Monetary Base Shows Positive Sign for Manufacturing

In a positive sign for capital equipment spending, the annual rate of contraction in the monetary base decelerated for the first time since it began contracting in October 2018.

In November, the monetary base was $3.334 trillion, which was its highest level since March 2019. While it was the 21st consecutive month of month-over-month contraction in the monetary base, November’s rate of month-over-month contraction, -4.6%, was the slowest since July 2018. Additionally, it was the fourth time in five months that the rate of contraction was slower than 10%. 

The annual rate of contraction in the money supply, -10.3%, decelerated for the first time since it began contracting in October 2018. It seems likely that the rate of contraction in the money supply has bottomed, which would be a positive sign for capital equipment consumption. A decelerating contraction in the annual rate of change in the money supply tends to lead to a decelerating contraction in capital equipment spending.

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