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Unemployment rate drop expected to be transitory.
30/05/2023 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

During the quarter ending in April, the unemployment rate unexpectedly edged down from 1Q23, partly due to a lower participation rate. The unemployment rate came in at 8.7% (+0.9pp over one year), below both the market consensus and our 9.0% call. Over twelve months, employment increased 1.9% YoY (2.4% in 1Q23), supported by public-salaried jobs (albeit with a moderating pull) and self-employment. The labor force grew 3.0% YoY (3.5% in 1Q23). On a seasonally adjusted basis, the unemployment rate fell 10bps from 1Q22 to 8.4% as employment increased 0.2% MoM/SA, while the labor force increased by a milder 0.1% MoM/SA.



Job creation over twelve months driven by public and self-employed posts. Health, education and transport were key drivers to annual job creation, while construction continued to shed posts. The 1.9% YoY employment increase was lifted by public salaried posts (5.7% YoY; but easing from the 8.6% YoY pull in 1Q23), and the 4.6% YoY self-employment rise. Alternatively, private salaried jobs are rising at a milder rate (0.9% YoY), reflecting a weakening composition of new jobs created. Formal employment increased 1.7% YoY (2.1% in 1Q23), while informal jobs grew 2.6% YoY (3.1% in 1Q23).



The surprising sequential fall in the unemployment rate in April is likely a transitory blip. Labor market dynamics continue to stall, as proxies for labor demand trend well below pre-pandemic levels and administrative data on layoffs are going up. Private sector confidence remains weak, and labor costs are on the rise with Congress approving a 22% nominal minimum wage increase between May-23 and July-24. We expect the unemployment rate to average 9.0% this year (7.9% in 2022).