Given the growth and economic power of the Hispanic community in the United States, we believe it will strengthen the backbone of the real economy, helping the country solve a range of issues in the post-pandemic world, such as labor shortages, dampened population growth and structural economic changes.
The recent National Hispanic Heritage Month offered a fitting time to examine the Hispanic community’s contributions—economic and cultural—in the United States, especially because the current economic climate and labor market disruptions will require companies to be more innovative and thoughtful in how they attract talent and customers.
For the middle market—the primary driver of the real economy—growth in the Hispanic population presents great opportunities for companies to expand by providing more products and services for the Hispanic community and increasing the labor force by hiring more Hispanic Americans.
Understanding the impact of the Hispanic community, especially on the real economy, is crucial as this cohort has grown faster than non-Hispanic groups over the past decade and now accounts for 19% of the U.S. population, according to the latest census data. This growth translates to 1 in 5 individuals identifying as Hispanic, and 1 in 4 individuals below 19 years of age identifying as Hispanic.
Hispanic Americans’ spending power was estimated to be close to $1 trillion in 2019—a number that will grow as more members of this community enter their prime spending years. Moreover, the total economic output of Hispanics in America was roughly $2.6 trillion before the pandemic. If Hispanics living in the United States were an independent economy, the Hispanic gross domestic product would be the eighth largest in the global economy—larger than that of Brazil, Italy or South Korea.
In addition to spending power, the U.S. Small Business Administration estimates there are 4.6 million Hispanic-owned businesses in the United States. Before the pandemic, these businesses generated $500 billion in annual revenue and employed 3.4 million people, according to the Stanford Latino Entrepreneurship Initiative.
The growing Hispanic community represents tremendous potential. However, to fully realize it, businesses and policymakers need to work to address challenges the community has faced in recent decades, which can hamper development.
Persistent inequality gap
The longtime gap in unemployment rates between the U.S. Hispanic population and the rest of the country often widens in the aftermath of a recession and narrows as the economy moves toward the end of an expansion, reflecting that Hispanic Americans have been more susceptible to economic downturns than their white counterparts.
At the onset of the pandemic, the unemployment rate for the Hispanic population spiked to 18.9%, 4.1 percentage points higher than the overall U.S. unemployment rate. Since then, the gap shrunk to 1.2% in August, although the group’s unemployment rate at 6.4% was still higher than the long-term full employment level, which is around 4.5%.
When it comes to full employment, the Federal Reserve’s role in helping the economy achieve full employment using monetary policies while balancing inflation becomes the main focus, as inflation has been running hot since early this year. In recent economic cycles, the Federal Reserve did not consider unemployment rates based on demographic groups when setting policy. As such, rate hikes occurred while the unemployment rates of the Hispanic community were higher compared to non-Hispanic.
However, in recent months, the Federal Reserve has continued to show its acknowledgment of the importance of economic inequality. Chairman Jerome Powell stated during Jackson Hole’s economic symposium in August that “joblessness continues to fall disproportionately on lower-wage workers in the service sector and on African Americans and Hispanics.”