22nd May 2012
Previous posts have discussed the US recession-warning properties of real narrow money (i.e. currency in circulation plus demand deposits divided by consumer prices). 10 of the 11 post-WW2 downturns identified by the National Bureau of Economic Research (NBER) were preceded by a contraction in real money. The exception was the 1953-54 recession, apparently caused by severe fiscal tightening as defence spending was slashed after the Korean war.
On the basis of this record, posts in 2010 and 2011 expressed scepticism about forecasts at the time – for example by John Hussman* – that the economy was about to enter another recession. Real narrow money grew solidly during 2010-11.
Real money has slowed since late 2011 but was still up by a solid 4.3% (not annualised) in the six months to April – see first chart. Recent posts, therefore, have suggested that US growth will fall back during 2012 while remaining respectable.
Monetary trends, however, bear close scrutiny. Real narrow money was flat between January and April. The latest nominal figure – for 7 May – was 1.8% below the April average, although the weekly series displays considerable volatility.
Also generating some concern here is a recent fall in the Monster index of online job vacancies – the decline in March and April was the largest since the end of the December 2007-June 2009 recession. The index turned down sharply just before the onset of that recession – second chart. (This weakness, however, is at odds with several other labour market leading indicators.)
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