Recession has been on the mind of Tanya Allford-Thompson in recent weeks. While business is good today, the co-owner of The Amazing Cakes Bakery in Mableton, Georgia, is keeping her eye on reports that the nation is headed toward a recession (two consecutive quarters of negative economic growth) and contemplating what that would mean to her 5-year-old business. “Other business owners come in and buy bakery items for their clients,” says the 43-year-old. “If they don’t have as many clients, then they’re not buying as much from me.”
Allford-Thompson’s worries are shared by many. Seventy-one percent of American workers say the economy is either headed toward a recession or is already in one, according to the Principal Financial Well-Being Index, a quarterly survey by the Principal Financial Group, a financial services company based in Des Moines, Iowa. “The small-business owner has increasingly been going through difficult times,” says Marilyn Landis, chair of the National Small Business Association, an advocacy group based in Washington, D.C. A recession would only make things worse since it would lead to less available cash for small-business products and services, prompting experts to urge business owners to take precautions now.
“We really don’t know that we are in a recession until at least one quarter after it’s actually occurred,” says Thomas D. Boston, CEO of EuQuant, an economic and statistical research company in Atlanta and member of the black enterprise Board of Economists. “But everyone agrees that the economy is not growing, and there are a lot of signs indicating that even if we are not in a recession, we’re experiencing negative effects as if we are.”
While it’s impossible to predict how many black-owned businesses will go bust during a recession, Boston says, “Research tells us that the survival rate of black-owned businesses is much lower than that of white-owned businesses.” The greatest factor affecting the survival of all businesses is the state of the economy, which can be attributed to 30% of a business’ performance, adds Boston.
Black-owned businesses are particularly vulnerable during the current economic downturn. “The three industries having the largest receipts for black-owned businesses are healthcare, retail trade, and construction,” says Boston. “The latter two are being hit very hard by the economic conditions.” He says real estate sales are also being affected, which is unfortunate considering the high concentration of blacks in this area too. “And if you add to this fact,” continues Boston, “a disproportionately large share of subprime mortgages were pushed on blacks during the real estate boom, and the average black household has virtually depleted all of its real wealth because of indebtedness, these conditions have the making of a perfect storm.”
The Federal Reserve has acted aggressively to forestall a recession by cutting interest rates by 2.25 percentage points between Sept. 18, 2007 and Jan. 30, 2008. Congress is doing its part to curb a recession as well. A bipartisan economic stimulus package unveiled in January would let small-business owners write off up to $250,000 in capital expenditures for office