Tuesday, September 23, 2014

World Inflation Waves, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, United States Industrial Production, Unresolved US Balance of Payments Deficits and Fiscal Imbalance Threatening Risk Premium on Treasury Securities, World Cyclical Slow Growth and Global Recession Risk: Part V

 

World Inflation Waves, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, United States Industrial Production, Unresolved US Balance of Payments Deficits and Fiscal Imbalance Threatening Risk Premium on Treasury Securities, World Cyclical Slow Growth and Global Recession Risk

Carlos M. Pelaez

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014

I World Inflation Waves

IA Appendix: Transmission of Unconventional Monetary Policy

IB1 Theory

IB2 Policy

IB3 Evidence

IB4 Unwinding Strategy

IC United States Inflation

IC Long-term US Inflation

ID Current US Inflation

IE Theory and Reality of Economic History, Cyclical Slow Growth Not Secular Stagnation and Monetary Policy Based on Fear of Deflation

IIA Unresolved US Balance of Payments Deficits and Fiscal Imbalance Threatening Risk Premium on Treasury Securities

IIB United States Industrial Production

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

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

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IIIGA Monetary Policy with Deficit Financing of Economic Growth

IIIGB Adjustment during the Debt Crisis of the 1980s

Table V-4 provides two types of data: growth of exports and imports in the latest available months and in the past 12 months; and contributions of net trade (exports less imports) to growth of real GDP.

  • China. In Aug 2014, China exports increased 9.4 percent relative to a year earlier and imports decreased 2.4 percent.
  • Germany. Germany’s exports increased 4.7 percent in the month of Jul 2014 and increased 8.5 percent in the 12 months ending in Jul 2014. Germany’s imports decreased 1.8 percent in the month of Jul and increased 1.0 percent in the 12 months ending in Jul. Net trade contributed 0.8 percentage points to growth of GDP in IQ2012, contributed 0.3 percentage points in IIQ2012, contributed 0.3 percentage points in IIIQ2012, deducted 0.5 percentage points in IVQ2012, deducted 0.3 percentage points in IQ2013 and added 0.1 percentage points in IIQ2013. Net traded deducted 0.5 percentage points from Germany’s GDP growth in IIIQ2013 and added 0.4 percentage points to GDP growth in IVQ2013. Net trade deducted 0.2 percentage points from GDP growth in IQ2014. Net trade deducted 0.2 percentage points from GDP growth in IIQ2014.
  • United Kingdom. Net trade deducted 0.7 percentage points from UK value added in IQ2012, deducted 0.8 percentage points in IIQ2012, added 0.9 percentage points in IIIQ2012 and subtracted 0.4 percentage points in IVQ2012. In IQ2013, net trade added 0.6 percentage points to UK’s growth of value added and contributed 0.0 percentage points in IIQ2013. In IIIQ2013, net trade deducted 1.2 percentage points from UK growth. Net trade contributed 0.7 percentage points to UK value added in IVQ2013. Net trade contributed 0.3 percentage points to UK value added in IQ2014.
  • France. France’s exports decreased 1.7 percent in Jul 2014 while imports decreased 1.3 percent. France’s imports decreased 1.3 percent in the month of Jul 2014 and changed 0.0 percent relative to a year earlier. Net traded added 0.1 percentage points to France’s GDP in IIIQ2012 and 0.1 percentage points in IVQ2012. Net trade deducted 0.1 percentage points from France’s GDP growth in IQ2013 and added 0.3 percentage points in IIQ2013, deducting 0.4 percentage points in IIIQ2013. Net trade added 0.3 percentage points to France’s GDP in IVQ2013 and deducted 0.0 percentage points in IQ2014. Net trade deducted 0.1 percentage points from France’s GDP growth in IIQ2014.

United States. US exports increased 0.9 percent in Jul 2014 and goods exports increased 3.2 percent in Jan-Jul 2014 relative to a year earlier. Imports decreased 0.7 percent in Jul 2014 and goods imports increased 3.3 percent in Jan-Jul 2014 relative to a year earlier. Net trade deducted 0.04 percentage points from GDP growth in IIQ2012 and added 0.39 percentage points in IIIQ2012 and 0.79 percentage points in IVQ2012. Net trade deducted 0.08 percentage points from US GDP growth in IQ2013 and deducted 0.54 percentage points in IIQ2013. Net traded added 0.59 percentage points to US GDP growth in IIIQ2013. Net trade added 1.08 percentage points to US GDP growth in IVQ2013. Net trade deducted 1.66 percentage points from US GDP growth in IQ2014 and deduced 0.43 percentage points in IIQ2014. Industrial production decreased 0.1 percent in Aug 2014 after increasing 0.2 percent in Jul 2014 and increasing 0.3 percent in Jun 2014 with all data seasonally adjusted. The Federal Reserve completed its annual revision of industrial production and capacity utilization on Mar 28, 2014 (http://www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm). The report of the Board of Governors of the Federal Reserve System states (http://www.federalreserve.gov/releases/g17/Current/default.htm):

“The index of industrial production edged down 0.1 percent in August, and the index for manufacturing output decreased 0.4 percent; the declines were the first for each since January. The gains in July for both indexes were revised down. The declines in total industrial production and in manufacturing output in August reflected a decrease of 7.6 percent in the production of motor vehicles and parts, which had jumped more than 9 percent in July. Excluding motor vehicles and parts, factory output rose 0.1 percent in both July and August. The production at mines moved up 0.5 percent in August, and the output of utilities rose 1.0 percent. At 104.1 percent of its 2007 average, total industrial production in August was 4.1 percent above its year-earlier level. Capacity utilization for total industry decreased 0.3 percentage point in August to 78.8 percent, a rate 1.0 percentage point above its level of a year earlier and 1.3 percentage points below its long-run (1972–2013) average.”

  • In the six months ending in Aug 2014, United States national industrial production accumulated increase of 1.8 percent at the annual equivalent rate of 3.7 percent, which is lower than growth of 4.1 percent in the 12 months ending in Aug 2014. Excluding growth of 0.8 percent in Mar 2014, growth in the remaining five months from Apr to Aug 2014 accumulated to 1.0 percent or 2.4 percent annual equivalent. Industrial production declined in one of the past six months. Industrial production expanded at annual equivalent 1.6 percent in the most recent quarter from Jun to Aug 2014 and at 5.7 percent in the prior quarter Mar-May 2014. Business equipment accumulated growth of 3.0 percent in the six months from Mar to Aug 2014 at the annual equivalent rate of 6.2 percent, which is higher than growth of 5.7 percent in the 12 months ending in Aug 2014. The Fed analyzes capacity utilization of total industry in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm): “Capacity utilization for total industry decreased 0.3 percentage point in August to 78.8 percent, a rate 1.0 percentage point above its level of a year earlier and 1.3 percentage points below its long-run (1972–2013) average.” United States industry apparently decelerated to a lower growth rate with possible acceleration in past months.

Manufacturing fell 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increased by 19.9 percent from the trough in Apr 2009 to Dec 2013. Manufacturing grew 26.2 percent from the trough in Apr 2009 to Aug 2014. Manufacturing output in Aug 2014 is 1.5 percent below the peak in Jun 2007. Growth at trend in the entire cycle from IVQ2007 to IIQ2014 would have accumulated to 22.1 percent. GDP in IIQ2014 would be $18,305.0 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,310.7 billion than actual $15,994.3 billion. There are about two trillion dollars of GDP less than at trend, explaining the 26.9 million unemployed or underemployed equivalent to actual unemployment of 16.4 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2014/09/competitive-monetary-policy-and.html and earlier http://cmpassocregulationblog.blogspot.com/2014/08/fluctuating-financial-valuations.html and earlier http://cmpassocregulationblog.blogspot.com/2014/07/financial-valuations-twenty-seven.html). US GDP in IIQ2014 is 12.6 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $15,994.3 billion in IIQ2014 or 6.7 percent at the average annual equivalent rate of 1.0 percent. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. The long-term trend is growth at average 3.3 percent per year from Jan 1919 to Jul 2014. Growth at 3.3 percent per year would raise the NSA index of manufacturing output from 99.2392 in Dec 2007 to 123.2212 in Aug 2014. The actual index NSA in Aug 2014 is 101.5145, which is 17.6 percent below trend. Manufacturing output grew at average 2.3 percent between Dec 1986 and Dec 2013, raising the index at trend to 117.7603 in Aug 2014. The output of manufacturing at 101.5145 in Aug 2014 is 13.8 percent below trend under this alternative calculation.

Table V-4, Growth of Trade and Contributions of Net Trade to GDP Growth, ∆% and % Points

 

Exports
M ∆%

Exports 12 M ∆%

Imports
M ∆%

Imports 12 M ∆%

USA

0.9 Jul

3.2

Jan-Jul

0.7 Jun

3.3

Jan-Jul

Japan

 

Aug

-1.3

Jul

3.9

Jun

-2.0

May 2014

-2.7

Apr 2014

5.1

Mar 2014

1.8

Feb 2014

9.5

Jan 2014

9.5

Dec 2013

15.3

Nov 2013

18.4

Oct 2013

18.6

Sep 2013

11.5

Aug 2013

14.7

Jul 2013

12.2

Jun 2013 7.4

May 2013

10.1

Apr 2013

3.8

Mar 2013

1.1

Feb 2013

-2.9

Jan 2013 6.4

Dec -5.8

Nov -4.1

Oct -6.5

Sep -10.3

Aug -5.8

Jul -8.1

  

Aug

-1.5

Jul

2.3

Jun

8.4

May 2014

-3.6

Apr 2013

3.4

Mar 2014

18.1

Feb 2014

9.0

Jan 2014

25.0

Dec 2013 24.7

Nov 2013

21.1

Oct 2013

26.1

Sep 2013

16.5

Aug 2013

16.0

Jul 2013

19.6

Jun 2013

11.8

May 2013

10.0

Apr 2013

9.4

Mar 2013

5.5

Feb 2013

7.3

Jan 2013 7.3

Dec 1.9

Nov 0.8

Oct -1.6

Sep 4.1

Aug -5.4

Jul 2.1

China

  

2014

9.4 Aug

14.5 Jul

7.2 Jun

7.0 May

0.9 Apr

-6.6 Mar

-18.1 Feb

10.6 Jan

2013

4.3 Dec

12.7 Nov

5.6 Oct

-0.3 Sep

7.2 Aug

5.1 Jul

-3.1 Jun

1.0 May

14.7 Apr

10.0 Mar

21.8 Feb

25.0 Jan

  

2014

-2.4 Aug

-1.6 Jul

5.5 Jun

-1.6 May

-0.8 Apr

-11.3 Mar

10.1 Feb

10.0 Jan

2013

8.3 Dec

5.3 Nov

7.6 Oct

7.4 Sep

7.0 Aug

10.9 Jul

-0.7 Jun

-0.3 May

16.8 Apr

14.1 Mar

-15.2 Feb

28.8 Jan

Euro Area

2.6 12-M Jul

1.2 Jan-Jul

0.8 12-M Jul

0.3 Jan-Jul

Germany

4.7 Jul CSA

8.5 Jul

-1.8 Jul CSA

1.0 Jul

France

Jul

-1.5

-1.3

-1.3

0.0

Italy Jul

-1.6

1.1

-2.5

-1.4

UK

1.2 Jul

-4.9 May-Jul 14 /May-Jul 13

3.2 Jul

-3.0 May-Jul 14 13/May-Jul 13

Net Trade % Points GDP Growth

% Points

      

USA

IIQ2014

-0.43

IQ2014

-1.66

IVQ2013

1.08

IIIQ2013

0.59

IIQ2013

-0.54

IQ2013

-0.08

IVQ2012 +0.79

IIIQ2012

0.39

IIQ2012 -0.04

IQ2012 -0.11

      

Japan

0.4

IQ2012

-1.4 IIQ2012

-1.9 IIIQ2012

-0.5 IVQ2012

1.7

IQ2013

0.2

IIQ2013

-1.6

IIIQ2013

-2.4

IVQ2013

-0.8

IQ2014

4.3

IIQ2014

      

Germany

IQ2012

0.8 IIQ2012 0.4 IIIQ2012 0.3 IVQ2012

-0.5

IQ2013

-0.3 IIQ2013

0.1

IIIQ2013

-0.5

IVQ2013

0.4

IQ2014

-0.2

IIQ2014

-0.2

      

France

0.1 IIIQ2012

0.1 IVQ2012

-0.1 IQ2013

0.3

IIQ2013 -0.4

IIIQ2013

0.3

IVQ2013

0.0

IQ2014

-0.1

IIQ2014

      

UK

-0.7 IQ2012

-0.8 IIQ2012

+0.9

IIIQ2012

-0.4 IVQ2012

0.6

IQ2013

0.0

IIQ2013

-1.2

IIIQ2013

0.7

IVQ2013

0.3

IQ2014

      

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

The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table V-4 for Aug 2014. The share of Asia in Japan’s trade is close to one-half for 56.1 percent of exports and 42.6 percent of imports. Within Asia, exports to China are 19.6 percent of total exports and imports from China 20.3 percent of total imports. While exports to China decreased 0.2 percent in the 12 months ending in Aug 2014, imports from China decreased 5.3 percent. The second largest export market for Japan in Aug 2014 is the US with share of 17.9 percent of total exports, which is close to that of China, and share of imports from the US of 9.6 percent in total imports. Japan’s exports to the US decreased 4.4 percent in the 12 months ending in Aug 2014 and imports from the US increased 10.7 percent. Western Europe has share of 10.6 percent in Japan’s exports and of 10.1 percent in imports. Rates of growth of exports of Japan in Aug 2014 are 2.5 percent for exports to the US, minus 23.8 percent for exports to Brazil and 6.5 percent for exports to Germany. Comparisons relative to 2011 may have some bias because of the effects of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Deceleration of growth in China and the US and threat of recession in Europe can reduce world trade and economic activity. Growth rates of imports in the 12 months ending in Aug 2014 are mixed. Imports from Asia decreased 3.1 percent in the 12 months ending in Aug 2014 while imports from China decreased 5.3 percent. Data are in millions of yen, which may have effects of recent depreciation of the yen relative to the United States dollar (USD).

