2023 Economic outlook for Black entrepreneurs and consumers

As the economic toll of the pandemic on businesses wanes, what do the experts forecast the economy will look like in 2023 for Black-owned businesses and African American consumers?

One study from the Brookings Institute, released in 2022, shows that 92% of Black businesses surveyed experienced financial challenges during the pandemic, compared to 79% of white-owned companies. More recently, year over year from 2022 to 2023, earnings for Black businesses were down significantly compared to white-owned businesses, Mark S. Lee, the president of The LEE Group, said.

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Examining the economic outlook for 2023 and its impact on African Americans, “American Black Journal” host Stephen Henderson speaks with Mark S. Lee about the financial forecast as the pandemic eases. They discuss the state of inflation, what small businesses should do to prepare for the year ahead, reducing credit card debt, and deciding whether it’s a good time to purchase a home.

Full Transcript:

Stephen Henderson, Host, American Black Journal: This is a weird year. I feel like from an economic standpoint, there are indicators all over the place, right? We’ve got record unemployment on one end, but also still record inflation, even though it’s not still going up. On the other end, it makes it hard, I think, to decide, well, what are the smart ways for the year and what’s the economy likely to do? Just start off, give me a thumbnail of what you think we’re dealing with and anticipating in 2023.

Mark S. Lee, President & CEO, The Lee Group, MI LLC: Well, I think you hit the nail on the head. I know we’re seeing inflation is still high. It is slowing down. It’s been kind of bumpy the last couple of months. I think it’ll be safe to assume that inflation is still going to be relatively high in 2023. In terms of other economic data, we suggest we will see the credit card balances to remain fairly high.

The housing prices are beginning to subside, as we saw because the interest rates have continued to increase. I mean, I just financed a home and now it’s 6% at just a couple of months ago was about two and a half, three percent. So the inflation is driving up those prices as well. The economists are trying to cool it down. So I think the challenge this year is going to be how do we continue to control the economic value that we’re seeing across the country and how can people continue to control their expenses as well?

Stephen Henderson: So what are we looking at in terms of people who own businesses and are making plans for the year and maybe making decisions? What kinds of things should they have in mind for this year?

Mark S. Lee: Well, let me start by saying, particularly for Black businesses. Let me just say their earnings are down significantly relative to the population at large when it comes to White businesses year over year. So the first challenge that businesses are going to look at particularly Black businesses, but it’s also equates to all businesses, go back and review your bottom line. Go back and review your expenses.

Make sure that you have a plan. You and I talked about this before. Make sure you have a backup plan in place. You understand where your sources of revenue are coming from. Are you beginning to or enhancing enabling technology to deliver your services? You really need to go back in and retrace, if you will, look at your current business plan, look at the technology capabilities that you may or may not have and apply those directly into your business as you think forward.

Stephen Henderson: Yeah. So the cost of borrowing money, that’s of course related to inflation, and then the interest rate hike has special implications for business owners. What are you counseling, especially, as you point out, given the reduction in sales and in revenue that Black businesses, in particular, are facing? Is this a time to even think about borrowing?

Mark S. Lee: I always say we’ve heard this phrase housing before Stephen. Cash is king.

Stephen Henderson: Cash is king.

Mark S. Lee: Cash is king… If you have cash in the bank. Again, I’m not a financial planner. I would encourage you to talk to a financial planner or a financial advisor. But cash is always king. If you’re going to use credit, I would recommend you be very judicious with it, because what’s going to happen is that your monthly payments are going to continue to increase. Let’s take the housing, for example.

The cost to borrow money again has gone from two and a half, 3% to over 6%. You run the math on $100,000, $200,000 home. That rate has a significant increase for families. So from a business perspective if you’re looking to charge for services rendered and you’ve got to pay back that credit card via the money, say you’re going to pay one monthly basis. So always encourage people if you have the cash, if you have the resources available, try to use those resources appropriately and try to minimize the credit declaration, if at all possible.

Stephen Henderson: Yeah. So you mentioned sales being down and as a result, of course, revenue goes down as well. Talk about what’s driving that and why it’s so, so acute in black communities, among black businesses right now.

Mark S. Lee: It’s a great question. I just had a conversation about two or three weeks ago of a successful Black business. That launched five or six years ago. They abruptly shut down within the last month. And I asked the question. I said, why, what happened? And this individual was very candid. They were in the downtown area.

