“Impatience” with Monetary Policy of Exchange Rates and Valuations of Financial Assets, United States Industrial Production, Unresolved US Balance of Payments Deficits and Fiscal Imbalance, United States Services, United States Producer Prices, World Cyclical Slow Growth and Global Recession Risk: Part IV

 

“Impatience” with Monetary Policy of Exchange Rates and Valuations of Financial Assets, United States Industrial Production, Unresolved US Balance of Payments Deficits and Fiscal Imbalance, United States Services, United States Producer Prices, World Cyclical Slow Growth and Global Recession Risk

Carlos M. Pelaez

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015

I United States Industrial Production

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

IIB United States Services

IIC United States Producer Prices

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

V World Economic Slowdown. Table V-1 is constructed with the database of the IMF (http://www.imf.org/external/ns/cs.aspx?id=28) to show GDP in dollars in 2012 and the growth rate of real GDP of the world and selected regional countries from 2013 to 2016. The data illustrate the concept often repeated of “two-speed recovery” of the world economy from the recession of 2007 to 2009. The IMF has changed its forecast of the world economy to 3.3 percent in 2013 but accelerating to 3.3 percent in 2014, 3.8 percent in 2015 and 4.0 percent in 2016. Slow-speed recovery occurs in the “major advanced economies” of the G7 that account for $34,523 billion of world output of $72,688 billion, or 47.5 percent, but are projected to grow at much lower rates than world output, 1.9 percent on average from 2013 to 2016 in contrast with 3.6 percent for the world as a whole. While the world would grow 15.2 percent in the four years from 2013 to 2016, the G7 as a whole would grow 8.5 percent. The difference in dollars of 2012 is rather high: growing by 15.2 percent would add around $11.0 trillion of output to the world economy, or roughly, two times the output of the economy of Japan of $5,938 billion but growing by 8.0 percent would add $5.8 trillion of output to the world, or about the output of Japan in 2012. The “two speed” concept is in reference to the growth of the 150 countries labeled as emerging and developing economies (EMDE) with joint output in 2012 of $27,512 billion, or 37.8 percent of world output. The EMDEs would grow cumulatively 20.7 percent or at the average yearly rate of 4.8 percent, contributing $5.7 trillion from 2013 to 2016 or the equivalent of somewhat less than the GDP of $8,387 billion of China in 2012. The final four countries in Table V-1 often referred as BRIC (Brazil, Russia, India, China), are large, rapidly growing emerging economies. Their combined output in 2012 adds to $14,511 billion, or 19.9 percent of world output, which is equivalent to 42.0 percent of the combined output of the major advanced economies of the G7.

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

	GDP USD 2012	Real GDP ∆% 2013	Real GDP ∆% 2014	Real GDP ∆% 2015	Real GDP ∆% 2016
World	72,688	3.3	3.3	3.8	4.0
G7	34,523	1.5	1.7	2.3	2.3
Canada	1,709	2.0	2.3	2.4	2.4
France	2,688	0.3	0.4	1.0	1.6
DE	3,428	0.5	1.4	1.5	1.8
Italy	2,014	-1.9	-0.2	0.9	1.3
Japan	5,938	1.5	0.9	0.8	0.8
UK	2,471	1.7	3.2	2.7	2.4
US	16,163	2.2	2.2	3.1	3.0
Euro Area	12,220	-0.4	0.8	1.3	1.7
DE	3,428	0.5	1.4	1.5	1.8
France	2,688	0.3	0.4	1.0	1.6
Italy	2,014	-1.9	-0.2	0.9	1.3
POT	212	-1.4	1.0	1.5	1.7
Ireland	211	-0.3	1.7	2.5	2.5
Greece	249	-3.9	0.6	2.9	3.7
Spain	1,323	-1.2	1.3	1.7	1.8
EMDE	27,512	4.7	4.4	5.0	5.2
Brazil	2,248	2.5	0.3	1.4	2.2
Russia	2,017	1.3	0.2	0.5	1.5
India	1,859	5.0	5.6	6.4	6.5
China	8,387	7.7	7.4	7.1	6.8

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

Source: IMF World Economic Outlook databank http://www.imf.org/external/ns/cs.aspx?id=28

Continuing high rates of unemployment in advanced economies constitute another characteristic of the database of the WEO (http://www.imf.org/external/ns/cs.aspx?id=28). Table V-2 is constructed with the WEO database to provide rates of unemployment from 2012 to 2016 for major countries and regions. In fact, unemployment rates for 2013 in Table I-2 are high for all countries: unusually high for countries with high rates most of the time and unusually high for countries with low rates most of the time. The rates of unemployment are particularly high in 2013 for the countries with sovereign debt difficulties in Europe: 16.2 percent for Portugal (POT), 13.0 percent for Ireland, 27.3 percent for Greece, 26.1 percent for Spain and 12.2 percent for Italy, which is lower but still high. The G7 rate of unemployment is 7.1 percent. Unemployment rates are not likely to decrease substantially if slow growth persists in advanced economies.

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

	% Labor Force 2012	% Labor Force 2013	% Labor Force 2014	% Labor Force 2015	% Labor Force 2016
World	NA	NA	NA	NA	NA
G7	7.4	7.1	6.5	6.3	6.1
Canada	7.3	7.1	7.0	6.9	6.8
France	9.8	10.3	10.0	10.0	9.9
DE	5.5	5.3	5.3	5.3	5.3
Italy	10.7	12.2	12.6	12.0	11.3
Japan	4.3	4.0	3.7	3.8	3.8
UK	8.0	7.6	6.3	5.8	5.5
US	8.1	7.4	6.3	5.9	5.8
Euro Area	11.3	11.9	11.6	11.2	10.7
DE	5.5	5.3	5.3	5.3	5.3
France	9.8	10.3	10.0	10.0	9.9
Italy	10.7	12.2	12.6	12.0	11.3
POT	15.5	16.2	14.2	13.5	13.0
Ireland	14.7	13.0	11.2	10.5	10.1
Greece	24.2	27.3	25.8	23.8	20.9
Spain	24.8	26.1	24.6	23.5	22.4
EMDE	NA	NA	NA	NA	NA
Brazil	5.5	5.4	5.5	6.1	5.9
Russia	5.5	5.5	5.6	6.5	6.0
India	NA	NA	NA	NA	NA
China	4.1	4.1	4.1	4.1	4.1

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

Table V-3 provides the latest available estimates of GDP for the regions and countries followed in this blog from IQ2012 to IIIQ2014 available now for all countries. There are preliminary estimates for most countries for IVQ2014. Growth is weak throughout most of the world.

• Japan. The GDP of Japan increased 1.1 percent in IQ2012, 4.3 percent at SAAR (seasonally adjusted annual rate) and 3.5 percent relative to a year earlier but part of the jump could be the low level a year earlier because of the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan is experiencing difficulties with the overvalued yen because of worldwide capital flight originating in zero interest rates with risk aversion in an environment of softer growth of world trade. Japan’s GDP fell 0.4 percent in IIQ2012 at the seasonally adjusted annual rate (SAAR) of minus 1.4 percent, which is much lower than 4.3 percent in IQ2012. Growth of 3.5 percent in IIQ2012 in Japan relative to IIQ2011 has effects of the low level of output because of Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. Japan’s GDP contracted 0.5 percent in IIIQ2012 at the SAAR of minus 2.2 percent and increased 0.2 percent relative to a year earlier. Japan’s GDP decreased 0.2 percent in IVQ2012 at the SAAR of minus 0.6 percent and changed 0.0 percent relative to a year earlier. Japan grew 1.4 percent in IQ2013 at the SAAR of 5.6 percent and increased 0.5 percent relative to a year earlier. Japan’s GDP increased 0.8 percent in IIQ2013 at the SAAR of 3.3 percent and increased 1.4 percent relative to a year earlier. Japan’s GDP grew 0.4 percent in IIIQ2013 at the SAAR of 1.4 percent and increased 2.2 percent relative to a year earlier. In IVQ2013, Japan’s GDP decreased 0.3 percent at the SAAR of minus 1.2 percent, increasing 2.3 percent relative to a year earlier. Japan’s GDP increased 1.3 percent in IQ2014 at the SAAR of 5.1 percent and increased 2.4 percent relative to a year earlier. In IIQ2014, Japan’s GDP fell 1.6 percent at the SAAR of minus 6.4 percent and fell 0.3 percent relative to a year earlier. Japan’s GDP contracted 0.7 percent in IIIQ2014 at the SAAR of minus 2.6 percent and fell 1.4 percent relative to a year earlier. In IVQ2014, Japan’s GDP grew 0.4 percent, at the SAAR of 1.5 percent, decreasing 0.8 percent relative to a year earlier.
• China. China’s GDP grew 1.4 percent in IQ2012, annualizing to 5.7 percent, and 8.1 percent relative to a year earlier. The GDP of China grew at 2.1 percent in IIQ2012, which annualizes to 8.7 percent and 7.6 percent relative to a year earlier. China grew at 2.0 percent in IIIQ2012, which annualizes at 8.2 percent and 7.4 percent relative to a year earlier. In IVQ2012, China grew at 1.9 percent, which annualizes at 7.8 percent, and 7.9 percent in IVQ2012 relative to IVQ2011. In IQ2013, China grew at 1.7 percent, which annualizes at 7.0 percent and 7.8 percent relative to a year earlier. In IIQ2013, China grew at 1.8 percent, which annualizes at 7.4 percent and 7.5 percent relative to a year earlier. China grew at 2.3 percent in IIIQ2013, which annualizes at 9.5 percent and 7.9 percent relative to a year earlier. China grew at 1.8 percent in IVQ2013, which annualized to 7.4 percent and 7.6 percent relative to a year earlier. China’s GDP grew 1.6 percent in IQ2014, which annualizes to 6.6 percent, and 7.4 percent relative to a year earlier. China’s GDP grew 1.9 percent in IIQ2014, which annualizes at 7.8 percent, and 7.5 percent relative to a year earlier. China’s GDP grew 1.9 percent in IIIQ2014, which is equivalent to 7.8 percent in a year, and 7.3 percent relative to a year earlier. The GDP of China grew 1.5 percent in IVQ2014, which annualizes at 6.1 percent, and 7.3 percent relative to a year earlier. There is decennial change in leadership in China (http://www.xinhuanet.com/english/special/18cpcnc/index.htm). Growth rates of GDP of China in a quarter relative to the same quarter a year earlier have been declining from 2011 to 2014.
• Euro Area. GDP fell 0.1 percent in the euro area in IQ2012 and decreased 0.4 in IQ2012 relative to a year earlier. Euro area GDP contracted 0.3 percent IIQ2012 and fell 0.8 percent relative to a year earlier. In IIIQ2012, euro area GDP fell 0.1 percent and declined 0.8 percent relative to a year earlier. In IVQ2012, euro area GDP fell 0.4 percent relative to the prior quarter and fell 0.9 percent relative to a year earlier. In IQ2013, the GDP of the euro area fell 0.4 percent and decreased 1.2 percent relative to a year earlier. The GDP of the euro area increased 0.3 percent in IIQ2013 and fell 0.6 percent relative to a year earlier. In IIIQ2013, euro area GDP increased 0.2 percent and fell 0.3 percent relative to a year earlier. The GDP of the euro area increased 0.3 percent in IVQ2013 and increased 0.4 percent relative to a year earlier. In IQ2014, the GDP of the euro area increased 0.3 percent and 1.1 percent relative to a year earlier. The GDP of the euro area increased 0.1 percent in IIQ2014 and increased 0.8 percent relative to a year earlier. The euro area’s GDP increased 0.2 percent in IIIQ2014 and increased 0.8 percent relative to a year earlier. The GDP of the euro area increased 0.3 percent in IVQ2014 and increased 0.9 percent relative to a year earlier.
• Germany. The GDP of Germany increased 0.3 percent in IQ2012 and 1.5 percent relative to a year earlier. In IIQ2012, Germany’s GDP increased 0.1 percent and increased 0.3 percent relative to a year earlier but 0.8 percent relative to a year earlier when adjusted for calendar (CA) effects. In IIIQ2012, Germany’s GDP increased 0.1 percent and 0.1 percent relative to a year earlier. Germany’s GDP contracted 0.4 percent in IVQ2012 and decreased 0.3 percent relative to a year earlier. In IQ2013, Germany’s GDP decreased 0.4 percent and fell 1.8 percent relative to a year earlier. In IIQ2013, Germany’s GDP increased 0.8 percent and 0.5 percent relative to a year earlier. The GDP of Germany increased 0.3 percent in IIIQ2013 and 0.8 percent relative to a year earlier. In IVQ2013, Germany’s GDP increased 0.4 percent and 1.0 percent relative to a year earlier. The GDP of Germany increased 0.8 percent in IQ2014 and 2.6 percent relative to a year earlier. In IIQ2014, Germany’s GDP contracted 0.1 percent and increased 1.0 percent relative to a year earlier. The GDP of Germany increased 0.1 percent in IIIQ2014 and increased 1.2 percent relative to a year earlier. Germany’s GDP increased 0.7 percent in IVQ2014 and increased 1.6 percent relative to a year earlier.
• United States. Growth of US GDP in IQ2012 was 0.6 percent, at SAAR of 2.3 percent and higher by 2.6 percent relative to IQ2011. US GDP increased 0.4 percent in IIQ2012, 1.6 percent at SAAR and 2.3 percent relative to a year earlier. In IIIQ2012, US GDP grew 0.6 percent, 2.5 percent at SAAR and 2.7 percent relative to IIIQ2011. In IVQ2012, US GDP grew 0.0 percent, 0.1 percent at SAAR and 1.6 percent relative to IVQ2011. In IQ2013, US GDP grew at 2.7 percent SAAR, 0.7 percent relative to the prior quarter and 1.7 percent relative to the same quarter in 2013. In IIQ2013, US GDP grew at 1.8 percent in SAAR, 0.4 percent relative to the prior quarter and 1.8 percent relative to IIQ2012. US GDP grew at 4.5 percent in SAAR in IIIQ2013, 1.1 percent relative to the prior quarter and 2.3 percent relative to the same quarter a year earlier (http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.html and earlier (http://cmpassocregulationblog.blogspot.com/2015/02/financial-and-international.html) with weak hiring (http://cmpassocregulationblog.blogspot.com/2015/03/global-exchange-rate-struggle-recovery.html). In IVQ2013, US GDP grew 0.9 percent at 3.5 percent SAAR and 3.1 percent relative to a year earlier. In IQ2014, US GDP decreased 0.5 percent, increased 1.9 percent relative to a year earlier and fell 2.1 percent at SAAR. In IIQ2014, US GDP increased 1.1 percent at 4.6 percent SAAR and increased 2.6 percent relative to a year earlier. US GDP increased 1.2 percent in IIIQ2014 at 5.0 percent SAAR and increased 2.7 percent relative to a year earlier. In IVQ2014, US GDP increased 0.5 percent at SAAR of 2.2 percent and increased 2.4 percent relative to a year earlier.
• United Kingdom. In IQ2012, UK GDP increased 0.1 percent, increasing 1.0 percent relative to a year earlier. UK GDP fell 0.2 percent in IIQ2012 and increased 0.6 percent relative to a year earlier. UK GDP increased 0.8 percent in IIIQ2012 and increased 0.7 percent relative to a year earlier. UK GDP fell 0.3 percent in IVQ2012 relative to IIIQ2012 and increased 0.4 percent relative to a year earlier. UK GDP increased 0.6 percent in IQ2013 and 0.9 percent relative to a year earlier. UK GDP increased 0.6 percent in IIQ2013 and 1.7 percent relative to a year earlier. In IIIQ2013, UK GDP increased 0.7 percent and 1.6 percent relative to a year earlier. UK GDP increased 0.4 percent in IVQ2013 and 2.4 percent relative to a year earlier. In IQ2014, UK GDP increased 0.7 percent and 2.5 percent relative to a year earlier. UK GDP increased 0.8 percent in IIQ2014 and 2.6 percent relative to a year earlier. In IIIQ2014, UK GDP increased 0.7 percent and increased 2.5 percent relative to a year earlier. UK GDP increased 0.5 percent in IVQ2014 and increased 2.7 percent relative to a year earlier.
• Italy. Italy has experienced decline of GDP in nine consecutive quarters from IIIQ2011 to IIIQ2013 and in IIQ2014 and IIIQ2014. Italy’s GDP fell 0.9 percent in IQ2012 and declined 2.3 percent relative to IQ2011. Italy’s GDP fell 0.6 percent in IIQ2012 and declined 3.1 percent relative to a year earlier. In IIIQ2012, Italy’s GDP fell 0.6 percent and declined 3.1 percent relative to a year earlier. The GDP of Italy contracted 0.6 percent in IVQ2012 and fell 2.7 percent relative to a year earlier. In IQ2013, Italy’s GDP contracted 0.8 percent and fell 2.6 percent relative to a year earlier. Italy’s GDP fell 0.1 percent in IIQ2013 and 2.0 percent relative to a year earlier. The GDP of Italy increased 0.1 percent in IIIQ2013 and declined 1.4 percent relative to a year earlier. Italy’s GDP changed 0.0 percent in IVQ2013 and decreased 0.8 percent relative to a year earlier. In IQ2014, Italy’s GDP decreased 0.1 percent and fell 0.1 percent relative to a year earlier. The GDP of Italy fell 0.2 percent in IIQ2014 and declined 0.3 percent relative to a year earlier. In IIIQ2014, Italy’s GDP contracted 0.1 percent and fell 0.5 percent relative to a year earlier. The GDP of Italy changed 0.0 percent in IVQ20214 and declined 0.5 percent relative to a year earlier
• France. France’s GDP increased 0.2 percent in IQ2012 and increased 0.6 percent relative to a year earlier. France’s GDP decreased 0.3 percent in IIQ2012 and increased 0.4 percent relative to a year earlier. In IIIQ2012, France’s GDP increased 0.2 percent and increased 0.4 percent relative to a year earlier. France’s GDP fell 0.2 percent in IVQ2012 and changed 0.0 percent relative to a year earlier. In IQ2013, France’s GDP changed 0.0 percent and declined 0.2 percent relative to a year earlier. The GDP of France increased 0.7 percent in IIQ2013 and 0.7 percent relative to a year earlier. France’s GDP decreased 0.1 percent in IIIQ2013 and increased 0.3 percent relative to a year earlier. The GDP of France increased 0.3 percent in IVQ2013 and 0.8 percent relative to a year earlier. In IQ2014, France’s GDP changed 0.0 percent and increased 0.8 percent relative to a year earlier. In IIQ2014, France’s GDP contracted 0.1 percent and changed 0.0 percent relative to a year earlier. France’s GDP increased 0.3 percent in IIIQ2014 and increased 0.4 percent relative to a year earlier. The GDP of France increased 0.1 percent in IVQ2014 and increased 0.2 percent relative to a year earlier

