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A new report from Wells Fargo finds tough times may be ahead for Hispanic workers.
The company expects Latino workers to take a major hit if a mild recession hits in 2023, as expected.
“The Hispanic unemployment rate tends to rise disproportionately above the national average during economic downturns,” wrote Jay Bryson, chief economist at Wells Fargo.
For example, from 2006 to 2010, the Hispanic unemployment rate rose by about 8 percentage points, while the non-Hispanic unemployment rate rose by about 3 percentage points, the company found. Bryson noted that it was also higher than non-Hispanic unemployment rates in the early 1990s and in 2020.
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The data suggests that job composition and age are to blame.
In construction, for example, Latinos account for a third of workers, compared to 18% of all domestic workers. This rate-sensitive sector will face “severe challenges in the coming year,” Bryson said. He noted that mortgage rates have jumped to more than 6% and building permits have already fallen by more than 10% since the end of last year.
He said there will also be a sharp drop in spending on goods over the next year as a result of pent-up demand for services. Currently, overall consumer spending is 14% higher than in February 2020, and spending on real services has increased by less than 1% over the same time period.
“Spend rotation is likely to lead to sharp job cuts in goods-related industries other than construction, including transportation, warehousing, retail and wholesale, and manufacturing — all industries in which Latinos represent a disproportionate share of the workforce,” Bryson said. .
However, a focus on jobs in the leisure and hospitality sector, which has been hit hard during the pandemic, may offset some of those losses.
Not only will consumers prioritize spending on missed vacations or dining out next year, but employment in the industry is still about 7% below pre-Covid levels, Bryson wrote.
The age factor also works against Hispanics, because workers tend to be younger than non-Hispanic people.
“Junior workers tend to lay off at a higher rate than workers with higher seniority,” Bryson said. “The few years of experience make it difficult to find new work in a weak job market.”
However, Bryson said he does not expect the next downturn to be as damaging to the labor market as the previous two recessions.
“Employers have spent the greater part of the past five years struggling to find workers,” he said. “We expect employers to be more tight-lipped toward workers than they have been during previous recessions, and have a better appreciation of how difficult it is to rehire them.”
CNBC’s Michael Bloom contributed to the report.