AFRICAN-AMERICAN BUYING POWER BY PLACE OF RESIDENCE: 1990-1999

AFRICAN-AMERICAN BUYING POWER BY PLACE OF RESIDENCE: 1990-1999

Dr.Jeffrey M. Humphreys
Director, Economic Forecasting
Selig Center for Economic Growth
Terry College of Business
The University of Georgia

s African-Americans increase in number and purchasing power, their share of the U.S. consumer market draws more and more attention from producers and retailers alike. The black buying power estimates presented here suggest that one general advertisement or product geared for all consumers misses many potentially profitable market opportunities. As the consumer market becomes more diverse, advertising, products, and media must be tailored to each market segment. With this in mind, entrepreneurs, marketing specialists, economic development organizations, and area chambers of commerce all have sought estimates of black buying power. Going beyond the intuitive approaches often used, such estimates provide a timely, cost-efficient, and quantitative way to assess the size of national, state, and for Georgia, sub-state African-American markets.

Simply defined, black buying power is the total personal income of black residents that is available, after taxes, for spending on goods and services--the disposable personal income of the black residents of a specified geographic area. Unfortunately, geographically precise data reflecting annual expenditure and income surveys of African-Americans are unavailable, and even estimates of black buying power are difficult to find, especially for individual states.

This article approaches the problem by providing estimates of black buying power for the nation, the states (including the District of Columbia), and Georgia’s eight MSAs and 159 counties. The estimates are reported in current dollars (not adjusted for inflation) and profile African-American consumers’ spending power during the 1990s. The data may be used to: (1) indicate the economic power of the black community; (2) measure the relative vitality of geographic markets; (3) assess the opportunity for the entry of new businesses or the expansion of existing ones; (4) gauge a business’s annual sales growth against potential market increases; (5) indicate the market potential of new and existing products; and (6) guide audience-specific advertising campaigns.

The estimates for 1990-1997 supersede those published in the March-April 1997 issue of Georgia Business and Economic Conditions. The revised data for those years, as well as the preliminary estimates for 1998-1999, should be considered only as the first step toward a more comprehensive analysis of the market. An entrepreneur considering the investment of substantial capital in a new enterprise, a new product line, or a new advertising campaign will need extensive feasibility analysis to determine market opportunities more precisely.

METHODOLOGY

Because a direct measure of black buying power does not exist, the estimates reported here were calculated using national and regional econometric models, univariate forecasting techniques, and data from various U.S. government sources. In general, the estimation process can be divided into two parts: estimating disposable personal income and allocating that estimate by race or ethnicity.

The Selig Center's most recent estimates of disposable personal income (total buying power) were reported in the March-April 1998 issue of Georgia Business and Economic Conditions. For 1990-1996, data on disposable personal income for the nation, the fifty states, and the District of Columbia were provided by the U.S. Department of Commerce's Bureau of Economic Analysis. The Selig Center prepared corresponding projections of total buying power for 1997-1999, as well as estimates for all of Georgia's metropolitan statistical areas (MSAs) and counties.

Defined as the share of total personal income that is available for personal consumption expenditures, personal interest payments, and savings, disposable personal income provides a measure of the total buying power of an area. Approximately 93 percent of disposable personal income is used to purchase goods and services; the remaining 7 percent represents interest paid by persons, personal saving, or personal transfers to others (net).

Because the Selig Center's estimates are based on disposable personal income data obtained from the U.S. Department of Commerce, rather than money income values for the U.S. as a whole issued by the U.S. Bureau of the Census, the result is significantly higher estimates of black buying power. Census data are gathered through a nationwide sample of households. In such surveys, respondents tend to underreport their income, which probably accounts for much of the discrepancy. The Bureau of Economic Analysis adjusts income tax return information to cope with legal but misreported income to deal with just this problem.

The Selig Center’s disposable personal income estimates for Georgia’s 159 counties and eight MSAs were prepared using univariate forecasting techniques. Disposable personal income estimates for the state served as a control total for the county and MSA estimates.

