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The FRED® Blog

The burden of housing Population density means higher living costs

The map shows, for each U.S. county, the percentage of households that are “burdened.” That seems to be a rather vague term, but in this case it has a precise definition from the U.S. Bureau of the Census: A household is considered burdened if it has to dedicate at least 30 percent of its income to rent or mortgage payments. Clearly, there are two components that can make a household burdened: low income and high housing costs. You could probably conceive of stories for the reasons that various parts of the country are more or less burdened. (On the map, the darker the color, the more burdened the county.) Consider that major population basins have higher housing costs, the South is generally poorer, and Florida has a lot of retirees on fixed income. Of course, one shouldn’t be surprised that housing costs are higher where there are more public amenities—which is where population tends to be denser. And, of course, some households may simply choose to spend more on their homes.

But why is 30 percent used as a threshold for burden? This is the maximum that is considered by rental assistance programs as well as guidance by mortgage providers. The concern is that households should have 70 percent available for other necessities. This problem tends to apply only to poorer households, although this map covers all households.

How this map was created: Go to GeoFRED and select the county maps. Look for “Burdened Households” in the dropdown menu.

Suggested by Christian Zimmermann.

Royalty payments and the incentives to conduct research and development

Countries are introducing policies to generate stronger intellectual property rights. These policies are aimed at increasing incentives for firms to conduct research and development in the country. One form of intellectual property rights is captured by patent royalty payments—that is, payments made to the owner of a patent for the right to use that asset.

The U.S. has experienced a substantial increase in patent royalty receipts and license fees since the 2000s (blue line on left Y-axis). These data are reported in the balance of payments of the country as exports of services and reflect income that firms in the U.S. receive from other countries to use their intellectual property (e.g., patents, trademarks, copyrights, and franchises).

On top of the increase of net receipts of royalty payments from the rest of the world, there has been an increase in expenditures in research and development in the U.S. during the same period (red line on right Y-axis).

As intellectual property rights become stronger, the incentive of firms to innovate strengthens as well. Part of this research and development translates into patented innovations; along with stronger intellectual property rights, this increases royalty payments by firms in other countries that want to use this knowledge.

How this graph was created: Search for “Exports of services: Royalties and license fees” and click on the series you want to create the first line. Select “Line 1” in “Edit Lines” under the “Edit Graph” tab and add the series “Gross Domestic Product: Implicit Price Deflator” to the existing line. Apply the formula a/(b/100) to deflate exports into a constant year. Use “Add Line” within “Edit Graph” to add line 2 “Real Gross Private Domestic Investment: Fixed Investment: Nonresidential: Intellectual Property Products: Research and Development” to the existing graph. Change the time line to be “2000/01/01-2015/01/01” through the two boxes next to “Edit Graph.” Finally, under the “Format” tab, select “Right” for the “Y-Axis position” for line 2.

Suggested by Ana Maria Santacreu.

View on FRED, series used in this post: B684RC1Q027SBEA, GDPDEF, Y006RX1Q020SBEA

300 This is Sparta[nburg County, South Carolina]!

This is the FRED Blog’s 300th post, a great opportunity to check out Sparta. Unfortunately, FRED’s coverage does not include classical antiquity, but it has a lot of regional U.S. data, including 153 series pertaining to Spartanburg County, one of the larger counties in South Carolina, and the Spartanburg MSA. As the graph above shows, the county seems to have gone through some rough times but is rebounding now: While the population has been steadily increasing, the labor force went through two pronounced slumps and is now on the upswing. The graph below shows some other indicators for Spartanburg County, this time related to poverty. The picture there is mixed. While the number of people in poverty and the number of those receiving food stamps seem to be increasing, the proportion of people with a credit score below 660 (considered subprime) seems to be decreasing.

