DATOS: Forecast 2010

 Published by the Arizona Hispanic Chamber of Commerce

February 24, 2010

INTRODUCTION

Arizona's destiny is inextricably bound to the sustained economic health and financial security of the state's rapidly growing Latino community.  It is with this in mind that the Arizona Hispanic Chamber of Commerce has published DATOS: Forecast 2010, a new report designed to offer expert analysis on the potential impact of the state's Latino consumer and business market on the Arizona economy and a series of recommendations to public policy planners, elected officials, financial investors and business owners to encourage the implementation of strategies and polices that consider the role of the state's burgeoning Latino community.

DATOS: Forecast 2010 is an extension of the AZHCC's detailed and highly regarded annual economic survey, DATOS: Focus on the Hispanic Market. The 14th edition of DATOS: Focus on the Hispanic Market was published in November 2009.  It is researched and prepared by a team of MBA students under the direction of Dr. Louis Olivas, professor emeritus at the W.P. Carey School of Business at Arizona State University.

DATOS: Forecast 2010 draws upon a variety of local, state and national source material in reaching its conclusions and recommendations, including research conducted by the U.S. Census Bureau, Forrester Research, Pew Hispanic Center, W.P. Carey School of Business at Arizona State University, Eller College of Management at the University of Arizona, the Arizona Department of Commerce, and DATOS: Focus on the Hispanic Market (2009).

The publication of this document was made possible by the financial support of  the document's premier sponsor, Wells Fargo Co., as well as Humana Inc. and US Bank. The Arizona Hispanic Chamber of Commerce also is grateful for the participation and contributions to the research and creation of this document by members of the DATOS: Forecast 2010 Blue Ribbon Panel and the AZHCC Board of Directors.

The mother of all trends with regard to the Latino community's impact on the Arizona and U.S. economies has been the spectacular growth of the Hispanic population.  Between 1990 and 2000, the Latino population in the United States grew 58 percent. Currently, Latinos make up 15 percent of the U.S. population. The Pew Hispanic Center predicts that the U.S. Latino population will triple from 48 million people today to about 150 million people by 2050 -- the near equivalent of the current population of Mexico and Central America combined. It is now estimated that one of three people in the United States will be of Hispanic origin by 2050.

Already, one of three people in Arizona is of Hispanic origin. Like Hispanics nationally, Arizona's Latino community is comparatively young and growing fast. U.S. Census figures cited in the recently released State of Latino Arizona report found that nearly 40 percent  of the state's Hispanics are under 18 as compared to nearly near 20 percent of non-Hispanic Whites. The average birth rate for Arizona Latinos is about twice that of non-Hispanic Whites. Census figures also show that Arizona's Latinos now constitute one-third of the state's population. And as an indicator of the demographic shift to come, DATOS: Focus on the Hispanic Market (2009) reported that between 1998 and 2008 Latino children accounted for more than 86 percent of total student population growth in the state's K-12 public schools.

This rapid population growth is fueling the rapid increase in Latino purchasing power, which is growing at three times the state average, according to Dr. Olivas. In Arizona, Latinos accounted for 16 percent of all purchases in the state, of $31 billion in spending. Dr. Olivas predicts the purchasing power of Arizona Latinos could reach $48 billion by 2013. Nationally, Hispanic buying power could reach $1trillion this year.

Meanwhile, the tectonic demographic shift outlined above is crossing paths with an equally significant population trend: the aging of non-Hispanic Whites. As Whites age and retire from the workforce, Latinos and other people of color will be needed to fill the resulting shortage in the labor force. Even though a substantial proportion of Hispanics today work in blue-collar and lower wage jobs, economists say declines in domestic manufacturing and farm industry employment in the U.S. combined with a growing demand for technology and service industry workers will require that all Americans, including Latinos, be better trained and educated.

THE CONTEXT: "THE GREAT RECESSION"

Technically, experts say the nation's latest economic crisis is over. Practically, many Arizonans do not yet believe it. In short, most economists predict a slow and painful recovery. The Morrison Institute at Arizona State University released these findings in September 2009:

·         46%  decline in housing units authorized from 2007 to 2008

·         21% drop in construction employment from 2008 to 2009

·         29% increase in people receiving food stamps from April 2008 to 2009

·         62% increase in home foreclosures from January 2008 to 2009.

·         88% increase in bankruptcies between June 2008 and June 2009.

Additionally, the Arizona Department of Commerce reports that the construction industry (a major employer of Latino, blue-collar workers) has been the single hardest hit sector of the state economy "losing nearly half of its job base, some 115,000 jobs since May 2006."  In fact, every major employment sector of the Arizona economy recorded job losses, totaling more than 264,000 jobs, about 10 percent of the state's entire workforce. Only education and health care experienced job growth.

