How to Calculate the M1 Money Supply

The M1 money supply represents the most liquid forms of money within an economy, serving as a direct measure of funds readily available for spending. It reflects cash and highly accessible account balances that individuals and businesses can use immediately for transactions. Understanding M1’s composition and calculation offers insight into immediate purchasing power. This metric is a significant economic indicator, providing a snapshot of the economy’s transactional capacity.

Understanding M1 Components

The M1 money supply is composed of specific, highly liquid financial assets. These include physical currency in circulation, demand deposits, and other checkable deposits. Each component represents money that can be quickly used for purchases or payments.

Currency in circulation refers to all physical paper money and coins held by the public, outside of the U.S. Treasury, Federal Reserve Banks, and bank vaults. This focuses solely on money actively used by individuals and businesses. For instance, a $20 bill in your wallet or a business’s cash register is counted, but the same bill stored in a bank’s vault is not.

Demand deposits are funds held in checking accounts that can be withdrawn at any time without prior notice or penalty. These accounts are a primary means of payment, accessed through checks, debit cards, or electronic transfers. They form a substantial portion of M1 due to their immediate accessibility.

Other checkable deposits (OCDs) encompass accounts that function similarly to demand deposits, allowing for immediate access to funds. This category includes Negotiable Order of Withdrawal (NOW) accounts, Automatic Transfer Service (ATS) accounts, and credit union share draft accounts. Since May 2020, the Federal Reserve updated M1 to include savings deposits, recognizing their increased liquidity and transactional utility.

Gathering the Data

To calculate the M1 money supply, data can be obtained from official sources. The Federal Reserve Board is the primary provider of this financial information for the United States, compiling and releasing statistics on monetary aggregates.

The primary source for M1 data is the Federal Reserve Board’s H.6 statistical release, “Money Stock Measures.” This release provides detailed figures for all M1 components. Data is reported weekly and monthly, offering timely insights.

When navigating the H.6 release, users can locate tables detailing currency in circulation, demand deposits, and other checkable deposits. Look for “not seasonally adjusted” data for direct calculation, as this represents the raw figures. The Federal Reserve also provides seasonally adjusted data, but unadjusted figures are summed for a precise snapshot.

Performing the M1 Calculation

Once the individual components of the M1 money supply are identified and data gathered, the calculation is a straightforward summation. The M1 money supply is the total of these highly liquid assets. This approach makes the M1 calculation accessible to anyone with the component values.

The formula for calculating M1 is: M1 = Currency in Circulation + Demand Deposits + Other Checkable Deposits. This formula consolidates transactional forms of money into a single aggregate figure. For example, if currency in circulation is $2.3 trillion, demand deposits are $5.7 trillion, and other checkable deposits (including savings deposits) are $13.5 trillion, the M1 money supply would be $2.3 + $5.7 + $13.5 = $21.5 trillion.

The primary challenge in determining M1 lies in accurately sourcing the component data, rather than the mathematical process itself. With figures for currency, checking accounts, and other liquid deposits, anyone can compute the M1 money supply. The resulting total provides a clear measure of the economy’s most readily available funds.