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We expect a gradual loosening ahead.
2023/08/30 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The unemployment rate for the July quarter came in at 8.8%, above both the Bloomberg market consensus and our 8.7% call, as employment growth slowed. The unemployment rate was 0.9pp above the same quarter last year, a larger adjustment than was seen in 2Q23 (0.7pp), but in line with the 1Q evolvement. On a seasonally adjusted basis, the unemployment rate ticked up by 10bps from 2Q23 to 8.5%, 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 1.1% QoQ/SA (0.9% in 2Q23). Job growth over twelve months (2.0% YoY; 2.2% in 2Q23) was driven by informal job posts. The labor market had surprised with stronger than expected employment growth in recent months. Nevertheless, today’s print is more in line with our expectations of a gradual labor market loosening ahead as the prolonged contractionary monetary policy dents economic dynamism and business sentiment.

The pull of private salaried jobs eased in the quarter, while informal job growth ticked up. Employment increased 2.2% YoY (2.2% in 2Q23 and 2.4% in 1Q23), while labor force growth remained at 3.0%. Private salaried posts increased 1.9% YoY (2.5% in 2Q), and public-salaried jobs rose by 5.5% YoY (4.8% in 2Q). Self-employment growth picked up 2.1% (1.2% in 2Q23). Job growth was lifted by healthcare, commerce, public administration, while construction and the real estate sectors concentrated job losses. Weak investment construction suggests employment in the sector is unlikely to rebound in the near-term. Formal employment increased 1.7% YoY (down from 2.1% in 1Q and 2Q23), while informal jobs grew 2.9% YoY (2.5% in 2Q23). The participation rate in the quarter reached 61.0% (up 1.2pp over one year; 62.5% average during 2015-19).

The resilience in the creation of private salaried posts in recent months has likely been supported by the job creation subsidy (IFE Laboral), accounting for an average of 36,000 new monthly posts, but the initiative has run its course and further weakening is likely ahead. Complementary labor indicators point to sluggish employment dynamics going forward. Proxies for labor demand trend well below pre-pandemic levels and administrative data on layoffs continue to rise. Private sector confidence is posting only a mild improvement amid a lower inflation and rates scenario, while labor costs remain high. We expect the unemployment rate to average 8.8% this year (7.9% in 2022), with 9.1% rate during 3Q23.