Partial money / credit data for April show a slowdown in financing flows last month but narrow money growth appears to have remained solid, supporting a positive view of near-term economic prospects.
“Total social financing” (TSF, a broad measure of fund-raising by households and non-financial enterprises covering bank / non-bank loans and issuance of bonds, acceptances and equities) rose by an annual 13.1% in April, down from 13.4% in March and below an average of 17.3% over 2011-15 (five years) – see chart. Monthly growth adjusted for seasonal factors is estimated here to have declined to only 0.4% last month from 1.0% in March.
Some commentators have raised concerns about much faster recent growth of total bank lending, including credit flows to the financial sector and government. Strong financial sector lending appears to reflect a “reintermediation” of shadow banking business rather than a “hidden” flow of new credit to households and non-financial enterprises. Government credit has been boosted by fiscal stimulus efforts. TSF is the best measure of new liability creation by households and enterprises and does not suggest another credit “bubble” – see previous post for more discussion.
Narrow money, as measured by “true M1”*, is judged here to the most reliable monetary leading indicator of economic activity. An April reading for true M1 is not yet available but annual growth of the official M1 measure rose further to 22.9% in April, the fastest since 2010 – see chart.
Further analysis will be posted when additional April data become available next week.
*”True” M1 = currency in circulation plus demand / temporary deposits of households and corporations. The official M1 measure excludes household deposits.