Table V-4, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yen

Aug 2014

Exports
Millions Yen

12 months ∆%

Imports Millions Yen

12 months ∆%

Total

5,705,991

-1.3

6,654,458

-1.5

Asia

3,199,633

% Total 56.1

-0.6

2,833,455 % Total 42.6

-3.1

China

1,116,035

% Total 19.6

-0.2

1,349,909 % Total 20.3

-5.3

USA

1,022,583

% Total 17.9

-4.4

637,130 % Total

9.6

10.7

Canada

60,633

-15.4

98,471

5.2

Brazil

40,471

-23.8

83,507

3.9

Mexico

88,939

27.8

38,311

15.8

Western Europe

602,889 % Total 10.6

2.5

674,439 % Total 10.1

-2.0

Germany

160,640

6.5

198,022

-5.6

France

44,220

-9.2

79,459

-3.1

UK

95,219

5.4

55,689

6.8

Middle East

199,347

8.1

1,341,799

2.1

Australia

113,671

-18.5

417,196

-4.6

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

World trade projections of the IMF are in Table V-6. There is increasing growth of the volume of world trade of goods and services from 3.0 percent in 2013 to 5.3 percent in 2015 and 5.7 percent on average from 2016 to 2019. World trade would be slower for advanced economies while emerging and developing economies (EMDE) experience faster growth. World economic slowdown would be more challenging with lower growth of world trade.

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

 

2013

2014

2015

Average ∆% 2016-2019

World Trade Volume (Goods and Services)

3.0

4.3

5.3

5.7

Exports Goods & Services

3.1

4.5

5.3

5.7

Imports Goods & Services

2.9

4.2

5.2

5.7

World Trade Value of Exports Goods & Services USD Billion

23,083

23,990

25,123

Average ∆% 2006-2015

20,390

Value of Exports of Goods USD Billion

18,591

19,281

20,132

Average ∆% 2006-2015

16,396

Average Oil Price USD/Barrel

104.07

104.17

97.92

Average ∆% 2006-2015

88.84

Average Annual ∆% Export Unit Value of Manufactures

-1.1

-0.3

-0.4

Average ∆% 2006-2015

1.4

Exports of Goods & Services

2013

2014

2015

Average ∆% 2016-2019

Euro Area

1.4

3.4

4.2

4.7

EMDE

4.4

5.0

6.2

6.2

G7

1.4

3.9

4.5

4.9

Imports Goods & Services

        

Euro Area

0.3

2.8

3.5

4.7

EMDE

5.6

5.2

6.3

6.4

G7

1.1

3.2

4.2

4.9

Terms of Trade of Goods & Services

        

Euro Area

-0.3

-0.2

-0.7

-0.1

EMDE

0.7

-0.4

-0.6

-0.4

G7

0.7

-0.044

0.3

0.0

Terms of Trade of Goods

        

Euro Area

0.8

-0.044

0.1

-0.2

EMDE

-0.6

-0.9

-0.9

-0.8

G7

-0.1

-0.3

-0.9

-0.7

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

Source: International Monetary Fund World Economic Outlook databank

http://www.imf.org/external/ns/cs.aspx?id=28

The JP Morgan Global All-Industry Output Index of the JP Morgan Manufacturing and Services PMI™, produced by JP Morgan and Markit in association with ISM and IFPSM, with high association with world GDP, decreased to 55.1 in Aug from 55.5 in Jul, indicating expansion at slightly slower rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/aa0f580159104585b0d16e2fd5a30f21). This index has remained above the contraction territory of 50.0 during 61 consecutive months. The employment index decreased from 51.6 in Jul to 51.4 in Aug with input prices rising at faster rate, new orders increasing at faster rate and output increasing at slower rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/aa0f580159104585b0d16e2fd5a30f21). David Hensley, Director of Global Economic Coordination at JP Morgan, finds growing world economic output (http://www.markiteconomics.com/Survey/PressRelease.mvc/aa0f580159104585b0d16e2fd5a30f21). The JP Morgan Global Manufacturing PMI™, produced by JP Morgan and Markit in association with ISM and IFPSM, increased to 52.6 in Aug from 52.4 in Jul (http://www.markiteconomics.com/Survey/PressRelease.mvc/f97bd4c02a58405dac4ce0b0afb4f57a). New export orders expanded for the fourteenth consecutive month (http://www.markiteconomics.com/Survey/PressRelease.mvc/f97bd4c02a58405dac4ce0b0afb4f57a). The HSBC Brazil Composite Output Index, compiled by Markit, increased from 49.3 in Jul to 49.6 in Aug, indicating marginal decline in activity of Brazil’s private sector (http://www.markiteconomics.com/Survey/PressRelease.mvc/e7f67861c29147ada8e7eaf582bbaf47). The HSBC Brazil Services Business Activity index, compiled by Markit, decreased from 50.2 in Jul to 49.2 in Aug, indicating marginally contracting services activity (http://www.markiteconomics.com/Survey/PressRelease.mvc/e7f67861c29147ada8e7eaf582bbaf47). André Loes, Chief Economist, Brazil, at HSBC, finds challenges to economic activity (http://www.markiteconomics.com/Survey/PressRelease.mvc/e7f67861c29147ada8e7eaf582bbaf47). The HSBC Brazil Purchasing Managers’ IndexTM (PMI™) increased marginally from 49.1 in Jul to 50.2 in Aug, indicating moderate improvement in manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/fee51b0fff3249848696a237672ec967). André Loes, Chief Economist, Brazil at HSBC, finds improving industrial activity in Brazil but after effects of the World Cup in Jun and Jul (http://www.markiteconomics.com/Survey/PressRelease.mvc/fee51b0fff3249848696a237672ec967).

VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index™ (PMI™) seasonally adjusted increased to 58.0 in Aug from 55.8 in Jul (http://www.markiteconomics.com/Survey/PressRelease.mvc/5412a5fceb6b4d4794ccb3fd07bd9f72). New export orders increased at a faster rate of expansion. Tim More, Senior Economist at Markit, finds that manufacturing activity is expansing at the highest rate in more than four years (http://www.markiteconomics.com/Survey/PressRelease.mvc/5412a5fceb6b4d4794ccb3fd07bd9f72). The Markit Flash US Services PMI™ Business Activity Index decreased from 60.8 in Jul to 58.5 in Aug (http://www.markiteconomics.com/Survey/PressRelease.mvc/9f51d7a717f841d191c745ada1947cd6). Tim Moore, Senior Economist at Markit, finds that the surveys are consistent with sustained strong growth of GDP in IIIQ2014 (http://www.markiteconomics.com/Survey/PressRelease.mvc/9f51d7a717f841d191c745ada1947cd6). The Markit US Composite PMI™ Output Index of Manufacturing and Services decreased to 59.7 in Aug from 60.6 in Jul (http://www.markiteconomics.com/Survey/PressRelease.mvc/7040f3cd6f2241ea9db475d3ff3a7e9c). The Markit US Services PMI™ Business Activity Index decreased from 60.8 in Jul to 59.5 in Aug (http://www.markiteconomics.com/Survey/PressRelease.mvc/7040f3cd6f2241ea9db475d3ff3a7e9c). Chris Williamson, Chief Economist at Markit, finds the indexes consistent with US growth at a high rate in IIIQ2014 around the annual rate of 4.2 percent in IIQ2014 (http://www.markiteconomics.com/Survey/PressRelease.mvc/7040f3cd6f2241ea9db475d3ff3a7e9c). The Markit US Manufacturing Purchasing Managers’ Index™ (PMI™) increased to 57.9 in Aug from 55.8 in Jul, which indicates expansion at faster rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/b48149c3c59b4c53a64d791f0fd3bfe5). Growth of export orders continued. Tim Moore, Senior Economist at Markit, finds that the index suggests output growth with gains in employment and foreign demand (http://www.markiteconomics.com/Survey/PressRelease.mvc/b48149c3c59b4c53a64d791f0fd3bfe5). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business® increased 1.9 percentage points from 57.1 in Jul to 59.0 in Aug, which indicates growth at higher rate (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=12942). The index of new orders increased 3.3 percentage points from 63.4 in Jul to 66.7 in Aug. The index of new export orders increased 2.0 percentage point from 53.0 in Jul to 55.0 in Aug, growing at a faster rate. The Non-Manufacturing ISM Report on Business® PMI increased 0.9 percentage points from 58.7 in Jul to 59.6 in Aug, indicating growth of business activity/production during 61 consecutive months, while the index of new orders decreased 1.1 percentage points from 64.9 in Jul to 63.8 in Aug (http://www.ism.ws/ISMReport/NonMfgROB.cfm?navItemNumber=12943). Table USA provides the country economic indicators for the US.

Table USA, US Economic Indicators

Consumer Price Index

Aug 12 months NSA ∆%: 1.7; ex food and energy ∆%: 1.7 Aug month SA ∆%: -0.2; ex food and energy ∆%: 0.0
Blog 9/21/14

Producer Price Index

Finished Goods

Aug 12-month NSA ∆%: 2.2; ex food and energy ∆% 1.9
Aug month SA ∆% = -0.4; ex food and energy ∆%: 0.1

Final Demand

Aug 12-month NSA ∆%: 1.8; ex food and energy ∆% 1.8
Aug month SA ∆% = 0.0; ex food and energy ∆%: 0.1
Blog 9/21/14

PCE Inflation

Jul 12-month NSA ∆%: headline 1.6; ex food and energy ∆% 1.5
Blog 8/31/14

Employment Situation

Household Survey: Aug Unemployment Rate SA 6.1%
Blog calculation People in Job Stress Jun: 26.9 million NSA, 16.4% of Labor Force
Establishment Survey:
Aug Nonfarm Jobs +142,000; Private +134,000 jobs created 
Jul 12-month Average Hourly Earnings Inflation Adjusted ∆%: 0.1
Blog 9/7/14

Nonfarm Hiring

Nonfarm Hiring fell from 63.3 million in 2006 to 54.2 million in 2013 or by 9.1 million
Private-Sector Hiring Jul 2014 4.982 million lower by 0.519 million than 5.501 million in Jul 2006
Blog 9/14/14

GDP Growth

BEA Revised National Income Accounts
IQ2012/IQ2011 ∆%: 2.6

IIQ2012/IIQ2011 2.3

IIIQ2012/IIIQ2011 2.7

IVQ2012/IVQ2011 1.6

IQ2013/IQ2012 1.7

IIQ2013/IIQ2012 1.8

IIIQ2013/IIIQ2012 2.3

IVQ2013/IVQ2012 3.1

IQ2014/IQ2013 1.9

IIQ2014/IIQ2013 2.5

IQ2012 SAAR 2.3

IIQ2012 SAAR 1.6

IIIQ2012 SAAR 2.5

IVQ2012 SAAR 0.1

IQ2013 SAAR 2.7

IIQ2013 SAAR 1.8

IIIQ2013 SAAR 4.5

IVQ2013 SAAR 3.5

IQ2014 SAAR -2.1

IIQ2014 SAAR 4.2
Blog 8/31/14

Real Private Fixed Investment

SAAR IIQ2014 8.1 ∆% IVQ2007 to IIQ2014: 0.0% Blog 8/31/14

Corporate Profits

IIQ2014 SAAR: Corporate Profits 8.0; Undistributed Profits 24.4 Blog 8/31/14

Personal Income and Consumption

Jul month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 0.1
Real Personal Consumption Expenditures (RPCE): -0.2
12-month Jul NSA ∆%:
RDPI: 2.6; RPCE ∆%: 2.0
Blog 8/31/14

Quarterly Services Report

IIQ14/IIQ13 NSA ∆%:
Information 5.6

Financial & Insurance 4.8
Blog 9/14/14

Employment Cost Index

Compensation Private IIQ2014 SA ∆%: 0.7
Jun 12 months ∆%: 2.0
Blog 8/3/14

Industrial Production

Aug month SA ∆%: -0.1
Aug 12 months SA ∆%: 4.1

Manufacturing Aug SA ∆% -0.4 Aug 12 months SA ∆% 3.6, NSA 3.5
Capacity Utilization: 78.8
Blog 9/21/14

Productivity and Costs

Nonfarm Business Productivity IIQ2014∆% SAAE 2.3; IIQ2014/IIQ2013 ∆% 1.1; Unit Labor Costs SAAE IIQ2014 ∆% -0.1; IIQ2014/IIQ2013 ∆%: 1.7

Blog 9/7/14

New York Fed Manufacturing Index

General Business Conditions From Aug 14.69 to Sep 27.54
New Orders: From Aug 14.14 to Sep 16.86
Blog 9/21/14

Philadelphia Fed Business Outlook Index

General Index from Aug 15.5 to Sep 22.5
New Orders from Aug 14.7 to Sep 15.5
Blog 9/21/14

Manufacturing Shipments and Orders

New Orders SA Jul ∆% 10.5 Ex Transport -0.8

Jan-Jul NSA New Orders ∆% 4.5 Ex transport 2.5
Blog 9/7/14

Durable Goods

Jul New Orders SA ∆%: 22.6; ex transport ∆%: -0.8
Jan-Jul 14/Jan-Jul 13 New Orders NSA ∆%: 8.2; ex transport ∆% 4.8
Blog 8/31/14

Sales of New Motor Vehicles

Jan-Aug 2014 11,185,299; Jan-Aug 2013 10,647,486. Aug 14 SAAR 17.53 million, Jul 14 SAAR 16.48 million, Aug 2013 SAAR 15.94 million

Blog 9/7/14

Sales of Merchant Wholesalers

Jan-Jul 2014/Jan-Jul 2013 NSA ∆%: Total 6.0; Durable Goods: 4.9; Nondurable
Goods: 6.5
Blog 9/14/14

Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers

Jul 14 12-M NSA ∆%: Sales Total Business 5.6; Manufacturers 4.5
Retailers 4.6; Merchant Wholesalers 7.7
Blog 9/14/14

Sales for Retail and Food Services

Jan-Aug 2014/Jan-Aug 2013 ∆%: Retail and Food Services 3.7; Retail ∆% 3.6
Blog 9/14/14

Value of Construction Put in Place

Jul SAAR month SA ∆%: 1.8 Jun 12-month NSA: 6.4
Blog 9/7/14

Case-Shiller Home Prices

Jun 2014/Jun 2013 ∆% NSA: 10 Cities 8.1; 20 Cities: 8.1
∆% Jun SA: 10 Cities -0.1 ; 20 Cities: -0.2
Blog 8/31/14

FHFA House Price Index Purchases Only

Jun SA ∆% 0.4;
12 month NSA ∆%: 5.2
Blog 8/31/14

New House Sales

Jul 2014 month SAAR ∆%: minus 0.7
Jan-Jul 2014/Jan-Jul 2013 NSA ∆%: -4.9
Blog 8/31/14

Housing Starts and Permits

Aug Starts month SA ∆% minus 14.4; Permits ∆%: minus 5.6
Jan-Aug 2014/Jan-Aug 2013 NSA ∆% Starts 8.6; Permits  ∆% 2.8
Blog 9/21/14

