CMP Associates Regulation Blog

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 102.8 in Apr 2021 or minus 7.8 percent relative to Apr 2012 and fell 2.9 percent to 102.8 in Mar 2021 relative to Jun 2009.

Chart IV-5A, Japan, Export Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2021

Source: Bank of Japan

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 97.0 in Apr 2021 or decrease of 2.6 percent relative to Apr 2012 and increase of 17.7 percent relative to Jun 2009. There are strong downward effects on input prices in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event.

Chart IV-6, Japan, Import Corporate Goods Price Index, Monthly, Yen Basis, 2008-2021

Source: Bank of Japan

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 104.6 in Apr 2021 or minus 20.5 percent relative to Apr 2012 and increase of 10.1 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 2.9 percent from Jun 2009 to Apr 2021 while the import corporate goods price index increased 10.1 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. There are strong downward effects on input prices in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event.

Chart IV-6A, Japan, Import Corporate Goods Price Index, Monthly, Contract Currency Basis, 2008-2021

Source: Bank of Japan

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 2021. There are oscillations of the indexes that are shown vividly in the four charts above. For the entire period from Jan 2008 to Apr 2021, the export index on the contract currency basis decreased 4.2 percent and decreased 6.3 percent on the yen basis. For the entire period from Jan 2008 to Apr 2021, the import price index decreased 5.7 percent on the contract currency basis and decreased 7.4 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. There are strong downward effects on input prices in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event.

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	104.5	97
2019/06	99.7	92.8	103.5	95
2019/07	99.3	92.6	101.4	93.2
2019/08	99.3	91.4	102.2	92.6
2019/09	98.7	91.4	100.7	91.9
2019/10	98.6	91.7	100.6	92.3
2019/11	98.4	91.9	100.3	92.5
2019/12	98.3	92	101.1	93.5
2020/01	98.5	92.3	101.6	94
2020/02	98.6	92.5	101.3	94
2020/03	97.8	90.4	98.1	89.6
2020/04	96.6	89.5	91.8	84.3
2020/05	95.6	88.3	86.4	79.2
2020/06	95.9	89	86.8	79.7
2020/07	96.8	89.6	89.1	81.4
2020/08	97.2	89.9	90.5	82.3
2020/09	97.6	90	90.8	82.4
2020/10	97.8	90	90.8	82.2
2020/11	98.2	90	91.8	82.6
2020/12	99	90.6	94	84.3
2021/01	100.1	91.6	97.4	87.2
2021/02	100.5	92.9	100.9	91.2
2021/03	101.6	95.4	102.6	94.7
2021/04	102.8	96.8	104.6	97

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

Source: Bank of Japan

3/28/21 https://cmpassocregulationblog.blogspot.com/2021/03/us-gdp-growing-at-saar-43-percent-in.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: 4/25/21 https://cmpassocregulationblog.blogspot.com/2021/04/rising-inflation-world-inflation-waves.html

2/28/21 https://cmpassocregulationblog.blogspot.com/2021/02/us-gdp-growing-at-saar-41-percent-in.html

1/24/21 https://cmpassocregulationblog.blogspot.com/2021/01/cumulative-growth-of-us-manufacturing.html

12/27/2020 https://cmpassocregulationblog.blogspot.com/2020/12/us-gdp-growing-at-saar-334-percent-in.html

11/22/2020 https://cmpassocregulationblog.blogspot.com/2020/11/cumulative-growth-of-us-manufacturing.html

10/25/20 https://cmpassocregulationblog.blogspot.com/2020/10/cumulative-growth-of-us-manufacturing.html

6/28/20 https://cmpassocregulationblog.blogspot.com/2020/06/mediocre-cyclical-united-states.html 5/24/20 https://cmpassocregulationblog.blogspot.com/2020/05/recovery-without-hiring-twenty-million.html

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

Chart IV-7, Japan, Domestic Corporate Goods Price Index, Monthly, 1960-2021

Source: Bank of Japan

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

Chart IV-8, US, Producer Price Index Finished Goods, Monthly, 1960-2021

Source: US Bureau of Labor Statistics

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

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 May 2021. The index of current prices paid or costs of inputs moved from 16.1 in Dec 2012 to 83.5 in May 2021 while the index of current prices received or sales prices moved from 1.1 in Dec 2012 to 37.1 in May 2021. 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 83.5 in May 2021 are expanding at faster pace than prices received or of sales of products at 37.1. 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 67.1 in May 2021 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 43.6 in May 2021. Prices paid or of inputs at 67.1 in May 2021 are expected to increase at a faster pace in the next six months than prices received or prices of sales products at 43.6 in May 2021. 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
6/30/2020	16.9	-0.6	25.6	7.5
7/31/2020	14.9	-4.5	28.6	10.4
8/31/2020	16	4.7	22.7	9.3
9/30/2020	25.2	6.5	33.1	7.9
10/31/2020	27.8	5.3	39.1	16.6
11/30/2020	29.1	11.3	46.4	23.2
12/31/2020	37.1	10	48.6	30
1/31/2021	45.5	15.2	49	23.4
2/28/2021	57.8	23.4	55.8	32.5
3/31/2021	64.4	24.2	64.4	38.3
4/30/2021	74.7	34.9	71.2	45.2
5/31/2021	83.5	37.1	67.1	43.6

