Economic Roundup

Halfway through the year, with clear signs of national economic growth, the economy of Black America is mired in recession. That assessment follows a recent report that the buying power of African-Americans will reach $1.1 trillion by 2015, based on current spending, media habits and consumer trends. ?The State of the African-American Consumer Report,? released last September by The Nielsen Co. and the National Newspaper Publishers Association (the Black Press of America), cites an increase in the number of Blacks attending college or earning a degree and an increase in the number of African-American households earning $75,000 or higher by almost 64 percent.

GDP, GDI and Blacks??

?There are two ways to measure the nation?s economic output. The more popular method is based on gross domestic product, or GDP, which adds up total consumption, investment, public spending and net exports in a given year or quarter. Less watched is the gross domestic income, or GDI, which adds up what everyone earned in the given year or quarter.

While these indicators theoretically should show the same economic outlook, their estimates sometimes differ. For example, in the past year, real GDI growth outpaced real GDP growth by roughly 0.7 percent. In the fourth quarter, it rose by an annualized rate of 4.4 percent ? double the 2.2 percent GDP growth reported for the first quarter of 2012 and 1.4 percent stronger than a 3.0 percent annualized GDP growth rate for the fourth quarter of 2011. From the income perspective, the U.S. economic recovery is on track, despite hitting speed bumps recently. According to the Federal Reserve Board, the GDI growth rate, rather than GDP, better represents the fluctuations in business cycles.

However, neither the GDI nor GDP correctly measures the African-American economy. Since GDP represents production and growth, it has a huge impact on everyone within the economy. A healthy economy is reflected in low unemployment and wage increases as businesses hire workers to meet growing demand for their output. At the same time, a noticeable change in the GDP affects the stock market? because investors keep a close eye on that figure. A weak economy or a slowdown in growth means lower profits for companies, which in turn means lower stock prices.

From a demographic standpoint, both employment and stock market data are dismal for minorities. If the national data show a fragile economy, the African-American economy remains mired in recession.


Bureau of Labor Statistics data showed the job market slowed in March as companies reduced hiring amid uncertainty about the economy?s growth prospects.

For African-Americans, the job outlook is bleak and hasn?t changed much in the past five months. At the end of 2011, the unemployment rate for African-Americans was 15.8 percent. In January, that rate fell 2.2 percent to 13.6 percent, its lowest level since March 2009, before climbing to 14.1 percent in February. After easing to 14 percent in March, it fell to 13 percent in April. The nearly 3 percent drop in jobless rate for African-Americans during the first quarter 2012 may be due to warmer-than-usual winter weather, which allowed construction projects to proceed, analysts surmise. The simultaneous improvement of the manufacturing sector, which employs many African-Americans, also likely helped lower the rate.
?William M. Rodgers III, an African-American labor economist and professor at Rutgers University, says aside from discrimination, two key problems in the current job market are the racial disparity in education and the fact that Blacks are living in urban centers while most of the jobs are being created in the suburbs.
Investment and savings

African-Americans lag the general population in terms of investment in the stock market. Only 46 percent of African-Americans and 32 percent of Latinos have an individual retirement account (IRA) or similar retirement arrangement, according to a survey by Kaiser Family Foundation and Harvard University. That compares to half of whites, who own stocks, bonds or mutual funds. Two in three of whites have had IRAs, 401(k) or similar investments, the survey showed.

The low investment rate among African-Americans and Latinos has also been reported by other studies. It is one of the reasons for huge wealth disparities among the races. The situation has been made worse by the anemic nature of the current economic recovery.

A study by Ariel Education Initiative and Aon Hewitt, which examined the contribution plans of 60 large U.S. companies and covered 2.4 million workers, found that retirement plans of African-Americans and Latinos were hit harder than those of whites and Asians during the Great Recession. The study, carried out in collaboration with the Joint Center for Political and Economic Studies, was funded by Ariel Investments, a leading Black-owned money management firm, and Aon Hewitt, a human resources firm affiliated with insurers AON Corp. It was released April 3.

The study found that economic uncertainty has led all workers to dip ?into their retirement savings, with some 8.8 percent of African-Americans taking hardship withdrawals, compared to 3.2 percent of Latinos, 1.7 percent of whites and just 1.2 percent of Asian workers. ?Compared to their Asian and White counterparts, African-American and Hispanic employees are eroding their retirement savings at an alarming rate,? the report says.
While sometimes unavoidable, depleting investments reduces the ability to save for retirement. Although the recession hurt all Americans, it took a heavier toll on African-Americans. Blacks were most likely to lose jobs, face foreclosures and lose health insurance coverage, according to a Washington Post-Kaiser Family Foundation-Harvard University poll. Not only are African-Americans and Latinos less likely than whites to own IRAs or investment securities, they also are far less likely to own a home, considered the largest engine of wealth creation for most Americans. And even those who own a home have less equity in them, in part because they live in communities where prices appreciate more slowly, analysts say.

Election year prospects

President Barack Obama often argues that he wants the economy to grow so that everyone can have an opportunity to get ahead. Many factors are beyond his control, however, including problems in Europe that could affect the U.S. economy in the latter half of the year. Still, there?s a positive for the United States, President Obama and his re-election prospects: the growing backlash in Europe against austerity policies promoted mostly by conservative politicians that have sharply cut state spending and reduced prospects for growth.

In their calls for deeper cuts to stem the deficit, Republicans in the U.S. have pointed to the debt crisis in Greece, Spain, Portugal and Ireland as something to be avoided. Their argument goes this way: If austerity policies are pursued, even as economic growth slows and unemployment rises, investors will reward us by buying more U.S. treasury notes. In the long term, they argue, the economy will benefit from lower interest rates that will follow massive demand for U.S. bonds.

However, that approach has already failed in Greece, Ireland and Portugal, and it?s now failing to curb bond yields in Italy and Spain. The more these governments promise to cut spending, the more investors flee their bond markets because investors know that a lack of economic growth follows such a policy. Public anger against austerity policies led to the collapse of governments in the Netherlands, Romania and the Czech Republic in late April. French President Nicolas Sarkozy became the latest casualty when socialist Francois Hollande won the May 6 presidential election runoff. ?Republican policymakers that seek to implement austerity programs fail to include the long-term costs associated with implementing austerity programs too early in the nation?s recovery, and policies that remove oversight of the private sector and weaken workers? voice,? Rodgers says. ?If these policies are pursued, future generations may not face a serious debt burden, but the following will happen: long-term unemployment will remain elevated, and minority, youth and older worker joblessness will remain elevated.?