They said, quite frankly, people just stopped coming to us because of the pandemic. While this individual tried to modify and use technology to deliver those services. People at that point had made a decision to go elsewhere. So one of the challenges that we’re seeing is it’s important that people support small businesses. This is not the time to turn your back on small businesses and this individual was very direct with me and said the customers that they have, quite frankly, disappeared.

From a Black business perspective, she said that they went from her business to other businesses across the city and into the suburban areas and quite frankly, they went to White businesses. So the bottom line is it’s important that we continue to allocate and spread your resources appropriately and also to support those small Black businesses that account for a significant part of Detroit’s economy as well as the national economy as well.

Stephen Henderson: I always like to think of individual economic questions and issues in the frame of homeownership first, because that is, of course, still the way that the best way to build wealth and things like that. Talk about this housing market. There’s really strange dynamics there, too. Low inventory, but high prices in terms of sales in some cases. But then you’ve got these crazy interest rates too that make buying a house more expensive than it used to be. Should African-Americans in particular, even be participating in purchasing homes this year? Or should we be waiting untill things cool off a bit.

Mark S. Lee: No, I think it’s always encourage again, if you have the resources, if you could invest in purchasing a home, you should. Why? Because that’s still a person’s biggest investment in terms of creating wealth. And if you sit out another year, it’s kind of like playing in a stock. I don’t play in the stock market, but we’ve all heard this phraseology. You want to diversify your portfolio. You don’t know what the market’s going to do for the next day or for the nex year. And if you have the resources, you’re right, we are in a crazy market right now when it comes to housing, when it comes to inventory, when it comes to cost. So go back and evaluate your personal finances.

Go back and evaluate your resources. If you have the opportunity to purchase a home at this point, that’s for you to make your own personal decision. But in terms of wealth generation, that’s one way that we can continue to build wealth. And as it comes with housing for Blacks, we are still underrepresented in the marketplace when it comes to purchasing homes. Therefore, you still have that wealth gap when it comes to homeownership.

Stephen Henderson: So, one of the big questions on everybody’s mind is whether all of the strangeness in the economy is ultimately signaling that we’re going to go into a recession. And of course, politicians worry about that. Economists worry about that. But individuals and businesses have to worry about it, too. What should people be doing to prepare for the possibility of a recession? You know, if it’s going to happen.

Mark S. Lee: You know, there is a lot of speculation and again, I’ve talked to a lot of businesses I’ve talked to economists as well. There’s a mixed bag. Some people are saying it would be a mild recession in 2023. Some people are saying it may be pushed back to 2024. My recommendation is very simple. Assume there’s going to be a recession and manage your business appropriately.

And what I mean by that is don’t go on a spending spree. Spend prudently as if you have a plan. Do not go over budget. Invest your resources in those items that will give you the best return on the investment. Identify the people that know how to, quite frankly, can help you allocate those resources. So at this point in the situation, assume there’s going to be a recession. Hopefully, there won’t be. Assume there might be a mild recession. And adjust your business model and your expenditures accordingly. Now’s not the time to go on a spending spree.

Stephen Henderson: What about individuals? Same advice or maybe different.

Mark S. Lee: Again, I would give the same advice. I would give the same advice to individuals. I mean, I’ll use myself as an example. I’ll be rather candid. I’m pretty transparent. I have adjusted my spending spree, right? Let me back up. I have adjusted my spending expenses, expenditures from a business standpoint. I do have a corporate credit card for my business. I made a conscious decision to pay off that cooperate credit card. Why?

Because I did not want to pay the additional expense on a monthly basis. And that’s the advice that I would give to the viewers today. If you have the opportunity, if you have the resources from a business standpoint, from an individual standpoint, now is the time to modify your spending. If you can pay off your credit cards or any outstanding debt, I strongly recommend that you do that. If you’re not sure of exactly what to do at this point, spend some time with a financial advisor.

Stephen Henderson: Yeah and hunker down and hope that things get better, not worse as we get deeper into the year. Mark Lee, it’s always great to have you here to give us a sense of what’s going on in the economy and businesses and Black businesses in particular. Thanks so much for joining us on American Black Journal.

Mark S. Lee: I appreciate it. Thanks again.

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