Source: Federal Reserve Bank of New York

Price indexes of the Federal Reserve Bank of Philadelphia Outlook Survey are in Table IV-5A. As in inflation waves throughout the world (https://cmpassocregulationblog.blogspot.com/2021/04/rising-inflation-world-inflation-waves.html and earlier https://cmpassocregulationblog.blogspot.com/2021/03/us-gdp-growing-at-saar-43-percent-in.html), indexes of both current and expectations of future prices paid and received were quite dynamic until May 2011. Prices paid, or inputs, were more dynamic, reflecting carry trades from zero interest rates to commodity futures. All indexes softened after May 2011 with even decline of prices received in Aug 2011 during the first round of risk aversion. Current and future price indexes have increased again but not back to the intensity in the beginning of 2011 because of risk aversion frustrating carry trades even induced by zero interest rates. The index of prices paid or prices of inputs moved from 21.1 in Dec 2012 to 76.8 in Apr 2021. The index of current prices received was minus 2.4 in Apr 2013, indicating decrease of prices received. The index of current prices received decreased from 9.1 in Dec 2012 to minus 5.2 in Sep 2015, decreasing to minus 3.6 in Feb 2016. The index of current prices received was 41.0 in Apr 2021. The index of current prices paid or costs of inputs at 76.8 in May 2021 indicates faster expansion than the index of current prices received or sales prices of production in May 2021, showing 41.0. Prices paid indicate faster expansion than prices received during most of the history of the index. The index of future prices paid moved to 66.7 in May 2021 from 41.8 in Dec 2012 while the index of future prices received moved from 21.7 in Dec 2012 to 58.4 in May 2021. Expectations are incorporating faster increases in prices of inputs or costs of production, 66.7 in May 2021, than of sales prices of goods, 58.4 in May 2021, forcing companies to manage tightly costs and labor inputs. Volatility of margins of sales/costs discourages investment and hiring.

Table IV-5A, US, Federal Reserve Bank of Philadelphia Business Outlook Survey, Current and Future Prices Paid and Prices Received, SA

	Current Prices Paid	Current Prices Received	Future Prices Paid	Future Prices Received
Dec-10	42.7	5.3	56.3	24.2
Jan-11	48.2	12.6	58.8	34.5
Feb-11	61.5	13.7	68.2	31.6
Mar-11	59.2	17.9	61.6	33.5
Apr-11	52.7	22.9	56.5	36.4
May-11	51.2	20.6	54.9	28.5
Jun-11	36	6.1	40.8	6.9
Jul-11	34.1	5.7	48.3	17.2
Aug-11	23.5	-3.2	42.7	22.9
Sep-11	30.1	6.4	38.3	20.5
Oct-11	22.7	1.7	41.4	27.4
Nov-11	21.8	5.2	34.4	26.3
Dec-11	25	5.6	42.7	21.1
Jan-12	26.1	9.3	47.9	21.7
Feb-12	33.5	10.5	51.1	26.4
Mar-12	17.4	6.9	38.7	24.8
Apr-12	21.8	9.6	37.3	25.2
May-12	10.1	1.1	40.4	9.3
Jun-12	1.1	-6.4	32.9	16.9
Jul-12	8.2	3.3	27.3	20.4
Aug-12	16.2	6.9	35	24
Sep-12	13	2.8	38.3	24.8
Oct-12	17.4	4.8	44.2	14.5
Nov-12	22.2	4.8	45.7	10.7
Dec-12	21.1	9.1	41.8	21.7
Jan-13	13	0.9	35	21.6
Feb-13	13	0.3	34.9	23.2
Mar-13	13.4	1	35.2	20.4
Apr-13	11.5	-2.4	31.9	16.8
May-13	12.5	0.3	35.4	19.5
Jun-13	16.8	11.2	29.6	24.2
Jul-13	19.1	5.6	40.2	24.7
Aug-13	17.8	12.8	34.1	23.4
Sep-13	22.3	11.8	37.3	27.2
Oct-13	17.9	9.2	41.5	33.7
Nov-13	23.5	6.7	40.7	36.2
Dec-13	17.5	9.2	39.9	28.1
Jan-14	20	8.4	37.5	13.6
Feb-14	16.4	10.3	28.7	19.8
Mar-14	21.3	6.8	33.1	20.3
Apr-14	20.8	10	39.9	21.5
May-14	26.6	17	39.2	29.8
Jun-14	25.7	9.3	42.3	30
Jul-14	30.7	14.2	36.5	21.7
Aug-14	21.9	6.2	44.9	28.4
Sep-14	21.7	7.8	39.1	25.7
Oct-14	24.4	17.4	30.8	20.7
Nov-14	14.4	8.9	32.3	18
Dec-14	16	12.3	24.9	19.6
Jan-15	11.8	2.1	30.7	20.8
Feb-15	6	3.4	34.3	22.5
Mar-15	1.5	-5.6	29.2	9.2
Apr-15	0.5	-3.5	22.1	14.5
May-15	-14.1	-7.7	24.2	20.7
Jun-15	9.2	-0.3	39.1	12.4
Jul-15	17.8	0.8	33.8	16.2
Aug-15	3.8	-3.2	35	8.9
Sep-15	-2.8	-5.2	25.6	4.6
Oct-15	-0.4	-0.4	17.1	7.5
Nov-15	-6.9	-1.5	22.6	9.3
Dec-15	-7.7	-4.5	23.3	13
Jan-16	-1.7	-3.9	19.8	11.6
Feb-16	-2.9	-3.6	12.7	4.7
Mar-16	-0.9	1.3	22.4	13.5
Apr-16	11.5	3.7	38.5	23.1
May-16	13.5	10.4	25.7	15.1
Jun-16	20.3	2	36.5	18.3
Jul-16	13.4	2.2	28.6	22.7
Aug-16	20.5	7.1	32	13.8
Sep-16	20.5	9.9	41	31.6
Oct-16	10.5	-0.9	40.3	26.6
Nov-16	27.5	19.5	37	28.3
Dec-16	29.6	11.1	42.9	27.7
Jan-17	32.4	24.4	49.1	28.2
Feb-17	30.5	11.9	47.1	24.9
Mar-17	40.5	18.7	52.5	37.7
Apr-17	30.6	13.7	38.8	30.5
May-17	24.5	13.1	43.9	26.8
Jun-17	23.4	18.9	43.7	30.1
Jul-17	20.2	10	48.6	30.2
Aug-17	23.5	13.7	37.6	37.9
Sep-17	33.8	23.4	47.7	32.1
Oct-17	40.2	15.7	58.4	39.4
Nov-17	38.9	12.4	52.5	41.6
Dec-17	26.2	14.7	53.2	38.3
Jan-18	34.1	23.7	56.2	45.3
Feb-18	46.5	23.7	64.6	49.5
Mar-18	43.7	20.8	61.2	49.6
Apr-18	53.5	28.1	70.4	49.2
May-18	50.8	33.6	61.8	36.7
Jun-18	51	33.4	64.3	56.8
Jul-18	59.1	36	60.7	50.4
Aug-18	57	32.3	60.4	59.1
Sep-18	39.5	21.3	49.6	42.5
Oct-18	40.5	25.6	54.6	51.1
Nov-18	41.7	25.3	57.8	57.2
Dec-18	36.3	28.3	56.7	44
Jan-19	32.2	24.8	41.5	34.9
Feb-19	23.8	26.5	41.1	30.8
Mar-19	21.7	24.5	48.1	32.6
Apr-19	22.2	20.2	32.7	28.1
May-19	23	17.6	42	38.7
Jun-19	13.7	2.7	32.9	26.6
Jul-19	16.4	11.2	36.1	33.5
Aug-19	14.7	13.5	38.9	28.7
Sep-19	29.7	19.7	44.9	33.8
Oct-19	15	15.4	34.8	29.8
Nov-19	8.5	12	40.2	36.1
Dec-19	15.9	11	46	45.1
Jan-20	22.1	14.7	41.9	34
Feb-20	16.4	17.1	32.2	37.9
Mar-20	4.8	6.8	18.5	21.5
Apr-20	-9.3	-10.6	25.5	16.9
May-20	3.2	-3.1	21.2	15.6
Jun-20	11.1	11	44.3	28.9
Jul-20	15.7	11.5	43	24.7
Aug-20	15.3	12.4	37.7	30.2
Sep-20	25.1	18.4	57.7	42.4
Oct-20	28.5	14	42.3	41
Nov-20	38.9	25.4	49.4	37.2
Dec-20	27.1	18	46.6	35.5
Jan-21	47.4	36.3	44.1	36
Feb-21	55.2	18.2	51.8	41.8
Mar-21	72.6	30.2	63.4	46.9
Apr-21	69.1	34.5	71.5	63.6
May-21	76.8	41	66.7	58.4

