Growth in the supply of US dollars remained near a multi-year low in December, growing 2.9 percent, year over year.
In November, year-over-year growth in the money supply fell to a 129-month low, growing 2.7 percent. The last time the money supply grew at a smaller rate than November 2017's rate was during March 2007 — at a rate of 2.1 percent.
The money-supply metric used here — an "Austrian money supply" measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.
The "Austrian" 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).
M2 growth also slowed in October 2017, falling to 3.0 percent.
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 falling money-supply growth.
One factor behind slowing money-supply growth is likely a slowing in new loans being made by commercial banks. As we can see in the latest data from the Fed, commercial and industrial loans were up only 0.9 percent in November 2017, compared to November 2016. That's the smallest growth rate recorded since April 2011. The overall trend in loans growth is similar to what we saw in 2009, during the last recession.
(Thanks to the intervention of central banks, of course, money supply growth in recent decades has never gone into negative territory.)
Nevertheless, as we can see in the graph of money supply growth above, significant dips in growth rates show up in years prior to a economic bust or financial crisis. The current trend is an unusual one in which growth in AMS is smaller than it is in M2. In the past this situation has often pointed toward a recession.