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

	IQ2012/IVQ2011	IQ2012/IQ2011
United States	QOQ: 0.6        SAAR: 2.3	2.6
Japan	QOQ: 1.1 SAAR: 4.3	3.5
China	1.4	8.1
Euro Area	-0.1	-0.4
Germany	0.3	1.5
France	0.2	0.6
Italy	-0.9	-2.3
United Kingdom	0.1	1.0
	IIQ2012/IQ2012	IIQ2012/IIQ2011
United States	QOQ: 0.4         SAAR: 1.6	2.3
Japan	QOQ: -0.4 SAAR: -1.4	3.5
China	2.1	7.6
Euro Area	-0.3	-0.8
Germany	0.1	0.3 0.8 CA
France	-0.3	0.4
Italy	-0.6	-3.1
United Kingdom	-0.2	0.6
	IIIQ2012/ IIQ2012	IIIQ2012/ IIIQ2011
United States	QOQ: 0.6  SAAR: 2.5	2.7
Japan	QOQ: –0.5 SAAR: –2.2	0.2
China	2.0	7.4
Euro Area	-0.1	-0.8
Germany	0.1	0.1
France	0.2	0.4
Italy	-0.6	-3.1
United Kingdom	0.8	0.7
	IVQ2012/IIIQ2012	IVQ2012/IVQ2011
United States	QOQ: 0.0 SAAR: 0.1	1.6
Japan	QOQ: -0.2 SAAR: -0.6	0.0
China	1.9	7.9
Euro Area	-0.4	-0.9
Germany	-0.4	-0.3
France	-0.2	0.0
Italy	-0.6	-2.7
United Kingdom	-0.3	0.4
	IQ2013/IVQ2012	IQ2013/IQ2012
United States	QOQ: 0.7 SAAR: 2.7	1.7
Japan	QOQ: 1.4 SAAR: 5.6	0.5
China	1.7	7.8
Euro Area	-0.4	-1.2
Germany	-0.4	-1.8
France	0.0	-0.2
Italy	-0.8	-2.6
UK	0.6	0.9
	IIQ2013/IQ2013	IIQ2013/IIQ2012
United States	QOQ: 0.4 SAAR: 1.8	1.8
Japan	QOQ: 0.8 SAAR: 3.3	1.4
China	1.8	7.5
Euro Area	0.3	-0.6
Germany	0.8	0.5
France	0.7	0.7
Italy	-0.1	-2.0
UK	0.6	1.7
	IIIQ2013/IIQ2013	III/Q2013/  IIIQ2012
USA	QOQ: 1.1 SAAR: 4.5	2.3
Japan	QOQ: 0.4 SAAR: 1.4	2.2
China	2.3	7.9
Euro Area	0.2	-0.3
Germany	0.3	0.8
France	-0.1	0.3
Italy	0.1	-1.4
UK	0.7	1.6
	IVQ2013/IIIQ2013	IVQ2013/IVQ2012
USA	QOQ: 0.9 SAAR: 3.5	3.1
Japan	QOQ: -0.3 SAAR: -1.2	2.3
China	1.8	7.6
Euro Area	0.3	0.4
Germany	0.4	1.0
France	0.3	0.8
Italy	0.0	-0.8
UK	0.4	2.4
	IQ2014/IVQ2013	IQ2014/IQ2013
USA	QOQ -0.5 SAAR -2.1	1.9
Japan	QOQ: 1.3 SAAR: 5.1	2.4
China	1.6	7.4
Euro Area	0.3	1.1
Germany	0.8	2.6
France	0.0	0.8
Italy	-0.1	-0.1
UK	0.7	2.5
	IIQ2014/IQ2014	IIQ2014/IIQ2013
USA	QOQ 1.1 SAAR 4.6	2.6
Japan	QOQ: -1.6 SAAR: -6.4	-0.3
China	1.9	7.5
Euro Area	0.1	0.8
Germany	-0.1	1.0
France	-0.1	0.0
Italy	-0.2	-0.3
UK	0.8	2.6
	IIIQ2014/IIQ2014	IIIQ2014/IIIQ2013
USA	QOQ: 1.2 SAAR: 5.0	2.7
Japan	QOQ: -0.7 SAAR: -2.6	-1.4
China	1.9	7.3
Euro Area	0.2	0.8
Germany	0.1	1.2
France	0.3	0.4
Italy	-0.1	-0.5
UK	0.7	2.5
	IVQ2014/IIIQ2014	IVQ2014/IVQ2013
USA	QOQ: 0.5 SAAR: 2.2	2.4
Japan	QOQ: 0.4 SAAR: 1.5	-0.8
China	1.5	7.3
Euro Area	0.3	0.9
Germany	0.7	1.6
France	0.1	0.2
Italy	0.0	-0.5
UK	0.5	2.7

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

Source: Country Statistical Agencies http://www.census.gov/aboutus/stat_int.html

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

• Japan. Japan provides the most worrisome data (Section VB and earlier http://cmpassocregulationblog.blogspot.com/2015/02/world-financial-turbulence-squeeze-of.html and earlier (http://cmpassocregulationblog.blogspot.com/2015/02/financial-and-international.html and earlier http://cmpassocregulationblog.blogspot.com/2014/12/patience-on-interest-rate-increases.html and earlier (http://cmpassocregulationblog.blogspot.com/2014/11/squeeze-of-economic-activity-by-carry.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2014/08/monetary-policy-world-inflation-waves.html and earlier http://cmpassocregulationblog.blogspot.com/2014/07/world-inflation-waves-united-states.html and earlier (http://cmpassocregulationblog.blogspot.com/2014/06/valuation-risks-world-inflation-waves.html and earlier http://cmpassocregulationblog.blogspot.com/2014/05/united-states-commercial-banks-assets.html and earlier http://cmpassocregulationblog.blogspot.com/2014/05/financial-volatility-mediocre-cyclical.html and earlier http://cmpassocregulationblog.blogspot.com/2014/03/interest-rate-risks-world-inflation.html and earlier http://cmpassocregulationblog.blogspot.com/2014/03/financial-risks-slow-cyclical-united.html and earlier http://cmpassocregulationblog.blogspot.com/2014/02/mediocre-cyclical-united-states.html and earlier http://cmpassocregulationblog.blogspot.com/2013/12/tapering-quantitative-easing-mediocre.html and earlier http://cmpassocregulationblog.blogspot.com/2013/11/risks-of-zero-interest-rates-world.html http://cmpassocregulationblog.blogspot.com/2013/11/global-financial-risk-world-inflation.html http://cmpassocregulationblog.blogspot.com/2013/09/duration-dumping-and-peaking-valuations_8763.html http://cmpass ocregulationblog.blogspot.com/2013/08/interest-rate-risks-duration-dumping.html and earlier http://cmpassocregulationblog.blogspot.com/2013/07/duration-dumping-steepening-yield-curve.html and earlier http://cmpassocregulationblog.blogspot.com/2013/06/paring-quantitative-easing-policy-and_4699.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/05/united-states-commercial-banks-assets.html and earlier http://cmpassocregulationblog.blogspot.com/2013/04/world-inflation-waves-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2013/03/united-states-commercial-banks-assets.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/world-inflation-waves-united-states.html and earlier at http://cmpassocregulationblog.blogspot.com/2013/02/thirty-one-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2012/12/mediocre-and-decelerating-united-states_24.html and earlier http://cmpassocregulationblog.blogspot.com/2012/11/contraction-of-united-states-real_25.html and for GDP http://cmpassocregulationblog.blogspot.com/2013/09/recovery-without-hiring-ten-million.html and earlier http://cmpassocregulationblog.blogspot.com/2013/08/duration-dumping-and-peaking-valuations.html and earlier http://cmpassocreulationblog.blogspot.com/2013/02/recovery-without-hiring-united-states.html). In Feb 2015, Japan’s exports increased 2.4 percent in 12 months while imports decreased 3.6 percent. The second part of Table V-4 shows that net trade deducted 1.4 percentage points from Japan’s growth of GDP in IIQ2012, deducted 1.9 percentage points from GDP growth in IIIQ2012 and deducted 0.4 percentage points from GDP growth in IVQ2012. Net trade added 0.3 percentage points to GDP growth in IQ2012, 1.6 percentage points in IQ2013 and 0.2 percentage points in IIQ2013. In IIIQ2013, net trade deducted 1.5 percentage points from GDP growth in Japan. Net trade ducted 2.1 percentage points from GDP growth in Japan in IVQ2013. Net trade deducted 1.2 percentage point from GDP growth of Japan in IQ2014. Net trade added 4.2 percentage points to GDP growth in IIQ2014. Net trade added 0.2 percentage points to GDP growth in IIIQ2014 and added 0.9 percentage points in IVQ2014.

