By Safiyah Riddle

(Reuters) – The U.S. Black unemployment rate hit a 10-month high in June, driven in large part by Black workers leaving the labor market, a development some economists worry may be a “canary in the coal mine” that may mean a recession is approaching.

The Labor Department’s closely watched monthly employment report released Friday showed the U.S. economy added the fewest jobs in 2-1/2 years in June – but this softening did not affect all demographic groups uniformly.

The Black unemployment rate rose to 6.0% last month, the highest since last August, from 5.6% in May, even as the overall jobless rate ticked down a notch to 3.6%. Just two months earlier in April, the gap with the white unemployment rate had narrowed to 1.6% as Black unemployment fell to 4.7%, both measures reaching the lowest levels since the Labor Department began tracking rates half a century ago. The 1.3-percentage-point Black unemployment rise since April is the largest two-month increase outside the pandemic in 14 years, and the gap with the white rate has widened to 2.9 points in that span.

Meanwhile, total employment among Blacks, which had hit a record-high in March, fell for a third straight month, a streak that has erased 635,000 jobs. Blacks were the only major racial or ethnic group to experience a net drop in employment over the past three months.

Some economists are concerned by the falling Black labor force participation rate – a measure of the people who are either employed or looking for work – which has fallen by 1.5% since March. In fact, the majority of the 239,000 person decrease in Black employment came from the people who left the labor force altogether in June, according to the report.

The exact cause of the recent weakening in Black employment is not yet clear. It is also a volatile data series that makes it difficult to gauge yet whether the most recent reports are indicative of a longer trend. Indeed, the three-month average through June at 5.4% is the same as it was at the end of March, and both are record-lows when looked at on a quarterly basis.

Nonetheless, a spike in the Black unemployment rate can be a strong predictor of an impending recession, since Black workers have historically been the first to be fired during an economic downturn.

“The increase in unemployment for these vulnerable workers appears to be driven by difficulty finding a job among existing workers, rather than a meaningful entry of previously sidelined workers,” William M. Rodgers III, director of the St. Louis Federal Reserve’s Institute of Economic Equity, said.

“These groups can be thought of as a ‘canary in the coal mine,'” Rodgers said. “Their economic outcomes tend to be weaker than their peers and more sensitive to changes in the macroeconomy.”

Despite the overall report featuring the softest pace of job creation since late 2020, it showed the job market on balance remains tight, highlighting another risk for vulnerable workers: Federal Reserve interest rate hikes.

Among other factors, the June report’s strong wage growth increased the likelihood the Fed will resume raising interest rates later this month after skipping an increase last month for the first time since March 2022.

“We’ve seen a really healthy recovery precisely because of public investment and more money in people’s pockets. But that has that has been pushing against the tide of these rate hikes And so we’re starting to see the effects of that, and as ever, it’s always the folks who are left behind historically that are going to feel the effects of these policy choices first,” said Rakeen Mabud, chief economist and managing director of policy and research at the think-tank the Groundwork Collaborative.

Acting U.S. Labor Secretary Julie Su emphasized that the most recent data doesn’t necessarily suggest a long term decline, and pointed to job growth since the pandemic. Su also said the rise in Black unemployment and the decline in participation is something the Biden administration would “continue to track.”

(Reporting by Safiyah Riddle; Editing by Chizu Nomiyama and Dan Burns)

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