In 1922, the Federal Reserve Board began offering its industrial production index, with data starting in January 1919—which means we now have 100 years of data!
This series has been extremely useful in helping us gauge the state of the economy: At first, industrial production was basically the only data series available before the computation of GDP; and the data are published more frequently and quickly than GDP data. The disadvantage is that industrial production doesn’t encompass the entire U.S. economy. In fact, it has encompassed less and less as the economy has matured into primarily a service economy.
How competitive are countries’ banking markets? It’s a complicated question that requires some thought and effort to answer: First, there are several ways to measure competition. One way is to measure the concentration of market shares. But this method isn’t perfect because there may still be substantial competition in a market with few players. Another way is to look at markups—that is, the difference between the price charged and the marginal cost (the cost of one additional produced item). The problem here is that it’s difficult to directly observe those costs, so the costs need to be inferred.
Thankfully, FRED has data that already have the measurements built in: World Bank economists Asli Demirguc-Kunt and Maria Soledad Martinez Peria devised a way to measure banking competition, and the World Bank has published these so-called Lerner indices for a few countries and a few years. The graph above includes competition indices for the U.S., Canada, Switzerland, and the U.K., where smaller numbers indicate more competition. It seems that bank competition in the U.S. is relatively stable, with a slight trend toward less competition. The U.K. seems to endure wild swings, with a similar trend. Smaller countries such as Canada and Switzerland don’t necessarily have less competition due to their smaller market sizes. In fact, the Swiss banking market seems to be even more cut-throat since the Great Recession, likely because some interest rates are negative. The opposite happened in Canada, which hasn’t been affected as much by the previous financial crisis.
How this graph was created: Search for “Lerner index,” select the chosen countries, and click “Add to Graph.”
How much economic risk are businesses facing these days? FRED can help us consider what the market is telling us about the level of risk by showing us the yields of various types of corporate bonds. Moody’s business is, in part, to classify corporate bonds according to their risk, and bonds within a rating should have the same level of risk through time. The yields of these bonds may still change, though, because they’re driven mostly by a risk premium (which is different in each risk rating) and the supply and demand of funds. An easy way to properly measure the latter is to take the difference between the yields of two risk ratings. In the graph, we’ve done this for the ratings Aaa and Baa. What remains is the excess risk of Baa over Aaa bonds. Indeed, as the economy becomes riskier, lower-rated bonds will become riskier more quickly than higher-rated bonds. The graph shows that risk today (at the date of this writing) is basically historically normal, if a little elevated compared with previous years. However, it’s nowhere near as risky as it was during the Great Depression, the early 1980s, or the Great Recession.
How this graph was created: Search for and select “Moody’s Baa” and click “Add to Graph.” From the “Edit Graph” panel, add a series by searching for “Moody’s Aaa” and apply formula a-b.