• China. In Feb 2015, China exports increased 48.3 percent relative to a year earlier and imports decreased 20.5 percent.
• Germany. Germany’s exports decreased 2.1 percent in the month of Jan 2015 and decreased 0.6 percent in the 12 months ending in Jan 2015. Germany’s imports decreased 0.8 percent in the month of Jan 2015 and decreased 0.3 percent in the 12 months ending in Jan. Net trade contributed 0.8 percentage points to growth of GDP in IQ2012, contributed 0.4 percentage points in IIQ2012, contributed 0.3 percentage points in IIIQ2012, deducted 0.5 percentage points in IVQ2012, deducted 0.3 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 0.5 percentage points to GDP growth in IVQ2013. Net trade deducted 0.1 percentage points from GDP growth in IQ2014. Net trade added 0.0 percentage points to GDP growth in IIQ2014 and added 0.4 percentage points in IIIQ2014. Net trade added 0.2 percentage points to GDP growth in IVQ2014.
• United Kingdom. Net trade contributed 0.7 percentage points in IIQ2013. In IIIQ2013, net trade deducted 1.7 percentage points from UK growth. Net trade contributed 0.1 percentage points to UK value added in IVQ2013. Net trade contributed 0.2 percentage points to UK value added in IQ2014 and 0.3 percentage points in IIQ2014. Net trade deducted 0.7 percentage points to GDP growth in IIIQ2014 and added 0.6 percentage points in IVQ2014.
• France. France’s exports decreased 2.5 percent in Jan 2015 while imports decreased 1.3 percent. France’s exports increased 1.3 percent in the 12 months ending in Jan 2015 and imports decreased 3.1 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 1.7 percentage points in IIIQ2013. Net trade added 0.1 percentage points to France’s GDP in IVQ2013 and deducted 0.1 percentage points in IQ2014. Net trade deducted 0.2 percentage points from France’s GDP growth in IIQ2014 and deducted 0.2 percentage points in IIIQ2014. Net trade added 0.1 percentage points to France’s GDP growth in IVQ2014.
• United States. US exports decreased 2.9 percent in Jan 2015 and goods exports decreased 4.7 percent in Jan 2015 relative to a year earlier. Imports decreased 3.9 percent in Jan 2015 and goods imports decreased 2.9 percent in Jan 2015 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 deducted 0.34 percentage points in IIQ2014. Net trade added 0.78 percentage points to IIIQ2014. Net trade deducted 1.15 percentage points from GDP growth in IVQ2014. Industrial production increased 0.2 percent in Jan 2015 and decreased 0.3 percent in Dec 2014 after increasing 1.1 percent in Nov 2014. Industrial production increased 0.1 percent in Feb 2015 and decreased 0.3 percent in Jan 2015 after decreasing 0.2 percent in Dec 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):

“Industrial production increased 0.1 percent in February after decreasing 0.3 percent in January. In February, manufacturing output moved down 0.2 percent, its third consecutive monthly decline. The rates of change for the total index in January and for manufacturing in both December and January are lower than previously reported. The index for mining fell 2.5 percent in February; drops in the indexes for coal mining and for oil and gas well drilling and servicing primarily accounted for the decrease. The output of utilities jumped 7.3 percent, as especially cold temperatures drove up demand for heating. At 105.8 percent of its 2007 average, total industrial production in February was 3.5 percent above its level of a year earlier. Capacity utilization for the industrial sector decreased to 78.9 percent in February, a rate that is 1.2 percentage points below its long-run (1972–2014) average.“ In the six months ending in Feb 2015, United States national industrial production accumulated increase of 1.4 percent at the annual equivalent rate of 2.8 percent, which is lower than growth of 3.5 percent in the 12 months ending in Feb 2015. Excluding growth of 1.2 percent in Nov 2014, growth in the remaining five months from Sep 2014 to Feb 2015 accumulated to 0.2 percent or 0.5 percent annual equivalent. Industrial production declined in three of the past six months. Industrial production contracted at annual equivalent 1.6 percent in the most recent quarter from Dec 2014 to Feb 2015 and expanded at 7.4 percent in the prior quarter Sep to Nov 2014. Business equipment accumulated growth of 0.9 percent in the six months from Sep 2014 to Feb 2015 at the annual equivalent rate of 1.8 percent, which is lower than growth of 4.0 percent in the 12 months ending in Feb 2015. The Fed analyzes capacity utilization of total industry in its report (http://www.federalreserve.gov/releases/g17/Current/default.htm): “Capacity utilization for the industrial sector decreased to 78.9 percent in February, a rate that is 1.2 percentage points below its long-run (1972–2014) average.” United States industry apparently decelerated to a lower growth rate followed by possible acceleration and oscillating growth in past months.

Manufacturing fell 21.9 from the peak in Jun 2007 to the trough in Apr 2009 and increased by 25.0 percent from the trough in Apr 2009 to Dec 2014. Manufacturing grew 24.3 percent from the trough in Apr 2009 to Feb 2015. Manufacturing output in Feb 2015 is 2.9 percent below the peak in Jun 2007. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IVQ2014 would have accumulated to 23.0 percent. GDP in IVQ2014 would be $18,438.0 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2,144.3 billion than actual $16,293.7 billion. There are about two trillion dollars of GDP less than at trend, explaining the 27.2 million unemployed or underemployed equivalent to actual unemployment/underemployment of 16.5 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2015/03/global-competitive-devaluation-rules.html and earlier http://cmpassocregulationblog.blogspot.com/2015/02/job-creation-and-monetary-policy-twenty.html and earlier http://cmpassocregulationblog.blogspot.com/2015/01/fluctuating-valuations-of-risk.html). US GDP in IVQ2014 is 11.6 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,293.7 billion in IVQ2014 or 8.7 percent at the average annual equivalent rate of 1.2 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. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth at average 3.3 percent per year from Feb 1919 to Feb 2015. Growth at 3.3 percent per year would raise the NSA index of manufacturing output from 99.2392 in Dec 2007 to 125.2379 in Feb 2015. The actual index NSA in Feb 2015 is 100.0312, which is 20.1 percent below trend. Manufacturing output grew at average 2.4 percent between Dec 1986 and Dec 2014, raising the index at trend to 117.6250 in Feb 2015. The output of manufacturing at 100.0312 in Feb 2015 is 15.0 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	-2.9 Jan	-4.7 Jan	-3.9 Jan	-2.9 Jan
Japan		Feb 2015 2.4 Jan 17.0 Dec 12.9 Nov 4.9 Oct 9.6 Sep 6.9 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		Feb 2015 -3.6 Jan -9.0 Dec 1.9 Nov -1.7 Oct 2.7 Sep 6.2 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		2015 48.3 Feb -3.3 Jan 2014 9.7 Dec 4.7 Nov 11.6 Oct 15.3 Sep 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		2015 -20.5 Feb -19.9 Jan 2014 -2.4 Dec -6.7 Nov 4.6 Oct 7.0 Sep -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	-0.4 12 M-Jan	2.2 Jan-Dec	-5.6 12-M Jan	0.1 Jan-Dec
Germany	-2.1 Jan CSA	-0.6 Jan	-0.8 Jan CSA	-0.3 Jan
France Jan	-2.5	1.3	-1.3	-3.1
Italy Jan	-2.5	-4.2	1.0	-4.2
UK	-2.3 Jan	-5.6 Nov 14-Jan 15 /Nov 13-Jan 14	-5.6 Jan	-2.9 Nov 14-Jan 15 /Nov 13-Jan 14
Net Trade % Points GDP Growth	% Points
USA	IVQ2014 -1.15 IIIQ2014 0.78 IIQ2014 -0.34 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	0.3 IQ2012 -1.4 IIQ2012 -1.9 IIIQ2012 -0.4 IVQ2012 1.6 IQ2013 0.2 IIQ2013 -1.5 IIIQ2013 -2.1 IVQ2013 -1.2 IQ2014 4.2 IIQ2014 0.2 IIIQ2014 0.9 IVQ2014
Germany	IQ2012 0.8 IIQ2012 0.4 IIIQ2012 0.3 IVQ2012 -0.5 IQ2013 -0.3 IIQ2013 0.1 IIIQ2013 -0.5 IVQ2013 0.5 IQ2014 -0.1 IIQ2014 0.0 IIIQ2014 0.4 IVQ2014 0.2
France	0.1 IIIQ2012 0.1 IVQ2012 -0.1 IQ2013 0.3 IIQ2013 -1.7 IIIQ2013 0.1 IVQ2013 -0.1 IQ2014 -0.2 IIQ2014 -0.2 IIIQ2014 0.1 IVQ2014
UK	0.7 IIQ2013 -1.7 IIIQ2013 0.1 IVQ2013 0.2 IQ2014 0.3 IIQ2014 -0.7 IIIQ2014 0.6 IVQ2014

Sources: Country Statistical Agencies http://www.census.gov/foreign-trade/

The geographical breakdown of exports and imports of Japan with selected regions and countries is in Table VB-5 for Feb 2015. The share of Asia in Japan’s trade is close to one-half for 51.6 percent of exports and 50.6 percent of imports. Within Asia, exports to China are 15.0 percent of total exports and imports from China 26.0 percent of total imports. While exports to China decreased 17.3 percent in the 12 months ending in Feb 2015, imports from China increased 39.4 percent. The largest export market for Japan in Feb 2015 is the US with share of 20.3 percent of total exports, which is close to that of China, and share of imports from the US of 9.2 percent in total imports. Japan’s exports to the US increased 14.3 percent in the 12 months ending in Feb 2015 and imports from the US increased 0.5 percent. Western Europe has share of 10.7 percent in Japan’s exports and of 10.7 percent in imports. Rates of growth of exports of Japan in Feb 2015 are 14.3 percent for exports to the US, 14.4 percent for exports to Brazil and minus 4.4 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 Feb 2015 are mixed. Imports from Asia decreased 3.0 percent in the 12 months ending in Feb 2015 while imports from China increased 16.8 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-5, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yen

Feb 2015	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	5,941,062	2.4	6,365,660	-3.6
Asia	3,068,435 % Total 51.6	-1.1	3,218,465 % Total 50.6	16.8
China	888,893 % Total 15.0	-17.3	1,657,797 % Total 26.0	39.4
USA	1,215,673 % Total 20.5	14.3	583,982 % Total 9.2	0.5
Canada	81,977	19.1	78,456	-8.8
Brazil	44,487	14.4	85,814	-10.4
Mexico	96,650	16.4	43,839	21.5
Western Europe	634,818 % Total 10.7	1.7	679,425 % Total 10.7	-3.9
Germany	158,600	-4.4	194,294	-9.4
France	54,121	6.4	86,072	7.3
UK	86,176	-1.9	51,802	-1.7
Middle East	256,291	11.0	763,137	-42.6
Australia	129,414	2.5	364,356	-2.7

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

World trade projections of the IMF are in Table V-6. There is increasing growth of the volume of world trade of goods and services from 3.0 percent in 2013 to 5.0 percent in 2015 and 5.6 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	3.8	5.0	5.6
Exports Goods & Services	3.2	3.7	5.0	5.5
Imports Goods & Services	2.8	3.9	5.0	5.6
World Trade Value of Exports Goods & Services USD Billion	23,114	23,928	24,948	Average ∆% 2006-2015 20,259
Value of Exports of Goods USD Billion	18,671	19,299	20,107	Average ∆% 2006-2015 16,312
Average Oil Price USD/Barrel	104.07	102.76	99.36	Average ∆% 2006-2015 88.85
Average Annual ∆% Export Unit Value of Manufactures	-1.1	-0.2	-0.5	Average ∆% 2006-2015 -0.6
Exports of Goods & Services	2013	2014	2015	Average ∆% 2016-2019
Euro Area	1.8	3.5	4.3	4.7
EMDE	4.4	3.9	5.8	6.1
G7	1.8	2.9	4.2	4.9
Imports Goods & Services
Euro Area	0.5	3.4	3.9	4.7
EMDE	5.3	4.4	6.1	6.3
G7	1.2	3.6	4.1	4.9
Terms of Trade of Goods & Services
Euro Area	0.8	-0.4	-0.3	-0.1
EMDE	-0.2	-0.02	-0.6	-0.4
G7	0.8	0.7	-0.2	0.0
Terms of Trade of Goods
Euro Area	1.2	0.03	-0.02	-0.2
EMDE	-0.2	0.2	-0.4	-0.3
G7	0.9	0.3	-0.1	-0.1

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, increased to 53.9 in Feb from 53.0 in Jan, indicating expansion at slightly higher rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/febc72758d7e4f4da8961c17c008d1f9). This index has remained above the contraction territory of 50.0 during 67 consecutive months. The employment index did not change from 51.7 in Jan to 51.7 in Feb with input prices rising at faster rate, new orders increasing at faster rate and output increasing at faster rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/febc72758d7e4f4da8961c17c008d1f9). David Hensley, Director of Global Economic Coordination at JP Morgan, finds moderate acceleration of world economic growth in IQ2015 (http://www.markiteconomics.com/Survey/PressRelease.mvc/febc72758d7e4f4da8961c17c008d1f9). The JP Morgan Global Manufacturing PMI^™, produced by JP Morgan and Markit in association with ISM and IFPSM, increased to 52.0 in Feb from 51.7 in Dec (http://www.markiteconomics.com/Survey/PressRelease.mvc/e58af6424edc4dfeb2fe8b62b2a84ca6). New export orders expanded for the nineteenth consecutive month. David Hensley, Director of Global Economics Coordination at JP Morgan Chase, finds continuing growth in global manufacturing with output increasing at around annual seasonally adjusted 4.0 percent (http://www.markiteconomics.com/Survey/PressRelease.mvc/e58af6424edc4dfeb2fe8b62b2a84ca6). The HSBC Brazil Composite Output Index, compiled by Markit, increased from 49.2 in Jan to 51.3 in Feb, indicating moderate contraction in activity of Brazil’s private sector (http://www.markiteconomics.com/Survey/PressRelease.mvc/e3331afa76fc4a1bb68dc6331473ddb0). The HSBC Brazil Services Business Activity index, compiled by Markit, increased from 48.4 in Jan to 52.3 in Feb, indicating stronger services activity (http://www.markiteconomics.com/Survey/PressRelease.mvc/e3331afa76fc4a1bb68dc6331473ddb0). Pollyana De Lima, Economist at Markit, finds stronger services activity with uncertanties (http://www.markiteconomics.com/Survey/PressRelease.mvc/e3331afa76fc4a1bb68dc6331473ddb0). The HSBC Brazil Purchasing Managers’ Index^TM (PMI^™) decreased from 50.7 in Jan to 49.6 in Feb, indicating moderate deterioration in manufacturing (http://www.markiteconomics.com/Survey/PressRelease.mvc/a3de289a55704217948d1da667940e14). Paul Smith, Economist at Markit, finds stagnation and cost-push pressures perhaps because of currency depreciation (http://www.markiteconomics.com/Survey/PressRelease.mvc/76ee5ab696c44271ac7eaa6e6da02cea).

