Sunday, May 24, 2020

Recovery Without Hiring, Twenty Million Fewer Full-Time Jobs, Youth and Middle-Age Unemployment, Sharp Contraction of United States Manufacturing, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, Collapse of United States Dynamism of Income Growth and Employment Creation in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide Followed by the Probable Global Recession in the Lockdown of Economic Activity in the COVID-19 Event, Probable Global Recession, World Cyclical Slow Growth, and Government Intervention in Globalization: Part II


Recovery Without Hiring, Twenty Million Fewer Full-Time Jobs, Youth and Middle-Age Unemployment, Sharp Contraction of United States Manufacturing, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, Collapse of United States Dynamism of Income Growth and Employment Creation in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide Followed by the Probable Global Recession in the Lockdown of Economic Activity in the COVID-19 Event, Probable Global Recession, World Cyclical Slow Growth, and Government Intervention in Globalization

Carlos M. Pelaez

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.

I Recovery without Hiring

IA1 Hiring Collapse

IA2 Labor Underutilization

ICA3 Twenty Million Fewer Full-time Jobs

IA4 Theory and Reality of Cyclical Slow Growth Not Secular Stagnation: Youth and Middle-Age Unemployment

I United States Industrial Production

IIB Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates

II IB Collapse of United States Dynamism of Income Growth and Employment Creation in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide Followed by the Probable Global Recession in the Lockdown of Economic Activity in the COVID-19 Event

III World Financial Turbulence

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

Foreword A. The magnitude of the stress in US labor markets is magnified by the increase in the civilian noninstitutional population of the United States from 231.958 million in Jul 2007 to 259.896 million in Apr 2020 or by 27.938 million (https://www.bls.gov/data/). The number with full-time jobs in Apr 2020 is 113.656 million, in the lockdown of economic activity in the COVID-19 event, which is lower by 9.563 million relative to the peak of 123.219 million in Jul 2007. The ratio of full-time jobs of 123.219 million in Jul 2007 to civilian noninstitutional population of 231.958 million was 53.1 percent. If that ratio had remained the same, there would be 138.005 million full-time jobs with population of 259.986 million in Apr 2020 (0.531 x 259.896) or 24.349 million fewer full-time jobs relative to actual 113.656 million. There appear to be around 20 million fewer full-time jobs in the US than before the global recession while population increased around 20 million. Mediocre GDP growth is the main culprit of the fractured US labor market augmented by the lockdown in economic activity in the COVID-19 event.

clip_image001

Chart I-20, US, Full-time Employed, Thousands, NSA, 2001-2020

Sources: US Bureau of Labor Statistics

https://www.bls.gov/data/

Foreword A1. Manufacturing is underperforming in the lost cycle of the global recession. Manufacturing (NAICS) in Apr 2020 is lower by 22.3 percent relative to the peak in Jun 2007, as shown in Chart V-3A. Manufacturing (SIC) in Apr 2020 at 84.855 is lower by 24.4 percent relative to the peak at 112.3113 in Jun 2007. 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 of manufacturing at average 2.9 percent per year from Apr 1919 to Apr 2020. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 154.0798 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550 which is 44.9 percent below trend. The deterioration of manufacturing in Apr 2020 originates in the lockdown of economic activity in the COVID-19 event. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 161.6318 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550, which is 47.5 percent below trend. Manufacturing output grew at average 1.3 percent between Dec 1986 and Apr 2020. Using trend growth of 1.3 percent per year, the index would increase to 127.0007 in Apr 2020. The output of manufacturing at 84.8550 in Apr 2020 is 33.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index decreased from 86.3800 in Apr 2009 to 85.8317 in Apr 2020 or minus 0.6 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.0563 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 47.4 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 131.3304 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 34.6 percent below trend under this alternative calculation.

clip_image002

Chart V-3A, United States Manufacturing NSA, Dec 2007 to Apr 2020

Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

clip_image003

Chart V-3A, United States Manufacturing (NAICS) NSA, Jun 2007 to Apr 2020

Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Foreword B. There is typically significant difference between initial claims for unemployment insurance adjusted and not adjusted for seasonality provided in Table VII-2. Seasonally adjusted claims decreased 249,000 from 2,687,000 on May 9, 2020 to 2,438,000 on May 16, 2020 in the COVID-19 event. Claims not adjusted for seasonality decreased 182,265 from 2,356,594 on May 9, 2020 to 2,174,329 on May 16, 2020.

Table VII-2, US, Initial Claims for Unemployment Insurance

SA

NSA

4-week MA SA

May 16, 2020

2,438,000

2,174,329

3,042,000

May 09, 2020

2,687,000

2,356,594

3,543,000

Change

-249,000

-182,265

-501,000

May 02, 2020

3,176,000

2,855,561

4,180,500

Prior Year

213,000

191,931

221,250

Note: SA: seasonally adjusted; NSA: not seasonally adjusted; MA: moving average

Source: https://www.dol.gov/ui/data.pdf

Table VII-2A provides the SA and NSA number of uninsured that increased 2,062,552 NSA from 20,879,551 on May 2, 2020 to 22,942,103 on May 9, 2020.

Table VII-2A, US, Insured Unemployment

SA

NSA

4-week MA SA

May 09, 2020

25,073,000

22,942,103

22,002,250

May 02, 2020

22,548,000

20,879,551

19,688,750

Change

+2,525,000

+2,062,552

+2,313,500

Apr 25, 2020

22,377,000

21,772,595

17,030,250

Prior Year

1,683,000

1,543,472

1,681,750

Note: SA: seasonally adjusted; NSA: not seasonally adjusted; MA: moving average

Source: https://www.dol.gov/ui/data.pdf

I United States Industrial Production. There is socio-economic stress in the combination of adverse events and cyclical performance:

and earlier http://cmpassocregulationblog.blogspot.com/2015/07/fluctuating-risk-financial-assets.html and earlier http://cmpassocregulationblog.blogspot.com/2015/06/fluctuating-financial-asset-valuations.html and earlier http://cmpassocregulationblog.blogspot.com/2015/05/fluctuating-valuations-of-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2015/04/global-portfolio-reallocations-squeeze.html and earlier http://cmpassocregulationblog.blogspot.com/2015/03/impatience-with-monetary-policy-of.html and earlier (http://cmpassocregulationblog.blogspot.com/2015/02/world-financial-turbulence-squeeze-of.html and earlier http://cmpassocregulationblog.blogspot.com/2015/01/exchange-rate-conflicts-squeeze-of.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/2014/10/imf-view-squeeze-of-economic-activity.html and earlier http://cmpassocregulationblog.blogspot.com/2014/09/world-inflation-waves-squeeze-of.html)

Industrial production decreased 11.2 percent in Apr 2020 and decreased 4.5 percent in Mar 2020 after increasing 0.1 percent in Feb 2020, with all data seasonally adjusted, as shown in Table I-1. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Mar 27, 2019 (https://www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm):

“The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization.[1] On net, the revisions to the growth rates for total IP for recent years were small and positive, with the estimates for 2016 and 2017 a bit higher and the estimates for 2015 and 2018 slightly lower.[2] Total IP is still reported to have increased from the end of the recession in mid-2009 through late 2014 before declining in 2015 and rebounding in mid-2016. Subsequently, the index advanced around 7 1/2 percent over 2017 and 2018.

Capacity for total industry expanded modestly in each year from 2015 to 2017 before advancing 1 1/2 percent in 2018; it is expected to advance about 2 percent in 2019. Revisions for recent years were very small and showed slightly less expansion in most years relative to earlier reports.

In the fourth quarter of 2018, capacity utilization for total industry stood at 79.4 percent, about 3/4 percentage point above its previous estimate and about 1/2 percentage point below its long-run (1972–2018) average. The utilization rate in 2017 is also higher than its previous estimate.”

The report of the Board of Governors of the Federal Reserve System states (https://www.federalreserve.gov/releases/g17/current/default.htm):

“Total industrial production fell 11.2 percent in April for its largest monthly drop in the 101-year history of the index, as the COVID-19 (coronavirus disease 2019) pandemic led many factories to slow or suspend operations throughout the month. Manufacturing output dropped 13.7 percent, its largest decline on record, as all major industries posted decreases. The output of motor vehicles and parts fell more than 70 percent; production elsewhere in manufacturing dropped 10.3 percent. The indexes for utilities and mining decreased 0.9 percent and 6.1 percent, respectively. At 92.6 percent of its 2012 average, the level of total industrial production was 15.0 percent lower in April than it was a year earlier. Capacity utilization for the industrial sector decreased 8.3 percentage points to 64.9 percent in April, a rate that is 14.9 percentage points below its long-run (1972–2019) average and 1.8 percentage points below its all-time (since 1967) low set in 2009. In addition to the regular revisions that reflect incoming data, the industrial production indexes for March were revised to incorporate data on initial claims for unemployment insurance by employees who had worked in the industrial sector. The methods used to construct the estimates are described on the Federal Reserve Board's website at www.federalreserve.gov/releases/g17/g17_technical_qa.htm#covid2020ui.” In the six months ending in Apr 2020, United States national industrial production accumulated change of minus 15.2 percent at the annual equivalent rate of minus 27.9 percent, which is lower than growth of minus 15.0 percent in the 12 months ending in Apr 2020. Excluding growth of 0.9 percent in Nov 2019, growth in the remaining five months from Nov 2019 to Apr 2020 accumulated to minus 15.9 percent or minus 34.0 percent annual equivalent. Industrial production increased 0.9 percent in one of the past six months, 0.1 percent in one month, minus 11.2 percent in one month, minus 4.5 percent in one month, minus 0.5 in one month and minus 0.4 percent in one month. Industrial production decreased at annual equivalent 48.1 percent in the most recent quarter from Feb 2020 to Apr 2020 and changed at 0.0 percent annual equivalent in the prior quarter from Nov 2019 to Jan 2020. Business equipment accumulated change of minus 25.3 percent in the six months from Nov 2019 to Apr 2020, at the annual equivalent rate of minus 44.2 percent, which is lower than growth of minus 25.9 percent in the 12 months ending in Apr 2020. The Fed analyzes capacity utilization of total industry in its report (https://www.federalreserve.gov/releases/g17/Current/default.htm): ” Capacity utilization for the industrial sector decreased 8.3 percentage points to 64.9 percent in April, a rate that is 14.9 percentage points below its long-run (1972–2019) average and 1.8 percentage points below its all-time (since 1967) low set in 2009.” United States industry apparently decelerated to a lower growth rate followed by possible acceleration, weakening growth in past months and deep contraction in the lockdown of economic activity in the COVID 19 event. There could be renewed growth with oscillations.

Table I-1, US, Industrial Production and Capacity Utilization, SA, ∆% 

Apr 20

Mar 20

Feb 20

Jan 20

Dec 19

Nov 19

Apr 20/

Apr 19

Total

-11.2

-4.5

0.1

-0.5

-0.4

0.9

-15.0

Market
Groups

Final Products

-13.0

-6.0

0.8

-1.4

-0.9

1.8

-18.1

Consumer Goods

-11.7

-5.7

1.1

-0.9

-1.1

2.0

-15.8

Business Equipment

-17.3

-8.0

-0.4

-2.9

-0.5

2.0

-25.9

Non
Industrial Supplies

-11.0

-4.7

0.2

0.5

0.2

0.2

-13.8

Construction

-12.6

-4.4

-0.2

1.7

1.0

-0.1

-13.4

Materials

-9.9

-3.2

-0.5

0.1

-0.1

0.4

-12.8

Industry Groups

Manufacturing

-13.7

-5.5

0.0

-0.1

0.2

0.9

-18.0

Mining

-6.1

-1.1

-1.4

0.8

0.9

-0.6

7.5

Utilities

-0.9

-1.9

3.6

-4.7

-5.7

3.0

-3.8

Capacity

64.9

73.2

76.7

76.7

77.2

77.6

1.8

Sources: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Manufacturing decreased 13.7 percent in Apr 2020 and decreased 5.5 percent in Mar 2020 after changing 0.0 percent in Feb 2019, seasonally adjusted, decreasing 18.8 percent not seasonally adjusted in the 12 months ending in Apr 2020, as shown in Table I-2. Manufacturing changed cumulatively minus 17.6 percent in the six months ending in Apr 2020 or at the annual equivalent rate of minus 32.2 percent. Excluding the increase of 0.9 percent in Nov 2019, manufacturing decreased 18.4 percent from Nov 2019 to Apr 2020 or at the annual equivalent rate of minus 38.6 percent. Table I-2 provides a longer perspective of manufacturing in the US. There has been evident deceleration of manufacturing growth in the US from 2010 and the first three months of 2011 with recovery followed by renewed deterioration/improvement in more recent months as shown by 12 months’ rates of growth. Growth rates appeared to be increasing again closer to 5 percent in Apr-Jun 2012 but deteriorated. The rates of decline of manufacturing in 2009 are quite high with a drop of 18.6 percent in the 12 months ending in Apr 2009. Manufacturing recovered from this decline and led the recovery from the recession. Rates of growth appeared to be returning to the levels at 3 percent or higher in the annual rates before the recession, but the pace of manufacturing fell steadily with some strength at the margin. There is renewed deterioration and improvement. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Mar 27, 2019 (https://www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm):

“The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization.[1] On net, the revisions to the growth rates for total IP for recent years were small and positive, with the estimates for 2016 and 2017 a bit higher and the estimates for 2015 and 2018 slightly lower.[2] Total IP is still reported to have increased from the end of the recession in mid-2009 through late 2014 before declining in 2015 and rebounding in mid-2016. Subsequently, the index advanced around 7 1/2 percent over 2017 and 2018.

Capacity for total industry expanded modestly in each year from 2015 to 2017 before advancing 1 1/2 percent in 2018; it is expected to advance about 2 percent in 2019. Revisions for recent years were very small and showed slightly less expansion in most years relative to earlier reports.

In the fourth quarter of 2018, capacity utilization for total industry stood at 79.4 percent, about 3/4 percentage point above its previous estimate and about 1/2 percentage point below its long-run (1972–2018) average. The utilization rate in 2017 is also higher than its previous estimate.”