Allocation of total buying power in 1990-1999 to black and nonblack populations relied upon racial distributions provided by the Census Bureau's report: Estimates of the Population of States by Age, Sex, Race and Hispanic Origin: 1990 to 1996 (released on December 18, 1997). The population estimates for 1997-1999 were prepared by the Selig Center, and are based on Census data.

A relative income adjustment factor also compensated for the variation in per capita personal income (and by extension, in disposable personal income) that is accounted for by race. These factors were calculated from the local area per capita money income data by race gathered during the 1990 Census of Population and Housing. Long-term trends in per capita money income suggest that relative ratios in per capita income between the races change quite slowly. The ratios in this study, however, were adjusted to account for trends in the median household income, by race, reported in the Census Bureau’s Current Population Reports for the nation. The absence of current detailed data at the state and county levels clearly makes the black buying power estimates less precise because it increases their statistical error.

BLACK BUYING POWER IN THE U.S. AND THE STATES

The Selig Center projects that the nation’s black buying power will rise from $308 billion in 1990 to $533 billion in 1999, up by 72.9 percent in nine years--a compound annual rate of growth of 6.3 percent. This percentage gain far outstrips both the 56.7 percent increase projected for total buying power, the 55.3 percent increase projected for nominal GDP, and the 14 percent increase projected in the African-American population. The U.S. Consumer Price Index will increase 28.7 percent during this same period, but black buying power will grow more than two and one half times as fast as inflation. Substantially above-average growth in black buying power demonstrates the growing importance of black consumers and should create tremendous opportunities for businesses that pay attention to their needs.

Because of differences in per capita income, wealth, demographics, and culture the spending habits of African-Americans as a group are not the same as those of the average U.S. consumer. The most recent Consumer Expenditure Survey carried out by the U.S. Bureau of Labor Statistics (based on data from 1995) indicates that black households spent only about 74 percent as much as the average U.S. household and spent a higher proportion of their after-tax income on goods and services. The values are based on money income, which differs somewhat from total buying power, but nonetheless offers some insights into spending by black consumers.

Despite their lower average income levels, African-American households spent more on apparel, telephone services, and natural gas than average U.S. households. African-Americans also spent a higher proportion of their after-tax income on housing, electricity, transportation, and food eaten at home. They spent a lower percentage of their income on personal insurance and pensions, eating out, health care, and household furnishings. The Consumer Expenditure Survey indicates that 56 percent of black households are renters, compared to 36 percent of all households. Blacks spend about the same proportion of their incomes as the overall population on many goods and services, including household operations, housekeeping supplies, alcoholic beverages, tobacco products, personal care products, and cash contributions. Combined with the relatively rapid growth of black buying power, such differences and similarities should provide many marketing opportunities to those targeting the black consumer.

Among the diverse forces supporting the substantial and continued growth of black buying power, perhaps the most important is the increased number of jobs across the nation. Employment opportunities have improved for everyone, including African-Americans. The Census Bureau indicates that, in the past decade, the gap in high-school completions between blacks and whites in the 25- to 29-year-old age group narrowed to the point where there was no statistical difference in 1997. The same report indicated that only about 13 percent of African-Americans are college graduates, compared to 25 percent for whites and 42 percent for Asians, however. Advances in educational attainment will give blacks the credentials and the skills needed to enter occupations and fill jobs where earnings are higher. The increasing number of blacks who are successfully starting and expanding their own businesses also contributes to the gains in buying power. Favorable demographic trends are reinforcing these positive economic forces, as the black population continues to grow more rapidly than the total population.

In 1999, the nation’s share of total buying power that is black will be 8.2, up from 7.4 percent in 1990. The group's year-to-year gains in buying power vary somewhat, but remain substantial for each period. Annual gains ranged from 5.1 percent in 1991 to a peak of 8.3 percent in 1995, and are expected to rise slightly in 1999 (6.1 percent) compared to 1998 (5.7 percent). In each year, the percentage gain in black buying power has or will exceed the rate of growth in buying power for all consumers as a whole.