VA United States. The Markit Flash US Manufacturing Purchasing Managers’ Index^™ (PMI^™) seasonally adjusted increased to 54.3 in Feb from 53.9 in Jan (http://www.markiteconomics.com/Survey/PressRelease.mvc/76d54ef7fac944e6a41abf20258b097f). New export orders softened. Chris Williamson, Chief Economist at Markit, finds that manufacturing provides strong contribution to economic growth (http://www.markiteconomics.com/Survey/PressRelease.mvc/76d54ef7fac944e6a41abf20258b097f). The Markit Flash US Services PMI™ Business Activity Index increased from 54.0 in Jan to 57.0 in Feb (http://www.markiteconomics.com/Survey/PressRelease.mvc/2a607041731a438ab26c3eff9bf6bd5f). The Markit Flash US Composite PMI™ Output Index increased from 54.4 in Jan to 56.8 in Feb. Chris Williamson, Chief Economist at Markit, finds that the surveys are consistent with growth of GDP around 3.0 percent (http://www.markiteconomics.com/Survey/PressRelease.mvc/2a607041731a438ab26c3eff9bf6bd5f). The Markit US Composite PMI™ Output Index of Manufacturing and Services increased to 57.2 in Feb from 54.4 in Jan (http://www.markiteconomics.com/Survey/PressRelease.mvc/de457cc1d40b4f0182e3e9adca09f723). The Markit US Services PMI™ Business Activity Index increased from 54.2 in Jan to 57.1 in Feb (http://www.markiteconomics.com/Survey/PressRelease.mvc/de457cc1d40b4f0182e3e9adca09f723). Chris Williamson, Chief Economist at Markit, finds the indexes consistent with US growth at around 2.2 percent annual in IQ2015 (http://www.markiteconomics.com/Survey/PressRelease.mvc/de457cc1d40b4f0182e3e9adca09f723). The Markit US Manufacturing Purchasing Managers’ Index^™ (PMI^™) increased to 55.1 in Feb from 53.9 in Jan, which indicates expansion at faster rate (http://www.markiteconomics.com/Survey/PressRelease.mvc/c79b0b20c18a4644aebaddcf853fe976). New foreign orders expanded at moderate rate. Chris Williamson, Chief Economist at Markit, finds that the index suggests strong manufacturing growing at around annual 4.0 percent (http://www.markiteconomics.com/Survey/PressRelease.mvc/c79b0b20c18a4644aebaddcf853fe976). The purchasing managers’ index (PMI) of the Institute for Supply Management (ISM) Report on Business^® decreased 0.6 percentage points from 53.5 in Jan to 52.9 in Feb, which indicates growth at slower rate (http://www.ism.ws/ISMReport/MfgROB.cfm?navItemNumber=29038). The index of new orders decreased 0.4 percentage points from 52.9 in Jan to 52.5 in Feb. The index of new export orders decreased 1.0 percentage points from 49.5 in Jan to 48.5 in Feb, contracting at faster rate. The Non-Manufacturing ISM Report on Business^® PMI increased 0.2 percentage points from 56.7 in Jan to 56.9 in Feb, indicating growth of business activity/production during 67 consecutive months, while the index of new orders decreased 2.8 percentage points from 59.5 in Jan to 56.7 in Feb (http://www.ism.ws/ISMReport/NonMfgROB.cfm?navItemNumber=29043). Table USA provides the country economic indicators for the US.

Table USA, US Economic Indicators

Consumer Price Index	Jan 12 months NSA ∆%: -0.1; ex food and energy ∆%: 1.6 Jan month SA ∆%: -0.7; ex food and energy ∆%: 0.2 Blog 3/1/15
Producer Price Index	Finished Goods Feb 12-month NSA ∆%: -3.4; ex food and energy ∆% 1.5 Feb month SA ∆% = -0.1; ex food and energy ∆%: 0.1 Final Demand Feb 12-month NSA ∆%: -0.6; ex food and energy ∆% 1.0 Feb month SA ∆% = -0.5; ex food and energy ∆%: -0.5 Blog 3/22/15 3/1/15
PCE Inflation	Jan 12-month NSA ∆%: headline 0.2; ex food and energy ∆% 1.3 Blog 3/8/15
Employment Situation	Household Survey: Jan Unemployment Rate SA 5.5% Blog calculation People in Job Stress Feb: 27.2 million NSA, 16.5% of Labor Force Establishment Survey: Feb Nonfarm Jobs +295,000; Private +288,000 jobs created  Jan 12-month Average Hourly Earnings Inflation Adjusted ∆%: 2.3 Blog 3/8/15
Nonfarm Hiring	Nonfarm Hiring fell from 63.3 million in 2006 to 54.2 million in 2013 or by 9.1 million and to 58.7 million in 2014 or by 4.6 million Private-Sector Hiring Jan 2015 4.464 million million lower by 0.326 million than 4.790 million in Jan 2006 Blog 3/15/15
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 2.6 IIIQ2014/IIIQ2013 2.7 IVQ2014/IVQ2013 2.4 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 4.6 IIIQ2014 SAAR 5.0 IVQ2014 SAAR 2.2 Blog 3/1/15
Real Private Fixed Investment	SAAR IVQ2014 4.5 ∆% IVQ2007 to IVQ2014: 3.3% Blog 3/1/15
Corporate Profits	IIIQ2014 SAAR: Corporate Profits 3.1; Undistributed Profits 12.4 Blog 12/28/14
Personal Income and Consumption	Jan month ∆% SA Real Disposable Personal Income (RDPI) SA ∆% 0.9 Real Personal Consumption Expenditures (RPCE): 0.3 12-month Jan NSA ∆%: RDPI: 4.2; RPCE ∆%: 3.4 Blog 3/8/15
Quarterly Services Report	IVQ14/IVQ13 NSA ∆%: Information 4.6 Financial & Insurance 5.2 Blog 3/22/15
Employment Cost Index	Compensation Private IVQ2014 SA ∆%: 0.6 Dec 12 months ∆%: 2.3 Blog 2/1/15
Industrial Production	Feb month SA ∆%: 0.1 Feb 12 months SA ∆%: 3.5 Manufacturing Feb SA -0.2 ∆% Feb 12 months SA ∆% 3.3, NSA 5.5 Capacity Utilization: 78.9 Blog 3/22/15
Productivity and Costs	Nonfarm Business Productivity IVQ2014∆% SAAE -2.2; IVQ2014/IVQ2013 ∆% -0.1; Unit Labor Costs SAAE IVQ2014 ∆% 4.1; IVQ2014/IVQ2013 ∆%: 2.6 Blog 3/8/15
New York Fed Manufacturing Index	General Business Conditions From Feb 7.78 to Mar 6.90 New Orders: From Feb 1.22 to Mar minus 2.39 Blog 3/22/15
Philadelphia Fed Business Outlook Index	General Index from Feb 5.2 to Mar 5.0 New Orders from Feb 5.4 to Mar 3.9 Blog 3/22/15
Manufacturing Shipments and Orders	New Orders SA Jan ∆% -0.2 Ex Transport -1.8 Jan NSA New Orders ∆% minus 4.9 Ex transport minus 6.1 Blog 3/8/15
Durable Goods	Jan New Orders SA ∆%: minus 2.8; ex transport ∆%: minus 0.3 Jan 15/Jan 14 New Orders NSA ∆%: 1.6; ex transport ∆% 1.5 Blog 3/1/15
Sales of New Motor Vehicles	Feb 2015 2,408,742; Jan 2014 2,206.454. Feb 15 SAAR 16.66 million, Jan 15 SAAR 16.92 million, Feb 2015 SAAR 15.41 million Blog 3/8/15
Sales of Merchant Wholesalers	Jan 2015/Jan 2014 NSA ∆%: Total -3.8; Durable Goods: 2.9; Nondurable Goods: -9.3 Blog 3/15/15
Sales and Inventories of Manufacturers, Retailers and Merchant Wholesalers	Jan 15 12-M NSA ∆%: Sales Total Business -2.2; Manufacturers -4.1 Retailers 2.3; Merchant Wholesalers -3.8 Blog 3/15/15
Sales for Retail and Food Services	Jan-Feb 2015/Jan-Feb 2014 ∆%: Retail and Food Services 2.3; Retail ∆% 1.4 Blog 3/15/15
Value of Construction Put in Place	Jan SAAR month SA ∆%: minus 1.1 Jan 12-month NSA:1.2 Blog 3/8/15
Case-Shiller Home Prices	Dec 2014/ Dec 2013 ∆% NSA: 10 Cities 4.3; 20 Cities: 4.5; National: 4.6 ∆% Dec SA: 10 Cities 0.8 ; 20 Cities: 0.9 Blog 3/1/15
FHFA House Price Index Purchases Only	Dec SA ∆% 0.8; 12 month NSA ∆%: 5.5 Blog 3/1/15
New House Sales	Jan 2014 month SAAR ∆%: minus 0.2 Jan 2014/Jan 2013 NSA ∆%: 9.1 Blog 3/1/15
Housing Starts and Permits	Feb Starts month SA ∆% -17.0; Permits ∆%: 3.0 Jan-Feb 2015/Jan-Feb 2014 NSA ∆% Starts 8.0; Permits  ∆% 6.5 Blog 3/22/15
Trade Balance	Balance Jan SA -$41,752 million versus Dec -$45,601 million Exports Jan SA ∆%: -2.9 Imports Jan SA ∆%: -3.9 Goods Exports Jan 2015/Jan 2014 NSA ∆%: -4.7 Goods Imports Jan 2015/Jan 2014 NSA ∆%: -2.9 Blog 3/15/15
Export and Import Prices	Feb 12-month NSA ∆%: Imports -9.4; Exports -5.9 Blog 3/15/15
Consumer Credit	Jan ∆% annual rate: Total 4.2; Revolving -1.6; Nonrevolving 6.3 Blog 3/15/15
Net Foreign Purchases of Long-term Treasury Securities	Jan Net Foreign Purchases of Long-term US Securities: minus $39.3 billion Major Holders of Treasury Securities: China $1239 billion; Japan $1239 billion; Total Foreign US Treasury Holdings Jan $6218 billion Blog 3/22/15
Treasury Budget	Fiscal Year 2015/2014 ∆% Feb: Receipts 7.1; Outlays 6.0; Individual Income Taxes 8.1 Deficit Fiscal Year 2011 $1,300 billion Deficit Fiscal Year 2012 $1,087 billion Deficit Fiscal Year 2013 $680 billion Deficit Fiscal Year 2014 $483 billion Blog 3/15/2015
CBO Budget and Economic Outlook	2012 Deficit $1087 B 6.8% GDP Debt $11,281 B 70.4% GDP 2013 Deficit $680 B, 4.1% GDP Debt $11,983 B 72.3% GDP 2014 Deficit $483 B 2.8% GDP Debt $12,779 B 74.1% GDP 2025 Deficit $1,088B, 4.0% GDP Debt $21,605B 78.7% 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 3/1/15
Commercial Banks Assets and Liabilities	Dec 2014 SAAR ∆%: Securities 24.2 Loans 7.1 Cash Assets -52.4 Deposits 7.6 Blog 1/25/15
Flow of Funds Net Worth of Families and Nonprofits	IIIQ2014 ∆ since 2007 Assets +$14,260.8 BN Nonfinancial $477.8 BN Real estate -$1,215.2 BN Financial +13,783.0 BN Net Worth +$14,595.3 BN Blog 12/28/14
Current Account Balance of Payments	IVQ2014 -111,222 MM % GDP 2.6 Blog 3/22/15
Collapse of United States Dynamism of Income Growth and Employment Creation	Blog 1/25/15

Links to blog comments in Table USA:

3/15/15 http://cmpassocregulationblog.blogspot.com/2015/03/global-exchange-rate-struggle-recovery.html

3/8/15 http://cmpassocregulationblog.blogspot.com/2015/03/global-competitive-devaluation-rules.html

3/1/15 http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.html

2/1/15 http://cmpassocregulationblog.blogspot.com/2015/02/financial-and-international.html

1/25/15 http://cmpassocregulationblog.blogspot.com/2015/01/competitive-currency-conflicts-world.html

12/28/14 http://cmpassocregulationblog.blogspot.com/2014/12/valuations-of-risk-financial-assets.html

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

8/24/14 http://cmpassocregulationblog.blogspot.com/2014/08/monetary-policy-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 in Table VA-1. Housing starts decreased 17.0 percent in Feb 2015 after wide oscillations that included increases of 6.5 percent in Dec 2014, 20.8 percent in Jul, 11.9 percent in Apr, 2.4 percent in Mar and 3.5 percent in Feb. There were decreases of 7.1 percent in Nov 2014, 12.3 percent in Aug, 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 and declines of 14.7 percent in Apr 2013 and 9.2 percent in Jun 2013. Housing starts decreased 3.3 percent from the SAAR of 928 in Feb 2014 to the SAAR of 897 in Feb 2015. Housing permits, indicating future activity, increased 3.0 percent in Feb 2015, changed 0.0 percent in Jan 2015 and changed 0.0 percent in Dec 2014. Housing permits decreased 3.8 percent in Nov 2014, 1.4 percent in Aug 2014, 1.0 percent in Jun 2014 and 7.9 percent in May 2014. There were significant oscillations with increase of 6.1 percent in Oct 2014 and 4.5 percent in Jul 2014. Housing permits increased 7.7 percent from 1014 SSAR in Feb 2014 to SSAR of 1092 in Feb 2015. While single unit houses starts decreased 14.9 percent in Feb 2015, seasonally adjusted, structures with five units or more decreased 21.6 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 ∆%
Feb 2015	897	-17.0	1092	3.0
Jan	1081	0.0	1060	0.0
Dec 2014	1081	6.5	1060	0.0
Nov	1015	-7.1	1060	-3.8
Oct	1092	6.2	1102	6.1
Sep	1028	6.7	1039	1.7
Aug	963	-12.3	1022	-1.4
Jul	1098	20.8	1037	4.5
Jun	909	-7.6	992	-1.0
May	984	-7.4	1002	-7.9
Apr	1063	11.9	1088	7.7
Mar	950	2.4	1010	-0.4
Feb	928	3.5	1014	4.1
Jan	897	-13.2	974	-4.7
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-Feb not-seasonally adjusted are in Table VA-2. Housing starts increased 8.0 percent in Jan-Feb 2015 relative to Jan-Feb 2014 and new permits increased 6.5 percent. Construction of new houses in the US remains at very depressed levels. Housing starts fell 54.4 percent in Jan-Feb 2015 relative to Jan-Feb 2006 and fell 53.5 percent relative to Jan-Feb 2005. Housing permits fell 51.6 percent in Jan-Feb 2015 relative to Jan-Feb 2006 and fell 49.2 percent relative to Jan-Feb 2005.