Source: Federal Reserve Bank of Philadelphia

https://www.philadelphiafed.org

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 2015 to 2021. 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, minus 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 76.8 in Apr 2021.

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

Source: Federal Reserve Bank of Philadelphia

Chart IV-2 of the Federal Reserve Bank of Philadelphia Outlook Survey provides the diffusion index of current prices received from 2015 to 2021. 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 1.5 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 0.4 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 76.8 in May 2021 while prices received moved to 41.0. 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.

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

Source: Federal Reserve Bank of Philadelphia

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.

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

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.

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

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.

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

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.

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

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.

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

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.

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

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.

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

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.

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

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).

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

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).

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

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).

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

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).

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

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).

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

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.”

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

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.”

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

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.”

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

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.”

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

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.”

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

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.”

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

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.”

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

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.”

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

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.”

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

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.

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

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.”

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

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.”

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

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.”

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

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.”

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

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.”

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

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.”

The Business Outlook survey of the FRB of Philadelphia for Jun 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0620): “The diffusion index for current general activity increased from -43.1 in May to 27.5 this month, its first positive reading since February (see Chart 1). Forty-six percent of the firms reported increases this month (up from 15 percent last month), while 19 percent reported decreases (down from 58 percent). The indexes for current shipments and new orders also rose and returned to positive readings this month: The current new orders index increased 42 points to 16.7, while the shipments index rose 56 points to 25.3.”

Chart IV-2Jun2020, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

The Business Outlook survey of the FRB of Philadelphia for Jul 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0720): “The prices paid diffusion index increased 5 points to 15.7 (see Chart 2). Nearly 16 percent of the firms reported increases in input prices, and none reported decreases; most firms (84 percent) reported no change. The current prices received index, reflecting manufacturers’ own prices, held steady at 11.5.”

Chart IV-2Jul2020, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

The Business Outlook survey of the FRB of Philadelphia for Aug 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0820): “The survey’s price indicators remained positive and were little changed this month. The prices paid diffusion index was essentially unchanged at 15.3. More than 21 percent of the firms reported increases in input prices, and 6 percent reported decreases; most firms (73 percent) reported no change. The current prices received index, reflecting manufacturers’ own prices, increased 1 point to 12.4. Over 16 percent of the firms reported increases in prices of their own manufactured goods, and 4 percent reported decreases; most firms (80 percent) reported no change.”

The Business Outlook survey of the FRB of Philadelphia for Sep 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos0920): “The survey’s price indicators remained positive and increased this month (see Chart 2). The prices paid diffusion index increased 10 points to 25.1. Nearly 29 percent of the firms reported increases in input prices, and 4 percent reported decreases; most firms (68 percent) reported no change. The current prices received index, reflecting manufacturers’ own prices, increased 6 points to 18.4. Over 22 percent of the firms reported increases in prices of their own manufactured goods, up from 16 percent in August.”

Chart IV-2Sep2020, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

Chart IV-2Sep2020, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

The Business Outlook survey of the FRB of Philadelphia for Oct 2020 states (https://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2020/bos1020): “The survey’s price indicators suggest modest price pressure. The prices paid diffusion index increased 3 points to 28.5. Nearly 29 percent of the firms reported increases in input prices, and none reported decreases; most firms (72 percent) reported no change. The current prices received index, reflecting manufacturers’ own prices, decreased 4 points to 14.0. Just 14 percent of the firms reported increases in prices of their own manufactured goods, while 86 percent reported no change in prices.”

