Canada

Canada’s Money Supply Growth Moves Higher, But Still Points To A Slower Economy

The growth rate of Canada’s money supply improved, but still points to a significantly slower economy. Bank of Canada (BoC) numbers show the M1+ growth rate improved in November. The slight improvement is dwarfed by the fact that the annual rate of growth is still a third lower than last year.

The M1+

The BoC does a narrow measure of the money supply through the M1+. The measure includes almost anything a person or business can spend with zero to no notice. This includes currency outside of banks, chequable deposits at chartered banks, trust and mortgage loan companies, and credit units. According to the BoC itself, the M1+ provides “important information about the economy.” That information is mostly future economic productivity.

The BoC manages the growth of money indirectly, mostly by interest rate changes. When rates rise, people borrow less and need to service more debt. The result is a slowing growth rate for the M1+, since people and businesses hold less “cash.” More cash for servicing means less to spend. That means the rate of money flowing through the economy slows. The impact is first seen in industries that use large financing, like home and auto sales. If you’re still confused about broad and narrow measures, there’s a quick note in last month’s analysis explaining why they’re both important, but different.

The M1+ Growth Rate Falls Over 36%

The M1+ growth rate was significantly lower than last year. The annual growth reached 4.7% in November, down 36.48% from last year. This represents a decline of 39.74% compared to the median pace of growth. The rate of growth is higher than it was the month before, but still very much slowing.

Canadian M1+ 12 Month Percentage Change

The 12 month percent change of Canada’s M1+.

Source: Bank of Canada, Better Dwelling.

Short-Term Spike In Near Term?

By annualizing a short period, we can get an idea where this trend is heading near-term. Analysts do this by taking a 3 month measurement for growth, and projecting it as though it were the whole year. The 12 month trend follows the shorter trend, both higher or lower. However, it does need to stay above or below long enough for it to completely change the direction of the trend. Short-bursts are just noise.

The 3 month annualized trend is showing signs of near-term growth. The 6.1% reported in November is 29.78% higher than it was this time last year. It’s also the same percent higher than the 12 month annual trend. The indicator is showing a positive, but it hasn’t happened long enough for it to be a trend. The 3 month annualized pace has only been higher than the 12 month for the past two months.

Canadian M1+ 3 Month Percentage Change (Annualized)

The 3 month percent change of Canada’s M1+, annualized.

Source: Bank of Canada, Better Dwelling.

The growth rate of the M1+ showed an improvement over the previous month, but is still much slower than last year. Lower than last year is impressive, considering how much it already dropped from the previous year.

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7 Comments

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  • Through The Roof 10 months ago

    Hike it, baby!

    • Trader Jim 10 months ago

      Just wondering if this is the data Poloz was waiting on to hike. Also doesn’t quite fit in with the bankruptcy narrative we’re hearing elsewhere.

      • Smaug 10 months ago

        Poloz is more likely to hike on rising M1+ growth rate than falling. Falling money supply growth means less need for hikes.

  • Mahjer 10 months ago

    Would this be indicative of Millennials storing cash instead of using it for a home downpayment?

    • Sideliner 10 months ago

      Yes, but not just M’s. Anybody with a bit of sense will starting holding back on cash with all the recession talk. Retail sales came down 0.9% etc. Maybe this is wishful thinking

  • Rana 10 months ago

    Now real estate market will shoot up

  • Glynis Van Steen 10 months ago

    Seems like a lot of micro managing and over analyzing going on….as in …we have way too many analysts with too much time on their hands…in my opinion too much short term thinking leads to very few accurate predictions…not just for those searching for economic trends but it also leads to the faulty thinking among those political geeks

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