Inside the Chicago Fed: Using Both Data and Anecdotes to Understand the Regional Economy
"Data are really great," says Leslie McGranahan, the Federal Reserve Bank of Chicago’s vice president and director of regional research. "But sometimes the stories behind the data help you understand the data. It's why we are seeing what we're seeing."
Seeking out such illuminating stories across its five-state region is essential to what the Chicago Fed does. This region, the Seventh Federal Reserve District, covers Iowa and most of Illinois, Indiana, Michigan, and Wisconsin. A fundamental part of the Federal Reserve’s mission is to foster a stable and inclusive economy. Representing what is happening in the District economy is an important input to the discussions that occur when the Federal Open Market Committee meets to set U.S. monetary policy.
So specialists from the Chicago Fed are out in the District year round, conducting economic roundtable discussions and producing research that gets published in places like the Midwest Economy blog, the quarterly AgLetter, and the Chicago Fed Insights blog. As new FRB Chicago President Austan Goolsbee begins traveling the District, with February stops in Detroit and Elkhart, Indiana, we sat down with McGranahan to learn more fully the hows and the whys of the Chicago Fed’s efforts to understand the economy of the upper Midwest.
Q: This place is called a “bank.” What about its business has it doing regional economic research?
A: The U.S. is a big, diverse economy. And in order to have a really deep understanding of the economy, the original authors of the Federal Reserve Act came up with this system with numerous regional Federal Reserve banks. For the central bank to understand the regions that comprise its economy seems pretty key.
Q: Please describe the scope of the research done by the regional team at the Bank.
A: Some of the research is related to the economy of the District, specifically thinking about manufacturing, economic growth and population dynamics in the region, and the auto industry. We also have an agricultural economist and we do research on household finance, housing, and labor markets that's not always regional in nature but has implications for the regional economy. I think of research and outreach as being two different but related things. So in research, we're gaining new knowledge about the fundamentals of the economy, and we tend to have a regional lens on a lot of it.
In outreach, we are out there talking to people all the time. We have about 35 roundtables a year, happening in all five of our states, with individuals in the business community and from the nonprofit, government, and grassroots sectors. We sit around a table with people in places ranging from Flint to Des Moines and say, ‘What do things look like from your perspective?’
Q: How do you handle confidentiality? Are those meetings public?
A: No. They’re pretty informal, but for people to share what's going on in their businesses, we need to have confidentiality and knowledge that things that are said in the room stay in the room—and are sufficiently deidentified when they are put out to the public. But we tend to keep that information internal or for the Beige Book, the Federal Reserve System’s regularly published public summary of commentary on economic conditions nationwide.
Q: Do you only talk to businesses, or do you talk to other people?
A: We talk to business leaders and also individuals in government and from nonprofit and community organizations. Last year we, along with some other Feds, added a Community Conditions section to the Beige Book to independently highlight the information coming from these non-business contacts.
Q: Can you share an example of how one roundtable would work?
A: We have a Chicago-based roundtable where we have individuals from businesses, community groups, government, and industry in Chicago. Maybe we'd have eight to ten people—a manufacturing executive, a university professor researching agricultural conditions, and an HR consultant, for example. We have some questions that we send out in advance. And everyone will have an opportunity to share with us what they are seeing, both addressing our questions and adding their boots-on-the-ground perspective. So we've been asking a lot of questions about the labor markets that they're facing over the past couple of years. Or we would ask questions about supply chains—is it getting easier or is it harder to find materials—about shipping, freight costs. And people will riff off of each other: ‘Hey, I’m seeing that, too.’ It's really a pretty effective way to hear what's going on from people who are participating in making economic decisions at that moment.
Q: As I understand it, the people doing the research tend to be trained as economists, people who might otherwise be working in academia or at think tanks.
A: That’s right. So we have really three groups of people. We have regional research staff that are in Detroit, headed by Rick Mattoon, who's the branch executive there, and three colleagues. A lot of our auto sector research comes from there, understandably. And then within my group in Chicago, there are two sets of individuals, some who do more academic-style research and some who do more of the outreach-type work. But the line between those types of work is really, really blurry. So everyone who is doing the outreach-type work also does academic-style research. And that helps give rigor and clarity to the outreach. And the outreach helps to give context and life to the research.
Q: What do you want people to understand, first and foremost, about the work the Chicago Fed does on the regional economy?
A: One crucial thing to understand is that we are looking at the national economy through a regional lens. We're asking, ‘What does it look like from here?’ And then the other 11 Federal Reserve banks are doing it from their perspective. And in my view, if you have 12 lenses looking at the same thing, the national economy, that's how you get a really good picture. And so that's the paradigm in the back of my mind: If the camera on your phone has more lenses, you get a much better picture. This makes sense because monetary policy is national in nature.
Q: And is this all building into the Beige Book as a primary focus?
A: The Beige Book is the primary output. We use this information in other ways, as well: for the Federal Open Market Committee meeting process and informing the Bank president about what's going on in our District.
Q: So what's a good anecdote? How do you spot it? How do you stress test it, too?
A: I think sometimes, you'll hear something, and it'll make something click. There is something that you're seeing in the data or in the world around you that is head-scratching. And then you hear the anecdote in a little bit of an a-ha moment. One example of that: Early in the pandemic, as people started to talk about the challenges with childcare, we were starting to hear that anecdotally very clearly. And again, this eventually was in the data. But people saying, ‘Hey, my employees aren't coming to work because they can't find places for their children’—I first heard that as an anecdote. And once you heard the anecdote, you're like, ‘Oh my gosh, of course that has to be something that's true.’ So I think that makes a really good anecdote.
Q: Oh, interesting. So they can be almost a leading indicator or a preview of coming data?
A: Exactly. And I think the thing about data is that they're backward looking. They often come out with a lag. And in addition to seeking out more anecdotes, we sought more high-frequency data. Those two things are ways of trying to get ahead of the data.
Q: What’s something you enjoy about the job?
A: One of the things that's so nice, post-pandemic, is to be able to get out again and talk to people. And it's not only talking to people in a roundtable. It's going to the convenience store across from the roundtable and seeing what's on the shelves and what shelves are empty and talking to the cashier and asking ‘how's business’? In some ways, I feel like in every conversation I have, especially when I'm somewhere in the District, I’m trying to learn. I’m asking, ‘How does this help us understand what's going on in the regional economy?’