Trade Balance

Balance Jul SA -$40,546 million versus Jun -$40,810 million
Exports Jul SA ∆%: 0.9 Imports Jul SA ∆%: 0.7
Goods Exports Jan-Jul 2014/Jan-Jul 2013 NSA ∆%: 3.2
Goods Imports Jan-Jul 2014/Jan-Jul 2012 NSA ∆%: 3.3
Blog 9/7/14

Export and Import Prices

Aug 12-month NSA ∆%: Imports -0.4; Exports 0.4
Blog 9/14/14

Consumer Credit

Jul ∆% annual rate: Total 9.7; Revolving 7.4; Nonrevolving 10.6
Blog 9/14/14

Net Foreign Purchases of Long-term Treasury Securities

Jul Net Foreign Purchases of Long-term US Securities: minus $18.6 billion
Major Holders of Treasury Securities: China $1265 billion; Japan $1219 billion; Total Foreign US Treasury Holdings Jul $5997 billion
Blog 9/21/14

Treasury Budget

Fiscal Year 2014/2013 ∆% Aug: Receipts 7.7; Outlays 0.8; Individual Income Taxes 4.9
Deficit Fiscal Year 2011 $1,300 billion

Deficit Fiscal Year 2012 $1,087 billion

Deficit Fiscal Year 2013 $680 billion

Blog 9/14/2014

CBO Budget and Economic Outlook

2012 Deficit $1087 B 6.8% GDP Debt $11,281 B 70.1% GDP

2013 Deficit $680 B, 4.1% GDP Debt $11,983 B 72.0% GDP

2024 Deficit $960B, 3.6% GDP Debt $20,554B 77.2% GDP

2039: Long-term Debt/GDP 106%

Blog 8/26/12 11/18/12 2/10/13 9/22/13 2/16/14 8/24/14 9/14/14

Commercial Banks Assets and Liabilities

Jul 2014 SAAR ∆%: Securities 11.5 Loans 9.q Cash Assets 6.8 Deposits 7.9

Blog 8/24/14

Flow of Funds

IQ2014 ∆ since 2007

Assets +$13,322.5 BN

Nonfinancial $120.8 BN

Real estate -$565.4 BN

Financial +13,201.7 BN

Net Worth +$13,931.7 BN

Blog 6/29/14

Current Account Balance of Payments

IIQ2014 -190,161 MM

% GDP 2.3

Blog 9/21/14

Collapse of United States Dynamism of Income Growth and Employment Creation

Blog 8/24/14

Links to blog comments in Table USA:

9/14/14 http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.html

9/7/14 http://cmpassocregulationblog.blogspot.com/2014/09/competitive-monetary-policy-and.html

8/31/14 http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks.html

8/24/14 http://cmpassocregulationblog.blogspot.com/2014/08/monetary-policy-world-inflation-waves.html

8/3/14 http://cmpassocregulationblog.blogspot.com/2014/08/fluctuating-financial-valuations.html

6/29/14 http://cmpassocregulationblog.blogspot.com/2014/06/financial-indecision-mediocre-cyclical.html

6/22/14 http://cmpassocregulationblog.blogspot.com/2014/06/valuation-risks-world-inflation-waves.html

2/16/14 http://cmpassocregulationblog.blogspot.com/2014/02/theory-and-reality-of-cyclical-slow.html

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

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

Seasonally adjusted annual rates (SAAR) of housing starts and permits are shown in Table VA-1. Housing starts decreased 14.4 percent in Aug 2014 after wide oscillations that included increases of 22.9 percent in Jul, 11.9 percent in Apr, 2.4 percent in Mar, 3.5 percent in Feb, decreases of 7.6 percent in Jun, 7.4 percent in May and 13.2 percent in Jan. There were increases of 18.1 percent in Nov 2013, decline of 14.7 percent in Apr 2013 and 9.2 percent in Jun 2013. Housing starts increased 8.0 percent from the SAAR of 885 in Aug 2013 to the SAAR of 956 in Aug 2014. Housing permits, indicating future activity, decreased 5.6 percent in Aug 2014 and decreased 3.2 percent in Jun 2014 and 5.1 percent in May 2014. There were significant oscillations with increase of 8.6 percent in Jul 2014. Housing starts increased 5.3 percent from 948 SSAR in Aug 2013 to SSAR of 998 in Aug 2014. While single unit houses starts decreased 2.4 percent in Aug 2014, seasonally adjusted, structures with five units or more decreased 31.5 percent. Multifamily residential construction is increasing at a faster rate than single-family construction with wide monthly oscillations. Monthly rates in starts and permits fluctuate significantly as shown in Table VA-1.

Table VA-1, US, Housing Starts and Permits SSAR Month ∆%

 

Housing 
Starts SAAR

Month ∆%

Housing
Permits SAAR

Month ∆%

Aug 2014

956

-14.4

998

-5.6

Jul

1117

22.9

1057

8.6

Jun

909

-7.6

973

-3.2

May

984

-7.4

1005

-5.1

Apr

1063

11.9

1059

5.9

Mar

950

2.4

1000

-1.1

Feb

928

3.5

1011

7.7

Jan

897

-13.2

939

-8.1

Dec 2013

1034

-6.4

1022

-1.4

Nov

1105

18.1

1037

-2.8

Oct

936

8.5

1067

7.5

Sep

863

-2.5

993

4.7

Aug

885

-1.4

948

-3.0

Jul

898

8.1

977

4.2

Jun

831

-9.2

938

-7.1

May

915

7.9

1010

-2.9

Apr

848

-14.7

1040

12.3

Mar

994

4.5

926

-5.1

Feb

951

6.1

976

3.1

Jan

896

-8.2

947

1.0

Dec 2012

976

17.2

938

0.9

Nov

833

-9.0

930

3.9

Oct

915

8.0

895

-2.8

Sep

847

12.3

921

10.7

Aug

754

1.9

832

-1.0

Jul

740

-2.2

840

6.3

Jun

757

6.9

790

-2.1

May

708

-6.0

807

8.0

Apr

753

8.3

747

-6.3

Mar

695

-1.3

797

8.7

Feb

704

-2.6

733

2.5

Jan

723

4.2

715

2.6

Dec 2011

694

-2.4

697

-1.3

Nov

711

16.6

706

5.2

Oct

610

-6.2

671

10.0

Sep

650

11.1

610

-5.7

Aug

585

-6.1

647

4.2

Jul

623

2.5

621

-2.4

Jun

608

8.4

636

2.9

May

561

1.3

618

6.4

Apr

554

-7.7

581

-0.3

Mar

600

16.1

583

7.6

Feb

517

-17.9

542

-5.9

Jan

630

16.9

576

-8.9

Dec 2010

539

-1.1

632

12.9

Nov

545

0.4

560

0.4

Oct

543

-8.6

558

-0.9

Sep

594

-0.8

563

-2.9

SAAR: Seasonally Adjusted Annual Rate

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

Housing starts and permits in Jan-Aug not-seasonally adjusted are in Table VA-2. Housing starts increased 8.6 percent in Jan-Aug 2014 relative to Jan-Aug 2013 and new permits increased 2.8 percent. Construction of new houses in the US remains at very depressed levels. Housing starts fell 48.2 percent in Jan-Aug 2014 relative to Jan-Aug 2006 and fell 52.3 percent relative to Jan-Aug 2005. Housing permits fell 49.2 percent in Jan-Aug 2014 relative to Jan-Aug 2006 and fell 53.6 percent relative to Jan-Aug 2005.

Table VA-2, US, Housing Starts and New Permits, Thousands of Units, NSA, and %

 

Housing Starts

New Permits

Jan-Aug 2014

669.5

682.8

Jan-Aug 2013

616.7

664.0

∆% Jan-Aug 2014/Jan-Aug 2013

8.6

2.8

Jan-Aug 2006

1292.6

1344.2

∆% Jan-Aug 2014/Jan-Aug 2006

-48.2

-49.2

Jan-Aug 2005

1211.1

1471.3

∆% Jan-Aug 2014/Jan-Aug 2005

-52.3

-53.6

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

Chart VA-1 of the US Census Bureau shows the sharp increase in construction of new houses from 2000 to 2006. Housing construction fell sharply through the recession, recovering from the trough around IIQ2009. The right-hand side of Chart VA-1 shows a mild downward trend or stagnation from mid-2010 to the present in single-family houses with a recent mild upward trend in recent months in the category of two or more units but marginal decline in some recent months. While single unit houses starts increased 3.1 percent in Jan-Aug 2014 relative to a year earlier, not seasonally adjusted, structures with two to four units decreased 15.8 percent and with five units or more increased 22.6 percent. Single unit houses were 66.8 percent of total housing starts in 2013, increasing 15.4 percent relative to 2012, while construction of five units of more were 31.8 percent, increasing 25.6 percent, and construction of two to four units were 1.5 percent of the total, increasing 19.3 percent.

clip_image002

Chart VA-1, US, Total and Single-Family New Housing Units Started in the US, SAAR (Seasonally Adjusted Annual Rate)

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr020.html

Table VA-4 provides new housing units that started in the US at seasonally adjusted annual rates (SAAR) from Jan to Aug of the years from 2000 to 2014. SAARs have dropped from high levels around 2 million in 2005-2006 to the range of 848,000 in Apr 2013 to 1,034,000 in Dec 2013 and 956,000 in Aug 2014, which is an improvement over the range of 517,000 in Feb 2011 to 711,000 in Nov 2011. Improvement continued with 1,034,000 in Dec 2013 relative to 976,000 in Dec 2012. The rate of housing starts increased to 956,000 in Aug 2014 relative to 885,000 in Aug 2013.

Table VA-3, US, New Housing United Started at Seasonally Adjusted Rates, Thousand Units

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

2000

1,636

1,737

1,604

1,626

1,575

1,559

1,463

1,541

2001

1,600

1,625

1,590

1,649

1,605

1,636

1,670

1,567

2002

1,698

1,829

1,642

1,592

1,764

1,717

1,655

1,633

2003

1,853

1,629

1,726

1,643

1,751

1,867

1,897

1,833

2004

1,911

1,846

1,998

2,003

1,981

1,828

2,002

2,024

2005

2,144

2,207

1,864

2,061

2,025

2,068

2,054

2,095

2006

2,273

2,119

1,969

1,821

1,942

1,802

1,737

1,650

2007

1,409

1,480

1,495

1,490

1,415

1,448

1,354

1,330

2008

1,084

1,103

1,005

1,013

973

1,046

923

844

2009

490

582

505

478

540

585

594

586

2010

614

604

636

687

583

536

546

599

2011

630

517

600

554

561

608

623

585

2012

723

704

695

753

708

757

740

754

2013

896

951

994

848

915

831

898

885

2014

897

928

950

1,063

984

909

1,117

956

Source: US Census Bureau

http://www.census.gov/briefrm/esbr/www/esbr020.html

Chart VA-2 of the US Census Bureau provides construction of new housing units started in the US at seasonally adjusted annual rate (SAAR) from Jan 1959 to Jul 2014 that helps to analyze in historical perspective the debacle of US new house construction. There are three periods in the series. (1) There is stationary behavior with wide fluctuations from 1959 to the beginning of the decade of the 1970s. (2) There is sharp upward trend from the 1990s to 2006 propelled by the US housing subsidy, politics of Fannie Mae and Freddie Mac and unconventional monetary policy of near zero interest rates from Jun 2003 to Jun 2004 and suspension of the auction of 30-year Treasury bonds intended to lower mortgage rates. The financial crisis and global recession were caused by interest rate and housing subsidies and affordability policies that encouraged high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation after the Global Recession (2009a), 157-66, Regulation of Banks and Finance (2009b), 217-27, International Financial Architecture (2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization and the State Vol. II (2008b), 197-213, Government Intervention in Globalization (2008c), 182-4). Several past comments of this blog elaborate on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html. (3) There is insufficient recovery during the weak expansion after IIIQ2009.

clip_image003

Chart VA-2, US, New Housing Units Started in the US, SAAR (Seasonally Adjusted Annual Rate), Thousands of Units, Jan 1959-Jul 2014

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

Table VA-4 provides actual new housing units started in the US, not seasonally adjusted, from Jan to Aug in the years from 2000 to 2014. The number of housing units started fell from the peak of 197.9 thousand in May 2005 to 67.6 thousand in Dec 2013 or decline of 65.8 percent in large part because of lower seasonal activity at the end of the year. The number of housing units started jumped from 69.0 thousand in Aug 2012 to 86.0 thousand in Aug 2014 or by 24.6 percent and increased 57.8 percent from 54.5 thousand in Aug 2011. The number of housing units started increased from 80.4 thousand in Aug 2013 to 86.0 thousand in Aug 2014 or 7.0 percent.