Manufacturing decreased 22.3 percent from the peak in Jun 2007 to the trough in Apr 2009 and increased 18.3 percent from the trough in Apr 2009 to Dec 2019. Manufacturing decreased 2.8 percent from the trough in Apr 2009 to Apr 2020. Manufacturing in Apr 2020 is lower by 24.4 percent relative to 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. US economic growth has been at only 2.1 percent on average in the cyclical expansion in the 43 quarters from IIIQ2009 to IQ2020. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the first estimate of GDP for IQ2020 (https://www.bea.gov/system/files/2020-04/gdp1q20_adv.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009 {[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter growth rates (https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/weekly-rise-of-valuations-of-risk.html). The expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983 to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to IIIQ1993 and at 7.9 percent from IQ1983 to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/weekly-rise-of-valuations-of-risk.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). 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 IQ2020 and the lockdown of economic activity in COVID-19 would have accumulated to 43.6 percent. GDP in IQ2020 would be $22,634.2 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $3646.3 billion than actual $18,987.9 billion. There are more than three trillion dollars of GDP less than at trend, explaining the 51.6 million unemployed or underemployed equivalent to actual unemployment/underemployment of 30.0 percent of the effective labor force with the largest part originating in the lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/05/fifty-two-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2020/04/lockdown-of-economic-activity-in.html). Unemployment is increasing sharply while employment is declining rapidly because of the lockdown of economic activity in the probable global recession resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-april-2020.pdf). US GDP in IQ2020 is 16.1 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $18,987.9 billion in IQ2020 or 20.5 percent at the average annual equivalent rate of 1.5 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. 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 of manufacturing at average 2.9 percent per year from Apr 1919 to Apr 2020. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 154.0798 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550 which is 44.9 percent below trend. The deterioration of manufacturing in Apr 2020 originates in the lockdown of economic activity in the COVID-19 event. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 161.6318 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550, which is 47.5 percent below trend. Manufacturing output grew at average 1.3 percent between Dec 1986 and Apr 2020. Using trend growth of 1.3 percent per year, the index would increase to 127.0007 in Apr 2020. The output of manufacturing at 84.8550 in Apr 2020 is 33.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index decreased from 86.3800 in Apr 2009 to 85.8317 in Apr 2020 or minus 0.6 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.0563 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 47.4 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 131.3304 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 34.6 percent below trend under this alternative calculation.

Table I-2, US, Monthly and 12-Month Rates of Growth of Manufacturing ∆%

Month SA ∆%

12-Month NSA ∆%

Apr 2020

-13.7

-18.8

Mar

-5.5

-5.9

Feb

0.0

-0.3

Jan

-0.1

-0.9

Dec 2019

0.2

-1.1

Nov

0.9

-0.9

Oct

-0.6

-1.7

Sep

-0.6

-1.2

Aug

0.6

-0.5

Jul

-0.4

-0.7

Jun

0.6

0.1

May

0.1

0.2

Apr

-0.9

-0.8

Mar

-0.1

0.8

Feb

-0.5

0.9

Jan

-0.6

2.3

Dec 2018

0.6

2.2

Nov

0.2

1.7

Oct

-0.1

1.9

Sep

0.0

3.5

Aug

0.4

3.3

Jul

0.4

2.5

Jun

0.7

1.8

May

-0.8

1.3

Apr

0.4

3.3

Mar

0.0

2.5

Feb

1.1

2.4

Jan

-0.4

1.3

Dec 2017

-0.1

2.3

Nov

0.3

2.7

Oct

1.3

2.5

Sep

-0.2

1.4

Aug

-0.3

2.1

Jul

-0.2

2.3

Jun

0.1

2.4

May

-0.2

2.7

Apr

1.1

1.3

Mar

-0.3

1.8

Feb

-0.1

1.4

Jan

0.6

0.7

Dec 2016

0.3

0.9

Nov

0.1

0.1

Oct

0.3

-0.1

Sep

0.4

-0.1

Aug

-0.4

-1.5

Jul

0.3

-1.5

Jun

0.3

-0.9

May

0.0

-1.7

Apr

-0.4

-1.0

Mar

-0.2

-2.1

Feb

-0.6

-0.8

Jan

0.7

-0.9

Dec 2015

-0.3

-2.0

Nov

-0.3

-1.8

Oct

0.0

-0.8

Sep

-0.4

-1.7

Aug

-0.3

-0.6

Jul

0.7

-0.4

Jun

-0.4

-1.1

May

0.0

-0.2

Apr

-0.1

-0.1

Mar

0.3

0.0

Feb

-0.7

0.5

Jan

-0.4

2.0

Dec 2014

-0.3

1.6

Nov

0.8

1.8

Oct

-0.1

1.0

Sep

0.0

1.1

Aug

-0.5

1.3

Jul

0.4

2.0

Jun

0.4

1.4

May

0.3

1.3

Apr

-0.2

0.9

Mar

0.8

1.5

Feb

1.0

0.2

Jan

-1.1

-0.6

Dec 2013

0.0

0.1

Nov

0.0

1.2

Oct

0.1

1.9

Sep

0.1

1.2

Aug

0.9

1.3

Jul

-0.9

0.3

Jun

0.2

0.7

May

0.3

0.9

Apr

-0.4

1.0

Mar

-0.1

0.6

Feb

0.5

0.7

Jan

-0.3

0.8

Dec 2012

0.8

1.6

Nov

0.7

1.7

Oct

-0.4

0.7

Sep

-0.1

1.6

Aug

-0.2

2.1

Jul

-0.1

2.4

Jun

0.2

3.4

May

-0.4

3.4

Apr

0.5

3.8

Mar

-0.5

2.8

Feb

0.3

4.2

Jan

0.8

3.5

Dec 2011

0.7

3.1

Nov

-0.3

2.7

Oct

0.5

2.8

Sep

0.3

2.6

Aug

0.4

2.1

Jul

0.6

2.3

Jun

0.1

1.7

May

0.1

1.5

Apr

-0.6

2.7

Mar

0.6

4.2

Feb

0.1

4.8

Jan

0.2

4.8

Dec 2010

0.5

5.5

Nov

0.0

4.6

Oct

0.1

5.8

Sep

0.0

6.1

Aug

0.1

6.8

Jul

0.6

7.5

Jun

-0.1

9.2

May

1.4

8.9

Apr

0.8

7.2

Mar

1.2

5.1

Feb

0.0

1.7

Jan

1.1

1.6

Dec 2009

-0.2

-2.9

Nov

1.0

-5.8

Oct

0.2

-8.9

Sep

0.9

-10.4

Aug

1.1

-13.5

Jul

1.5

-15.3

Jun

-0.3

-17.9

May

-1.1

-17.9

Apr

-0.7

-18.6

Mar

-1.9

-17.8

Feb

-0.1

-16.7

Jan

-3.0

-17.0

Dec 2008

-3.5

-14.5

Nov

-2.4

-11.8

Oct

-0.6

-9.2

Sep

-3.5

-8.8

Aug

-1.2

-5.2

Jul

-1.2

-3.7

Jun

-0.7

-3.2

May

-0.5

-2.3

Apr

-1.1

-1.0

Mar

-0.3

-0.5

Feb

-0.6

1.1

Jan

-0.4

2.5

Dec 2007

0.1

2.1

Nov

0.6

3.5

Oct

-0.3

2.9

Sep

0.5

2.9

Aug

-0.3

2.7

Jul

0.1

3.6

Jun

0.3

3.1

May

-0.1

3.2

Apr

0.7

3.7

Mar

0.9

2.6

Feb

0.4

1.6

Jan

-0.5

1.2

Dec 2006

2.7

Dec 2005

3.6

Dec 2004

4.1

Dec 2003

2.3

Dec 2002

2.4

Dec 2001

-5.3

Dec 2000

0.8

Dec 1999

5.2

Average ∆% Dec 1986-Dec 2019

1.9

Average ∆% Dec 1986-Dec 2018

2.0

Average ∆% Dec 1986-Dec 2017

2.0

Average ∆% Dec 1986-Dec 2016

2.0

Average ∆% Dec 1986-Dec 2015

2.0

Average ∆% Dec 1986-Dec 2014

2.2

Average ∆% Dec 1986-Dec 2013

2.2

Average ∆% Dec 1986-Dec 1999

4.3

Average ∆% Dec 1999-Dec 2006

1.5

Average ∆% Dec 1986-Dec 2006

3.3

Average ∆% Dec 1999-Dec 2017

0.4

Average ∆% Dec 1999-Dec 2018

0.5

Average ∆% Dec 1999-Dec 2019

0.4

∆% Peak 112.3113 in 06/2007 to 103.2956 in 12/2019

-8.0

∆% Peak 112.3113 in 06/2007 to Trough 87.3028 in 4/2009

-22.3

∆% Trough 87.3028 in 04/2009 to 103.2956 in 12/2019

18.3

∆% Trough 87.3028 in 04/2009 to 84.8550 in 4/2020

-2.8

∆% Peak 112.3113 in 06/2007 to 84.8550 in 4/2020

-24.4

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

https://www.federalreserve.gov/releases/g17/Revisions/Current/DefaultRev.htm

Chart I-1 of the Board of Governors of the Federal Reserve System provides industrial production, manufacturing and capacity since the 1970s. There was acceleration of growth of industrial production, manufacturing and capacity in the 1990s because of rapid growth of productivity in the US (Cobet and Wilson (2002); see Pelaez and Pelaez, The Global Recession Risk (2007), 135-44). The slopes of the curves flatten in the 2000s. Production and capacity have not recovered sufficiently above levels before the global recession, remaining like GDP below historical trend. The final data point for Apr 2019 shows sharp contraction of output in the lockdown of economic activity in the COVID-19 event. 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 of manufacturing at average 2.9 percent per year from Apr 1919 to Apr 2020. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 154.0798 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550 which is 44.9 percent below trend. The deterioration of manufacturing in Apr 2020 originates in the lockdown of economic activity in the COVID-19 event. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 161.6318 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550, which is 47.5 percent below trend. Manufacturing output grew at average 1.3 percent between Dec 1986 and Apr 2020. Using trend growth of 1.3 percent per year, the index would increase to 127.0007 in Apr 2020. The output of manufacturing at 84.8550 in Apr 2020 is 33.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index decreased from 86.3800 in Apr 2009 to 85.8317 in Apr 2020 or minus 0.6 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.0563 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 47.4 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 131.3304 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 34.6 percent below trend under this alternative calculation.

clip_image004

Chart I-1, US, Industrial Production, Capacity and Utilization

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/ipg1.gif

Additional detail on industrial production and capacity utilization is in Chart I-2 of the Board of Governors of the Federal Reserve System. Production of consumer durable goods fell sharply during the global recession by more than 30 percent and is oscillating above the level before the contraction. Output of nondurable consumer goods fell around 10 percent and is some 5 percent below the level before the contraction. Output of business equipment fell sharply during the contraction of 2001 but began rapid growth again after 2004. An important characteristic is rapid growth of output of business equipment in the cyclical expansion after sharp contraction in the global recession, stalling in the final segment followed by recovery. Output of defense and space only suffered reduction in the rate of growth during the global recession and surged ahead of the level before the contraction, declining in the final segment. Output of construction supplies collapsed during the global recession and is well below the level before the contraction. Output of energy materials was stagnant before the contraction but recovered sharply above the level before the contraction with alternating recent decline/improvement. There are deep contractions in Mar-Apr 2020 in the lockdown of economic activity in the COVID-19 event.

clip_image005

Chart I-2, US, Industrial Production, Capacity and Utilization

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/ipg3.gif

The modern industrial revolution of Jensen (1993) is captured in Chart I-3 of the Board of Governors of the Federal Reserve System (for the literature on M&A and corporate control see Pelaez and Pelaez, Regulation of Banks and Finance (2009a), 143-56, Globalization and the State, Vol. I (2008a), 49-59, Government Intervention in Globalization (2008c), 46-49). The slope of the curve of total industrial production accelerates in the 1990s to a much higher rate of growth than the curve excluding high-technology industries. Growth rates decelerate into the 2000s and output and capacity utilization have not recovered fully from the strong impact of the global recession. Output of energy materials was stagnant before the contraction but recovered sharply above the level before the contraction with alternating recent decline/improvement followed by stability. Growth in the current cyclical expansion has been more subdued than in the prior comparably deep contractions in the 1970s and 1980s. Chart I-2 shows that the past recessions after World War II are the relevant ones for comparison with the recession after 2007 instead of common comparisons with the Great Depression (https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/weekly-rise-of-valuations-of-risk.html). The lower part of Chart I-3 shows recent strong growth of energy compared with non-energy. There are deep contractions in Mar 2020 in the lockdown of economic activity during the COVID-19 event.

clip_image006

Chart I-3, US, Industrial Production and Capacity Utilization, Selected Industries

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/ipg2.gif

United States manufacturing output from 1919 to 2020 monthly is in Chart I-4 of the Board of Governors of the Federal Reserve System. The second industrial revolution of Jensen (1993) is quite evident in the acceleration of the rate of growth of output given by the sharper slope in the 1980s and 1990s. Growth was robust after the shallow recession of 2001 but dropped sharply during the global recession after IVQ2007. Manufacturing output recovered sharply but has not reached earlier levels and is losing momentum at the margin. 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 of manufacturing at average 2.9 percent per year from Apr 1919 to Apr 2020. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 154.0798 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550 which is 44.9 percent below trend. The deterioration of manufacturing in Apr 2020 originates in the lockdown of economic activity in the COVID-19 event. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 161.6318 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550, which is 47.5 percent below trend. Manufacturing output grew at average 1.3 percent between Dec 1986 and Apr 2020. Using trend growth of 1.3 percent per year, the index would increase to 127.0007 in Apr 2020. The output of manufacturing at 84.8550 in Apr 2020 is 33.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index decreased from 86.3800 in Apr 2009 to 85.8317 in Apr 2020 or minus 0.6 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.0563 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 47.4 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 131.3304 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 34.6 percent below trend under this alternative calculation. There is sharp contraction of output in Mar-Apr 2020 in the lockdown of economic activity during the COVID-19 event.

clip_image007

Chart I-4, US, Manufacturing Output, 1919-2020

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Industrial production decreased 11.2 percent in Apr 2020 and decreased 4.5 percent in Mar 2020 after increasing 0.1 percent in Feb 2020. The Board of Governors of the Federal Reserve System conducted the annual revision of industrial production released on Mar 27, 2019 (https://www.federalreserve.gov/releases/g17/revisions/Current/DefaultRev.htm):

“The Federal Reserve has revised its index of industrial production (IP) and the related measures of capacity and capacity utilization.[1] On net, the revisions to the growth rates for total IP for recent years were small and positive, with the estimates for 2016 and 2017 a bit higher and the estimates for 2015 and 2018 slightly lower.[2] Total IP is still reported to have increased from the end of the recession in mid-2009 through late 2014 before declining in 2015 and rebounding in mid-2016. Subsequently, the index advanced around 7 1/2 percent over 2017 and 2018.

Capacity for total industry expanded modestly in each year from 2015 to 2017 before advancing 1 1/2 percent in 2018; it is expected to advance about 2 percent in 2019. Revisions for recent years were very small and showed slightly less expansion in most years relative to earlier reports.

