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Managers & Managing: Business in U.S. Hispanic Areas Is Resilient Amid Slowdown --- Population Boom Fuels Above-Average Growth in Income --- Demographic Trends `Can't Be Squashed' by Economic Downturn

By Eduardo Porter
The Wall Street Journal Europe
32
(Copyright (c) 2001, Dow Jones&Company, Inc.)

Retail sales in the U.S. are down, consumer confidence is depressed, and most economists agree the country is in or near a recession. But at Ramirez Ford, business is booming.

So far this year, the Ford dealership in Rio Grande City, Texas, a dusty town about two kilometers from the Mexican border, has sold 1,102 cars and trucks -- 145 more than during the same period last year. "We're about to run out of inventory," co-owner Dan Ramirez says, adding that in the next few months, he plans to open a DaimlerChrysler dealership next door.

Amid widespread reports of sagging consumer spending nationwide, business in Hispanic enclaves like Rio Grande City -- where 96% of the population is Latino -- is proving more resilient than elsewhere. "Recession?" asks Larry Gonzalez, who heads the branches of Texas State Bank in Rio Grande City and the rest of Star County. "It's not here at all." Nor is the slowdown visibly apparent in the Cuban-American neighborhoods of Miami or the Mexican-American enclaves of Southern California. "The demographic trends are so favorable that they can't be squashed by the negative cyclical force," says Jeffrey Humphreys, head of economic forecasting at the University of Georgia's Terry College of Business in Athens, Georgia. In September, the unemployment rate among Hispanics ballooned to 6.4% from 5.6% a year before.

Nonetheless, the number of Latinos in jobs increased 155,000, as more of them entered the labor force. At the same time, the U.S. economy as a whole lost 129,000 jobs A population increase has fueled the Latino community's faster-than-average income growth for years. During the past decade, Hispanic purchasing power grew about twice as fast as the nation's disposable income, according to Mr. Humphreys, reaching about $500 billion (560.6 million euros) this year. That occurred as the Hispanic population expanded more than four times as fast as the country's overall growth. In addition, Hispanics, who are younger on average than the overall U.S. population, are mainly in their highest-income-growth years.

Growth in numbers boosted the Latino market through the last recession. Mr. Humphreys estimates that while the nation's disposable income fell in 1991, Hispanic spending power grew by more than 2% in real terms.

For the first eight months of this year, before the terrorist attacks but well after the economy had started slowing, the strength of Latino spending could be seen clearly in the auto sector. Data from researchers R.L. Polk show overall vehicle registrations in the U.S. fell 5.7% for the first eight months of 2001 from the same period a year earlier. Meanwhile, Hispanic registrations were up 2.2%.

That isn't to say all Latino families are escaping the effect of the economic slump. Since Sept. 11, tens of thousands have lost their jobs in the hotel and restaurant sector alone.

However, with the exception of the hospitality industry, the low-end service-sector jobs that are frequently held by Latinos have been less prone to cuts. With more than one wage earner in each family, job cuts are less likely to deprive Hispanic homes of all of their income.

It is hard to get an entirely accurate picture of Hispanic compared with non-Hispanic spending, given the lag time of data. Food sales, which tend to be less affected by slower economic growth, are showing little change both in the Hispanic and non-Hispanic markets, according to market-tracking firm Information Resources Inc. Research firm ACNielsen finds that while the overall sales of the grocery stores that it tracks in Hispanic areas have grown a little slower than in non-Hispanic stores, sales in Latino neighborhoods are outperforming the general market for some items, like perfume and cosmetics.

What is absolutely clear is that advertisers say the Hispanic market remains promising. Ad spending on Spanish-language TV has grown in double digits this year despite a drop in overall advertising, as companies try to target Latinos.

Analysts point to bits and pieces of evidence showing the Hispanic market is faring better in the economic slowdown.

"In the retail sector, the weight of Latinos is growing in many categories," says Isabel Valdes, a consultant on the Latino market who advises such companies as ACNielsen, PepsiCo Inc. and Kraft Foods Inc. "Soft-drink sales (to Hispanics) are growing like crazy," she points out.

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