Table VA-4, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

2000

104.0

119.7

133.4

149.5

152.9

146.3

135.0

141.4

2001

106.4

108.2

133.2

151.3

154.0

155.2

154.6

141.5

2002

110.4

120.4

138.2

148.8

165.5

160.3

155.9

147.0

2003

117.8

109.7

147.2

151.2

165.0

174.5

175.8

163.8

2004

124.5

126.4

173.8

179.5

187.6

172.3

182.0

185.9

2005

142.9

149.1

156.2

184.6

197.9

192.8

187.6

192.0

2006

153.0

145.1

165.9

160.5

190.2

170.2

160.9

146.8

2007

95.0

103.1

123.8

135.6

136.5

137.8

127.9

121.2

2008

70.8

78.4

82.2

89.5

91.7

102.5

86.7

76.4

2009

31.9

39.8

42.7

42.5

52.2

59.1

56.8

52.9

2010

38.9

40.7

54.7

62.0

56.2

53.8

51.5

56.3

2011

40.2

35.4

49.9

49.0

54.0

60.5

57.6

54.5

2012

47.2

49.7

58.0

66.8

67.8

74.7

69.2

69.0

2013

58.7

66.1

83.3

76.3

87.2

80.7

84.0

80.4

2014

60.7

65.1

80.2

94.9

92.5

87.3

102.8

86.0

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

Chart VA-3 of the US Census Bureau provides new housing units started in the US not seasonally adjusted (NSA) from Jan 1959 to Jul 2014. There is the same behavior as in Chart VA-2 SA but with sharper fluctuations in the original series without seasonal adjustment. There are the same three periods. (1) The series is virtually stationary with wide fluctuations from 1959 to the late 1980s. (2) There is downward trend during the savings and loans crisis of the 1980s. Benston and Kaufman (1997, 139) find that there was failure of 1150 US commercial and savings banks between 1983 and 1990, or about 8 percent of the industry in 1980, which is nearly twice more than between the establishment of the Federal Deposit Insurance Corporation in 1934 through 1983. More than 900 savings and loans associations, representing 25 percent of the industry, were closed, merged or placed in conservatorships (see Pelaez and Pelaez, Regulation of Banks and Finance (2008b), 74-7). The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) created the Resolution Trust Corporation (RTC) and the Savings Association Insurance Fund (SAIF) that received $150 billion of taxpayer funds to resolve insolvent savings and loans. The GDP of the US in 1989 was $4346.7 billion (http://www.bea.gov/iTable/index_nipa.cfm), such that the partial cost to taxpayers of that bailout was around 3.45 percent of GDP in a year. US GDP in 2013 is estimated at $16,799.7 billion, such that the bailout would be equivalent to cost to taxpayers of about $579.6 billion in current GDP terms. A major difference with the Troubled Asset Relief Program (TARP) for private-sector banks is that most of the costs were recovered with interest gains whereas in the case of savings and loans there was no recovery. (3) There is vertical drop of new housing construction in the US during the global recession from (Dec) IVQ2007 to (Jun) IIQ2009 (http://www.nber.org/cycles/cyclesmain.html). The final segment shows upward trend but it could be simply part of yet another fluctuation. Marginal improvement in housing in the US should not obscure the current depressed levels relative to earlier periods.

clip_image004

Chart VA-3, US, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units, Jan 1959-Jul 2014

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

Chart VA-4 of the US Census Bureau provides single-family houses started without seasonal adjustment. There was sharp increase from 1992 to 2007 followed by sharp decline. The recovery is sluggish.

clip_image005

Chart VA-4, US, Single-family Houses Started, Thousands of Units, Jan-1959-Jul 2014, NSA

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

Chart VA-5 of the US Census Bureau provides housing units started with five units or more. Construction was stagnant before the drop in the global recession. Recovery is stronger than in the case of single-family units.

clip_image006

Chart VA-5, US, Housing Units Stated in Buildings with Five Units or More, Thousands of Units, Jan-1959-Jun 2014, NSA

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

A longer perspective on residential construction in the US is provided by Table VA-5 with annual data from 1960 to 2013. Housing starts fell 55.3 percent from 2005 to 2013, 41.0 percent from 2000 to 2013 and 35.3 percent relative to the average from 1959 to 1963. Housing permits fell 54.0 percent from 2005 to 2013, 37.8 percent from 2000 to 2013 and 14.5 percent from the average of 1969-1963 to 2013. Housing starts rose 31.8 from 2000 to 2005 while housing permits grew 35.4 percent. From 1990 to 2000, housing starts increased 31.5 percent while permits increased 43.3 percent.

Table VA-5, US, Annual New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places and New Privately Owned Housing Units Started, Thousands

 

Starts

Permits

2013

924.9

990.8

2012

780.6

829.7

∆% 2013/2012

18.5

19.4

∆% 2013/2011

51.9

58.8

∆% 2013/2010

57.6

63.9

∆% 2013/2006

-48.6

-46.1

∆% 2013/2005

-55.3

-54.0

∆% 2013/2000

-41.0

-37.8

∆% 2013/Av 1959-1963

-35.3

-14.5

2011

608.8

624.1

∆% 2012/2005

-62.3

-61.5

∆% 2012/2000

-50.2

-47.9

∆% 2012/Av 1959-1963

-45.4

-28.4

2011

608.8

624.1

2010

586.9

604.6

2009

554.0

583.0

2008

905.5

905.4

2007

1,355,0

1,398.4

2006

1,800.9

1,838.9

2005

2,068.3

2,155.3

∆% 2005/2000

31.8

35.4

2004

1,955.8

2,070.1

2003

1,847.7

1,889.2

2002

1,704.9

1,747.7

2001

1,602.7

1,636.7

2000

1,568.7

1,592.3

∆% 2000/1990

31.5

43.3

1990

1,192,7

1,110.8

1980

1,292.2

1,190.6

1970

1,433.6

1,351.5

Average 1959-63

1,429.7

1,158.2

Source: US Census Bureau

http://www.census.gov/construction/nrc/

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/index-e.html

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) with changes on Jul 14, 2014 (https://www.boj.or.jp/en/announcements/release_2014/k140715a.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 3.2 to 3.5 percent in 2014, 1.9 to 2.8 percent in 2015 and 2.0 to 3.0 in 2016 (https://www.boj.or.jp/en/announcements/release_2014/k140715a.pdf). Consumer price inflation in Japan excluding fresh food was 0.4 percent in Apr 2014 and 3.4 percent in 12 months (http://www.stat.go.jp/english/data/cpi/1581.htm), significantly because of the increase of the tax on value added of consumption in Apr 2014. 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:

  1. 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).
  2. 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.
  3. 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).
  4. 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.
  5. 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

      

Jul 2014

+0.6 to +1.3

[+1.0]

+3.2 to +3.5

[+3.3]

+1.2 to +1.5

[+1.3]

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

      

Jul 2014

+1.2 to +1.6

[+1.5]

+1.9 to +2.8

[+2.6]

+1.2 to +2.1

[+1.9]

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

      

Jul 2014

+1.0 to +1.5

[+1.3]

+2.0 to +3.0

[+2.8]

+1.3 to +2.3

[+2.1]

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/announcements/release_2014/k140715a.pdf

The Markit/JMMA Flash Japan Manufacturing PMI Index™ improved with the Flash Japan Manufacturing PMI™ increasing from 50.5 in Jul to 52.4 in Aug and the Flash Japan Manufacturing Output Index™ increasing from 49.8 in Jul to 53.2 in Aug (http://www.markiteconomics.com/Survey/PressRelease.mvc/f1f27ed3360242288e275d1fd7414f37). New export orders increased at a faster pace. Amy Brownbill, Economist at Markit, finds improving Japan’s manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/f1f27ed3360242288e275d1fd7414f37). Private-sector activity in Japan improved marginally with the Markit Composite Output PMI Index increasing from 50.2 in Jul to 50.8 in Aug, indicating modest improvement (http://www.markiteconomics.com/Survey/PressRelease.mvc/4ea363e87fca480583b5bb557fc2e190). The Markit Business Activity Index of Services decreased to 49.9 in Aug from 50.4 in Jul (http://www.markiteconomics.com/Survey/PressRelease.mvc/4ea363e87fca480583b5bb557fc2e190). Amy Brownbill, Ecoomist at Markit and author of the report, finds modest deterioration of private-sector activity but with growth of new orders (http://www.markiteconomics.com/Survey/PressRelease.mvc/4ea363e87fca480583b5bb557fc2e190). The Markit/JMMA Purchasing Managers’ Index™ (PMI™), seasonally adjusted, increased from 50.5 in Jul to 52.2 in Aug (http://www.markiteconomics.com/Survey/PressRelease.mvc/6ee8cf09ff8a48a7a23f407f821b8d28). New orders, output and foreign orders increased. Amy Brownbill, Economist at Markit and author of the report, finds higher growth after the increase of the sales tax in Apr with output improving and new orders increasing (http://www.markiteconomics.com/Survey/PressRelease.mvc/6ee8cf09ff8a48a7a23f407f821b8d28).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

Aug ∆% -0.2
12 months ∆% 3.9
Blog 9/14/14

Consumer Price Index

Jul NSA ∆% 0.0; Jul 12 months NSA ∆% 3.4
Blog 8/31/14

Real GDP Growth

IIQ2014 ∆%: -1.8 on IQ2014;  IIQ2014 SAAR -7.1;
∆% from quarter a year earlier: -0.1 %
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 6/15/14 8/17/14 9/14/14

Employment Report

Jul Unemployed 2.48 million

Change in unemployed since last year: minus 70 thousand
Unemployment rate: 3.8 %
Blog 8/31/14

All Industry Indices

Jul month SA ∆% -0.2
12-month NSA ∆% -1.5

Blog 9/21/14

Industrial Production

Jul SA month ∆%: 0.2
12-month NSA ∆% -0.9
Blog 8/31/14

Machine Orders

Total Jul ∆% -13.5

Private ∆%: 16.4 Jul ∆% Excluding Volatile Orders 3.5
Blog 9/14/14

Tertiary Index

Jul month SA ∆% 0.0
Jul 12 months NSA ∆% minus 1.9
Blog 9/14/14

Wholesale and Retail Sales

Jul 12 months:
Total ∆%: 0.1
Wholesale ∆%: -0.2
Retail ∆%: 0.5
Blog 8/31/14

Family Income and Expenditure Survey

Jul 12-month ∆% total nominal consumption -2.0, real -5.9 Blog 8/31/14

Trade Balance

Exports Aug 12 months ∆%: minus 1.3 Imports Aug 12 months ∆% -1.5 Blog 9/21/14

Links to blog comments in Table JPY:

9/14/14 http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.html

8/31/14 http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks.html

8/17/2014 http://cmpassocregulationblog.blogspot.com/2014/08/weakening-world-economic-growth.html

6/15/2014 http://cmpassocregulationblog.blogspot.com/2014/06/financialgeopolitical-risks-recovery.html

5/18/14 http://cmpassocregulationblog.blogspot.com/2014/05/world-inflation-waves-squeeze-of.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

The indices of all industry activity of Japan, which approximates GDP or economic activity, fell to levels close to the worst point of the recession, showing the brutal impact of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Table VB-1 with the latest revisions shows the quarterly index, which permits comparison with the movement of real GDP. The first row provides weights of the various components of the index: AG (agriculture) 1.4 percent (not shown), CON (construction) 5.7 percent, IND (industrial production) 18.3 percent, TERT (services) 63.2 percent, and GOVT (government) 11.4 percent. GDP decreased 1.8 percent in IIQ2014 (Table VB-1 at http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.html), industry decreased 3.8 percent, the tertiary sector decreased 3.8 percent, government increased 0.5 percent and construction decreased 4.6 percent. The report shows that the all industry index decreased 3.4 percent in IIQ2014. Industry deducted 0.69 percentage points to growth of the all industry index and the tertiary index deducted 2.51 percentage points. Anticipation of purchases to avoid the increase in the sales tax in Apr 2014 explains unusually high activity in the economy of Japan in IQ2014 and subsequent decline in IIQ2014. Japan had already experienced a very weak quarter in IVQ2010, with decline of GDP of 0.5 percent (Table VB-1 at http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.html) when it was unexpectedly hit by the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. GDP fell 1.8 percent in IQ2011 and 0.7 percent in IIQ2011. GDP changed 0.0 percent in IQ2011 relative to a year earlier and fell 1.5 percent in IIQ2011 relative to a year earlier (Table VB-1 and Table VB-4 at http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.html). The all industry activity index fell in all quarters of 2012 with exception of growth of 0.1 percent in IQ2012. Weakness in industry was the driver of decline.

Table VB-1, Japan, Indices of All Industry Activity Percentage Change from Prior Quarter SA ∆%

 

CON

IND

TERT

GOVT

ALL IND

REAL
GDP

Weight
%

5.7

18.3

63.2

11.4

100.0

  

2014

            

IIQ2014

-4.6

-3.8

-3.8

0.5

-3.4

-1.8

Cont to IIQ % Change

-0.23

-0.69

-2.51

0.06

    

IQ2014

-2.7

3.0

1.8

-0.5

1.6

1.5

2013

            

IVQ

2.8

1.8

-0.2

0.4

0.3

-0.1

IIIQ

4.3

1.8

0.1

-0.2

0.5

0.4

IIQ

3.6

1.6

0.3

0.0

0.6

0.8

IQ

0.9

0.4

0.5

-0.3

0.4

1.2

2012

            

IVQ2012

3.0

-1.8

0.3

0.1

-0.1

-0.1

IIIQ

1.6

-3.3

0.0

0.0

-0.4

-0.7

IIQ

1.3

-2.1

0.0

0.0

-0.2

-0.5

IQ

2.0

1.6

0.0

0.2

0.1

1.0

AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity

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

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

http://www.esri.cao.go.jp/index-e.html

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

There are more details in Table VB-2. In Jul 2014, the all industry activity index decreased 0.2 percent with industry increasing 0.4 percent and services changing 0.0 percent while construction decreased 0.1 percent and government increased 0.4 percent. Industry added 0.08 percentage points and services contributed 0.00 percentage points while construction deducted 0.01 percentage points and government added 0.05 percentage points. The all industry activity index is stronger in 2013 with growth of 0.5 percent in Dec 2012, 0.4 percent in Feb 2013, 0.1 percent in Mar 2013, 0.1 percent in Apr 2013 and 0.6 percent in May 2013. After decline of 0.3 percent in Jun 2013, the all industry index rose 0.3 percent in Jul 2013, 0.2 percent in Aug 2013 and 0.3 percent in Sep 2013. The index fell 0.1 percent in Oct 2013 but increased 0.2 percent in Nov 2013. The index changed 0.0 percent in Dec 2013 and increased 1.7 percent in Jan 2014, decreasing 1.1 percent in Feb 2014. The index increased 1.7 percent in Mar 2014 in the rush of expenditures in anticipation of the sales tax increase in Apr 2014 and fell 4.4 percent in Apr 2014 because of the impact of the sales tax. The all industry index rebounded 0.5 percent in May 2014 and fell 0.3 percent in Jun 2014, decreasing 0.2 percent in Jul 2014. Industry is recovering with growth of 1.4 percent in Dec 2012, 0.9 percent in Feb 2013, 0.3 percent in Mar 2013, 0.6 percent in Apr 2013 and 2.1 percent in May 2013. After decline of 2.7 percent in Jun 2003, industry grew 2.7 percent in Jul 2013 and declined 0.4 percent in Aug 2013. Industry rebounded with 1.5 percent in Sep 2013 and 0.5 percent in Oct 2013. Industry rose 0.3 percent in Nov 2013 and increased 0.5 percent in Dec 2013. Industry grew 3.9 percent in Jan 2014 and fell 2.3 percent in Feb 2014. Industry increased 0.7 percent in Mar 2014 and fell 2.9 percent in Apr 2014. Industry increased 0.7 percent in May 2014 and decreased 3.4 percent in Jun 2014. Industry increased 0.4 percent in Jul 2014. The highest risk to Japan is if weakening world growth would affect Japanese exports.

