Money supply growth inched up in April, rising slightly above the March growth level, which was at a 12-year (145-month) low.
In April, year-over-year growth in the money supply was at 1.99 percent. That was up slightly from March’s growth rate of 1.92 percent, but was well down from April 2018’s rate of 4.32 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 of money supply fluctuations 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 rose slightly April, growing 3.84 percent, compared to March’s growth rate of 3.77 percent. M2 grew 3.72 percent in April of last year. The M2 growth rate has fallen considerably since late 2016, but has varied little in recent months.
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 grown in recent years.
The overall M2 total money supply in April was $14.6 trillion, and the TMS total was $13.4 trillion.
