Itaú BBA - COLOMBIA – Labor dynamics deteriorate in May

Macro Latam

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COLOMBIA – Labor dynamics deteriorate in May

junio 28, 2019

The loosening labor market, amid depressed sentiment point to weak consumption ahead.

The unemployment rate in May surprised to the upside, despite a sharp fall in the participation rate. The national unemployment rate picked up to 10.5%, from 9.7% one year ago, driven by the urban unemployment rate rising 1.1pp to 11.2% (Bloomberg market consensus: 10.8%; Itaú: 10.9%). The unemployment rate rise is due to a sharper shedding of jobs (mainly self-employment) compared to the registered decline of the labor force. The loosening labor market, amid depressed sentiment and a more complex global context point to weak consumption dynamism ahead.

One positive from the data is the acceleration of private salaried job creation. In the quarter ending in May, the total unemployment rate was 10.6%, up 1.1pp over twelve months, with the urban unemployment rate reaching 11.5% (10.5% one year ago). Total employment fell 1.5% yoy (the steepest drop since the quarter ended in July 2007), while the participation rate fell 1.1pp to 62.8% compared to one year ago. Agriculture led the job shedding, but job destruction was broad-based (gains were only seen in construction, social services and mining). Job destruction was led by the 5.1% yoy decline in self-employment (-0.9% in 1Q19), while salaried public employment fell 1.2% (+11.6% in 1Q19). Taking a contrary route was growth of private salaried posts (4% yoy vs. 1.6% in 1Q19), a development that could mitigate the con sumption slowdown.

We expect the unemployment rate to rise for the fourth consecutive year to 10.3% (9.7% for 2018). The loosening of the labor market, along with below potential growth and controlled inflation make us believe the central bank will ease monetary policy ahead. 

Miguel Ricaurte
Carolina Monzón

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