Table VB-2, Japan, Indices of All Industry Activity Percentage Change from Prior Month SA ∆%

 

CON

IND

TERT

GOVT

ALL IND

Jul 2014

-0.1

0.4

0.0

0.4

-0.2

Cont to Jul % Change

-0.01

0.08

0.00

0.05

  

Jun

0.1

-3.4

0.0

0.1

-0.3

May

-0.2

0.7

0.9

-0.6

0.5

Apr

-3.2

-2.9

-5.7

1.2

-4.4

Mar

-1.5

0.7

2.6

-0.7

1.7

Feb

-1.3

-2.3

-0.9

0.5

-1.1

Jan

-1.7

3.9

1.5

-0.5

1.7

Dec 2013

-0.2

0.5

-0.1

0.1

0.0

Nov

1.5

0.3

0.3

-0.6

0.2

Oct

1.0

0.5

-0.5

0.8

-0.1

Sep

1.0

1.5

0.1

-0.1

0.3

Aug

0.3

-0.4

0.2

0.1

0.2

Jul 

1.1

2.7

-0.1

-0.3

0.3

Jun

2.5

-2.7

-0.3

0.1

-0.3

May

3.0

2.1

0.5

0.2

0.6

Apr

0.8

0.6

-0.1

0.0

0.1

Mar

0.0

0.3

0.1

-0.3

0.1

Feb

0.1

0.9

0.5

-0.1

0.4

Jan

-0.7

-0.8

0.0

0.0

-0.2

Dec 2012

0.9

1.4

0.2

-0.3

0.5

Nov

3.0

-0.9

-0.1

0.3

-0.2

Oct

-0.1

0.3

0.2

0.2

0.2

Sep

1.2

-2.2

0.0

-0.3

-0.4

Aug

0.1

-1.4

0.2

0.1

0.0

Jul

-1.0

-0.5

-0.3

-0.1

-0.3

Jun

1.7

-0.9

0.0

0.1

0.1

May

3.0

-1.8

0.5

0.0

-0.1

Apr

-1.1

-0.4

-0.2

0.0

-0.1

Mar

-0.5

-0.2

-0.3

0.1

-0.2

Feb

0.7

-0.2

0.2

-0.2

0.1

Jan

2.6

0.8

-0.8

0.4

-0.7

AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity

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

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

Percentage changes from a year earlier in calendar years and relative to the same quarter a year earlier of the all industry activity indices are provided in Table VB-3. The first row shows that services contribute 63.2 percent of the total index and industry contributes 18.3 percent for joint contribution of 81.5 percent. The all industry activity index decreased 0.9 percent in IIQ2014 relative to a year earlier and GDP decreased 0.1 percent relative to a year earlier (Table VB-4 at http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.html). Industry increased 2.6 percent relative to a year earlier while the tertiary sector decreased 2.2 percent, deducting combined 1.03 percentage points to growth of the all industry activity index of minus 0.9 percent while construction deducted 0.02 percentage points and government added 0.02 percentage points. The fall of industrial production in 2009 was by a catastrophic 21.9 percent. Japan emerged from the crisis with industrial growth of 16.4 percent in 2010. Quarterly data show that industry is the most dynamic sector of the Japanese economy. The all-industry index increased 0.8 percent in 2013 and real GDP increased 1.5 percent. Industry decreased 0.8 percent, deducting 0.13 percentage points, while the tertiary sector increased 0.7 percent, adding 0.46 percentage points. The Tōhoku or Great East Earthquake and Tsunami of Mar 11, 201, declining world trade and revaluation of the yen in fear of world financial risks interrupted the recovery of the Japanese economy from the global recession.

Table VB-3, Japan, Indices of All Industry Activity Percentage Change from Earlier Calendar Year and Same Quarter Year Earlier NSA ∆%

 

CON

IND

TERT

GOVT

ALL IND

REAL
GDP

Weight
%

5.7

18.3

63.2

11.4

100.0

  

Calendar Year

            

2013

10.4

-0.8

0.7

-0.1

0.8

1.5

Cont to 2013 % Change

0.48

-0.13

0.46

-0.01

    

2012

3.2

0.1

1.4

0.3

1.2

1.5

2011

-2.0

-2.3

0.1

-0.2

-0.5

-0.5

2010

-7.0

16.4

1.3

-0.7

3.1

4.7

2009

-5.6

-21.9

-5.2

0.1

-7.7

-5.5

2008

-7.6

-3.4

-1.0

-1.4

-1.9

-1.0

2014

            

IIQ

-0.5

2.6

-2.2

0.2

-0.9

-0.1

Cont to IQ % Change

-0.02

0.45

-1.48

0.02

    

IQ

8.1

8.3

2.1

-0.3

3.2

3.0

2013

            

IVQ

13.4

5.7

0.5

0.0

1.9

2.5

IIIQ

13.0

2.2

1.2

-0.5

1.8

2.3

IIQ

8.8

-3.1

1.3

-0.2

0.6

1.2

IQ2013

5.4

-7.8

-0.1

0.3

-1.2

0.1

2012

            

IVQ

6.7

-5.9

0.7

-0.1

-0.3

-0.3

IIIQ

3.1

-4.2

0.5

0.4

-0.2

-0.2

IIQ

4.9

5.5

2.1

0.6

2.6

3.2

IQ

-1.1

6.2

2.4

0.3

2.6

3.3

AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity

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

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

http://www.esri.cao.go.jp/index-e.html

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

Percentage changes of a month relative to the same month a year earlier for the indices of all industry activity of Japan are shown in Table VB-4. The all industry activity index decreased 1.5 percent in Jul 2014 relative to Jul 2013. Industry decreased 0.7 percent in Jul 2014 relative to a year earlier, deducting 0.13 percentage points to growth of the all industry activity index. The tertiary sector decreased 1.9 percent, subtracting 1.23 percentage points. Construction deducted 0.19 percentage points from the index and government added 0.08 percentage points.

Table VB-4, Japan, Indices of All Industry Activity Percentage Change from Same Month Year Earlier NSA ∆%

 

CON

IND

TERT

GOVT

ALL IND

Jul

-4.1

-0.7

-1.9

0.7

-1.5

Cont to Jul % Change

-0.19

-0.13

-1.23

0.08

  

Jun

-2.8

3.1

-1.4

-0.5

-0.5

May

-0.7

0.9

-2.5

0.6

-1.5

Apr

2.0

3.8

-2.6

-0.7

-0.9

Mar

6.3

7.3

3.2

-0.4

3.8

Feb

8.2

7.0

0.9

0.0

2.2

Jan

9.9

10.6

2.0

-0.5

3.5

Dec 2013

11.8

7.2

0.8

-0.4

2.2

Nov

14.2

4.8

0.5

-0.2

1.9

Oct

14.4

5.3

0.1

0.6

1.8

Sep

12.8

5.2

1.4

-0.6

2.4

Aug

13.0

-0.7

0.8

0.1

1.0

Jul

13.2

1.9

1.5

-1.0

1.7

Jun

11.2

-4.7

0.6

0.5

0.0

May

8.9

-0.9

1.8

-0.2

1.3

Apr

6.3

-3.2

1.5

-1.1

0.6

Mar

5.4

-6.9

0.7

0.0

-0.6

Feb

4.3

-9.9

-1.5

1.5

-2.4

Jan

6.8

-6.4

0.3

-0.6

-0.7

Dec 2012

8.7

-7.5

-0.1

0.6

-0.9

Nov

7.6

-5.7

1.0

0.3

0.0

Oct

3.5

-4.7

1.3

-1.1

0.1

Sep

2.9

-7.7

0.1

0.7

-1.2

Aug

2.6

-4.4

0.6

0.9

-0.1

Jul

3.8

-0.2

0.8

-0.3

0.6

Jun

6.7

-1.5

0.8

0.9

0.6

May

5.3

6.1

3.1

-0.4

3.3

Apr

2.6

13.6

2.4

1.3

4.1

Mar

3.0

16.2

4.2

0.5

5.8

Feb

-2.5

2.8

2.4

-0.7

1.8

Jan

-3.4

-1.6

0.4

0.4

-0.1

AG: indices of agriculture, forestry and fisheries has weight of 1.4% and is not included in official report or in this table; CON: indices of construction industry activity; IND: indices of industrial production; TERT: indices of tertiary industry activity; GOVT: indices of government services, etc.; ALL IND: indices of all industry activity

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

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

The structure of exports and imports of Japan is in Table VB-5. Japan imports all types of raw materials and fuels at rapidly increasing prices caused by the carry trade from zero interest rates to commodities, oscillating under shocks of risk aversion. Mineral fuels account for 33.4 percent of Japan’s imports and decreased 2.6 percent in the 12 months ending in Aug 2014 because of alternating carry trades into commodity futures in accordance with risk aversion together with yen devaluation. Weakness of world demand depresses prices of industrial goods. Manufactured products contribute 13.5 percent of Japan’s exports with decrease of 0.5 percent in the 12 months ending in Aug 2014. Machinery contributes 19.6 percent of Japan’s exports with increase of 1.1 percent in the 12 months ending in Aug 2014. Electrical machinery contributes 18.4 percent of Japan’s exports with decrease of 0.8 percent in the 12 months ending in Aug 2014. Exports of transport equipment with share of 20.8 percent in total exports decreased 3.2 percent in the 12 months ending in Aug 2014 but had been increasing at high rates because of the low level after the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. The breakdown of transport equipment in Table VB-5 shows decrease of the major categories of motor vehicles of 2.9 percent: cars decreased 2.6 percent with increase of 1.7 percent in the minor category of buses and trucks, decrease of 7.2 percent for parts of motor vehicles, increase of 3.4 percent for motorcycles and decrease of 10.3 percent for ships. The result of rising commodity prices and stable or declining prices of industrial products is pressure on Japan’s terms of trade with oscillations when risk aversion causes reversal of carry trades from zero interest rates to commodity prices. Data in Table VB-5 are in millions of yen that have been affected by recent depreciation of the yen relative to the USD with invoicing of many products in dollars in world trade.

Table VB-5, Japan, Structure and Growth of Exports and Imports % and ∆% Millions Yens

Aug 2014

Value JPY Millions

% of Total

12 Months ∆%

Contribution Degree %

Exports

5,705,991

100.0

-1.3

-1.3

Foodstuffs

41,568

0.7

8.2

0.1

Raw Materials

94,923

1.7

2.7

0.0

Mineral Fuels

113,482

2.0

-16.2

-0.4

Chemicals

629,009

11.0

-5.3

-0.6

Manufactured Goods

772,383

13.5

-0.5

-0.1

Machinery

1,116,771

19.6

1.1

0.2

Electrical Machinery

1,047,722

18.4

-0.8

-0.2

Transport Equipment

1,185,527

20.8

-3.2

-0.7

Motor Vehicles

771,840

13.5

-2.9

-0.4

Cars

662,678

11.6

-2.6

-0.3

Buses & Trucks

102,554

1.8

1.7

0.0

Parts of Motor Vehicles

264,387

4.6

-7.2

-0.4

Motorcycles

16,912

0.3

3.4

0.0

Ships

59,583

1.0

-10.3

-0.1

Other

704,608

12.3

2.1

0.3

Imports

6,654,458

100.0

-1.5

-1.5

Foodstuffs

546,648

8.2

0.1

0.0

Raw Materials

450,420

6.8

-7.5

-0.5

Mineral Fuels

2,220,120

33.4

-2.6

-0.9

Chemicals

536,614

8.1

4.9

0.4

Manufactured Goods

542,962

8.2

2.0

0.2

Machinery

472,372

7.1

2.6

0.2

Electrical Machinery

777,262

11.7

-2.4

-0.3

Transport Equipment

247,585

3.7

2.1

0.1

Other

860,476

12.9

-4.1

-0.5

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

Table VB-6 provides Japan’s exports, imports and trade balance in five-year intervals from 1950 to 1975 and then yearly from 1979 to 2013. Exports grew at the average yearly rate of 3.4 percent while imports grew at 3.6 percent per year in the years from 1979 to 2013. Abstracting from the global recession and the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011, exports grew at the average annual rate of 4.8 percent between 1979 and 2007 and imports at 4.0 percent. The global recession had a brutal impact on Japan’s trade. Exports fell 35.5 percent from 2007 to 2009 while imports fell 29.6 percent. Japan had the first trade deficit in 2011 since 1980 and the highest deficits in 2012 and 2013.

Table VB-6, Japan, Exports and Imports Calendar Year 1950-2013 Billion Yen

Years

Exports

Imports

Balance

1950

298

348

-50

1955

723

889

-166

1960

1,459

1,616

-157

1965

3,042

2,940

102

1970

6,954

6,797

157

1975

16,545

17,170

-625

1979

22,531

24,245

-1,714

1980

29,382

31,995

-2,613

1981

33,468

31,464

2,004

1982

34,432

32,656

1,776

1983

34,909

30,014

4,895

1984

40,325

32,321

8,004

1985

41,955

31,084

10,871

1986

35,289

21,550

13,739

1987

33,315

21,736

11,579

1988

33,939

24,006

9,933

1989

37,822

28,978

8,844

1990

41,456

33,855

7,601

1991

42,359

31,900

10,459

1992

43,012

29,527

13,485

1993

40,202

26,826

13,376

1994

40,497

28,104

12,393

1995

41,530

31,548

9,982

1996

44,731

37,993

6,738

1997

50,937

40,956

9,981

1998

50,645

36,653

13,992

1999

47,547

35,268

12,279

2000

51,654

40,938

10,716

2001

48,979

42,415

6,564

2002

52,108

42,227

9,881

2003

54,548

44,362

10,186

2004

61,169

49,216

11,953

2005

65,656

56,949

8,707

2006

75,246

67,344

7,902

2007

83,931

73,135

10,796

2008

81,018

78,955

2,063

2009

54,170

51,499

2,671

2010

67,399

60,764

6,635

2011

65,546

68,111

-2,565

2012

63,748

70,689

-6,941

2013

69,774

81,243

-11,469

Source: Japan, Ministry of Finance

http://www.customs.go.jp/toukei/info/index_e.htm

The geographical breakdown of exports and imports of Japan with selected regions and countries is provided in Table VB-7 for Aug 2014. The share of Asia in Japan’s trade is close to one-half for 56.1 percent of exports and 42.6 percent of imports. Within Asia, exports to China are 19.6 percent of total exports and imports from China 20.3 percent of total imports. While exports to China decreased 0.2 percent in the 12 months ending in Aug 2014, imports from China decreased 5.3 percent. The second largest export market for Japan in Aug 2014 is the US with share of 17.9 percent of total exports, which is close to that of China, and share of imports from the US of 9.6 percent in total imports. Japan’s exports to the US decreased 4.4 percent in the 12 months ending in Aug 2014 and imports from the US increased 10.7 percent. Western Europe has share of 10.6 percent in Japan’s exports and of 10.1 percent in imports. Rates of growth of exports of Japan in Aug 2014 are 2.5 percent for exports to the US, minus 23.8 percent for exports to Brazil and 6.5 percent for exports to Germany. Comparisons relative to 2011 may have some bias because of the effects of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Deceleration of growth in China and the US and threat of recession in Europe can reduce world trade and economic activity. Growth rates of imports in the 12 months ending in Aug 2014 are mixed. Imports from Asia decreased 3.1 percent in the 12 months ending in Aug 2014 while imports from China decreased 5.3 percent. Data are in millions of yen, which may have effects of recent depreciation of the yen relative to the United States dollar (USD).

