Economy in Brief

The growth in nominal money supply is declining globally in the major money center areas. Japan shows the most resistance to deceleration while the U.S. is the strongest example of monetary deceleration.

United States: U.S. money supply growth has not only decelerated but it's contracting in nominal terms as it is declining at an accelerating rate. U.S. money supply falls by 4.6% over 12 months, its annualized growth rate is -7% over six months, the annualized growth rate over three months is -9.8%.

EMU: The European Monetary Union (EMU) also shows declining money supply growth and contracting money supply. Over 12 months money supply in the monetary union is still increasing by 1.3%, but over six months it's declining at a 2.8% annual rate and over three months it's declining at a 3.5% annual rate.

United Kingdom: The U.K. shows a somewhat more erratic deceleration in money supply with growth up by 0.5% over 12 months following at a -0.3% annual rate over six months and rising at a 1.1% annual rate over three months. The U.K. money growth rates are still substantially decelerated from what we saw over 2-years when money grew at a 3.2% annual rate and 3-years when it grew to 6.3% annual rate. Also, U.K. money stock data are one month behind the other countries because of data availability - that could explain some of their differences in pattern.

Japan: Money supply in Japan continues to grow and shows a very slight acceleration from 12-months, to 6-months, to 3-months with the growth rates progressing at annual rates from 2.5% over 12 months to 2.6% over six months to 3.2% over three months- they are tightly clustered more than trending. These rates compare to growth over two years of 3% and three years of 5%. Generally, growth in money has slowed in Japan but it is not as clearly slowing over this recent period as it is in the other monetary centers.

Real money balances erode Adjusting money supply for inflation puts just about all the money growth rates across all the countries in negative territory. In the EMU, negative growth rates extend back over two years. In the USA, negative real growth rates extend back over two years as well. In the U.K., negative real money growth rates extend back over two years. In Japan, over two years money growth is flat; falls by 0.9% over 12 months and then falls at a less-weak 0.4% annual rate over six months, and Japan manages to break with the rest of the group posting growth in real money balances at a 2% annual rate over three months.

Weak credit in EMU In addition to the weak money growth, the European Monetary Union is showing weak growth in private credit as well as in credit to residents. Both credit aggregates credit show declines in nominal credit extension over three months and over six months. Deflating the statistics for inflation, finds that real credit growth is falling over at least the last three years on both measures... and the pace of decline is accelerating.

Money and credit trends These sorts of trends in money and credit growth have economists thinking that inflation has peaked and that it's due to come down in the period ahead because money grows it's so weak and of course it's weak broadly across most of the major money center countries. However, it's also true that money supply is simply weakening after it had experienced booms in all these countries. In some sense, money growth is still only returning itself to a more sustainable long-term path and that's what makes money growth more difficult to interpret.

UK retail sales grew a little more than expected in April. The broader trend also suggests a slightly brighter picture for consumer spending, notwithstanding still-intense cost of living pressures from high inflation.

The main points from this report were as follows –

• Retail sales volumes rose by 0.5% m/m in April 2023, partly reversing the sharp contraction of 1.2% chalked up in March. The consensus forecast was centred on a rise of 0.3% on the month.

• The headline increase in retail sales volume was predominantly driven by a rise in the volume of goods purchased from non-food stores (e.g. clothing and household goods). They increased by 1.0% in April after a decline of 1.8% in March, when poor weather conditions throughout the month affected sales.

• Food stores sales volumes increased by 0.7% following a monthly decline of 0.8% in March.

• Looking through the month-to-month volatility the trend in UK retail sales appears to have improved. Sales volume rose by 0.3% in the three months to April, from -1.0% in the previous three months.

Overall, the pick-up in today’s retail sales volumes is encouraging and will offer some encouragement to the idea that the UK can avoid a near-term recession.