In the fourth quarter of 2018, capacity utilization for total industry stood at 79.4 percent, about 3/4 percentage point above its previous estimate and about 1/2 percentage point below its long-run (1972–2018) average. The utilization rate in 2017 is also higher than its previous estimate.”

The report of the Board of Governors of the Federal Reserve System states (https://www.federalreserve.gov/releases/g17/current/default.htm):

“Total industrial production fell 11.2 percent in April for its largest monthly drop in the 101-year history of the index, as the COVID-19 (coronavirus disease 2019) pandemic led many factories to slow or suspend operations throughout the month. Manufacturing output dropped 13.7 percent, its largest decline on record, as all major industries posted decreases. The output of motor vehicles and parts fell more than 70 percent; production elsewhere in manufacturing dropped 10.3 percent. The indexes for utilities and mining decreased 0.9 percent and 6.1 percent, respectively. At 92.6 percent of its 2012 average, the level of total industrial production was 15.0 percent lower in April than it was a year earlier. Capacity utilization for the industrial sector decreased 8.3 percentage points to 64.9 percent in April, a rate that is 14.9 percentage points below its long-run (1972–2019) average and 1.8 percentage points below its all-time (since 1967) low set in 2009. In addition to the regular revisions that reflect incoming data, the industrial production indexes for March were revised to incorporate data on initial claims for unemployment insurance by employees who had worked in the industrial sector. The methods used to construct the estimates are described on the Federal Reserve Board's website at www.federalreserve.gov/releases/g17/g17_technical_qa.htm#covid2020ui.” In the six months ending in Apr 2020, United States national industrial production accumulated change of minus 15.2 percent at the annual equivalent rate of minus 27.9 percent, which is lower than growth of minus 15.0 percent in the 12 months ending in Apr 2020. Excluding growth of 0.9 percent in Nov 2019, growth in the remaining five months from Nov 2019 to Apr 2020 accumulated to minus 15.9 percent or minus 34.0 percent annual equivalent. Industrial production increased 0.9 percent in one of the past six months, 0.1 percent in one month, minus 11.2 percent in one month, minus 4.5 percent in one month, minus 0.5 in one month and minus 0.4 percent in one month. Industrial production decreased at annual equivalent 48.1 percent in the most recent quarter from Feb 2020 to Apr 2020 and changed at 0.0 percent annual equivalent in the prior quarter from Nov 2019 to Jan 2020. Business equipment accumulated change of minus 25.3 percent in the six months from Nov 2019 to Apr 2020, at the annual equivalent rate of minus 44.2 percent, which is lower than growth of minus 25.9 percent in the 12 months ending in Apr 2020. The Fed analyzes capacity utilization of total industry in its report (https://www.federalreserve.gov/releases/g17/Current/default.htm): ” Capacity utilization for the industrial sector decreased 8.3 percentage points to 64.9 percent in April, a rate that is 14.9 percentage points below its long-run (1972–2019) average and 1.8 percentage points below its all-time (since 1967) low set in 2009.” United States industry apparently decelerated to a lower growth rate followed by possible acceleration, weakening growth in past months and deep contraction in the lockdown of economic activity in the COVID 19 event. There could be renewed growth with oscillations.

Manufacturing decreased 22.3 percent from the peak in Jun 2007 to the trough in Apr 2009 and increased 18.3 percent from the trough in Apr 2009 to Dec 2019. Manufacturing decreased 2.8 percent from the trough in Apr 2009 to Apr 2020. Manufacturing in Apr 2020 is lower by 24.4 percent relative to 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. US economic growth has been at only 2.1 percent on average in the cyclical expansion in the 43 quarters from IIIQ2009 to IQ2020. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the first estimate of GDP for IQ2020 (https://www.bea.gov/system/files/2020-04/gdp1q20_adv.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009 {[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter growth rates (https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/weekly-rise-of-valuations-of-risk.html). The expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989, 4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983 to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to IIIQ1993 and at 7.9 percent from IQ1983 to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states.html and earlier https://cmpassocregulationblog.blogspot.com/2020/03/weekly-rise-of-valuations-of-risk.html). The National Bureau of Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). 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 IQ2020 and the lockdown of economic activity in COVID-19 would have accumulated to 43.6 percent. GDP in IQ2020 would be $22,634.2 billion (in constant dollars of 2012) if the US had grown at trend, which is higher by $3646.3 billion than actual $18,987.9 billion. There are more than three trillion dollars of GDP less than at trend, explaining the 51.6 million unemployed or underemployed equivalent to actual unemployment/underemployment of 30.0 percent of the effective labor force with the largest part originating in the lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/05/fifty-two-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2020/04/lockdown-of-economic-activity-in.html). Unemployment is increasing sharply while employment is declining rapidly because of the lockdown of economic activity in the probable global recession resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-april-2020.pdf). US GDP in IQ2020 is 16.1 percent lower than at trend. US GDP grew from $15,762.0 billion in IVQ2007 in constant dollars to $18,987.9 billion in IQ2020 or 20.5 percent at the average annual equivalent rate of 1.5 percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. Cochrane (2016May02) measures GDP growth in the US at average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per year from 2000 to 2015 with only at 2.0 percent annual equivalent in the current expansion. Cochrane (2016May02) proposes drastic changes in regulation and legal obstacles to private economic activity. 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 of manufacturing at average 2.9 percent per year from Apr 1919 to Apr 2020. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 154.0798 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550 which is 44.9 percent below trend. The deterioration of manufacturing in Apr 2020 originates in the lockdown of economic activity in the COVID-19 event. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 161.6318 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550, which is 47.5 percent below trend. Manufacturing output grew at average 1.3 percent between Dec 1986 and Apr 2020. Using trend growth of 1.3 percent per year, the index would increase to 127.0007 in Apr 2020. The output of manufacturing at 84.8550 in Apr 2020 is 33.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index decreased from 86.3800 in Apr 2009 to 85.8317 in Apr 2020 or minus 0.6 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.0563 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 47.4 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 131.3304 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 34.6 percent below trend under this alternative calculation. Table I-13 provides national income by industry without capital consumption adjustment (WCCA). “Private industries” or economic activities have share of 86.8 percent in IIIQ2019. Most of US national income is in the form of services. In Apr 2020, there were 131.071 million nonfarm jobs NSA in the US, according to estimates of the establishment survey of the Bureau of Labor Statistics (BLS) (https://www.bls.gov/news.release/empsit.nr0.htm Table B-1). Total private jobs of 108.956 million NSA in Apr 2020 accounted for 83.1 percent of total nonfarm jobs of 131.071 million, of which 11.432 million, or 10.5 percent of total private jobs and 8.7 percent of total nonfarm jobs, were in manufacturing. Private service-providing jobs were 90.334 million NSA in Apr 2020, or 68.9 percent of total nonfarm jobs and 82.9 percent of total private-sector jobs. Manufacturing has share of 9.3 percent in US national income in IVQ2019 and durable goods 5.6 percent, as shown in Table I-13. Most income in the US originates in services. Subsidies and similar measures designed to increase manufacturing jobs will not increase economic growth and employment and may actually reduce growth by diverting resources away from currently employment-creating activities because of the drain of taxation.

Table I-13, US, National Income without Capital Consumption Adjustment by Industry, Seasonally Adjusted Annual Rates, Billions of Dollars, % of Total

SAAR IIIQ2019

% Total

SAAR IVQ2019

% Total

National Income WCCA

17,870.2

100.0

18,049.8

100.0

Domestic Industries

17,561.2

98.3

17,735.6

98.3

Private Industries

15,505.6

86.8

15,661.9

86.8

Agriculture

127.3

0.7

128.1

0.7

Mining

197.9

1.1

192.6

1.1

Utilities

166.2

0.9

167.4

0.9

Construction

944.8

5.3

960.3

5.3

Manufacturing

1665.5

9.3

1685.6

9.3

Durable Goods

986.1

5.5

1002.0

5.6

Nondurable Goods

679.4

3.8

683.6

3.8

Wholesale Trade

1019.4

5.7

1029.5

5.7

Retail Trade

1192.0

6.7

1211.5

6.7

Transportation & WH

588.8

3.3

590.3

3.3

Information

616.1

3.4

627.4

3.5

Finance, Insurance, RE

3125.4

17.5

3143.8

17.4

Professional & Business Services

2685.7

15.0

2699.4

15.0

Education, Health Care

1855.3

10.4

1884.3

10.4

Arts, Entertainment

793.0

4.4

806.9

4.5

Other Services

528.3

3.0

534.8

3.0

Government

2055.6

11.5

2073.7

11.5

Rest of the World

309.0

1.7

314.2

1.7

Notes: SSAR: Seasonally-Adjusted Annual Rate; Percentages Calculates from Unrounded Data; WCCA: Without Capital Consumption Adjustment by Industry; WH: Warehousing; RE, includes rental and leasing: Real Estate; Art, Entertainment includes recreation, accommodation and food services; BS: business services

Source: US Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm

Motor vehicle sales and production in the US have been in long-term structural change. Table VA-1A provides the data on new motor vehicle sales and domestic car production in the US from 1990 to 2010. New motor vehicle sales grew from 14,137 thousand in 1990 to the peak of 17,806 thousand in 2000 or 29.5 percent. In that same period, domestic car production fell from 6,231 thousand in 1990 to 5,542 thousand in 2000 or -11.1 percent. New motor vehicle sales fell from 17,445 thousand in 2005 to 11,772 in 2010 or 32.5 percent while domestic car production fell from 4,321 thousand in 2005 to 2,840 thousand in 2010 or 34.3 percent. In IIQ2018, light vehicle sales accumulated to 4,500,220, which is higher by 1.8 percent relative to 4,419,349 a year earlier in IIQ2017 (http://www.motorintelligence.com/m_frameset.html). Total not seasonally adjusted light vehicle sales reached 1356.3 thousands in Feb 2020, increasing 8.4 percent from 1251.5 thousands in Feb 2019 (https://www.bea.gov/national/xls/gap_hist.xlsx). The seasonally adjusted annual rate of light vehicle sales in the US reached 16.8 million in Feb 2020, lower than 16.9 million in Jan 2020 and higher than 16.5 million in Feb 2019 (https://www.bea.gov/national/xls/gap_hist.xlsx).

Table VA-1A, US, New Motor Vehicle Sales and Car Production, Thousand Units 7

New Motor Vehicle Sales

New Car Sales and Leases

New Truck Sales and Leases

Domestic Car Production

1990

14,137

9,300

4,837

6,231

1991

12,725

8,589

4,136

5,454

1992

13,093

8,215

4,878

5,979

1993

14,172

8,518

5,654

5,979

1994

15,397

8,990

6,407

6,614

1995

15,106

8,536

6,470

6,340

1996

15,449

8,527

6,922

6,081

1997

15,490

8,273

7,218

5,934

1998

15,958

8,142

7,816

5,554

1999

17,401

8,697

8,704

5,638

2000

17,806

8,852

8,954

5,542

2001

17,468

8,422

9,046

4,878

2002

17,144

8,109

9,036

5,019

2003

16,968

7,611

9,357

4,510

2004

17,298

7,545

9,753

4,230

2005

17,445

7,720

9,725

4,321

2006

17,049

7,821

9,228

4,367

2007

16,460

7,618

8,683

3,924

2008

13,494

6,814

6.680

3,777

2009

10,601

5,456

5,154

2,247

2010

11,772

5,729

6,044

2,840

Source: US Census Bureau

https://www.bea.gov/national/xls/gap_hist.xlsx

Table VA-1B provides the seasonally adjusted annual rate of total vehicle sales in the United States. The rate decreased from 17.773 in Mar 2019 and 17.203 in February 2020 to 11.742 in Mar 2020 in the COVID-19 event.

Table VA-1B, United States, Annual Rate, Total Vehicle Sales, Seasonally Adjusted Annual Rate

Year, Month

SAAR

2019-03-01

17.773

2019-04-01

17.049

2019-05-01

17.933

2019-06-01

17.705

2019-07-01

17.442

2019-08-01

17.512

2019-09-01

17.723

2019-10-01

17.046

2019-11-01

17.447

2019-12-01

17.120

2020-01-01

17.364

2020-02-01

17.203

2020-03-01

11.742

Source: Economic Research Division, Federal Reserve Bank of St. Louis

https://fred.stlouisfed.org/series/TOTALSA

Chart I-5 of the Board of Governors of the Federal Reserve provides output of motor vehicles and parts in the United States from 1972 to 2020. Output virtually stagnated since the late 1990s with recent increase. Output shrank toward zero in the lockdown of economic activity in the COVID-19 event.

clip_image008

Chart 1-5, US, Motor Vehicles and Parts Output, 1972-2020

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Chart I-6 of the Board of Governors of the Federal Reserve System provides output of computers and electronic products in the United States from 1972 to 2020. Output accelerated sharply in the 1990s and 2000s and surpassed the level before the global recession beginning in IVQ2007. There is sharp contraction in Mar-Apr 2020 during the lockdown of economic activity in the COVID-19 event.

clip_image009

Chart I-6, US, Output of Computers and Electronic Products, 1972-2020

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Chart I-7 of the Board of Governors of the Federal Reserve System shows that output of durable manufacturing accelerated in the 1980s and 1990s with slower growth in the 2000s perhaps because processes matured. Growth was robust after the major drop during the global recession but appears to vacillate in the final segment. There is sharp contraction in Mar-Apr 2020 in the lockdown of economic activity during the COVID-19 event.

clip_image010

Chart I-7, US, Output of Durable Manufacturing, 1972-2020

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Chart I-8 of the Board of Governors of the Federal Reserve System provides output of aerospace and miscellaneous transportation equipment from 1972 to 2020. There is long-term upward trend with oscillations around the trend and cycles of large amplitude. There is sharp contraction in Mar 2020 during the lockdown of economic activity in the COVID-19 event.

clip_image011

Chart I-8, US, Output of Aerospace and Miscellaneous Transportation Equipment, 1972-2020

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Manufacturing is underperforming in the lost cycle of the global recession. Manufacturing (NAICS) in Apr 2020 is lower by 22.3 percent relative to the peak in Jun 2007, as shown in Chart V-3A. Manufacturing (SIC) in Apr 2020 at 84.855 is lower by 24.4 percent relative to the peak at 112.3113 in Jun 2007. 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 of manufacturing at average 2.9 percent per year from Apr 1919 to Apr 2020. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 154.0798 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550 which is 44.9 percent below trend. The deterioration of manufacturing in Apr 2020 originates in the lockdown of economic activity in the COVID-19 event. Manufacturing grew at the average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in Dec 2007 to 161.6318 in Apr 2020. The actual index NSA in Apr 2020 is 84.8550, which is 47.5 percent below trend. Manufacturing output grew at average 1.3 percent between Dec 1986 and Apr 2020. Using trend growth of 1.3 percent per year, the index would increase to 127.0007 in Apr 2020. The output of manufacturing at 84.8550 in Apr 2020 is 33.2 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index decreased from 86.3800 in Apr 2009 to 85.8317 in Apr 2020 or minus 0.6 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 106.6777 in Dec 2007 to 163.0563 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 47.4 below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 106.6777 in Dec 2007 to 131.3304 in Apr 2020. The NAICS index at 85.8317 in Apr 2020 is 34.6 percent below trend under this alternative calculation.

