Gathering data from FRED for Excel
While many financial models may not require special data, some do. In particular, if you're making projections about the future, or about the level of market share a firm will have, it's helpful to have outside data as part of that process.
You can often get this data through Excel. In particular, I'm gonna show you how to use a tool called "FRED" to do this. Now FRED, or the Federal Reserve Economic Database, is available for free from the St. Louis Federal Reserve. You will need to download a special free Excel add-in, and generally you'll want to use the Excel 2013 version. Go ahead and download that Excel add-in, and you'll be ready to use it. Once you're in Excel, you're prepared to begin downloading data from FRED, but to do this, you need to install the add-in. So you'll want to go to File, then down to Options, come over to Add-Ins, and then come down to Manage Excel Add-Ins and click Go. Once you'll do that, you'll see a variety of different add-ins you can use, but you won't have FRED just yet. You need to figure out where you've downloaded that FRED add-in to. Typically you'll find the FRED add-in in your Downloads folder. Go ahead and add that add-in, then click OK. Once you do this, you should see a new tab pop up at the top that says FRED. Now FRED is great because it gives you the ability to directly download data into Excel for a variety of different areas you might be interested in. Let's pretend that we're doing a financial model Well we could go and buy data from someone like Hoovers for example, or Merchant, but we could also get data related to auto sales from the federal reserve. If we click Browse Popular US Data, we'll see a variety of different types of data that we might be interested in. Everything from production and business activity data, like industrial production numbers or housing starts, to data on payroll, job openings, number of hours worked, data on gross domestic product, and other overall national level indicators to the health of the economy. And of course data on inflation and money supply. We even have data available internationally, from a variety of major countries around the world. Now, let's go ahead and download some data that might be useful to us in certain settings. For example, maybe we're trying to do some sort of an analysis related to future market share around a company that's in the automobile business. Well, wouldn't it be helpful to understand how fast auto sales are growing over time? To do that, we can download data on like-vehicle sales, and we'll add to that perhaps a couple other factors that we care about. So maybe we are also interested in, for example, inflation... And perhaps we're interested in oil prices. As I clicked each of these different indicator variables that we're interested in, you'll notice that an acronym, or pneumonic, popped up in the top of the column. That's the code that tells FRED which data point we're interested in. Once we have this data, we're ready to click "get FRED data" and now the data will auto-fill over time. This shows us, for example, the level of automobile sales in millions of units sold each month from 1976 through 2018. Now, maybe we're not interested in going back as far as 1976. Perhaps we want to start with 1990 data for each of these different variables. To do that, we'll change the year in the date shown in row four for each column. So I'm going to change automobile sales from starting in 1900, or as early as the data is available, to starting in 1990. I'll do the same thing in column C, in cell C4, which will tell me about inflationary data, and then again in E4, as it relates to oil prices. Once I do this, I can click "get FRED data" and all of my data now updates so that it starts in 1990 and goes through present time in 2018. At this point, you should understand how to use FRED to pull in outside data that's relevant to your financial modeling needs.