Money supply growth for the U.S. has slowed and it isn’t a good sign

Money supply is simply the total amount of money in circulation in a country. For the U.S. there are several components of the money supply: M1, M2, and MZM (M3 is no longer tracked by the Federal Reserve); these components are arranged on a spectrum of narrowest to broadest.

M1 is the money supply of currency in circulation (notes and coins, traveller’s checks [non-bank issuers], demand deposits, and checkable deposits).

The broader M2 component includes M1 in addition to saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals.

MZM (money with zero maturity) is the broadest component and consists of the supply of financial assets redeemable at par on demand: notes and coins in circulation, traveller’s checks (non-bank issuers), demand deposits, other checkable deposits, savings deposits, and all money market funds.

 

Slowing money supply growth

M1 money supply growth has slowed to around 3.5%. Charts for the last 5 years and for a longer timescale are below:

US M1 money supply growth rate up to May 2019 5 year viewUS M1 money supply growth rate up to May 2019

 

M2 money supply growth has slowed to around 4%. Charts for the last 5 years and for a longer timescale are below:

US M2 money supply growth rate up to May 2019 5 year viewUS M2 money supply growth rate up to May 2019

 

MZM money supply growth has slowed to around 4.4%. Charts for the last 5 years and for a longer timescale are below:

US MZM money supply growth rate up to May 2019 5 year viewUS MZM money supply growth rate up to May 2019

 

Is slowing growth an issue?

Money supply growth is an indicator of general economic activity. During good economic times, money supply tends to grow quickly as banks lend more money.

But as the charts above show recessions tend to be preceded by periods of falling money-supply growth. The Federal Reserve will surely be tempted to cut rates now …

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