Estimates of the absolute size and rate of growth of black markets are two firm indications of market potential. In 1999, the ten states with the largest African-American markets, in order, will be New York, California, Texas, Florida, Georgia, Illinois, Maryland, North Carolina, New Jersey, and Michigan. In order, the top ten states ranked by the rate of growth of black buying power over 1990-1999 will be Idaho, South Dakota, Vermont, North Dakota, Utah, Nevada, Minnesota, Wyoming, Arizona, and New Mexico. All of these states have small but flourishing markets. No state appears on both top ten lists, but Florida and Georgia are among the nation’s largest markets and, according to rates of growth, ranked fourteenth and eighteenth, respectively. The combination of size and growth rate makes these two states particularly attractive and dynamic markets.

Georgia surpasses Florida in a third measure of market potential, the concentration of black markets. The market share claimed by black consumers is important because the higher their market share, the lower the average cost of reaching a potential buyer in the group. It is obviously more difficult to target the black consumer in diffuse markets, although selective media or zip code mailings can lower the cost per individual. In order, the ten states (including the District of Columbia) with the largest shares of total buying power that is black are the District of Columbia, Mississippi, Maryland, Louisiana, South Carolina, Georgia, Alabama, North Carolina, Virginia, and Delaware.

Nationally, black consumers’ share of the market will increase from 7.4 percent in 1990 to 8.2 percent in 1999, a 0.8 percentage point gain. Although the share of buying power controlled by black consumers will rise in every state, Maryland, Louisiana, Delaware, Georgia, Mississippi, Virginia, Florida, New York, New Jersey, and Alabama will experience the largest increases in market share.

Measuring from the lowest rate, the ten states with the slowest growth of black buying power over 1990-1999 will be the District of Columbia, Alaska, California, West Virginia, Maine, New York, Pennsylvania, Oklahoma, Kansas, and Michigan. The list is not surprising, since total buying power also is growing slowly in many of these states. The ten states with the smallest black markets, basically a result of their small black populations, are Montana, Vermont, North Dakota, Wyoming, Maine, South Dakota, Idaho, New Hampshire, Utah, and Alaska. The spending power of black consumers nevertheless is blossoming in six of these markets: Idaho, South Dakota, Vermont, North Dakota, Utah, and Wyoming.

BLACK BUYING POWER IN GEORGIA

By 1999, Georgiaís black buying power is expected to equal $30.4 billion, or 17.9 percent of the state’s total buying power of $170.2 billion. Statewide black buying power in 1999 will surpass that of 1990 by $14.6 billion, an increase of 93.3 percent. Year-to-year increases in black buying power are estimated at 6.7 percent in 1991, 8.7 percent in 1992, 6.7 percent in 1993, 9.6 percent in 1994, 10.3 percent in 1995, 8.5 percent in 1996, and 6.9 in 1997, 5.4 in 1998, and 5.8 percent in 1999. The compound annual rate of growth for the period will be 7.6 percent. In Georgia, African-Americans control approximately 18 cents of each dollar in spending power; that is, black purchases account for more than one out of every six dollars spent. Clearly, for many of Georgiaís businesses, capturing black spending can make the difference between success and failure.

GEORGIA’S MSAs

Apportioning black buying power by metropolitan character shows that, from 1990-1999, black buying power will post slightly stronger growth in nonmetropolitan areas of Georgia (94.8 percent) than in the state's urban areas (92.9 percent). Black buying power is increasing slowly in many of the counties that contain the central business districts of Georgia’s major cities, primarily because the populations of these areas are growing slowly. In contrast, many metropolitan counties adjacent to heavily-developed city centers will see relatively rapid gains in black buying power. More prosperous blacks apparently also are moving to the suburbs.

