Saturday, 11 May 2013

U.S. Money, Credit & Treasuries Review (as of 1 May 2013)


For the first time in nine bi-weekly periods (18 weeks), the monetary base actually contracted and ended the week 0.80% (USD 24.4 billion) lower than two weeks ago. The growth in the base this year remains substantial however, having increased by USD 333.9 billion, or 12.41%, since the end of last year. Compared to the same period last year, the base is up by 14.65%.

The M1 money supply continues to expand at a rapid pace increasing 12.69% on the same period last year, almost one percentage point higher than the 11.73% average change in year to date. The percentage change in recent weeks is however slightly below the 52 week moving average of 12.84%. To put the substantial increase in M1 seen in recent years in perspective: since 2011 the year on year (YoY) growth rate has averaged 14.63% while during 1985 to 2010 it averaged 4.73% - this means the growth rate since 2011 has more than tripled compared to the 1985 to 2010 period!

The M2 money supply for the week increased 7.12% on the same period last year, in line with the average so far this year. Although the current growth rate is high in a historical perspective (the average since 1985 is 5.54%), the average YoY growth rate in 2013 of 7.17% is is significantly lower than the 8.52% average growth rate in 2012. Also, compared to the end of last year, M2 has hardly increased at all this year (it's up by 0.33%). To the extent that broader measures of the money supply (M2, MZM, M2+IMF+LTD*, etc) drives stock markets (see for example here and here), investors would be wise to notice this slowing down of the growth rate and to keep an eye on it going forward.

The YoY growth rate for broadest measure of money supply in this report, the M2+IMF+LTD* money supply, has gathered pace this year. With an average growth of 5.93% in 2013, it has significantly outpaced the average growth rates in 2012 (4.27%) and 2011 (2.61%). However, much of this increase comes from expansions in the second half of last year as the level of M2+IMF+LTD money supply is virtually unchanged from the end of last year (up 0.03%).

Bank Credit continues to reach new highs, increasing 4.36% for the week compared to same period last year. As with M2 and M2+IMF+LTD, the level of bank credit is also virtually flat compared to the end of last year, signalling a slowing down of the growth grate.

Treasury yields remain low in a historical perspective with both the 1-year and the 10-year yields decreasing on two weeks ago, with the latter decreasing the most (-0.07% points vs 0.03% points) resulting in a narrowing of the spread.

















*The Federal Reserve stopped publishing its M3 Money Supply series back in 2006. As an incomplete substitute, the M2+IMF+LTD money supply is a broader measure than M2 and consists of M2 + Institutional Money Funds + Large Time Deposits, data series which used to be included in the M3 series and which are still reported on a regular basis by the Fed.




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