Friday, 15 March 2013

M2 Money Supply Declines, Movements in the U.S Monetary Base and Money Supply (as of 6 Mar-13)

Base money (monetary base) increased rapidly for the fifth bi-weekly period in a row according to data released by FRED today for the period ending 6 March 2013. The increase of 1.29% during the last two weeks put base money at yet another all-time high, ending the week on USD 2.916 trillion and 10.7% higher than at the at the end of 2012.  

The M1 and M2 money supply measures increased significantly on a year on year basis, but they were both lower than two weeks ago. Following declines in three out of the last four bi-weekly periods, M2 is now USD 80.7 billion (0.77%) lower than the all-time high of USD 10.4805 trillion set on 9 January this year. 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 1.29% for the bi-weekly period. At USD 2.9160 trillion it was the highest base ever reported. The base was up by 7.13% compared to the same period last year.

M1 Money Stock/Supply
The M1 Money Stock decreased 0.13% for the bi-weekly period and ended the week on USD 2.4667 trillion. Compared to the same period last year, M1 increased 11.35%.

M2 Money Stock/Supply
M2 Money Stock decreased 0.24% for the bi-weekly period and ended the week on USD 10.3998 trillion. Compared to the same period last year, M2 was up by 6.56%.

M1 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 and ended the week 3.93% higher than this time last year. The YoY growth rate has slowed significantly during the last five weeks compared to the double-digit expansion of the multiplier from April to December last year.

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 0.53% on the same period last year and is the reason for the decline in M2 money supply this week (as base money increased).

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