clip_image002[1]

Chart V-3A, United States Manufacturing NSA, Dec 2007 to Apr 2020

Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

clip_image003[1]

Chart V-3A, United States Manufacturing (NAICS) NSA, Jun 2007 to Apr 2020

Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Chart V-3B provides the civilian noninstitutional population of the United States, or those available for work. The civilian noninstitutional population increased from 231.713 million in Jun 2007 to 259.896 million in Apr 2020 or 28.183 million.

clip_image012

Chart V-3B, United States, Civilian Noninstitutional Population, Million, NSA, Jan 2007 to Apr 2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/

Chart V-3C provides nonfarm payroll manufacturing jobs in the United States from Jan 2007 to Apr 2020. Nonfarm payroll manufacturing jobs fell from 13.987 million in Jun 2007 to 11.432 million in Apr 2020, or 2.555 million.

clip_image013

Chart V-3C, United States, Payroll Manufacturing Jobs, NSA, Jan 2007 to Apr 2020, Thousands

Source: US Bureau of Labor Statistics

https://www.bls.gov/

Chart V-3D provides the index of US manufacturing (NAICS) from Jan 1972 to Apr 2020. The index continued increasing during the decline of manufacturing jobs after the early 1980s. There are likely effects of changes in the composition of manufacturing with also changes in productivity and trade.

clip_image014

Chart V-3D, United States Manufacturing (NAICS) NSA, Jan 1972 to Apr 2020

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Chart V-3E provides the US noninstitutional civilian population, or those in condition of working, from Jan 1948, when first available, to Apr 2020. The noninstitutional civilian population increased from 170.042 million in Jun 1981 to 259.896 million in Apr 2020, or 89.854 million.

clip_image015

Chart V-3E, United States, Civilian Noninstitutional Population, Million, NSA, Jan 1948 to Apr 2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/

Chart V-3F provides manufacturing jobs in the United States from Jan 1939 to Apr 2020. Nonfarm payroll manufacturing jobs decreased from a peak of 18.890 million in Jun 1981 to 11.432 million in Apr 2020.

clip_image016

Chart V-3C, United States, Payroll Manufacturing Jobs, NSA, Jan 1939 to Apr 2020, Thousands

Source: US Bureau of Labor Statistics

https://www.bls.gov/

The Empire State Manufacturing Survey Index in Table VA-1 provides continuing deterioration that started in Jun 2012 well before Hurricane Sandy in Oct 2012. The current general index has been in negative contraction territory from minus 2.7 in Aug 2012 to minus 7.5 in Jan 2013 and minus 1.1 in May 2013. The current general index changed to minus 48.5 in May 2020. The index of current orders has also been in negative contraction territory from minus 3.0 in Aug 2012 to minus 10.9 in Jan 2013 and minus 7.8 in Jun 2013. The index of current new orders changed to minus 42.4 in Apr 2020. There is strengthening in the general index for the next six months at 29.1 in Apr 2020 and strengthening in new orders at 35.0.

Table VA-1, US, New York Federal Reserve Bank Empire State Manufacturing Survey Index SA

Current General Index

Current New Orders

Future General Index

Future New Orders

9/30/2011

-4.3

-4.5

22.5

23.5

10/31/2011

-5.7

1.7

14.5

19.4

11/30/2011

4.9

1.6

35.4

30.3

12/31/2011

11.7

10.1

45.4

43.2

1/31/2012

11.5

8.7

50.7

44.4

2/29/2012

17.5

7.1

46.3

37.6

3/31/2012

15.5

4.4

43.8

37.8

4/30/2012

7.8

4.1

40.5

38.4

5/31/2012

14.2

7.1

32.5

32

6/30/2012

1.6

3

27.9

28.4

7/31/2012

3.2

-3.3

24.4

21.8

8/31/2012

-2.7

-3

18.6

14.6

9/30/2012

-6.9

-10.3

27

28

10/31/2012

-4.6

-6.6

20.1

22.3

11/30/2012

-0.8

6.1

18.1

15.1

12/31/2012

-5.8

0.3

18.9

18.8

1/31/2013

-7.5

-10.9

21.7

23.7

2/28/2013

9.2

12.4

32

26.8

3/31/2013

4.9

4.7

34.7

33

4/30/2013

4.5

2.8

30.7

35.8

5/31/2013

-1.1

-3.1

26.6

30.3

6/30/2013

4.5

-7.8

27.8

22.4

7/31/2013

5.2

2.3

34.1

33.3

8/31/2013

9.7

2.8

35.7

30.8

9/30/2013

7.7

2.9

40.3

38.2

10/31/2013

3.6

9.5

41.3

36.9

11/30/2013

2.2

-2.5

38.1

39.4

12/31/2013

3.2

1.1

36.4

27.5

1/31/2014

12.8

8.1

35.8

37.5

2/28/2014

6.8

1.9

39.8

43.5

3/31/2014

2.8

0.8

34.6

36.4

4/30/2014

4.1

-0.4

39.1

35.2

5/31/2014

17.5

8.6

43.6

38.6

6/30/2014

15.8

13.1

41.2

44.3

7/31/2014

21

16.5

30.7

27.4

8/31/2014

16.1

15.6

45.5

50.2

9/30/2014

29.4

17.3

47

46.1

10/31/2014

6.2

1.8

42.3

42.2

11/30/2014

12

10.3

47.7

47.6

12/31/2014

-2.5

0.4

35.3

35.2

1/31/2015

12.5

6.9

46.6

41

2/28/2015

10.6

3.1

26.9

28.7

3/31/2015

3.7

-6.3

30.1

26.1

4/30/2015

0.1

-4.7

38.4

35.2

5/31/2015

3.9

3.7

31.2

35

6/30/2015

-4.8

-6.9

25.9

27

7/31/2015

1.7

-5

29.4

33.3

8/31/2015

-13.9

-14.6

32.4

30.5

9/30/2015

-12.7

-11.9

24.3

24.8

10/31/2015

-13.7

-15.3

22.8

22.9

11/30/2015

-9.7

-11.4

22.3

19.4

12/31/2015

-5.9

-6.1

33.1

23.7

1/31/2016

-16.6

-20.6

12.1

15.3

2/29/2016

-12.9

-10

13.6

19.5

3/31/2016

-2.5

3

24.2

36.8

4/30/2016

8.9

10.7

32

39.1

5/31/2016

-7.4

-2.8

29.2

24

6/30/2016

3.1

6.6

33.1

37.6

7/31/2016

1.4

-1.5

31

30.9

8/31/2016

-5.6

0.7

24.5

28.4

9/30/2016

-1.6

-6.4

35.8

33.5

10/31/2016

-9.5

-2.8

36.1

38.1

11/30/2016

1.9

2.9

29.9

26.8

12/31/2016

9.6

9.3

47.2

45

1/31/2017

7.5

6.8

49.5

40.3

2/28/2017

20.1

13.5

39.2

39.6

3/31/2017

15.6

17

36.4

33.9

4/30/2017

6.2

9.9

43.2

36.1

5/31/2017

0.7

-2.2

40.8

35.6

6/30/2017

18.8

16.1

41.3

42

7/31/2017

11.8

13.8

36.6

34.9

8/31/2017

22.7

20

43.3

40.9

9/30/2017

23.6

23.7

42.5

44.9

10/31/2017

26.6

19.4

45.8

45

11/30/2017

19.1

18.2

48.9

50.5

12/31/2017

20.1

17

43.7

39.4

1/31/2018

19.4

16.6

49.1

48.5

2/28/2018

17.5

14.9

48.4

45.4

3/31/2018

23.5

16.1

43.1

42.8

4/30/2018

17.4

11.7

23.5

22.8

5/31/2018

17

15.9

32.2

34.9

6/30/2018

25.8

21.5

38.5

35.5

7/31/2018

21.6

19.2

31

36.1

8/31/2018

24.1

15.8

33.8

35.6

9/30/2018

19

16.1

32.6

35.5

10/31/2018

19.4

20.5

30.3

35.6

11/30/2018

21.1

16.6

32.7

37

12/31/2018

11.1

12.4

27.1

30.3

1/31/2019

4.8

6.3

21.2

21.7

2/28/2019

10.3

8.1

30.9

34.4

3/31/2019

5.1

3.6

27.9

29

4/30/2019

9.4

7.4

17.4

24.3

5/31/2019

14.4

8.2

29.7

33

6/30/2019

-6.4

-9.7

25.5

28.4

7/31/2019

4.2

-0.4

29.3

34.2

8/31/2019

4.2

5.6

25.1

31.1

9/30/2019

2.2

1.9

15.5

23.4

10/31/2019

3.3

3.7

17.8

24

11/30/2019

2.5

3.1

19.8

25.2

12/31/2019

3.3

1.7

26.1

30.8

1/31/2020

4.8

6.6

23.6

31.4

2/29/2020

12.9

22.1

22.9

27.5

3/31/2020

-21.5

-9.3

1.2

17.6

4/30/2020

-78.2

-66.3

7

11.7

5/31/2020

-48.5

-42.4

29.1

35

Source: Federal Reserve Bank of New York

https://www.newyorkfed.org/survey/empire/empiresurvey_overview.html

Chart VA-1 of the Federal Reserve Bank of New York provides indexes of current and expected economic activity. There were multiple contractions in current activity after the global recession shown in shade. Current activity is weakening relative to strong recovery in the initial expansion in 2010 and 2011 with recent oscillating recovery and weakness. There is sharp improvement in the current index by softer negative reading with strong improvement in the future index in positive reading.

clip_image018

Chart VA-1, US, US, Federal Reserve Bank of New York, Diffusion Index of Current and Expected Activity, Seasonally Adjusted

Source: Federal Reserve Bank of New York

https://www.newyorkfed.org/survey/empire/empiresurvey_overview.html

Table VA-2 shows improvement after prior deterioration followed by current soft improvement of the Business Outlook survey of the Federal Reserve Bank of Philadelphia. There is sharp deterioration in the lockdown of economic activity in the COVID-19 event. The general index moved out of contraction of 5.3 in Feb 2013 to deeper contraction at minus 41.1 in May 2020. New orders moved from 0.6 in Feb 2013 to deeper contraction at minus 24.7 in May 2020. There is expansion in the future general index at 49.7 in May 2020 and in future new orders at 54.7 in May 2020.

