Brazil's job market is in decline. Oh no, call 911...
The country's unemployment rate remains relatively low by historic standards and was bound to deteriorate from its China-like stats of 4.3% in December 2013. Moreover, nearly 40,000 construction workers and some oil sector engineers have been laid off due to the corruption scandal at
But let's not over-react. This decline should come as no surprise to Brazil investors. The credit bubble, the commodity bubble and the Petrobras construction bubble have deflated. The economy is hitting its trough. If it gets worse from here, which it might, it probably won't get too much worse.
Here's what the data shows, however.
The April unemployment numbers moved up to 6.4% from 4.9% last April. In seasonally adjusted terms, the unemployment rate is now 6.0%, from an average of 5.6% in the first quarter. The rise in the unemployment rate was mainly driven by the rise in the number of unemployed people and not a decline in labor participation. In other words, more people are really out there looking for jobs, and they are not finding them.
In the worst case scenario, the weaker job market means weaker income. Weaker income means Brazilians will spend less, hurting the economy more than it is now, and could pull the rug out from under the working class who have seen major income gains over the last decade.
Real wages fell 3% on the year, leading the real wage bill down by 3.6% in April when accounting for inflation.
These data, together with the monthly GDP proxy released earlier on Thursday surprising on the downside, provide more evidence of a lousy first quarter. As it is now, first quarter industrial production is down 2.4% on a quarterly basis, retail sales are down 4.0% as Brazilians aren't feeling so rich these days and business confidence reached an historic low, according to the Getulio Vargas Foundation, a market consulting firm in São Paulo.
"Brazil's outlook has deteriorated," says Bill Adams, senior international economist with PNC Financial in Pittsburgh.
Brazil's recession deepened in early 2015 as a drought in the southern farm towns, the corruption scandal and a weaker currency took their toll.
"The recent stabilization of the Brazilian currency reflects less aggressive assumptions about monetary tightening in the United States, not an improving Brazilian outlook," says Adams. "The Brazilian outlook is now considerably weaker than it was earlier this year."
The Central Bank of Brazil's IBC-BR index, a monthly proxy for real GDP, fell 1.1% in March from February. In the first quarter of 2015, the index contracted at a 3.2% annualized rate.
In terms of monetary policy, the weaker labor market is no match for 8.17% inflation. A 25 basis rates hike in July is likely, says
However, the central bank is now more interested in getting inflation under 7% than it is in guaranteeing Brazilians a job. This is a stark contrast from Alexandre Tombini's first four years at the bank, where he followed the footsteps of Workers Party president Dilma Rousseff. The bank was less interested in inflation then.
Andre Perfeito, chief economist of Gradual Investments in São Paulo, one of the most respected economists in the country, thinks the benchmark Selic rate will hit 14.5% by December.
The lackluster data presents a good buying opportunity for Brazil as interest rates are expected to decline next year, meaning the country's growth outlook will go from hell-in-a-handbasket to maybe just purgatory.
