A previous post noted that UK corporate narrow money trends were giving a recession warning. The signal has strengthened in April data released today, with the six-month change in real M1 holdings of private non-financial corporations (PNFCs) moving deeper into negative territory – see first chart.
Corporate money weakness is consistent with a squeeze on finances and suggests a faster decline in investment along with job cuts – now being signalled by vacancies data.
The six-month change reached similar levels in 2010-11, following which GDP slowed but did not contract. The global economic backdrop, however, is weaker now, while the negative impact of Brexit uncertainty may not be fully captured in the money numbers.
GDP, moreover, was still far below potential in 2010-11 – recessions usually occur only after the “output gap” has closed.
As previously explained, household narrow money resilience offers little reassurance, as it appears to reflect a portfolio switch out of mutual funds. A broad household savings aggregate encompassing M4 holdings, National Savings and mutual funds ("M4++") has barely grown in real terms over the last six months, suggesting a consumer spending slowdown – second chart.