U.S. M1 VELOCITY DOWN YET AGAIN IN THE FIRST QUARTER OF 2018

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.