August Money-Supply Growth Rate Falls to 12-Year Low

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The money supply growth rate fell in August, dropping to a 150-month low.  To find a lower growth rate, we need to go back to August 2007, when the rate was 1.59 percent.

During August, year-over-year growth in the money supply was at 1.87 percent. That down from July’s rate of 2.19 percent, and was well down from August 2018’s rate of 4.48 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).

The M2 growth rate also increased in August, growing 5.37 percent, compared to July’s growth rate of 5.12 percent. M2 grew 3.83 percent during August of last year. The M2 growth rate had fallen considerably from late 2016 to late 2018, but has been growing again 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 August was $14.9 trillion, and the TMS total was $13.5 trillion.

The lack of money supply growth also points to growing weaking in economic activity since the Fed has turned to increasingly accommodative monetary policy  in recent months — but has not managed to return money supply growth to levels we’d expect in an expansion. Today, the FOMC announced another cut to the Federal Funds Rate — the second cut in three months. The Fed is also looking toward further incrasing its balance sheet as it readies another “blast of cash” for the repo market.


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