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The Wealth Inequality Problem in One Chart

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The Wealth Inequality Problem in One Chart

The Wealth Inequality Problem in One Chart

It’s clear that America’s financial and political systems are broken

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

It seems that people don’t agree on much these days, but there is one growing exception to that rule.

Across the board, Americans are finding that the “system” isn’t working for most people in its current state. Donald Trump and Bernie Sanders have locked into this sentiment to garner unprecedented support as outsider candidates, and there is an undeniable feeling in the air that something has got to give.

Why is there so much conviction that things must change?

The Wealth Inequality Problem

In today’s chart, we showcase the wealth inequality problem in the best way we could. The challenge with it was that literally the data goes “off” the chart with no easy way to show it.

On the chart, we plotted the “Median Net Worth” of different wealth groups between 1998 and 2013. This is based on a study that the Federal Reserve does about every three years on consumer finances.

When this data is compared in 2013 dollars:

  • The Lower Class: Wealth has decreased by 26.5% for the bottom 20% of incomes
  • The Working Class: Wealth has decreased by 52.7% for the second lowest 20% of incomes
  • The Middle Class: Wealth has decreased by 19.1% for the middle 20% of incomes

However, one segment has shot up “off” the charts:

  • The Top 10%: Wealth has increased 74.9%, soaring to a median net worth of over $1.1 million.

Then and Now

What’s changed between then and now?

We looked at this from a macroeconomic perspective to get a sense of what has changed between 1998 and today, using latest data from last month (May 2016).

  • Unemployment is relatively flat between 1998 and today, but the amount of people actively looking for work has dropped by 4.5%. With more workers discouraged since the 2008 crisis, Workforce participation has dropped steadily. Economists also say this is likely due to a rapidly aging population.
  • Inflation has averaged between 0% and 1% over the last three years. It is currently sitting at 1%. In 1998, inflation was closer to the Fed’s 2% target.
  • The Federal Funds Rate, which is the rate that generally acts as a backbone for interest rates across the country, has dropped like a rock. Right now it was effectively 0.37% in May 2016, way down from 5% to 6% that existed for most of the 90s.
  • National Debt has almost quadrupled in nominal terms from $5.5 trillion (1998) to $19.3 trillion today. In real terms, taking into account inflation, it has more than doubled.
  • Money Supply (M2) has increased from $4.2 trillion (1998) to $12.7 trillion today. About $5 trillion of this increase came after the 2008 crisis.

And while there are many factors that go into wealth inequality, we believe that some of the above factors are worth exploring and understanding in detail.

For example, who benefits from 0% interest rates the most?
Who owns assets like real estate or stocks that have their prices propped up by these policies?
Who can borrow capital at low rates to invest or speculate on rises in these prices – is it the people that already have money, or the people without any?
Where does all the extra money that is added to the system go?
What is each $1 trillion of new U.S. debt spent on, and do the benefits of this added debt outweigh the costs?

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Markets

Visualizing the Recent Explosion in Lumber Prices

Lumber prices in the U.S. continue to break records as pressure from both the supply and demand sides of the market collide.

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Visualizing the Recent Explosion in Lumber Prices

Lumber is an important commodity used in construction, and refers to wood that has been processed into beams or planks.

Fluctuations in its price, which is typically quoted in USD/1,000 board feet (bd ft), can significantly affect the housing industry and in turn, influence the broader U.S. economy.

To understand the impact that lumber prices can have, we’ve visualized the number of homes that can be built with $50,000 worth of lumber, one year apart.

A Story of Supply and Demand

Before discussing the infographic above, it’s important to understand the market’s current environment.

In just one year, the price of lumber has increased 377%—reaching a record high of $1,635 per 1,000 bd ft. For context, lumber has historically fluctuated between $200 to $400.

To understand what’s driving lumber prices to new heights, let’s look at two economic elements: supply and demand.

Shortened Supply

U.S. lumber supplies came under pressure in April 2017, when the Trump administration raised tariffs on Canadian lumber. Since then, lumber imports have fallen and prices have experienced significant volatility.

After a brief stint above $600 in April 2018, lumber quickly tumbled down to sub $250 levels, causing a number of sawmills to shut down. The resulting decreases in production capacity (supply) were estimated to be around 3 billion board feet.

Once COVID-19 emerged, labor shortages cut production even further, making the lumber market incredibly sensitive to demand shocks. The U.S. government has since reduced its tariffs on Canadian lumber, but these measures appear to be an example of too little, too late.

Pent-up Demand

Against expectations, COVID-19 has led to a significant boom in housing markets, greatly increasing the need for lumber.

Lockdowns in early 2020 delayed many home purchases until later in the year, while increased savings rates during the pandemic meant Americans had more cash on hand. The demand for homes was further amplified by record-low mortgage rates across the country.

Existing homeowners needed lumber too, as many Americans suddenly found themselves requiring upgrades and renovations to accommodate their new stay-at-home lifestyles.

How Many Homes Can You Build With $50K of Lumber?

To see how burgeoning lumber prices are impacting the U.S. housing market, we’ve calculated the number of single family homes that could be built with $50,000 worth of lumber. First, we established the following parameters:

  • Lumber requirements: 6.3 board feet (bd ft) per square foot (sq ft)
  • Median single family house size: 2,301 sq ft
  • Total lumber required per single family house: 14,496 bd ft

Based on these parameters, here’s how many single family homes can be built with $50,000 worth of lumber:

Date*Lumber PriceTotal Lumber PurchasedTotal Homes Built
2021-05-05$1,635 per 1,000 bd ft30,581 bd ft2.11
2020-05-04$343 per 1,000 bd ft145,773 bd ft10.05
2015-05-01$234 per 1,000 bd ft213,675 bd ft14.74
2010-05-01$270 per 1,000 bd ft185,185 bd ft12.77

*Exact matching dates were not available for past years.
Source: Insider

As lumber prices continue to set record highs, the National Association of Home Builders (NAHB) has reported that the cost to build a single family home has increased by $36,000. Most of this cost can be passed down to the consumer, but extremely tight supplies mean homebuilders are unable to start more projects.