Table VB-7, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yen

Aug 2014

Exports
Millions Yen

12 months ∆%

Imports Millions Yen

12 months ∆%

Total

5,705,991

-1.3

6,654,458

-1.5

Asia

3,199,633

% Total 56.1

-0.6

2,833,455 % Total 42.6

-3.1

China

1,116,035

% Total 19.6

-0.2

1,349,909 % Total 20.3

-5.3

USA

1,022,583

% Total 17.9

-4.4

637,130 % Total

9.6

10.7

Canada

60,633

-15.4

98,471

5.2

Brazil

40,471

-23.8

83,507

3.9

Mexico

88,939

27.8

38,311

15.8

Western Europe

602,889 % Total 10.6

2.5

674,439 % Total 10.1

-2.0

Germany

160,640

6.5

198,022

-5.6

France

44,220

-9.2

79,459

-3.1

UK

95,219

5.4

55,689

6.8

Middle East

199,347

8.1

1,341,799

2.1

Australia

113,671

-18.5

417,196

-4.6

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

Table VB-8 provides the trade balance of Japan by countries and regions in Aug 2014. The significantly large deficits of JPY 1,142,452 million with the Middle East, JPY 233,874 million with China, JPY 303,525 million with Australia and JPY 71,550 million with Western Europe exceed surpluses of JPY 385,453 million with the US, JPY 50,628 million with Mexico and JPY 39,530 million with the UK.

Table VB-8, Japan, Trade Balance, Millions of Yen

Aug 2014

Millions of Yen

Total

-948,467

Asia

366,178

China

-233,874

USA

385,453

Canada

-37,838

Brazil

-43,036

Mexico

50,628

Western Europe

-71,550

Germany

-37,382

France

-35,239

UK

39,530

Middle East

-1,142,452

Australia

-303,525

Source: Japan, Ministry of Finance

http://www.customs.go.jp/toukei/info/index_e.htm

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 3.9 percent in IIIQ2011. Net trade added 1.7 percentage points to GDP growth in IQ2013 and 0.2 percentage points in IIQ2013 but deducted 1.6 percentage points in IIIQ2013 and deducted 2.4 percentage points in IVQ2013. Net trade deducted 0.8 percentage points from GDP growth in IQ2014. Net trade added 4.3 percentage points to GDP growth in IIQ2014. 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

-0.8

4.2

-5.0

II

4.3

-0.3

4.7

2013

      

I

1.7

2.4

-0.8

II

0.2

1.8

-1.5

III

-1.6

-0.4

-1.2

IV

-2.4

0.2

-2.5

2012

      

I

0.4

1.7

-1.3

II

-1.4

-0.3

-1.2

III

-1.9

-2.5

0.5

IV

-0.5

-1.9

1.3

2011

      

I

-1.2

-0.4

-0.7

II

-4.5

-4.6

0.2

III

3.9

5.7

-1.9

IV

-3.0

-1.9

-1.0

2010

      

I

2.2

3.5

-1.3

II

0.0

2.6

-2.7

III

0.5

1.4

-0.9

IV

-0.3

0.1

-0.4

2009

      

I

-4.4

-16.4

12.0

II

7.3

4.7

2.7

III

2.2

5.3

-3.1

IV

2.8

4.1

-1.3

2008

      

I

1.2

2.1

-0.9

II

0.4

-1.6

2.0

III

0.0

0.2

-0.2

IV

-11.4

-10.2

-1.2

2007

      

I

1.2

1.7

-0.5

II

0.7

1.6

-0.9

III

2.0

1.5

0.6

IV

1.4

2.1

-0.6

Source: Japan Economic and Social Research Institute, Cabinet Office

http://www.esri.cao.go.jp/index-e.html

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

There was milder increase in Japan’s export corporate goods price index during the global recession in 2008 but similar sharp decline during the bank balance sheets effect in late 2008, as shown in Chart IV-5 of the Bank of Japan. Japan exports industrial goods whose prices have been less dynamic than those of commodities and raw materials. As a result, the export CGPI on the yen basis in Chart IV-5 trends down with oscillations after a brief rise in the final part of the recession in 2009. The export corporate goods price index on the yen basis fell from 104.9 in Jun 2009 to 94.0 in Jan 2012 or minus 10.4 percent and increased to 109.0 in Aug 2014 for a gain of 16.0 percent relative to Jan 2012 and 3.9 percent relative to Jun 2009. The choice of Jun 2009 is designed to capture the reversal of risk aversion beginning in Sep 2008 with the announcement of toxic assets in banks that would be withdrawn with the Troubled Asset Relief Program (TARP) (Cochrane and Zingales 2009). Reversal of risk aversion in the form of flight to the USD and obligations of the US government opened the way to renewed carry trades from zero interest rates to exposures in risk financial assets such as commodities. Japan exports industrial products and imports commodities and raw materials.

clip_image007

Chart IV-5, Japan, Export Corporate Goods Price Index, Monthly, Yen Basis, 2008-2014

Source: Bank of Japan

http://www.stat-search.boj.or.jp/index_en.html

Chart IV-5A provides the export corporate goods price index on the basis of the contract currency. The export corporate goods price index on the basis of the contract currency increased from 97.9 in Jun 2009 to 103.1 in Apr 2012 or 5.3 percent but dropped to 98.3 in Aug 2014 or minus 4.7 percent relative to Apr 2012 and gained 0.4 percent to 98.3 in Aug 2014 relative to Jun 2009.

clip_image008

Chart IV-5A, Japan, Export Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2014

Source: Bank of Japan

http://www.stat-search.boj.or.jp/index_en.html

Japan imports primary commodities and raw materials. As a result, the import corporate goods price index on the yen basis in Chart IV-6 shows an upward trend after declining from the increase during the global recession in 2008 driven by carry trades from fed funds rates. The index increases with carry trades from zero interest rates into commodity futures and declines during risk aversion from late 2008 into beginning of 2008 originating in doubts about soundness of US bank balance sheets. More careful measurement should show that the terms of trade of Japan, export prices relative to import prices, declined during the commodity shocks originating in unconventional monetary policy. The decline of the terms of trade restricted potential growth of income in Japan (for the relation of terms of trade and growth see Pelaez 1979, 1976a). The import corporate goods price index on the yen basis increased from 93.5 in Jun 2009 to 113.1 in Apr 2012 or 21.0 percent and to 126.7 in Aug 2014 or gain of 12.0 percent relative to Apr 2012 and 35.5 percent relative to Jun 2009.

clip_image009

Chart IV-6, Japan, Import Corporate Goods Price Index, Monthly, Yen Basis, 2008-2014

Source: Bank of Japan

http://www.stat-search.boj.or.jp/index_en.html

Chart IV-6A provides the import corporate goods price index on the contract currency basis. The import corporate goods price index on the basis of the contract currency increased from 86.2 in Jun 2009 to 119.5 in Apr 2012 or 38.6 percent and to 112.3 in Aug 2014 or minus 6.0 percent relative to Apr 2012 and gain of 30.3 percent relative to Jun 2009. There is evident deterioration of the terms of trade of Japan: the export corporate goods price index on the basis of the contract currency increased 0.4 percent from Jun 2009 to Aug 2014 while the import corporate goods price index increased 30.3 percent. Prices of Japan’s exports of corporate goods, mostly industrial products, increased only 5.3 percent from Jun 2009 to Apr 2012, while imports of corporate goods, mostly commodities and raw materials increased 38.6 percent. Unconventional monetary policy induces carry trades from zero interest rates to exposures in commodities that squeeze economic activity of industrial countries by increases in prices of imported commodities and raw materials during periods without risk aversion. Reversals of carry trades during periods of risk aversion decrease prices of exported commodities and raw materials that squeeze economic activity in economies exporting commodities and raw materials. Devaluation of the dollar by unconventional monetary policy could increase US competitiveness in world markets but economic activity is squeezed by increases in prices of imported commodities and raw materials. Unconventional monetary policy causes instability worldwide instead of the mission of central banks of promoting financial and economic stability.

clip_image010

Chart IV-6A, Japan, Import Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2014

Source: Bank of Japan

http://www.stat-search.boj.or.jp/index_en.html

Table IV-6 provides the Bank of Japan’s Corporate Goods Price indexes of exports and imports on the yen and contract bases from Jan 2008 to Jul 2014. There are oscillations of the indexes that are shown vividly in the four charts above. For the entire period from Jan 2008 to Aug 2014, the export index on the contract currency basis decreased 0.9 percent and decreased 5.6 percent on the yen basis. For the entire period from Jan 2008 to Aug 2014, the import price index increased 11.5 percent on the contract currency basis and increased 6.5 percent on the yen basis. The charts show sharp deteriorations in relative prices of exports to prices of imports during multiple periods. Price margins of Japan’s producers are subject to periodic squeezes resulting from carry trades from zero interest rates of monetary policy to exposures in commodities.

Table IV-6, Japan, Exports and Imports Corporate Goods Price Index, Contract Currency Basis and Yen Basis

2008/01

99.2

115.5

100.7

119.0

2008/02

99.8

116.1

102.4

120.6

2008/03

100.5

112.6

104.5

117.4

2008/04

101.6

115.3

110.1

125.2

2008/05

102.4

117.4

113.4

130.4

2008/06

103.5

120.7

119.5

140.3

2008/07

104.7

122.1

122.6

143.9

2008/08

103.7

122.1

123.1

147.0

2008/09

102.7

118.3

117.1

137.1

2008/10

100.2

109.6

109.1

121.5

2008/11

98.6

104.5

97.8

105.8

2008/12

97.9

100.6

89.3

93.0

2009/01

98.0

99.5

85.6

88.4

2009/02

97.5

100.1

85.7

89.7

2009/03

97.3

104.2

85.2

93.0

2009/04

97.6

105.6

84.4

93.0

2009/05

97.5

103.8

84.0

90.8

2009/06

97.9

104.9

86.2

93.5

2009/07

97.5

103.1

89.2

95.0

2009/08

98.3

104.4

89.6

95.8

2009/09

98.3

102.1

91.0

94.7

2009/10

98.0

101.2

91.0

94.0

2009/11

98.4

100.8

92.8

94.8

2009/12

98.3

100.7

95.4

97.5

2010/01

99.4

102.2

97.0

100.0

2010/02

99.7

101.6

97.6

99.8

2010/03

99.7

101.8

97.0

99.2

2010/04

100.5

104.6

99.9

104.6

2010/05

100.7

102.9

101.7

104.9

2010/06

100.1

101.6

100.0

102.3

2010/07

99.4

99.0

99.9

99.8

2010/08

99.1

97.3

99.5

97.5

2010/09

99.4

97.0

100.0

97.2

2010/10

100.1

96.4

100.5

95.8

2010/11

100.7

97.4

102.6

98.2

2010/12

101.2

98.3

104.4

100.6

2011/01

102.1

98.6

107.2

102.6

2011/02

102.9

99.5

109.0

104.3

2011/03

103.5

99.6

111.8

106.3

2011/04

104.1

101.7

115.9

111.9

2011/05

103.9

99.9

118.8

112.4

2011/06

103.8

99.3

117.5

110.5

2011/07

103.6

98.3

118.3

110.2

2011/08

103.6

96.6

118.6

108.1

2011/09

103.7

96.1

117.0

106.2

2011/10

103.0

95.2

116.6

105.6

2011/11

101.9

94.8

115.4

105.4

2011/12

101.5

94.5

116.1

106.2

2012/01

101.8

94.0

115.0

104.2

2012/02

102.4

95.8

115.8

106.4

2012/03

102.9

99.2

118.3

112.9

2012/04

103.1

98.7

119.5

113.1

2012/05

102.3

96.3

118.1

109.8

2012/06

101.4

95.0

115.2

106.7

2012/07

100.6

94.0

112.0

103.5

2012/08

100.9

94.1

112.4

103.6

2012/09

101.0

94.1

114.7

105.2

2012/10

101.1

94.7

113.8

105.2

2012/11

100.9

95.9

113.2

106.5

2012/12

100.7

98.0

113.4

109.5

2013/01

101.0

102.4

113.8

115.4

2013/02

101.5

105.9

114.8

120.2

2013/03

101.3

106.6

115.1

122.0

2013/04

100.2

107.5

114.1

123.8

2013/05

99.6

109.1

112.6

125.3

2013/06

99.2

106.1

112.0

121.2

2013/07

99.1

107.5

111.6

122.8

2013/08

99.0

106.1

111.7

121.2

2013/09

99.0

107.2

112.9

123.9

2013/10

99.2

106.7

113.0

122.8

2013/11

99.1

108.0

113.1

124.9

2013-12

99.1

110.4

113.8

129.0

2014-01

99.2

110.7

114.4

130.1

2014-02

98.9

109.3

113.8

127.7

2014-03

98.6

109.0

113.4

127.4

2014-04

98.5

109.2

112.7

126.9

2014-05

98.3

108.4

112.5

126.0

2014-06

98.1

108.3

112.6

126.3

2014-07

98.2

108.2

112.6

126.0

2014-08

98.3

109.0

112.3

126.7

Source: Bank of Japan

http://www.boj.or.jp/en/statistics/index.htm/

Chart IV-7 provides the monthly corporate goods price index (CGPI) of Japan from 1970 to 2014. Japan also experienced sharp increase in inflation during the 1970s as in the episode of the Great Inflation in the US. Monetary policy focused on accommodating higher inflation, with emphasis solely on the mandate of promoting employment, has been blamed as deliberate or because of model error or imperfect measurement for creating the Great Inflation (http://cmpassocregulationblog.blogspot.com/2011/05/slowing-growth-global-inflation-great.html http://cmpassocregulationblog.blogspot.com/2011/04/new-economics-of-rose-garden-turned.html http://cmpassocregulationblog.blogspot.com/2011/03/is-there-second-act-of-us-great.html and Appendix I The Great Inflation; see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB and http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). A remarkable similarity with US experience is the sharp rise of the CGPI of Japan in 2008 driven by carry trades from policy interest rates rapidly falling to zero to exposures in commodity futures during a global recession. Japan had the same sharp waves of consumer price inflation during the 1970s as in the US (see Chart IV-26 and associated table at http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks_71.html http://cmpassocregulationblog.blogspot.com/2014/07/world-inflation-waves-united-states_49.html http://cmpassocregulationblog.blogspot.com/2014/06/financial-indecision-mediocre-cyclical_6089.html http://cmpassocregulationblog.blogspot.com/2014/06/financial-instability-mediocre-cyclical_4827.html http://cmpassocregulationblog.blogspot.com/2014/03/financial-uncertainty-mediocre-cyclical_8145.html http://cmpassocregulationblog.blogspot.com/2014/03/financial-risks-slow-cyclical-united.html http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html http://cmpassocregulationblog.blogspot.com/2013/12/collapse-of-united-states-dynamism-of.html http://cmpassocregulationblog.blogspot.com/2013/12/exit-risks-of-zero-interest-rates-world_1.html and earlier http://cmpassocregulationblog.blogspot.com/2013/10/twenty-eight-million-unemployed-or_561.html and at http://cmpassocregulationblog.blogspot.com/2013/09/increasing-interest-rate-risk_1.html http://cmpassocregulationblog.blogspot.com/2012/07/recovery-without-jobs-stagnating-real_09.html).

