rate: 3.6 % Blog 5/4/14
All Industry Indices	Feb month SA ∆% -1.1 12-month NSA ∆% 2.2 Blog 4/27/14
Industrial Production	Mar SA month ∆%: 0.3 12-month NSA ∆% 7.0 Blog 5/4/14
Machine Orders	Total Feb ∆% -5.9 Private ∆%: -15.3 Feb ∆% Excluding Volatile Orders -8.8 Blog 4/13/14
Tertiary Index	Mar month SA ∆% 2.4 Mar 12 months NSA ∆% 3.0 Blog 5/18/14
Wholesale and Retail Sales	Mar 12 months: Total ∆%: 8.6 Wholesale ∆%: 7.6 Retail ∆%: 11.0 Blog 5/4/14
Family Income and Expenditure Survey	Mar 12-month ∆% total nominal consumption 9.3, real 7.2 Blog 5/4/14
Trade Balance	Exports Mar 12 months ∆%: 1.8 Imports Mar 12 months ∆% 18.1 Blog 4/27/14

Links to blog comments in Table JPY:

5/4/2014 http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html

4/27/14 http://cmpassocregulationblog.blogspot.com/2014/04/financial-fluctuations-united-states.html

4/13/14 http://cmpassocregulationblog.blogspot.com/2014/04/global-financial-instability-recovery.html

3/16/2014 http://cmpassocregulationblog.blogspot.com/2014/03/global-financial-risks-recovery-without.html

2/23/14 http://cmpassocregulationblog.blogspot.com/2014/02/squeeze-of-economic-activity-by-carry.html

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

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

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

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

Japan’s economy grew 1.5 percent in IQ2014, seasonally adjusted, partly because of anticipation of purchases to avoid the increase in the tax on value added of consumption in Apr 2014, as shown in Table VB-1, incorporating the latest estimates and revisions. The economy of Japan grew 0.1 percent in IVQ2013 after 0.3 percent in IIIQ2013, 0.9 percent in IIQ2013 and 1.2 percent in IQ2013. Japan’s GDP increased 0.1 percent in IVQ2012 relative to IIIQ2012. IQ2012 GDP growth was revised to 0.9 percent; IIQGDP growth was revised to -0.6 percent; and IIIQ2012 growth was revised to -0.8 percent. The economy of Japan had already weakened in IVQ2010 when GDP fell revised 0.5 percent. As in other advanced economies, Japan’s recovery from the global recession has not been robust. GDP fell 1.8 percent in IQ2011 and fell again 0.7 percent in IIQ2011 because of the disruption of the tragic Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Recovery was robust in the first two quarters of 2010 but GDP grew at 1.4 percent in IIIQ2010 and fell 0.5 percent in IVQ2010. The deepest quarterly contractions in the recession were 3.3 percent in IVQ2008 and 4.0 percent in IQ2009.

Table VB-1, Japan, Real GDP ∆% Changes from the Previous Quarter Seasonally Adjusted ∆%

	IQ	IIQ	IIIQ	IVQ
2014	1.5
2013	1.2	0.9	0.3	0.1
2012	0.9	-0.6	-0.8	0.1
2011	-1.8	-0.7	2.6	0.2
2010	1.4	1.1	1.4	-0.5
2009	-4.0	1.8	0.1	1.7
2008	0.6	-1.1	-1.1	-3.3
2007	1.0	0.2	-0.4	0.9
2006	0.4	0.4	-0.1	1.3
2005	0.2	1.3	0.4	0.2
2004	0.9	0.1	0.1	-0.3
2003	-0.6	1.3	0.4	1.0
2002	-0.2	1.0	0.6	0.4
2001	0.6	-0.2	-1.1	-0.1
2000	1.6	0.2	-0.3	0.7
1999	-0.9	0.4	-0.2	0.5

Source: Japan Economic and Social Research Institute, Cabinet Office

http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

Table VB-2 provides contributions to real GDP at seasonally adjusted annual rates (SAAR). Japan grew at 5.9 percent in IQ2014 with contribution of 5.1 percentage points of personal consumption expenditures, 2.6 percentage points of gross fixed capital formation and 0.1 percent of government consumption. Trade deducted 1.1 percentage points from GDP growth in IQ2014 and private inventory divestment deducted 0.8 percentage points. Japan’s GDP grew at 0.3 percent annual equivalent in IVQ2013 with growth of personal consumption expenditures of 0.9 percent and GFCF at 1.5 percent. Trade deducted 2.2 percentage points. Japan grew at 1.3 percent in IIIQ 2013 with contribution of 0.5 percentage points by personal consumption and 2.1 percentage points by GFCF. Trade deducted 2.0 percentage points. Japan grew at 3.5 percent SAAR in IIQ2013 driven by contributions of 1.8 percent of personal consumption (PC) and 0.5 percent of net trade and gross fixed capital formation (GFCF) at 1.8 percent. In IQ2013, Japan’s GDP increased at the SAAR of 4.9 percent in large part because of 2.6 percent in personal consumption and 1.7 percent in trade. The SAAR of GDP in IVQ2012 was 0.2 percent: 1.1 percentage points from growth of personal consumption expenditures (PC) less 0.5 percentage points of net trade (exports less imports) less 1.0 percentage points of private inventory investment (PINV) plus 0.6 percentage points of government consumption and 0.0 percentage points of gross fixed capital formation (GFCF). The SAAR of GDP in IIIQ2011 was revised to a high 10.8 percent. Net trade deducted from GDP growth in three quarters of 2011 and provided the growth impulse of 3.8 percentage points in IIIQ2011. Growth in 2011 and IQ2012 was driven by personal consumption expenditures that deducted 1.1 percentage points from GDP growth in IIIQ2012 but added 1.1 percentage points to GDP growth in IVQ2012.

Table VB-2, Japan, Contributions to Changes in Real GDP, Seasonally Adjusted Annual Rates (SAAR), %

	GDP	PC	GFCF	Trade	PINV	GOVC
2014
I	5.9	5.1	2.6	-1.1	-0.8	0.1
2013
I	4.9	2.6	-0.1	1.7	0.1	0.7
II	3.5	1.8	1.8	0.5	-1.2	0.6
III	1.3	0.5	2.1	-2.0	0.5	0.2
IV	0.3	0.9	1.5	-2.2	-0.2	0.2
2012
I	3.8	0.9	-0.2	0.4	1.5	1.2
II	-2.2	1.0	0.3	-1.3	-1.6	-0.5
III	-3.0	-1.1	-1.1	-2.2	1.0	0.4
IV	0.2	1.1	-0.0	-0.5	-1.0	0.6
2011
I	-7.1	-4.1	-0.1	-1.1	-1.8	0.0
II	-2.7	2.3	0.0	-4.3	-1.1	0.2
III	10.8	4.0	1.3	3.8	1.5	0.1
IV	0.9	1.4	3.3	-3.0	-1.0	0.2
2010
I	5.8	1.7	0.2	2.1	2.2	-0.5
II	4.4	-0.1	1.1	0.1	2.3	1.2
III	5.9	3.2	0.9	0.5	1.1	0.3
IV	-2.0	-0.8	-1.1	-0.4	0.0	0.3
2009
I	-15.2	-1.9	-2.0	-4.5	-7.6	0.8
II	7.3	4.0	-3.1	7.4	-1.8	0.7
III	0.2	0.0	-1.4	2.2	-1.6	1.0
IV	7.1	3.5	0.0	2.7	0.6	0.3
2008
I	2.5	1.4	0.4	1.1	-0.5	0.0
II	-4.5	-3.2	-2.3	0.5	1.3	-0.8
III	-4.2	-0.5	-1.0	0.1	-2.7	0.0
IV	-12.5	-2.8	-4.6	-11.5	5.8	0.3
2007
I	4.0	0.9	0.5	1.1	1.2	0.4
II	0.7	0.6	-1.5	0.7	0.1	0.5
III	-1.5	-1.0	-1.7	2.1	-0.7	-0.2
IV	3.5	0.3	0.3	1.4	1.0	0.6

