Tuesday, June 28, 2016

"The Fedwire recession"

From Moneyness:
I last wrote about Fedwire data two years ago. Since then, Fedwire has entered into a (nominal) recession. Is this something we need to worry about?

We should be interested in this data because Fedwire is the U.S.'s most important financial utility. Operated by the Federal Reserve, Fedwire processes payments between the nation's commercial banks using central banks money, or reserves, as the settlement medium. It accounts for a significant chunk of U.S. spending, or aggregate demand.

Below you'll see a chart of quarterly Fedwire transaction values using data back to 1992. It shows the total dollar volume sent over Fedwire each quarter:
You can see that the flow of spending conducted over Fedwire has been declining since the third quarter of 2014; a six quarter decline. How rare is it to see this degree of stagnation? To check, I've plotted Fedwire yearly data going back to 1987:
Assuming 2016 continues to trend lower (as it has in the first five months), then we are on the verge of seeing two consecutive years of declines in Fedwire transaction flows. The only other time we've seen this sort of pullback since the data starts is from 2008-2010.

What makes the current Fedwire recession especially interesting is that the go-to measure of spending, nominal gross domestic product, continues to grow, at least tepidly. Fedwire provides a much broader measure of U.S. spending than nominal GDP, which measures spending on final goods and services. To get a feel for this difference, in 2015, U.S. NGDP amounted to $17.9 trillion. Fedwire transactions came out to $834 trillion, exceeding NGDP by a factor of 40x....MORE