Between Q2 2008 and Q2 2009, Hispanics made about 9% fewer trips on a total U.S. all-outlet basis

How badly has the U.S. economy battered Hispanic families? The answer is not so simple. Two opposing schools of thought contend that, on one hand, Hispanics are less affected since this recession is largely the result of a credit crisis and substantial losses on Wall Street, and Hispanics were under-leveraged in terms of debt and, on average, had less money in equity securities.

Another set of observers believe Hispanic households have been particularly hard hit by shrinking housing starts and an ailing contracting service industry. Their high level of unemployment hovers several percentage points above the national average and did not decline in July along with that of other ethnic groups.

As is often the case, however, the truth resides somewhere in between. Sundry metrics, including unemployment rates, credit scores, GDP and confidence levels, are regularly used to gauge the overall state of the economy. Markets too, can be effective yardsticks. Yet how Hispanic consumers personally perceive their circumstances, and how they respond, may well provide the most compelling insights.

The new reality

If, as the old adage suggests, perception is indeed reality, economic recovery for Hispanic families is still on shaky ground. Earlier this year, Nielsen conducted a survey among both English- and Spanish-speaking members of its Homescan Hispanic Panel to better understand how they were dealing with hard times. When asked about their current financial conditions, more than half replied they were somewhat or much worse off than before—almost identical to the population as a whole.

Surprisingly, unemployment did not seem to be a major source of concern. Despite steadily climbing rates through most of the first half of the year, not quite two-thirds of Hispanic respondents (63%) were very or somewhat secure about keeping their jobs. Though lower than the 72% of non-Hispanics who shared the same sentiment, it revealed an unexpected display of confidence.

On the other hand, Hispanic workers were not as nearly as sanguine about their ability to retire. In fact, 76% of respondents were apprehensive about their current levels of retirement savings. That squares with a recent study from Ariel

Investments LLC and Hewitt Associates LLC, which showed that Hispanics are less likely than others to invest in their company 401(k) plans. Those who do, invest only 6.3% of their salaries, as opposed to Asian and White employees who put in 9.4% and 7.6%, respectively. It’s important to note that the lower saving and retirement fund levels for Hispanics may be a function of age since Hispanics, on average, are younger in than non-Hispanics.

Additionally, Hispanics were far more likely to borrow mortgages in the sub-prime market as compared to non-Hispanics. At the peak of the sub-prime market, the number of loans sold to Hispanics increased about 170% compared to 110% for Whites and 120% for African Americans, according to research by the Pew Hispanic Center. Interest rates on home loans to many Hispanics were also nearly 2.5 points higher than a conventional mortgage. By the end of 2008, one in ten Hispanic households had fallen behind on their payments, and roughly 3% reported receiving foreclosure notices. While foreclosures are not tracked by ethnicity, insights can be gained by looking at the geographies most affected. Places like California, Florida and Arizona were hit very hard in terms of foreclosures—each represent top Hispanic markets.
If you can eat it, you need it

Whether Hispanics are truly faring better or worse than the rest of the population, they are plainly concerned about their situations—just like everyone else. For example, 94% of Hispanic consumers and 93% of non-Hispanic consumers said they worry about the rising cost of food. Moreover, they are reluctant to make major purchases of cars, houses, appliances or vacations. Their homes have become the focus of many of their activities, which means eating out less often. Most important, they are going back to basics and becoming increasingly more discerning about what they need versus what they want.

Nowhere is this more evident than in tracking trips to the store. Between Q2 2008 and Q2 2009, Hispanics made about 9% fewer trips on a total U.S. all-outlet basis. On the upside, they spent around 2% more per visit. But the cutbacks were principally directed at non-food purchases. This reflects a clear distinction between what is considered “nice to have” versus “must have”; the latter consisting primarily of edible products. The largest declines are occurring in non-edible categories like general merchandise, non-food, and health & beauty aids. Departments such as dry grocery, produce and meat are all fairing much better.

This shift in behavior has largely favored Bodegas, the neighborhood grocery markets where the number of trips increased 4%, and spending-per-trip rose 17% over the course of a year. These small convenience stores have also benefited significantly from an upsurge in purchases of perceived deals—an increase of 109%. Overall, Hispanics have increased purchasing on deal by 16%, outpacing deal growth among non-Hispanics shoppers (11%).

Cutting back

Another beneficiary of the current downturn has been private label or store brands. Here too, food products have had the most pronounced growth, though some categories—such as carbonated soft drinks—have experienced declines. But the prevailing trend, among Hispanics and non-Hispanics alike, underscores an ongoing return to basics.

What is more, this momentum is likely to continue, especially if the economy worsens. When presented with that possibility and asked how they would respond, the Hispanic Homescan panel members clearly preferred to stick with the essentials, choosing to sacrifice least on childcare, education, housing and healthcare. The same priorities were shared by Non-Hispanics, albeit the latter were even less inclined to cut back in these categories.

Assuming, however, the worst is over, how long before Hispanic families are convinced the economy is actually improving? Probably not before they see at least an uptick in closely watched benchmarks such as employment and home prices. But with fewer adjustments to make than other groups once recovery takes hold, chances are better that Hispanic spending levels will return to where they once were and continue their previous growth patterns. Time will tell.