The unemployment rate for black workers has risen to the highest level since 2021, a development economists say is an indication that the labor market is softening.
Recent labor market reports have indicated that, while above-water, the job market is starting to deteriorate. The unemployment rate rose to 4.3% in August, up from 4% at the start of the year, but the black unemployment rate has shot up by a much larger degree, rising to 7.5% last month, an increase from 6% just three months ago.
The disparity is of particular interest to economists, given research showing that black workers tend to be affected first when there is a labor slowdown, according to Heather Long, chief economist at Navy Federal Credit Union.
“The economic canary in the coal mine is when you see black unemployment and youth unemployment rising, and we’re seeing both of those phenomena go on right now,” Long told the Washington Examiner.
Julie Su, who served as acting secretary of the Labor Department under former President Joe Biden, said during a call with the press that while black unemployment has always been higher than white unemployment, the gap narrowed during the last two years of the Biden administration.
In response to a question from the Washington Examiner, Su said the widening gap is notable to watch for the health of the labor market. She described the rising black unemployment rate as representing a “first to be fired, last to be hired problem.”
“It doesn’t have to be this way, but we are definitely seeing that rise in unemployment,” Su said. “It has a very dramatic effect on individuals who might have already been living at the margins, and oftentimes it portends a bad overall move for the economy.”
Mark Hamrick, senior economic analyst at Bankrate, pointed out that within the black unemployment numbers, black women are specifically seeing the biggest increase in unemployment rates.
He said that when the labor market starts to weaken, black workers are most exposed because they are represented in sectors of the economy that are the most sensitive to job market cycles.
“Black workers and black women also disproportionately work in sectors that are more vulnerable to layoffs … public sector, leisure and hospitality, retail, lower wage work,” Hamrick said.
“It’s particularly problematic because it simply then is not only emblematic of, but then also reinforces income and wealth inequality,” he added.
Still, it is worth noting that black unemployment rates can be more volatile than other metrics, so it is important for economists to continue watching the trend line for black unemployment over the coming months.
Long also mentioned two complicating factors with the data that should be considered.
Firstly, President Donald Trump and his administration have worked to downsize the federal government’s scale in various ways, including through the Department of Government Efficiency. She pointed out that black Americans, particularly black women, have a higher likelihood of being employed in government jobs than other backgrounds and groups.
“The fact that there’s obviously been an intentional slimming down of the federal government workforce, and in some cases that spilled down to state and local, probably has had a disproportionate impact on the black labor force and black workers,” Long explained.
She also said recent efforts to target diversity, equity, and inclusion programs have probably had some impact on the black unemployment rate.
Rising black unemployment could be the first sign of a recession.
There isn’t a single government agency that has the authority to declare a recession. Instead, those in government and most economists look to the National Bureau of Economic Research to declare one. The NBER is a private group that is seen as an authority on the matter.
NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” although there has been a historical precedent of labeling two consecutive quarters of negative economic growth as recessionary. The periods feature rising unemployment.
The last recession was a very brief yet sharp downturn at the outset of the pandemic in 2020. Before that, the U.S. economy experienced a great recession from 2007 to 2009.
This week, Moody’s Analytics Chief Economist Mark Zandi said recession odds are now “uncomfortably high,” with the odds of a recession in the next year at 48%.
“It’s less than 50%, but historically, the probability has never gotten this high, and a recession has not ensued,” he said.
HOUSE REPUBLICANS PUSH TO REVAMP FEDERAL RESERVE MANDATE
Economists will be closely watching the black unemployment rate in the coming months, but Hamrick said the recent uptick is indicative of the “cracks forming” in the U.S. labor market. In addition to black unemployment, he pointed out that young people are having a tougher time getting jobs out of college, the length of unemployment is growing, and there is more long-term unemployment.
“So I would just say all these factors are sort of singing from the same hymnal that this is no longer a red-hot job market, and if anything is looking weaker and weaker,” he said.