Note: PC: Private Consumption; GFCF: Gross Fixed Capital Formation; PINV: Private Inventory; Trade: Net Exports; GOVC: Government Consumption

Source: Japan Economic and Social Research Institute, Cabinet Office

http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

Long-term economic growth in Japan significantly improved by increasing competitiveness in world markets. Net trade of exports and imports is an important component of the GDP accounts of Japan. Table VB-3 provides quarterly data for net trade, exports and imports of Japan. Net trade had strong positive contributions to GDP growth in Japan in all quarters from IQ2007 to IIQ2009 with exception of IVQ2008 and IQ2009. The US recession is dated by the National Bureau of Economic Research (NBER) as beginning in IVQ2007 (Dec) and ending in IIQ2009 (Jun) (http://www.nber.org/cycles/cyclesmain.html). Net trade contributions helped to cushion the economy of Japan from the global recession. Net trade deducted from GDP growth in seven of the nine quarters from IVQ2010 IQ2012. The only strong contribution of net trade was 3.8 percent in IIIQ2011. Net trade added 1.7 percentage points to GDP growth in IQ2013 and 0.5 percentage points in IIQ2013 but deducted 2.0 percentage points in IIIQ2013 and deducted 2.2 percentage points in IVQ2013. Net trade deducted 1.1 percentage points from GDP growth in IQ2014. Private consumption assumed the role of driver of Japan’s economic growth but should moderate as in most mature economies.

Table VB-3, Japan, Contributions to Changes in Real GDP, Seasonally Adjusted Annual Rates (SAAR), %

	Net Trade	Exports	Imports
2014
I	-1.1	3.9	-5.0
2013
I	1.7	2.4	-0.7
II	0.5	1.7	-1.2
III	-2.0	-0.4	-1.6
IV	-2.2	0.3	-2.5
2012
I	0.4	1.7	-1.3
II	-1.3	-0.3	-0.9
III	-2.2	-2.4	0.2
IV	-0.5	-1.8	1.3
2011
I	-1.1	-0.4	-0.7
II	-4.3	-4.6	0.3
III	3.8	5.7	-1.9
IV	-3.0	-1.9	-1.1
2010
I	2.1	3.5	-1.4
II	0.1	2.6	-2.6
III	0.5	1.4	-0.9
IV	-0.4	0.1	-0.5
2009
I	-4.5	-16.4	12.0
II	7.4	4.7	2.7
III	2.2	5.3	-3.0
IV	2.7	4.1	-1.4
2008
I	1.1	2.1	-1.0
II	0.5	-1.6	2.1
III	0.1	0.2	-0.1
IV	-11.5	-10.2	-1.2
2007
I	1.1	1.7	-0.5
II	0.7	1.6	-0.8
III	2.1	1.5	0.6
IV	1.4	2.0	-0.7

Source: Japan Economic and Social Research Institute, Cabinet Office

http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

Japan’s percentage growth of GDP not seasonally adjusted in a quarter relative to the same quarter a year earlier is shown in Table VB-4. Contraction of GDP in a quarter relative to the same quarter a year earlier extended over seven quarters from IIQ2008 through IVQ2009. Contraction was sharpest in IQ2009 with output declining 9.4 percent relative to a year earlier. Yearly quarterly rates of growth of Japan were relatively high for a mature economy through the decade with the exception of the contractions from IVQ2001 to IIQ2002 and after 2007. The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 caused flat GDP in IQ2011 at 0.0 percent relative to the same quarter a year earlier and decline of 1.5 percent in IIQ2011. GDP fell 0.5 percent in IIIQ2011 relative to a year earlier and increased 0.1 percent in IVQ2011 relative to a year earlier. Growth resumed with 3.2 percent in IQ2012 relative to a year earlier. Growth of 3.2 percent in IIQ2012 is largely caused by the low level in IIQ2011 resulting from the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. GDP decreased 0.2 percent in IIIQ2012 relative to a year earlier and 0.3 percent in IVQ2012 relative to a year earlier. GDP increased 0.1 percent in IQ2013 relative to a year earlier and 1.3 percent in IIQ2013. Growth of 2.4 percent in IIIQ2013 relative to a year earlier is partly due to the decline of 0.8 percent in GDP in IIIQ2012. GDP increased 2.5 percent in IVQ2013 relative to a year earlier. The GDP of Japan increased 3.0 percent in IQ2014 relative to a year earlier. Japan faces the challenge of recovery from the devastation of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011 in an environment of declining world trade and bouts of risk aversion that cause appreciation of the Japanese yen that erode the country’s competitiveness in world markets.

Table VB-4, Japan, Real GDP ∆% Changes from Same Quarter Year Earlier, NSA ∆%

	IQ	IIQ	IIIQ	IVQ
2014	3.0
2013	0.1	1.3	2.4	2.5
2012	3.2	3.2	-0.2	-0.3
2011	0.0	-1.5	-0.5	0.1
2010	4.9	4.4	6.0	3.3
2009	-9.4	-6.6	-5.6	-0.5
2008	1.4	-0.1	-0.6	-4.7
2007	2.8	2.3	2.0	1.6
2006	2.6	1.3	0.9	2.0
2005	0.4	1.4	1.5	1.9
2004	4.0	2.6	2.2	0.7
2003	1.7	1.8	1.5	1.8
2002	-1.6	-0.2	1.4	1.6
2001	1.6	0.9	0.0	-1.0
2000	2.7	2.4	2.2	1.8
1999	-0.3	0.1	-0.1	-0.5

Source: Japan Economic and Social Research Institute, Cabinet Office

http://www.esri.cao.go.jp/en/sna/sokuhou/sokuhou_top.html

The tertiary activity index of Japan increased 2.4 percent SA in Mar 2014 and increased 3.0 percent NSA in the 12 months ending in Mar 2014, as shown in Table VB-5. The index is showing significant volatility with increases of 0.5 percent in Feb 2013 and 0.5 percent in May 2013 but decreases in multiple months. The tertiary activity index fell 5.2 percent in 2009, growing 1.3 percent in 2010, 0.1 percent in 2011 and 1.4 percent in 2012. The tertiary activity index increased 0.7 percent in 2013.