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

	Housing Starts	New Permits
Jan-Feb 2015	135.9	146.8
Jan-Feb 2014	125.8	137.8
∆% Jan-Feb 2015/Jan-Feb 2014	8.0	6.5
Jan 2006	298.1	303.6
∆% Jan-Feb 2015/Jan-Feb 2006	-54.4	-51.6
Jan 2005	292.0	289.1
∆% Jan-Feb 2015/Jan-Feb 2005	-53.5	-49.2

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 9.5 percent in Jan-Feb 2015 relative to a year earlier, not seasonally adjusted, structures with two to four units decreased 34.3 percent and with five units or more increased 6.6 percent. Single unit houses were 64.6 percent of total housing starts in 2014, increasing 4.9 percent relative to 2013, while construction of five units of more were 34.1 percent, increasing 16.3 percent, and construction of two to four units were 1.4 percent of the total, increasing 0.7 percent.

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-3 provides new housing units that started in the US at seasonally adjusted annual rates (SAAR) in Jan-Feb and from Aug to Dec of the years from 2000 to 2015. 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 1,098,000 in Jul 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 moved to 897,000 in Feb 2015 relative to 928 in Feb 2014.

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

Year	Jan	Feb	Aug	Sep	Oct	Nov	Dec
2000	1,636	1,737	1,541	1,507	1,549	1,551	1,532
2001	1,600	1,625	1,567	1,562	1,540	1,602	1,568
2002	1,698	1,829	1,633	1,804	1,648	1,753	1,788
2003	1,853	1,629	1,833	1,939	1,967	2,083	2,057
2004	1,911	1,846	2,024	1,905	2,072	1,782	2,042
2005	2,144	2,207	2,095	2,151	2,065	2,147	1,994
2006	2,273	2,119	1,650	1,720	1,491	1,570	1,649
2007	1,409	1,480	1,330	1,183	1,264	1,197	1,037
2008	1,084	1,103	844	820	777	652	560
2009	490	582	586	585	534	588	581
2010	614	604	599	594	543	545	539
2011	630	517	585	650	610	711	694
2012	723	704	754	847	915	833	976
2013	896	951	885	863	936	1,105	1,034
2014	897	928	963	1,028	1,092	1,015	1,081
2015	1,081	897	NA	NA	NA	NA	NA

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

Table VA-4 provides new housing united starts NSA in Jan-Feb and Jun to Dec in the years from 2000 to 2015. The number of units started NSA decreased 57.0 percent from 145.1 thousand in Feb 2006 to 62.4 thousand in Feb 2015. The number of units started decreased 4.1 percent from 65.1 thousand in Feb 2014 to 62.4 thousand in Feb 2015.

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

Year	Jan	Feb	Jun	Jul	Aug	Sep	Oct	Nov	Dec
2000	104.0	119.7	146.3	135.0	141.4	128.9	139.7	117.1	100.7
2001	106.4	108.2	155.2	154.6	141.5	133.1	139.8	121.0	104.6
2002	110.4	120.4	160.3	155.9	147.0	155.6	146.8	133.0	123.1
2003	117.8	109.7	174.5	175.8	163.8	171.3	173.5	153.7	144.2
2004	124.5	126.4	172.3	182.0	185.9	164.0	181.3	138.1	140.2
2005	142.9	149.1	192.8	187.6	192.0	187.9	180.4	160.7	136.0
2006	153.0	145.1	170.2	160.9	146.8	150.1	130.6	115.2	112.4
2007	95.0	103.1	137.8	127.9	121.2	101.5	115.0	88.8	68.9
2008	70.8	78.4	102.5	86.7	76.4	73.9	68.2	47.5	37.7
2009	31.9	39.8	59.1	56.8	52.9	52.6	44.5	42.3	36.6
2010	38.9	40.7	53.8	51.5	56.3	53.0	45.4	40.6	33.8
2011	40.2	35.4	60.5	57.6	54.5	58.8	53.2	53.0	42.7
2012	47.2	49.7	74.7	69.2	69.0	75.8	77.0	62.2	63.2
2013	58.7	66.1	80.7	84.0	80.4	78.4	78.4	83.8	67.6
2014	60.7	65.1	87.3	101.0	86.2	94.2	92.0	75.8	73.4
2015	73.5	62.4	NA	NA	NA	NA	NA	NA	NA

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

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 Feb 2015 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.

Chart VA-2, US, New Housing Units Started in the US, Not Seasonally Adjusted, Thousands of Units, Jan 1959-Feb 2015

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

Chart VA-3 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.

Chart VA-3, US, Single-family Houses Started, Thousands of Units, Jan-1959-Feb 2015, NSA

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

Chart VA-4 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.

Chart VA-4, US, Housing Units Stated in Buildings with Five Units or More, Thousands of Units, Jan-1959-Feb 2015, 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 2014. Housing starts fell 51.5 percent from 2005 to 2014, 36.0 percent from 2000 to 2014 and 29.8 percent relative to the average from 1959 to 1963. Housing permits fell 51.8 percent from 2005 to 2014, 34.7 percent from 2000 to 2014 and 10.2 percent from the average of 1969-1963 to 2014. 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
2014	1003.3	1039.6
2013	924.9	990.8
2012	780.6	829.7
∆% 2014/2013	8.5	4.9
∆% 2014/2012	28.5	25.3
∆% 2014/2011	64.8	66.6
∆% 2014/2010	70.9	71.9
∆% 2014/2006	-44.3	-43.5
∆% 2014/2005	-51.5	-51.8
∆% 2014/2000	-36.0	-34.7
∆% 2014/Av 1959-1963	-29.8	-10.2
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/

Risk aversion channels funds toward US long-term and short-term securities that finance the US balance of payments and fiscal deficits benefitting from risk flight to US dollar denominated assets. There are now temporary interruptions because of fear of rising interest rates that erode prices of US government securities because of mixed signals on monetary policy and exit from the Fed balance sheet of four trillion dollars of securities held outright. Net foreign purchases of US long-term securities (row C in Table VA-6) decreased from $49.7 billion in Dec 2014 to minus $39.3 billion in Jan 2015. Foreign (residents) purchases minus sales of US long-term securities (row A in Table VA-6) in Dec 2014 of minus $3.0 billion decreased to minus $39.8 billion in Jan 2015. Net US (residents) purchases of long-term foreign securities (row B in Table VA-6) decreased from $42.2 billion in Dec 2014 to $12.6 billion in Jan 2015. Other transactions (row C2 in Table VA-6) fell from $10.5 billion in Dec 2014 to minus $12.1 billion in Jan 2015. In Jan 2015,

C = A + B + C2 = -$39.8 billion +$12.6 billion -$12.1 = -$39.3 billion

There are minor rounding errors. There is weakening demand in Table VA-6 in Dec in A1 private purchases by residents overseas of US long-term securities of minus $27.8 billion of which deterioration in A11 Treasury securities of minus $42.7 billion, improvement in A12 of $6.2 billion in agency securities, improvement of $7.1 billion of corporate bonds and deterioration of $1.6 billion in equities. Worldwide risk aversion causes flight into US Treasury obligations with significant oscillations. Official purchases of securities in row A2 decreased $12.0 billion with decrease of Treasury securities of $12.4 billion in Jan 2015. Official purchases of agency securities increased $2.9 billion in Jan 2015. Row D shows decrease in Jan 2015 of $8.1 billion in purchases of short-term dollar denominated obligations. Foreign private holdings of US Treasury bills decreased $15.6 billion (row D11) with foreign official holdings increasing $4.8 billion while the category “other” increased $2.7 billion. Foreign private holdings of US Treasury bills decreased $15.6 billion in what could be arbitrage of duration exposures. Risk aversion of default losses in foreign securities dominates decisions to accept zero interest rates in Treasury securities with no perception of principal losses. In the case of long-term securities, investors prefer to sacrifice inflation and possible duration risk to avoid principal losses with significant oscillations in risk perceptions.

Table VA-6, Net Cross-Borders Flows of US Long-Term Securities, Billion Dollars, NSA

	Jan 2014 12 Months	Jan 2015 12 Months	Dec 2014	Jan 2015
A Foreign Purchases less Sales of US LT Securities	10.9	227.9	-3.0	-39.8
A1 Private	11.3	145.1	17.0	-27.8
A11 Treasury	82.7	65.8	1.4	-42.7
A12 Agency	-6.5	53.2	5.3	6.2
A13 Corporate Bonds	-15.6	30.4	5.6	7.1
A14 Equities	-49.2	-4.3	4.6	1.6
A2 Official	-0.4	82.8	-19.9	-12.0
A21 Treasury	-78.2	49.2	-17.0	-12.4
A22 Agency	70.3	33.8	-4.0	2.9
A23 Corporate Bonds	13.2	6.0	0.9	-0.9
A24 Equities	-5.8	-6.2	0.3	-1.7
B Net US Purchases of LT Foreign Securities	-176.1	20.0	42.2	12.6
B1 Foreign Bonds	-10.4	127.8	37.9	26.1
B2 Foreign Equities	-165.7	-107.8	4.3	-13.4
C1 Net Transactions	-165.2	247.9	39.2	-27.2
C2 Other	-219.3	-72.7	10.5	-12.1
C Net Foreign Purchases of US LT Securities	-384.5	175.2	49.7	-39.3
D Increase in Foreign Holdings of Dollar Denominated Short-term	-36.6	7.4	10.1	-8.1
D1 US Treasury Bills	2.1	-15.9	24.8	-10.8
D11 Private	-14.8	38.0	31.5	-15.6
D12 Official	16.9	-53.9	-6.7	4.8
D2 Other	-38.7	23.3	-14.7	2.7

C1 = A + B; C = C1+C2

A = A1 + A2

A1 = A11 + A12 + A13 + A14

A2 = A21 + A22 + A23 + A24

B = B1 + B2

D = D1 + D2

Sources: United States Treasury

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

http://www.treasury.gov/press-center/press-releases/Pages/jl2609.aspx

Table VA-7 provides major foreign holders of US Treasury securities. China is the largest holder with $1239.1 billion in Jan 2015, decreasing 2.9 percent from $1275.6 billion in Jan 2015 while decreasing $5.2 billion from Dec 2014 or 0.4 percent. The United States Treasury estimates US government debt held by private investors at $9829 billion in Sep 2014. China’s holding of US Treasury securities represent 12.6 percent of US government marketable interest-bearing debt held by private investors (http://www.fms.treas.gov/bulletin/index.html). Min Zeng, writing on “China plays a big role as US Treasury yields fall,” on Jul 16, 2004, published in the Wall Street Journal (http://online.wsj.com/articles/china-plays-a-big-role-as-u-s-treasury-yields-fall-1405545034?tesla=y&mg=reno64-wsj), finds that acceleration in purchases of US Treasury securities by China has been an important factor in the decline of Treasury yields in 2014. Japan increased its holdings from $1201.4 billion in Jan 2014 to $1238.6 billion in Jan 2015 or 3.1 percent. The combined holdings of China and Japan in Jan 2015 add to $2477.7 billion, which is equivalent to 25.2 percent of US government marketable interest-bearing securities held by investors of $9829 billion in Sep 2014 (http://www.fms.treas.gov/bulletin/index.html). Total foreign holdings of Treasury securities rose from $5841.3 billion in Jan 2014 to $6217.9 billion in Jan 2015, or 6.4 percent. The US continues to finance its fiscal and balance of payments deficits with foreign savings (see Pelaez and Pelaez, The Global Recession Risk (2007)). A point of saturation of holdings of US Treasury debt may be reached as foreign holders evaluate the threat of reduction of principal by dollar devaluation and reduction of prices by increases in yield, including possibly risk premium. Shultz et al (2012) find that the Fed financed three-quarters of the US deficit in fiscal year 2011, with foreign governments financing significant part of the remainder of the US deficit while the Fed owns one in six dollars of US national debt. Concentrations of debt in few holders are perilous because of sudden exodus in fear of devaluation and yield increases and the limit of refinancing old debt and placing new debt. In their classic work on “unpleasant monetarist arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of monetary policy by fiscal policy (emphasis added):

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

Table VA-7, US, Major Foreign Holders of Treasury Securities $ Billions at End of Period

	Jan 2015	Dec 2014	Jan 2014
Total	6217.9	6156.0	5841.3
China	1239.1	1244.3	1275.6
Japan	1238.6	1230.9	1201.4
Belgium	354.6	335.4	310.3
Caribbean Banking Centers	338.5	335.9	297.8
Oil Exporters	290.8	285.9	246.5
Brazil	256.5	255.8	246.0
United Kingdom	207.4	188.9	163.2
Switzerland	205.5	190.1	173.8
Luxembourg	176.0	171.8	135.5
Hong Kong	172.0	172.6	160.3
Taiwan	170.6	174.4	179.1
Ireland	137.1	138.6	109.9
Singapore	109.7	110.0	85.9
Foreign Official Holdings	4124.3	4113.1	4068.0
A. Treasury Bills	340.1	335.3	394.0
B. Treasury Bonds and Notes	3784.3	3777.8	3674.0

Source: United States Treasury

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

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

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 2014. Growth weakened from 1.9 per cent in 1995 and 2.6 percent in 1996 to contractions of 2.0 percent in 1998 and 0.2 percent in 1999. Growth rates were below 2 percent with exception of 2.3 percent in 2000, 2.4 percent in 2004 and 2.2 percent in 2007. Japan’s GDP contracted sharply by 1.0 percent in 2008 and 5.5 percent in 2009. As in most advanced economies, growth was robust at 4.7 percent in 2010 but mediocre at minus 0.5 percent in 2011 because of the tsunami and 1.8 percent in 2012. Japan’s GDP grew 1.6 percent in 2013 and stagnated in 2014. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). Japan’s real GDP in calendar year 2014 is 0.7 percent higher than in calendar year 2007 (http://www.esri.cao.go.jp/index-e.html).