The Business Outlook Survey of the FRB of Philadelphia for Nov 2020 states (https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2020-11): “Price increases were more widespread this month. The prices paid diffusion index increased 10 points to 38.9. Nearly 39 percent of the firms reported increases in input prices, compared with 29 percent last month; most firms (59 percent) reported no change. The current prices received index, reflecting manufacturers’ own prices, increased 11 points to 25.4. Over 26 percent of the firms reported increases in prices of their own manufactured goods, compared with 14 percent in October.”

The Business Outlook Survey of the FRB of Philadelphia for Dec 2020 states (https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2020-12): “Price increases were less widespread this month. The prices paid diffusion index decreased 12 points to 27.1. Over 29 percent of the firms reported increases in input prices, compared with 39 percent last month; most firms (63 percent) reported no change. The current prices received index, reflecting manufacturers’ own prices, decreased 7 points to 18.0. Over 20 percent of the firms reported increases in prices of their own manufactured goods, while 2 percent reported declines. The largest percentage of firms (75 percent) reported no change in prices for their manufactured goods.”

The Business Outlook survey of the FRB of Philadelphia for Jan 2021 states: (https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2021-01): “Price increases were more widely reported this month. The prices paid diffusion index increased 21 points to 45.4 (see Chart 2). Over 47 percent of the firms reported increases in input prices, while only 2 percent reported decreases. The current prices received index, reflecting manufacturers’ own prices, also increased 21 points to 36.6. Over 38 percent of the firms reported increases in prices of their own manufactured goods, while 2 percent reported declines. The largest percentage of firms (60 percent) reported no change in prices for their manufactured goods.”

Chart IV-2Jan2021, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

The Business Outlook survey of the FRB of Philadelphia for Feb 2021 states: (https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2021-02): “Price increases were more widespread this month for inputs but less widespread for firms’ own goods. The prices paid diffusion index increased 9 points to 54.4. Nearly 55 percent of the firms reported increases in input prices, compared with 47 percent last month. More than 45 percent of the firms reported no change. The current prices received index, reflecting manufacturers’ own prices, decreased 20 points to 16.7. Nearly 18 percent of the firms reported increases in prices of their own manufactured goods, compared with 38 percent in January; most firms (80 percent) reported stable output prices.”

The Business Outlook survey of the FRB of Philadelphia for Mar 2021 states: (https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2021-03): “Price Increases Are More Widespread. The firms continued to report price pressures from purchased inputs. The prices paid index rose sharply from 54.4 to 75.9, its highest reading since March 1980 (see Chart 2). Over 77 percent of the firms reported higher input prices this month, up from 55 percent last month. With respect to prices received for firms’ own manufactured goods, 35 percent of the firms reported higher prices, up from 18 percent last month. The prices received index increased 15 points to 31.8.”

Chart IV-2Mar2021, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

The Business Outlook survey of the FRB of Philadelphia for Apr 2021 states: (https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2021-04): “The firms continued to report price pressures from purchased inputs. The prices paid index edged down 4 points to 69.1 in April after reaching a 40-year high in March (see Chart 2). Over 71 percent of the firms reported higher input prices this month, while only 2 percent of the firms reported lower input prices. The firms also reported overall increases in prices for their own manufactured goods: The prices received index increased 4 points to 34.5.”

Chart IV-2Apr2021, Federal Reserve Bank of Philadelphia Business Outlook Survey Current Prices Paid and Received Diffusion Index SA

Source: Federal Reserve Bank of Philadelphia

The Business Outlook survey of the FRB of Philadelphia for May 2021 states: (https://www.philadelphiafed.org/surveys-and-data/regional-economic-analysis/mbos-2021-05): “Price increases were more widespread this month for the firms’ inputs and own goods. The prices paid diffusion index increased 8 points to 76.8, its highest reading since March 1980. Nearly 77 percent of the firms reported increases in input prices, while none reported decreases. The current prices received index increased 7 points to 41.0, its highest reading since May 1981. Nearly 43 percent of the firms reported increases in prices of their own manufactured goods, up from 36 percent in April; most firms (55 percent) reported stable output prices.”

II Rules, Discretionary Authorities and Slow Productivity Growth. The Bureau of Labor Statistics (BLS) of the Department of Labor provides the quarterly report on productivity and costs. The operational definition of productivity used by the BLS is (https://www.bls.gov/news.release/pdf/prod2.pdf 1): “Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all persons, including employees, proprietors, and unpaid family workers.” The BLS has revised the estimates for productivity and unit costs. Table II-1 provides estimates for IQ2021 and revision of the estimates for IVQ2020 and IIIQ2020 together with data for nonfarm business sector productivity and unit labor costs in seasonally adjusted annual equivalent (SAAE) rate and the percentage change from the same quarter a year earlier. Reflecting increase in output at 8.4 percent and increase at 2.9 percent in hours worked, nonfarm business sector labor productivity increased at the SAAE rate of 5.4 percent in IQ2021, as shown in column 2 “IQ2021 SAEE.” The increase of labor productivity from IQ2020 to IQ2021 was 4.1 percent, reflecting increase in output of 1.1 percent and decrease of hours worked of 2.9 percent, as shown in column 3 “IQ2021 YOY.” Hours worked decreased from 38.2 percent in IIIQ2020 to 10.0 percent in IVQ2020 and increased at 2.9 percent in IQ2021 while output growth decreased from 44.1 percent in IIIQ2020 at SAAE to 5.8 percent in IVQ2020, increasing at 8.4 percent in IQ2021. The BLS defines unit labor costs as (https://www.bls.gov/news.release/pdf/prod2.pdf 1): “BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.” Unit labor costs decreased at the SAAE rate of 0.3 percent in IQ2021 and increased 1.6 percent in IQ2021 relative to IQ2020. Hourly compensation increased at the SAAE rate of 5.1 percent in IQ2021, which deflating by the estimated inflation increase SAAE rate in IQ2021 results in increase of real hourly compensation at 1.3 percent. Real hourly compensation increased 3.8 percent in IQ2021 relative to IQ2020.