Table VA-2, US, Federal Reserve Bank of Philadelphia Business Outlook Survey, SA

Current General Index

Current New Orders

Future General Index

Future New Orders

Jan-11

16.5

20.1

43.8

35.9

Feb-11

28.9

19.8

41.9

38.7

Mar-11

36.4

34.1

57.0

55.5

Apr-11

13.0

13.7

35.7

30.9

May-11

6.2

8.3

26.2

25.3

Jun-11

-0.5

-5.2

8.5

8.6

Jul-11

7.1

4.1

28.6

32.2

Aug-11

-19.5

-17.5

12.6

26.6

Sep-11

-10.7

-5.6

18.1

19.6

Oct-11

6.2

5.9

26.1

28.6

Nov-11

4.0

1.5

36.4

36.2

Dec-11

2.4

4.4

33.7

38.6

Jan-12

7.5

10.7

43.4

43.5

Feb-12

10.4

11.6

30.3

32.2

Mar-12

8.8

-0.1

30.4

37.1

Apr-12

5.7

0.6

39.9

42.4

May-12

-0.8

2.3

24.9

35.5

Jun-12

-12.6

-17.8

25.4

34.3

Jul-12

-12.7

-3.6

21.5

25.6

Aug-12

-2.6

1.6

20

25.5

Sep-12

0.2

0.7

31.6

42.8

Oct-12

-1.1

-4.7

17.1

20.7

Nov-12

-10.6

-7.4

16.6

22.6

Dec-12

2.4

2.6

22.4

29

Jan-13

-1.4

-2

28.8

31.9

Feb-13

-5.3

0.6

32

39

Mar-13

2

0.1

35.5

38.1

Apr-13

0.4

0.7

30.6

34.4

May-13

0.2

-4

39.5

42.2

Jun-13

12.7

11.7

37.2

40

Jul-13

15.9

7.4

41.6

52.4

Aug-13

8.2

8.9

38.5

38.8

Sep-13

20.6

19.3

48.8

51.5

Oct-13

13.5

23.1

55.4

61.2

Nov-13

4.6

8.8

42

46

Dec-13

3.8

12

41.1

44.6

Jan-14

15.2

7.9

38

40.8

Feb-14

2.3

4.7

43.9

39.5

Mar-14

12.5

6.5

42.4

38.7

Apr-14

17

17.3

39.3

38.6

May-14

18.5

14.8

43.8

42.5

Jun-14

14.1

10.4

53.3

55.3

Jul-14

21.4

28.7

53.6

48.8

Aug-14

22.9

15.4

61.9

51.3

Sep-14

21.7

13.8

46.1

44.8

Oct-14

18.1

16.8

50.8

49

Nov-14

35.5

29.7

50.1

44.3

Dec-14

21.6

14.5

47.2

43.9

Jan-15

13.2

10.1

54

47

Feb-15

10.5

8.4

35

46.1

Mar-15

7.3

0.8

37.7

37.8

Apr-15

9.9

4.5

39.7

33.6

May-15

6.1

5.4

38.1

35.1

Jun-15

8.2

11.2

43.4

47.5

Jul-15

4.4

2.3

40.2

45.4

Aug-15

5.8

6.6

34.9

39.2

Sep-15

-3.8

10.5

36.8

41.7

Oct-15

-4.9

-6.4

34.8

36.4

Nov-15

-3.8

-7.6

37.5

44.3

Dec-15

-9

-8.9

18.6

29.7

Jan-16

-4

-3

18.3

21.3

Feb-16

-6.8

-6

15.8

20

Mar-16

9

5.5

26.9

35.6

Apr-16

-1

-0.5

39.9

43.6

May-16

-4.8

-1.7

39.7

40.3

Jun-16

4.4

-0.9

36.6

37.6

Jul-16

0.9

10.1

36

35.2

Aug-16

5.4

-1.5

41.9

42.8

Sep-16

12.1

2.8

37

38.3

Oct-16

10.5

19.4

36.2

40.2

Nov-16

9.4

19.4

29.8

35.1

Dec-16

22.6

15.5

45.5

44.8

Jan-17

24.8

24.9

54.7

52.3

Feb-17

39.7

35.1

50.3

49.2

Mar-17

32

31.4

56.4

59.1

Apr-17

23.7

28.5

46.2

55.5

May-17

34.3

25.2

40.2

49.5

Jun-17

28.2

27.3

38.3

39.6

Jul-17

20.4

5.3

38.5

44.6

Aug-17

20.7

22.9

42.4

50.2

Sep-17

24

26.7

54.1

58.6

Oct-17

27.2

21

46.4

43.6

Nov-17

23.1

26.5

47.9

49.1

Dec-17

29.3

29.3

50

54.6

Jan-18

23

9.6

45.4

48.2

Feb-18

30.7

29.5

40.1

49.7

Mar-18

23.8

30.3

46.8

50.2

Apr-18

25.3

22.2

43

41.1

May-18

32.2

41.3

41.5

43.7

Jun-18

21.7

21.2

38.3

41.2

Jul-18

20.8

24.9

26.8

29.8

Aug-18

10.1

12.1

36.8

36.8

Sep-18

21.3

18.5

36

35.9

Oct-18

20.5

15.5

31.9

39

Nov-18

10.6

12.2

26.4

39.1

Dec-18

10.9

14.8

29.1

36.3

Jan-19

14.8

16.7

29.7

31.8

Feb-19

-0.7

1.5

29

30.5

Mar-19

14.9

6.4

23.1

24.2

Apr-19

11

16

22.2

27

May-19

17.5

14.2

22.3

24.8

Jun-19

1.5

8

24.2

33.7

Jul-19

16.6

18.4

33.6

41.6

Aug-19

13.1

21.6

31.8

42

Sep-19

12.2

22.5

23.1

34.4

Oct-19

6.8

22.5

32.6

37.3

Nov-19

8.4

10.1

34.4

37.3

Dec-19

2.4

11.1

34.8

33.6

Jan-20

17

18.2

38.4

41.9

Feb-20

36.7

33.6

45.4

54

Mar-20

-12.7

-15.5

35.2

36.7

Apr-20

-56.6

-70.9

43

36.5

May-20

-43.1

-25.7

49.7

54.7

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org

Chart VA-2 of the Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey provides the current and future general activity indexes from Jan 2007 to Jul 2019. The shaded areas are the recession cycle dates of the National Bureau of Economic Research (NBER) (https://www.nber.org/cycles.html). The Philadelphia Fed index dropped during the initial period of recession and then led the recovery, as industry overall. There was a second decline of the index into 2011 followed now by what appeared as renewed strength from late 2011 into Jan 2012. There is decline to negative territory of the current activity index in Nov 2012 and return to positive territory in Dec 2012 with decline of current conditions into contraction in Jan-Feb 2013 and rebound to mild expansion in Mar-Apr 2013. The index of current activity moved into expansion in Jun-Oct 2013 with weakness in Nov-Dec 2013, improving in Jan 2014. There is renewed deterioration in Feb 2014 with rebound in Apr-Sep 2014 and mild deterioration in Oct 2014 followed by improvement in Nov 2014. The index deteriorated in Jan-Feb 2015, stabilizing in Mar-May 2015 and improving in Jun 2015. The index deteriorated in Jul 2015, improved in Aug 2015 and deteriorated in Sep-Oct 2015. The index shows contraction in Nov 2015 to Feb 2016 with recovery in Mar 2016. There is deterioration in Apr-May 2016 with improvement in Jun 2016 and deterioration in Jul 2016. There is improvement in Aug-Sep 2016 with moderate weakening in Oct-Nov 2016. The indexes improved sharply in Dec 2016 and Jan-Feb 2017, softening in Mar-Apr 2017. The current index weakened in Jun 2017 with stability in the six-month forecast. The current index deteriorated in Jul 2017 with improvement in the six-month forecast. The current index deteriorated in Aug 2017 with improvement in the six-month forecast. The current index improved in Sep 2017 with improvement in the six-month forecast. The current index improved and the future index deteriorated in Oct 2017. There is deterioration in Nov 2017 of the current index and improvement of the future index. Both the current and future indexes improved in Dec 2017, deteriorating in Jan 2018. There is improvement of the current index in Feb 2018 with mild deterioration in the future index. The current index improves in Apr 2018 while the future index weakens. There is improvement in the current index in May 2018 with weakening of the future index. There is weakening in the current index in Jun 2018 while the future index weakens. The current index improves in Jul 2018 while the future index weakens. There is weakening of the current index in Aug 2018 while the future index improves. The current index improves in Sep 2018 while the future index weakens. The current index weakens in Oct 2018 while the future index weakens. The current index deteriorates in Nov 2018 while the future index deteriorates. The current index deteriorates in Dec 2018 while the future index improves. The current index improves in Jan 2019 while the future index improves. The current index deteriorates in Feb 2019 while the future index improves. The current index improves in Mar 2019 while the future index deteriorates. The current index deteriorates in Apr 2019 while the future index deteriorates. The current index improves in May 2019 while the future index improves. The current index deteriorates in Jun 2019 while the future index improves. The current index improves in Jul 2019 while the future index improves. The current index deteriorates in Aug 2019 while the future index deteriorates. The current index deteriorates in Sep 2019 while the future index deteriorates. The current index deteriorates in Oct 2019 while the future index improves. The current index improves in Nov 2019 while the future index improves. The current index deteriorates in Dec 2019 while the future index deteriorates. The current index improves in Jan 2020 while the future index improves. The current index improves in Feb 2020 while the future index improves. The current index contracts in Apr 2020 while the future index deteriorates. The current index improves in May 2020 while the future index improves.

clip_image019

Chart VA-2, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and Future Activity Indexes

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The index of current new orders of the Business Outlook Survey of the Federal Reserve Bank of Philadelphia in Chart VA-2 illustrates the weakness of the cyclical expansion. The index weakened in 2006 and 2007 and then fell sharply into contraction during the global recession. There have been twelve readings into contraction from Jan 2012 to May 2013 and generally weak readings with some exceptions. The index of new orders moved into expansion in Jun-Oct 2013 with moderation in Nov-Dec 2013 and into Jan 2014. The index fell into contraction in Feb 2014, recovering in Mar-Apr 2014 but weaker reading in May 2014. There is marked improvement in Jun-Jul 2014 with slowing in Aug-Oct 2014 followed by acceleration in Nov 2014. New orders deteriorated in Jan-Apr 2015, improving in May-Jun 2015. New orders deteriorated in Jul-Aug 2015 and improved in Sep 2015. New orders deteriorated in Oct-2015 to Dec 2015, contracting at slower pace in Jan 2016. There is sharper contraction in Feb 2016 and an upward jump in Mar 2016 followed by deterioration in Apr-Jun 2016. New orders improved in Jul 2016, deteriorating in Aug 2016 and improving in Sep 2016. Improvement continued in Oct-Nov 2016 with mild deterioration in Dec 2016 followed by improvement in Jan-Feb 2017, softening in Mar-Jul 2017, recovering in Aug-Sep 2017. There is deterioration in Oct 2017 followed by improvement in Nov-Dec 2017. There is deterioration in Jan 2018 followed by improvement in Feb 2018 and improvement in Mar 2018. The index deteriorates in Apr 2018, improving in May 2018. The index deteriorates in Jun 2018, improving in Jul 2018 and deteriorating in Aug 2018. The index improves in Sep 2018, deteriorating in Oct 2018. The index weakens in Nov 2018, improving in Dec 2018. The index improves in Jan 2019, deteriorating in Feb 2019. The index improves in Mar 2019, improving in Apr 2019. The index deteriorates in May-Jun 2019, improving in Jul 2019. The index improves in Aug 2019, improving in Sep 2019. The index stabilizes in Oct 2019, deteriorating in Nov 2019. The index improves in Dec 2019 and Jan 2020. The index improves in Feb 2020. The index contracts in Mar-Apr 2020 with significant rebound in May 2020.

clip_image020

Chart VA-3, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current New Orders Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

IIB Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates. 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, IIIQ2008 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) (https://www.nber.org/cycles.html). Net trade contributions helped to cushion the economy of Japan from the global recession. Net trade deducted from GDP growth in six of the nine quarters from IVQ2010 to IQ2012. The only strong contribution of net trade was 3.6 percent in IIIQ2011. Net trade added 0.8 percent in IQ2012, deducting 2.0 percent in IIQ2012. Net trade deducted 1.9 percent in IIIQ2012. Net traded deducted 0.4 percent in IVQ2012. Net trade added 1.5 percentage points to GDP growth in IQ2013 but deducted 0.1 percentage points in IIQ2013, deducting 1.3 percentage points in IIIQ2013 and 2.2 percentage points in IVQ2013. Net trade deducted 0.7 percentage points from GDP growth in IQ2014. Net trade added 4.0 percentage points to GDP growth in IIQ2014 and deducted 0.3 percentage points in IIIQ2014. Net trade added 1.5 percentage points to GDP growth in IVQ2014. Net trade contributed 0.2 percentage points to GDP growth in IQ2015 and deducted 0.5-percentage points in IIQ2015. Net trade deducted 0.6 percentage points from GDP growth in IIIQ2015. Net trade contributed 0.1 percentage points to GDP growth in IVQ2015 and added 1.4 percentage points in IQ2016. Net trade contributed 0.5 percentage points to GDP growth in IIQ2016. Net trade added 1.2 percentage points to GDP growth in IIIQ2016 and contributed 1.5 percentage points in IVQ2016.  Net trade contributed 0.4 percentage points to GDP growth in IQ2017 and deducted 0.9 percentage points in IIQ2017. Net trade contributed 2.1 percentage points to GDP growth in IIIQ2017 and deducted 0.3 percentage-point in IVQ2017. Net trade contributed 0.3 percentage points to GDP growth in IQ2018 and contributed 0.0 percentage points in IIQ2018. Net trade deducted 0.7 percentage points from GDP growth in IIIQ2018 and deducted 2.0 percentage points in IVQ2018. Net trade contributed 2.1 percentage points to GDP growth in IQ2019 with export contraction deducting 1.3 percent and import contraction contributing 3.4 percent. Net trade deducted 1.2 percentage points from GDP growth in IIQ2019. Net trade deducted 1.0 percentage points from GDP growth in IIIQ2019. Net trade contributed 2.1 percentage points to GDP growth in IVQ2019 mostly by 1.8 percentage points of import contraction. Net trade deducted 0.8 percentage points from GDP growth in IQ2020 with exports deducting 4.2 percent and import contraction adding 3.4 percentage points. 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

2020

I

-0.8

-4.2

3.4

2019

I

2.1

-1.3

3.4

II

-1.2

0.1

-1.3

III

-1.0

-0.4

-0.5

IV

2.1

0.3

1.8

2018

I

0.3

0.7

-0.5

II

0.0

0.6

-0.6

III

-0.7

-1.7

1.0

IV

-2.0

1.2

-3.2

2017

I

0.4

1.5

-1.1

II

-0.9

0.0

-0.9

III

2.1

1.4

0.7

IV

-0.3

1.4

-1.7

2016

I

1.4

0.5

0.9

II

0.5

-0.4

0.9

III

1.2

1.5

-0.3

IV

1.5

1.9

-0.5

2015

I

0.2

0.9

-0.8

II

-0.5

-2.5

1.9

III

-0.6

1.7

-2.3

IV

0.1

-0.6

0.7

2014

I

-0.7

3.9

-4.6

II

4.0

0.8

3.1

III

-0.3

1.1

-1.3

IV

1.5

2.1

-0.6

2013

I

1.5

1.8

-0.3

II

-0.1

1.9

-2.1

III

-1.3

0.0

-1.3

IV

-2.2

-0.3

-2.0

2012

I

0.8

1.9

-1.1

II

-2.0

-0.6

-1.4

III

-1.9

-2.2

0.2

IV

-0.4

-2.0

1.6

2011

I

-1.3

-0.5

-0.8

II

-4.3

-4.6

0.4

III

3.6

5.5

-1.8

IV

-2.8

-1.7

-1.1

2010

I

2.0

3.3

-1.3

II

0.3

2.8

-2.5

III

0.7

1.7

-1.0

IV

-0.2

0.2

-0.3

2009

I

-4.7

-16.2

11.5

II

7.5

4.6

2.9

III

2.2

5.3

-3.1

IV

2.8

4.2

-1.4

2008

I

0.8

1.8

-0.9

II

0.4

-1.5

1.9

III

-0.1

0.1

-0.2

IV

-10.4

-9.2

-1.1

2007

I

1.1

1.6

-0.5

II

0.7

1.5

-0.8

III

2.3

1.7

0.5

IV

1.2

2.0

-0.8

Source: Japan Economic and Social Research Institute, Cabinet Office

https://www.cao.go.jp/index-e.html

http://wwwa.cao.go.jp/notice/20191101notice.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 93.9 in Jun 2009 to 84.1 in Jan 2012 or minus 10.4 percent and increased to 89.4 in Apr 2020 for gain of 6.3 percent relative to Jan 2012 and decrease of 4.7 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.

clip_image021

Chart IV-5, Japan, Export Corporate Goods Price Index, Monthly, Yen Basis, 2008-2020

Source: Bank of Japan

https://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 105.9 in Jun 2009 to 111.5 in Apr 2012 or 5.3 percent but dropped to 96.6 in Apr 2020 or minus 13.4 percent relative to Apr 2012 and fell 8.8 percent to 96.6 in Apr 2020 relative to Jun 2009.

clip_image022

Chart IV-5A, Japan, Export Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2020

Source: Bank of Japan

https://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. Measurement that is more careful 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 82.4 in Jun 2009 to 99.6 in Apr 2012 or 20.9 percent and to 84.7 in Apr 2020 or decrease of 15.0 percent relative to Apr 2012 and increase of 2.8 percent relative to Jun 2009.

clip_image023

Chart IV-6, Japan, Import Corporate Goods Price Index, Monthly, Yen Basis, 2008-2020

Source: Bank of Japan

https://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 95.0 in Jun 2009 to 131.6 in Apr 2012 or 38.5 percent and to 92.3 in Apr 2020 or minus 29.9 percent relative to Apr 2012 and decrease of 2.8 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 8.8 percent from Jun 2009 to Apr 2020 while the import corporate goods price index decreased 2.8 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 38.5 percent. Unconventional monetary policy induces carry trades from zero interest rates to exposures in commodities that squeeze economic activity of industrial countries by increases in prices of imported commodities and raw materials during periods without risk aversion. Reversals of carry trades during periods of risk aversion decrease prices of exported commodities and raw materials that squeeze economic activity in economies exporting commodities and raw materials. Devaluation of the dollar by unconventional monetary policy could increase US competitiveness in world markets but economic activity is squeezed by increases in prices of imported commodities and raw materials. Unconventional monetary policy causes instability worldwide instead of the mission of central banks of promoting financial and economic stability.

