Itaú BBA - Unemployment reaches 12.6% in February

Macro Brazil

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Unemployment reaches 12.6% in February

March 29, 2018

The real wage bill expanded 3.7% yoy and 0.3% vs. the quarter ended in November

According to the national household survey (PNAD Contínua - IBGE), Brazil’s nation-wide unemployment rate climbed to 12.6% in the quarter ended in February from 12.2% in the quarter ended in January, driven by labor market seasonality.
 

Using our seasonal adjustment, unemployment fell 0.1 p.p. to 12.4%, influenced by a small decline in the participation rate.

Informal employment receded at the margin after remaining virtually stable in the previous three reports, consolidating the end of the upward move seen in 2017. Formal employment in the private sector remained stable and will likelly start to increase in the coming months. 

The real wage bill expanded 3.7% yoy and 0.3% vs. the quarter ended in November.

Lower participation rate offsets decline in informal employment 

The nation-wide unemployment rate climbed to 12.6%  in February[1] from 12.2% in January, in line with the median of market estimates and our call. Notice that these readings were still deeply affected by seasonality in layoffs. The unemployment rate is 0.6 p.p. lower than in February 2017.

Using our seasonal adjustment, unemployment slid 0.1 p.p. to 12.4%, The labor force shrank 0.2% in the quarter ended in February compared to the September-November period, but expanded 1.6% yoy. The participation rate (ratio of the labor force to the working-age population) dropped to 61.7% from 61.8%, explaining the seasonally-adjusted decline in unemployment. Nevertheless, the participation rate remains much higher than its historical average (61.3%).

Employment fell 0.1% qoq/sa, but rose 2.0% yoy. Quarterly gains have been decelerating since 3Q17, due to slower growth in informal jobs. The chart above on the right shows the declining contribution from informal employment – referred to as “Employment” (others) — in recent months.

Rising average wage and employment boost the real wage bill 

Nominal wages increased 0.9% qoq in the quarter ended in February and 4.1% yoy. The average real wage climbed 0.1% qoq and 1.1% yoy.

The real wage bill expanded 3.7% yoy and 0.3% qoq. Higher employment and higher real wages lifted the year-over-year reading, while quarterly growth was driven mostly by wages.

Continuing recovery in economic activity should prompt a gradual decline in unemployment
 

Using models that contemplate the sensitivities of different kinds of occupations to the pace of economic activity and our GDP scenario (3.0% in 2018 and 3.7% in 2019), we expect the unemployment rate (using our seasonal adjustment) to recede to 11.7% by YE18 and 10.7% by YE19, as formal jobs provide a growing contribution.

Our forecasts for the average unemployment rate are 12.0% in 2018 and 11.0% in 2019 (2017: 12.7%).

 


Artur Manoel Passos 



[1] All figures in the Continuous PNAD are in the form of three-month moving averages.

 



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