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

Calendar Year	∆%
1995	1.9
1996	2.6
1997	1.6
1998	-2.0
1999	-0.2
2000	2.3
2001	0.4
2002	0.3
2003	1.7
2004	2.4
2005	1.3
2006	1.7
2007	2.2
2008	-1.0
2009	-5.5
2010	4.7
2011	-0.5
2012	1.8
2013	1.6
2014	0.0

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/announcements/release_2015/k150121a.pdf) with changes on Jul 21, 2015 (https://www.boj.or.jp/en/announcements/release_2015/k150121a.pdf). For fiscal 2014, the forecast is of growth of GDP between minus 0.7 to minus 0.3 percent, with the all items CPI less fresh food 2.9 to 3.3 percent (https://www.boj.or.jp/en/announcements/release_2015/k150121a.pdf). The critical difference is forecast of the CPI excluding fresh food of 0.3 to 1.4 percent in 2015 and 0.9 to 2.3 percent in 2016 (https://www.boj.or.jp/en/announcements/release_2015/k150121a.pdf). Consumer price inflation in Japan excluding fresh food was minus 0.2 percent in Dec 2014 and 2.5 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
Jan 2015	-0.6 to -0.4 [-0.5]	+2.9 to +3.2 [+2.9]	+0.9 to +1.2 [+0.9]
Oct 2014	+0.2 to +0.7 [+0.5]	+3.1 to +3.4 [+3.2]	+1.1 to +1.4 [+1.2]
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
Jan 2015	+1.8 to +2.3 [+2.1]	+0.4 to +1.3 [+1.0]	+0.4 to +1.3 [+1.0]
Oct 2014	+1.2 to +1.7 [+1.5]	+1.8 to 2.6 [+2.4]	+1.1 to +1.9 [+1.7]
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
Jan 2015	+1.5 to +1.7 [+1.6]	+1.5 to +2.3 [+2.2]	+1.5 to +2.3 [+2.2]
Oct 2014	+1.0 to +1.4 [+1.2]	+1.9 to 3.0 [+2.8]	+1.2 to 2.3 [+2.1]
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_2015/k150121a.pdf

https://www.boj.or.jp/en/announcements/release_2014/k140715a.pdf

The Markit/JMMA Flash Japan Manufacturing PMI Index™ with the Flash Japan Manufacturing PMI™ decreased from 52.2 in Jan to 51.5 in Feb and the Flash Japan Manufacturing Output Index™ did not change from 52.7 in Jan to 52.7 in Feb (http://www.markiteconomics.com/Survey/PressRelease.mvc/ca6a231ce52548dfbbc034868f886d7a). 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/ca6a231ce52548dfbbc034868f886d7a). The Markit Composite Output PMI Index stabilized from 51.7 in Jan to 50.0 in Feb, indicating neutral business activity (http://www.markiteconomics.com/Survey/PressRelease.mvc/c6f5af0722b34d22816279e47f90c51b). The Markit Business Activity Index of Services decreased to 48.5 in Feb from 51.3 in Jan (http://www.markiteconomics.com/Survey/PressRelease.mvc/c6f5af0722b34d22816279e47f90c51b). Amy Brownbill, Ecoomist at Markit and author of the report, finds positive business expecations (http://www.markiteconomics.com/Survey/PressRelease.mvc/c6f5af0722b34d22816279e47f90c51b). The Markit/JMMA Purchasing Managers’ Index^™ (PMI™), seasonally adjusted, decreased marginally from 52.2 in Jan to 51.6 in Feb (http://www.markiteconomics.com/Survey/PressRelease.mvc/83eeef8035ec47408f22d0c32d17f783). New orders, output and foreign orders increased. Amy Brownbill, Economist at Markit, finds manufacturing improvement with prices of inputs driven by devaluation (http://www.markiteconomics.com/Survey/PressRelease.mvc/618efac17046436b879e5b824f41cfbf).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	Feb ∆% 0.0 12 months ∆% 0.5 Blog 3/15/15
Consumer Price Index	Jan NSA ∆% -0.2; Jan 12 months NSA ∆% 2.4 Blog 3/1/15
Real GDP Growth	IVQ2014 ∆%: 0.4 on IIIQ2014;  IVQ2014 SAAR 1.5; ∆% from quarter a year earlier: -0.8 % 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 11/23/14 12/14/14 2/22/15 3/15/15
Employment Report	Jan Unemployed 2.31 million Change in unemployed since last year: minus 70 thousand Unemployment rate: 3.6 % Blog 3/1/15
All Industry Indices	Jan month SA ∆% 1.9 12-month NSA ∆% -1.7 Blog 3/22/15
Industrial Production	Jan SA month ∆%: 4.0 12-month NSA ∆% -2.6 Blog 3/1/15
Machine Orders	Total Jan ∆% 814.2 Private ∆%: 10.7 Jan ∆% Excluding Volatile Orders minus 1.7 Blog 3/22/15
Tertiary Index	Jan month SA ∆% 1.4 Jan 12 months NSA ∆% minus -1.5 Blog 3/22/15
Wholesale and Retail Sales	Jan 12 months: Total ∆%: -2.9 Wholesale ∆%: -3.4 Retail ∆%: -2.0 Blog 3/1/15
Family Income and Expenditure Survey	Jan 12-month ∆% total nominal consumption -2.4, real -5.1 Blog 3/1/15
Trade Balance	Exports Feb 12 months ∆%: 12.4 Imports Feb 12 months ∆% -3.6 Blog 3/22/15

Links to blog comments in Table JPY:

3/15/15 http://cmpassocregulationblog.blogspot.com/2015/03/global-exchange-rate-struggle-recovery.html

3/1/15 http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.html

2/22/15 http://cmpassocregulationblog.blogspot.com/2015/02/world-financial-turbulence-squeeze-of.html

12/14/14 http://cmpassocregulationblog.blogspot.com/2014/12/global-financial-and-economic-risk.html

11/23/14 http://cmpassocregulationblog.blogspot.com/2014/11/squeeze-of-economic-activity-by-carry.htm

9/14/14 http://cmpassocregulationblog.blogspot.com/2014/09/geopolitics-monetary-policy-and.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 increased 0.4 percent in IVQ2014 (Table VB-1 at http://cmpassocregulationblog.blogspot.com/2015/03/global-exchange-rate-struggle-recovery.html), industry increased 1.6 percent, the tertiary sector increased 0.7 percent, government increased 0.1 percent and construction increased 2.0 percent. The report shows that the all industry index increased 0.8 percent in IVQ2014. Industry added 0.29 percentage points to growth of the all industry index and the tertiary index added 0.47 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 0.6 percent (Table VB-1 at http://cmpassocregulationblog.blogspot.com/2015/03/global-exchange-rate-struggle-recovery.html) when it was unexpectedly hit by the Tōhoku or Great East Earthquake and Tsunami of Mar 11, 2011. GDP fell 1.9 percent in IQ2011 and 0.5 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/2015/03/global-exchange-rate-struggle-recovery.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
IVQ2014	2.0	1.6	0.7	0.1	0.8	0.4
Cont to IVQ % Change	0.10	0.29	0.47	0.01
IIIQ2014	0.7	-1.9	0.4	-0.3	-0.1	-0.7
IIQ2014	-4.6	-3.8	-3.8	0.5	-3.4	-1.6
IQ	-2.7	3.0	1.8	-0.5	1.6	1.3
2013
IVQ	2.8	1.8	-0.2	0.4	0.3	-0.3
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	1.4
2012
IVQ2012	3.0	-1.8	0.3	0.1	-0.1	-0.2
IIIQ	1.6	-3.3	0.0	0.0	-0.4	-0.5
IIQ	1.3	-2.1	0.0	0.0	-0.2	-0.4
IQ	2.0	1.6	0.0	0.2	0.1	1.1

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

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 Jan 2015, the all industry activity index increased 1.9 percent with industry increasing 3.8 percent and services increasing 1.4 percent while construction decreased 0.8 percent and government decreased 0.8 percent. Industry added 0.67 percentage points and services 0.93 percentage points while construction subtracted 0.04 percentage points and government deducted 0.10 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 0.4 percent in Jul 2014. The index fell 0.1 percent in Aug 2014 and rebounded 1.3 percent in Sep 2014. The index decreased 0.1 percent in Nov 2014 and decreased 0.1 percent in Dec 2014. The index increased 1.9 percent in Jan 2015. 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, fell 1.9 percent in Aug 2014 and increased 2.9 percent in Sep 2014. Industry increased 0.4 percent in Oct 2014 and fell 0.5 percent in Nov 2014, increasing 0.9 percent in Dec 2014. Industry increased 3.8 percent in Jan 2015. 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
Jan 2015	-0.8	3.8	1.4	-0.8	1.9

Cont to Jan % Change	-0.04	0.67	0.93	-0.10
Dec	0.4	0.9	0.0	-0.6	-0.1
Nov	-0.9	-0.5	0.1	-0.4	-0.1
Oct	1.5	0.4	-0.2	1.2	0.1
Sep	0.0	2.9	1.3	-0.8	1.3
Aug	2.9	-1.9	-0.1	-0.2	-0.1
Jul	-1.2	0.4	-0.3	0.3	-0.4
Jun	0.1	-3.4	0.0	0.0	-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 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 1.3 percent in IVQ2014 relative to a year earlier and GDP decreased 0.8 percent relative to a year earlier (Table VB-4 at http://cmpassocregulationblog.blogspot.com/2015/03/global-exchange-rate-struggle-recovery.html). Industry decreased 1.5 percent relative to a year earlier while the tertiary sector decreased 1.2 percent, deducting combined 1.03 percentage points to growth of the all industry activity index of minus 1.03 percent while construction deducted 0.27 percentage points and government added 0.00 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 decreased 0.2 percent in 2014 and real GDP changed 0.0 percent. Industry increased 2.0 percent, adding 0.34 percentage points, while the tertiary sector decreased 0.8 percent, deducting 0.53 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
2014	-0.6	2.0	-0.8	0.0	-0.2	0.0
Cont to 2014 % Change	-0.03	0.34	-0.53	0.00
2013	10.4	-0.8	0.7	-0.1	0.7	1.6
2012	3.2	0.1	1.4	0.3	1.2	1.8
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
IVQ	-4.7	-1.5	-1.2	0.0	-1.3	-0.8
Cont to IVQ % Change	-0.27	-0.26	-0.77	0.00
IIIQ	-3.9	-1.0	-1.9	0.0	-1.6	-1.4
IIQ	-0.5	2.6	-2.2	0.2	-0.9	-0.3
IQ	8.1	8.3	2.1	-0.3	3.2	2.4
2013
IVQ	13.4	5.7	0.5	0.0	1.9	2.3
IIIQ	13.0	2.2	1.2	-0.5	1.8	2.2
IIQ	8.8	-3.1	1.3	-0.2	0.6	1.4
IQ2013	5.4	-7.8	-0.1	0.3	-1.2	0.5
2012
IVQ	6.7	-5.9	0.7	-0.1	-0.3	0.0
IIIQ	3.1	-4.2	0.5	0.4	-0.2	0.2
IIQ	4.9	5.5	2.1	0.6	2.6	3.5
IQ	-1.1	6.2	2.4	0.3	2.6	3.5

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

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 1.7 percent in Jan 2015 relative to Jan 2014. Industry decreased 2.8 percent in Jan 2015 relative to a year earlier, deducting 0.02 percentage points to growth of the all industry activity index. The tertiary sector decreased 1.5 percent, subtracting 0.95 percentage points. Construction deducted 0.22 percentage points from the index and government deducted 0.04 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
Jan 2015	-4.4	-2.8	-1.5	-0.3	-1.7
Cont to Jan % Change	-0.22	-0.49	-0.95	-0.04
Dec 2014	-4.9	0.1	-0.6	-1.1	-0.8
Nov	-5.8	-3.7	-1.9	1.0	-2.1
Oct	-3.5	-0.8	-0.9	-0.1	-0.9
Sep	-3.7	0.7	-0.8	-1.1	-0.7
Aug	-2.8	-3.2	-2.7	0.7	-2.5
Jul	-5.2	-0.7	-2.2	0.5	-1.7
Jun	-2.8	3.1	-1.4	-0.6	-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

Japan’s total machinery orders seasonally adjusted in Table VB-5 increased 14.2 percent seasonally adjusted in Jan 2015. Private sector orders increased 10.7 percent and decreased 1.7 percent excluding volatile orders. Orders from overseas increased 24.2 percent and manufacturing orders increased 11.3 percent. Government orders increased 15.8 percent. Industrial orders are volatile worldwide.

