Black Buying Power – 2013Tags: ,

SUBMITTED BY: Jeffrey M. Humphreys, PhD, Director Selig Center for Economic Growth, University of Georgia

Despite the severe impact of the Great Recession, blacks’ economic clout continues to energize the U.S. consumer market. The Selig Center estimates that the nation’s black buying power will rise from $316 billion in 1990 to $601 billion in 2000, to $951 billion in 2010, to $1 trillion in 2013, and to $1.3 trillion in 2018. The 78 percent increase between 2000 and 2013 outstrips the 63 percent rise in white buying power and the 70 percent increase in total buying power (all races combined). In 2013, the nation’s share of total buying power that is black will be 8.6 percent, up from 8.2 percent in 2000 and from 7.5 percent in 1990. African-American consumers’ share of the nation’s total buying power will rise to 8.8 percent in 2018, accounting for almost nine cents out of every dollar that is spent.

The gains in black buying power reflect much more than just population growth and inflation. Of the many diverse supporting forces, one of the most important and enduring is the increasing number of blacks who are starting and expanding their own businesses. The 2007 Survey of Business Owners (released by the U.S. Census bureau in June 2011) shows that the number of black-owned firms was 61 percent higher in 2007 than in 2002, which more than three times the 18 percent gain in the number of all U.S. firms. Also, compared to the 1997-2002 period, the overall rate of growth in the number of blackowned firms accelerated—as did the rate of growth in the number of all U.S. firms. Between 2002 and 2007, the receipts of black-owned firms grew by 55 percent compared to the 34 percent increase in the receipts of all U.S. firms.

Still another positive factor underpinning the group’s buying power is that African Americans continue to become more highly educated, which should allow proportionally more blacks to enter occupations with higher average salaries. Census data show that in 2012, 85 percent of blacks over 25 years of age had completed high school or college, far better than the 66 percent reported in 1990 and the 79 percent recorded in 2000. Despite this, the percentage of African Americans who are high school graduates or better was still lower than the percentage of whites (88 percent) and Asians (89 percent). Also, the Current Population Survey indicates that 21 percent of blacks had a bachelor’s, graduate, or professional degree compared to 31 percent of whites and 51 percent of Asians. Nonetheless, the percentage of blacks who had completed college in 2013 (21 percent) was higher than in either 2000 (17 percent) or in 1990 (11 percent).

Favorable demographic trends help, too, since the black population continues to grow more rapidly than the total population. From 2000 to 2013, the nation’s black population grew by 16.3 percent compared to 7.7 percent for the white population and 12.3 percent for the total population. From 2013 to 2018, the nation’s black population is projected to grow by 5.9 percent, which exceeds the 4.5 percent growth estimated for the total U.S. population. Also, the black population is younger: the 2010 Current Population Survey indicates that the median age of blacks is only 31.4 years compared to 38.2 years for the white population or 36.7 years for the total population. Compared to the older white population, larger proportions of blacks will enter the workforce for the first time or will move up from entry-level jobs. This will provide an extra push to the group’s overall buying power. Conversely, smaller proportions of blacks have reached their career pinnacles or are of traditional retirement age. In 2010, only 8.6 percent of blacks were over 65, compared to 13.8 percent of whites or 12.7 percent of the total population. So, black buying power may be slightly more resistant to reforms of popular government entitlement programs for retirees (e.g., Social Security and Medicare), especially if those reforms focus benefit reductions on higher income households.

Because they are much younger, African-American consumers increasingly are setting trends for teens (and young adults) of every race and ethnic background. This isn’t surprising given that 29.4 percent of

the black population is under 18 years old compared to 23.3 percent of the white population or 24.6 percent of the total population.

The youthful profile of the black population has its downside, however. Compared to people who are either more established in their careers or retired, young adults, regardless of their race or ethnicity, are more exposed to job losses in economic downturns. So, in this regard, black buying power is vulnerable to the effects of economic recessions, but over time the above-average growth of black buying power has more than compensated for that high cyclical exposure.

Due the unusual severity of the Great Recession, employment growth no longer can be cited as one of the main forces behind the above-average gains in black buying power. From January 2000 through April 2013 (the most recent data available at the time of this writing), the number of jobs held by blacks had increased by only 1 million, or a paltry 0.5 percent per year. Furthermore, from its prerecession peak in January 2007 (when blacks held 16,212,000 jobs) through April 2013 (when blacks held 16,167,000 jobs), the number of employed African Americans dropped by 45,000. The black unemployment rate therefore soared from 7.9 percent (January 2007) to 16.8 percent (March 2010). By April 2013, the employment-to-population ratio for blacks stood at only 53.4 percent—it was 59.4 percent in January 2007.

