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Weakening of the labor market is consolidating.
2023/09/29 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

The unemployment rate for the August quarter rose to 9.0%, above both the Bloomberg market consensus and our 8.9% call, as employment fell at the margin. The unemployment rate was 1.1pp above the same quarter last year, a larger adjustment than was seen in 2Q23 (0.7pp). On a seasonally adjusted basis, the unemployment rate ticked up by 40bps from 2Q23 to 8.8%, as employment fell 0.1% MoM/SA, the first negative number seen since Nov-22 (and slowed to +0.3% QoQ/SA; average quarterly employment growth during 2015-19 was 0.5% QoQ/SA). Separately, the labor force increased by 0.1% MoM/SA (0.8% QoQ/SA; 0.9% in 2Q23). Job growth over twelve months (1.7% YoY; 2.2% in 2Q23) was driven by informal job posts (1.9% YoY). Overall, the labor market loosening in line with our expectations of a gradual weakening as the prolonged contractionary monetary policy dents economic dynamism and business sentiment.  


Job creation over twelve months is losing steam. Employment increased 1.7% YoY in the quarter ending in August (2.2% in 2Q23 and 2.4% in 1Q23), as private salaried posts increased by 1.7% YoY (1.9% in July; 2.5% in 2Q), and public-salaried jobs rose by 4.6% YoY (5.6% in July; 4.8% in 2Q). Self-employment growth increased at a higher 2.3% (2.1% in July; 1.2% in 2Q23). In terms of economic sectors, job growth was lifted by commerce and public administration, while construction concentrated job losses (sustaining the view of weak investment perspectives). Formal employment increased 1.6% YoY (1.7% in July; 2.1% in 2Q23), while informal jobs grew 1.9% YoY (2.9% in July; 2.5% in 2Q23). The participation rate in the quarter reached 60.9% (up 1.2pp over one year; 62.5% average during 2015-19). 


Weakening of the labor market is consolidating. The absence of the job creation subsidy (IFE Laboral that concluded in June; accounting for an average of 36,000 new monthly posts) will dent formal job creation ahead. In addition, complementary data from administrative sources also suggest job destruction is materially up from last year, as proxies for labor demand remain below pre-pandemic levels. As such, unemployment is set to rise further in the coming months. We expect the unemployment rate to average 8.8% this year (7.9% in 2022), with 9.1-9.2% rate during 3Q23. Clearer signs of a softening labor market will spur on the central bank along its rate cut cycle, but recent CLP dynamics pose upside risks to inflation expectations that may build the case to lower the pace of easing in coming months.