clip_image024

Chart IV-6A, Japan, Import Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2020

Source: Bank of Japan

https://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 Apr 2020. There are oscillations of the indexes that are shown vividly in the four charts above. For the entire period from Jan 2008 to Apr 2020, the export index on the contract currency basis decreased 10.0 percent and decreased 13.5 percent on the yen basis. For the entire period from Jan 2008 to Apr 2020, the import price index decreased 16.8 percent on the contract currency basis and decreased 19.2 percent on the yen basis. During significant part of the expansion period, prices of Japan’s exports of corporate goods on the contract currency, mostly industrial products, increased only 5.3 percent from Jun 2009 to Apr 2012, while prices of imports of corporate goods on the contract currency, mostly commodities and raw materials, increased 38.5 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

107.3

103.3

110.9

104.8

2008/02

107.9

103.9

112.8

106.2

2008/03

108.7

100.7

115.1

103.4

2008/04

109.9

103.2

121.3

110.3

2008/05

110.7

105

124.9

114.9

2008/06

111.9

108

131.6

123.6

2008/07

113.2

109.2

135

126.8

2008/08

112.1

109.2

135.6

129.5

2008/09

111

105.8

129

120.8

2008/10

108.3

98.1

120.2

107

2008/11

106.6

93.5

107.7

93.2

2008/12

105.9

90

98.4

81.9

2009/01

106

89

94.3

77.9

2009/02

105.4

89.6

94.4

79

2009/03

105.2

93.2

93.8

81.9

2009/04

105.5

94.5

93

81.9

2009/05

105.4

92.9

92.5

80

2009/06

105.9

93.9

95

82.4

2009/07

105.4

92.2

98.3

83.7

2009/08

106.3

93.4

98.7

84.4

2009/09

106.3

91.4

100.2

83.4

2009/10

106

90.5

100.2

82.8

2009/11

106.4

90.2

102.2

83.5

2009/12

106.3

90.1

105.1

85.9

2010/01

107.5

91.4

106.8

88.1

2010/02

107.8

90.9

107.5

87.9

2010/03

107.8

91.1

106.8

87.4

2010/04

108.7

93.6

110

92.1

2010/05

108.9

92.1

112

92.4

2010/06

108.2

90.9

110.2

90.1

2010/07

107.5

88.6

110

87.9

2010/08

107.2

87.1

109.6

85.9

2010/09

107.5

86.8

110.2

85.6

2010/10

108.2

86.3

110.7

84.4

2010/11

108.9

87.1

113

86.5

2010/12

109.4

88

115

88.6

2011/01

110.4

88.2

118.1

90.4

2011/02

111.3

89

120.1

91.9

2011/03

111.9

89.1

123.2

93.6

2011/04

112.6

91

127.7

98.6

2011/05

112.3

89.4

130.9

99

2011/06

112.2

88.8

129.4

97.3

2011/07

112

88

130.3

97.1

2011/08

112

86.4

130.6

95.2

2011/09

112.1

86

128.9

93.6

2011/10

111.4

85.2

128.4

93

2011/11

110.2

84.8

127.1

92.8

2011/12

109.7

84.6

127.9

93.6

2012/01

110.1

84.1

126.7

91.8

2012/02

110.7

85.7

127.6

93.7

2012/03

111.3

88.8

130.3

99.5

2012/04

111.5

88.3

131.6

99.6

2012/05

110.6

86.2

130.1

96.7

2012/06

109.6

85

126.9

94

2012/07

108.8

84.1

123.4

91.2

2012/08

109.1

84.2

123.8

91.3

2012/09

109.2

84.2

126.3

92.7

2012/10

109.3

84.7

125.4

92.7

2012/11

109.1

85.8

124.7

93.8

2012/12

108.9

87.7

124.9

96.5

2013/01

109.2

91.6

125.4

101.7

2013/02

109.7

94.8

126.5

105.9

2013/03

109.5

95.4

126.8

107.5

2013/04

108.3

96.2

125.7

109.1

2013/05

107.7

97.6

124

110.4

2013/06

107.3

94.9

123.4

106.8

2013/07

107.2

96.2

122.9

108.2

2013/08

107

94.9

123.2

106.9

2013/09

107

95.9

124.5

109.2

2013/10

107.3

95.5

124.6

108.3

2013/11

107.2

96.6

124.6

110

2013/12

107.2

98.8

125.4

113.6

2014/01

107.3

99

126

114.6

2014/02

106.9

97.7

125.4

112.5

2014/03

106.6

97.6

124.9

112.2

2014/04

106.3

97.5

124.1

111.8

2014/05

106.2

96.8

123.8

110.9

2014/06

105.9

96.7

123.9

111.2

2014/07

106

96.5

123.9

110.9

2014/08

106.1

97.3

123.7

111.6

2014/09

105.9

99.3

122.8

114

2014/10

105.2

99.1

120.7

112.7

2014/11

104.8

103.4

117.8

115.9

2014/12

103.8

104.1

113.8

114

2015/01

102.2

101.2

108.2

106.6

2015/02

101.2

100.1

102.1

100.7

2015/03

101.3

100.9

103.1

102.6

2015/04

101.1

100.2

102

101

2015/05

101.4

101.4

101.6

101.5

2015/06

101.3

102.9

102.5

104.3

2015/07

100.6

101.7

101.5

102.9

2015/08

99.8

100.9

99

100.4

2015/09

98.6

98.2

96.6

96.2

2015/10

97.9

97.3

95.5

95

2015/11

97.5

98

94.9

95.7

2015/12

97.1

97.3

92.9

93.2

2016/01

96.4

94.7

89.9

88.3

2016/02

95.9

92.7

87.5

84.4

2016/03

96.1

92

87.3

83.2

2016/04

96.4

91

88.2

82.4

2016/05

96.5

90.6

88.6

82.4

2016/06

96.5

88.8

89.9

81.6

2016/07

96.9

88.2

90.8

81.5

2016/08

96.9

87.1

90.7

79.9

2016/09

97

87.5

91.1

80.7

2016/10

97.4

88.6

91.1

81.6

2016/11

98.1

91.2

93.8

86.3

2016/12

98.7

95.5

93.7

90.5

2017/01

99.4

95.6

96.1

92.1

2017/02

99.8

95.3

97.6

92.5

2017/03

100.3

95.7

98.4

93.3

2017/04

99.8

93.7

98.3

91.4

2017/05

99.4

94.6

98.1

92.6

2017/06

99.2

93.9

97.1

91

2017/07

99.3

94.9

96.3

91.2

2017/08

99.9

94.4

96.5

90.1

2017/09

100.5

95.5

97.8

91.8

2017/10

101.2

97.2

99.2

94.3

2017/11

101.5

97.4

100.3

95.4

2017/12

101.7

97.7

102.1

97.1

2018/01

101.9

97.1

102.9

96.7

2018/02

102.4

96.1

104.9

96.6

2018/03

102.6

95.2

104.4

94.9

2018/04

102.2

95.5

104.7

96.1

2018/05

102.7

96.9

106.3

98.8

2018/06

102.7

97

108.3

100.8

2018/07

102.4

97.4

108.3

101.8

2018/08

102.3

97

108

101.2

2018/09

102.2

97.4

108

101.8

2018/10

102.4

97.9

109.2

103.5

2018/11

102.1

97.9

109.7

104.3

2018/12

100.8

96.2

105.8

100.1

2019/01

100

93.7

102.6

94.8

2019/02

100.1

94.6

102.7

95.8

2019/03

100.4

95.3

103.6

97.2

2019/04

100.6

95.7

103.6

97.5

2019/05

100.5

94.4

104.4

96.9

2019/06

99.7

92.8

103.5

95

2019/07

99.3

92.5

101.4

93.2

2019/08

99.3

91.3

102.2

92.6

2019/09

98.7

91.3

100.6

91.9

2019/10

98.7

91.7

100.5

92.2

2019/11

98.4

91.9

100.3

92.5

2019/12

98.3

92

101.1

93.4

2020/01

98.5

92.3

101.6

94

2020/02

98.6

92.5

101.4

94.1

2020/03

97.8

90.4

98.2

89.7

2020/04

96.6

89.4

92.3

84.7

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

Source: Bank of Japan

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

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/2017/01/rules-versus-discretionary-authorities.html and earlier 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-5A and associated table at: 5/3/20 https://cmpassocregulationblog.blogspot.com/2020/05/mediocre-cyclical-united-states_78.html

3/22/20 https://cmpassocregulationblog.blogspot.com/2020/03/sharp-contraction-of-valuations-of-risk.html 2/23/20 https://cmpassocregulationblog.blogspot.com/2020/02/declining-valuations-of-risk-financial.html https://cmpassocregulationblog.blogspot.com/2020/01/declining-valuations-of-risk-financial.html https://cmpassocregulationblog.blogspot.com/2019/12/oscillating-valuations-of-risk.html https://cmpassocregulationblog.blogspot.com/2019/11/oscillating-risk-financial-assets-world.html https://cmpassocregulationblog.blogspot.com/2019/10/dollar-depreciation-fluctuating.html https://cmpassocregulationblog.blogspot.com/2019/09/uncertain-fomc-outlook-of-monetary.html

https://cmpassocregulationblog.blogspot.com/2019/08/contraction-of-valuations-of-risk.html https://cmpassocregulationblog.blogspot.com/2019/07/global-manufacturing-stress-world.html https://cmpassocregulationblog.blogspot.com/2019/06/fomc-outlook-uncertainty-central-bank.html https://cmpassocregulationblog.blogspot.com/2019/05/contraction-of-risk-financial-assets.html https://cmpassocregulationblog.blogspot.com/2019/04/high-levels-of-valuations-of-risk.html https://cmpassocregulationblog.blogspot.com/2019/03/inverted-yield-curve-of-treasury.html https://cmpassocregulationblog.blogspot.com/2019/02/revaluation-of-yuanus-dollar-exchange.html https://cmpassocregulationblog.blogspot.com/2019/01/delays-in-updating-united-states.html https://cmpassocregulationblog.blogspot.com/2018/12/increase-of-interest-rates-by-monetary.html https://cmpassocregulationblog.blogspot.com/2018/11/weaker-world-economic-growth-with.html https://cmpassocregulationblog.blogspot.com/2018/10/contraction-of-valuations-of-risk.html https://cmpassocregulationblog.blogspot.com/2018/09/world-inflation-waves-united-states.html https://cmpassocregulationblog.blogspot.com/2018/08/revision-of-united-states-national.html https://cmpassocregulationblog.blogspot.com/2018/07/continuing-gradual-increases-in-fed.html https://cmpassocregulationblog.blogspot.com/2018/06/world-inflation-waves-united-states.html https://cmpassocregulationblog.blogspot.com/2018/05/dollar-strengthening-world-inflation.html https://cmpassocregulationblog.blogspot.com/2018/04/dollar-appreciation-mediocre-cyclical.html https://cmpassocregulationblog.blogspot.com/2018/03/mediocre-cyclical-united-states_31.html https://cmpassocregulationblog.blogspot.com/2018/03/mediocre-cyclical-united-states.html https://cmpassocregulationblog.blogspot.com/2018/02/twenty-four-million-unemployed-or.html https://cmpassocregulationblog.blogspot.com/2017/12/dollar-devaluation-cyclically.html https://cmpassocregulationblog.blogspot.com/2017/12/twenty-one-million-unemployed-or.html https://cmpassocregulationblog.blogspot.com/2017/10/dollar-revaluation-and-increase-of.html https://cmpassocregulationblog.blogspot.com/2017/10/destruction-of-household-nonfinancial.html https://cmpassocregulationblog.blogspot.com/2017/08/dollar-devaluation-and-interest-rate.html https://cmpassocregulationblog.blogspot.com/2017/07/data-dependent-monetary-policy-with_30.html https://cmpassocregulationblog.blogspot.com/2017/07/dollar-devaluation-and-rising-yields.html https://cmpassocregulationblog.blogspot.com/2017/05/mediocre-cyclical-united-states.html https://cmpassocregulationblog.blogspot.com/2017/04/dollar-devaluation-mediocre-cyclical.html https://cmpassocregulationblog.blogspot.com/2017/04/mediocre-cyclical-economic-growth-with.html https://cmpassocregulationblog.blogspot.com/2017/03/rising-valuations-of-risk-financial.html http://cmpassocregulationblog.blogspot.com/2017/01/rising-valuations-of-risk-financial.html http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2016/11/dollar-revaluation-rising-yields-and.html http://cmpassocregulationblog.blogspot.com/2016/10/mediocre-cyclical-united-states_30.html http://cmpassocregulationblog.blogspot.com/2016/10/mediocre-cyclical-united-states.html http://cmpassocregulationblog.blogspot.com/2016/08/and-as-ever-economic-outlook-is.html http://cmpassocregulationblog.blogspot.com/2016/07/business-fixed-investment-has-been-soft.html http://cmpassocregulationblog.blogspot.com/2016/07/financial-asset-values-rebound-from.html http://cmpassocregulationblog.blogspot.com/2016/05/appropriate-for-fed-to-increase.html http://cmpassocregulationblog.blogspot.com/2016/03/contraction-of-united-states-corporate.html http://cmpassocregulationblog.blogspot.com/2016/02/mediocre-cyclical-united-states.html http://cmpassocregulationblog.blogspot.com/2016/01/closely-monitoring-global-economic-and.html http://cmpassocregulationblog.blogspot.com/2015/12/dollar-revaluation-and-decreasing.html http://cmpassocregulationblog.blogspot.com/2015/11/dollar-revaluation-constraining.html http://cmpassocregulationblog.blogspot.com/2015/11/interest-rate-increase-considered.html http://cmpassocregulationblog.blogspot.com/2015/11/interest-rate-increase-considered.htmlhttp://cmpassocregulationblog.blogspot.com/2015/09/monetary-policy-designed-on-measurable.html

http://cmpassocregulationblog.blogspot.com/2015/08/fluctuations-of-global-financial.html http://cmpassocregulationblog.blogspot.com/2015/08/turbulence-of-valuations-of-financial_77.html http://cmpassocregulationblog.blogspot.com/2015/06/international-valuations-of-financial_29.html http://cmpassocregulationblog.blogspot.com/2015/06/dollar-revaluation-squeezing-corporate_97.html http://cmpassocregulationblog.blogspot.com/2015/05/dollar-devaluation-and-carry-trade.html http://cmpassocregulationblog.blogspot.com/2015/03/dollar-revaluation-and-financial-risk.html 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).

clip_image025

Chart IV-7, Japan, Domestic Corporate Goods Price Index, Monthly, 1960-2020

Source: Bank of Japan

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

The producer price index of the US from 1960 to 2020 in Chart IV-8 shows various periods of more rapid or less rapid inflation but no bumps. The major event is the decline in 2008 when risk aversion because of the global recession caused the collapse of oil prices from $148/barrel to less than $80/barrel with most other commodity prices also collapsing. The event had nothing in common with explanations of deflation but rather with the concentration of risk exposures in commodities after the decline of stock market indexes. Eventually, there was a flight to government securities because of the fears of insolvency of banks caused by statements supporting proposals for withdrawal of toxic assets from bank balance sheets in the Troubled Asset Relief Program (TARP), as explained by Cochrane and Zingales (2009). The bump in 2008 with decline in 2009 is consistent with the view that zero interest rates with subdued risk aversion induce carry trades into commodity futures.

clip_image026

Chart IV-8, US, Producer Price Index Finished Goods, Monthly, 1960-2020

Source: US Bureau of Labor Statistics

https://www.bls.gov/ppi/

Further insight into inflation of the corporate goods price index (CGPI) of Japan is 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 6.0 percent decreased 19.6 percent in Apr 2020 and decreased 29.9 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 4.1 percent, increased 0.1 percent in Apr 2020 and increased 2.1 percent in 12 months. In general, most manufactured products had 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. The reversal of carry trades in commodity futures caused decrease in prices of commodities and raw materials while prices of manufactures stabilized. 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 followed by increases.

