Money-Supply Growth Accelerates To 28-Month High

quote:

---

During October 2019, year-over-year growth in the money supply was at 4.95 percent. That's up from September's rate of 3.10 percent, and was up from October 2018's rate of 3.49 percent. The increase in money-supply growth in October represents a sizable reversal of the trend we've seen for most of this year so far. In August, the growth rate hit a 120-month low, falling to the lowest growth rates we'd seen since 2007.

---

quote:

---

The M2 growth rate also increased in October, growing 6.65 percent, compared to September's growth rate of 5.61 percent. M2 grew 3.38 percent during October of last year. The M2 growth rate had fallen considerably from late 2016 to late 2018, but has been growing again in recent months.

---

quote:

---

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of slow-downs in rates of money-supply growth.

Moreover, periods preceding recessions often show a growing gap between M2 growth and TMS growth. We saw this in 2006-7 and in 2000-1. The gap between M2 and TMS narrowed considerably from 2011 through 2015, but has widened since then. Even with October's jump in growth levels, M2 was still growing faster.

---

quote:

---

The lack of money supply growth also points to growing weakening in economic activity since the Fed has turned to increasingly accommodative monetary policy in recent months - but has not managed to return money supply growth to levels we'd expect in an expansion.

---