Big data for public good

Greig presents research on gas prices, income volatility during UD talk

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3:58 p.m., Nov. 12, 2015--With gas prices dropping under $2 per gallon, families across the United States have more cash in their pockets, and experts are debating where that money is going. 

Some research has suggested that consumers are holding on to their gas savings, spending as low as 45 cents on the dollar saved. But new research from the JPMorgan Chase Institute suggests that the truth may be more complicated.

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“There are certain areas of the country that are disproportionately impacted by gas price declines,” said Fiona Greig, director of research for the institute, as she presented this research at the University of Delaware.

During her presentation, “Using Big Data for the Public Good,” Greig explained that the institute team utilized data from 25 million consumers to create a heat map of the effect of gas prices around the country. 

The team found the South and Midwest saw the biggest drops in spending, while West and East Coast states, like Delaware, as well as urban areas, feel a lower impact. 

The study also found significant demographic differences, with both young people and those with lower incomes seeing a higher proportional gain. Greig described the equivalent of a 1.6 percent increase in purchasing power for low-income people as a result of gas price declines. 

“That’s an economically significant boost to low-income people in a wage environment that is generally flat,” Greig said. This disproportional effect on younger and poorer people could be important to consider when deciding tax rates for consumer goods.

The research team also found that consumers are spending more of their gas savings than previously expected, with 80 cents on the dollar going back into purchasing.

“Is this good news or bad news? We have two perspectives,” Greig said. “It’s good if you were hoping for growth in the economy and confidence in the economy. Our data suggests that there’s more than we had previously thought.”

“It’s bad, on the other hand, if you feel that this is a form of volatility, and people don’t have enough savings to weather volatility,” she continued. “These are great opportunities for people to save.” 

This economic unpredictability was the central finding of a second report that Greig discussed during her UD lecture.

In “Weathering Volatility,” the institute team found that consumers are experiencing tremendous instability in changes to both their income and spending levels, and that few families have the resources they need to cope with this.

Using a data set of 135 million transactions over the course of 27 months, the institute found that on a year-to-year basis 84 percent of people saw more than a 5 percent change in their consumption, and 70 percent of people saw more than a 5 percent change in their income. 

However, Greig’s team estimated that the typical U.S. household has a significant shortfall in terms of the liquid assets they need to weather this volatility. The median household needs $4,800 in liquid assets to absorb a sudden financial worst-case scenario, but has only $3,000.

Aside from the top quintile of earners, this shortfall exists for the entire income spectrum.

“The implications of this study matter in terms of demonstrating that volatility is a much more widespread phenomenon in the economy than just a low-income issue,” Greig said.

This, she explained, could have implications for employers deciding frequency and rates of pay, for financial services in creating products that help people mitigate and manage volatility, and even for governments paying out tax refunds.

Studies like these illustrate the mission of the JPMorgan Chase Institute to develop data-rich analysis and expert insights for the public good.

“The goal is to inform decision makers at the highest levels in policy, business and individuals,” Greig said. “JPMorgan Chase has the data to answer these questions that others are thinking about.”

Bintong Chen, professor of business administration and director of UD’s Institute for Financial Services Analytics, called Greig’s presentation enlightening and said that it “shows the richness and power of big data.” 

“The findings are intriguing and will potentially benefit society and the economy,” Chen said. “We look forward to collaborating with the JPMorgan Chase Institute in their future projects.”

UD finance professor Paul Laux agreed, saying, “The institute's careful approach using uniquely detailed data has strong potential to contribute to policy discussions and economic understanding. Dr. Greig's talk sparked interest from researchers across our entire campus."

Article by Sunny Rosen

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