Money Supply Growth is Rapidly Decelerating

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by Peter Schiff, Schiff Gold:

According to the seasonally adjusted data, M2 expanded by $83B in February. January was revised down from $245B to $176B. No doubt, money supply growth is decelerating but is still far from contractionary.

The table below shows that M2 is decelerating quite a bit at 4.7% when compared to the 6-month and 12-month averages (8.9% and 11% respectively).

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Figure 2: M2 Growth Rates

As can be seen below, the current rate of 4.7% in February has actually fallen below the 10-year average for February of 6.6%.

Figure 3: Average Monthly Growth Rates

The Fed only offers weekly data that is not seasonally adjusted. The chart shows how the rebound in non-seasonally adjusted money supply is quite weak compared to recent history, especially given that Dec 27 concluded 9 weeks of expanding M2.

Figure 4: WoW M2 Change

The “Wenzel” 13-week Money Supply

The late Robert Wenzel of Economic Policy Journal used a modified calculation to track Money Supply. He used a trailing 13-week average growth rate annualized as defined in his book The Fed Flunks. He specifically used the weekly data that was not seasonally adjusted. His analogy was that in order to know what to wear outside, he wants to know the current weather, not temperatures that have been averaged throughout the year.

The objective of the 13-week average is to smooth some of the choppy data without bringing in too much history that could blind someone from seeing what’s in front of them. The 13-week average growth rate can be seen in the table below. Decelerating trends are in red and accelerating trends in green. Money Supply growth on a 13-week annualized basis was mostly accelerating for 16 weeks in a row. It has now been flat or down for 7 weeks in a row.

Figure 5: WoW Trailing 13-week Average Money Supply Growth

The plot below helps show the seasonality of the Money Supply and compares the current year to previous years. It shows that the current trajectory is starting to look way down. In recent years, this has reversed strongly in April, but the Fed is currently trying to rein in inflation. This could cause money supply to decelerate further in the months ahead.

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