Minority Purchasing Power In The 21st Century The Rising Economic Influence of Minorities: 2000-2045 How has the economic status of the United States' Minority population changed in the 1990s and how will it change in the next 50 years? The Census Bureau's data on income for the Minority population 15 years old and over show an increase of 47 percent, from $0.7 trillion in 1990 to $1.0 trillion in 1998 (in 1998 dollars) This growth was more rapid than that for the non-Minority (non-Hispanic White) population (18 percent). As a result, the Minority share of the total aggregate money income grew from 16 percent to 19 percent during this period. The Minority population will grow rapidly in the 21st century. According to the U.S. Census Bureau's middle series of the national population projections released in January 2000, the combined race and ethnic minority population will grow from 79 million in 2000 to 178 million in 2045. Minority population growth is equivalent to 86 percent of the total population growth during these 45 years. The Minority share of the total U.S. population is projected to increase from 29 percent in 2000 to 46 percent in 2045. Under some estimates, the Minority population is projected to surpass the non-Minority (non-Hispanic White) population between 2055 and 2060, thus representing over 50 percent of the total U.S. population. With their projected increasing population share, the Minority share of the U.S. economy is expected to grow as well. This article illustrates projected Minority purchasing power for the period from 2000 to 2045. This article provides a simple and illustrative description of what the growing Minority purchasing power may become by the middle of the 21st century. It is intended to provide a broad indication of the future potential of Minority population and economic growth, and may serve as a useful tool for future in-depth studies on Minority economic power and market value. The scope of this article is limited to minority race and ethnic groups as one combined group at the national level. MBDA is planning to develop an online research tool on its Web site (www.mbda.gov) for users to derive future purchasing power with alternative assumptions and by race and ethnic groups or geographic areas. Purchasing power in this article is defined as disposable personal income (personal income less personal tax and nontax payments). Data for the total U.S. aggregate personal income are based on BEA Regional Projections to 2045, published by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce, in 1995. We converted the BEA projections of total personal income to 1998 dollars and adjusted to disposable personal income for this article. Minority purchasing power is computed from the projected Minority share of total purchasing power. We derive the Minority share of purchasing power on the basis of the projected Minority share of the total population adjusted by an Income Disparity Factor (IDF). We assume that growing Minority economic power will be related to its increasing population share. The IDF is derived from averaging a number of income disparity indicators from the Census Bureau's Current Population Survey (CPS) income data and other studies on purchasing power of minority race and ethnic groups in the 1990s. As a conservative assumption, the IDF is assumed to remain constant throughout the projections for our primary analysis. Observed trends indicate that the income disparity between Minorities and non-Minorities throughout the 1990s was relatively stable. The primary series of future purchasing power is derived based on the middle population growth series in the population projections released by the U.S. Census Bureau in January 2000. Non-Minority purchasing power is derived as a residual by subtracting Minority purchasing power from total purchasing power. By 2045, Minority purchasing power may reach $4.3 trillion The total disposable personal income for the United States is projected to increase from $6.5 trillion in 2000 to $13.4 trillion in 2045. Applying the Minority population share in 2000 (29 percent) and an IDF (0.71), Minority purchasing power in 2000 is projected at around $1.3 trillion. Keeping the IDF constant throughout the projection period, Minority purchasing power may surpass $2 trillion by 2015, $3 trillion by 2030, and by 2045, Minority disposable personal income may reach more than $4 trillion . This represents an increase of $3.0 trillion during the 45-year period, or more than triple the purchasing power of 2000. An additional, illustrative projection of Minority purchasing power was derived for this article based on the Census Bureau's middle population growth series, but assuming that income disparity is eliminated completely by 2045. That is, we assumed that the IDF increased from 0.71 in 2000 to 1.00 in 2045. Under this assumption, Minority purchasing power could reach $6.1 trillion in 2045. Minority population may contribute 44 percent, or as much as 70 percent, of the total increase of purchasing power from 2000 to 2045. During the 45 years of the projection, total purchasing power is projected to grow by $6.8 trillion. Of the total increase, $3.0 trillion, or 44 percent, would come from the Minority population under the "constant income disparity" assumption. Based on the "no