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since 1991.

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Posts tagged with: "GDP"

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The depth and breadth of the federal debt

Posted on March 2, 2017

Who holds the federal debt? The pie chart above shows the shares for the last available period:

  • 27.1% is held by the U.S. government, its agencies, and its trusts—such as the social security trust.
  • 42.1% is held by private individuals and entities in the U.S., which includes 14.2% held by the Federal Reserve. (This 69.2% held domestically is technically debt between Americans.)
  • 30.9% is held outside the U.S.

How have these shares evolved over time? The graph below answers this question after removing the inter-agency debt. The Fed’s share of federal debt hasn’t changed much over time. But foreign ownership of debt has: It ramped up in the 1990s and 2000s and has been declining slightly over the past decade.

The last graph shows how these shares translate to a proportion of GDP: The value of debt owed abroad is about a third of annual GDP. The value of debt owed to domestic households and businesses is about a quarter of GDP. For recent years, the lines don’t stack above 100% of GDP, as is often mentioned when talking about the federal debt. The value of debt rises above 100% of GDP only if you include inter-agency debt. And if you also exclude debt held by the Federal Reserve, U.S. federal debt currently amounts to 62% of GDP.

How these graphs were created: For the first graph: Choose the series “Federal Debt Held by Federal Reserve Banks” and “Federal Debt Held by Foreign & International Investors.” Now, to create the series that shows only private domestic holders of federal debt, select “Federal Debt Held by Private Investors” and then use “Add Line” / “Customize data” to include “Federal Debt Held by Foreign & International Investors.” Apply the data transformation a-b. Finally, add a new line after searching for “Federal Debt held by Agencies and Trusts” and divide it by 1000 because it is in different units. Then select graph type “Pie,” which will default to the last observation. For the second graph, go back to the “Edit Graph” format tab and change the graph type to “Area” and stacking to “Percent.” Remove the last series, as it has a shorter sample and makes the percentages jump. Expand the sample period to maximum. For the last graph, use the second graph, but change the stacking to “Normal” and add to each line nominal GDP (make sure not to take real GDP): Divide each line by that series and multiply it by 100 to express it in percentages.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: FDHBATN, FDHBFIN, FDHBFRBN, FDHBPIN, GDP

Can businesses get loans these days?

A look at the state of commercial lending by banks

Posted on February 9, 2017

Businesses often need money and one way they get it is through commercial loans from banks. We gauge this environment by graphing the total mass of loans banks have made to commercial entities. Of course, the fact that the current mass of loans is the highest it’s ever been is hardly surprising: The economy is growing and loan levels aren’t adjusted for inflation, so this measure is bound to keep increasing. For this reason, we’ll deflate this indicator with a proxy for the size of the economy: nominal GDP (i.e., not real GDP).

Now we have a better way to compare commercial lending conditions over time. Things are still looking rather good right now, but consider these two caveats: 1. Businesses have other ways to finance—say, through private loans or issuing bonds or stock in equity markets. These options may change over time, which probably explains why there was an upward trend in the early decades, when this sort of financing was building up. 2. This reported loan mass shows only the results of supply and demand, but not how difficult it is to get a loan (actual supply) or how much businesses want these loans (actual demand).

To evaluate loan supply conditions, the Federal Reserve conducts a survey of loan officers, asking them whether they tightened loans conditions and for whom. The graph below shows this, with higher values indicating tighter lending conditions. It’s very clear how recessions have led bank officers to be more careful with their lending. But right now, conditions seem to be pretty good.

How these graphs were created: Top graph: Search for “commercial loans.” Middle graph: First, use the top graph. Then go to the “Edit Graph” panel to add “GDP” to the first line, making sure to use the nominal measure. Then apply formula a/b. Bottom graph: Start afresh and search for “loan standards”; select the two series you want and click on “Add to Graph.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: BUSLOANS, DRTSCILM, DRTSCIS, GDP

Engel’s law is still good food for thought

Posted on October 6, 2016

If your income rose by 15%, would your spending also rise by 15%? Maybe. But would all your spending rise by that amount? Ernst Engel surveyed households and published his results in 1857: He found that spending on food did not rise in proportion to a rise in income. Food is clearly a necessity; we all need some. And households that become wealthier will likely increase spending on food to some degree. But the increase in food consumption will be proportionately less than the increase in income.

Engel’s law is remarkably consistent. For the U.S., we can simply take food expenditures in the national account and divide it by GDP. This ratio is pretty much in continuous decline, with the exception of recessionary periods when incomes drop more than usual from unemployment or reduced work time. Engel’s law has held steady for 160 years.

A primer on income elasticity of demand: Food in general is a “normal good,” which means its consumption rises as income rises. It’s a specific type of normal good, though—a “necessity good”—which rises as income rises, but less than one for one. A more formal description is that food has an income elasticity of demand between 0 and 1. Another type of normal good is a “luxury good”—for example, a yacht. Its consumption rises more than one for one as income rises, so its income elasticity of demand is above 1. Consumption of an “inferior good”—for example, bus tickets—actually declines as income rises. Its income elasticity of demand is below 0.

How this graph was created: Search for “food expenditure,” and you’ll see many price indices. To speed up your search, click on the “consumption” tag in the side bar. Once you add the series shown here, open the “Edit Graph” panel and another series to Line 1: GDP. Then apply formula a/b.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: DFXARC1Q027SBEA, GDP


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