Money Supply and Credit Growth Continue to Falter
The decline in the growth rate of the broad US money supply measure TMS-2 that started last November continues, but the momentum of the decline has slowed last month (TMS = “true money supplyâ€). The data were recently updated to the end of April, as of which the year-on-year growth rate of TMS-2 is clocking in at 6.05%, a slight decrease from the 6.12% growth rate recorded at the end of March. It remains the slowest y/y growth since October of 2008, when the Fed had just begun to pump quite heavily.
US money supply and credit growth keep slowing.
The monthly y/y growth rate of M1 fell rather more sharply in April, from 8.76% to 7.07% (the most recent weekly annualized growth rate is lower at 6.80%). The composition of M1 is close to, but not quite equal to narrow money AMS (or TMS-1) – in particular, it does not contain the balances held at the Treasury’s general account with the Fed.
As a result, the growth rates of the two measures have drifted apart more sharply since 2016 than they usually do, as there were huge swings in the Treasury’s general account from mid 2016 to early 2017. These swings were very likely connected with money market funds moving large amounts of dollars from the euro-dollar market into treasury bills.
Reports by the Treasury Borrowing Advisory Committee suggest that the topic was on the agenda for a while. The surge in demand from MM funds may well have been accommodated by an increase in debt issuance, which the growing cash hoard mirrored.
Monthly y/y growth rates of TMS-2 and M1 – TMS-2 growth remains at the lowest level since October 2008 – click to enlarge.
One reason to look at M1 as well is that it shows a slowdown in growth even without taking the above mentioned fluctuations in Treasury deposits into account (these remained at odds with deposit money growth even when the treasury drew its balances down again in Q1 2017; we have yet to find out why, but the fact is that there was no commensurate increase in deposit money at US banks).
A continued slowdown in bank credit growth is undoubtedly the culprit. The next chart compares weekly y/y M1 growth with the y/y growth rate of commercial and industrial loans (which is also made available weekly) as of the first week of May.
