Monday, July 13, 2015

New Money Creation in the New Year.

For monthly economic indicators, the Chinese New Year can pose problems for comparisons over a twelve month period.  For example, in 2012, Chinese New Year was on January 23rd, but it was on February 11th in 2013.  The growth rate of a certain indicator may be understated by comparing January 2012 to January 2013, but overstated when comparing February 2012 to February 2013.  Chinese New Year in 2014 fell on January 31st, so economic activity related to the new year would have been spit between both January and February, further complicating accurate comparisons over a twelve month period.

Usually, the best way to compare the two is to measure the month containing Chinese New Year with the previous year's month for Chinese New Year, although this cannot mitigate the issues with Chinese New Year impacting the end of January and the beginning of February.  In that case, the only accurate comparison is between Q1 of one year and Q1 of the next year.

China's currency in circulation (M0) is an example of an indicator that is impacted significantly by the timing of the Chinese New Year.  January 2015's value decreased by -17.58% over the previous 12 months, but February 2015's value increased 16.97% over the previous 12 months.  This information is not very useful.

One trend that is noticeable is that the Chinese New Year spike in 2015 was lower than the spike in 2014.  In the data available, this only happened back in 2002.  However, that decrease was only -1.72%, and there was an abnormally large increase in bank reserves to make up for it.  The drop in 2015 was -4.69%, and with no abnormal increase in bank reserves.

Now that May's numbers have been released, we can see annual growth figures that are not impacted by the Chinese New Year.

M0 in May grew at its lowest rate ever for the available data in comparable months.  Previously, the growth rate had never dropped below 6.00%, but now it already down to 1.77%.

M1 in May grew at its second lowest rate for the available data in comparable months.  Perhaps this is the new normal?

M2 growth in May continued its downward trend.  Similar to M0, it is now at its lowest rate for the available data in comparable months.

Despite cutting interest rates and reserve requirements, the Chinese money supply seems to be losing steam.  Could the Year of the Goat be the year the credit addict experiences withdrawals?