Money Supply Virtually Unchanged from Year Ago

In May 2015, the monetary base was $3.955 trillion dollars. This was a decrease of $120 billion from the previous month. Since July 2014, just before the end of QE, the monetary base has been bouncing above and below $4 trillion. Compared with one year ago, the monetary base increased just 0.7 percent. Other than in February when the one-month rate of change contracted, May was the slowest rate of growth in the monetary base since October 2012. If the monetary base stayed at its current level, then the one-month rate of change would contract in each of the next five months. That last happened in June to October 2012, and the economy went into a soft patch. In response the Fed jacked up the growth in the monetary base in 2013.

You can see how the monetary base leads various machine tool sales and consumption data as well as primary plastics processing equipment at our monetary page.

The real 10-year treasury rate is a leading indicator for the adjusted monetary base. In 2015, the change year-over-year change in the 10-year treasury has been decreasing at a slower rate. This indicates a slower rate of growth in the monetary base. However, 10-year rates are being influenced by the Fed's own purchases and investors front-running the Fed's purchases. So, the 10-year may not be an accurate indicator of the money supply at the moment.

Also, the U.S. dollar major exchange rate (the USD compared to the other six major currencies of the world) and the U.S. dollar broad exchange rate (the USD compared to all world currencies) appear to be good leading indicators of the U.S. monetary base. The US dollar against the other major currencies of the world is growing at almost its fastest rate in 40 years. Normally, this indicates an expansion of the monetary base. But, the Fed seems to be moving in the opposite direction.