Three questions for the near future of the labor market
Over the past two months, the U.S. economy has created a total of 826,000 jobs, according to the latest figures from the Bureau of Labor Statistics (BLS) for May and upwardly revised figures for April. Over the same period, overall unemployment stood at 3.6%. Black unemployment is still nearly double (at 5.9% in April and 6.2% in May), but the labor force participation rate for blacks has increased, as has the total number of black workers currently employed.
Despite strong job gains, inflation hit a lowA peak of 8.6% in 41 years, and households are reeling from relentless increases in the price of gas, rent and food. June Preliminary Consumer Sentiment Indexfell 8 points from May, to 50.2—the lowest rate since the 1980 recession, indicating that households are deeply worried about their financial situation.
In this blog, we highlight three key economic concerns for the summer, including women leaving the labor force, economic contraction wiping out job gains for black workers, and increased risk of food insecurity.
Will there be more women than usual leaving the workforce this summer?
In the past three months, 465,000 women aged 20 and over have entered the labor market. In May alone, 397,000 women entered the workforce, 44% of whom were black. This influx of women into the workforce is helping to regain jobs lost during the pandemic, but labor force participation rates for women, including white, black, Latino, or Hispanic women, are still below employment levels. before the pandemic.
Despite the trend towards the resumption of female employment, research by the National Women’s Law Center found that nearly a third of the jobs women have regained since the start of the pandemic are in the leisure and hospitality sector – a finding consistent with our preliminary analysis of recent job creations. These jobs are low paying, have unstable hours and are vulnerable to economic downturns.
Additionally, women’s labor force participation typically drops each summer as school closures cause many mothers to reduce their working hours or quit their jobs. A recent article found an average summer decline of 1.1% in the employment-to-population ratio among prime-age women. This decline is pronounced among mothers of school-aged children who do not have access to affordable or reliable child care. The ongoing pandemic will likely continue to exacerbate this cyclical trend, consistent with our previous researchincluding our recent survey data revealing that childcare issues and rigid work schedules continue to plague working women.
Will economic worries erase the gains of black workers?
Soaring inflation prompted the Federal Reserve to adopt an increase in interest rates of 75 points at its June meeting to regain investor confidence. If the Fed follows the recommendation of some commentators to induce an 1980s-style recession through a series of steep interest rate hikes to curb consumer spending and stabilize prices, black workers will bear the brunt of corporate downsizing, just as they l did in 1983, when the unemployment rate reached 20% for black men and 16.7% for black women.
But even if the Fed remains a stabilizing force for the broader economy, the market itself might not stay calm. Major companies such as Redfin, Twitter and Coinbase have canceled job offerswhile several leading technology companies like Robinhood and Netflix have announced layoffs as a cost reduction strategy. But if industry leaders and investors view this as a broader signal and panic based on negative sentiments about the current economy, it could create a ripple effect of fear across sectors and lead to layoffs and a recession.
Another worrying indicator is that the BLS’s broader measure of labor market weakness, the U-6 unemployment rate, rose to 7.1% in Maydriven by frictional unemployment and 295,000 increase in part-time workers. This coincided with the shedding of the retail sector 51,700 jobs. Large retailers noted that household spending cuts left them inflated stocks; for example, The target cut earnings expectations twice in a month and surprised investors with a sell-off campaign aimed at cutting inventory. This is a leading indicator that the sector will shed additional jobs. Additionally, big-box retail chains, including Amazon, have hired more workers than normally needed to avoid hiring delays and disruptions from the COVID-19 disease in a tight labor market. But the CEO of Walmart recently explained that this strategy has led to overstaffing problems— suggesting that even without spending cuts, job cuts will continue.
All of this bodes ill for black workers, especially black men. Over the past three months, black men have gained 56,000 jobs, and their current activity rate of 68.9% is now higher than it was before the pandemic. While some of these job gains reflect a slight increase in the number of black men entering the workforce, most represent men who were previously in the workforce and have now been rehired. As shown in Figure 2, black men did not benefit from the labor market recovery until it ended.
Even a slight economic contraction could jeopardize these recent job gains for black workers, especially workers crammed into cyclical, low-wage sectors like retail. The current job market – in which there are more job openings than job seekers – has pushed companies to tap into black talent they would otherwise overlook due to discrimination. But if the labor market weakens, additional black workers will be less likely to be hired, and newly hired black workers will be among the first to be laid off during layoffs.
Will the depletion of savings and the end of the school year worsen food insecurity?
As household savings quickly deplete due to inflation, the risk of food insecurity is increased. In April, the personal savings rate of Americans hit a low of 4.4% (compared to 33.8% in April 2020 and 12.6% in April 2021). At the same time, according to Federal Reserve Board Consumer Credit Report, revolving debt (such as credit card debt) grew at an annualized rate of 19.6%, while non-revolving debt (such as auto loans and mortgages) grew at a slower rate by 7.1%. Globally household debt has increased at an annual rate of 8.3% in the first quarter of 2022. Taken together, these metrics suggest that inflation is making it harder for families to maintain current levels of consumption while saving money, even as they face significantly lower savings to pay for necessities.
It is likely that without advanced child tax credit payments or some other form of income stimulus, many low-income families will face a difficult summer. Low-income parents are caught in an impending storm of precarious retail jobs, overrepresentation in part-time jobs and a weakened childcare economy. This is especially true for families with school-aged children who received free meals during the school year.
Even a ‘soft landing’ poses economic risks
Over the past few months, Federal Reserve Chairman Jerome Powell has told reporters that he believes the Federal Reserve can engineer a “soft landing”— in other words, curb inflation without throwing the economy into freefall. But even if the Fed can achieve this, it will not fully address the three concerns we have identified in this article.
Beyond the Fed’s monetary policy actions, we need strong fiscal policies such as stronger unemployment insurance and a new monthly child tax credit to ensure no one falls through the cracks. Ultimately, meeting food and housing needs will require a collaborative effort from the federal government, states, philanthropy and local community organizations to support vulnerable families in the months ahead.