clip_image011

Chart IV-7, Japan, Domestic Corporate Goods Price Index, Monthly, 1970-2014

Source: Bank of Japan

http://www.stat-search.boj.or.jp/index_en.html

The producer price index of the US from 1970 to 2014 in Chart IV-8 shows various periods of more rapid or less rapid inflation but no bumps. The major event is the decline in 2008 when risk aversion because of the global recession caused the collapse of oil prices from $148/barrel to less than $80/barrel with most other commodity prices also collapsing. The event had nothing in common with explanations of deflation but rather with the concentration of risk exposures in commodities after the decline of stock market indexes. Eventually, there was a flight to government securities because of the fears of insolvency of banks caused by statements supporting proposals for withdrawal of toxic assets from bank balance sheets in the Troubled Asset Relief Program (TARP), as explained by Cochrane and Zingales (2009). The bump in 2008 with decline in 2009 is consistent with the view that zero interest rates with subdued risk aversion induce carry trades into commodity futures.

clip_image012

Chart IV-8, US, Producer Price Index Finished Goods, Monthly, 1970-2014

Source: US Bureau of Labor Statistics

http://www.bls.gov/ppi/

Further insight into inflation of the corporate goods price index (CGPI) of Japan is provided in Table IV-7. The increase in the tax on value added of consumption caused sharp increases in prices across all segments. Petroleum and coal with weight of 5.7 percent decreased 1.1 percent in Aug 2014 and increased 8.4 percent in 12 months. Japan exports manufactured products and imports raw materials and commodities such that the country’s terms of trade, or export prices relative to import prices, deteriorate during commodity price increases. In contrast, prices of production machinery, with weight of 3.1 percent, decreased 0.1 percent in Aug 2014 and increased 3.5 percent in 12 months. In general, most manufactured products have been experiencing negative or low increases in prices while inflation rates have been high in 12 months for products originating in raw materials and commodities. Ironically, unconventional monetary policy of zero interest rates and quantitative easing that intended to increase aggregate demand and GDP growth deteriorated the terms of trade of advanced economies with adverse effects on real income (for analysis of terms of trade and growth see Pelaez (1979, 1976a). There are now inflation effects of the intentional policy of devaluing the yen.

Table IV-7, Japan, Corporate Goods Prices and Selected Components, % Weights, Month and 12 Months ∆%

Aug 2014

Weight

Month ∆%

12 Month ∆%

Total

1000.0

-0.2

3.9

Food, Beverages, Tobacco, Feedstuffs

137.5

0.0

3.1

Petroleum & Coal

57.4

-1.1

8.4

Production Machinery

30.8

-0.1

3.5

Electronic Components

31.0

0.1

-1.3

Electric Power, Gas & Water

52.7

-0.3

8.4

Iron & Steel

56.6

0.0

5.0

Chemicals

92.1

-0.2

3.3

Transport
Equipment

136.4

0.0

2.8

Source: Bank of Japan

http://www.boj.or.jp/en/statistics/index.htm/

Percentage point contributions to change of the corporate goods price index (CGPI) in Jul 2014 are provided in Table IV-8 divided into domestic, export and import segments. The final block provides change in the corporate goods price without the effects of the increase in the tax on value added of consumption. In the domestic CGPI, decreasing 0.2 percent in Aug 2014, the energy shock is evident in the deduction of 0.02 percentage points by electric power, gas and water and 0.09 percentage points in petroleum and coal products in reversal of carry trades of exposures in commodity futures. The exports CGPI increased 0.1 percent on the basis of the contract currency with contribution of 0.08 percentage points by electric and electronic proucts and 0.05 percentage points by metals and related products. The imports CGPI decreased 0.3 percent on the contract currency basis. Petroleum, coal and natural gas products deducted 0.40 percentage points. Shocks of risk aversion cause unwinding carry trades that result in declining commodity prices with resulting downward pressure on price indexes. The volatility of inflation adversely affects financial and economic decisions worldwide. The final block D shows that the increase in the domestic corporate goods price index without the effects of the consumption tax is minus 0.1 percent.

Table IV-8, Japan, Percentage Point Contributions to Change of Corporate Goods Price Index

Groups Aug 2014

Contribution to Change Percentage Points

A. Domestic Corporate Goods Price Index

Monthly Change: 
-0.2%

Petroleum & Coal Products

-0.09

Agriculture, Forestry & Fishery Products

-0.03

Electric Power, Gas & Water

-0.02

B. Export Price Index

Monthly Change:   
0.1% contract currency

Electric & Electronic Products

0.08

Metals & Related Products

0.05

General Purpose, Production & Business Oriented Machinery

0.03

Chemicals & Related Products

0.03

Other Primary Products & Manufactured Goods

-0.05

C. Import Price Index

Monthly Change: -0.3% contract currency basis

Petroleum, Coal & Natural Gas

-0.40

Transportation Equipment

-0.02

Other Primary Products & Manufactured Goods

-0.02

Metals & Related Products

0.09

Textiles

0.05

Electric & Electronic Products

0.02

D. Domestic Corporate Goods Price Index Excluding Consumption Tax

Monthly Change: -0.1%

Petroleum & Coal Products

-0.09

Agriculture, Forestry & Fishery Products

-0.03

Electric Power, Gas & Water

-0.02

Source: Bank of Japan

http://www.boj.or.jp/en/statistics/index.htm/

There are two categories of responses in the Empire State Manufacturing Survey of the Federal Reserve Bank of New York (http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html): current conditions and expectations for the next six months. There are responses in the survey for two types of prices: prices received or inputs of production and prices paid or sales prices of products. Table IV-5 provides indexes for the two categories and within them for the two types of prices from Jan 2011 to Sep 2014. The index of current prices paid or costs of inputs increased from 16.13 in Dec 2012 to 23.91 in Sep 2014 while the index of current prices received or sales prices increased from 1.08 in Dec 2012 to 17.39 in Sep 2014. The farther the index is from the area of no change at zero, the faster the rate of change. Prices paid or of inputs at 23.91 in Sep 2014 are expanding at faster pace than prices received or of sales of products at 17.39. The index of future prices paid or expectations of costs of inputs in the next six months fell from 51.61 in Dec 2012 to 43.48 in Sep 2014 while the index of future prices received or expectation of sales prices in the next six months increased from 25.81 in Dec 2012 to 32.61 in Sep 2014. Priced paid or of inputs are expected to increase at a faster pace in the next six months than prices received or prices of sales products. Prices of sales of finished products are less dynamic than prices of costs of inputs during waves of increases. Prices of costs of costs of inputs fall less rapidly than prices of sales of finished products during waves of price decreases. As a result, margins of prices of sales less costs of inputs oscillate with typical deterioration against producers, forcing companies to manage tightly costs and labor inputs. Instability of sales/costs margins discourages investment and hiring.

Table IV-5, US, FRBNY Empire State Manufacturing Survey, Diffusion Indexes, Prices Paid and Prices Received, SA

 

Current Prices Paid

Current Prices Received

Six Months Prices Paid

Six Months Prices Received

Sep 2014

23.91

17.39

43.48

32.61

Aug

27.27

7.95

42.05

21.59

Jul

25.00

6.82

37.50

18.18

Jun

17.20

4.30

36.56

16.13

May

19.78

6.59

31.87

14.29

Apr

22.45

10.20

33.67

14.29

Mar

21.18

2.35

43.53

25.88

Feb

25.00

15.00

40.00

23.75

Jan

36.59

13.41

45.12

23.17

Dec 2013

15.66

3.61

48.19

27.71

Nov

17.11

-3.95

42.11

17.11

Oct

21.69

2.41

45.78

25.30

Sep

21.51

8.60

39.78

24.73

Aug

20.48

3.61

40.96

19.28

Jul

17.39

1.09

28.26

11.96

Jun

20.97

11.29

45.16

17.74

May

20.45

4.55

29.55

14.77

Apr

28.41

5.68

44.32

14.77

Mar

25.81

2.15

50.54

23.66

Feb

26.26

8.08

44.44

13.13

Jan

22.58

10.75

38.71

21.51

Dec 2012

16.13

1.08

51.61

25.81

Nov

14.61

5.62

39.33

15.73

Oct

17.20

4.30

44.09

24.73

Sep

19.15

5.32

40.43

23.40

Aug

16.47

2.35

31.76

14.12

Jul

7.41

3.70

35.80

16.05

Jun

19.59

1.03

34.02

17.53

May

37.35

12.05

57.83

22.89

Apr

45.78

19.28

50.60

22.89

Mar

50.62

13.58

66.67

32.10

Feb

25.88

15.29

62.35

34.12

Jan

26.37

23.08

53.85

30.77

Dec 2011

24.42

3.49

56.98

36.05

Nov

18.29

6.10

36.59

25.61

Oct

22.47

4.49

40.45

17.98

Sep

32.61

8.70

53.26

22.83

Aug

28.26

2.17

42.39

15.22

Jul

43.33

5.56

51.11

30.00

Jun

56.12

11.22

55.10

19.39

May

69.89

27.96

68.82

35.48

Apr

57.69

26.92

56.41

38.46

Mar

53.25

20.78

71.43

36.36

Feb

45.78

16.87

55.42

27.71

Jan 2011

35.79

15.79

60.00

42.11

Source: http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html

Price indexes of the Federal Reserve Bank of Philadelphia Outlook Survey are in Table IV-6. As inflation waves throughout the world (Section I and earlier http://cmpassocregulationblog.blogspot.com/2014/08/monetary-policy-world-inflation-waves.html), indexes of both current and expectations of future prices paid and received were quite high until May 2011. Prices paid, or inputs, were more dynamic, reflecting carry trades from zero interest rates to commodity futures. All indexes softened after May 2011 with even decline of prices received in Aug 2011 during the first round of risk aversion. Current and future price indexes have increased again but not back to the intensity in the beginning of 2011 because of risk aversion frustrating carry trades even induced by zero interest rates. The index of prices paid or prices of inputs increased from 20.6 in Dec 2012 to 27.0 in Sep 2014. The index of current prices received was minus 7.2 in Apr 2013, indicating decrease of prices received. The index of current prices received decreased from 10.9 in Dec 2012 to 8.8 in Sep 2014. The farther the index is from the area of no change at zero, the faster the rate of change. The index of current prices paid or costs of inputs at 27.0 in Sep 2014 indicates faster increase than the index of current prices received or sales prices of production at 8.8. The index of future prices paid increased to 46.2 in Sep 2014 from 41.9 in Dec 2012 while the index of future prices received increased from 27.3 in Dec 2012 to 31.3 in Sep 2014. Expectations are incorporating faster increases in prices of inputs or costs of production, 46.2 in Sep 2014, than of sales prices of produced goods, 31.3 in Sep 2014, forcing companies to manage tightly costs and labor inputs. Volatility of margins of sales/costs discourages investment and hiring.

Table IV-6, US, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and Future Prices Paid and Prices Received, SA

 

Current Prices Paid

Current Prices Received

Future Prices Paid

Future Prices Received

10-Dec

42.6

6.0

56.8

25.7

11-Jan

47.9

12.1

58.7

34.1

11-Feb

61.1

13.2

62.6

30.7

11-Mar

57.6

17

62.1

32.4

11-Apr

50.9

20.8

55.3

33.7

11-May

49.3

20.5

54.6

28.5

11-Jun

38.9

7.7

41.6

6.8

11-Jul

35.6

6.3

48.3

16.7

11-Aug

24.6

-4

45.2

23.4

11-Sep

32

7.1

40.9

22.2

11-Oct

24.3

2.8

42.9

27.8

11-Nov

22.8

6.3

35.4

28.3

11-Dec

25

7

43.1

24.7

12-Jan

25.3

8

47.5

20.8

12-Feb

31.9

9.4

43.4

24.8

12-Mar

14.1

5.3

37.8

22.6

12-Apr

18.1

6.2

35.2

20.2

12-May

7.7

0.7

39.5

9.7

12-Jun

5.5

-3.7

34.8

16.9

12-Jul

10.8

4.9

27.9

20.3

12-Aug

18

5.6

39.5

25

12-Sep

15.8

3.5

42.2

27.5

12-Oct

19.9

7.1

45.8

15.3

12-Nov

23.6

6.5

47.6

12.8

12-Dec

20.6

10.9

41.9

27.3

13-Jan

11.8

-1.6

33.9

20

13-Feb

10.6

-1.3

25.4

20.6

13-Mar

7.6

-1.3

32.4

16.8

13-Apr

5

-7.2

28.9

9.9

13-May

9.7

0.2

33.5

19.9

13-Jun

23.7

14.6

33.3

24.3

13-Jul

22.7

8

41

25.6

13-Aug

20.4

11.1

40.7

24.5

13-Sep

25.9

12.5

43

31.6

13-Oct

21

12.8

43.1

34.6

13-Nov

25.4

9

43.5

38.1

13-Dec

16.4

10.8

39.1

34.8

14-Jan

18.7

5.1

35.3

11.8

14-Feb

14.2

7.6

18.2

16.3

14-Mar

13.9

4.3

29.4

15.9

14-Apr

11.3

4.3

35.1

13

14-May

23

17

36.1

29.5

14-Jun

35

14.1

44.5

30

14-Jul

34.7

16.8

38.2

23.5

14-Aug

24.9

4.2

50.3

29.5

14-Sep

27.0

8.8

46.2

31.3

Source: Federal Reserve Bank of Philadelphia

http://www.phil.frb.org/index.cfm

Chart IV-1 of the Business Outlook Survey of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices paid or prices of inputs from 2006 to 2014. Recession dates are in shaded areas. In the middle of deep global contraction after IVQ2007, input prices continued to increase in speculative carry trades from central bank policy rates falling toward zero into commodities futures. The index peaked above 70 in the second half of 2008. Inflation of inputs moderated significantly during the shock of risk aversion in late 2008, even falling briefly into contraction territory below zero during several months in 2009 in the flight away from risk financial assets into US government securities (Cochrane and Zingales 2009) that unwound carry trades. Return of risk appetite induced carry trade with significant increase until return of risk aversion in the first round of the European sovereign debt crisis in Apr 2010. Carry trades returned during risk appetite in expectation that the European sovereign debt crisis was resolved. The various inflation waves originating in carry trades induced by zero interest rates with alternating episodes of risk aversion are mirrored in the prices of inputs after 2011, in particular after Aug 2012 with the announcement of the Outright Monetary Transactions Program of the European Central Bank (http://www.ecb.int/press/pr/date/2012/html/pr120906_1.en.html). Subsequent risk aversion and flows of capital away from commodities into stocks and high-yield bonds caused sharp decline in the index of prices paid followed by another recent rebound with marginal decline and new increase. The index falls and then rebounds in the final segment but there are no episodes of contraction after 2009.

clip_image014

Chart IV-1, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

http://www.philadelphiafed.org/index.cfm

Chart IV-2 of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices received from 2006 to 2014. The significant difference between the index of current prices paid in Chart IV-1 and the index of current prices received in Chart IV-2 is that increases in prices paid are significantly sharper than increases in prices received. There were several periods of negative readings of prices received from 2010 to 2014 but none of prices paid. Prices paid relative to prices received deteriorate most of the time largely because of the carry trades from zero interest rates to commodity futures. Profit margins of business are compressed intermittently by fluctuations of commodity prices induced by unconventional monetary policy of zero interest rates, frustrating production, investment and hiring decisions of business, which is precisely the opposite outcome pursued by unconventional monetary policy.

clip_image016

Chart IV-2, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

http://www.philadelphiafed.org/index.cfm

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 index moved to 54.4 in Aug 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 decreased to 50.0 in Aug 2014.

