Itaú BBA - COLOMBIA – Weak labor market with falling employment

Macro Latam

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COLOMBIA – Weak labor market with falling employment

agosto 30, 2019

The uninspiring labor market dynamics amid pessimistic consumer sentiment mean private consumption would moderate ahead.

The unemployment rate in July came in below expectations, but falling participation and continued job destruction continue to reflect a weak labor market. The national unemployment rate rose 1.0pp over twelve month to 10.7%, with the urban component increasing a milder 0.2pp to 10.3%. The latter was below the 10.9% Bloomberg market consensus and our 10.8% forecast. Total employment fell 0.9% yoy in July, the fourth consecutive monthly drop, meanwhile participation retreated 0.6pp from July last year.

The continued growth of private salaried job growth, albeit not in urban areas, is a positive take from the data. In the quarter ending in July, the total unemployment rate was 10.2%, up 0.7pp over twelve months. Meanwhile, after adjusting for seasonal factors, the total unemployment rate in the quarter was 10.3%, stable from the 2Q19, but well above the 9.7% average for last year. The national labor force was flat over twelve months (-0.9% in 2Q19 and +1.8% in 1Q19), while employment shrunk 0.7% yoy (1.6% drop in 2Q19 and +0.5% in 1Q19). Overall, private salaried jobs grew 3.7% yoy, a similar rate to 2Q19 (1.6% in 1Q19), but declined 0.1% yoy in urban areas. Public salaried posts continued to be shed at a near double-digit rate, while self-employment declined to 3.4% yoy (4.4% drop in 2Q19 and -0.9% in 1Q19). The real estate and manufacturing sectors lead job destruction in the quarter. The latter has contracted for the last four months, likely reflecting some impact from external headwinds. Meanwhile, construction drove job creation in the quarter, growing 10.2% yoy from 13.6% in 2Q19.

Gross fixed investment and private consumption growth remained stable, while public consumption and exports moderated. Gross fixed investment rose 4.3%, broadly stable from an upwardly revised first quarter. The consumption moderation from 4.4% to 4.2% in 2Q19 came amid a public consumption slowdown to 1.9% from 3.3% in 1Q19, while private consumption remained stable at 4.6%. Net exports continued to drag activity in the quarter as imports grew an elevated 8.2% (from a downwardly revised 9.7% in the previous quarter) while exports moderated to 3.0% from 3.9% in 1Q19.

We expect the average unemployment rate to rise for the fourth consecutive year to 10.3% in 2019 (9.7% for 2018). The uninspiring labor market dynamics amid consumer sentiment entrenched in pessimistic ground, rising inflation and the sharp weakening of the COP, mean private consumption (which has driven stronger-than-expected growth in 1H19) would moderate ahead.

Miguel Ricaurte
Carolina Monzón

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