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JP Morgan launches think tank using big data to study U.S. economy

Xinhua, May 22, 2015 Adjust font size:

U.S. bank giant JP Morgan Chase on Thursday launched a global think tank, the JP Morgan Chase Institute, to study the U.S. economy by combing the power of big-data analytics with transaction information from its own customers.

In its inaugural report released here, the new institute analyzed the income and spending habits of 2.5 million account holders at the bank between October 2012 and December 2014, to gauge how U.S. individuals responded to earnings fluctuations in the wake of the financial crisis.

"We see most individuals in the U.S., the vast majority, experienced very high levels of income volatility, but even higher levels of consumption volatility," the institute's founding president and chief executive Diana Farrell told audience gathered at the Newseum Knight Conference Center for a panel discussion on the report.

Seventy percent of U.S. individuals experienced an annual change in income of at least 5 percent between 2013 and 2014, while 84 percent experienced monthly changes of at least 5 percent in spending over the same period, according to the report.

The report also found that a typical middle-income household needs a financial buffer of about 4,800 U.S. dollars to weather the monthly volatility in income and spending observed in the account sample. But the median household holds only about 3,000 dollars in liquid assets that could be tapped, according to the Survey of Consumer Finance released by the Federal Reserve.

"That's a big gap. That's a real exposure. This gap exists for every quantile, except the top quantile," said Farrell, noting that only the top income earners have a sufficient financial cushion to deal with a large, unexpected expense.

"We need better analytical tools to help people understand the bottom line and manage it," Farrell said, adding that potential solutions include analytical platforms to help people track their earnings and spending patterns, new financial products or policy interventions to help people save money, and smooth income and spending.

"The government should consider seriously whether tax payments and tax refunds should be done on a more gradual basis. We've found tax payments are big divers of income and spending. There's no reason why the government couldn't help smooth some of that volatility in that way," said Farrell.

The institute plans to build its dataset to analyze the financial behavior of individuals, the small business sector, global trade and capital flows, and other economic issues in the future.

"JP Morgan Chase has the data to help tackle the economic challenges we continue to face," said JP Morgan's Chairman and Chief Executive Officer Jamie Dimon.

"That's why we set up the institute -- to analyze the data and produce insights that will help leaders in the public, private and nonprofit sectors make more informed choices," he added.

The institute said it has adopted rigorous security protocols to ensure all customer data are kept confidential and secure. Endi