The Clock is Ticking

Despite their best efforts to increase output, it’s likely that sawmills across the U.S. will continue playing catch-up in 2021.

“There was a great fear among sawmills to prepare for a downturn. When home buying surged, they could not open up capacity quickly enough.”
– Lawrence Yun, National Association of Realtors

Analysts are now warning that lumber prices could reach a flashpoint, where affordability becomes so limited that demand suddenly falls off. This has led the NAHB to ask the Biden administration for a temporary pause on Canadian lumber tariffs, which currently sit at 9%.

U.S. tariffs on Canadian lumber were first introduced in 1982, and represent one of the longest lasting trade wars between the two nations. The U.S. is currently appealing a World Trade Organization (WTO) ruling that states its 2017 tariff hike was a breach of global trading rules.

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Markets

Mapped: The State of Small Business Recovery in America

Compared to January 2020, 34% of small businesses are currently closed. This map looks at the small business recovery rate in 50 metro areas.

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Mapped: The State of Small Business Recovery in America

In the business news cycle, headlines are often dominated by large corporations, macroeconomic news, or government action.

While mom and pop might not always be in focus, collectively small businesses are a powerful and influential piece of the economy. In fact, 99.9% of all businesses in the U.S. qualify as small businesses, collectively employing almost half (47.3%) of the nation’s private workforce.

Unfortunately, they’ve also been one of the hardest-hit sectors of the economy amid the pandemic. From the CARES Act to the new budget proposal, billions of dollars have been allocated towards helping small businesses to get back on their feet.

Small Business Recovery in 50 Metro Areas

During the pandemic, many small businesses have either swiftly pivoted to survive, or struggled to stay afloat. This map pulls data from Opportunity Insights to examine the small business recovery rate in 50 metro areas across America.

So, has the situation improved since the last time we examined this data? The short answer is no—on a national scale, 34% of small businesses are closed compared to January 2020.

San Francisco is one of the most affected metro areas, with a 48% closure rate of small businesses. New York City has spiralled the most since the end of September 2020.

U.S. Metro Area% Change in # of
Small Businesses Open
(As of Sep 25, 2020)
% Change in # of
Small Businesses Open
(As of Apr 23, 2021)
7-month change (p.p.)
Albuquerque-23%-34%-11
Atlanta-26%-35%-9
Austin-32%-38%-6
Bakersfield-31%-35%-4
Baltimore-28%-35%-7
Boston-33%-47%-14
Charlotte-18%-28%-10
Chicago-27%-38%-11
Cleveland-26%-34%-8
Colorado Springs-23%-28%-5
Columbus-21%-28%-7
Dallas-Fort Worth-21%-28%-7
Denver-25%-29%-4
Detroit-28%-38%-10
El Paso-25%-26%-1
Fresno-26%-30%-4
Honolulu-41%-25%+16
Houston-30%-34%-4
Indianapolis-25%-34%-9
Jacksonville-18%-28%-10
Kansas City-15%-26%-11
Las Vegas-22%-30%-8
Los Angeles-27%-34%-7
Louisville-23%-35%-12
Memphis-21%-24%-3
Miami-23%-34%-11
Milwaukee-22%-27%-5
Minneapolis-21%-29%-8
Nashville-21%-26%-5
New Orleans-45%-39%+6
New York City-21%-42%-21
Oakland-32%-35%-3
Oklahoma City-26%-35%-9
Philadelphia-24%-31%-7
Phoenix-19%-31%-12
Portland-34%-36%-2
Raleigh-16%-29%-13
Sacramento-33%-34%-1
Salt Lake City-18%-23%-5
San Antonio-34%-40%-6
San Diego-28%-38%-10
San Francisco-49%-48%+2
San Jose-35%-44%-9
Seattle-28%-30%-2
Tampa-22%-40%-18
Tucson-27%-28%-1
Tulsa-23%-32%-9
Virginia Beach--36%0
Washington DC-37%-47%-10
Wichita-15%-28%-13

Data as of Apr 23, 2021 and indexed to Jan 4-31, 2020.

On the flip side, Honolulu has seen the most improvement. As travel and tourism numbers into Hawaii have steadily risen up with lifted nationwide restrictions, there has been a 16 p.p. increase in open businesses compared to September 2020.

Road to a K-Shaped Recovery

As of April 25, 2021, nearly 42% of the U.S. population has received at least one dose of a COVID-19 vaccine. However, even with this rapid vaccine rollout, various segments of the economy aren’t recovering at the same pace.

Take for instance the stark difference between professional services and the leisure and hospitality sector. Though small business revenues in both segments have yet to return to pre-pandemic levels, the latter has much more catching up to do:

Small Business Recovery Supplemental - Business Revenues

This uneven phenomena is known as a K-shaped recovery, where some industries see more improvement compared to others that stagnate in the aftermath of a recession.

The Entrepreneurial Spirit Endures

Despite these continued hardships, it appears that many Americans have not been deterred from starting their own businesses.

Many small businesses require an Employer Identification Number (EIN) which makes EIN applications a good proxy for business formation activity. Despite an initial dip in the early months of the pandemic, there has been a dramatic spike in EIN business applications.

ein business applications

Even in the face of a global pandemic, the perseverance of such metrics prove that the innovative American spirit is unwavering, and spells better days to come for small business recovery.

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