In May, the monetary base was $5.150 trillion, which was its highest level ever by $300 billion, or 6% more than the previous all-time high from last month. May’s monetary base was $1.7 trillion more than it was just three months prior in February. The current increase in the monetary base was double the initial increase in the monetary base after the start of the financial crisis in 2008. And, the current increase in the monetary base in just three months is more than half of the total increase in the six years from 2008 to 2014.

 

Compared with one year ago, the monetary base increased 58.7% in May, which was the fastest rate of month-over-month growth since October 2009. This was the sixth month in a row of month-over-month accelerating growth. The annual rate of change was 5.7% in May, growing for the first time since August 2018.

Historically, the annual rate of change in the monetary base leads capital equipment consumption, specifically machine tool orders, by 12-18 months. Although, the lead time between the monetary base and capital equipment consumption shrunk over the last decade. 

The recent rapidly accelerating growth in the monetary base should eventually lead to accelerating growth in machine tool orders and capital equipment in general. Based on the historical relationship, machine tool orders should bottom sometime between September 2020 and February 2021.

However, it should be noted that the actual unit orders generally remained between 2,000 to 2,800 units since 2000 except for the significant recessions following the dot com and the housing bubbles. In this absolute sense, the larger and larger increases in the money supply have led to smaller and smaller increases in machine tool orders and capital equipment consumption.