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

 

Total Index

New Orders

Interm.
Input Prices

Subs Prices

Exp

Aug 2014

54.4

50.0

52.2

48.3

61.2

Jul

54.2

50.7

53.4

49.5

61.5

Jun

55.0

50.7

56.0

50.8

60.4

May

55.5

52.7

54.5

49.0

60.7

Apr

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

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

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, easing to 54.4 in Aug 2014.

ChCIPMNMW020140903479868834057_r75

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

Source: National Bureau of Statistics of China

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

Table CIPMMFG provides the index of purchasing managers of manufacturing seasonally adjusted of the National Bureau of Statistics of China. The general index (IPM) rose from 50.5 in Jan 2012 to 53.3 in Apr 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 51.1 in Aug 2014. The index of new orders fell from 54.5 in Apr 2012 to 51.2 in Dec 2012. The index of new orders fell from 52.3 in Nov 2013 to 52.0 in Dec 2013. The index fell to 50.9 in Jan 2014 and increased to 52.5 in Aug 2014.

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

 

IPM

PI

NOI

INV

EMP

SDEL

Aug 2014

51.1

53.2

52.5

48.6

48.2

50.0

Jul

51.7

54.2

53.6

49.0

48.3

50.2

Jun

51.0

53.0

52.8

48.0

48.6

50.5

May

50.8

52.8

52.3

48.0

48.2

50.3

Apr

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

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

China estimates the manufacturing index of purchasing managers on the basis of a sample of 820 enterprises (http://www.stats.gov.cn/english/pressrelease/t20121009_402841094.htm). Chart CIPMMFG provides the manufacturing index of purchasing managers. 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 moved to 51.1 in Aug 2014.

ChCIPMMFGW020140901593915813438_r75

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

Source: National Bureau of Statistics of China

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

Cumulative growth of China’s GDP in IIQ2014 relative to the same period in 2013 was 7.4 percent, as shown in Table VC-GDP. Secondary industry accounts for 46.0 percent of cumulative GDP in IIQ2014. In cumulative IIQ2014, industry alone accounts for 39.7 percent of GDP and construction with the remaining 6.3 percent. Tertiary industry accounts for 46.6 percent of cumulative GDP in IIQ2014 and primary industry for 7.4 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 6.6 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 6.1 percent in IQ2014 and increasing to 8.2 percent in IIQ2014.

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

Cumulative GDP IIQ2014

Value Current CNY Billion

2014 Year-on-Year Constant Prices ∆%

GDP

26,904.4

7.4

Primary Industry

1981.2

3.9

  Farming

1981.2

3.9

Secondary Industry

12,387.1

7.4

  Industry

10,681.4

7.2

  Construction

1,705.7

9.2

Tertiary Industry

12,536.1

8.0

  Transport, Storage, Post

1411.4

6.8

  Wholesale, Retail Trades

2,542.2

9.8

  Hotel & Catering Services

531.8

6.2

  Financial Intermediation

1,846.3

9.7

  Real Estate

1,745.3

2.5

  Other

4,459.1

8.9

Growth in Quarter Relative to Prior Quarter

∆% on Prior Quarter

∆% Annual Equivalent

2014

    

IIQ2014

2.0

8.2

IQ2014

1.5

6.1

2013

    

IVQ2013

1.7

7.0

IIIQ2013

2.3

9.5

IIQ2013

1.8

7.4

IQ2013

1.6

6.6

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 IIQ2014 relative to the same period in 2013 was 7.5 percent, as shown in Table VC-GDPA. Secondary industry accounts for 46.0 percent of GDP of which industry alone for 39.7 percent in cumulative IIQ2014 and construction with the remaining 6.3 percent. Tertiary industry accounts for 46.6 percent of GDP in cumulative IIQ2014 and primary industry for 7.4 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 7.7 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 1.5 percent in IQ2014 that is equivalent to 6.1 percent per year. GP grew 7.5 percent in IIQ2014 relative to a year earlier and 2.0 percent relative to the prior quarter, which is equivalent 8.2 percent.

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

IIQ 2014

    

GDP

7.7

7.5

7.8

7.7

7.4

7.5

   

Primary Industry

3.4

3.0

3.4

4.0

3.5

3.9

    

Secondary Industry

7.8

7.6

7.8

7.8

7.3

7.4

   

Tertiary Industry

8.3

8.3

8.4

8.3

7.1

8.0

   

GDP ∆% Relative to a Prior Quarter

1.6

1.8

2.3

1.7

1.5

2.0

    
 

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.

clip_image019

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.

ChVC-FXRW020140224376367389226

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.

ChVC-TradeW020140224376367380700

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/7e343c74b29f40e9bbaf5ed95d6a04a7) is deteriorating. The overall Flash HSBC China Manufacturing PMI™ decreased from 51.7 in Jul to 50.3 in Aug, while the Flash HSBC China Manufacturing Output Index decreased from 52.8 in Jul to 51.3 in Aug, indicating expansion at the lowest rate in three months. Exports orders indicate expansion at slower rate. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds need for monetary and fiscal stimulus (http://www.markiteconomics.com/Survey/PressRelease.mvc/7e343c74b29f40e9bbaf5ed95d6a04a7). The HSBC China Services PMI™, compiled by Markit, shows improvement in business activity in China with the HSBC Composite Output, combining manufacturing and services, increasing from 51.6 in Jul to 52.8 in Aug (http://www.markiteconomics.com/Survey/PressRelease.mvc/e45ad099b00744fbb41b746f47efe4ef). Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds need of easing policies in consolidating growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/e45ad099b00744fbb41b746f47efe4ef). The HSBC China Services Business Activity index increased from 50.0 in Jul to 54.1 in Aug (http://www.markiteconomics.com/Survey/PressRelease.mvc/e45ad099b00744fbb41b746f47efe4ef). Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, finds that the services PMI rose from 50.0 in Jul, which was the lowest in the history of the index since 2005, to 54.1 in Aug that is the highest in seventeen months (http://www.markiteconomics.com/Survey/PressRelease.mvc/e45ad099b00744fbb41b746f47efe4ef). The HSBC Purchasing Managers’ Index™ (PMI™), compiled by Markit, decreased to 50.2 in Aug from 51.7 in Jul, indicating near neutral manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/8522abed75f6421e9351b4633808ce90). New export orders and total new orders softened. Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC, finds weakening demand in China with possible need of policy enhancement (http://www.markiteconomics.com/Survey/PressRelease.mvc/8522abed75f6421e9351b4633808ce90). Table CNY provides the country data table for China.

Table CNY, China, Economic Indicators

Price Indexes for Industry

Aug 12-month ∆%: minus 1.2

Aug month ∆%: -0.2
Blog 9/14/14

Consumer Price Index

Aug month ∆%: 0.2 Aug 12 months ∆%: 2.0
Blog 9/14/14

Value Added of Industry

Aug month ∆%: 0.20

Jan-Aug 2014/Jan-Aug 2013 ∆%: 8.5
Blog 9/21/14

GDP Growth Rate

Year IIQ2014 ∆%: 7.5

First Half 2014 ∆%: 7.4
Quarter IIQ2014 AE ∆%: 8.2
Blog 7/20/14

Investment in Fixed Assets

Total Jan-Aug 2014 ∆%: 16.5

Real estate development: 13.2
Blog 9/21/14

Retail Sales

Aug month ∆%: 0.92
Aug 12 month ∆%: 11.9

Jan-Aug ∆%: 12.1
Blog 9/21/14

Trade Balance

Aug balance $49.8 billion
Exports 12M ∆% 9.4
Imports 12M ∆% -2.4

Cumulative Jan-Aug: $200.0 billion
Blog 9/14/14

Links to blog comments in Table CNY:

9/14/14 http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.html

7/20/14 http://cmpassocregulationblog.blogspot.com/2014/07/financial-irrational-exuberance.html

Cumulative and 12-months rates of value added of industry in China are provided in Table VC-1. Industry’s value added grew 8.5 percent in Jan-Aug 2014 relative to a year earlier and 6.9 percent in the 12 months ending in Aug 2014. Value added of industry grew 8.8 percent in Jan-Jul 2014 relative to a year earlier and 9.0 percent in the 12 months ending in Jun 2014. Value added of industry grew 8.8 percent in Jan-Jun 2014 relative to a year earlier and 9.2 percent in 12 months. Manufacturing grew 9.7 percent in Jan-Aug 2014 relative to a year earlier and 8.0 percent in 12 months. Mining and quarrying grew 4.9 percent in Jan-Aug 2014 relative to a year earlier and 4.2 percent in 12 months. Growth of total industry decelerated from cumulative 14.4 percent in Jan-Mar 2011 to 9.7 percent in Jan-Dec 2013 and 8.5 percent in Jan-Aug 2014.

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

 

Industry

Mining & Quarrying

Manufac-turing

State
Owned

Joint-Stock

2014

          

Jan-Aug

8.5

4.9

9.7

5.3

10.0

12M Aug

6.9

4.2

8.0

4.0

9.7

Jan-Jul

8.8

5.0

9.9

5.5

3.4

12M Jul

9.0

6.2

10.0

5.8

4.4

Jan-Jun

8.8

4.6

9.9

5.5

10.2

12M Jun

9.2

7.9

9.8

7.3

10.8

Jan-May

8.7

3.8

9.9

5.1

10.1

12M May

8.8

4.3

9.9

6.1

10.3

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 6.9 percent in Aug 2014.

clip_image022

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

Source: National Bureau of Statistics of China

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

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 to 4.4 percent of electricity output in Jan-Aug 2014 relative to a year earlier and contraction of 2.2 percent in the 12 months ending in Aug 2014. There are weaker readings in most segments with exception of 9.9 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-Aug

4.4

0.5

3.5

2.6

6.4

9.9

12M Aug

-2.2

0.2

3.0

1.0

9.5

3.1

Jan-Jul

5.5

0.4

3.7

2.8

5.9

10.9

12M Jul

3.3

-0.6

3.5

2.0

7.8

10.5

Jan-Jun

5.8

0.5

3.6

2.9

5.4

10.9

12 M Jun

5.7

2.3

0.8

5.8

4.6

11.2

Jan-May

5.7

0.2

4.1

2.3

4.9

10.8

12 M May

5.9

0.2

3.2

3.5

3.6

12.2

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

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

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 Jul 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 0.62 percent in Jul 2014 and 0.20 percent in Aug 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

0.74

Jun

0.62

Jul

0.90

Aug

1.09

Sep

0.65

Oct

0.75

Nov

0.66

Dec

0.63

Jan 2014

0.55

Feb

0.56

Mar

0.76

Apr

0.62

May

0.62

Jun

0.69

Jul

0.62

Aug

0.20

Source: National Bureau of Statistics of China

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

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-Aug 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-Aug 2014, investment in fixed assets in China grew 16.5 percent relative to a year earlier and 13.2 percent in real estate development. There was slight deceleration in the final two months of 2011 that continued into Jan-Dec 2013 and Jan-Aug 2014.

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

 

Total

State

Real Estate Development

Jan-Aug 2014

16.5

14.2

13.2

Jan-Jul

17.0

14.7

13.7

Jan-Jun

17.3

14.8

14.1

Jan-May

17.2

15.1

14.7

Jan-Apr

17.3

14.4

16.4

Jan-Mar

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

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

Chart VC-2 provides percentage changes of cumulative fixed asset investment in China relative to a year earlier from 2013 to 2014. Growth fell from 20.9 percent in Jan-Mar 2013 to 16.5 percent in Jan-Aug 2014.

clip_image022[1]

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

Source: National Bureau of Statistics of China

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

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 13.2 percent in Jan-Aug 2014.

clip_image023

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

Source: National Bureau of Statistics of China

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

Growth rates of China’s retail sales in 12 months and cumulative relative to a year earlier are in Table VC-5. There is decline of growth rates to cumulative 12.1 percent in Jan-Aug 2014 relative to a year earlier from 19.9 percent in Jan 2011 and 17.1 percent in Dec 2011.

Table VC-5, China, Retail Sales 12-Month ∆% and Cumulative ∆% Relative to Year Earlier

 

12-Month ∆%

Cumulative ∆%/
Cumulative
Year Earlier

2014

    

Jan-Aug

11.9

12.1

Jan-Jul

12.2

12.1

Jan-Jun

12.4

12.1

Jan-May

12.5

12.1

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

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

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-Aug 2014 relative to a year earlier.

clip_image024

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

Source: National Bureau of Statistics of China

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

Table VC-6 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-6, 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 1.37 percent in Mar 2014. Retail sales increased 0.92 percent in Aug 2014.

Table VC-6, 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

0.95

Jun

1.09

Jul

1.08

Aug

0.92

Sep

1.02

Oct

0.98

Nov

1.00

Dec

0.99

2014

  

Jan

0.89

Feb

0.50

Mar

1.37

Apr

0.78

May

1.12

Jun

0.91

Jul

0.87

Aug

0.92

Source: National Bureau of Statistics of China

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

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014

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