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Record high gas prices may be dropping across the U.S., but signs of an economic recession still loom. The question plaguing most Americans is, are we in a recession? And for Black Americans: How does a looming recession impact Black-owned businesses and households?
A recession is generally defined as a period of negative growth in real GDP for two consecutive quarters.
So, are we in a recession?
“I would definitely call this a recession. That’s what it is by the very definition,” says Kevin Matthews II, Former Financial Advisor and Founder of investing education company Building Bread, said. “I think the question is whether or not this is going to be something closer to 2008, where it will last 18 months, or will it be something that’s relatively mild and short, which actually happened in 2020?”
The U.S. GDP was negative for two consecutive quarters in 2022 for the first time since 2009. According to the Bureau of Economic Analysis, the GDP dropped another 0.9% in the second quarter, following a drop of 1.6% in the first quarter of 2022. Taking its benchmark rate to a range of 2.25-2.5%, the Federal Reserve raised interest rates for the second consecutive time last Wednesday.
Rising Inflation and Interest Rates
Joelle Gamble, Chief Economist, U.S. Department of Labor, told The Black Wall Street Times the Biden-Harris Administration is doing all it can to ease inflation pains for Black Americans and Americans in general.
“The Federal Reserve is going to do what it’s going to do and what its mandate requires it to do. But we’re also fighting to bring down a lot of the costs that are important to businesses,” Gamble said, adding, “Energy costs are a huge contributor to inflation right now.”
Gamble also mentioned how the Inflation Reduction Act, proposed by the Democrats, may help increase the energy supply, which can help lower costs.
“I think it’s also important to note that gas prices are starting to decline, which can help obviously consumers at large, but like a lot of small businesses are our sole proprietorships, especially in the Black community where a lot of your personal costs are your business costs.”
According to the proposal: The Inflation Reduction Act of 2022 will make a historic down payment on deficit reduction to fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030.
What Black-owned Businesses and Households Face
“I always worry about the exponential impact of negative economic activity on Black, Brown, and small businesses. Even in good times, leading and managing a company is difficult for our people when they face so many barriers and roadblocks. And, without special consideration during policy-induced tough times, headwinds gain strength,” Rose Washington, Chief Executive Officer at TEDC Creative Capital and former Chair of the Federal Reserve Bank of Kansas City, told The Black Wall Street Times.
Washington continued, adding, “Just as low and moderate-income households quickly feel the heavy weights of inflation, workforce shifts, and rising interest rates, small businesses are equally affected. We often hear solutions about more access to capital and additional assistance resources. However, when these opportunities are structured without the voice of those who are truly closest to the problem, unintended consequences become insurmountable for business owners who need support the most.”
What the White House is doing for Black-owned businesses
Gamble also explained that by using its purchasing power, the federal government could help small businesses maintain a steady flow of business.
“We published that we had set a record increase in the number of contracts going to small and disadvantaged businesses. That’s a broad category that frankly includes a lot of Black-owned businesses,” Biden-Harris’ Chief economist explained.
There are other indications that a recession is near, like the employment rate.
When President Biden took office, the unemployment rate for Black women was 8.5%. Since the Biden-Harris Administration took office, Black employment has been down 5.6%. For Black men, it was 9.4%; it’s now down to 5.3%.
“I think that’s important progress and also frankly, puts a lot of black workers in a much stronger position to tackle some of the global frankly economic challenges we’re facing inflation,” Gamble added.
What Should Black Americans and Americans, in general, be doing to prepare?
“I think for Black Americans, we need to take the basic steps in terms of just making sure you have cash and savings, making sure you have 6 to 12 months of your rent or your mortgage in cash that you can access. In case this turns out to be a lot more severe than what most people expect,” Matthews added.
Matthews explained that not every recession is the same.
“In the 1990s, it only lasted eight months. And the Great Recession, it was closer to 18 months.” He also stressed the importance of not panicking when it comes to our retirement accounts and that Blacks tend to lose out when the market recovers, “which you never know when it’s going to recover,” Matthews said.
“We did not see those gains. And that’s the reason why White wealth jumped after 2008. Because we kind of panic. We’re not as used to seeing things like that in the market for a myriad of reasons. So we just have to be careful to keep our eye on the long term. But definitely make sure you safeguard your cash; protecting that cash is going to be extremely important and is going to be something that will be an asset should things turn more sour, more severe than what we currently say,” he added.