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

Apr 2020

Weight

Month ∆%

12 Month ∆%

Total

1000.0

-1.5

-2.3

Food, Beverages

141.6

-0.1

0.6

Petroleum & Coal

59.5

-19.6

-29.9

Production Machinery

41.1

0.1

2.1

Electronic Components

24.5

0.0

1.2

Electric Power, Gas & Water

67.1

0.0

-4.2

Iron & Steel

51.7

-0.2

0.5

Chemicals

89.2

-3.4

-5.1

Transport
Equipment

140.7

0.1

2.1

Source: Bank of Japan

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

Percentage point contributions to change of the corporate goods price index (CGPI) in Apr 2020 are in Table IV-8, divided into domestic, export and import segments. The final row D shows that the producer price index decreased 0.9 percent when excluding the sharp increase in the consumption tax. Effects of carry trades and their reversals are evident in data for Apr 2020. In the domestic CGPI, decreasing 1.5 percent in Apr 2020, the energy shock is evident in the deduction of 1.15 percentage points by petroleum and coal products in renewed reversal of carry trades of exposures in commodity futures and disputes within the group of international oil producers. The exports CGPI decreased 1.2 percent on the basis of the contract currency with deduction of 0.68 percentage points by other primary products and manufactured goods. The probable global recession in the lockdown of economic activity during the COVID-19 event is having strong effects on output and prices. The imports CGPI decreased 6.0 percent on the contract currency basis. Petroleum, coal and natural gas deducted 5.62 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.

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

Groups Apr 2020

Contribution to Change Percentage Points

A. Domestic Corporate Goods Price Index

Monthly Change: 
-1.5%

Petroleum & Coal Products

-1.15

Chemicals & Related Products

-0.28

Nonferrous Metals

-0.04

Iron & Steel

-0.01

Beverages & Foods

-0.01

Agriculture, Forestry & Fishery Products

0.03

B. Export Price Index

Monthly Change:   
-1.2 % contract currency

Other Primary Products & Manufactured Goods

-0.68

Chemicals & Related Products

-0.51

Metals & Related Products

-0.12

Transportation Equipment

-0.01

Electric & Electronic Products

0.04

General Purpose, Production & Business Oriented Machinery

0.03

C. Import Price Index

Monthly Change: -6.0% contract currency basis

Petroleum, Coal & Natural Gas

-5.62

Metals & Related Products

-0.31

Chemicals & Related Products

-0.12

Beverages & Foods and Agricultural Products for Food

-0.07

Textiles

-0.02

Other Primary Products & Manufactured Goods

-0.02

Lumber & Wood Products and Forest Products

-0.01

Electric & Electronic Products

0.17

D Producer Price Index Excluding Consumption Tax

Monthly Change -1.4%

Source: Bank of Japan

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

There are two categories of responses in the Empire State Manufacturing Survey of the Federal Reserve Bank of New York (https://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 Dec 2010 to Apr 2020. The index of current prices paid or costs of inputs moved from 16.1 in Dec 2012 to 4.1 in May 2020 while the index of current prices received or sales prices moved from 1.1 in Dec 2012 to minus 7.4 in May 2020. 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 4.1 in May 2020 are expanding at faster pace than prices received or of sales of products at minus 7.4. The index of future prices paid or expectations of costs of inputs in the next six months moved from 51.6 in Dec 2012 to 20.3 in May 2020 while the index of future prices received or expectation of sales prices in the next six months moved from 25.8 in Dec 2012 to 2.0 in May 2020. Prices paid or of inputs at 20.3 in May 2020 are expected to increase at a faster pace in the next six months than prices received or prices of sales products at 2.0 in May 2020. Prices of sales of finished products are less dynamic than prices of costs of inputs during waves of increases. Prices 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

Future Prices Paid

Future Prices Received

12/31/2010

28.4

3.4

58

38.6

1/31/2011

35.8

15.8

60

42.1

2/28/2011

45.8

16.9

55.4

27.7

3/31/2011

53.2

20.8

71.4

36.4

4/30/2011

57.7

26.9

56.4

38.5

5/31/2011

69.9

28

68.8

35.5

6/30/2011

56.1

11.2

55.1

19.4

7/31/2011

43.3

5.6

51.1

30

8/31/2011

28.3

2.2

42.4

15.2

9/30/2011

32.6

8.7

53.3

22.8

10/31/2011

22.5

4.5

40.4

18

11/30/2011

18.3

6.1

36.6

25.6

12/31/2011

24.4

3.5

57

36

1/31/2012

26.4

23.1

53.8

30.8

2/29/2012

25.9

15.3

62.4

34.1

3/31/2012

50.6

13.6

66.7

32.1

4/30/2012

45.8

19.3

50.6

22.9

5/31/2012

37.3

12

57.8

22.9

6/30/2012

19.6

1

34

17.5

7/31/2012

7.4

3.7

35.8

16

8/31/2012

16.5

2.4

31.8

14.1

9/30/2012

19.1

5.3

40.4

23.4

10/31/2012

17.2

4.3

44.1

24.7

11/30/2012

14.6

5.6

39.3

15.7

12/31/2012

16.1

1.1

51.6

25.8

1/31/2013

22.6

10.8

38.7

21.5

2/28/2013

26.3

8.1

44.4

13.1

3/31/2013

25.8

2.2

50.5

23.7

4/30/2013

28.4

5.7

44.3

14.8

5/31/2013

20.5

4.5

29.5

14.8

6/30/2013

21

11.3

45.2

17.7

7/31/2013

17.4

1.1

28.3

12

8/31/2013

20.5

3.6

41

19.3

9/30/2013

21.5

8.6

39.8

24.7

10/31/2013

21.7

2.4

45.8

25.3

11/30/2013

17.1

-3.9

42.1

17.1

12/31/2013

15.7

3.6

48.2

27.7

1/31/2014

36.6

13.4

45.1

23.2

2/28/2014

25

15

40

23.8

3/31/2014

21.2

2.4

43.5

25.9

4/30/2014

22.4

10.2

33.7

14.3

5/31/2014

19.8

6.6

31.9

14.3

6/30/2014

17.2

4.3

36.6

16.1

7/31/2014

25

6.8

37.5

18.2

8/31/2014

27.3

8

42

21.6

9/30/2014

23.9

17.4

43.5

32.6

10/31/2014

11.4

6.8

42

26.1

11/30/2014

10.6

0

41.5

25.5

12/31/2014

10.4

6.3

40.6

32.3

1/31/2015

12.6

12.6

33.7

15.8

2/28/2015

14.6

3.4

27

5.6

3/31/2015

12.4

8.2

32

12.4

4/30/2015

19.1

4.3

38.3

13.8

5/31/2015

9.4

1

26

7.3

6/30/2015

9.6

1

24

5.8

7/31/2015

7.4

5.3

27.7

6.4

8/31/2015

7.3

0.9

34.5

10.9

9/30/2015

4.1

-5.2

28.9

7.2

10/31/2015

0.9

-8.5

27.4

7.5

11/30/2015

4.5

-4.5

29.1

11.8

12/31/2015

4

-4

27.3

20.2

1/31/2016

16

4

31

12

2/29/2016

3

-5

14.9

4

3/31/2016

3

-5.9

19.8

7.9

4/30/2016

19.2

2.9

27.9

5.8

5/31/2016

16.7

-3.1

28.1

6.3

6/30/2016

18.4

-1

29.6

7.1

7/31/2016

18.7

1.1

26.4

7.7

8/31/2016

15.5

2.1

25.8

9.3

9/30/2016

17

1.8

41.1

20.5

10/31/2016

22.6

4.7

35.8

30.2

11/30/2016

15.5

2.7

39.1

20.9

12/31/2016

22.6

3.5

42.6

22.6

1/31/2017

36.1

17.6

50.4

27.7

2/28/2017

37.8

19.4

38.8

25.5

3/31/2017

31

8.8

41.6

19.5

4/30/2017

32.8

12.4

37.2

25.5

5/31/2017

20.9

4.5

38.1

22.4

6/30/2017

20

10.8

33.1

13.8

7/31/2017

21.3

11

30.7

15.7

8/31/2017

31

6.2

33.3

21.7

9/30/2017

35.8

13.8

42.3

18.7

10/31/2017

27.3

7

41.4

25

11/30/2017

24.6

9.2

48.5

23.8

12/31/2017

29.7

11.6

50

27.5

1/31/2018

36.2

21.7

52.9

31.2

2/28/2018

48.6

21.5

52.1

25.7

3/31/2018

50.3

22.4

55.9

28

4/30/2018

47.4

20.7

54.8

31.1

5/31/2018

54

23

54

29.5

6/30/2018

52.7

23.3

51.2

27.1

7/31/2018

42.7

22.2

48.7

28.2

8/31/2018

45.2

20

53.3

26.7

9/30/2018

46.3

16.3

56.1

30.9

10/31/2018

42

14.3

52.9

23.5

11/30/2018

44.5

13.1

59.1

31.4

12/31/2018

39.7

12.8

51.9

27.6

1/31/2019

35.9

13.1

47.6

28.3

2/28/2019

27.1

22.9

37.1

30.7

3/31/2019

34.1

18.1

40.6

23.9

4/30/2019

27.3

14

37.1

16.1

5/31/2019

26.2

12.4

33.1

17.2

6/30/2019

27.8

6.8

36.8

12.8

7/31/2019

25.5

5.8

39.4

18.2

8/31/2019

23.2

4.5

38.1

12.9

9/30/2019

29.4

9.2

42.5

17

10/31/2019

23.1

6.3

42.5

21.3

11/30/2019

20.5

6.2

42.5

26

12/31/2019

15.2

4.3

39.1

29

1/31/2020

31.5

14.4

43.8

29.5

2/29/2020

25

16.7

37.9

22.7

3/31/2020

24.5

10.1

34.5

17.3

4/30/2020

5.8

-8.4

14.9

0.6

5/31/2020

4.1

-7.4

20.3

2

Source: Federal Reserve Bank of New York

https://www.newyorkfed.org/survey/empire/empiresurvey_overview.html

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 2020. 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 14.1 in May 2015, minus 2.8 in Sep 2015, 0.4 in Oct 2015, minus 6.9 in Nov 2015 and minus 7.7 in Dec 2015. The reading for the index in Jan 2016 is minus 1.7 and minus 2.9 for Feb 2016. The index is minus 0.9 in Mar 2016 and 11.5 in Apr 2016, increasing at 13.5 in May 2016 and 20.3 in Jun 2016. The index reached 13.4 in Jul 2016, 20.5 in Aug 2016 and 20.5 in Sep 2016. The index was 10.5 in Oct 2016 and 3.2 in May 2020.

clip_image027

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

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2 of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices received from 2006 to 2020. 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 2016. Prices paid increased at 1.1 in Mar 2015 while prices received contracted at 5.6. There were several contractions of prices paid: 7.7 in May 2015 for prices received with faster contraction of 14.1 of prices paid; minus 2.8 for prices paid in Sep 2015 with minus 5.2 for prices received; and minus 0.4 for prices paid in Oct 2015 with minus 1.5 for prices received. The index of prices received fell to minus 1.5 in Nov 2015 with minus 6.9 for prices paid and to minus 4.5 in Dec 2015 with minus 7.7 for prices paid. The index of prices received fell to minus 3.6 in Feb 2016 with minus 2.9 for prices paid. The index of prices paid decreased at 0.9 in Mar 2016 with increase at 1.3 for prices received. Prices paid moved to 3.2 in May 2020 while prices received moved to minus 3.1. Prices received relative to prices paid deteriorate most of the time largely because of the carry trades from zero interest rates to commodity futures. Profit margins of business are compressed intermittently by fluctuations of commodity prices induced by unconventional monetary policy of zero interest rates, frustrating production, investment and hiring decisions of business, which is precisely the opposite outcome pursued by unconventional monetary policy.

clip_image028

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

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2A of the Federal Reserve Bank of Philadelphia shows current prices paid and current prices received from Jan 2007 to Mar 2017. Current prices paid jumped ahead of current prices received during the contraction from IVQ2007 to IIQ2009 through the carry trade from zero interest rates to exposures in commodity derivatives. There is the same behavior during most of the cyclical expansion after IIIQ2009. Rebalancing of financial investment portfolios away from commodities into equities explains the recent weakness of prices paid. There is a new ongoing carry trade into commodity futures.

clip_image029

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

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2B of the Federal Reserve Bank of Philadelphia shows Current and Future Prices Received of the Business Outlook Survey from 2007 to Jun 2017. There is correlation in the direction of the indexes. The six-month forecast is typically above current prices received. There is upward trend in both indexes in the final segment with wide fluctuations.

clip_image030

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

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2C of the Federal Reserve Bank of Philadelphia shows Current and Future Prices Received of the Business Outlook Survey from 2007 to Jul 2017. There is correlation in the direction of the indexes. The six-month forecast is typically above current prices received. There is upward trend in both indexes in the final segment with wide fluctuations.

clip_image031

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

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2D of the Federal Reserve Bank of Philadelphia shows Current Prices Paid and Current Prices Received of the Business Outlook Survey from 2007 to Sep 2017. Current prices paid are typically above prices received.

clip_image033

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

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2DE of the Federal Reserve Bank of Philadelphia shows Current Prices Paid and Current Prices Received of the Business Outlook Survey from 2007 to Oct 2017. Current prices paid are typically above prices received.