income disparity in 2045" scenario, the growth in Minority purchasing power could represent 70 percent of the total growth in purchasing power during the 45-year period, 2000 to 2045. This can be considered an upper bound on future purchasing power, showing what could occur if the Minority economic share is equivalent to its population share, thus illustrating the potential of the Minority marketplace Minority purchasing power may represent an increasing share of total purchasing power, from 20 percent in 2000 to 32 percent in 2045. No matter how it is estimated, the Minority share of total purchasing power will be steadily increasing. This share will vary depending on the future growth of the Minority population. Three scenarios of the Minority share of total purchasing power are derived based on the Census Bureau's lowest, middle, and highest population growth assumptions, adjusted by a constant IDF of 0.71. Under the middle scenario, the Minority share of total purchasing power will increase by slightly more than 1 percentage point every five years. The low scenario projects an increase of 1 percentage point in purchasing power every five years, and the high scenario nearly a 2 percentage point increase per 5-year period. Using the Census Bureau's middle population growth assumption, Minority purchasing power is projected to represent 20 percent of total purchasing power in 2000. In 2045, the Minority share may reach 32 percent. This indicates that by the end of the projection period, about one-third of the national total disposable personal income may come from the Minority population, compared to only about one-fifth today. This is an important implication for the emerging Minority marketplace. The Minority economic share is assumed to continue to lag behind its population share by 2045. However, the primary analysis in this article assumes that income disparity will still exist by 2045 and that the Minority share of total purchasing power may continue to represent around two-thirds of its population share throughout the projections. According to the national population projections by the Census Bureau, the Minority population will surpass the non-Minority (non-Hispanic White) population before 2045 in the highest series, before 2060 in the middle series, and before 2085 in the lowest series. The Minority population share of the total population in 2045 will be 41 percent in the lowest series, 46 percent in the middle series, and 51 percent in the highest series. By contrast, the projected Minority purchasing power ranges from 29 percent to 36 percent of total purchasing power in 2045. To enable users to make their own assumptions about income disparity, the Minority Business Development Agency (MBDA) is planning to develop an online research tool accessible on the MBDA Web site: www.mbda.gov. With regard to sub national areas, specifically states, both the Census Bureau's most recent population projections and BEA's economic projections were last released in 1996 and 1995, respectively. Updating these two sets of projections is clearly required to improve the derivation of purchasing power estimates at the sub national level. In addition, introducing a race and ethnic origin component and/or more than one economic projection assumption into the BEA projection methodology would greatly augment the database needed for future studies of Minority purchasing power. Data and Methodology Data for the total U.S. aggregate personal income are based on BEA Regional Projections to 2045. The Census Bureau made several adjustments to the BEA data for this article. In consultation with BEA, we first converted the projections from the original 1987 dollars to 1998 dollars, using the ratio (1.57) between BEA's February 2000 estimates of historical 1998 total personal income and BEA's projected 1998 total personal income. Then, we converted the projected personal income data to projected disposable personal income using the ratio (0.85) between 1998 disposable personal income and 1998 total personal income from BEA's historical estimates. The projected Minority purchasing power in this article assumes a positive relationship between Minority population growth and their economic power. It also weighs in the relationship between the Minority share of total population and its share of total personal income. Data used to derive the Minority proportion of the total population are based on Annual Projections of the Resident Population by Age, Sex, Race, and Hispanic Origin: Lowest, Middle, Highest, and Zero International Migration Series, 1999 to 2100 (NP-D1-A), released by the U.S. Census Bureau, January 2000. In the process of determining our Income Disparity Factor (IDF), we considered several indicators for income disparity and computed implied adjustment factors from other studies of purchasing power for minority race and ethnic groups in the 1990s. First, from the Census Bureau's CPS money income of people, we computed the 1998 Minority share of total personal income for people 15 years and over (19 percent), and their share of the total population 15 years and over (27 percent). We obtained the ratio (0.71) between these two percentages. This IDF is an indicator of the difference between Minority economic power and their population size. Based on the same