Table VB-5, Japan, Tertiary Activity Index, ∆%

	Month ∆% SA	12 Months ∆% NSA
Mar 2014	2.4	3.0
Feb	-0.9	0.9
Jan	1.5	2.0
Dec 2013	-0.1	0.8
Nov	0.3	0.5
Oct	-0.5	0.1
Sep	0.1	1.4
Aug	0.2	0.8
Jul	-0.1	1.5
Jun	-0.3	0.6
May	0.5	1.8
Apr	-0.1	1.5
Mar	0.1	0.7
Feb	0.5	-1.5
Jan	0.0	0.3
Dec 2012	0.2	-0.1
Nov	-0.1	1.0
Oct	0.2	1.3
Sep	0.0	0.1
Aug	0.2	0.6
Jul	-0.3	0.8
Jun	0.0	0.8
May	0.5	3.1
Apr	-0.2	2.4
Mar	-0.3	4.2
Feb	0.2	2.4
Jan	-0.8	0.3
Calendar Year
2013		0.7
2012		1.4
2011		0.1
2010		1.3
2009		-5.2
2008		-1.0
2007		1.0
2006		1.8
2005		1.9
2004		1.8

Source: Japan, Ministry of Economy, Trade and Industry http://www.meti.go.jp/english/statistics/index.html

Month and 12-month rates of growth of the tertiary activity index of Japan and components in Mar 2014 are provided in Table VB-6. Electricity, gas, heat supply and water decreased 1.1 percent in Mar 2014 and increased 2.7 percent in the 12 months ending in Mar 2014. Wholesale and retail trade increased 6.8 percent in the month of Mar because of anticipated purchases to avoid the increase in the tax on value added of consumption and increased 8.3 percent in 12 months. Information and communications increased 1.0 percent in Feb and increased 4.2 percent in 12 months.

Table VB-6, Japan, Tertiary Index and Components, Month and 12-Month Percentage Changes ∆%

Mar 2014	Weight	Month ∆% SA	12 Months ∆% NSA
Tertiary Index	10,000.0	2.4	3.0
Electricity, Gas, Heat Supply & Water	372.9	-1.1	2.7
Information & Communications	951.2	0.2	3.7
Wholesale & Retail Trade	2,641.2	6.8	8.3
Finance & Insurance	971.1	-0.8	-1.9
Real Estate & Goods Rental & Leasing	903.4	0.8	-1.1
Scientific Research, Professional & Technical Services	551.3	-1.3	-1.9
Accommodations, Eating, Drinking	496.0	3.8	1.1
Living-Related, Personal, Amusement Services	552.7	5.3	3.4
Learning Support	116.9	-1.7	-1.4
Medical, Health Care, Welfare	921.1	-0.3	1.8
Miscellaneous ex Government	626.7	3.8	2.8

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

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

VC China. China estimates an index of nonmanufacturing purchasing managers based on a sample of 1200 nonmanufacturing enterprises across the country (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Table CIPMNM provides this index and components. The total index increased from 55.7 in Jan 2011 to 58.0 in Mar 2012, decreasing to 53.9 in Aug 2013. The index decreased from 56.0 in Nov 2013 to 54.6 in Dec 2013, easing to 53.4 in Jan 2014. The total index increased to 55.0 in Feb 2014, falling to 54.5 in Mar 2014. The index increased marginally to 54.8 in Apr 2014. The index of new orders increased from 52.2 in Jan 2012 to 54.3 in Dec 2012 but fell to 50.1 in May 2013, barely above the neutral frontier of 50.0. The index of new orders stabilized at 51.0 in Nov-Dec 2013, easing to 50.9 in Jan 2014. The index of new orders increased to 51.4 in Feb 2014 decreasing to 50.8 in Mar-Apr 2014.

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

	Total Index	New Orders	Interm. Input Prices	Subs Prices	Exp
Apr 2014	54.8	50.8	52.4	49.4	61.5
Mar	54.5	50.8	52.8	49.5	61.5
Feb	55.0	51.4	52.1	49.0	59.9
Jan	53.4	50.9	54.5	50.1	58.1
Dec 2013	54.6	51.0	56.9	52.0	58.7
Nov	56.0	51.0	54.8	49.5	61.3
Oct	56.3	51.6	56.1	51.4	60.5
Sep	55.4	53.4	56.7	50.6	60.1
Aug	53.9	50.9	57.1	51.2	62.9
Jul	54.1	50.3	58.2	52.4	63.9
Jun	53.9	50.3	55.0	50.6	61.8
May	54.3	50.1	54.4	50.7	62.9
Apr	54.5	50.9	51.1	47.6	62.5
Mar	55.6	52.0	55.3	50.0	62.4
Feb	54.5	51.8	56.2	51.1	62.7
Jan	56.2	53.7	58.2	50.9	61.4
Dec 2012	56.1	54.3	53.8	50.0	64.6
Nov	55.6	53.2	52.5	48.4	64.6
Oct	55.5	51.6	58.1	50.5	63.4
Sep	53.7	51.8	57.5	51.3	60.9
Aug	56.3	52.7	57.6	51.2	63.2
Jul	55.6	53.2	49.7	48.7	63.9
Jun	56.7	53.7	52.1	48.6	65.5
May	55.2	52.5	53.6	48.5	65.4
Apr	56.1	52.7	57.9	50.3	66.1
Mar	58.0	53.5	60.2	52.0	66.6
Feb	57.3	52.7	59.0	51.2	63.8
Jan	55.7	52.2	58.2	51.1	65.3

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

Source: National Bureau of Statistics of China

Chart CIPMNM provides China’s nonmanufacturing purchasing managers’ index. The index fell from 56.1 in Dec 2012 to 53.9 in Jun 2013. The index recovered to 56.3 in Oct 2013, decreasing marginally to 54.6 in Dec 2013. The index fell to 53.4 in Jan 2014, increasing to 54.8 in Apr 2014

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

Source: National Bureau of Statistics of China

Table CIPMMFG provides the index of purchasing managers of manufacturing seasonally adjusted of the National Bureau of Statistics of China. The general index (IPM) rose from 50.5 in Jan 2012 to 53.3 in Apr 2012, falling to 49.2 in Aug 2012, rebounding to 50.6 in Dec 2012. The index fell to 50.1 in Jun 2013, barely above the neutral frontier at 50.0, recovering to 51.4 in Nov 2013 but falling to 51.0 in Dec 2013. The index fell to 50.5 in Jan 2014 and 50.4 in Mar 2014. The index of new orders fell from 57.2 in Apr 2012 to 52.0 in Dec 2012. The index of new orders fell from 54.5 in Nov 2013 to 53.9 in Dec 2013. The index fell to 53.0 in Jan 2014 and 52.5 in Apr 2014.