Table II-1, US, Nonfarm Business Sector Productivity and Costs %

	IQ2021 SAAE	IQ2021 YOY	IVQ2020 SAAE	IVQ2020 YOY	IIIQ2020 SAAE	IIIQ2020 YOY
Productivity	5.4	4.1	-3.8	2.6	4.2	4.0
Output	8.4	1.1	5.8	-2.6	44.1	-3.2
Hours	2.9	-2.9	10.0	-5.0	38.2	-6.9
Hourly Comp.	5.1	5.8	1.6	6.7	-5.8	7.2
Real Hourly Comp.	1.3	3.8	-0.8	5.4	-10.0	5.9
Unit Labor Costs	-0.3	1.6	5.6	4.1	-9.6	3.1
Unit Nonlabor Payments	10.7	1.3	-4.4	-3.8	28.2	-2.6
Implicit Price Deflator	4.1	1.5	1.3	0.7	4.3	0.6

Notes: SAAE: seasonally adjusted annual equivalent; Comp.: compensation; YoY: Quarter on Same Quarter Year Earlier

The analysis by Kydland (https://www.nobelprize.org/prizes/economic-sciences/2004/kydland/biographical/) and Prescott (https://www.nobelprize.org/prizes/economic-sciences/2004/prescott/biographical/) (1977, 447-80, equation 5) uses the “expectation augmented” Phillips curve with the natural rate of unemployment of Friedman (1968) and Phelps (1968), which in the notation of Barro and Gordon (1983, 592, equation 1) is:

U_t = Uⁿ_t – α(π_t – π^e) α > 0 (1)

Where U_t is the rate of unemployment at current time t, Uⁿ_t is the natural rate of unemployment, π_t is the current rate of inflation and π^e is the expected rate of inflation by economic agents based on current information. Equation (1) expresses unemployment net of the natural rate of unemployment as a decreasing function of the gap between actual and expected rates of inflation. The system is completed by a social objective function, W, depending on inflation, π, and unemployment, U:

W = W(π_t, U_t) (2)

The policymaker maximizes the preferences of the public, (2), subject to the constraint of the tradeoff of inflation and unemployment, (1). The total differential of W set equal to zero provides an indifference map in the Cartesian plane with ordered pairs (π_t, U_t- Uⁿ) such that the consistent equilibrium is found at the tangency of an indifference curve and the Phillips curve in (1). The indifference curves are concave to the origin. The consistent policy is not optimal. Policymakers without discretionary powers following a rule of price stability would attain equilibrium with unemployment not higher than with the consistent policy. The optimal outcome is obtained by the rule of price stability, or zero inflation, and no more unemployment than under the consistent policy with nonzero inflation and the same unemployment. Taylor (1998LB) attributes the sustained boom of the US economy after the stagflation of the 1970s to following a monetary policy rule instead of discretion (see Taylor 1993, 1999). Professor John B. Taylor (2014Jul15, 2014Jun26) building on advanced research (Taylor 2007, 2008Nov, 2009, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB, 2015, 2012 Oct 25; 2013Oct28, 2014 Jan01, 2014Jan3, 2014Jun26, 2014Jul15, 2015, 2016Dec7, 2016Dec20 http://www.johnbtaylor.com/) finds that a monetary policy rule would function best in promoting an environment of low inflation and strong economic growth with stability of financial markets. There is strong case for using rules instead of discretionary authorities in monetary policy (http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html and earlier http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html). It is not uncommon for effects of regulation differing from those intended by policy. Professors Edward C. Prescott and Lee E. Ohanian (2014Feb), writing on “US productivity growth has taken a dive,” on Feb 3, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303942404579362462611843696?KEYWORDS=Prescott), argue that impressive productivity growth over the long-term constructed US prosperity and wellbeing. Prescott and Ohanian (2014Feb) measure US productivity growth at 2.5 percent per year since 1948. Average US productivity growth has been only 1.1 percent since 2011. Prescott and Ohanian (2014Feb) argue that living standards in the US increased at 28 percent in a decade but with current slow growth of productivity will only increase 12 percent by 2024. There may be collateral effects on productivity growth from policy design similar to those in Kydland and Prescott (1977). Professor Edward P. Lazear (2017Feb27), writing in the Wall Street Journal, on Feb 27, 2017 (https://www.wsj.com/articles/how-trump-can-hit-3-growthmaybe-1488239746), finds that productivity growth was 7 percent between 2009 and 2016 at annual equivalent 1 percent. Lazear measures productivity growth at 2.3 percent per year from 2001 to 2008. Herkenhoff, Ohanian and Prescott (2017) and Ohanian and Prescott (2017Dec) analyze how restriction of land use by states in the United States have been depressing economic activity. Professor Edmund S. Phelps (https://www.nobelprize.org/prizes/economic-sciences/2006/phelps/auto-biography/) argues that there is failed analysis that fiscal stimulus in the form of higher government expenditures and tax reductions caused the recovery of the economy to normal levels by 2017 (Phelps, Edmund S. 2018. The fantasy of fiscal stimulus. The Wall Street Journal Oct 29, 2018 https://www.wsj.com/articles/the-fantasy-of-fiscal-stimulus-1540852299?mod=searchresults&page=1&pos=2). The evidence analyzed by Phelps leads to the conclusion that countries with disorderly government finance grew less rapidly than those with sounder fiscal performance. Phelps concludes convincingly that “there is a strong relationship between the speed of recovery and a proxy of its dynamism—the long-term growth rate of total factor productivity from 1990 to 2007. Some countries have preexisting social institutions and cultural capital that enables them to bounce back from an economic downturn. Much credit of the U.S.’s relatively speedy recovery is owed to this country’s endemic culture of innovation and enterprise.” Professor Edward P. Lazear, writing on “Mind the productivity gap to reduce inequality,” published in the Wall Street Journal on May 6, 2019 (https://www.wsj.com/articles/mind-the-productivity-gap-to-reduce-inequality-11557181134?mod=searchresults&page=1&pos=1), analyzes the causes of the growing differential of wages between the income of the 90^th percentile and the 50^th percentile in terms of technological change. The improvement of the lower half of wage earners would consist of increasing their skills. Professors John F. Cogan and John B. Taylor, writing in the Wall Street Journal on Oct 6, 2020, measure productivity growth increasing from 0.8 percent per year in 2013-2016 to 1.5 percent per year in 2016-2019 because of deregulation and market-oriented policies. The Bureau of Labor Statistics important report on productivity and costs released on May 6, 2021 (https://www.bls.gov/lpc/) supports the argument of decline of productivity growth in the US analyzed by Prescott and Ohanian (2014Feb), Lazear (2017Feb27), Phelps (2018) and Cogan and Taylor (2020Oct6). Table II-2 provides the annual percentage changes of productivity, real hourly compensation and unit labor costs for the entire economic cycle from 2007 to 2020. The estimates incorporate the yearly revision of the US national accounts (https://www.bea.gov/information-updates-national-income-and-product-accounts) and the comprehensive revisions since 1929 (https://apps.bea.gov/national/pdf/2018-ComprehensiveUpdate-Results.pdf). The data confirm the argument of Prescott and Ohanian (2014Feb), Lazear (2017Feb27) and Cogan and Taylor (2020Oct6): productivity increased cumulatively 8.9 percent from 2011 to 2019 at the average annual rate of 1.0 percent. Confirming measurement by Cogan and Taylor (2020Oct6), productivity increased at average 0.8 percent from 2013 to 2016 and at 1.5 percent from 2017 to 2019, using revised data. Average productivity growth for the entire economic cycle from 2007 to 2020 is only 1.5 percent. The argument by Prescott and Ohanian (2014Feb) is proper in choosing the tail of the business cycle because the increase in productivity in 2009 of 3.5 percent and 3.4 percent in 2010 consisted of reducing labor hours. Productivity increased 2.5 percent in 2020 with decrease of output at 4.2 percent and decrease of hours worked at 6.6 percent in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event.

