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<\/figure><\/div>\n\n\n\nM1 money supply includes cash and bank deposits. <\/p>\n\n\n\n
M2 money supply includes M1 money as well as savings deposits, money market securities and time deposits. <\/p>\n\n\n\n
The Velocity of Money is published quarterly when GDP figures are reported.<\/p>\n\n\n\n
What is the current Velocity of M2 Money?<\/h2>\n\n\n\n
As of Fourth quarter the US Velocity of M2 Money<\/a> was 1.123.<\/p>\n\n\n\n During 2021, money supply remained in a tight range between 1.115 and 1.123. <\/p>\n\n\n\n Historically, money supply peaked at 2.192 in 1997 and fell to its lowest level of 1.10 during the Covid-19 pandemic in 2020.<\/p>\n\n\n\n The velocity of M2 money has been calculated since 1959. It remained between 1.65 and 1.9 until the 1990s when it rose to 2.19. Since its peak in 1997, money velocity has declined steadily. <\/p>\n\n\n\n The steadily decline and record low levels in money velocity of the last two decades has been attributed to several factors:<\/p>\n\n\n\n <\/p>\n\n\n\n The decline in the velocity of money may not seem apparent when one looks at GDP growth or the stock market<\/a>. However, a lot of growth over the last decade has occurred in the highly productive tech sector and the digital economy. \u2018Real economy\u2019 sectors like manufacturing have underperformed which has resulted in fewer transactions in those parts of the economy.<\/p>\n\n\n\n Typically an increase in the money supply would result in inflation and tighter monetary policy which would reduce the money supply. However, deflationary forces have offset the higher money supply until recently. This has caused money velocity to continue to decline.<\/p>\n\n\n\n The velocity of M2 money doesn\u2019t directly affect the stock market, but it can provide some context for economic conditions. Most economic indicators are flawed in one way or another, so it\u2019s useful to consider several.\u00a0<\/p>\n\n\n\n When looking at the health of an economy, GDP growth<\/a> and employment figures like the unemployment rate<\/a> are the primary indicators. However, if they suggest the economy is in good shape while money velocity is declining, there may be problems that are not immediately apparent. This has been the case in the US over the past decade, with strong performance in some sectors of the economy masking weak performance in other sectors.<\/p>\n\n\n\n Declining money velocity may explain the underperformance of cyclical stocks over the past decade despite reasonable growth rates and low unemployment. It may also explain some asset price bubbles as investors<\/a> choose to leave their savings in stocks or bonds rather than investing in small businesses.<\/p>\n\n\n\n Such metrics should include:<\/p>\n\n\n\n Money velocity has little correlation with the stock market or economic growth. In the short term, the velocity of money almost always declines during a recession. However, it doesn\u2019t always rise during an expansionary period.<\/p>\n\n\n\n Money velocity can change when central banks employ different tools to manage growth and inflation. This means the velocity of money for one period isn\u2019t always comparable to the velocity during a previous period.<\/p>\n\n\n\n Money velocity isn\u2019t really correlated with the stock market in any meaningful way. However, it can help us understand whether an economy is as healthy or weak as headline figures suggest.<\/p>\n\n\n\nKey Velocity of Money trends and levels<\/h2>\n\n\n\n
How to use the Velocity of M2 Money Stock?<\/h2>\n\n\n\n
What are the limitations of the Velocity of M2 Money Stock?<\/h2>\n\n\n\n
Is the Velocity of M2 Money Stock a reliable indicator?<\/h2>\n\n\n\n