Saturday, 13 April 2013

M1 Money Supply Surges at Record Bi-Weekly Pace: Movements in the U.S Monetary Base and Money Supply (as of 3 Apr-13)


Base money (monetary base) expanded rapidly for the seventh bi-weekly period in a row according to data released by FRED for the period ending 3 April 2013. The increase of 1.11% during the last two weeks put base money at yet another all-time high (see more here), ending the week on USD 2.9857 trillion, 10.95% higher than at the at the end of 2012.  

M1 money supply surged 8.26% compared to two weeks ago, a record bi-weekly increase based on data going back to 1975.

The M1 and M2 money supply measures continue to increase significantly on a year on year (YoY) basis. The trend in recent weeks for both series is however a slowdown in the YoY growth rate: 
  • The M1 YoY growth rate (smoothed over four bi-weekly periods) as of this week was 10.68% compared to an average of 15.35% for 2012. 
    • M1 did however increase 11.37% this week compared to same period last year, the biggest year on year increase for two months.
  • The M2 YoY growth rate on the same basis was 6.82% this week compared to an average of 8.61% in 2012
As reported four weeks ago, "To the extent that growth in the broad measures of money supply drives the stock market, investors should pay attention to this decline". 

Monetary Base
The Monetary Base increased 1.11% for the bi-weekly period. At USD 2.9857 trillion it was the highest base ever reported. The base was up by 12.31% compared to the same period last year.

M1 Money Stock/Supply
The M1 Money Stock increased 8.26% for the bi-weekly period, the biggest bi-weekly increase ever reported based on data going back to 1975. M1 ended the week on USD 2.5950 trillion, the highest ever reported. Compared to the same period last year, M1 increased 11.37% and has increased by 10.95% this year alone.

M2 Money Stock/Supply
M2 Money Stock increased 0.32% for the bi-weekly period and ended the week on USD 10.5687 trillion, also the highest ever reported. Compared to the same period last year, M2 was up by 7.06%. Compared to the year end money supply in 2012, it has however only increased by 0.82% so far this year.

M1 Money Multiplier and M2/Base ratio
The M1 multiplier remains considerable lower than it was during 2007 and the majority of 2008. It has however increased steadily from around June 2011, but for the second time (two weeks ago was the first) since the end of February last year it ended lower this week than one year ago. Though base money is increasing rapidly, most of it is being parked at the Fed (where it earns interest) as excess reserves. As a result, M1 money supply is increasing at a slower rate than it theoretically could (based on reserve requirements) thereby suppressing the M1 Money Multiplier.

The M2/Base ratio also remains considerably lower than the historical average. Following 24 months of YoY growth in the ratio, it declined this week by 4.68% on the same period last year and represented the third bi-weekly period in a row with a YoY decline.











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