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Opening Plenary on Financial Health Outcomes within Cities and Local Communities. From left: Marvin Ward (JPMorgan Chase Institute), Norton Francis (DC Office of the CFO), Rachel Meltzer (The New School), Dory Rand (Woodstock Institute), Tina Plerhoples-Stacy (Urban Institute)
The growth of big data has helped demonstrate the interconnectedness of the global economic system and allowed us to ask new important questions about how we can solve our most pressing economic challenges. Using de-identified, high frequency proprietary data from over 70 million retail consumers, 2.5 million small businesses, and 44,000 institutional investors, the JPMorgan Chase Institute provides a lens through which vital economic issues can be examined in a way that is unique from other datasets available.
On June 27, 2019, the JPMorgan Chase Institute held its second annual Conference on Economic Research. Diana Farrell, the Institute’s President and CEO, opened to explain, “With us today, we have academics, think tank leaders, policymakers, and practitioners, which speaks very much to what we see as our mission: not just doing groundbreaking research that is taking advantage of the extraordinary access we have to JPMorgan Chase’s administrative data, but also building networks and communities of people who can work alongside each other and help drive better decisions. And that ultimately is what we care about.”
Held in Washington, D.C., the day-long conference included eight sessions focused on issues at the forefront of research and policy: the financial health and well-being of cities and local communities, businesses, families, markets, and the economy as a whole.
The opening plenary highlighted the role of cities as a system and the different ways researchers and policymakers can look at challenges cities face. In discussing economic outcomes of cities and local communities, Rachel Meltzer, Associate Professor of Urban Policy at The New School, described localized effects of the economic shock of superstorm Sandy in 2012. She and her colleagues found that neighborhood retail businesses are less resilient to shocks and that smaller and stand-alone establishments are most vulnerable. In aggregate, local losses at the neighborhood level could affect municipal fiscal health for the entire city. “These losses impact neighborhoods: loss of services, loss of livelihood for business owners, street activity is affected which could affect crime or have general environment implications for the neighborhood. But there are also implications for the city at large,” Meltzer said. “This is where policy is made. So it’s important to realize that even though these shocks are concentrated in particular neighborhoods, there are impacts to the city overall.”
The importance of small business to cities and local communities, as well as the macroeconomy, was echoed in a separate panel discussion on the impact of small business finance on household wealth. Although much research around small business is focused on a subset of businesses (those with high growth), most businesses in the sector are very small and, notably, are important contributors to the economy. Brian Headd, an economist with the U.S. Small Business Administration, noted that, “Business ownership is increasingly important to households. Small business should be interjected more into the big picture, more into the macro discussion.”
Peter Roberts of Emory University added that neighborhood small businesses create vibrant communities, which isn’t always measured in macro statistics. In discussing his study focused on poverty, race, and neighborhood small businesses, Roberts elaborated, “If you imagine cleaving the world into the wealthiest urban residential zip codes and the poorest, defined by poverty rates, you have a very pronounced micro, small, and medium business gap. There are 31.4% fewer microbusinesses per capita in our poorest neighborhoods.”
Also increasingly understood as important to household financial health is the ability to manage income volatility, or changes to income and spending. Studying these cash flow dynamics has been central to the Institute’s work and our research has demonstrated that many American families do not have the cash buffer they need to withstand both a loss of income and an unexpected expense in a given month. A key issue is how to measure income volatility, and through what datasets, in order to better understand the extent to which families are able to smooth their income spikes and dips. “The conventional wisdom is that only the lower part of the income distribution has a hard time smoothing transitory shocks,” presented Robert Moffitt of Johns Hopkins University. “I think that’s being challenged now and should be brought out. Gross volatility is very important and used to measure instability in various populations, demographic groups, and income levels, but also important is how much volatility is ‘transitory’ and how much is ‘permanent’—or some share in between?”
In a separate panel discussing the Online Platform Economy and the future of work, Shelly Steward, Research Manager with the Aspen Institute, explained, “Non-standard work arrangements are getting increased attention. This type of work has proved perniciously difficult to measure accurately and the implications for the economy and for workers are similarly opaque.” The pace of technological change has also influenced uncertainty around the future of work, and the rise of contingent work through the Online Platform Economy adds another element to the income volatility picture. While alternative work arrangements contribute to overall income volatility, the additional earnings they provide are often used to supplement traditional labor income and manage negative income shocks.
Delving into household spending and debt, the student lending panel discussion focused on understanding cash flow dynamics related to student loan payments and how these payments fit into the context of families’ larger financial lives. Daniel Herbst of the University of Arizona noted that “Data on student loan repayment, especially at a high-frequency or monthly level has been scarce. And that has prevented us from getting a descriptive sense of how borrowers are repaying their student loans.” One way that households have managed student debt is through income driven repayment (IDR) plans, which limit a monthly loan payment to between 10-15 percent of income. “IDR is a good step in the right direction,” Herbst said, “but how do we fill the gap caused by the lack of financial instruments available for human capital investments?”
In managing household income and consumption volatility, the importance of families having a cash buffer holds true for making mortgage payments and avoiding default. A newly released Institute report was presented at our conference demonstrating that liquidity was a more useful predictor of mortgage default than level of home equity, payment burden, or income level. Kanav Bhagat, Director of Financial Markets Research at the Institute, explained, “Mortgage underwriting standards that rely on meeting a debt-to-income threshold at origination may not be the most effective way to reduce mortgage defaults because they cannot account for a borrower’s future income volatility or their ability to withstand that volatility. However, homeowners who maintained just a few mortgage payment equivalents of liquidity defaulted at considerably lower rates than homeowners with little liquidity.” Other presentations on the panel also discussed implications of mortgage underwriting standards intended to measure a borrower’s ability to repay their mortgage.
Policy effects on the global economy were also reflected in a session focused on financial markets research. Panelists discussed the relationship between liquidity and arbitrage involving less liquid fixed income securities, and whether Federal Reserve Board policy responds to the stock market rather than economic data. The panel also presented research on how post-crisis financial regulation changed swaps market structure, and how the timing of central bank announcements affect the foreign exchange market.
To bring the day’s themes together, we concluded by discussing the ways organizations are using data and how we can work collaboratively. “We’re moving through distinct eras in the data world, with one building on the next, emerging into a world where we are able to access multiple data sources and blend them together to create new datasets and models of analysis.” Bob Groves, provost of Georgetown University, surmised on our closing panel. It will be important to address many undecided questions around data-sharing, transparency, and the uncertainty of statistical models, among other technical and non-technical concerns that accompany this new era of the data world.
But there are still overarching goals that can unite the public and private sector and offer guidance on how to collaboratively and effectively leverage the current data environment. “The main goals here are to reduce reactive responses and use data to inform preemptive actions,” said panelist Rayid Ghani of the University of Chicago. “People who need help the most may get left behind in the pursuit of efficiency.”
The panel highlighted multiple ways we can work together to use these data more proactively. By forging transparent partnerships between the private and public sector, working together to create fewer silos between researchers, practitioners, and government, we can ensure equity while using big data to make a tangible impact on society.
We thank all of the presenters and attendees who contributed to these important discussions. And we look forward to continued collaboration and dialogue as we seek to share our unique data lens to help address some of our most pressing economic challenges.
Viewpoints of our panelists are their own and not representative of their organizations.
The mission of the JPMorgan Chase Institute is to help decision makers, policymakers, businesses, and nonprofit leaders—appreciate the scale, granularity, diversity, and interconnectedness of the global economic system and use timely data and thoughtful analysis to make more informed decisions that advance prosperity for all.