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Money Supply & Savings Rate

March 26, 2021

With all that’s going on in the economy, it can be easy to miss the good news. Catch our newest TrendsTalk episode with ITR President and Speaker Alan Beaulieu for some positive insights on savings rates, corporate profits, and more.


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Transcript by Rev

Hi, I'm Alan Beaulieu with ITR Economics, and welcome to this edition of TrendsTalk. There's a lot going on in our country, around the world, and I want to focus in probably on some good news that you don't hear regularly. I think it's important for us to put things in context as we go through life, as we try to run our businesses, and I'm hoping that we can do some of that today.

First off, the money supply numbers just came out. The money supply deflated to make sure there's no influence from inflation, adjusted for inflation. It's great. The rate of growth in the money supply is 21.1%, rising in phase B. That's on a 12/12 basis. That's a record high rate of growth. And, of course, that's all the money being pumped into the economy. Now, why is that good? Well, it's going to have an impact on the economy in many positive ways. It does have a nice relationship to US industrial production. It has a nice relationship to people's lives. It has a nice relationship to the stock market, saying there's air underneath the prices right now. I mean, there's positive takeaways here.

Does it mean that there's going to be rampant inflation in the future? Well, it means there will be some in the future. Your definition of rampant may be different than ours, but we're not calling for any inflation through the near term, nothing that's going to cause the Federal Reserve Board to raise interest rates anyways. It's done to an average methodology as opposed to a tripwire 2%. So if some time late this year, more likely in '22, we see inflation go to 2.5% or thereabouts, they're not going to immediately jump on it. And don't think this amount of money is going to create that emergency push of inflation and therefore an emergency movement in the interest rates. So you can relax on that and just take the good news for now.

We've talked before about "That means there's trouble down the road," but when you talk about your planning for the next 12 to 18 months, think of it as good news, okay, as we go forward. In addition to good news there, the savings rate is holding solid. Now the savings rate jumps up after stimulus checks. I get that and it's certainly good though that people are saving that. The percentage is what we're looking at for the last six months, so it's checks, in between checks, checks, that sort of thing. So we kind of average it out. It's 14.7%. Now that's just a statistic. Let's put it in context. If we take the 12 months before COVID, the savings rate, which is on personal income, was 7.44%. So we're twice the average pre-COVID rate.

So consumers saving money, individuals saving money is a good thing because that's stored economic energy for the future. It means that while, yes, there are people in distress... and I'm not taking that away from it. I'm just speaking to you now as a macro economist. As a macro economist, all of that money being saved means there's some resiliency. It means that we're not going to see any quick downturn in retail sales spending unless we're told not to go out again. It means that we can see that consumer activity, which is very important to our economy, has some upside movement. So money's pouring in, which is good, and people are saving a lot of money, which is also very good.

All right, let's go to the business side. How are things looking there? Well, corporate profits are doing well. When we look at corporate profits through the end of 2020... The numbers again just came out, just were made available, the quarterly growth rate for financial institutions, adjusted for capital consumption, is 2.9%. It's a seasonally adjusted rate. So 2020 came up 2.9%, above 2019. That's pretty darn good in a COVID year. Don't you think? And it's rising in phase B. The dollar amount is $487.3 billion. That's a lot of profit. That's above the last six years. And so we're looking at some pretty good things here that the fourth quarter rise in that three-month moving average was the steepest for the previous six years.

The dollar amount is healthy, so the financial segment of the economy is healthy. That is good news. You don't want to see them unhealthy. I know they're not popular. I know that folks would like to see them get their comeuppance some day, I suppose. But if there's a crash in the financial sector, trust me, it doesn't bode well for all of us as we go forward. It's coming, but it's not anytime soon, according to our ITR financial leading indicator, and according to our ITR optimizer.

