Using M2 Velocity to Gauge Retail Traffic

Feb 15, 2023 | Finconomics 101, No Bull Economics

Record low post-covid M2 velocity is notable given very high price levels (inflation) and recent y/y declines in the M2 money supply.

M2 Velocity Key Points

  • M2 velocity ([price level * transaction quantity]/money supply) represents the number of times one dollar is spent to buy goods & services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.
  • The current record low post-covid M2 velocity ratio reveals a sharp reduction in transaction volumes throughout the entire economy, consistent with negative retail traffic numbers which have become typical post-covid (as discussed in this post). 
M2 Velocity Graph
M2 Velocity Graph
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