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

	IPM	PI	NOI	INV	EMP	SDEL
Apr 2014	50.4	52.5	51.2	48.1	48.3	50.1
Mar	50.3	52.7	50.6	47.8	48.3	49.8
Feb	50.2	52.6	50.5	47.4	48.0	49.9
Jan	50.5	53.0	50.9	47.8	48.2	49.8
Dec 2013	51.0	53.9	52.0	47.6	48.7	50.5
Nov	51.4	54.5	52.3	47.8	49.6	50.6
Oct	51.4	54.4	52.5	48.6	49.2	50.8
Sep	51.1	52.9	52.8	48.5	49.1	50.8
Aug	51.0	52.6	52.4	48.0	49.3	50.4
Jul	50.3	52.4	50.6	47.6	49.1	50.1
Jun	50.1	52.0	50.4	47.4	48.7	50.3
May	50.8	53.3	51.8	47.6	48.8	50.8
Apr	50.6	52.6	51.7	47.5	49.0	50.8
Mar	50.9	52.7	52.3	47.5	49.8	51.1
Feb	50.1	51.2	50.1	49.5	47.6	48.3
Jan	50.4	51.3	51.6	50.1	47.8	50.0
Dec 2012	50.6	52.0	51.2	47.3	49.0	48.8
Nov	50.6	52.5	51.2	47.9	48.7	49.9
Oct	50.2	52.1	50.4	47.3	49.2	50.1
Sep	49.8	51.3	49.8	47.0	48.9	49.5
Aug	49.2	50.9	48.7	45.1	49.1	50.0
Jul	50.1	51.8	49.0	48.5	49.5	49.0
Jun	50.2	52.0	49.2	48.2	49.7	49.1
May	50.4	52.9	49.8	45.1	50.5	49.0
Apr	53.3	57.2	54.5	48.5	51.0	49.6
Mar	53.1	55.2	55.1	49.5	51.0	48.9
Feb	51.0	53.8	51.0	48.8	49.5	50.3
Jan	50.5	53.6	50.4	49.7	47.1	49.7

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

Source: National Bureau of Statistics of China

China estimates the manufacturing index of purchasing managers on the basis of a sample of 820 enterprises (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Chart CIPMMFG provides the manufacturing index of purchasing managers. The index fell to 50.1 in Jun 2013. The index decreased from 51.4 in Nov 2013 to 51.0 in Dec 2013. The index fell to 50.4 in Apr 2014.

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

Source: National Bureau of Statistics of China

5/11/14 http://cmpassocregulationblog.blogspot.com/2014/05/rules-discretionary-authorities-and.html

Cumulative growth of China’s GDP in IQ2014 relative to the same period in 2013 was 7.4 percent, as shown in Table VC-GDP. Secondary industry accounts for 44.9 percent of GDP in IQ2014. In IQ2014, industry alone accounts for 39.9 percent of GDP and construction with the remaining 5.0 percent. Tertiary industry accounts for 49.0 percent of cumulative GDP in IQ2014 and primary industry for 6.1 percent. China’s growth strategy consisted of rapid increases in productivity in industry to absorb population from agriculture where incomes are lower (Pelaez and Pelaez, The Global Recession Risk (2007), 56-80). The strategy is shifting to lower growth rates with improvement in living standards. The bottom block of Table VC-GDP provides quarter-on-quarter growth rates of GDP and their annual equivalent. China’s GDP growth decelerated significantly from annual equivalent 10.4 percent in IIQ2011 to 7.4 percent in IVQ2011 and 5.7 percent in IQ2012, rebounding to 8.7 percent in IIQ2012, 8.2 percent in IIIQ2012 and 7.8 percent in IVQ2012. Annual equivalent growth in IQ2013 fell to 6.1 percent and to 7.4 percent in IIQ2013, rebounding to 9.5 percent in IIIQ2013. Annual equivalent growth was 7.0 percent in IVQ2013, declining to 5.7 percent in IQ2014.

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

Cumulative GDP IQ2014	Value Current CNY Billion	2014 Year-on-Year Constant Prices ∆%
GDP	12,821.3	7.4
Primary Industry	777.6	3.5
Farming	777.6	3.5
Secondary Industry	5,758.7	7.3
Industry	5,121.7	7.1
Construction	637.0	9.3
Tertiary Industry	6,285.0	7.8
Transport, Storage, Post	691.7	5.7
Wholesale, Retail Trades	1,298.2	9.8
Hotel & Catering Services	266.8	5.9
Financial Intermediation	929.1	9.5
Real Estate	880.5	3.0
Other	2,218.7	8.9
Growth in Quarter Relative to Prior Quarter	∆% on Prior Quarter	∆% Annual Equivalent
2014
IQ2014	1.4	5.7
2013
IVQ2013	1.7	7.0
IIIQ2013	2.3	9.5
IIQ2013	1.8	7.4
IQ2013	1.5	6.1
2012
IVQ2012	1.9	7.8
IIIQ2012	2.0	8.2
IIQ2012	2.1	8.7
IQ2012	1.4	5.7
2011
IVQ2011	1.8	7.4
IIIQ2011	2.2	9.1
IIQ2011	2.5	10.4
IQ2011	2.3	9.5

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

Growth of China’s GDP in IQ2014 relative to the same period in 2013 was 7.4 percent, as shown in Table VC-GDPA. Secondary industry accounts for 44.9 percent of GDP of which industry alone for 39.9 percent in cumulative IQ2014 and construction with the remaining 5.0 percent. Tertiary industry accounts for 49.0 percent of GDP in cumulative IQ2014 and primary industry for 6.1 percent. China’s growth strategy consisted of rapid increases in productivity in industry to absorb population from agriculture where incomes are lower (Pelaez and Pelaez, The Global Recession Risk (2007), 56-80). The strategy is changing to lower growth rates while improving living standards. GDP growth decelerated from 12.1 percent in IQ2010 and 11.2 percent in IIQ2010 to 7.7 percent in IQ2013, 7.5 percent in IIQ2013 and 7.8 percent in IIIQ2013. GDP grew 7.4 percent in IVQ2013 relative to a year earlier and 1.7 percent relative to IIIQ2013, which is equivalent to 7.0 percent per year. GDP grew 7.4 percent in IQ2014 relative to a year earlier and 1.4 percent in IQ2014 that is equivalent to 5.7 percent per year.

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

	IQ 2013	IIQ 2013	IIIQ 2013	IVQ 2013	IQ 2014
GDP	7.7	7.5	7.8	7.7	7.4
Primary Industry	3.4	3.0	3.4	4.0	3.5
Secondary Industry	7.8	7.6	7.8	7.8	7.3
Tertiary Industry	8.3	8.3	8.4	8.3	7.1
GDP ∆% Relative to a Prior Quarter	1.5	1.8	2.3	1.7	1.4
	IQ 2011	IIQ 2011	IIIQ 2011	IVQ 2011	IQ 2012	IIQ 2012	IIIQ 2012	IVQ 2012
GDP	9.7	9.5	9.1	8.9	8.1	7.6	7.4	7.9
Primary Industry	3.5	3.2	3.8	4.5	3.8	4.3	4.2	4.5
Secondary Industry	11.1	11.0	10.8	10.6	9.1	8.3	8.1	8.1
Tertiary Industry	9.1	9.2	9.0	8.9	7.5	7.7	7.9	8.1
GDP ∆% Relative to a Prior Quarter	2.3	2.5	2.2	1.8	1.4	2.1	2.0	1.9
	IQ 2010	IIQ 2010	IIIQ 2010	IVQ 2010
GDP	12.1	11.2	10.7	12.1
Primary Industry	3.8	3.6	4.0	3.8
Secondary Industry	14.5	13.3	12.6	14.5
Tertiary Industry	10.5	9.9	9.7	10.5

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

Chart VC-GDP of the National Bureau of Statistics of China provides annual value and growth rates of GDP. China’s GDP growth in 2013 is still high at 7.7 percent but at the lowest rhythm in five years.

