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Impact of Recent Economic Indicators on Minority-Owned Businesses

On June 27, 2024, the Bureau of Economic Analysis (BEA) released the third estimate for Gross Domestic Product (GDP) for Q1 2024, alongside revised estimates for corporate profits and the GDP by industry. On June 28, 2024, the Personal Consumption Expenditures (PCE) index reported a year-over-year increase of 2.6% in May 2024. These indicators provide critical insights into the overall economic health and have significant implications for minority-owned businesses.

GDP Growth and Minority Firms

The third estimate for GDP in Q1 2024 indicates a growth rate of 1.4%. This positive growth is a good sign, suggesting that the economy is slowly expanding. For minority-owned businesses, the increase in GDP can be a double-edged sword. On one hand, higher economic growth can lead to greater availability of credit and investment opportunities, which are vital for the sustainability of minority enterprises. On the other hand, if the benefits of this growth is not equitably distributed, minority-owned businesses may face increased competition without proportional access to the resources needed to compete effectively.

Industry-Specific Insights

Industry data for Q1 2024 reveals sector-specific performance that is crucial for understanding the landscape for minority-owned businesses. According to the data:

- Retail Trade and Construction sectors showed significant contributions to GDP growth. Minority representation in these sectors is substantial, with Black and Hispanic workers making up notable percentages of the workforce.

- Administrative and Support Services and Health Care and Social Assistance sectors also demonstrated strong performance. These sectors are critical for minority employment and ownership, with high percentages of minority employment.

The chart illustrates the contributions to GDP by various industry groups and the percentage of minority employment within these sectors. For example, the Retail Trade sector not only contributed 0.34 percentage points to GDP growth but also represents 38% of minority employer firms, highlighting its importance to minority communities.

Personal Consumption Expenditures (PCE) Index

The PCE index, which measures the average increase in prices for goods and services consumed by individuals, rose by 2.6% year-over-year in May 2024. This increase in consumer prices can impact minority-owned businesses in several ways:

- Cost Pressures: Higher consumer prices can lead to increased costs for raw materials and other inputs, squeezing profit margins for minority-owned businesses, which often operate with tighter margins compared to larger, established firms.

- Consumer Demand: On the flip side, if minority-owned businesses can pass on these costs to consumers without a significant drop in demand, they might maintain or even improve their profitability.

Given the often price-sensitive customer base of minority-owned businesses, the ability to pass on costs without losing customers is limited. Therefore, managing cost pressures through efficient operations and strategic pricing becomes critical.

Conclusion

The recent economic indicators from the BEA, GDP growth and the PCE index, highlight a mixed landscape for minority-owned businesses. While rising overall economic growth presents opportunities, the accompanying cost pressures and competitive landscape pose challenges. Minority-owned businesses need to leverage available resources, such as targeted financial assistance programs and strategic partnerships, to navigate this complex economic environment.

Research Assistant: Eric J. Gordon, Creative Investment Research

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