Jun 23, 2021

Axios Markets

Welcome back Wednesday. (Today's newsletter is 1,207 words, 4.6 minutes.)

Tune in: Join me and Axios’ Hans Nichols for a virtual event on how businesses have adapted to an unprecedented year. Guests include Sen. Patty Murray (D-Wash.) and founder of Catch22 Delivery Olga Sagan. Register here.

1 big thing: The small business boom
Expand chart
Data: BFS Weekly via John C. Haltiwanger of the University of Maryland; Chart: Axios Visuals

One of the most unexpected pandemic winners might just turn out to be new small businesses, writes Axios chief financial correspondent Felix Salmon.

Why it matters: The number of entrepreneurs starting a business easily hit a record high in 2020, according to a new analysis by University of Maryland economist John Haltiwanger. That's a surprising result, given the severity of the crisis.

The big picture: It's now much easier than it was in 2008 to start a small business selling goods or services online.

  • By far the largest single sector of new business formation is "nonstore retailers," who account for one of every three new businesses formed over the pandemic. They were helped at every step of the process by e-commerce platforms such as Shopify and Stripe (which wasn't even founded until 2009).

Be smart: Renting space on Instagram is a lot easier, and can scale a lot more quickly, than renting a storefront.

Physical businesses have been booming too — but largely in states where rents are relatively low, like Texas, Florida and Georgia. Those states have seen much more new business formation than high-rent California, New York and New Jersey.

  • When the Wall Street Journal told the story of how businesses on one Chicago street are coping with the pandemic, it found that out of nearly 50 businesses on the strip, five had closed permanently — while 10 new businesses had arrived.
  • Sectors seeing a lot of new openings include laundromats, trucking, and, possibly surprisingly, restaurants.

How it works: One of the biggest differences between the crises of 2008 and 2020 is that the former was associated with an extreme lack of money, while the latter saw an abundance of it.

  • In 2008, Americans lost billions of dollars in home equity, even as the stock market was crashing and banks stopped lending.
  • The pandemic, by contrast, unleashed trillions of dollars in new government spending.
  • A surging stock market has also helped provide the upfront capital that some entrepreneurs need.

Between the lines: There's no solid data on how many small businesses closed during the recession. A recent Fed paper, however, suggests that about 130,000 firms went out of business in the first year of the pandemic — up between a quarter and a third from normal levels, and much lower than many economists originally feared.

The bottom line: If the Fed's number is accurate, the total number of small businesses may have gone up, not down, over the course of the pandemic. Either way, what's certain is that Americans have been starting small businesses at an unprecedented pace.

Go deeper.

2. Catch up quick

The FTC, under new chair Lina Khan, will scrutinize Amazon's pending acquisition of MGM Studios. Khan made her name in the antitrust world in part by criticizing Amazon. (WSJ)

Eurozone business activity growth rose to a 15-year high in June, according to IHS Markit. (Reuters)

The median price for an existing home in the U.S. climbed to a record high of $350,300 in May. (Axios)

3. Inequality Index inches higher
Data: Morning Consult/Axios Inequality Index; Chart: Axios Visuals

Inequality in the U.S. expanded during June, as measured by the Morning Consult/Axios Inequality Index, which ticked up to 6.71 from 6.53 in May, writes Axios’ Kate Marino.

Why it matters: The latest data show that middle-income Americans have a significantly improving employment outlook and feel more secure in their jobs than groups of lower-income and higher-income adults.

  • "If you’re back to working at a restaurant or bar, your economic experiences and expectations are a lot better than they were last month. Everyone else is stuck in the mud," John Leer, Morning Consult chief economist, tells Axios.

How it works: The Morning Consult/Axios Inequality Index measures whether or not economic inequality is rising or declining — as opposed to providing a snapshot of the distribution of income or wealth. A higher reading means more inequality.

  • The index’s movement is based on comparing the sentiment of three income groups — $50,000/year or lower; $50,000-$100,000/year; and $100,000/year-plus.

The overall index is made of four components.

  • Pay income loss inequality was relatively stable in June versus May.
  • Consumer sentiment tracks differences in consumer confidence between the three income groups. Inequality here continually moved up between May 2020 and March 2021 but has been on a downward trend since then. June’s reading was nearly in line with May’s.
  • Job loss expectations had the biggest movement overall this month. The inequality here increased, following an uptick last month. Individuals in the high-income and low-income segments were much more concerned than the middle-income segment.
  • Financial vulnerability tracks the share of Americans who say they can’t cover basic expenses for a month with their savings. This measure actually fell slightly from May to June, after increasing during the previous monthly period.

The bottom line: The hand-off between stimulus checks unwinding and additional jobs coming online has gone the smoothest for the middle-income group. But the data implies that in the lower-income group, people are using up stimulus checks at a faster rate than they're finding employment, Leer says.

4. 41,410 people became ultra-wealthy in 2020
Data: Credit Suisse; Chart: Michelle McGhee/Axios

Speaking of inequality, pandemic era policies intended to backstop the economy have helped make the rich much, much richer, writes Axios Markets correspondent Sam Ro.

Why it matters: Critics of central banks often argue this is an unacceptable side effect of emergency monetary policy.

By the numbers: At the end of 2020, there were 215,030 adults in the world who were classified as ultra-high net worth — those with more than $50,000,000 in net assets — according to the Credit Suisse Global Wealth Report released Tuesday.

  • This is up by 41,410 individuals, or 23.9%, from a year ago, the highest rate of increase since 2003.
  • There were 56.1 million millionaires, up 5.2 million or 10.2% from a year ago.

On the flip side: About 2.9 billion adults had a net worth of less than $10,000 as of the end of 2020.

  • The bottom 50% of adults accounted for less than 1% of total global wealth.

What they’re saying: "The lowering of interest rates by central banks has probably had the greatest impact," Credit Suisse analysts said.

  • "It is a major reason why share prices and house prices have flourished, and these translate directly into our valuations of household wealth."

The other side: Policymakers didn’t have many options as they faced a pandemic that forced businesses everywhere to immediately shut down, putting millions out of work.

5. Charted: 2021 bitcoin gains wiped out
Data: Coindesk; Chart: Axios Visuals

If this year's No. 1 NFL draft pick Trevor Lawrence had a do-over, maybe he wouldn't have placed his April signing bonus into a cryptocurrency account, Kate writes.

Driving the news: Nearly all of bitcoin's price gains this year have been wiped out, and the cryptocurrency has fallen about 50% from its peak in April. Ethereum is also down more than 50% from its April high.

Why it matters: The Chinese government's intervention in the market is impacting investor assets around the world.

What happened: China's central bank this week cracked down on crypto trading and mining within the country.

  • "Speculative trading in virtual currencies roils economic and financial order, spawns the risks of criminal activities such as illegal asset transfers and money laundering, and endangers people's wealth," the central bank said in a statement Monday, per Reuters.
  • Local Chinese authorities have shut down bitcoin mining operations at hubs throughout the country, Reuters writes.

Thanks for reading!

Send tips, or feedback, or playlist recommendations to aja.moore@axios.com or find me on Twitter @AjaWMoore.