Wednesday, May 25, 2022

Real money supply declines sharply; another leading indicator for recession next year


 - by New Deal democrat

Real M1 declined -0.8% in April, and real M2 declined by -0.7%, following March declines of -1.0% for each:

These have been the sharpest monthly declines since 2005:

Real money supply is a long leading indicator, as shown in the below graph of both real M1 and real M2 going back over 60 years (shown in log scale to prevent inflation from showing earlier periods as mere squiggles):

Here is a close-up of the past 10 months showing both:

Real M1 is at a 9 month low. Real M2 is at a 12 month low.

Real M2 fell out of favor after failing to actually decline YoY prior to the 2001 and 2008 recessions, but a YoY% decline in real M1 and a real YoY% gain of M2 of less than 2.5% is nevertheless an excellent leading indicator for recession:

Again, the short term view shows that real M1 is only up 0.7% YoY (and if the trend continues, will be negative YoY in one month). Real M2 is already negative YoY:

Real money supply is now another negative leading indicator for recession next year.