By 1999, black buying power in Georgia’s 42 metropolitan counties will total $23.2 billion, or 18.1 percent of total buying power in these areas, up from 16.3 percent in 1990. Black buying power also will make up 17 percent of total buying power in Georgia’s 117 nonmetropolitan counties, up from 14.5 percent in 1990. Nonmetropolitan black buying power, which will total $7.2 billion in 1999, will account for 23.7 percent of overall black buying power; metropolitan counties will have 76.3 percent. (It should be noted that black buying power estimates for Georgia's MSAs include the out-of-state counties that are part of several areas.)

Atlanta. Unquestionably the state’s largest black metropolitan market, the twenty-county Atlanta MSA boasted black buying power of just over $8.3 billion in 1990. By 1999, the area's black buying power will double to $16.6 billion, a jump of $8.3 billion or 99.7 percent. Atlanta remains Georgia’s fastest growing metropolitan market, and black consumers account for a large and growing share of the consumer market. By 1999, 16.9 percent of the area’s total buying power will be controlled by black consumers.

Individually, Fulton, DeKalb, and Clayton counties are the Atlanta MSA’s largest and most concentrated county-level markets. The relatively slow growth of black buying power in DeKalb County significantly reduces the 20-county metropolitan area's overall rate of growth, however, even though the buying power of DeKalb County's black residents is growing much faster than that of its non-black residents. Fulton County's black consumer market is the most dynamic of Atlanta's three core counties, and its black buying power should expand by 108.4 percent. Clayton County, like DeKalb County, will see relatively slow growth in black buying power.

Increasingly, African-Americans will live, shop, and work on the periphery of the metropolitan area. With the exception of Spaulding County, black buying power will more than double in each of metropolitan Atlanta counties lying outside the area's core. Forsyth, Cherokee, Henry, Coweta, Pickens, and Gwinnett counties will see the highest percentage gains. Even though the buying power estimates recognize the emergence of these counties as suburban centers of residence for black consumers, the market share held by black consumers in most of these counties remains relatively small. Coweta is an exception; there, black buying power is rising quickly and the share of the market controlled by African-American is high, which makes that county a potential magnet for businesses catering to the needs of black consumers.

Augusta. As Georgia’s second largest black metropolitan market, extending across the state line into South Carolina, Augusta’s black buying power will increase from $1.2 billion in 1990 to almost $2 billion in 1999, or by 63.3 percent. Although the rate of growth of black buying power for Augusta is well below those predicted for both the state and for the nation, it does exceed those areas' predicted growth rates in total buying power.

Augusta's relatively concentrated black consumer market is mustly centered in adjacent Edgefield County, South Carolina. In 1999, black buying power will comprise 21.4 percent of the areaís total buying power, up from 19.3 percent in 1990. Columbia County will post higher percentage gains in black buying power than the state as a whole, but it is the area's least concentrated African-American market. Even here, however, the share of total buying power controlled by black consumer should rise from 6.4 percent in 1990 to 7.8 percent in 1999. McDuffie County will see moderate growth in black buying power, while black buying power will increase relatively slowly in Richmond County (Georgia) and in Edgefield and Aiken counties in South Carolina.

Macon. In 1999, Macon’s black buying power will total $1.5 billion, a 74.2 percent increase from the 1990 total of $860 million. The fastest growth will be in Houston and Jones counties. About 24.4 percent of the MSA's total buying power will be controlled by black consumers, whose shares will be 40 percent in Twiggs County and 32.5 percent in Peach County. The MSA remains the stateís third largest pool of black spending power, but none of the counties will gain buying power faster than the statewide average. All but Peach will grow more quickly than the national average.

Columbus. Black spending power in the state’s fourth largest African-American market--Columbus--will total $1.4 billion by 1999, a gain of 77.6 percent or $601 million. In 1999, black consumers will control 26 percent of total buying power, more than one dollar in four. Most of the MSA’s black buying power is in Muscogee County, but the market share is highest in Chattahoochee County and it will grow most rapidly in Harris County. The rate of growth of black buying power in Chattahoochee County, however, will be considerably below the national average.