clip_image035

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

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2DEf of the Federal Reserve Bank of Philadelphia shows current prices paid and received of the Business Outlook Survey from 2007 to Dec 2017.Current prices paid are mostly above current prices received. There is upward trend in both indexes in the final segment with wide fluctuations.

clip_image037

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

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2Def1 of the Federal Reserve Bank of Philadelphia shows current prices paid and received of the Business Outlook Survey from 2007 to Jan 2018. There is correlation in the direction of the indexes. The six-month forecast is typically above current prices received. There is upward trend in both indexes in the final segment with wide fluctuations.

clip_image038

Chart IV-2dEf1, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices and Future Prices Paid Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2Def2 of the Federal Reserve Bank of Philadelphia shows current prices paid and received of the Business Outlook Survey from 2007 to Feb 2018. There is correlation in the direction of the indexes. Prices paid are typically above prices received.

clip_image040

Chart IV-2df2, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Piad and Future Prices Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2DEF3 of the Federal Reserve Bank of Philadelphia Business Outlook survey provides current prices paid and received from 2007 to Mar 2018 with prices paid typically above prices received. The Business Outlook survey of the FRB of Philadelphia states: “Price increases for purchased inputs were reported by 44 percent of the manufacturers this month. The prices paid diffusion index fell 2 points to 42.6 but remains near last month’s reading, which was the highest since 2011 (see Chart 2). The current prices received index, reflecting the manufacturers own prices, declined 3 points to a reading of 20.7” (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos0318).

clip_image042

Chart IV-2dEf3, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2DEF4 of the Federal Reserve Bank of Philadelphia Business Outlook survey provides current prices paid and received from 2007 to Apr 2018 with prices paid typically above prices received. The Business Outlook survey of the FRB of Philadelphia states: “Price increases for purchased inputs were reported by 59 percent of the manufacturers this month, up notably from 44 percent in March. The prices paid diffusion index increased 14 points to the highest reading since Mar 2011 (see Chart 2). The current prices received index, reflecting the manufacturers own prices, increased 9 points to a reading of 29.8, its highest reading since May 2008” (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos0418).

clip_image044

Chart IV-2dEf4, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2DEF5 of the Federal Reserve Bank of Philadelphia Business Outlook survey provides current prices paid and received from 2007 to May 2018 with prices paid typically above prices received. The Business Outlook survey of the FRB of Philadelphia states: “Price increases for purchased inputs were reported by 55 percent of the manufacturers this month, down slightly from 59 percent in April. The prices paid diffusion index fell 4 points but remains at an elevated level (see Chart 2). The current prices received index, reflecting the manufacturers’ own prices, increased 7 points to a reading of 36.4, its second consecutive month of increase and highest reading since February 1989.” (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos0518).

clip_image046

Chart IV-2dEf5, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2DEF5 of the Federal Reserve Bank of Philadelphia Business Outlook survey provides current prices paid and received from 2007 to Jun 2018 with prices paid typically above prices received. The Business Outlook survey of the FRB of Philadelphia states: “The firms continued to report higher prices for both purchased inputs and their own manufactured goods, although the survey’s price indicators fell modestly from their May readings. Price increases for purchased inputs were reported by 54 percent of the manufacturers this month, but the prices paid diffusion index edged 1 point lower (see Chart 2). The current prices received index, reflecting the manufacturers’ own prices, decreased 3 points but remains at a high reading of 33.2. Nearly 34 percent of the firms reported higher prices for their manufactured goods.” (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos0618).

clip_image048

Chart IV-2dEf5, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

Chart IV-2DEF5 of the Federal Reserve Bank of Philadelphia Business Outlook survey provides current prices paid and received from 2007 to Jul 2018 with prices paid typically above prices received. The Business Outlook survey of the FRB of Philadelphia states: “The manufacturers continued to report higher prices for both purchased inputs and their own manufactured goods. Price increases for purchased inputs were reported by 63 percent of the manufacturers this month, up from 54 percent last month. The index has now risen 30 points since January (see Chart 2). The current prices received index, reflecting the manufacturers’ own prices, increased 3 points. Over 36 percent of the firms reported higher prices for their manufactured goods this month.” (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos0718).

clip_image050

Chart IV-2dEf6, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Aug 2018 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos0818): “The survey’s current price measures moderated slightly but remain elevated, indicating that price increases for both purchased inputs and the firms’ own manufactured goods remain widespread. The prices paid index fell 8 points. Price increases for purchased inputs were reported by 63 percent of the manufacturers this month. Nearly 35 percent of the firms reported higher prices for their own manufactured goods this month, although the prices received index fell 3 points. In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and for U.S. consumers over the next four quarters. Regarding their own prices, the firms’ median forecast was for an increase of 3.0 percent, the same as when the same question was last asked in May. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 3.0 percent over the next four quarters, the same as the previous forecast. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 3.0 percent, slightly higher than the 2.5 percent projected in the previous survey. The firms’ forecast for the long-run (10-year average) inflation rate was also 3.0 percent.”

The Business Outlook survey of the FRB of Philadelphia for Sep 2018 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos0918): “The survey’s diffusion indexes for prices remained positive but decreased from their readings in August (see Chart 2). On the cost side, 44 percent of the firms reported increases in the prices paid for inputs, down from 63 percent in August, and the prices paid index decreased 15 points to 39.6. With respect to prices received for firms’ own manufactured goods, 25 percent of the firms reported higher prices compared with 35 percent last month. The prices received index decreased 14 points.”

clip_image052

Chart IV-2dEf6, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Oct 2018 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos1018): “The survey’s diffusion indexes for prices remained positive but lower than their readings for most of this year (see Chart 2). On the cost side, 42 percent of the firms reported increases in the prices paid for inputs, and the prices paid index, which had fallen 15 points last month, decreased 1 point to 38.2. With respect to prices received for firms’ own manufactured goods, 27 percent of the firms reported higher prices compared with 3 percent that reported decreases. The prices received index increased 5 points.”

clip_image054

Chart IV-2Oct18, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Nov 2018 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos1118): “The survey’s diffusion indexes for prices remained positive but lower than their readings for most of this year (see Chart 2). With respect to prices received for firms’ own manufactured goods, 24 percent of the firms reported higher prices compared with 2 percent that reported decreases. The prices received index decreased 2 points. On the cost side, 41 percent of the firms reported increases in the prices paid for inputs. The prices paid index edged up 1 point but remains 24 points lower than its peak in July.”

clip_image056

Chart IV-2Nov18, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Dec 2018 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2018/bos1218): “The survey’s diffusion indexes for prices remained positive, suggesting continued increases in firms’ input prices and the prices for their own manufactured goods. On the cost side, 42 percent of the firms reported increases in the prices paid for inputs. The prices paid index edged down 1 point and remains 25 points below its peak in July (see Chart 2). The prices received index increased 4 points to 26.2, its highest reading in four months, but 10 points below its peak in May.”

clip_image058

Chart IV-2Dec18, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Jan 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos0119): “The survey’s diffusion indexes for prices remained positive but decreased from their readings in December. On the cost side, the prices paid index decreased 6 points to 32.7. The index has been trending down since last July and is at its lowest reading in 13 months (see Chart 2). With respect to prices received for firms’ own manufactured goods, 29 percent of the firms reported higher prices, and 4 percent reported lower prices. The prices received index decreased 4 points to 24.8.”

clip_image060

Chart IV-2Jan19, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Feb 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos0219): “Price pressures originating from purchased inputs continued to abate. The prices paid index decreased 11 points to 21.8. The index has been trending down since last July and is now at its lowest reading since July 2017 (see Chart 2). Over 28 percent of the firms reported higher input prices this month, down from 40 percent last month. With respect to prices received for firms’ own manufactured goods, almost 33 percent of the firms reported higher prices, and 5 percent reported lower prices. The prices received index increased 3 points to 27.7.”

clip_image062

Chart IV-2Feb19, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Mar 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos0319): “Price pressures arising from purchased inputs continued to ease. The prices paid index decreased 2 points to 19.7. The prices paid index declined for the eighth consecutive month and is at its lowest reading since July 2017 (see Chart 2). Nearly 24 percent of the firms reported higher input prices this month, down from 28 percent last month. With respect to prices received for firms’ own manufactured goods, 26 percent of the firms reported higher prices, down from 33 percent last month. The prices received index decreased 3 points to 24.7.”

clip_image064

Chart IV-2Mar19, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Apr 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos0419): “With respect to prices received for firms’ own manufactured goods, the prices received index decreased 5 points to 20.0, its lowest reading since December 2017. Nearly 23 percent of the firms reported higher prices, down from 26 percent last month. The prices paid index increased 2 points to 21.6, its first increase in 9 months (see Chart 2). Over 26 percent of the firms reported higher input prices this month, while 5 percent reported lower input prices.”

clip_image066

Chart IV-2Apr19, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for May 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos0519): “In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and for U.S. consumers over the next four quarters. Regarding their own prices, the firms’ median forecast was for an increase of 2.8 percent, about the same as when the question was last asked in February. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 3.0 percent over the next four quarters, the same as the previous forecast. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 2.5 percent, an increase from 2.3 percent in the previous quarter. The firms’ median forecast for the long-run (10-year average) inflation rate remained steady at 2.5 percent.”

The Business Outlook survey of the FRB of Philadelphia for Jun 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos0619): “The current prices received index, reflecting the manufacturers’ own prices, declined nearly 17 points to a reading of 0.6, its lowest reading since October 2016 (see Chart 2). Price increases for manufacturers’ own goods were reported by 10 percent of the firms this month, down from 23 percent last month. Price increases for purchased inputs were reported by 28 percent of the manufacturers this month, and the prices paid diffusion index decreased 10 points to 12.9, also its lowest reading since October 2016.”

clip_image067

Chart IV-2Jun19, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Jul 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos0719): “The prices paid and prices received indexes both increased this month but remained well below their readings over the past few years. The current prices received index, reflecting the manufacturers’ own prices, increased 9 points to a reading of 9.5. Price increases for manufacturers’ own goods were reported by 16 percent of the firms this month, up from 10 percent last month. Price increases for purchased inputs were reported by 29 percent of the manufacturers this month, but 13 percent reported price decreases. The prices paid diffusion index increased 3 points to 16.1.”

The Business Outlook survey of the FRB of Philadelphia for Aug 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos0819): “The firms continued to report increases in the prices paid for inputs. The percentage of firms reporting increases in input prices (25 percent) remained higher than the percentage reporting decreases (12 percent). The prices paid diffusion index decreased 3 points and remains well below readings over the past two and a half years. The current prices received index, reflecting the manufacturers’ own prices, increased 4 points to a reading of 13.0 but is also still well below readings of the past few years.”

The Business Outlook survey of the FRB of Philadelphia for Sep 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos0919): Price increases were more widespread this month. On the cost side, nearly 38 percent of the firms reported increases in the prices paid for inputs this month, up from 25 percent in August. The prices paid index increased 20 points to 33.0, its highest reading since December 2018 (see Chart 2). With respect to prices received for firms’ own manufactured goods, 26 percent of the firms reported higher prices, up from 16 percent in August. The diffusion index for prices received increased 8 points to 20.8, its highest reading since March.

clip_image069

Chart IV-2Sep19, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Oct 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos1019): “The firms continued to report overall increases in the prices paid for inputs, but the prices paid index fell 16 points to 16.8. Nearly 24 percent of the respondents reported higher input prices, down from 38 percent in September (see Chart 2). The current prices received index, reflecting the manufacturers’ own prices, decreased 4 points to a reading of 16.4.”

clip_image071

Chart IV-2Oct19, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Nov 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos1119): “The firms continued to report overall increases in prices paid for inputs and received for goods, but the indicators for both measures declined for the second consecutive month. The prices paid diffusion index decreased 9 points to 7.8, its lowest level since March 2016. The percentage of firms reporting increases in input prices (17 percent) remained higher than the percentage reporting decreases (9 percent). The current prices received index, reflecting the manufacturers’ own prices, decreased 4 points to a reading of 12.2.”

The Business Outlook survey of the FRB of Philadelphia for Dec 2019 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2019/bos1219): “The firms continued to report overall increases in the prices paid for inputs, with the index rising 11 points to 19.0 (see Chart 2). Over 25 percent of the respondents reported higher input prices, up from 17 percent in November. The current prices received index, reflecting the manufacturers’ own prices, ticked down to a reading of 11.9. Over 80 percent of the firms reported no change in their own product prices this month.”

clip_image072

Chart IV-2Dec19, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Jan 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0120): “The firms continued to report overall increases in the prices paid for inputs, with the index rising 6 points to 22.1 (see Chart 2). Nearly 27 percent of the respondents reported higher input prices; only 5 percent reported lower input prices. The largest percentage of the firms (68 percent) reported steady input prices. The current prices received index, reflecting the manufacturers’ own prices, increased 4 points to 14.7. More than 18 percent reported higher prices for their manufactured products, 3 percent reported lower prices, and over 78 percent reported no change in their prices.”

clip_image074

Chart IV-2Jan2020, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Feb 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0220): “The firms continued to report overall increases in prices paid for inputs and received for goods. The prices paid diffusion index decreased 6 points to 16.4. The percentage of firms reporting increases in input prices (23 percent) remained higher than the percentage reporting decreases (7 percent). The current prices received index, reflecting the manufacturers’ own prices, edged up 2 points to a reading of 17.1.”

The Business Outlook survey of the FRB of Philadelphia for Mar 20, 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0320): “The firms reported moderating price pressures for inputs and for their own manufactured goods. The prices paid diffusion index decreased 12 points to 4.8 (see Chart 2). The percentage of firms reporting increases in input prices (18 percent) was only slightly higher than the percentage reporting decreases (14 percent). The current prices received index, reflecting the manufacturers’ own prices, declined 10 points to a reading of 6.8.”

clip_image076

Chart IV-2Mar2020, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for Apr 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0420): “The firms reported overall negative price movements for inputs and for their own manufactured goods. The prices paid diffusion index decreased 14 points to -9.3, its lowest reading since May 2015 (see Chart 2). While most firms reported stable input prices (70 percent), the percentage of firms reporting decreases in input prices (18 percent) was higher than the percentage reporting increases (9 percent). The current prices received index, reflecting the manufacturers’ own prices, declined 17 points to a reading of -10.6, its lowest since July 2009.”

clip_image078

Chart IV-2Apr2020, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org/

The Business Outlook survey of the FRB of Philadelphia for May 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0520): “The prices paid diffusion index increased 13 points to 3.2. The percentage of firms reporting increases in input prices (16 percent) was higher than the percentage reporting decreases (13 percent). The current prices received index rose 8 points to a reading of -3.1, its second consecutive negative reading.”

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.

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