In Part 2 of the series Charting the Economy, we examine GDP, wages and wealth. This series is intended to present a recent history of the economy in an easy to understand format using graphs. You can find Part 1 here.
The first chart shows GDP gains for the US since 2001.
click to enlarge
Source: Bureau of Economic Analysis
The biggest raise comes in government, followed by other services, services, and private industries. ‘Other services’ includes information, finance, real estate, scientific, professional, education, healthcare, and technical. Manufacturing wages fell (along with available jobs), and goods producing industries stayed stagnant. The service industry and government workers are clearly taking home larger portions of the wage pie.
GDP has risen strongly compared to population, suggesting great efficiency gains. Since we know overall employment has remained flat-lined for the decade, we should be able to make a 1:1 comparison in wages to GDP.
When taken together, the percentage increase in population * the percentage increase in wages equals the percentage increase in GDP.
Overall wage changes and percentage attained by age grouping.
The highest 20% of the population make about half of all income. The top 5 percent make 21% by themselves. The top 5% lost a very modest amount of income to the rest of the top 40% in the last ten years, but by and large the last 10 years have maintained the status quo.
This chart shows that the lowest 60% of earners have lost significant portion of the aggregate income in the US, while the top 20% and top 5% have seen monstrous share increases. Interestingly, the fastest rate of change in income changes for all groups came between 1986 and 1996, when higher income earners captured more of the total aggregate income than at any other time since 1967.
While total wages multiplied by total population has kept up with total GDP, the aggregate share of the national income has not.
The chart shows that because the lowest 40% of earners cannot increase their share of aggregate income, their rates of poverty increase. Inflation is stealing away their purchasing power and putting them in the poor house.
The chart is in thousands. We can see that the bottom 50% of people have not grown their net worth measurably. The top 10 percent have tripled their net worth. The chart shows that the wealth affect, or the ability of existing assets to multiply wealth over time at an exponential rate, has left a severely deepening gulf between the haves and have nots.
This data, of course, ignores the movement amongst the classes. But it does show that those with assets are more easily able to multiply it to create wealth for their families.
Source: Federal Reserve 2007 Survey of Consumer Finances
Note: Bonds had less than 10 responses for all but the highest bracket. We can see the poorer brackets have primarily cash accounts and retirement accounts, while having small percentages of CDs, savings bonds, and life insurance. Higher brackets have a larger mix of financial assets, likely due to having more money to purchase various assets with.
Ownership of stock from 1989 to 2007 greatly increased for income brackets 40% and up, likely due to increase participation in 401k type retirement plans. The lowest 40% of incomes did not increase their participation in stocks substantially during the time period.
Primary residences and business equity make up the majority of other assets held by families.
Checking accounts, interest bearing bank accounts and CDs, stocks and retirement accounts, primary residences, and cars make up the majority of ‘financial assets’ held by the public, as per the census.
The largest debt is the primary residence, and the percentage equity of all owners has dropped 9% from 1989 to 2007. Other debt tied to residential property has risen 32% over that time frame (equity loans). Credit card balances jumped 21% in that same time frame, while lines of unsecured credit dropped 38%.
The leverage ratio shows that the poorest use the most debt per their income. Because their share of income is so small, any debts carried inhibit their ability to increase their net worth.
There is really no point in putting specific investments here. Based upon existing net worth stats, it is clear that no current class of workers are financially prepared for retirement. This means we can expect additional dependence on social security and for retirees to continue working past the age of 65 to make ends meet. Even if these numbers had doubled since 2004 (an extremely unlikely scenario), workers would simply not have nearly enough to retire on without substantial assistance required. Most estimates of minimum retirement nesteggs start in the millions of dollars.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.