The jobs losses have been very heavy because recessions with credit crunches and housing busts are always deeper and longer than other recessions. The financial panic didn’t help. This unusual set of events brought the economy to its knees, and it erased a decade’s worth of job growth for African Americans. At the time of this writing, it appears that the period of job losses is over, but the labor market’s recovery is anemic, especially in states hit the hardest by the housing bust.

In 2013, the ten states with the largest African-American markets, in order, are New York ($101 billion), Texas ($92 billion), California ($77 billion), Georgia ($76 billion), Florida ($75 billion), Maryland ($64 billion), North Carolina ($50 billion), Illinois ($46 billion), Virginia ($46 billion), and New Jersey ($41 billion). Of these, however, Georgia and Maryland are the only ones that did not rank among the top ten markets for all consumers.

One characteristic that sets the African-American consumer market apart from the Hispanic and Asian markets is that it is not concentrated in a handful of states. This vibrant consumer market is very widespread, and therefore is an attractive customer segment in many of the states. In 2013, the five largest African-American markets account for 39 percent of black buying power. The five states with the

largest total consumer markets account for 38 percent of total buying power. Similarly, the ten largest black markets account for 62 percent of the African-American market and the ten largest total consumer

markets account for 55 percent of total buying power. In order, the top ten states ranked by the rate of growth of black buying power between 2000 and 2013 are North Dakota (296 percent), South Dakota (262 percent), Vermont (234 percent), Idaho (187 percent), Arizona (174 percent), New Hampshire (159 percent), Maine (152 percent), New Mexico (150 percent), Nevada (137 percent), and Iowa (127 percent). All have flourishing African-American consumer markets, but none is among the nation’s ten largest black consumer markets.

In 2013, the ten states with the largest share of total buying power that is black are the District of Columbia (26.3 percent), Mississippi (23.6 percent), Maryland (23.1 percent), Georgia (22.1 percent), Louisiana (19.8 percent), South Carolina (17.7 percent), Alabama (17.4 percent), Delaware (15.1 percent), North Carolina (14.8 percent), and Virginia (13 percent). The 2.6 percent, 2.2 percent, and 1.7 percent increases in African American’s share of the consumer markets in Georgia, Maryland, and Delaware were the three biggest share shifts in the nation from 2000 to 2013, respectively. There also was a 1.6 percent advance in Nevada and a 1.4 percent gain in Florida.

Due to differences in per capita income, wealth, demographics, educational attainment, occupational distribution, geographic distribution, and culture, the spending habits of blacks as a group are not the same as those of non-black consumers. Thus, as African Americans’ share of the nation’s total buying power expands, business-to-consumer firms can be expected to devote more resources todeveloping and marketing products that meet the needs and matchthe preferences of black consumers.

Data from the 2012 Consumer Expenditure Survey indicate that the average black household spent in total only 73 percent as much as the average non-black household, reflecting blacks’ lower median household incomes. The values are for money income, which differs somewhat from buying power, but nonetheless offers some insights into spending by black consumers.

Despite lower average household income levels, African Americans lead in some categories. For example, on average, black households spent more than non-black households on natural gas, electricity, audio equipment, and footwear. Also, blacks spent a significantly higher proportion of their money on housing, groceries, phone services, furniture, clothing, car insurance, and gasoline and motor oil. These findings strongly imply that energy utilities, telecom firms, car insurers, gas stations, grocers, clothing stores, and shoe stores would do well to market themselves directly to black consumers. Blacks and non-blacks spent about the same proportion of their income for groceries, housekeeping supplies, appliances, children’s clothing, used cars, tobacco products, cash contributions, and life insurance. Compared to non-blacks, however, blacks spent much less of their total outlays on restaurants, alcoholic beverages, new cars, health care, fees and admissions, pets, toys, and pensions and Social Security.

The same survey indicates that black households are slightly more likely to have children under 18 (0.7 persons for blacks versus 0.6 persons for whites and others). Blacks have only 1.3 vehicles per household compared to two vehicles for white and other households; and they are more likely to be renters rather than homeowners.

Excerpt from: THE MULTICULTURAL ECONOMY, 2013,  Selig Center for Economic Growth


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