The Federal Reserve’s flow of funds accounts for the second quarter, released on Friday, confirm a solid pick-up in the US broad money supply, suggesting liquidity support for the economy and markets.

The flow of funds accounts provide detailed information on the financial holdings of US households, businesses and financial institutions, permitting the calculation of a comprehensive broad money supply measure with an accompanying sectoral breakdown. The definition used here comprises currency, US bank deposits (checkable, time and savings), foreign deposits, money market mutual funds and security repurchase agreements. The official M2 definition, by contrast, omits US large time deposits, foreign deposits, institutional money funds and repos. M2, moreover, includes money holdings of foreigners while containing an element of double-counting (to the extent that retail money funds invest in other M2 assets).

The flow of funds measure contracted during the first half of 2010 but returned to expansion in the second half and has picked up speed this year, rising at a 9.9% annualised rate in the second quarter – see first chart. The annual rate of change climbed from -0.8% in mid 2010 to 5.8% a year later – the fastest since the fourth quarter of 2008.

Strength has been focused on the non-financial business sector, whose money holdings grew by 14.8% in the year to mid 2011 – second chart. Low corporate confidence may delay the impact but rising business liquidity, historically, has been associated with stronger investment and hiring, along with an increase in cash take-over activity and stock buy-backs.