Federal Reserve Economic Data: Your trusted data source since 1991

The FRED® Blog

Posts tagged with: "GDP"

View this series on FRED

Foreign direct investment

This FRED graph plots quarterly foreign direct investment (FDI) flows into the U.S. as a percent of GDP. And what is FDI? It’s the flow of capital across borders when a firm owns a company in another country. But it’s more than simply owning stock in a foreign company: It implies that the investor is directly involved in the foreign company’s day-to-day operations.

FDI is beneficial to job creation and a country’s growth. In the U.S., it began to pick up after 1975 and spiked in the late-1990s and early 2000s, corresponding with the tech bubble. During recessions, which are represented in the graph by shaded bars, FDI systematically falls. Since the Great Recession, average FDI flows have been higher than in previous decades, ranging from 1% to 2% of GDP each quarter.

How this graph was created: Search for and select “Rest of the world; foreign direct investment in U.S.; asset, flow series (ROWFDIQ027S).” From the “Edit Graph” panel, use the customize data option to add the nominal quarterly GDP series (GDP). In the formula box, type ((a/1000)/b)*100 and click “Apply.”

Suggested by Brian Reinbold and Paulina Restrepo-Echavarria.

View on FRED, series used in this post: GDP, ROWFDIQ027S

The business behind the trade balance

Why trade deficits decrease in recessions and increase in booms

How does the trade balance relate to economic activity? The graph above shows the U.S. trade balance for goods and services as a percentage of GDP. Obviously, there was a surplus initially and now there’s a persistent deficit. Beyond that, it looks like every time there’s a recession, the trade deficit tends to decrease. (Or, if we go farther back in the past, the trade surplus tends to increase.) Obviously, many things affect the trade balance, but let’s see what FRED can show us about this relationship.

A good way to reveal how series may be correlated is to look at scatter plots. Instead of relating economic data to dates, scatter plots relate two data series to each other, one on each axis. The graph above does this with changes to the trade balance ratio on one axis and percent changes to real GDP on the other axis. What may look like a random assortment of dots actually has some information. Imagine the graph is divided into four quadrants and then consider where the dots are located. The upper right and lower left quadrants have fewer data points than the other two, highlighting that there is indeed a negative correlation: That is, when real GDP tends to increase, the trade balance tends to decline—that is, trade surpluses decrease or trade deficits increase.

Why is that? First, consider that the trade balance is net exports—that is, exports minus imports. Imports are highly correlated with GDP, while exports are less so. We see this in the graph above, which plots imports. This time, the upper left and lower right quadrants are the most populated. This highlights the positive correlation: That is, when real GDP tends to increase, imports do as well. Thus, over the business cycle, it is really imports that drive the trade balance: When the economy is doing well, producers need more intermediate goods, and imports are mostly intermediate goods. Also households consume more, and a share of those consumption goods are imports. If you graph exports, the correlation is much harder to see. Exports depend much more on what happens abroad, which isn’t that well correlated with domestic activity.

How these graphs were created: First graph: Search for “net exports” and select the quarterly series. From the “Edit Graph” panle, add GDP and apply formula a/b*100. Second graph: Use the first graph and change the sample period to start in 1954. From the “Edit Graph” panel, change the units to “Change.” Add a line by searching for “real GDP,” change its units to “Percent change,” open the “Format” tab, and switch the type to “Scatter.” Third graph: Use the second graph but with real imports in percent change.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: GDP, GDPC1, IMPGS, NETEXP

Three views of the U.S. trade deficit

Minding units and considering services

Consider the graph above, which shows the U.S. trade balance. It looks like things are seriously heading south, with a deficit that’s ten times larger than it was 25 years ago. Is it really that bad? For one thing, the economy as a whole has grown significantly over this period, and prices have increased, too. To address these biases, we should divide the trade balance by our favorite nominal index, nominal GDP. The result is the graph below.

Now that the units are percentages of GDP, we can see that the deficit is five times as large as it was 25 years ago, not ten times. And it has actually improved since the previous recession, to a little more than three times its size, topping out at –4% of GDP. But wait, there’s more: International trade doesn’t pertain to goods alone; it also involves services. And here, the United States actually enjoys a surplus. So, if you redo the second graph with the trade balance for goods and services, you obtain the graph below:

Finally, we see that the current trade deficit is at about 3% of GDP. Is that a lot? Actually, a deficit isn’t necessarily bad. See a previous blog post on the topic.

How these graphs were created: For the first graph, simply search for “trade balance” and take the series that pertains only to goods. For the second graph, use the first and then go to the “Edit Graph” panel: From there, add “nominal GDP” and apply the formula a/b/10*12. (The idea is to divide by 1,000 to put both series into the same units and then multiply by 100 to obtain results in percentages, which reduces to simply dividing by 10. Multiplying by 12 changes the trade balance’s monthly frequency to an annual frequency, to match nominal GDP’s annual frequency.) For the the third graph, replace the trade balance for goods with the trade balance for goods and services.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: BOPGSTB, BOPGTB, GDP

Subscribe to the FRED newsletter

Follow us

Back to Top