Table VB-5, Japan, Machinery Orders, Month ∆%, SA 

	Jan 15	Dec 14	Nov 14	Oct 14
Total	14.2	8.6	-10.4	-2.9
Private Sector	10.7	17.5	-10.6	-7.9
Excluding Volatile Orders	-1.7	8.3	1.3	-6.4
Manufacturing	11.3	24.1	-7.0	-5.5
Non-Manufacturing ex Volatile	3.7	7.2	0.5	-7.5
Government	25.8	10.8	-7.5	4.8
From Overseas	24.2	-6.9	-6.0	-4.6
Through Agencies	-13.9	16.9	-11.6	6.1

Note: Mfg: manufacturing

Source: Japan Economic and Social Research Institute, Cabinet Office

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

Total orders for machinery and total private-sector orders excluding volatile orders for Japan are shown in Chart VB-1 of Japan’s Economic and Social Research Institute at the Cabinet Office. The trend of private-sector orders excluding volatile orders was showing recovery from the drop after Mar 2011 because of the earthquake/tsunami. There was reversal of the trend of increase in total orders with recent decreases and an upward movement in the final data point. Fluctuations still prevent detecting longer-term trends but recovery is still evident from the global recession. There was a major setback by the declines in May 2012 shown in the final segment of Chart VB-1 with partial recovery in Jun 2012, decline again in Jul and Aug 2012 and rebound in total orders in Nov reversed in Dec but decline in orders excluding volatile segments with increase in Nov-Dec 2012. The final segment shows growth in Feb-Mar 2013 interrupted by decline in Apr 2013 followed by increase in May 2013. Orders fell again in Jun 2013, rebounding in Jul-Sep 2013 followed by another fall in Oct 2013. Orders recovered in Nov 2013 but declined in Dec 2013. Orders increased in Jan 2014 and decreased in Feb 2014. Orders increased in Mar-Apr 2014, with decreasing trend in May-Aug 2014. Orders increased in Sep 2014 and decreased in Oct-Nov 2014. Orders rebounded in Dec 2014-Jan 2015.

Chart VB-1, Japan, Machinery Orders

Source: Japan Economic and Social Research Institute, Cabinet Office

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

Table VB-6 provides values and percentage changes from a year earlier of Japan’s machinery orders without seasonal adjustment. Total orders of JPY 2,120,698 million in Jan 2015 are divided between JPY 979,014 million overseas orders, or 46.2 percent of the total, and domestic orders of JPY 1,052,965 million, or 49.7 percent of the total, with orders through agencies of JPY 88,719 million, or 4.2 percent of the total. Orders through agencies are not in Table VB-6 because of the minor value and appear only in the note to the table. Twelve-month percentages changes in Jan 2015 were mixed with increase of 9.7 percent for domestic orders and 1.9 percent for private excluding volatile components with increase of 8.2 percent for total orders. Overseas orders increased 8.2 percent in 12 months.

Table VB-6, Japan, Machinery Orders, 12 Months ∆% and Million Yen, Original Series  

	Total	Overseas	Domestic	Private ex Volatile
Value Jan  2015	2,120,698	979,014	1,052,965	672,915
% Total	100.0	46.2	49.7	31.7
Value Jan 2014	1,959,844	904,857	960,268	660,289
% Total	100.0	46.2	49.9	33.7
12-month ∆%	8.2	8.2	9.7	1.9
Jan 2015	8.2	8.2	9.7	1.9
Dec 2014	2.9	-5.3	8.6	11.4
Nov 2014	-6.1	1.0	-11.4	-14.6
Oct 2014	-1.4	2.6	-5.1	-4.9
Sep 2014	-2.4	-4.7	-1.6	7.3
Aug 2014	0.4	14.9	-11.1	-3.3
Jul 2014	6.1	4.4	6.8	1.1
Jun 2014	30.3	87.5	-2.9	-3.0
May 2014	-2.6	-0.2	-5.5	-14.3
Apr 2014	53.6	101.7	21.5	17.6
Mar 2014	-0.3	-4.3	4.1	16.1
Feb 2014	20.0	31.9	12.4	10.8
Jan 2014	28.8	29.8	29.0	23.6
Dec 2013	15.1	25.0	8.3	6.7
Nov 2013	8.9	1.3	14.4	16.6
Oct 2013	24.6	29.7	21.4	17.8
Sep 2013	30.3	57.4	18.4	11.4
Aug 2013	25.9	41.8	17.1	10.3
Jul 2013	5.3	4.4	6.9	6.5
Jun 2013	2.7	0.1	4.1	4.9
May 2013	18.1	17.1	20.8	16.5
Apr 2013	-4.3	6.7	-9.9	-1.1
Mar 2013	11.5	27.5	3.3	2.4
Feb 2013	-14.8	-21.0	-10.7	-11.3
Jan 2013	-24.8	-36.7	-11.8	-9.7
Dec 2012	-12.5	-24.1	-3.3	-3.4
Nov 2012	-8.6	-9.6	-8.5	0.3
Oct 2012	-6.9	-12.8	-2.6	1.2
Sep 2012	-7.8	-18.4	-1.8	-7.8
Aug 2012	-18.6	-31.1	-10.2	-6.1
Jul 2012	2.6	-1.9	3.2	1.7
Jun 2012	-10.9	-11.3	-12.4	-9.9
May 2012	-6.8	-7.0	-8.6	1.0
Apr 2012	7.5	-9.6	23.0	6.6
Mar 2012	8.1	-10.0	19.0	-1.1
Feb 2012	-9.3	-8.9	-11.2	8.9
Jan 2012	9.8	18.3	0.5	5.7
Dec 2011	0.8	12.6	-8.5	6.3
Nov 2011	11.0	8.0	13.5	12.5
Oct 2011	-6.8	-15.6	-1.0	1.5
Dec 2010	9.4	3.5	14.1	-0.6
Dec 2009	1.8	0.4	3.6	-1.9
Dec 2008	-23.3	-29.4	-17.4	-24.7
Dec 2007	1.3	9.8	-4.3	-6.4
Dec 2006	0.8	0.9	-0.1	0.1

Note: Total machinery orders = overseas + domestic demand + orders through agencies. Orders through agencies in Jan 2015 were JPY 88,719 million or 4.2 percent of the total and JPY 94,719 or 4.8 percent of the total in Jan 2014, and are not shown in the table. The data are the original numbers without any adjustments and differ from the seasonally adjusted data.

Source: Japan Economic and Social Research Institute, Cabinet Office http://www.esri.cao.go.jp/index-e.html

The tertiary activity index of Japan increased 1.4 percent SA in Jan 2015 and decreased 1.5 percent NSA in the 12 months ending in Jan 2015, as shown in Table VB-7. There are effects of the increase in the tax on value added of consumption in Apr 2014. The index is showing significant volatility with increases of 0.5 percent in Feb 2013 and 0.5 percent in May 2013 but decreases in multiple months. The indexed increased 2.6 percent in Mar 2014 largely because of anticipation of expenditures to avoid the increase in the tax on consumption in Apr 2014. The index fell 5.7 percent in Apr 2014 because of the increases in the tax on consumption. The tertiary activity index fell 5.2 percent in 2009, growing 1.3 percent in 2010, 0.1 percent in 2011 and 1.4 percent in 2012. The tertiary activity index increased 0.7 percent in 2013 and fell 0.8 percent in 2014.

Table VB-7, Japan, Tertiary Activity Index, ∆%

	Month ∆% SA	12 Months ∆% NSA
Jan 2015	1.4	-1.5
Dec 2014	0.0	-0.6
Nov	0.1	-1.9
Oct	-0.2	-0.9
Sep	1.3	-0.8
Aug	-0.1	-2.7
Jul	-0.3	-2.2
Jun	0.0	-1.4
May	0.9	-2.5
Apr	-5.7	-2.6
Mar	2.6	3.2
Feb	-0.9	0.9
Jan	1.5	2.0
Dec 2013	-0.1	0.8
Nov	0.3	0.5
Oct	-0.5	0.1
Sep	0.1	1.4
Aug	0.2	0.8
Jul	-0.1	1.5
Jun	-0.3	0.6
May	0.5	1.8
Apr	-0.1	1.5
Mar	0.1	0.7
Feb	0.5	-1.5
Jan	0.0	0.3
Dec 2012	0.2	-0.1
Nov	-0.1	1.0
Oct	0.2	1.3
Sep	0.0	0.1
Aug	0.2	0.6
Jul	-0.3	0.8
Jun	0.0	0.8
May	0.5	3.1
Apr	-0.2	2.4
Mar	-0.3	4.2
Feb	0.2	2.4
Jan	-0.8	0.3
Calendar Year
2014		-0.8
2013		0.7
2012		1.4
2011		0.1
2010		1.3
2009		-5.2
2008		-1.0
2007		1.0
2006		1.8
2005		1.9
2004		1.8

Source: Japan, Ministry of Economy, Trade and Industry

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

Month and 12-month rates of growth of the tertiary activity index of Japan and components in Jan 2015 are provided in Table VB-8. Electricity, gas, heat supply and water decreased 2.3 percent in Jan 2015 and decreased 1.4 percent in the 12 months ending in Jan 2015. Wholesale and retail trade increased 3.3 percent in Jan 2015, rebounding from decline of 14.4 percent in the month of Apr because of the increase in the tax on value added of consumption. The index of wholesale and retail trade decreased 4.0 percent in 12 months ending in Jan 2015. Information and communications increased 0.1 percent in Jan and increased 1.3 percent in 12 months.

Table VB-8, Japan, Tertiary Index and Components, Month and 12-Month Percentage Changes ∆%

Jan 2015	Weight	Month ∆% SA	12 Months ∆% NSA
Tertiary Index	10,000.0	1.4	-1.5
Electricity, Gas, Heat Supply & Water	372.9	-2.3	-1.4
Information & Communications	951.2	0.1	1.3
Wholesale & Retail Trade	2,641.2	3.3	-4.0
Finance & Insurance	971.1	-0.7	-1.3
Real Estate & Goods Rental & Leasing	903.4	-0.2	-0.4
Scientific Research, Professional & Technical Services	551.3	2.5	-4.7
Accommodations, Eating, Drinking	496.0	-1.5	-4.6
Living-Related, Personal, Amusement Services	552.7	2.1	-2.9
Learning Support	116.9	-0.5	-1.5
Medical, Health Care, Welfare	921.1	0.2	1.9
Miscellaneous ex Government	626.7	1.4	1.1

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-9. 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 24.9 percent of Japan’s imports and decreased 35.6 percent in the 12 months ending in Feb 2015 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 12.7 percent of Japan’s exports with increase of 3.0 percent in the 12 months ending in Feb 2015. Machinery contributes 19.5 percent of Japan’s exports with decrease of 0.6 percent in the 12 months ending in Feb 2015. Electrical machinery contributes 16.9 percent of Japan’s exports with increase of 6.0 percent in the 12 months ending in Feb 2015. Exports of transport equipment with share of 24.3 percent in total exports increased 4.1 percent in the 12 months ending in Feb 2015 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-9 shows increase of the major categories of motor vehicles of 8.8 percent: cars increased 8.1 percent with increase of 13.2 percent in the minor category of buses and trucks, decrease of 1.8 percent for parts of motor vehicles, decrease of 4.6 percent for motorcycles and decrease of 20.2 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-9 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-9, Japan, Structure and Growth of Exports and Imports % and ∆% Millions Yens

Feb 2015	Value JPY Millions	% of Total	12 Months ∆%	Contribution Degree %
Exports	5,941,062	100.0	2.4	2.4
Foodstuffs	40,334	0.7	17.9	0.1
Raw Materials	86,864	1.5	-7.4	-0.1
Mineral Fuels	105,957	1.8	-16.0	-0.3
Chemicals	596,419	10.0	-9.5	-1.1
Manufactured Goods	757,262	12.7	3.0	0.4
Machinery	1,156,199	19.5	-0.6	-0.1
Electrical Machinery	1,004,085	16.9	6.0	1.0
Transport Equipment	1,442,955	24.3	4.1	1.0
Motor Vehicles	933,809	15.7	8.8	1.3
Cars	800,145	13.5	8.1	1.0
Buses & Trucks	125,802	2.1	13.2	0.3
Parts of Motor Vehicles	276,289	4.7	-1.8	-0.1
Motorcycles	35,442	0.6	-4.6	0.0
Ships	96,688	1.7	-20.2	-0.4
Other	750,986	12.6	14.8	1.7
Imports	6,365,660	100.0	-3.6	-3.6
Foodstuffs	515,035	8.1	16.0	1.1
Raw Materials	407,417	6.4	-5.7	-0.4
Mineral Fuels	1,582,724	24.9	-35.6	-13.2
Chemicals	565,830	8.9	13.8	1.0
Manufactured Goods	575,019	9.0	21.4	1.5
Machinery	574,106	9.0	14.3	1.1
Electrical Machinery	960,106	15.1	13.9	1.8
Transport Equipment	214,618	3.4	-12.9	-0.5
Other	970,805	15.3	36.6	3.9

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

Table VB-10 provides Japan’s exports, imports and trade balance in five-year intervals from 1950 to 1975 and then yearly from 1979 to 2014. Exports grew at the average yearly rate of 3.4 percent while imports grew at 3.7 percent per year in the years from 1979 to 2014. 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, 2013 and 2014.

Table VB-10, 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
2014	73,093	85,909	-12,816

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 in Table VB-11 for Feb 2015. The share of Asia in Japan’s trade is close to one-half for 51.6 percent of exports and 50.6 percent of imports. Within Asia, exports to China are 15.0 percent of total exports and imports from China 26.0 percent of total imports. While exports to China decreased 17.3 percent in the 12 months ending in Feb 2015, imports from China increased 39.4 percent. The largest export market for Japan in Feb 2015 is the US with share of 20.3 percent of total exports, which is close to that of China, and share of imports from the US of 9.2 percent in total imports. Japan’s exports to the US increased 14.3 percent in the 12 months ending in Feb 2015 and imports from the US increased 0.5 percent. Western Europe has share of 10.7 percent in Japan’s exports and of 10.7 percent in imports. Rates of growth of exports of Japan in Feb 2015 are 14.3 percent for exports to the US, 14.4 percent for exports to Brazil and minus 4.4 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 Feb 2015 are mixed. Imports from Asia decreased 3.0 percent in the 12 months ending in Feb 2015 while imports from China increased 16.8 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-11, Japan, Value and 12-Month Percentage Changes of Exports and Imports by Regions and Countries, ∆% and Millions of Yen

Feb 2015	Exports Millions Yen	12 months ∆%	Imports Millions Yen	12 months ∆%
Total	5,941,062	2.4	6,365,660	-3.6
Asia	3,068,435 % Total 51.6	-1.1	3,218,465 % Total 50.6	16.8
China	888,893 % Total 15.0	-17.3	1,657,797 % Total 26.0	39.4
USA	1,215,673 % Total 20.5	14.3	583,982 % Total 9.2	0.5
Canada	81,977	19.1	78,456	-8.8
Brazil	44,487	14.4	85,814	-10.4
Mexico	96,650	16.4	43,839	21.5
Western Europe	634,818 % Total 10.7	1.7	679,425 % Total 10.7	-3.9
Germany	158,600	-4.4	194,294	-9.4
France	54,121	6.4	86,072	7.3
UK	86,176	-1.9	51,802	-1.7
Middle East	256,291	11.0	763,137	-42.6
Australia	129,414	2.5	364,356	-2.7

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

Table VB-12 provides the trade balance of Japan by countries and regions in Feb 2015. The significantly large deficits of JPY 506,846 million with the Middle East, JPY 768,904 million with China, JPY 234,942 million with Australia and JPY 44,607 million with Western Europe exceed surpluses of JPY 631,691 million with the US, JPY 52,811 million with Mexico and JPY 34,374 million with the UK.

