The Black unemployment rate hit a record low in March, a milestone for a U.S. labor market that most policymakers and economists expect to begin cooling in the face of higher interest rates, jeopardizing those historic gains.
The Black unemployment rate tumbled to 5% last month from 5.7% in February, the Bureau of Labor Statistics said on Friday, perhaps the most notable data point in a report that at once displayed the resilience of the American job market but also the early signs of its vulnerability to the higher borrowing costs engineered by the Federal Reserve over the last year.
Only a month ago, Fed Chair Jerome Powell faced withering criticism from a band of progressive Democratic lawmakers who accused him of trying to orchestrate a slowdown in hiring that would put historically vulnerable populations – Blacks in particular – at the greatest risk of job losses.
The data for March shows that has not occurred, yet. The 0.7 percentage point decline in the African American unemployment rate was the largest since November 2021 and was led by Black women, for whom joblessness dropped to a record low 4.2%. The rate for Black men ticked up to 5.2% from February’s record-low-matching 5.1%.
Moreover, the gap between jobless rates for whites and African Americans also narrowed to 1.8 percentage points, the lowest since the Labor Department began tracking it half a century ago.
That said, with the overall U.S. jobless rate edging back down to within a whisker of its lowest level since the 1960s, this may be as good as it gets. The question is whether such low rates and differentials hold relatively steady as the job market softens in the months ahead, as most expect, or whether the gains for Blacks, Hispanics and others erode more rapidly as they have done historically during economic downturns.
Indications of late-cycle behavior are starting to accumulate. Net flows into the labor market and the labor force participation rate are both improving, developments that research shows come along late in the employment cycle.
Employment in sectors often the most sensitive to cracking in the face of higher interest rates have begun flashing yellow.
For instance, construction employment, surprisingly resilient given the drop in housing starts since the Fed’s rate hikes began just over a year ago, fell in March. And the manufacturing sector lost jobs as well on the heels of a decline in industrial production, one of the statistics watched closely for the onset of a recession.
The bulk of job growth is now coming from the areas that are proving most nettlesome for the Fed as a source of inflation, perhaps a sign that the central bank may feel compelled to tighten conditions even further to bring the pace of price increases down. Case in point: Not only did leisure and hospitality job gains lead overall private sector employment growth, the monthly pay increase across the sector, at 0.7%, was more than double the national average.
Such data again bring into focus the potential vulnerability of March’s gains for Black workers. In every U.S. recession since the 1970s the Black unemployment rate has risen by at least 2 percentage points more than for whites, and often by far more than that.