All right. Now, when we look at non-financial domestic corporations, so this is just operations in the United States. It excludes earnings from overseas on foreign operations. This is also adjusted for capital consumption. The rate of growth ended 2020 at 3.9%. That's above the 2.9, obviously, in the financial. But it's in phase C; it's slowing down. The dollar amount though is a truly impressive $1.373 trillion. Let me put that in context for you. The September three-month moving average was a record high, but if we exclude that September record high, this would be the record high. I mean, if you go back and search the history, you're not going to find this kind of profits for the year in domestic non-financial profit corporations. Excuse me.

That means that businesses are profitable. Why is that important? Well, because businesses spend money, because businesses hire people, because businesses buy products that they consume and they products that other people want, B2B or B2C. And as businesses are out there being busy, services are being provided. That's part of this number. So it's not just physical goods, its services. And if they're profitable, that is good news as we go forward because that means the economy is doing well. That means that we are going to go forward with some strength and optimism.

Now, let's take a little different tack. And I know, I know that we all read about supply chain disruption on a regular basis every day. And a tanker turned sideways, or that container ship, I should say, turned sideways in the Suez Canal is certainly an interesting picture. The reality is it is a real disruption to a lot of people. Let's just get that right out there, it is real. When I backed up a little bit though. I said, "Well, let's take a larger look. Let's take a higher level." What's happening in wholesale trade industry total, durable and non-durable? Are we seeing some real problems developing there? And the rate of rise on the 3/12 rate of change for all of wholesale trade is 2.5%, is rising in phase B. Now the 12/12 is still below year ago levels, but it's rising in phase A. And when we look at the 12-month moving total for wholesale trade, it's rising off a October 2020 low.

We have some nice rise going on; it's $5.8 trillion and rising. It's below the April '19, 2019 record high of 6.1. 5.8, going to catch up to 6.1. But did you notice that was April 2019? It was declining before COVID. The whole economy was slowing down before before we hit COVID, which then forced a shutdown in the economy. So wholesale trade below the record high is looking pretty good, which means products are flowing to individuals, and products are flowing B2B, or else that number would be going down. If they can't get it, then their numbers obviously go down. But 3/12 is encouraging, and so are the movements in the three-month moving numbers and in the 12-month moving numbers.

When I looked at inventory levels, yeah, there's an increase, a slight increase going on in inventory levels. The 3/12s are rising, but they're still below year ago levels. The three-month moving averages are moving up a little bit. Sure. The durable goods is at $331 billion, and it's slightly above the year end 2018 number though. If you go back to the amount of goods in inventory, it's still pretty hefty. You go back to 2018, we weren't talking a lot of supply chain difficulties. We weren't talking that we couldn't get goods on a ubiquitous basis. But there are problems. I'm not taking that away. I'm just saying I think things are good for a lot of people, which means it's good for the economy.

And when we look at consumer non-durable goods, the inventory level is rising, has been rising since May 2020. That was a COVID decline in inventory levels, but on a three-month moving average basis, it's moving up. And as it's moving up, it certainly is good news. 3/12 is in phase A, which means it's advancing up. We're in a period of recovery. The dollar amount is moving up. We are at $173.6 billion. Year-end 2019 was 179.5. So we are shy of the end of 2019, but it's moving in the right direction. And as consumer inventory is there, that means that consumers can buy. And as the durable goods inventory is there, that means that businesses can buy and consumers can buy. They both buy durable goods. So there's no lack of inventory and it is moving, wholesale trade.

There are problems, but I don't want you to take the problems and make them a macro economic, "This thing's in a world of hurt. My gosh, this recovery can't continue." It's going to continue, barring some unforeseen event, another event out of the blue, whether that's the variance or whether there's something we know nothing about at this moment. But if you take the economic indicators, you look at the numbers, you should be planning on moving forward with confidence. Plan with confidence as you go forward and get ahead of the pack. Thank you for being part of our TrendsTalk today. I'm Alan Beaulieu. This is ITR Economics. Thank you.


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