Let FRED Help Your Students Tell an Economic Story

"It is a capital mistake to theorize before one has data."
-Arthur Conan Doyle

Twenty years ago, economic data was not easy to find, and only private data firms provided it in a form that was customizable. Government data was provided in a list on a dial-in, electronic bulletin board system. It was scarce, expensive, and somewhat mysterious. Private investment firms and academic researchers paid big money to get this data quickly and also paid analysts to translate the data into charts that were client-friendly.

Today, things have changed. Your friend FRED can give you massive amounts of data that you can easily manipulate for your classroom needs, and you can get it for free, right in your classroom. FRED, or Federal Reserve Economic Data, is an online database maintained by the St. Louis Fed that includes 61,000 economic data time series from 46 national, international, and private sources.

Your students can search by category or specific series. They can make tables or charts. They can easily change type fonts, type size, or colors, or use lines, bars, pies, or scatter charts. They can put multiple series on one chart. They can change units and frequencies. They can show the data in absolute terms, absolute change, percent change, year-over-year change, compound annual rate of change, and many other measures. In short, a small investment of your time in learning your way around FRED can give you a powerful new teaching tool.

Let's say you are teaching inflation, and you want your students to build a chart that would show both core and headline CPI. Follow these steps:

  1. Go to the FRED page on the St. Louis Fed website.
  2. Type "CPI" into the search window.
  3. Select the first series, "Consumer Price Index for all Urban Consumers: All Items." A line chart showing the absolute value of the index appears.

At this point, you can discuss how the CPI data is gathered by the Bureau of Labor Statistics and, if you wish, how the index is actually calculated. But we rarely see references to the CPI being at 230.12, as this chart shows. Why not?

Normally, we are interested in how fast inflation is increasing or decreasing. So we need to change the chart to show year-over-year percent change.

  1. Click on Edit Graph.
  2. Under "Observation Date Range" change the start date to 1968, so we have a smaller time period to look at.
  3. Change the units from the default ("index 182-1984=100") to "percent change from year ago," which is one of several options.
  4. Then click on Redraw graph.

Now we have a more familiar chart (Chart 3) that shows the terrifying inflation spikes in 1974–75 and 1980–82. A possible project here is to ask your students to research what was going on during these high inflation periods. What actions did the Federal Reserve take? What might explain inflation's relative moderation during the twenty-year period 1983–2003? How did the overall economy do during those 20 years?

Next, you might want to introduce the idea of headline and core CPI. What we have so far is all items, or headline CPI, which is the number that the media most often report on.

  1. Click on Add data series.
  2. In the search box that appears, type in "core CPI."
  3. Select the first choice, which is "consumer price index, all items, less food and energy." FRED will add the core CPI line with the same year-over-year percent change unit that you selected for the first line.
  4. Change the observation date range to 1968 as you did for the first line, and, to add definition to your new core line, change the line width from 1 to 3.
  5. Click on Redraw graph. You should get this:

You can then tell the story of how core CPI is actually a more reliable indicator of inflation's direction than is headline CPI. For example, the sharp drop in headline CPI in 1987 did not actually foreshadow a sharp decline in inflation, and the sharp uptick in headline CPI in 2004–05 did not signal that inflation was about to take off on the up side. This is one reason why economists and policymakers, while not ignoring headline inflation, tend to put more weight on core measures. Food and energy prices are highly volatile, and they often respond to temporary factors.

This is just one tiny example of the vast array of possibilities for classroom applications offered by your friend FRED. On the FRED home page, click on About to see helpful short articles, including "What is FRED?," "Fresh Fred," and "Working with Data—Chapter One, Question One."

As if that weren't enough, FRED also offers iOS and Android apps, an Excel add-in, and phone and e-mail assistance. If all those features still aren't enough to excite your inner nerd, try FRED's hip cousin, GeoFRED, a mapping engine that creates maps using data at the state, county, and city levels. We'll visit GeoFRED in another issue.

By Gary Tapp, director of economic education, Federal Reserve Bank of Atlanta, and editorial director, Extra Credit
October 31, 2012