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October's labor market data continued to show mixed signs, as employment decreased, but real wages surprised.

Talk of the Day




In the quarter that ended in October, the unemployment rate reached 7.6%, in line with the market forecast (7.6%), but below our call (7.7%). Seasonally adjusted (our estimates), the unemployment rate advanced to 7.9%, from 7.8% in the quarter ended in September. The unemployment rate moved up due to the decline of employment (-0.2% mom/sa), as both formal and informal employment fell (-0.1% and -0.3% mom/sa, respectively). Moreover, the participation rate fell 0.1p.p. to 61.7%. The effective real wage bill moved up 0.3%, driven by the expansion of wages (+0.4% mom/sa) despite lower employment figures. Overall, October's data continued to show mixed signs. While the employment level decreased, real wages surprised, increasing by 0.4% mom/sa from 1.0% mom/sa in September. **Full story here.


Tomorrow’s Agenda: October industrial production will come out. We estimate a 0.5% mom/sa growth (+2.1% yoy) for the headline, with expansion in manufacturing (+0.6% mom/sa; +2.2% yoy) but a decline in mining/extractive segments (-0.3% mom/sa; 1.6% yoy). Also, the central bank will publish the trade balance for November. We expect a USD 9.0 bn surplus, similar to October and much higher than the USD 6.2 bn surplus in November 2022. In all, the trade balance remains at record levels, acting as an important driver for healthier external accounts, which should continue next year.




Better-than-expected activity indicators. Retail sales and Manufacturing posted sequential increases, while volatile Mining undid previous gains. Retail sales (including vehicles) increased 0.2% mom/sa in October, building on the 0.7% mom/sa rise in September. In annual terms, real retail sales contracted by 6.9% yoy (-5% yoy in September), a milder contraction, for the second consecutive month, relative to the market consensus of -8.8% and our -8.5% call. The better-than-expected retail sales print consolidates the expectation that the private consumption adjustment has concluded. Separately, manufacturing increased by a significant 4.2% mom/sa (+0.5% in September), consistent with a 9.5% yoy increase (-2.2% in September), once again well above the market consensus (+2.6%) and our +1.7% forecast. The result was largely explained by the 26.2% yoy increase in the manufacture of chemical substances and products, specifically due to an increase in the production of methanol, as a result of the greater availability of raw materials. Volatile mining fell by 5.7% mom/sa, reverting the increase of the same magnitude in September, driven mainly by lower copper production and ore grades, and leading to an annual fall of 6.8% yoy. As a result, industrial production (grouping manufacturing, mining, and utilities) decreased 0.9% mom/sa, leading to a 1.1% yoy rise (+1.6% in September). Overall, upbeat sectorial activity data, especially in manufacturing, leads us to revise our IMACEC call up by 0.2pp to +0.7% yoy (to be released tomorrow. We expect a mild recovery ahead as interest rates and inflation fall. The upside surprise of 3Q23 GDP and more favorable activity dynamics at the start of 4Q23 suggest a smaller activity contraction this year versus our official -0.3% call. We see the economy recovering slightly to 1.5% growth in 2024. **Full story here.


Credit contracts once again and NPLs rise at the margin in October. According to the Financial Market Commission (CMF), bank credit contracted for the twelfth straight month in October, with a 2.3% YoY real contraction in the month (-2.6% in September), driven by declines in commercial (-5.3%) and consumer (-1.5%) loans. Separately, non-performing loans (defined as delinquencies >90 days) rose by 5-bp in October to 2.09%, substantially above the 1.61% of October 2022 (albeit a period muddled by extraordinary liquidity injections into the market), while marginally above the 2017-19 average of 1.93%. By loan type, consumer NPLs rose to 2.82% from 2.76%, inching back to the cycle peak of 2.78% in May-23. Renegotiations are on the rise, preventing a swifter increase in consumer NPLs. Similarly, commercial NPLs rose to 2.16% from 2.11%. Housing NPLs rose again to 1.71% from 1.66%, still well below the pre-covid 2.4% level.


Tomorrow’s Agenda: the central bank will release its monthly GDP proxy (IMACEC) for October. We expect activity to grow by 0.7% YoY, consistent with a flat monthly evolution.




Unemployment rate surprises to the downside in October. The national unemployment rate reached 9.2%, 0.5pp down over one year, well below the market consensus of 9.4% and our 9.5% call. Meanwhile, the urban unemployment rate came in at 9.0% in October (-0.9pp over one year). Employment expanded 2.1% yoy in October (3.2% previously), while the labor force rose by 1.6% (+1.5% previously). The participation rate increased by 0.1pp from October last year to 64.0%, but down at the margin. Sequentially, total employment fell 1.4% MoM/SA from September (0.7% drop previously), the third consecutive fall, suggesting the effect of contractionary monetary policy and high inflation on activity dynamics is filtering through to a gradual loosening of the labor market. We expect the average unemployment rate to reach 10.3% this year, down from 11.2% in 2022 (10.9% in 2019). Growing signs of deteriorating employment dynamics, amid weakening activity, will consolidate calls for the start of an easing cycle, despite sticky inflation. We expect rate cuts to start in 1Q24. **Full story here.


Central bank reaffirms 3% inflation target. As an annual legal requirement, the Board of the central bank defined its inflation target as 3% with +/- 1pp band. The policy target horizon is 12-18 months (Dec24-Jun25). When announcing the target last year, the Board adopted a two-year outlook (Dec24) to reach 3%. While inflation is adjusting amid a contractionary monetary policy, the disinflation path has been slow amid the removal of fuel subsidies. We expect inflation to end next year at 5.0%, well above the target, and in line with the expectation that rate cut cycle will only start next year.


Tomorrow’s Agenda: the central bank will publish Q3’s current account deficit (CAD). We estimate a current account deficit of USD 2.4 billion (2.5% of GDP, USD 3.8 billion below 3Q22). 




Tomorrow’s Agenda: the Central Bank of Peru will publish the CPI for November. We estimate headline inflation at 0.34% mom (4.16% yoy from 4.34% in October).