Weakening Labor Market Exposes Vulnerabilities of Minorities

The labor market is weakening. Employment growth is well below average long-term growth and the unemployment rate is growing. As the labor market weakens, minorities appear to be especially vulnerable to the slowdown. Their employment opportunities are declining more than for whites, which is often directly linked to the industries where they are concentrated.

Today, the Bureau of Labor Statistics (BLS) released its latest estimates on the labor market for July 2006. According to these figures, 113,000 new jobs were created and the unemployment rate grew from 4.6 percent to 4.8 percent.

The latest job growth figures continue a trend of a weak and slowing labor market. For the entire business cycle, which started in March 2001, monthly job growth averaged an annualized rate of 0.4 percent, less than one fifth the long-term average prior to this business cycle. Only six out of a total of 64 months of this business cycle have had above average job growth. Today's figures also reflect a slow down in job growth- employment growth from July 2005 to July 2006 was 1.2 percent, down from 1.6 percent from July 2004 to 2006.

In this weakening labor market, job trends, however, differ by industries. Manufacturing employment, for instance, declined by 15,000 in July, which means that there are 2.7 million fewer jobs in this industry now than in March 2001. Construction-related employment – construction, furniture stores, building material retail, and real estate financing – grew by a relatively slow 11,000. In 2005, monthly construction-related employment growth was more than 33,000. Also, in the first three months of this year, construction-related employment grew by more than 40,000 on average per month. Yet since March, construction-related employment growth has averaged only 6,725 new jobs per month. Reflecting weakening consumer demand is not only the slow down in these industries, but also that the retail sector created no new jobs in July after declining the previous three months. Offsetting these weak spots are job increases in professional and business services, such as engineering and computer systems design, with 43,000 new jobs, health care with 23,000 new jobs, and hotels and restaurants with 38,300 new jobs.

The other sign of a slowdown in the labor market is the rise in the unemployment rate. It rose from 4.6 percent to 4.8 percent, the first increase in six months and the largest increase since February 2005. The flip side to the unemployment rate is the employment rate, i.e., the share of the population that is employed. It declined from 63.1 percent in June 2006 to 63.0 percent in July, marking the first decline since last September, when the labor market felt some fall-out from Hurricane Katrina.

A breakdown by demographic characteristics also shows that minorities are particularly vulnerable to the softening job market. For instance, Latinos who typically have a larger employed share than other population groups, but also lower wages, saw their employed share dropped to its lowest level in 2006 – 65.0 percent. The comparable share for whites remained stable at 63.8 percent and it grew slightly for African-Americans in July to 58.2 percent after declining sharply in June. At the same time, while the unemployment rate for Latinos increased and whites remained stable, the unemployment rate for African-Americans rose to 9.5 percent, its highest level since November 2005.

A further breakdown of the data reveals particular exposure of some groups to the softening in specific industries. For instance, both African-American men and women saw an erosion of employment opportunities, but it was more pronounced for men than for women. This trend is in line with the above average representation of African-American men in manufacturing: the unemployment rate for African-American men grew by 1.6 percentage points to 11.2 percent in July, while it rose by 0.8 percentage points to 9.9 percent for African-American women. Another example is the diverging employment prospects for Latino men and women. Specifically, the non-seasonally adjusted unemployment rate of Latino men was with 4.8 percent, 0.5 percentage points higher in July 2006 than the year before. In comparison, the unemployment rate for Latino women declined by 0.5 percentage points to 6.5 percent in that same period. This is in line with the relatively large share of Latino men employed in construction, which has slowed, and the comparatively high representation of Latino women in hotels and restaurants, which has grown.

The weakening of minority employment prospects also makes it harder for minority youth to find employment. In a rather stark reflection of this trend, the unemployment rate of African-American youths rose to 31.6 percent from 27.8 percent in June. This marks the fourth month this year where African-American youth unemployment was greater than 30 percent and the second increase in their unemployment rate in a row. Importantly, this weakening comes just a few months after things seemed to improve for African-American youths. It was only in December 2005 that their unemployment rate fell below 30 percent for the first time since September 2004. And their employed share rose above 25 percent in February and May 2006 – the highest points since the fall of 2002. However, by July 2006, their employed share had also declined for two months in a row to 23.3 percent.

As the economy slows, it is taking a toll on all families, but minority families appear especially vulnerable. With interest rates expected to continue to rise, minority men may be particularly vulnerable if construction-related employment slows further and the manufacturing sector, which depends heavily on the sale of investment goods, remains at a low level.

Dr. Christian Weller is a Senior Economist at the Center for American Progress, where he specializes in Social Security and retirement income, macroeconomics, the Federal Reserve, and international finance.