Chart VC-GDP, China, Gross Domestic Product, Million Yuan and ∆%, 2009-2013

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

Chart VC-FXR provides China’s foreign exchange reserves. FX reserves grew from $2399.2 billion in 2009 to $3821.3 billion in 2013 driven by high growth of China’s trade surplus.

Chart VC-FXR, China, Foreign Exchange Reserves, 2009-2013

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

Chart VC-Trade provides China’s imports and exports. Exports exceeded imports with resulting large trade balance surpluses that increased foreign exchange reserves.

Chart VC-Trade, China, Imports and Exports of Goods, 2009-2013, $100 Million US Dollars

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

The HSBC Flash China Manufacturing Purchasing Managers’ Index^™ (PMI^™) compiled by Markit (http://www.markiteconomics.com/Survey/PressRelease.mvc/2ccceaf2598440a1879d0a0a508a7b1f) is slowing. The overall Flash HSBC China Manufacturing PMI^™ increased from 48.0 in Mar to 48.3 in Apr, while the Flash HSBC China Manufacturing Output Index increased from 47.2 in Mar to 48.0 in Apr, indicating moderate contraction. Exports orders changed direction to contraction. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds that the index is consistent with manufacturing stabilizing at weak levels, requiring policy to stabilize growth in the rest of the year (http://www.markiteconomics.com/Survey/PressRelease.mvc/2ccceaf2598440a1879d0a0a508a7b1f). The HSBC China Services PMI^™, compiled by Markit, shows marginal stability in business activity in China with the HSBC Composite Output, combining manufacturing and services, increasing from 49.3 in Mar to 49.5 in Apr, indicating standstill (http://www.markiteconomics.com/Survey/PressRelease.mvc/edde378848494848b95e2f9a78838413). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds need of policies to prevent decelerating growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/edde378848494848b95e2f9a78838413). The HSBC Business Activity index decreased from 51.9 in Mar to 51.4 in Apr (http://www.markiteconomics.com/Survey/PressRelease.mvc/edde378848494848b95e2f9a78838413). Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds that services continue improving with the economy expanding moderately (http://www.markiteconomics.com/Survey/PressRelease.mvc/edde378848494848b95e2f9a78838413). The HSBC Purchasing Managers’ Index^™ (PMI^™), compiled by Markit, increased marginally to 48.1 in Apr from 48.0 in Mar, indicating marginally deteriorating manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/9431bf0b83c04209820fd77c2b2ff856). New export orders decreased moderately with sharp contraction of total new orders. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds soft demand in China with possible lossof impulse, requiring policy enhancement (http://www.markiteconomics.com/Survey/PressRelease.mvc/9431bf0b83c04209820fd77c2b2ff856). Table CNY provides the country data table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry	Apr 12-month ∆%: minus 2.0 Apr month ∆%: -0.2 Blog 5/18/14
Consumer Price Index	Apr month ∆%: -0.3 Apr 12 months ∆%: 1.8 Blog 5/18/14
Value Added of Industry	Apr month ∆%: 0.82 Jan-Apr 2014/Jan-Apr 2013 ∆%: 8.7 Blog 5/18/14
GDP Growth Rate	Year IQ2014 ∆%: 7.4 Quarter IQ2014 AE ∆%: 5.7 Blog 4/20/14
Investment in Fixed Assets	Total Jan-Apr 2013 ∆%: 17.3 Real estate development: 16.4 Blog 5/18/14
Retail Sales	Apr month ∆%: 0.83 Apr 12 month ∆%: 11.9 Jan-Apr ∆%: 12.0 Blog 5/18/14
Trade Balance	Apr balance $18.45 billion Exports 12M ∆% 0.9 Imports 12M ∆% 0.8 Cumulative Jan-Apr: $35.19 billion Blog 5/11/14

Links to blog comments in Table CNY:

4/20/14 http://cmpassocregulationblog.blogspot.com/2014/04/imf-view-world-inflation-waves-squeeze.html

Cumulative and 12-months rates of value added of industry in China are provided in Table VC-1. Industry’s value added grew 8.6 percent in Jan-Apr 2014 relative to a year earlier and 8.7 percent in 12 months. Mining and quarrying, or light industry, increased 3.6 percent in Jan-Apr 2014 relative to a year earlier and 4.5 percent in 12 months. Manufacturing or heavy industry increased 9.9 percent in Jan-Apr 2014 relative to a year earlier and 9.8 percent in 12 months. Industry’s value added increased 8.7 percent in Jan-Mar 2014 relative to a year earlier and 8.8 percent in 12 months. Light industry increased 3.3 percent in Jan-Mar 2014 relative to a year earlier, manufacturing 9.9 percent, state-owned enterprises 4.5 percent and joint-stock companies 10.0 percent. Value added of industry increased 8.6 percent in Jan-Feb 2014 relative to a year earlier with weakness partially because of holidays of the Chinese Lunar New Year. Value added of industry increased 9.7 percent in Jan-Dec 2013 relative to a year earlier and 9.7 percent in the 12 months ending in Dec 2013. Industry’s value added increased 9.7 percent in Jan-Nov 2013 and 10.0 percent in the 12 months ending in Nov 2013. Industry’s value added increased 9.7 percent in Jan-Oct 2013 relative to the same period a year earlier and 10.3 percent in the 12 months ending in Oct 2013. Value added in total industry increased 9.6 in Jan-Sep 2013 relative to a year earlier and 10.2 percent in 12 months. Value added in total industry in Jan-Aug 2013 increased 9.5 percent relative to a year earlier. Heavy industry (manufacturing) had been the driver of growth with a cumulative rate of 10.0 percent relative to a year earlier in Jan-Mar 2012 that declined to 10.5 percent in Jan-Apr 2012 relative to the same period a year earlier and further down to 10.1 percent in Jan-Jun 2012. Growth of heavy industry was 9.9 percent in Jan-Jul 2012, 9.8 percent in Jan-Aug 2012, 9.7 percent in Jan-Sep 2012, 9.7 percent in Jan-Oct 2012, 9.8 percent in Jan-Nov 2012, 9.9 percent in Jan-Dec 2012, 10.2 percent in Jan-Feb 2013. Growth of heavy industry was 9.8 percent in Jan-Mar 2013, 9.7 percent in Jan-Apr 2013, 9.7 percent in Jan-May 2013, 10.0 percent in Jan-Jun 2013, 10.1 percent in Jan-Jul 2013 and 10.2 percent in Jan-Aug 2013. The rate for heavy industry increased marginally to 10.3 percent in Jan-Sep 2013. Heavy industry grew 10.5 percent in Jan-Dec 2013 and 10.7 percent in the 12 months ending in Dec 2013. Light industry (mining and quarrying) grew 6.4 percent in Jan-Dec 2013 relative to a year earlier. Growth of total industry decelerated from cumulative 14.4 percent in Jan-Mar 2011 to 9.7 percent in Jan-Dec 2013 and 8.7 percent in Jan-Apr 2014.