Table VB-12, Japan, Trade Balance, Millions of Yen

Feb 2015	Millions of Yen
Total	-424,598
Asia	-150,030
China	-768,904
USA	631,691
Canada	3,521
Brazil	-41,327
Mexico	52,811
Western Europe	-44,607
Germany	-35,694
France	-31,951
UK	34,374
Middle East	-506,846
Australia	-234,942

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 1.6 percentage points to GDP growth in IQ2013 and 0.2 percentage points in IIQ2013 but deducted 1.5 percentage points in IIIQ2013 and deducted 2.1 percentage points in IVQ2013. Net trade deducted 1.2 percentage points from GDP growth in IQ2014. Net trade added 4.2 percentage points to GDP growth in IIQ2014 and 0.2 percentage points in IIIQ2014. Net trade added 0.9 percentage points to GDP growth in IVQ2014. Private consumption assumed the role of driver of Japan’s economic growth but should moderate as in most mature economies.

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

	Net Trade	Exports	Imports
2014
I	-1.2	4.2	-5.4
II	4.2	-0.2	4.5
III	0.2	1.0	-0.8
IV	0.9	1.9	-1.1
2013
I	1.6	2.4	-0.9
II	0.2	1.8	-1.5
III	-1.5	-0.3	-1.2
IV	-2.1	-0.1	-2.0
2012
I	0.3	1.7	-1.4
II	-1.4	-0.3	-1.2
III	-1.9	-2.4	0.5
IV	-0.4	-2.0	1.6
2011
I	-1.1	-0.4	-0.7
II	-4.4	-4.6	0.2
III	3.9	5.7	-1.9
IV	-3.0	-2.0	-0.9
2010
I	2.2	3.5	-1.4
II	0.1	2.7	-2.6
III	0.5	1.4	-0.9
IV	-0.4	0.0	-0.4
2009
I	-4.4	-16.4	12.0
II	7.4	4.7	2.7
III	2.2	5.2	-3.1
IV	2.7	4.1	-1.4
2008
I	1.2	2.2	-1.0
II	0.5	-1.6	2.1
III	0.0	0.1	-0.2
IV	-11.4	-10.2	-1.2
2007
I	1.2	1.7	-0.5
II	0.8	1.6	-0.8
III	2.0	1.4	0.6
IV	1.4	2.1	-0.7

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 112.2 in Feb 2015 for gain of 19.4 percent relative to Jan 2012 and 7.0 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. The recovery from the global recession began in the third quarter of 2009.

Chart IV-5, Japan, Export Corporate Goods Price Index, Monthly, Yen Basis, 2008-2015

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 93.8 in Feb 2015 or minus 9.0 percent relative to Apr 2012 and fell 4.2 percent to 93.8 in Feb 2015 relative to Jun 2009.

Chart IV-5A, Japan, Export Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2015

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 115.1 in Feb 2015 or gain of 1.8 percent relative to Apr 2012 and 23.1 percent relative to Jun 2009.

Chart IV-6, Japan, Import Corporate Goods Price Index, Monthly, Yen Basis, 2008-2015

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 93.5 in Feb 2015 or minus 21.8 percent relative to Apr 2012 and gain of 8.5 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 decreased 4.2 percent from Jun 2009 to Feb 2015 while the import corporate goods price index increased 8.5 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.

Chart IV-6A, Japan, Import Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2015

Source: Bank of Japan

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

Table IV-6B provides the Bank of Japan’s Corporate Goods Price indexes of exports and imports on the yen and contract bases from Jan 2008 to Feb 2015. There are oscillations of the indexes that are shown vividly in the four charts above. For the entire period from Jan 2008 to Feb 2015, the export index on the contract currency basis decreased 5.4 percent and decreased 2.9 percent on the yen basis. For the entire period from Jan 2008 to Feb 2015, the import price index decreased 7.1 percent on the contract currency basis and increased 3.3 percent on the yen basis. During significant part of the expansion period, 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. 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-6B, Japan, Exports and Imports Corporate Goods Price Index, Contract Currency Basis and Yen Basis

	X-CC	X-Y	M-CC	M-Y
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	111.8	121.3
2013/09	99.0	107.2	113.0	124.0
2013/10	99.2	106.7	113.1	122.9
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	114.5	130.2
2014-02	98.9	109.2	113.9	127.8
2014-03	98.6	109.1	113.5	127.5
2014-04	98.5	109.2	112.8	127.0
2014-05	98.3	108.5	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	112.4	126.8
2014-09	98.1	111.2	111.6	129.5
2014-10	97.5	111.0	109.8	128.0
2014-11	97.1	115.9	107.0	131.6
2014-12	96.1	116.6	103.4	129.4
2015-01	94.6	113.3	98.3	121.5
2015-2	93.8	112.2	93.5	115.1

Note: X-CC: Exports Contract Currency; X-Y: Exports Yen; M-CC: Imports Contract; M-Y: Imports Yen

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 2015. 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-5 and associated table at http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.html http://cmpassocregulationblog.blogspot.com/2015/02/financial-and-international.html http://cmpassocregulationblog.blogspot.com/2014/12/valuations-of-risk-financial-assets.html http://cmpassocregulationblog.blogspot.com/2014/09/financial-volatility-mediocre-cyclical.html http://cmpassocregulationblog.blogspot.com/2014/09/geopolitical-and-financial-risks_71.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).

Chart IV-7, Japan, Domestic Corporate Goods Price Index, Monthly, 1970-2015

Source: Bank of Japan

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

The producer price index of the US from 1970 to 2015 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.

Chart IV-8, US, Producer Price Index Finished Goods, Monthly, 1970-2015

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 1.2 percent in Feb 2015 and decreased 23.1 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, changed 0.0 percent in Feb 2015 and increased 3.1 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 and recent collapse of commodity prices.

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

Feb 2015	Weight	Month ∆%	12 Month ∆%
Total	1000.0	0.0	0.5
Food, Beverages, Tobacco, Feedstuffs	137.5	0.0	3.5
Petroleum & Coal	57.4	-1.2	-23.1
Production Machinery	30.8	0.0	3.1
Electronic Components	31.0	-0.2	0.2
Electric Power, Gas & Water	52.7	0.8	8.6
Iron & Steel	56.6	-0.3	0.8
Chemicals	92.1	-0.2	-5.1
Transport Equipment	136.4	0.2	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 Feb 2015 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, changing 0.0 percent in Feb 2015, the energy shock is evident in the deduction of 0.06 percentage points by petroleum and coal products and 0.02 percentage points in chemicals and related products in reversal of carry trades of exposures in commodity futures. The exports CGPI decreased 0.8 percent on the basis of the contract currency with deduction of 0.27 percentage points by chemicals and related products and 0.23 percentage points by other primary products and manufactured goods. The imports CGPI decreased 4.9 percent on the contract currency basis. Petroleum, coal and natural gas products deducted 4.54 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 change in the domestic corporate goods price index without the effects of the consumption tax is 0.0 percent.

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

Groups Feb 2015	Contribution to Change Percentage Points
A. Domestic Corporate Goods Price Index	Monthly Change:  0.0%
Agriculture, Forestry & Fishery Products	0.07
Electric Power, Gas & Water	0.06
Transportation Equipment	0.01
Petroleum & Coal Products	-0.06
Nonferrous Metals	-0.05
Chemicals & Related Products	-0.02
B. Export Price Index	Monthly Change:    -0.8% contract currency
Metals & Related Products	-0.27
Chemicals & Related Products	-0.27
Other Primary Products & Manufactured Goods	-0.23
Electric & Electronic Products	-0.16
Textiles	-0.02
Transportation Equipment	0.02
C. Import Price Index	Monthly Change: -4.9% contract currency basis
Petroleum, Coal & Natural Gas	-4.54
Metals & Related Products	-0.20
Other Primary Products & Manufactured Goods	-0.11
Foodstuffs & Feedstuffs	-0.06
Electric & Electronic Products	-0.03
Chemicals & Related Products	-0.03
D. Domestic Corporate Goods Price Index Excluding Consumption Tax	Monthly Change: 0.0%
Agriculture, Forestry & Fishery Products	0.07
Electric Power, Gas & Water	0.06
Transportation Equipment	0.01
Petroleum & Coal Products	-0.06
Nonferrous Metals	-0.05
Chemicals & Related Products	-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 Mar 2015. The index of current prices paid or costs of inputs moved from 16.13 in Dec 2012 to 12.37 in Mar 2015 while the index of current prices received or sales prices increased from 1.08 in Dec 2012 to 8.25 in Jan 2015. The farther the index is from the area of no change at zero, the faster the rate of change. Prices paid or costs of inputs at 12.37 in Mar 2015 are expanding at faster pace than prices received or of sales of products at 8.25. 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 31.96 in Mar 2015 while the index of future prices received or expectation of sales prices in the next six months decreased from 25.81 in Dec 2012 to 12.37 in Mar 2015. 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
Mar 2015	12.37	8.25	31.96	12.37
Feb	14.61	3.37	26.97	5.62
Jan	12.63	12.63	33.68	15.79
Dec 2014	10.42	6.25	40.63	32.29
Nov	10.64	0.00	41.49	25.53
Oct	11.36	6.82	42.05	26.14
Sep	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:

Federal Reserve Bank of New York 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 (http://cmpassocregulationblog.blogspot.com/2015/03/irrational-exuberance-mediocre-cyclical.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 moved from 20.8 in Dec 2012 to minus 3.0 in Mar 2015. The index of current prices received was minus 2.4 in Apr 2013, indicating decrease of prices received. The index of current prices received decreased from 9.2 in Dec 2012 to minus 6.4 in Mar 2015. 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 minus 3.0 in Mar 2015 indicates milder contraction than the index of current prices received or sales prices of production contracting at 6.4. The index of future prices paid decreased to 27.5 in Mar 2015 from 40.6 in Dec 2012 while the index of future prices received decreased from 21.9 in Dec 2012 to 7.4 in Mar 2015. Expectations are incorporating faster increases in prices of inputs or costs of production, 27.5 in Mar 2015, than of sales prices of produced goods, 7.4 in Mar 2015, 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
Dec-10	42.8	5.3	56.0	24.2
Jan-11	48.1	12.3	58.3	34.8
Feb-11	61.1	13.4	67.7	31.5
Mar-11	59.0	17.6	62.4	33.4
Apr-11	52.1	23.6	56.2	35.7
May-11	49.8	20.6	54.9	28.6
Jun-11	37.4	7.2	41.4	6.9
Jul-11	34.4	5.5	49.3	17.5
Aug-11	23.6	-3.9	43.5	22.8
Sep-11	30.7	6.3	38.3	20.6
Oct-11	23.0	1.7	41.5	27.9
Nov-11	22.2	5.3	33.3	26.3
Dec-11	25.1	5.8	42.0	21.1
Jan-12	25.8	8.6	46.9	22.2
Feb-12	32.7	9.9	50.5	26.3
Mar-12	16.6	6.5	38.7	24.3
Apr-12	19.9	10.0	36.7	23.7
May-12	8.9	0.9	39.9	9.6
Jun-12	3.4	-4.5	34.5	16.9
Jul-12	9.0	3.5	29.1	21.4
Aug-12	17.0	6.1	36.8	23.9
Sep-12	14.0	2.6	39.0	24.9
Oct-12	18.0	5.2	44.1	15.4
Nov-12	22.8	5.1	44.6	10.6
Dec-12	20.8	9.2	40.6	21.9
Jan-13	12.3	-0.5	33.2	22.3
Feb-13	11.9	-0.7	33.9	22.5
Mar-13	11.4	0.6	34.3	19.3
Apr-13	7.6	-2.4	31.1	14.7
May-13	11.9	0.5	34.3	19.8
Jun-13	20.8	13.6	33.1	24.0
Jul-13	20.3	6.0	42.7	26.9
Aug-13	19.6	12.0	36.9	23.0
Sep-13	23.8	11.6	39.0	27.9
Oct-13	18.5	10.2	41.2	35.0
Nov-13	24.4	7.6	39.4	36.0
Dec-13	16.9	8.5	37.9	28.8
Jan-14	18.8	6.3	34.3	14.2
Feb-14	14.8	7.9	27.2	18.1
Mar-14	18.3	6.4	31.8	18.8
Apr-14	14.5	9.6	38.3	18.6
May-14	26.5	18.0	36.9	29.6
Jun-14	32.0	13.1	45.1	30.1
Jul-14	32.3	14.7	40.1	25.0
Aug-14	24.1	5.1	47.5	27.7
Sep-14	24.4	8.0	41.9	26.6
Oct-14	24.9	18.2	30.5	23.0
Nov-14	15.8	10.0	30.5	18.7
Dec-14	14.4	9.8	22.3	20.6
Jan-15	9.8	-0.2	26.0	20.7
Feb-15	4.7	-0.2	32.2	19.3
Mar-15	-3.0	-6.4	27.5	7.4

Source: Federal Reserve Bank of Philadelphia

http://www.philadelphiafed.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 2015. 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, rebounds and falls again in the final segment but there are no episodes of contraction after 2009 with exception of minus 3.0 in Mar 2015.

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 2015. 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 2015. There was only one contraction of prices paid at 3.0 Mar 2015 with sharper contraction of 6.4 of prices received. 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.

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

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015.