Canadians held onto more cash, but a credit slowdown is still brewing. Bank of Canada (BoC) numbers show the M1+ saw mild acceleration in August. Don’t let the mild acceleration of broad money growth fool you, it’s actually still pretty bad. The pace of growth is almost half of where it was last year, and is still one of the lowest prints on record.
What’s The M1+?
The M1+ is the country’s measurement of the most liquid form of currency. It measures currency outside of banks, plus chequable deposits held at chartered banks, trust and mortgage loan companies, and credit unions. In other words, it’s what you can spend or your credit card company will transfer with little notice. It’s one of the most important measures of the economy, especially if you’re a monetary policy geek – and who isn’t?
Since the BoC manages money growth “indirectly,” they want to know how this number is moving. When interest rates rise, people need more cash to service their debt, which means less cash on hand. Less cash on hand means the M1+ growth rate drops. Slowing growth of this number is almost always one of the first signs of slowing economic growth. The impact is usually first observed in large purchases, like that of homes and cars. If you’re a business that depends on credit, it would be prudent to start squirreling away some extra risk capital.
Canada’s M1+ Growth Is Over 52% Lower Than Last Year
There’s good news and bad news with the growth rate. The annual pace of growth hit 4.4% in August, a slight improvement from the month before. The improvement is specious however, since the rate of growth is still 52.68% lower than last year. Yay on the monthly improvement, but that abysmal annual growth still overshadows it.
12 Month Change of Canadian M1+
The annual percent change in M1+, one of Canada’s broad measures of money.
Source: Bank of Canada, Better Dwelling.
The acceleration might provide more confidence for a rate hike, but it’s far from good news. The annual pace of growth is still some of the lowest we’ve seen on record. Prior to the past 5 months, we haven’t seen numbers this low since 2003. One important difference between 2003 and now, we were cutting interest rates in 2003. Today, we’re looking to raise them, which would force the M1+ growth rate even lower.
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