ANOTHER UPWARD REVISION FOR U.S. REAL GDP IN THE FOURTH QUARTER OF 2015 BUT STILL A DECREASE IN THE VELOCITY OF U.S. M1 THAT QUARTER – WHAT ABOUT 2016? (Originally from 2016)

( I think that the blog post below is from March 29, 2016. )

Revised data from the Bureau of Economic Analysis show that U.S. real GDP grew at an annualized, seasonally adjusted rate of 1.4 per cent in the fourth quarter of 2015, as noted by Reuters (in “Fourth-Quarter GDP Revised Up; Corporate Profits Fall” (on www.cnbc.com)) and others. This represents more growth than what was reported in an earlier revision. However, data available at www.economagic.com still show that the velocity of M1 in the U.S. fell in the fourth quarter of 2015 compared with its value in the third quarter of 2015.

What will happen to the velocity of M1 in the U.S. in the first quarter of 2016? On the one hand, yesterday CNBC reported downward revisions for forecasts of U.S. real GDP growth for the first quarter of 2016. All other things the same, that would lead to a decrease in M1 velocity or at least a lower value for M1 velocity than the U.S. economy would experience otherwise. On the other hand, however, monetary policy has tightened at least somewhat, with CNBC and others having reported the end of quantitative easing and the first increase in the target federal funds rate in years. So, the money supply could be growing more slowly. If nominal GDP growth is positive, then slower M1 money supply growth could increase the likelihood that M1 velocity will increase, particularly if in the short term (for example, a quarter) M1 growth and nominal GDP growth are independent. When nominal GDP growth outpaces M1 money supply growth, the velocity of M1 increases. We may need further information to be more confident as to whether U.S. M1 velocity will increase, decrease, or stay the same in the first quarter of 2016 and beyond.