Money Supply Drops $2.2 Billion

The nation’s basic money supply fell $2.2 billion in early March, leaving it comfortably within desired bounds, the Federal Reserve Board reported Thursday.

The Fed said M1 declined to a seasonally adjusted $631.8 billion in the week ended March 3 from $634 billion in the previous week.

M1, representing funds readily available for spending, includes deposits in checking accounts and cash held by the public.

The drop in M1 almost met the median estimate of 39 analysts surveyed in advance of the report by the economic consulting firm Money Market Services of Redwood City, Calif.

After the 4:30 p.m. EST release of the numbers, bond prices improved slightly.

Monthly figures on two other, more comprehensive measures of the U.S. money supply also were published and showed similarly well-behaved growth.

Fed Seeks Limited Growth

“The report suggests that the Fed doesn’t have to worry about the monetary aggregates,” said David A. Wyss, chief financial economist at Data Resources in Lexington, Mass.

The Fed, in its attempt to provide enough money to stimulate non-inflationary economic growth, has said it would like to see M1 grow in a range of 3% to 8% from the fourth quarter of 1985 through the final quarter of 1986.

The report said M2 rose $7.8 billion in February and averaged $2.577 trillion during the month. M3 averaged $3.240 trillion, up from $3.223 trillion in January.

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.

For the latest 13 weeks, M1 averaged $628.3 billion, an 8.3% seasonally adjusted annual rate of gain from the previous 13 weeks.

When the Fed last Friday announced a half-point cut in its discount rate to 7%, it said one of the things making the move possible was that “growth in the various monetary aggregates has been more limited this year.”

That limited growth gives the central bank the flexibility to become more generous with credit conditions in an effort to snap the economy out of the doldrums, some analysts say.

Signs, including two straight months of sagging retail sales and lackluster employment data, indicate that the economy got off to an unimpressive start this year, some analysts assert.

David M. Jones, an economist with Aubrey G. Langston & Co., expects the Fed to stick with its current monetary policy course, waiting to see if economic growth picks up on its own.

The money supply numbers “carry only secondary weight in the Fed’s policy deliberations,” Jones said, noting that the central bank attaches more significance to the economy’s overall health.

In other reports:

- The Federal Reserve Bank of New York reported that commercial and industrial loans on the books of major New York City banks rose $577 million in the week ended March 5, compared to a gain of $431 million a week earlier.

- Commercial paper--corporate IOUs--rose $111 million in the week ended March 5, compared to a drop of $1.5 billion in the previous week.

- The Federal Reserve said bank borrowings from the Federal Reserve System averaged $229 million in the two weeks ended Wednesday, down from $594 million during the previous two weeks.

- The Federal Reserve said total adjusted reserves of member banks averaged $45.97 billion in the two-week period ended Wednesday, up from $45.89 billion in the previous two-week period.

- The Federal Reserve said net free reserves totaled $680 million in the two weeks, compared to free reserves of $442 billion in the previous period.