This Simple Visualization Compares the Economies of Every U.S. State
Over the previous month, we’ve published simple Voronoi diagrams that visualize the economies of the world as well as $60 trillion of global debt. This visualization today compares state economies by contribution to America’s GDP of $17.3 trillion (2014), while also grouping the states by geographical regions such as New England, Mideast, Great Lakes, Plains, Rocky Mountains, Far West, Southwest, and Southeast. Most economic activity is concentrated in three regions: Far West (18.6%), Southeast (21.3%), and Mideast (18.2%). The states in these regions, which cover the majority of the coastline where most big cities are located, comprise nearly 60% of the U.S. total economic output. Compare this with sparsely populated regions such the Rocky Mountains, which contributes only 3.6% of economic output between five large states. The largest individual state economies include California (13.3%), Texas (9.5%), and New York (8.1%). The smallest economy is held by Vermont (0.2%) with seven others contributing 0.3% of economic output: Maine, Rhode Island, North Dakota, South Dakota, Montana, Wyoming, and Alaska. How has the relationship between state economies changed over time? The publishers at HowMuch.net note: “All states have increased their economic outputs between 2011 and 2014, but some have grown faster than others. In terms of regional influence, the Southeast economy has shrunk in relation to other regions by just 0.4% over the last four years, while the Southwest economy has grown by 0.8% relative to other regions. Texas increased the size of its economy by almost $300 billion, more than any other state, growing from 8.8% of the US economy in 2011 to 9.5% in 2014. This growth in Texas was fueled by mining and manufacturing. California grew by just under $300 billion, but only increased its share of the total economy by 0.1%.” Original graphic by: HowMuch.net
on Last year, stock and bond returns tumbled after the Federal Reserve hiked interest rates at the fastest speed in 40 years. It was the first time in decades that both asset classes posted negative annual investment returns in tandem. Over four decades, this has happened 2.4% of the time across any 12-month rolling period. To look at how various stock and bond asset allocations have performed over history—and their broader correlations—the above graphic charts their best, worst, and average returns, using data from Vanguard.
How Has Asset Allocation Impacted Returns?
Based on data between 1926 and 2019, the table below looks at the spectrum of market returns of different asset allocations:
We can see that a portfolio made entirely of stocks returned 10.3% on average, the highest across all asset allocations. Of course, this came with wider return variance, hitting an annual low of -43% and a high of 54%.
A traditional 60/40 portfolio—which has lost its luster in recent years as low interest rates have led to lower bond returns—saw an average historical return of 8.8%. As interest rates have climbed in recent years, this may widen its appeal once again as bond returns may rise.
Meanwhile, a 100% bond portfolio averaged 5.3% in annual returns over the period. Bonds typically serve as a hedge against portfolio losses thanks to their typically negative historical correlation to stocks.
A Closer Look at Historical Correlations
To understand how 2022 was an outlier in terms of asset correlations we can look at the graphic below:
The last time stocks and bonds moved together in a negative direction was in 1969. At the time, inflation was accelerating and the Fed was hiking interest rates to cool rising costs. In fact, historically, when inflation surges, stocks and bonds have often moved in similar directions. Underscoring this divergence is real interest rate volatility. When real interest rates are a driving force in the market, as we have seen in the last year, it hurts both stock and bond returns. This is because higher interest rates can reduce the future cash flows of these investments. Adding another layer is the level of risk appetite among investors. When the economic outlook is uncertain and interest rate volatility is high, investors are more likely to take risk off their portfolios and demand higher returns for taking on higher risk. This can push down equity and bond prices. On the other hand, if the economic outlook is positive, investors may be willing to take on more risk, in turn potentially boosting equity prices.
Current Investment Returns in Context
Today, financial markets are seeing sharp swings as the ripple effects of higher interest rates are sinking in. For investors, historical data provides insight on long-term asset allocation trends. Over the last century, cycles of high interest rates have come and gone. Both equity and bond investment returns have been resilient for investors who stay the course.