Table VC-1, China, Growth Rate of Value Added of Industry ∆%

	Industry	Mining & Quarrying	Manufacturing	State Owned	Joint-Stock
2014
Jan-Apr	8.7	3.6	9.9	4.8	10.1
12M Apr	8.7	4.5	9.8	5.7	10.3
Jan-Mar	8.7	3.3	9.9	4.5	10.0
12 M Mar	8.8	2.9	9.9	4.6	10.1
Jan-Feb	8.6	3.5	9.8	4.4	9.9
2013
Jan-Dec	9.7	6.4	10.5	6.9	11.0
12M Dec	9.7	5.4	10.7	8.3	10.8
Jan-Nov	9.7	6.4	10.5	6.8	4.4
12M Nov	10.0	5.6	11.0	9.1	2.4
Jan-Oct	9.7	6.5	10.4	6.5	11.0
12M Oct	10.3	4.3	11.4	8.4	11.1
Jan-Sep	9.6	6.7	10.3	6.3	11.0
12M Sep	10.2	4.9	11.1	7.8	11.1
Jan-Aug	9.5	6.9	10.2	6.1	11.0
12M Aug	10.4	5.8	10.9	9.5	11.7
Jan-Jul	9.4	7.1	10.1	5.6	10.9
12M Jun	9.7	5.5	10.5	8.1	11.1
Jan-Jun	9.3	7.3	10.0	5.2	10.9
12M Jun	8.9	5.8	9.6	6.3	10.5
Jan-May	9.4	8.5	9.7	4.9	11.0
12M May	9.2	8.0	9.8	4.4	10.7
Jan-Apr	9.4	8.6	9.7	4.9	11.1
12 M Apr	9.3	8.5	9.6	4.3	10.9
Jan-Mar	9.5	8.7	9.8	5.2	11.3
12 M Mar	8.9	8.2	9.1	4.3	11.0
Jan-Feb	9.9	9.1	10.2	5.8	11.4
2012
Jan-Dec 2012	10.0	10.1	9.9	6.4	11.8
12 M Dec	10.3	9.6	10.6	8.0	12.1
Jan-Nov	10.0	10.2	9.8	6.3	11.8
12 M Nov	10.1	9.2	10.5	7.2	11.8
Jan-Oct	10.0	10.3	9.7	6.4	11.8
12 M Oct	9.6	9.1	9.7	7.0	11.7
Jan-Sep	10.0	10.4	9.7	6.3	11.8
12 M Sep	9.2	9.0	9.3	6.3	11.0
Jan-Aug	10.1	10.5	9.8	6.3	15.4
12 M Aug	8.9	8.6	9.0	5.3	14.3
Jan-Jul	10.3	10.8	9.9	6.6	12.1
12 M Jul	9.2	10.1	8.8	4.8	10.9
Jan-Jun	10.5	11.1	10.1	7.0	12.4
12 M Jun	9.5	9.0	9.6	6.5	11.5
Jan-May	10.7	11.5	10.3	6.7	12.4
12 M May	9.6	9.1	9.8	6.6	11.0
Jan-Apr	11.0	12.3	10.5	6.6	12.9
12 M Apr	9.3	10.3	8.9	4.3	10.7
Jan-Mar	11.6	13.2	11.0	7.2	13.8
12 M Mar	11.9	13.9	11.2	8.0	13.7
Jan-Feb	11.4	12.7	10.9	7.3	13.9
2011
Jan-Dec	13.9	13.0	14.3	9.9	15.8
12 M Dec	12.8	12.6	13.0	9.2	14.7
Jan-Nov	14.0	13.0	14.4	9.9	16.0
12 M Nov	12.4	12.4	12.4	7.8	14.4
Jan-Oct	14.1	13.0	14.5	10.1	9.1
12 M Oct	13.2	12.1	13.7	8.9	15.1
Jan-Sep	14.2	13.1	14.6	10.4	16.1
12 M Sep	13.8	12.8	14.3	9.9	16.0
Jan-Aug	14.2	13.1	14.6	10.4	16.1
12 M Aug	13.5	13.4	13.5	9.4	15.5
Jan-Jul	14.3
12 M Jul	14.0	12.8	14.5	9.5
Jan-Jun	14.3	13.1	14.7	10.7	19.7
12 M Jun	15.1	13.9	15.6	10.7	20.8
Jan-May	14.0	12.9	14.4	10.7	19.3
12 M May	13.3	12.9	13.5	8.9	18.7
Jan-Apr	14.2	12.9	14.7	11.2	19.5
12 M Apr	13.4	11.9	14.0	10.4	18.0
Jan-Mar	14.4	13.1	14.9	11.4	19.8
12 M Mar	14.8	12.8	15.6	12.9	19.2
12 M Feb	14.9	13.1	15.6	10.5	21.7
Jan-Feb	14.1	13.3	14.4	10.6	20.3

*After Jun 2013 Heavy Industry is Manufacturing and Light Industry is Mining and Quarrying

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

Chart VC-1 provides 12-month percentage changes of value added of industry in China. The yearly rate of industry fell from 10.4 percent in Aug 2013 to 8.7 percent in Apr 2014.

Chart VC-1, China, Growth Rate of Total Value Added of Industry, 12-Month ∆%

Source: National Bureau of Statistics of China

Yearly rates of growth for the past 12 months and cumulative relative to the earlier year of various segments of industrial production in China are provided in Table VC-2. There is deceleration of 5.6 percent of electricity output in Jan-Apr 2014 relative to a year earlier. There are weaker readings in most segments with exception of 8.3 percent for autos. Rates from Jan to Dec 2011 relative to the same period a year earlier fluctuated but remained mostly above 10 percent with the exception of motor vehicles and crude oil. There is deceleration in Jan-Dec 2012 of percentage change with no segment showing growth exceeding 10 percent with exception of 12-month growth of 13.5 percent for pig iron and 16.7 percent for nonferrous metals. In Jan-Sep 2013, many segments grew at rates exceeding or around 10 percent with exception of electricity at 6.8 percent, crude oil at 4.2 percent and pig iron at 6.9 percent. Electricity fell from growth of 16.2 percent in the 12 months ending in Jun 2011 to 0.0 percent in the 12 months ending in Jun 2012, rebounding to 4.8 percent in Aug 2012 but declining to 1.5 percent in Sep 2012, increasing to 3.9 percent in Oct 2012, 7.9 percent in Nov 2012 and 7.6 percent in Dec 2012. Electricity grew 6.8 percent in Jan-Jul 2013 relative to a year earlier and increased 8.2 percent in the 12 months ending in Sep 2013. Electricity output increased 7.6 percent in Jan-Dec 2013 relative to a year earlier and 8.3 percent in 12 months ending in Dec 2013. Auto production jumped to 18.4 percent in Jan-Dec 2013 relative to a year earlier and 22.8 percent in 12 months ending in Dec 2013.

