U.S. dollarIan Waldie
The latest readings on the health of the U.S. economy, ranging from tepid home sales to new jobless claims, suggest growth is moving into a slower phase. But there is no sharp fall off in one important technical indicator of overall business conditions: the money supply.
Changes in the money supply don't have the impact among investors that they had back in the days when central banks had formal targets for the growth in the amount of money in their economies, but investors should glance at the U.S. figures every now and then for the clues they offer on the direction of the economy.
Financial market consulting firm Capital Economics has done just that, and in a recent missive to clients, noted that "broad money and credit [are]still growing at a healthy pace."
The money supply is based in part on the robustness of loan growth, so a rising trend indicates banks are lending money more freely and are thereby supporting economic activity. When money supply growth is decelerating sharply or turning negative, many investors go on recession alert, but there doesn't seem to be any need for such extreme vigilance at the moment.
M-3, one of the broadest measures of money available in the U.S. economy, grew at a 5.8 per cent rate during the 12 months ending in March, a pace Capital Economics termed "still very healthy" even though it was a slight drop from the previous month's figure of 6.1 per cent. M-1 and M-2, more restrictive measures of the amount of money in circulation, are growing at 17.4 per cent and 9.8 per cent, respectively.
Even more encouraging to the firm was that U.S. bank loans are increasing, at last count growing by 4.5 per cent, due to more loans being made to businesses and homeowners seeking residential mortgages. Last July, by contrast, bank loans were declining at a 1.2 per cent rate. The figures are far more robust than in the euro zone, where loan growth is decelerating, and in the U.K., where it has flat lined, suggesting the U.S. is one of the world's engines of economic strength at the moment.