Faster bank credit, money supply growth and rising Treasury yields signal the United States economy is poised to pick up this year even amid the fiscal drag triggered by last month's budget deal, according to MKM Partners.
The chart shows that total credit of commercial banks in the US rose at an annualised 7.5 per cent since the end of September. A Federal Reserve measure of money supply, known as M2, advanced by 12.3 per cent. Treasury 10-year yields reached an eight-month high this month as investors ploughed into higher-risk equities.
"The rise in commercial bank credit along with the pickup in the broad money supply shows a gradual and sustained healing of the financial system and the banking sector," says Michael Darda, chief economist at MKM. "Long-term Treasury yields appear to have begun to bottom, a signal that risk aversion is easing."
Darda forecasts 3 per cent growth this year, compared with 2 per cent, according to the median estimate of 85 economists surveyed. It advanced 2.2 per cent in 2012.
The Fed's M1 money supply includes all currency held by consumers and companies for spending, money held in checking accounts and traveller's checks. M2, a broader measure, adds savings and private holdings in the money market. Commercial bank credit is predominately made up of loans and leases, such as commercial and industrial loans, and securities.