theoretical framework, we calculated the implied IDF (0.80) for households with a Minority householder using unpublished 1998 CPS household income data, and an implied adjustment factor from the buying power series by the Selig Center, University of Georgia 8 (0.62 in 1999). We also derived, from the unpublished 1998 CPS income data, the ratio (0.72) between the Minority's median money income of people and the non-Minority's median money income, and the ratio (0.71) between the Minority's mean money income and the non-Minority's mean money income. The five implied IDFs we derived fell into the range of 0.62 to 0.80, and we selected their average (0.71) as our benchmark IDF. We assumed that our bench-mark IDF would remain constant throughout the projection period for our primary analysis. By keeping our IDFs unchanged, our projected Minority purchasing power may be considered a conservative estimate. The income disparity indicators from CPS personal income data throughout the 1990s and implied adjustment factors for 1990 and 1999 that we derived from the Selig Center's series indicate that the income disparity between Minority and non-Minority through-out the 1990s remained relatively unchanged. To forecast future trends in this economic relationship would be problematic given existing data and methodology. We also projected Minority purchasing power assuming an IDF of 1.00 in 2045. This hypothetical projection assumption provides a glimpse of Minority purchasing power if income inequality were eliminated altogether by the end year of BEA's economic projections. For future studies of Minority purchasing power, more comprehensive and sophisticated methodologies or new data will be needed to improve the estimation and projection of the levels and trends of income disparity. Accuracy of Projections Two sets of projections data were used in this article - BEA Regional Projections to 2045, published in July 1995, and the Census Bureau's Annual Projections of the Resident Population by Age, Sex, Race, and Hispanic Origin: Lowest, Middle, Highest, and Zero International Migration Series, 1999 to 2100 (NP-D1-A), released in January 2000. BEA's total personal income is calculated as the sum of the components which include earnings by place of work less personal contributions for social insurance, a residence adjustment, transfer payments, personal dividend income, personal interest income, and rental income of persons. The BEA long-term national projections were based on Census Bureau national population projections and Bureau of Labor Statistics national employment and output projections. They were generally based on historical trends in economic relationships among national variables. The projections of personal income and earnings were based mainly on projections of gross domestic product (GDP). The projections of GDP were derived from projections of a succession of population and labor-force variables. The projections of industry employment, GDP, and earnings were based mainly on historical trends in each industry's share of the national all-industry total. The BEA long-term state projections were mainly based on historical trends in economic relationships for each state and between each state and the Nation. The projections of employment by industry were based on relationships between "basic" industries that mainly serve national markets and "nonbasic" industries that mainly serve state markets. The projections of gross state product (GSP) and earnings were based on the projected total state employment. The projection of the components of total personal income except earnings were based on the projected earnings and population. The Census Bureau's newly released national population projections include projections of the population by single year of age, sex, race, Hispanic origin, and nativity. Future populations are based on an estimated resident population as of January 1, 1999, derived primarily from the 1990 census as enumerated. The base series is projected forward using the cohort-component method for future fertility, mortality, and net immigration levels. Variant assumptions for each component individually are applied to the projections to produce the projections between which most likely outcomes should fall. This article uses the three series based on the highest, middle, and lowest assumptions of each component. As with any projections data, predicted future economic activity or population will never be identical to the actual future economy or population, which are highly subject to government policy decisions, behavioral decisions by individuals, changed economic relationships and possible unexpected developments in health and morbidity. Final Conclusions As the charts show as the total numbers of minorities in the US continue to grow, the percentage of the total discretionary income that they will be using for their own needs and interests will continue to influence the buying habits and products that will be available in the future. Companies that plan to stay competitive in the future will have to design and market their products to these new multi-cultural buyers. This will probably have to include multi language packaging, target marketing and products geared to specific cultural needs.

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