Money supply growth fell in July, dropping to the lowest rate recorded since February of this year. Overall, money-supply growth remains well below the growth rates experienced from 2009 to 2016.
In July, year-over-year growth in the money supply was at 4.1 percent. That was down from June’s growth rate of 4.4 percent, and was also down from July 2017’s rate of 4.9 percent.
The money-supply metric used here — the “true” or Rothbard-Salerno money supply measure (TMS) — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.
This measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short-time deposits, traveler’s checks, and retail money funds).
M2 growth slowed in July 2018, rising 3.9 percent, compared to June’s rate of 4.2 percent. M2 grew 5.6 percent in July of last year. July’s growth rate has nearly fallen back to April 2018’s growth rate of 3.7 percent, which was an 89-month low. Overall, the M2 growth rate has fallen considerably since late 2016.
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 falling money-supply growth.
Many factors contribute to these trends. Money supply growth, however — in both M2 and TMS — has been impacted by falling growth rates in real estate loans at commercial banks. In July, real estate loans grew 3.4 percent, year over year, which was a 42-month low. Not surprisingly, mortgage loan applications have stagnated as interest rates have risen.