Table II-2, US, Revised Nonfarm Business Sector Productivity and Costs Annual Average, ∆% Annual Average

	2017 ∆%	2018 ∆%	2019 ∆%	2020 %
Productivity	1.2	1.4	1.8	2.5
Real Hourly Compensation	1.3	0.9	1.8	5.1
Unit Labor Costs	2.3	1.9	1.9	3.8
	2016 ∆%	2015 ∆%	2014 ∆%	2013 ∆%	2012 ∆%	2011 ∆%
Productivity	0.4	1.6	0.9	0.5	0.8	0.0
Real Hourly Compensation	-0.2	3.0	1.1	-0.2	0.5	-0.9
Unit Labor Costs	0.7	1.6	1.9	0.8	1.8	2.2

	2010 ∆%	2009 ∆%	2008 ∆%	2007∆%
Productivity	3.4	3.5	1.2	1.8
Real Hourly Compensation	0.2	1.3	-0.9	1.5
Unit Labor Costs	-1.5	-2.5	1.7	2.5

Source: US Bureau of Labor Statistics

Table II-3, US, Nonfarm Business Output per Productivity jumped in the recovery after the recession from Mar IQ2001 to Nov IVQ2001 (https://www.nber.org/cycles.html) Table II-3 provides quarter on quarter and annual percentage changes in nonfarm business output per hour, or productivity, from 1999 to 2020. The annual average jumped from 2.7 percent in 2001 to 4.4 percent in 2002. Nonfarm business productivity increased at the SAAE rate of 8.9 percent in the first quarter after the recession in IQ2002. Productivity increases decline later in the expansion period. Productivity increases were mediocre during the recession from Dec IVQ2007 to Jun IIIQ2009 (https://www.nber.org/cycles.html) and increased during the first phase of expansion from IIQ2009 to IQ2010, trended lower and collapsed in 2011 and 2012 with sporadic jumps and declines. Productivity increased at 3.2 percent in IVQ2013 and contracted at 3.7 percent in IQ2014. Productivity increased at 4.1 percent in IIQ2014 and at 3.7 percent in IIIQ2014. Productivity contracted at 1.8 percent in IVQ2014 and increased at 4.1 percent in IQ2015. Productivity grew at 1.6 percent in IIQ2015 and changed at 0.0 percent in IIIQ2015. Productivity contracted at 1.6 percent in IVQ2015 and increased at 1.2 percent in IQ2016. Productivity decreased at 0.4 percent in IIQ2016 and expanded at 1.3 percent in IIIQ2016. Productivity grew at 3.0 percent in IVQ2016 and increased at 0.8 percent in IQ2017. Productivity decreased at 1.0 percent in IIQ2017 and increased at 3.2 percent in IIIQ2017. Productivity increased at 1.8 percent in IVQ2017 and increased at 1.9 percent in IQ2018. Productivity increased at 0.7 percent in IIQ2018 and increased at 1.2 percent in IIIQ2018. Productivity increased at 0.4 percent in IVQ2018. Productivity increased at 3.9 percent in IQ2019. Productivity increased at 1.9 percent in IIQ2019 and increased at 0.5 percent in IIIQ2019. Productivity increased at 1.6 percent in IVQ2019. Productivity decreased at 0.8 percent in IQ2020, increasing at 11.2 percent in IIQ2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event. Productivity increased at 4.2 percent in IIIQ2020. Productivity decreased at 3.8 percent in IVQ2020. Productivity increased at 2.5 percent in 2020 with decrease of output at 4.2 percent and decrease of hours worked at 6.6 percent in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event. Productivity increased at 5.4 percent in IQ2021.

