M1 Money Supply

M1 Money Supply refers to the total currency in circulation within an economy, including physical currency, demand deposits, other liquid deposits, and traveler’s checks.

It’s a measure of the most liquid portions of the money supply, indicating how much “active” money is available for immediate spending and transactions.

Its relevance lies in its ability to reflect immediate liquidity — the cash and coins people hold and the funds they can quickly draw from their bank accounts to make purchases.

This liquidity is crucial for understanding consumer behaviour, business investment, and the potential for economic growth or inflation. By monitoring M1, central banks can adjust monetary policy to steer the economy towards their targets for inflation and employment.

Changes in the M1 Money Supply can influence inflation, interest rates, and overall economic activity.

An increase in M1 can stimulate economic growth, while a decrease might signal a contraction.

Recession Signal

A decrease in M1 money supply might indicate a slowing economy as less money is available for spending. Like many indicators, there is no magic number that tells us we’re in a recession.

More, we look for a decline from a relative high, on the chart.

Track this yourself

You can easily track the M1 money supply here:

https://www.tradingview.com/chart/v7ZG3yMA/?symbol=FRED%3AWM1NS