Fed Reports $2.7-Billion Decline in Money Supply

The nation’s basic money supply fell $2.7 billion in early February, the Federal Reserve Board said Thursday. The decline exceeded some economists’ expectations.

The Fed said the money measure, known as M1, decreased to a seasonally adjusted $624.6 billion in the week ended Feb. 3 from $627.3 billion in the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

For the latest 13 weeks, M1 averaged $624.7 billion, a 9.1% seasonally adjusted annual rate of gain from the previous 13 weeks.

The central bank has said it would like to see M1 expand between 4% and 7% this year.

Elliott Platt, a senior vice president and economist with Donaldson, Lufkin & Jenrette, said the M1 decline was somewhat bigger than he and others anticipated. He added that it was a “good number.”

The median estimate of 43 analysts surveyed by Money Market Services of Belmont, Calif., called for a decline of $1 billion in the basic money measure. Estimates ranged from a $3-billion drop to a rise of $5 billion.

Companion data on bank borrowings were also favorable, Platt said.

Borrowings from the Fed averaged $124 million a day in the week ended Wednesday, down $116 million from the previous week’s daily average and the lowest one-week figure since the Fed changed its accounting methods about two years ago. A Fed spokesman said he could not offer an explanation for the low level.

James S. Fralick, a senior economist at Morgan Stanley & Co., said it appeared that M1 expanded at about a 1.1% yearly pace in January, “well, well below the Fed’s goal.”

“But we have to redo all our charts to factor in the latest benchmark revisions to determine what it means,” he noted.

Fed data on broader money measures showed M2 averaged $2,567 billion in January, up from $2,564 billion in December, and M3 expanded to $3,212 billion from December’s $3,191 billion.

M2 is made up of M1 and such accounts as savings deposits and money-market mutual funds. M3 is the sum of M2 plus less-liquid accounts such as certificates of deposit in minimum denominations of $100,000.