Table II-3, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2021

Year	Qtr1	Qtr2	Qtr3	Qtr4	Annual
1999	5.4	1.1	3.8	6.3	3.8
2000	-0.4	8.0	0.1	4.2	3.3
2001	-1.7	6.9	2.3	5.0	2.7
2002	8.9	0.6	3.2	-0.3	4.4
2003	4.2	5.3	9.3	3.8	3.8
2004	-1.3	3.9	1.7	2.0	2.9
2005	4.6	-0.8	2.8	0.6	2.2
2006	2.8	-0.6	-1.1	3.6	1.1
2007	1.1	1.5	3.8	3.6	1.8
2008	-3.3	4.3	1.0	-2.4	1.2
2009	3.7	8.7	5.4	6.7	3.5
2010	1.9	0.7	2.1	1.7	3.4
2011	-2.7	0.4	-1.5	2.7	0.0
2012	1.6	1.5	-0.7	-1.4	0.8
2013	2.5	-1.5	1.7	3.2	0.5
2014	-3.7	4.1	3.7	-1.8	0.9
2015	4.1	1.6	0.0	-1.6	1.6
2016	1.2	-0.4	1.3	3.0	0.4
2017	0.8	-1.0	3.2	1.8	1.2
2018	1.9	0.7	1.2	0.4	1.4
2019	3.9	1.9	0.5	1.6	1.8
2020	-0.8	11.2	4.2	-3.8	2.5
2021	5.4

Source: US Bureau of Labor Statistics

Chart II-1 of the Bureau of Labor Statistics (BLS) provides SAAE rates of nonfarm business productivity from 1999 to 2021. There is a clear pattern in both episodes of economic cycles in 2001 and 2007 of rapid expansion of productivity in the transition from contraction to expansion followed by more subdued productivity expansion. Part of the explanation is the reduction in labor utilization resulting from adjustment of business to the sudden shock of collapse of revenue. Productivity rose briefly in the expansion after 2009 but then collapsed and moved to negative change with some positive changes recently at lower rates. Contractions in the cycle from 2007 to 2019 have been more frequent and sharper. Productivity increased in 2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event as hours worked collapsed and increased into 2021.

Chart II-1, US, Nonfarm Business Output per Hour, Percent Change from Prior Quarter at Annual Rate, 1999-2021

Source: US Bureau of Labor Statistics: http://www.bls.gov/lpc/

Percentage changes from prior quarter at SAAE rates and annual average percentage changes of nonfarm business unit labor costs are provided in Table II-4. Unit labor costs fell during the contractions with continuing negative percentage changes in the early phases of the recovery. Weak labor markets partly explain the decline in unit labor costs. As the economy moves toward full employment, labor markets tighten with increase in unit labor costs. The expansion beginning in IIIQ2009 has been characterized by high unemployment and underemployment. Table II-4 shows continuing subdued increases in unit labor costs in 2011 but with increase at 8.3 percent in IQ2012 followed by increase at 0.4 percent in IIQ2012, increase at 1.1 percent in IIIQ2012 and increase at 12.6 percent in IVQ2012. Unit labor costs decreased at 8.0 percent in IQ2013 and increased at 4.6 percent in IIQ2013. Unit labor costs decreased at 2.7 percent in IIIQ2013 and decreased at 0.4 percent in IVQ2013. Unit labor costs increased at 12.3 percent in IQ2014 and at minus 5.6 percent in IIQ2014. Unit labor costs decreased at 1.0 percent in IIIQ2014 and increased at 6.2 percent in IVQ2014. Unit labor costs increased at 1.3 percent in IQ2015 and increased at 1.8 percent in IIQ2015. Unit labor costs increased at 1.2 percent in IIIQ2015 and increased at 1.5 percent in IVQ2015. Unit labor costs decreased at 1.0 percent in IQ2016 and increased at 1.5 percent in IIQ2016. Unit labor costs increased at 0.4 percent in IIIQ2016 and increased at 1.3 percent in IVQ2016. Unit labor costs increased at 3.2 percent in IQ2017 and increased at 3.2 percent in IIQ2017. United labor costs increased at 1.8 percent in IIIQ2017 and increased at 3.9 percent in IVQ2017. Unit labor costs increased at 0.4 percent in IQ2018 and increased at 0.4 percent in IIQ2018. Unit labor costs increased at 3.9 percent in IIIQ2018 and increased at 1.0 percent in IVQ2018. Unit labor costs increased at 5.2 percent in IQ2019 and decreased at 0.7 percent in IIQ2019. Unit labor costs decreased at 0.6 percent in IIIQ2019 and increased at 1.9 percent in IVQ2019. Unit labor costs increased at 9.8 percent in IQ2020 and increased at 11.9 percent in IIQ2020. Unit labor costs decreased at 9.6 percent in IIIQ2020 and increased at 5.6 percent in IVQ2020. Unit labor costs decreased at 0.3 percent in IQ2021.

