Data compiled by the Bureau of Economic
Analysis released late last week indicate that seasonally adjusted, annualized
U.S. real GDP increased again but at a slower rate in the first quarter of 2018
than it increased in the fourth quarter of 2017, although the preliminary
estimate may have been greater than expected, and the estimate may be revised. Data released by the Bureau of Labor Statistics
(BLS) yesterday (Friday, May 4) show that for April 2018, the U.S. unemployment
rate had fallen to an estimated 3.9 per cent, its lowest percentage in more than seventeen years. Additional data from the BLS suggested that
job growth continued in April 2018.
However, at least some (for example, the Atlanta Journal-Constitution newspaper and CNBC’s Sara Eisen on
MSNBC’s Morning Joe) reported that both (1) job creation and (2) wage growth
were not as strong as expected. This is despite
what may be positive news on the whole about the economy, at least in the short
term.
The fact that the velocity of the M1 money
supply fell again in the first quarter of 2018 has received less
attention. Evidently, the M1 money
supply in the United States must have increased at a faster rate than nominal
GDP spending, both seasonally adjusted and annualized, in the first quarter of
2018. My earlier blog entries and my 2015
book It’s Velocity, Stupid! (short
title) noted how frequently this has happened recently in the U.S. – almost
every quarter starting with the first quarter of 2008. It may be worth noting that U.S. M2 velocity
has not decreased quite as frequently or by as much over the same interval, and
U.S. M2 velocity increased in the first quarter of 2018, at least based on the
initial estimates, after also increasing in the final two quarters of 2017.
According to the web page of the Federal
Reserve Bank of Saint Louis and according to www.economagic.com, the velocity
of U.S. M1 was estimated (subject to revision) to be approximately 5.48 times
per year on a seasonally adjusted, annualized basis in the first quarter of
2018. This represents a substantial
decline from its peak (at least within the period in which data are available)
of nearly 10.7 times per year in the fourth quarter of 2007, just before
quarterly real GDP data began to decrease with the start of the Great Recession. Has the failure of the velocity of the M1 money
supply to remain at least a bit closer to its peak been a missing piece of the
macroeconomic puzzle slowing down the recovery from the Great Recession?
I may soon have more to post about the
disappointing economic recovery from the Great Recession as well as more about
the velocity of money. Check my blog for
more postings.