How these graphs were created: Search for “Sparta” or “Spartanburg,” check the series you want displayed, and click “Add to Graph.” In cases where the units mismatch and some series aren’t visible because of a large disparity, put their units on the right axis: Click “Edit Graph,” open the “Format” tab, and switch the axes.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: CBR45083SCA647NCEN, EQFXSUBPRIME045083, PEAASC45083A647NCEN, SCSPAR0LFN, SCSPAR0POP

Exorbitant privilege and the income puzzle in the U.S. How to gain investment income despite being in debt

For most of us, the returns we gain on our assets are typically lower than the interest payments we make on debt and liabilities. This applies to most countries, too. The U.S., however, is an exception: For the U.S., liabilities with foreigners greatly surpass U.S. assets and claims on foreigners. In other words, the U.S. net international investment position is currently negative and has been for a long time. However, net income received by the U.S. is positive, which is not what we’d expect. This rather puzzling feature of the data is referred to as the U.S. income puzzle.

FRED can illustrate this puzzle for us: In the graph, the blue line tracks the U.S. net international investment position, and the red line tracks the U.S. balance on primary income (or U.S. asset earnings less liability payments). Both are shown as a percentage of annual GDP. The red line shows that, despite having a negative investment position, the U.S. still has a positive income balance. In fact, as the investment position has worsened, the income balance has actually improved.

Research on this topic has identified that the U.S. income balance remains positive primarily because returns on U.S. foreign direct investment (FDI) in other countries and on foreign financial assets that the U.S. government and residents hold far exceed returns from foreigners’ FDI in the U.S. or their holdings of U.S. assets. Why? The U.S. dollar is the world’s reserve currency, which benefits the U.S., for example, in terms of low interest payments. And foreigners hold financial reserves in the form of high-quality assets to use as a buffer in case of financial distress. By and large, these high-quality, safe assets are denominated in U.S. dollars (for example, U.S. bonds), which are in high demand and pay relatively low returns. Economists have coined a term for this benefit the U.S. enjoys: exorbitant privilege.

How this graph was created: Search for U.S. net international investment position in FRED and plot the annual series. Click on the “Edit Graph” button and add to the line annual nominal GDP and then apply the formula a/b/10. The 10 allows you to express the result as a percentage (after adjusting the units). Select the middle menu to add a line and search for the U.S. primary income balance. Add the annual data series to the graph as a new line. Repeat the exercise of dividing the series by nominal GDP.

Suggested by Maximiliano Dvorkin and Hannah Shell.

View on FRED, series used in this post: GDPA, IEABCPIA, IIPUSNETIA

What is the federal government worth? More than is measured

The top graph shows federal government net worth, which looks like it’s plummeting and very negative. But before we scream in panic, let’s try to understand this a bit better. Over the time period shown, the economy, the population, and the price level have all increased. So let’s first adjust the series with one that takes all this into account: nominal GDP. The graph below shows this, and we now see that the net worth of the federal government is about minus three quarters of annual GDP. Still not so good. But is the federal government really in such a precarious situation?

To truly understand this measure, you need to go back to the sources—specifically the Z.1 Financial Accounts of the United States release, Table S.7.a, which at the time of this post ran from p. 176 to p. 178. The very last line is the series we show here. All that precedes that line are the elements that enter into the calculation, mostly financial debts and credits. This explains why the pattern of this series follows the series for the federal public debt. It includes some non-financial assets, such as structures, equipment, and intellectual property, but it does not include land, mineral rights, and the present value of future taxes. Any of these three missing elements in isolation would propel federal government net worth into positive territory. These items aren’t included here because it wouldn’t make sense in the context of the Integrated Macroeconomic Accounts (IMA, hence that label in the legend). But these items should be included to truly determine the full net worth of the federal government.

How these graphs were created: For the top graph, simply search for “federal government net worth.” For the bottom graph, create the first and then use the “Edit Graph” tab to add the GDP (nominal, not real) series to the existing line. Apply formula a/b/10 for the ratio we need, which adjusts the units and expresses the new series as a percentage.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: FGNETWQ027S, GDP


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