The recent weakening in the growth momentum of money M2 and M3 drew the attention of some Wall Street analysts. They think that a weakening in the growth momentum of money may be signalling bad news for the economy and financial markets in the months ahead. However, it is questionable whether the popular definitions of money are valid economic indicators. This writer suggests that focusing on the money AMS definition is likely to produce better analysis. If the emerging fall in the growth momentum of our liquidity measure, money AMS adjusted for nominal economic activity, were to consolidate, this may pose difficulties ahead for the stock market.
Meanwhile in Q3 US real GDP increased by an annual 7.2%. However, careful analysis of the data reveals that economic activity is not as strong as suggested by the headline Q3 GDP rate of growth. Moreover, consumer income and expenditure data, which in fact fell strongly in September, contradicts Q3 GDP. Moreover, it still remains a puzzle to us that in the midst of a so-called “strong” economic recovery commercial bank lending is falling.
