Monetary Base Grows 38.7% in December 2013

Changes in the monetary base, or money supply, have a significant impact on capital equipment sales. In December 2013, the monetary base was $3.737 trillion dollars. That is 38.7% more than it was in December 2012. This is a nearly identical, although ever so slightly slower, rate of growth from last month. This is the first time the month-over-month rate of change has fallen since September 2012. This was still enough to push the annual rate of change to its fastest rate of growth since May 2012. Even with a slight tapering, the annual rate of change continue to accelerate through at least the first quarter of 2014.

Typically, changes in the monetary base lead changes in capital equipment spending by one to two years. The trend in the monetary base in 2013 indicates that capital equipment spending in durable goods manufacturing should increase in 2014. Our capital spending survey for metalworking indicates significant growth in machine tool sales in 2014. However, our capital spending survey for plastics shows plastics spending could be down. However, the survey is based off responses from processors. And, I believe they significantly underestimated what they will actually spend based on the trend in monetary base and the likelihood of an increase in capacity utilization.

Interestingly, compared to the prior month, the monetary base in December increased by the smallest amount by far in 2013. In the first 11 months of 2013, the monetary base increased by an average $91.9 billion dollars. In December, it increased by only $31.7. That is more than 50% smaller than the next lowest increase in 2013. Perhaps the Fed already started tapering in December. That could indicate that 2014 will be the peark year of this capital spending cycle.

To see some other charts related to the monetary base and debt levels, go to our monetary page.