Thursday, June 30, 2011

Chicago PMI "Unexpectedly" Jumps in June

The Chicago PMI increased in June, climbing to a 61.1% reading compared to a 56.6% reading in May.

Economists polled by MarketWatch expected the gauge to fall to a 55.0% reading. These were, of course, trend following Keynesian economists, who simply project out the trend of recent months with no clue as to influences on the economy. As I have been reporting in the EPJ Daily Alert, this from the June 16 letter:

The latest money supply and reserve data from the Fed show slightly bullish numbers. Specifically, excess reserves, required reserves and total reserves are up. Excess reserves are now remarkably over $1.6 trillion. Most important, required reserves which is an indicator of money being loaned into the system climbed over the last two week period through June 15 (it's almost a real time number) by 20% on an annualized basis. The banks are definitely adding money to the system.

The non-seasonal adjusted money supply numbers continue to look interesting...

Here's what happen after the first of the year with non-seasonal 13 week annualized money supply:
January +6.0%

February +4.4%

March +5.6%%

April +9.0%

May + 6.0%

Most recent 13weeks through June 6: +6.3%

Long time Daily Alert readers will recall that about a month or so ago, I got very excited about the non-seasonally adjusted numbers, that's when the final April numbers came out and showed the 9.0% jump. The growth has backed off since then but at plus 6.0%, it is still very strong

As I have written before, I use a rule of thumb that 3 months of money trend is enough to impact the stock market and economy, so we are almost there
I hasten to add that Bernanke monetary policy is very erratic, so money supply and monetary reserve numbers must be watched very closely, that said, given the money growth that came in at 9.0% in April, and has continued strong since, the new indications of strength should not be a surprise. I am not, yet, a full out bull here because the money supply numbers are jumping around, but only economists not following money supply would simply forecast a continued downward trend.


  1. I don't watch CNBC often so maybe this is no surprise but I just heard Larry Kudlow say M2 money supply growth was approximately 4.5% during QE2. Not entirely accurate and he's obviously talking about seasonally adjusted M2 but I was surprised nonetheless since money supply growth is largely ignored in just about all mainstream commentary.

    Or maybe Larry's a secret EPJ Daily Alert reader...

  2. Looking at the data release since since Feb 2010 Non-M1 components of M2 have increased 4.9%. It's interesting that small time deposits and money market funds have reduced over that time. Additionally - and outside the Non-M1 components of M2 institutional money market holdings have declined too.

    Deposits in excess of 100K USD have soared in that time.

    So who has the money and - most importantly from an economic standpoint - what are they doing with it?