Table VC-2, China, Industrial Production Operation ∆%

	Elec- tricity	Pig Iron	Cement	Crude Oil	Non- ferrous Metals	Autos
2014
Jan-Apr	5.6	0.2	4.3	1.8	5.4	8.3
12 M Apr	4.4	-0.8	3.9	3.8	4.3	7.9
Jan-Mar	5.8	0.1	4.0	0.7	6.7	10.8
12 M Mar	6.2	-0.9	5.9	2.6	7.1	7.3
Jan-Feb	5.5	0.2	2.4	-1.0	6.1	12.5
2013
Jan-Dec	7.6	6.2	9.6	3.3	9.9	18.4
12M Dec	8.3	5.9	10.8	0.2	2.3	22.8
Jan-Nov	7.0	5.9	9.2	3.6	10.5	18.1
12M Nov	6.8	0.6	10.0	-0.6	13.7	25.6
Jan-Oct	7.0	6.5	9.0	4.1	10.3	17.2
12M Oct	8.4	7.7	8.9	3.1	12.9	25.5
Jan-Sep	6.8	6.9	8.9	4.2	9.8	15.3
12M Sep	8.2	11.2	6.4	-1.2	10.1	17.5
Jan-Aug	6.4	6.6	9.2	4.7	9.7	15.1
12M Aug	13.4	11.1	8.2	5.5	5.7	14.8
Jan-Jul	5.2	6.0	9.6	4.5	10.3	15.1
12 M Jul	8.1	5.0	9.1	7.1	9.8	15.4
Jan-Jun	4.4	5.7	9.7	4.1	10.0	15.2
12 M Jun	6.0	2.9	8.8	10.8	6.7	13.5
Jan-May	4.0	10.8	8.9	2.9	10.9	15.4
12 M May	4.1	11.3	8.5	2.4	7.5	15.7
Jan-Apr	3.8	10.5	8.4	3.2	11.4	15.4
12 M Apr	6.2	8.1	8.7	2.5	10.3	18.3
Jan-Mar	2.9	12.3	8.2	4.3	10.6	13.5
12 M Mar	2.1	9.2	6.9	5.5	9.9	12.4
Jan-Feb	3.4	14.2	10.8	3.0	13.5	12.4
2012
Jan-Dec	4.7	7.7	7.4	3.7	9.3	6.3
12 M Dec	7.6	13.5	5.4	8.4	16.7	5.3
Jan-Nov	4.4	7.2	7.5	3.2	8.4	6.5
12 M Nov	7.9	16.5	9.4	9.1	15.2	3.9
Jan-Oct	3.9	6.3	6.7	2.6	7.7	6.9
12 M Oct	6.4	11.7	11.5	6.7	14.0	3.8
Jan-Sep	3.6	5.7	6.7	2.2	7.1	7.3
12 M Sep	1.5	4.9	12.0	7.0	7.1	6.3
Jan-Aug	3.8	-0.5	8.7	2.5	13.8	10.4
12 M Aug	4.8	2.6	5.9	-0.4	13.8	9.7
Jan-Jul	3.8	6.1	5.3	1.6	6.7	7.4
12M Jul	2.1	6.5	6.1	1.1	4.1	12.3
Jan-Jun	3.7	6.1	5.5	1.7	6.7	6.7
12 M Jun	0.0	6.7	6.5	-0.6	5.8	13.8
Jan-May	4.7	6.3	5.0	2.2	5.1	6.2
12 M May	2.7	6.3	4.3	0.7	6.6	18.5
Jan-Apr	5.0	6.2	5.5	2.9	4.6	3.1
12 M Apr	0.7	7.9	4.9	-0.3	2.3	10.7
Jan-Mar	7.1	6.5	7.3	3.1	5.8	0.0
12 M Mar	7.2	10.2	7.9	2.0	3.3	5.1
Jan-Feb	7.1	4.6	4.8	4.0	8.4	-1.8
2011
Jan-Dec	12.0	8.4	16.1	4.9	10.6	3.0
12 M Dec	9.7	3.7	7.0	4.0	13.2	-6.5
Jan-Nov	12.0	13.1	17.2	5.3	10.2	3.9
12 M Nov	8.5	7.8	11.2	3.2	8.2	-1.3
Jan-Oct	12.3	13.7	18.0	5.4	10.4	5.2
12 M Oct	9.3	13.4	16.5	-0.9	3.7	1.3
Jan-Sep	12.7	13.9	18.1	6.0	11.2	5.5
12 M Sep	11.5	18.8	15.7	1.5	13.9	2.5
Jan-Aug	13.0	13.1	18.4	6.6		4.7
12 M Aug	10.0	12.9	12.8	4.5	15.6	9.5
Jan-Jul	13.3	13.0	19.2	6.9	9.9	4.0
12 M Jul	13.2	14.9	16.8	5.9	9.8	-1.3
12 M Jun	16.2	14.8	19.9	-0.7	9.8	3.6
12 M May	12.1	10.6	19.2	6.0	14.2	-1.9
12 M Apr	11.7	8.3	22.4	6.8	6.1	-1.6
12 M Mar	14.8	13.7	29.8	8.0	11.6	9.9
12 M Feb	11.7	14.5	9.1	10.9	14.4	10.3
12 M Jan	5.1	3.5	16.4	12.2	1.4	23.9
12 M Dec 2010	5.6	4.6	17.3	10.3	-1.9	27.6

M: month

Source: National Bureau of Statistics of China

Monthly growth rates of industrial production in China are provided in Table VC-3. Monthly rates have fluctuated around 1 percent. Jan and Feb 2012 are somewhat weaker but there was improvement to 1.25 percent in Mar 2012. The rate of 0.33 percent in Apr 2012 is the lowest in the monthly series from Feb 2011 to Apr 2014. Monthly sales growth remained below 1 percent in all months from Jan 2012 to Dec 2013 with the exception of Mar 2012. Value added of industry increased 0.64 percent in Dec 2013, 0.59 percent in Jan 2014 and 0.61 percent in Feb 2014. Value added of industry increased 0.80 percent in Mar 2014 and 0.82 percent in Apr 2014.

Table VC-3, China, Industrial Production Operation, Month ∆%

2011	Month ∆%
Feb	0.93
Mar	0.99
Apr	1.32
May	0.79
Jun	1.30
Jul	0.82
Aug	0.85
Sep	0.95
Oct	0.71
Nov	0.68
Dec	0.94
Jan 2012	0.50
Feb	0.61
Mar	1.25
Apr	0.33
May	0.89
Jun	0.83
Jul	0.59
Aug	0.61
Sep	0.89
Oct	0.76
Nov	0.86
Dec	0.90
Jan 2013	0.61
Feb	0.78
Mar	0.72
Apr	0.80
May	0.66
Jun	0.69
Jul	0.92
Aug	0.85
Sep	0.71
Oct	0.78
Nov	0.67
Dec	0.64
Jan 2014	0.59
Feb	0.61
Mar	0.80
Apr	0.82

Source: National Bureau of Statistics of China

Table VC-4 provides cumulative growth of investment in fixed assets in China in Jan-Dec 2011, Jan-Dec 2012, Jan-Dec 2013 and Jan-Apr 2014 relative to a year earlier. Total fixed investment had grown at a high rate fluctuating around 25 percent and fixed investment in real estate development has grown at rates in excess of 30 percent but rates have declined significantly to still quite high percentages. In Jan-Apr 2014, investment in fixed assets in China grew 17.3 percent relative to a year earlier and 16.4 percent in real estate development. There was slight deceleration in the final two months of 2011 that continued into Jan-Dec 2013 and Jan-Apr 2014.