Job losses lead to losses in tax revenue. As a result, the state budget, as of this writing, is $1.4 billion in the red, and 2011 budget is expected to fall short by $2.5 to $3 billion. (Sales, income, and corporate taxes account for 90 percent of the state's general fund revenue, according  the W.P. Carey School of Business.) Officials at every level of government predict more cuts in public services are sure to come. In response, Gov. Jan Brewer recently predicted 310,000 people could lose Medicaid coverage; 47,000 children could lose KidsCare health coverage; and 10,000 Arizona families stand to have cash assistance benefits cut off, according to a report in the Arizona Republic.  Latinos will be among those who suffer the most as a result of cuts in these services.

In an attempt to close the budget shortfall, Gov. Brewer, a Republican, proposed something uncharacteristically Republican: a one-cent increase in the state sales tax for three years (it would raise about $1 billion a year) and a hike in fees charged by state agencies. Arizona voters are scheduled to vote on the one-cent sales tax measure as part of a special ballot election on May 18, 2010. While many observers say Brewer and the Arizona Legislature have little choice but to raise taxes, a boost in the sales tax will take a disproportionate toll on the poor and working classes -- a large segment of whom are Hispanic. Consider that Arizonans who lived below the poverty line in 2007, according to the U.S. Census Bureau, nearly 50 percent were Latino. The percentage of Latino children living in poverty as compared to the general population is even higher.

As the primary advocate for Latino-owned small businesses in the state, the Arizona Hispanic Chamber of Commerce is acutely aware that amid the current economic slump small business owners are struggling to survive. Small businesses account for 60 to 70 percent of our nation's Gross Domestic Product and up to 80 percent of all new jobs created. Arizona is home to an estimated 50,000 Hispanic-owned business, one-third of which are owned by immigrants, mostly of Mexican origin; half of which are sole proprietorships; and two-thirds of which are family-owned, according to DATOS: Focus on the Hispanic Market (2009).

International trade and the jobs it sustains also has taken a major hit. One of the most severely affected regions of the state during a recession is the Arizona-Sonora border, which accounted for $21 billion in cross-border trade in 2008 and where visitors from Mexico were responsible for 30,000 jobs.  It is instructive that The Eller School of Management at the University of Arizona reported that during the 2001 recession in the United States (triggered by the 9-11 attacks), "Sonora experienced the largest decline in employment relative to other [U.S.-Mexico] border states, losing 44,944 (26 percent)" of its jobs. Although the effects of the current recession on the Arizona-Sonora border have not been fully quantified, truck freight across the Arizona-Sonora border dropped between 15 and 20 percent during the first half of 2009, according to Eller, and business leaders on the border say the recession, competition from overseas manufacturing competitors, including China, and a federal crackdown aimed at stemming illegal immigration into the United States have had a combined and crushing affect on the border economy.

AZHCC ECONOMIC FORECASTS & POLICY RECOMMENDATIONS FOR 2010

1. FORECAST: The job market will rebound slowly for the general population, even as it remains comparatively depressed for a proportionally larger segment of Latino workers, especially immigrant laborers. The construction industry, for instance, is expected to lose another 8 percent of its existing labor force in 2010, according to Arizona Department of Commerce. Government agencies at all levels, a major employer of the growing Latino middle class, will likely face more staffing cuts.

1. RECOMMENDATION:  Public policy makers should pursue an aggressive job creation program, as private industry leaders and public officials work conscientiously to minimize the negative impact of layoffs and cuts in public services on the most vulnerable members of the state's labor force in order to ensure the presence of a sufficient and skilled labor pool once the economy recovers.

2. FORECAST: Proposed local and state tax increases will take a disproportionate toll on the increasingly important purchasing power of the Latino community. Latino-owned small businesses, a majority of which are sole proprietorships and family owned, will be further negatively impacted as they attempt to recover from the slump in sales, though steady population growth in Latino communities will help offset some of this economic pain.

2. RECOMMENDATION: Local and state public officials should ensure that any sales tax increases are temporary, even as they explore alternative revenue sources that could avoid cutting into the purchasing power of working class and middle class Latinos or further burdening Latino-owned small businesses.

3. FORECAST: Latino-owned small businesses, many of which are sole proprietorships, will continue to struggle amid sagging sales and a tight lending market, though the number of new Hispanic-owned small businesses, especially businesses owned by Hispanic women, will make up a higher-than-average share of startups in light of the continued population growth trends in the Latino community. While many Hispanic-owned businesses have suffered during the recession, the population as a whole continues to outpace general population growth, suggesting that even as many small businesses have faltered, a growing number of Latino entrepreneurs, if provided proper startup and expansion capital, will still be willing to launch new businesses.

3. RECOMMENDATION: Local, state and federal officials should consider policy initiatives aimed at stimulating small business creation and reducing the cost of a small business startup, especially in the Latino community and other communities of color. Banking institutions should explore innovative ways to finance new small business enterprises in the Latino community, while helping sustain existing businesses growth. The Arizona Hispanic Chamber of Commerce welcomes President Obama's announcement that his administration will increase access to the Small Business Administration and apply $30 billion from the Trouble Assets Relief Program to increase lending by community-based banks to small businesses.