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The FRED® Blog

The pandemic’s impact on North American GDP: Checking on the neighbors

An earlier FRED Blog post discussed the global scale of the ongoing pandemic. Today, we focus on some recent GDP values in North America, comparing inflation-adjusted growth for Canada, the United States, and Mexico.

The data shown in this FRED graph are from the Organization for Economic Co-operation and Development (OECD), which uses the label “GDP in constant prices,” which is a synonym for “real GDP.” (Btw, FRED tends to adopt the series names used by the data source.)

But whether you call it a “tomāto” or a “tomăto,” these inflation-adjusted GDP growth figures show large declines in overall economic activity in Canada, the United States, and Mexico during the second quarter of 2020. The large trade flows among these three countries and the recent reduction in U.S. imports and exports can help explain the in-step movement of these GDP figures.

How this graph was created: Search for and select “Gross Domestic Product by Expenditure in Constant Prices: Total Gross Domestic Product for Canada.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Gross Domestic Product by Expenditure in Constant Prices: Total Gross Domestic Product for the United States” and “Gross Domestic Product by Expenditure in Constant Prices: Total Gross Domestic Product for Mexico.” Use “Edit Line 1” to change “Units” to “Compounded Annual Rate of Change” and click “Copy to All” to apply this change to lines 2 and 3. use the “Format” tab to select “Graph type: Bars.” And select colors to taste.

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: NAEXKP01CAQ189S, NAEXKP01MXQ189S, NAEXKP01USQ652S

What’s happened so far with the return on safe and liquid assets?

Today, we use an assortment of FRED data to consider a straightforward question: What has happened to the returns on safe assets (in this case, Treasury securities) since the pandemic hit? We look especially at the possible contributions of inflation expectations and demand for liquidity.

The FRED graph above shows

  • nominal rates for the 1-year Treasury (dark blue) and the 5-year Treasury (red)
  • the difference between the “instantaneous” 5-year-ahead Treasury rate and the 5-year, 5-year forward expected inflation rate (green)
  • the difference between corporate bond yields and the 5-year Treasury yield (light blue)

The 1- and 5-year Treasuries are among the safest and most liquid assets in the market, and both rates have dropped considerably since the start of the pandemic. From January 2 to July 31, the 1-year rate fell 145 basis points from 1.56% to 0.11% and the 5-year rate fell 144 basis points from 1.67% to 0.23%. Also, the slope of the yield curve (the difference between the 5- and the 1-year rates) in July is quite similar to what it was in January: about 10 basis points.

Because these are shorter-term nominal rates, we also look at forward rates implied by the Treasury yield and long-term inflation expectations. Specifically, we graph the difference between the instantaneous Treasury rate 5 years forward and the 5-year, 5-year forward inflation expectation rate to calculate the change in long-term real rates. The green line in the graph shows a decline of about 108 basis points, smaller than the decline in short-term nominal rates.

Finally, we can look at what happened with safe but illiquid assets. The light blue line tracks the change in the credit spread for AAA corporate bonds (ie, the difference between ICE BofA AAA US Corporate Index Effective Yield and the 5-year Treasury). These securities carry very little default risk, but aren’t as liquid as Treasuries. So, the yield spread on these bonds relative to Treasuries is often viewed as a proxy for the liquidity premium. (See papers by Krishnamurthy and Vissing-Jorgensen and del Negro et al.) In recent months, this spread has risen by 32 basis points, consistent with the increased scarcity of liquid assets.

Hence, the drop in nominal rates for safe and liquid assets was driven by a combination of an overall drop in real and safe rates (at both short and long horizons) and an increase in the liquidity premium. A paper by Kozlowski, Veldkamp, and Venkateswaran provides a model consistent with these observations.

How this graph was created: Search FRED for “1 year Treasury” and select the constant maturity rate. From the “Edit Graph” panel, open the “Add Line” tab: Search for and add the 5-year rate. Then, add another line by searching for and selecting the “instantaneous rate” series (take the 5-years hence series); then add a series by searching for and selecting the forward inflation rate; fianlly, apply formula a-b. For the last line, repeat the previous steps by searching for “AAA yield” and “5 year Treasury.” Finally, start the sample period on 2020-01-01.

Suggested by Julian Kozlowski.

View on FRED, series used in this post: BAMLC0A1CAAAEY, DGS1, DGS5, T5YIFR, THREEFF5

Seasonality in food prices: A bountiful harvest of FRED data

The FRED Blog has discussed shocks to meat and fish prices related to the COVID-19 pandemic. Shocks are unexpected changes in the supply or demand of a product or commodity that results in a sudden change in its price. Today, we discuss how the timing of harvesting seasons results in predictable changes in the prices of fresh fruit.

The FRED graph above uses data from the U.S. Bureau of Labor Statistics Consumer Price Index, Average Price Data release: It shows the quarterly dollar prices of a pound of Thompson seedless grapes (green circles) and a dry pint of strawberries (red circles).

When grapes are harvested at the end of the summer (the third quarter of the year) and strawberries are picked in the spring (the second quarter of the year), the abundant supply pushes down their prices to their annual lows. Notice how strawberry prices remain low—or even fall farther—during the third quarter of the year. This report from the Economic Research Service of the U.S. Department of Agriculture reviews these seasonal patterns and highlights the extended growing season for strawberries in the U.S.

For contrast, we also plot the quarterly dollar price of a pound of bananas. Because this fruit grows only in the tropics and tropical weather has little seasonal variation, bananas are picked year-round. There are almost no periodic and/or regular changes to banana prices.

To learn more about fruit price volatility, read this report from the Bureau of Labor Statistics. Like FRED, it is rich in nutrients.

How there graphs were created: For the first graph, search for “Grapes, Thompson Seedless, Per Lb. (453.6 Gm) in U.S. City Average.” Next, use the “Edit Graph” menu’s “Add Line” tab to add the series “Strawberries, Dry Pint, Per 12 Oz. (340.2 Gm) in U.S. City Average.” Next, edit Line 1: Click on “Modify frequency” and select “Quarterly.” Click on “Copy to All” to apply the same change to Line 2. Next, use the “Format” tabe and select “Mark type: Circle.” Last, select colors to taste. For the second graph, search for “Bananas, Per Lb. (453.6 Gm) in U.S. City Average” and repeat the above steps for unit frequency and graph format.

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: APU0000711211, APU0000711415, APU0000711417


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