Investors: Here Is The Best Website For Economy And Financial Data Analysis

To invest well in 2022, investors need to know what’s happening. With the inflation cycle having arrived, fulsome analysis is critical. Having access to compete, relevant data is essential now because media coverage of inflation’s effects is incomplete and misleading.

Fortunately, there is an outstanding source, and it is free. The website, FRED (Federal Reserve Economic Data), has been managed by the economic team at the Federal Reserve Bank of St. Louis for thirty years.

The data are updated as soon as reported, and the website provides a wide variety of analytical tools. Full history is maintained, and all is downloadable in many forms. Performing calculations and comparisons of multiple series is straightforward. Creating graphs is also easy, with the ability to adjust presentation characteristics.

An example of using FRED for economy analysis

The example below shows how to conduct an analysis of the recently released, but poorly reported, Personal Consumption Expenditures (PCE). (For more explanation, see “Investors: Media Confusion About Inflation Means We’re On Our Own“)

First, because most media reports (*) focused on unadjusted data, let’s look at the comparison between nominal and inflation-adjusted (real) total expenditures. Shown is the nearly 3-year pattern of indexes starting at 100 in December 2018.

(*) “Most” media in this case does not include Bloomberg, which reported “U.S. Inflation-Adjusted Spending Stagnates as Prices Surge”

Note: I chose that start date to show healthy 2019, Covid-driven 2020 and the 2021 move towards normality. I used a logarithmic scale so constant growth rates are visible as straight lines.

Notice the recently expanding spread. It shows increased inflation. So, let’s see how much by looking at the nominal vs. real 12-month growth rates.

First off, those results show why the media use of unadjusted growth rates is misleading. Notice that the inflation-adjusted (real) growth rate is not only lower, but it is also stable. The price increases are fully responsible for creating the false impression of rising growth.

Next, let’s look at the PCE price index, itself. The green line is the price index (left scale), and the orange line is the 12-month percentage change (right scale).

Sure enough, it’s inflation that’s rising, not real growth. Now to look at the breakdown between goods and services (the latter accounts for about 70% of the total PCE). The two graphs are the price indexes, then the 12-month price percentage changes.

Well, there’s a difference. Service providers raised prices steadily through 2019, in line with the general 2% inflation rate. On the other hand, goods producers lagged, likely for demand and competitive reasons. Then 2019’s divergences gave way to a catchup price raising trend by goods companies.

Coincidental or not, the price indexes have converged. After nearly three years of independent movement, services and goods prices are both up about 8% since December 2018.

To investigate further, let’s look at the two major categories of goods: durable and nondurable. Again, the two graphs are the price indexes, then the 12-month price percentage changes.

Durable and nondurable goods pricing move only somewhat differently, but both show the same faster rises this year.

With that, we have a more fulsome picture of what’s going on. Does it mean the current trends will continue? No, but it does mean that real PCE growth has stalled and price raising (inflation) has increased. That is an unhealthy pattern. While it may change in 2022, it is a serious concern that investors need to recognize.

The bottom line – Easily accessible, complete data makes FRED a valuable investment tool

Having used FRED for many years, I can attest to its thoroughness, accuracy and usefulness. Its ease and speed of use makes freeform analysis possible (i.e., like the steps above, using observed results to guide the analytical process). It is an especially important tool for testing the information, suppositions and conclusions that we hear and read about.