Table II-4, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2021

Year	Qtr1	Qtr2	Qtr3	Qtr4	Annual
1999	1.8	0.6	-0.2	1.9	0.8
2000	15.4	-6.5	7.9	-2.0	3.6
2001	11.3	-4.9	-1.7	-1.3	1.6
2002	-6.5	2.9	-1.1	1.3	-2.0
2003	-1.6	1.7	-2.9	1.8	-0.1
2004	0.6	3.9	5.6	-0.3	1.6
2005	-1.7	3.3	2.2	2.0	1.4
2006	5.2	1.0	1.7	3.5	2.7
2007	9.0	-1.8	-2.2	1.1	2.5
2008	7.4	-3.5	2.8	6.6	1.7
2009	-13.2	1.6	-3.1	-3.7	-2.5
2010	-4.3	3.3	-0.4	0.5	-1.5
2011	10.7	-3.2	4.5	-7.8	2.2
2012	8.3	0.4	1.1	12.6	1.8
2013	-8.0	4.6	-2.7	-0.4	0.8
2014	12.3	-5.6	-1.0	6.2	1.9
2015	1.3	1.8	1.2	1.5	1.6
2016	-1.0	1.5	0.4	1.3	0.7
2017	3.2	3.2	1.8	3.9	2.3
2018	0.4	0.4	3.9	1.0	1.9
2019	5.2	-0.7	-0.6	1.9	1.9
2020	9.8	11.9	-9.6	5.6	3.8
2021	-0.3

Source: US Bureau of Labor Statistics

Chart II-2 provides change of unit labor costs at SAAE from 1999 to 2021. There are multiple oscillations recently with negative changes alternating with positive changes. There is sharp contraction in 2020 followed by rebound in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event.

Chart II-2, US, Nonfarm Business Unit Labor Costs, Percent Change from Prior Quarter at Annual Rate 1999-2021

Source: US Bureau of Labor Statistics: https://www.bls.gov/lpc/

Table II-5 provides percentage change from prior quarter at annual rates for nonfarm business real hourly worker compensation. The expansion after the contraction of 2001 was followed by strong recovery of real hourly compensation. Real hourly compensation increased at the rate of 3.2 percent in IQ2011 but fell at annual rates of 7.1 percent in IIQ2011 and 7.0 percent in IVQ2011. Real hourly compensation increased at 7.4 percent in IQ2012, increasing at 1.2 percent in IIQ2012, declining at 1.5 percent in IIIQ2012 and increasing at 8.1 percent in IVQ2012. Real hourly compensation fell at 0.9 percent in 2011 and increased at 0.5 percent in 2012. Real hourly compensation fell at 7.2 percent in IQ2013 and increased at 3.4 percent in IIQ2013, falling at 3.2 percent in IIIQ2013. Real hourly compensation increased at 1.3 percent in IVQ2013 and at 5.3 percent in IQ2014. Real hourly compensation decreased at 3.8 percent in IIQ2014. Real hourly compensation increased at 1.5 percent in IIIQ2014. The annual rate of increase of real hourly compensation for 2013 is minus 0.2 percent. Real hourly compensation increased at 5.3 percent in IVQ2014. The annual rate of increase of real hourly compensation in 2014 is 1.1 percent. Real hourly compensation increased at 8.1 percent in IQ2015 and increased at 0.5 percent in IIQ2015. Real hourly compensation decreased at 0.2 percent in IIIQ2015 and decreased at 0.1 percent in IVQ2015. Real hourly compensation increased at 3.0 percent in 2015. Real hourly compensation increased at 0.4 percent in IQ2016 and decreased at 2.1 percent in IIQ2016. Real hourly compensation changed at 0.0 percent in IIIQ2016 and increased at 1.8 percent in IVQ2016. Real hourly compensation decreased 0.2 percent in 2016. Real hourly compensation increased at 1.3 percent in IQ2017 and increased at 1.6 percent in IIQ2017. Real hourly compensation increased at 3.1 percent in IIIQ2017. Real hourly compensation increased at 2.5 percent in IVQ2017. Real hourly compensation increased 1.3 percent in 2017. Real hourly compensation decreased at 0.8 percent in IQ2018 and decreased at 1.4 percent in IIQ2018. Real hourly compensation increased at 3.5 percent in IIIQ2018 and decreased at 0.1 percent in IVQ2018. Real hourly compensation increased 0.9 percent in 2018. Real hourly compensation increased at 8.4 percent in IQ2019 and decreased at 2.2 percent in IIQ2019. Real hourly compensation decreased at 1.4 percent in IIIQ2019, increasing at 0.9 percent in IVQ2019. Real hourly compensation increased 1.8 percent in 2019. Real hourly compensation increased at 7.9 percent in IQ2020 and increased at 28.4 percent in IIQ2020. Real hourly compensation decreased at 10.0 percent in IIIQ2020 and decreased at 0.8 percent in IVQ2020. Real hourly compensation increased 5.1 percent in 2020 relative to a year earlier. Real hourly compensation increased at 1.3 percent in IQ2021.

Table II-5, Nonfarm Business Real Hourly Compensation, Percent Change from Prior Quarter at Annual Rate, 1999-2021

Year	Qtr1	Qtr2	Qtr3	Qtr4	Annual
1999	5.9	-1.4	0.5	5.0	2.5
2000	10.4	-2.1	4.1	-0.6	3.5
2001	5.2	-1.3	-0.5	4.1	1.5
2002	0.5	0.3	-0.1	-1.3	0.7
2003	-1.6	7.8	3.0	4.0	1.4
2004	-4.0	4.7	4.7	-2.6	1.8
2005	0.8	-0.4	-1.0	-1.3	0.3
2006	6.0	-3.3	-3.0	9.0	0.6
2007	6.0	-4.7	-1.0	-0.2	1.5
2008	-0.6	-4.4	-2.3	14.2	-0.9
2009	-7.5	8.1	-1.2	-0.4	1.3
2010	-3.1	4.2	0.5	-1.0	0.2
2011	3.2	-7.1	0.3	-7.0	-0.9
2012	7.4	1.2	-1.5	8.1	0.5
2013	-7.2	3.4	-3.2	1.3	-0.2
2014	5.3	-3.8	1.5	5.3	1.1
2015	8.1	0.5	-0.2	-0.1	3.0
2016	0.4	-2.1	0.0	1.8	-0.2
2017	1.3	1.6	3.1	2.5	1.3
2018	-0.8	-1.4	3.5	-0.1	0.9
2019	8.4	-2.2	-1.4	0.9	1.8
2020	7.9	28.4	-10.0	-0.8	5.1
2021	1.3

Source: US Bureau of Labor Statistics