Savannah. In 1999, Savannah’s black consumers will control 22.6 percent of the area's total spending power, or more than one dollar in five. Black spending power will total $1.4 billion in 1999, a nine-year increase of $732 million or 86.3 percent. Black buying power will grow by 174.1 percent in Bryan County, but despite this rapid advancement, the county will account for only a small percentage of the total for the MSA. Effingham County will see a 146 percent gain in black buying power, but Chatham County, where the majority of the MSA’s black residents live, will see an increase of only 82.4 percent.

Chattanooga. This MSA’s black buying power will equal $871 million in 1999. The $354 million gain represents a 68.6 percent increase over nine years, the second smallest percentage gain of any MSA. Moreover, the MSA will remain Georgia’s least concentrated black market--blacks control only 8.8 percent of total buying power. Residents living in Tennessee, where the area’s central city and concentrated population lie, earn most of the MSA's spending power. The MSA’s only fast-growing market, Catoosa County, is in Georgia.

Albany. Albany is the MSA in which black buying power is most concentrated, with 28.9 percent of total spending power controlled by African-Americans. Black buying power will increase from $365 million in 1990 to $675 million in 1999, a gain of 84.9 percent. Almost all of this economic strength is concentrated in Dougherty County, where nearly one dollar in three is in the hands of black consumers. Black buying power will increase by the MSA's highest rate, 167 percent, in Lee County.

Athens. This continues to be the state’s smallest, but second-fastest growing, African-American market. Black buying power will increase from $192 million in 1990 to $383 million in 1999, a 98.8 percent gain in nine years. The MSA’s black buying power primarily is centered in Clarke County, but it is zooming in Oconee County.

GEORGIA’S COUNTIES

In 1999, the state’s ten largest black markets at the county level will be Fulton, DeKalb, Chatham, Cobb, Richmond, Muscogee, Bibb, Clayton, Dougherty, and Gwinnett. With the exception of Dougherty County, these counties also rank among the top ten in terms of total buying power. (Dougherty ranks fifteenth.) Georgia’s black buying power is much more concentrated than its total buying power. For example, in 1999, Fulton and DeKalb counties will contribute 40.1 percent of the state’s black buying power, but only 24.7 percent of its total buying power. Similarly, the ten largest county-level markets account for 65.9 percent of Georgia's black buying power and 55.6 percent of the state's total buying power. As its black residents migrate to outlying suburban counties, however, the concentration of black buying power should drop slowly.

Many of the counties with the smallest black markets and black populations are located in the north Georgia mountains. In 1999, Towns, Union, Fannin, Murray, Gilmer, Forsyth, and Dawson counties each will have less than $1 million in black buying power.

The extremes in percentage gains and market concentration are most clearly visible at the county level. From 1990 to 1999, every county with an established black population will experience gains in black buying power that exceed the rate of inflation. Of Georgia’s 159 counties, 153 will have rates of growth in black buying power that exceed the national rate of increase in black buying power. Moreover, 163 counties will see black buying power grow faster than the national rate of increase in total buying power.

In order, the ten fastest growing counties will be Forsyth, Dawson, Cherokee, Henry, Bryan, Paulding, Lee, Coweta, Pickens, and Gwinnett. Eight of the ten are metropolitan counties. No county is projected to experience a drop in black spending power, but no market exists in Towns County, where the resident African-American population is too small to create a measurable economic impact.

Georgia's most concentrated county-level black market is Hancock County, where almost seven dollars in ten are in the hands of black consumers. African-Americans control almost one dollar in two in Talbot, Taliaferro, Macon, and Warren counties. Between 1990 and 1999, African-Americans’ share of total buying power will expand by 5 percent or more in nineteen counties. Finally, the share of total buying power held by black consumers will not drop in any of Georgia’s counties.

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