During the quarter ending in May the unemployment rate unexpectedly edged further down from 1Q23 (SA), as employment growth continues to surprise sequentially. The unemployment rate came in at 8.5% (+0.7pp over one year), below both the market consensus of 8.8% and our 8.9% call. Over twelve months, employment increased 2.0% YoY (2.4% in 1Q23), supported by private salaried posts and public-salaried jobs. The labor force growth slowdown was more evident (from 3.5% YoY in 1Q23 to 2.8% YoY). On a seasonally adjusted basis, the unemployment rate fell 20bps from 1Q22 to 8.3% as employment increased 1.0% QoQ/SA (average quarterly employment growth during 2015-19 was 0.5% QoQ/SA), while the labor force increased by a milder 0.8% QoQ/SA (1.2% in 1Q23).
Job creation over twelve months was surprisingly driven by private salaried jobs posts. While self-employment and public posts had been key drivers to job growth in the recent past, May data points to a significant rebound of private salaried jobs. Such a development, along with the return to real annual wage growth, would boost the real wage bill and potentially moderate the expected activity downturn. The 2.0% YoY employment increase was supported by private salaried posts (+2.8% YoY; 1.0% in 1Q) and public-salaried jobs (4.6% YoY; 8.6% in 1Q), while self-employment was broadly stable. Formal employment increased 2.0% YoY (2.1% in 1Q23), while informal jobs grew 2.2% YoY (3.1% in 1Q23). The participation rate in the quarter reached 60.9% (up 0.7pp over one year, but down from the 1.0pp gain during 1Q23; 62.5% average during 2015-19).
Despite surprising employment dynamics, complementary indicators suggest the sequential improvement in the labor market is unlikely to persist. Proxies for labor demand trend well below pre-pandemic levels and administrative data on layoffs continue to rise. Private sector confidence remains weak, and labor costs are rising. We expect the unemployment rate to average 9.0% this year (7.9% in 2022), but recent dynamics put a downside bias to our call.