Recent monetary developments have been worrying, with underlying M4 growth (i.e. excluding money holdings of certain financial intermediaries) slowing sharply and the corporate liquidity ratio falling to a 17-year low. However, some comfort can be drawn from stable household sector money trends.
The chart shows annual growth rates of consumer spending and two measures of household real money – overall M4 and non-interest-bearing M1 (i.e. currency holdings plus interest-free sight deposits). The consumer recessions of the mid 1970s, early 1980s and early 1990s were associated with annual falls in one or other measure. However, both are still growing solidly currently.
This resilience may not persist but household money trends are not yet consistent with a sustained contraction in consumer spending.
