Monetary Base Ends 2017 with Six Months of Accelerating Growth

The month-over-month rate of growth was 8.9 percent in December, which was the fastest rate of growth since October 2014.

(Positive) In December 2017, the monetary base was $3.877 trillion. Compared with one year ago, the monetary base increased 8.9 percent, which was the sixth month in a row of accelerating growth and the fastest rate of growth since October 2014. The annual rate of change in the monetary base switched to growth from contraction after 21 months of contraction. In December, the annual rate of growth was 1.2 percent, which was the fastest rate of annual growth since November 2015.

Typically, accelerating growth in the monetary base leads to accelerating growth in capital equipment spending, particularly machine tool orders. The lag time is usually quite long, anywhere from 18 to 30 months as seen on the attached chart. While the correlation on the chart is open to interpretation, I think the accelerating growth in the monetary base in 2013 and 2014 is driving accelerating growth in machine tool orders in 2017 and will continue to do so into 2018. This is likely to result slowing growth and contraction in machine in tool orders in 2019 and maybe 2020.Or, perhaps the recent accelerating growth in the monetary base keeps capital spending growing longer than the normal cycle time would indicate.

Reports

World Machine Tool Survey

An independent annual survey that collects statistics from machine tool consuming and producing countries and compares them in real U.S. dollars.

Gardner Business Index

A diffusion index measuring month-to-month changes in activity at durable goods and discrete parts manufacturing facilities.

Capital Spending Survey

An annual survey that collects statistics regarding budgeted spending on machine tools, testing equipment, software and more that are then projected across the metalworking industry based on plant size.