The US broad money supply, on the superior flow of funds accounts measure, slowed during the second half of 2011, consistent with economic growth moderating during the first half of 2012, as also suggested by recent narrow money developments – see previous post.
The flow of funds accounts provide detailed information on the financial holdings of US households, businesses and financial institutions, permitting the calculation of a comprehensive broad money supply measure with an accompanying sectoral breakdown. Fourth quarter accounts were released yesterday. The definition used here comprises currency, US bank deposits (checkable, time and savings), foreign deposits, money market mutual funds and security repurchase agreements. The official M2 definition, by contrast, omits US large time deposits, foreign deposits, institutional money funds and repos.
The flow of funds measure grew by an annual 6.0% in December, up from 5.8% in September – see first chart. Quarterly expansion, however, slowed further from 3.4% annualised to 3.0% – well down from 9.4% in the second quarter of 2011 and 8.3% in the first. The change between the two halves probably reflects QE2 finishing in mid 2011.
A silver lining is that money holdings of non-financial businesses continued to rise strongly during the second half, with the fall in aggregate growth due to a slowdown in household liquidity and an outright fall in the financial sector. Non-financial business money holdings climbed 13.6% in the year to December, a development that should provide support for investment, hiring and take-over activity – second chart.