Table VC-4, China, Investment in Fixed Assets ∆% Relative to a Year Earlier

	Total	State	Real Estate Development
Jan-Apr 2014	17.3	14.4	16.4
Jan-Mar 2014	17.6	14.5	16.8
Jan-Feb	17.9	NA	19.3
Jan-Dec 2013	19.6	16.3	19.8
Jan-Nov	19.9	16.8	19.5
Jan-Oct	20.1	17.1	19.2
Jan-Sep	20.2	17.6	19.7
Jan-Aug	20.3	NA	19.3
Jan-Jul	20.1	17.5	20.5
Jan-Jun	20.1	17.5	20.3
Jan-May	20.4	17.7	20.6
Jan-Apr	20.6	18.1	21.1
Jan-Mar	20.9	18.7	20.2
Jan-Feb	21.2	16.9	22.8
Jan-Dec 2012	20.6	14.7	16.2
Jan-Nov	20.7	14.5	16.7
Jan-Oct	20.7	14.2	15.4
Jan-Sep	20.5	13.6	15.4
Jan-Aug	20.2	12.9	15.6
Jan-Jul	20.4	12.6	15.4
Jan-Jun	20.4	13.8	16.6
Jan-May	20.1	10.0	18.5
Jan-Apr	20.2	9.5	18.7
Jan-Mar	20.9	9.0	23.5
Jan-Feb	21.5	8.8	27.8
Jan-Dec 2011	23.8	11.1	27.9
Jan-Nov	24.5	11.7	29.9
Jan-Oct	24.9	12.4	31.1
Jan-Sep	24.9	12.7	32.0
Jan-Aug	25.0	12.1	33.2
Jan-Jul	25.4	13.6	33.6
Jan-Jun	25.6	14.6	32.9
Jan-May	25.8	14.9	34.6
Jan-Apr	25.4	16.6	34.3
Jan-Mar	25.0	17.0	34.1
Jan-Feb	24.9	15.6	35.2

Source: National Bureau of Statistics of China

Chart VC-2 provides percentage changes of cumulative fixed asset investment in China relative to a year earlier in all months from 2013 to 2014. Growth fell from 20.9 percent in Jan-Mar 2013 to 17.3 percent in Jan-Apr 2014.

Chart VC-2, China, Investment in Fixed Assets, ∆% Cumulative over Year Earlier

Source: National Bureau of Statistics of China

China has used restriction of reserves of banks to moderate real estate investment. These policies have been reversed because of lower inflation and weakening economic growth. Chart VC-3 shows decline of fluctuating cumulative growth rates of investment in real estate development relative to a year earlier from 21.1 percent in Jan-Apr 2013 to 16.4 percent in Jan-Apr 2014.

Chart VC-3, China, Investment in Real Estate Development, ∆% Cumulative over Year Earlier

Source: National Bureau of Statistics of China

Growth rates of China’s retail sales in 12 months and cumulative relative to a year earlier are in Table VC-6. There is decline of growth rates to cumulative 12.0 percent in Jan-Apr 2014 relative to a year earlier from 19.9 percent in Jan 2011 and 17.1 percent in Dec 2011.

Table VC-6, China, Retail Sales 12-Month ∆% and Cumulative ∆% Relative to Year Earlier

	12-Month ∆%	Cumulative ∆%/ Cumulative Year Earlier
2014
Jan-Apr	11.9	12.0
Jan-Mar	12.2	12.0
Jan-Feb	11.8	NA
2013
Dec	13.6	13.1
Nov	13.7	13.0
Oct	13.3	13.0
Sep	13.3	12.9
Aug	13.4	12.8
Jul	13.2	12.8
Jun	13.3	12.7
May	12.9	12.6
Apr	12.8	12.5
Mar	12.6	12.4
Feb	12.3	12.3
2012
Dec	15.2	14.3
Nov	14.9	14.2
Oct	14.5	14.1
Sep	14.2	14.1
Aug	13.2	14.1
Jul	13.1	14.2
Jun	13.7	14.4
May	13.8	14.5
Apr	14.1	14.7
Mar	15.2	14.8
Feb	14.7	14.7
2011
Dec	18.1	17.1
Nov	17.3	17.0
Oct	17.2	17.0
Sep	17.7	17.0
Aug	17.0	16.9
Jul	17.2	16.8
Jun	17.7	16.8
May	16.9	16.6
Apr	17.1	16.5
Mar	17.4	17.4
Feb	11.6	15.8
Jan	19.9	19.9

Source: National Bureau of Statistics of China

Chart VC-4 of the National Bureau of Statistics of China provides 12-month rates of growth of retail sales from 2013 to 2014. There is again a drop into 2013 with the lowest percentages in Chart VC-4 followed by moderate increases. The growth rate of retail sales fell to 11.9 percent in Jan-Apr 2014 relative to a year earlier.

Chart VC-4, China, Total Retail Sales of Consumer Goods 12-Month ∆%

Source: National Bureau of Statistics of China

Table VC-7 provides monthly percentage changes of retail sales in China. Although the rate of 0.19 percent in Jan 2012 is the lowest in Table VC-7, the rate of 1.32 percent in Sep 2012 is relatively high and 1.23 percent in Dec 2012 is closer to rates in 2011. Sales are lower in Jan-Feb 2013 because of the Lunar New Year celebrations, rebounding in Mar-Dec 2013. There is weakness in Jan-Feb 2014 also partly under influence of the celebration of the Lunar New Year followed with 1.24 percent in Mar 2014. Retail sales increased 0.83 percent in Apr 2014.

Table VC-7, China, Retail Sales, Month ∆%

2011	Month ∆%
Feb	1.35
Mar	1.26
Apr	1.30
May	1.39
Jun	1.49
Jul	1.57
Aug	1.50
Sep	1.33
Oct	1.36
Nov	1.26
Dec	1.41
2012
Jan	0.19
Feb	0.99
Mar	1.21
Apr	0.93
May	1.11
Jun	1.12
Jul	1.03
Aug	1.11
Sep	1.32
Oct	1.18
Nov	1.21
Dec	1.23
Jan 2013	0.14
Feb	0.87
Mar	1.50
Apr	0.99
May	0.97
Jun	1.03
Jul	1.04
Aug	0.90
Sep	1.03
Oct	0.95
Nov	0.99
Dec	0.97
2014
Jan	0.79
Feb	0.69
Mar	1.24
Apr	0.83

Source: National Bureau of Statistics of China