Federal Reserve Economic Data

The overall labor force participation rate (LFRP) remains below its pre-pandemic level: 62.5% in February 2023 vs. 63.3% in February 2020. And disaggregating the data by age reveals some interesting trends.

The LFPR rates for adults 55 and older (in blue) and teens (in red) form the double-helix-like graph above. A few things stand out: First, teens were more likely to be in the labor force than seniors prior to the Global Financial Crisis in 2007. In August 1989, the LFPR for teens (57.4%) was almost twice that of seniors (30.1%). However, this gap closed throughout the 1990s and 2000s, and in October 2008 seniors became more likely to be in the labor force than teens.

But this has started to change again. After reaching an all-time low of 32.5% in February 2014, the teen LFPR started to rise again. It’s risen even more steadily after the pandemic, returning to pre-pandemic levels after a year; and in recent months it has reached its highest level since 2009. In contrast, the share of seniors in the labor force dropped after the pandemic and has shown no sign of recovery; in February 2023, it stood at its lowest level since before the Global Financial Crisis.

Two key pandemic trends are driving this. First, many older workers left the labor force during the pandemic due to health concerns or rising asset values. Miguel Faria e Castro has estimated that there were more than 2.4 million excess retirements from February 2020 to August 2021. Second, the tight labor market has led to more job opportunities for teen workers; with wages up and firms more willing to train and employ teens, college enrollment has declined and more teens are moving into the workforce.

How this graph was created: Search FRED for “Labor Force Participation Rate – 55 Yrs. & over.” Click “Edit Graph,” open the “Add Line” tab, and add “Labor Force Participation Rate – 16-19 Yrs.”

Suggested by Nathan Jefferson.

The Federal Reserve System serves as a “lender of last resort” for insured financial institutions in the US by providing liquidity to commercial banks, thrift institutions, credit unions, or US branches and agencies of foreign banks. The liquidity provided by the Fed takes the form of loans, which are collateralized and have historically been paid back in full, on time, and with interest. The amount and types of these loans have changed recently.

The FRED graph above shows the dollar amount of each of the six types of loans the Fed currently makes available to depository institutions:

• The first three series (Primary Credit in blue, Secondary Credit in red, and Seasonal Credit in green) show the value of loans offered through the discount window. This lending program provides depository institutions with ready access to funding and has been in operation since 1914.
• The fourth series (the purple area) is the Payroll Protection Program Liquidity Facility. This was a term, or temporary, program created during the COVID-19 pandemic to bolster the Small Business Administration’s Paycheck Protection Program (PPP). It provided loans to small businesses so that they could keep their workers on the payroll. This lending program was terminated on July 30, 2021.
• The fifth series (the teal area) is the Bank Term Funding Program. This is a recently established temporary program to ensure the liquidity of bank deposits. It is described here and is set to expire on March 11, 2024.
• The sixth series (the orange area) adds up all the other credit extensions, which include loans that were made available to depository institutions established by the Federal Deposit Insurance Corporation (FDIC). As described by the Board of Governors, the Federal Reserve Banks’ loans to these depository institutions are secured by collateral and the FDIC provides repayment guarantees. See footnote 7 of the H.4.1 BOG data release.

The purpose of those loans is to ensure the ongoing provision of money and credit to the economy and to ensure banks have the ability to meet the needs of all their depositors. The recent increase in their value reflects financial stress stemming from the supervised closing of Silicon Valley Bank (Santa Clara, California) and Signature Bank (New York, New York). The March 13, 2023, joint statement by the US Treasury, Federal Reserve, and FDIC underscores that taxpayers will bear no potential losses from these loans.

How this graph was created: In FRED, search the alphabetical list of releases for “H.4.1 Factors Affecting Reserve Balances” and select “Table 1. Factors Affecting Reserve Balances of Depository Institutions Wednesday Level.” Select the six data series listed under “Loans” and click “Add to Graph.” Use the “Format” tab to change the graph type to “Area” and the stacking option to “Normal.”

Suggested by Diego Mendez-Carbajo.

The federal funds rate (FFR) is a key instrument through which the Federal Reserve conducts monetary policy in the US. When inflation is high, the Federal Reserve typically raises the FFR to mitigate aggregate demand, easing pressure on prices.

One channel through which monetary policy achieves these goals is by increasing borrowing costs for banks and, in turn, the cost of borrowing for firms. As firms find it costlier to borrow, this mitigates their demand for factors of production, easing pressure on prices.

We use FRED data to help us investigate the extent to which monetary policy indeed tightens financial access for firms in the US economy. The graph above plots the time series of the FFR (in red) along with two measures of financial access by US firms: One of these series measures the proportion of domestic banks tightening their lending standards for large and medium-sized firms (in blue). The other measures the same statistic for small firms (in green).

These series are proxies for the financial environment in the US and, more specifically, for the ability of firms to gain access to credit. Increases in these series indicate that a greater amount of banks in the country are tightening their lending standards and restricting access to credit, while a decrease indicates the opposite.

The graph shows four periods of monetary policy tightening (that is, increases in the FFR): from 1993 to 1995, from 1999 to 2001, from 2004 to 2007, and from 2016 to 2019. In all these episodes, the share of banks tightening lending standards increases a few quarters following the monetary policy tightening, which suggests that financial conditions get tighter following monetary policy tightening and that these policy actions take effect with a lag.

In our second FRED graph, we look at the more-recent period since the COVID-19 pandemic. We plot the same series, but starting in January 2020. We first observe a tightening of financial conditions at the outset of the pandemic. We next see a gradual rise in the FFR since March 2022.

The tightening standards of banks (of all sizes) have been steadily rising, even prior to the change in the FFR, perhaps because of policies to reduce the size of the Fed’s balance sheet. Given the long-run link between monetary policy and financial conditions, we may expect credit access to continue to tighten in the coming quarters, enabling the Federal Reserve to reduce inflationary pressures to achieve its mandate of price stability.

How these graphs were created: Search FRED for and select “Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms.” From the graph, click on “Edit Graph,” open the “Add Line” tab, and search for and select “Federal Funds Effective Rate” and “Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Small Firms.” Use the “Format” tab to change the y-axis position of the federal funds effective rate to the right-hand side. Set the earliest date in the window to “1990-01-01”.

Suggested by Jason Dunn and Fernando Leibovici.