Itaú BBA - CHILE – Labor market loosening in February

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CHILE – Labor market loosening in February

Março 31, 2020

As economic conditions deteriorate, significant labor market loosening is expected ahead.

The expected loosening of the labor market following the disruption to business operations and private sentiment in 4Q19 showed greater materialization in data for the quarter ending in February. With the economy facing another shock on a global scale, further loosening of the labor market is anticipated despite efforts by the authorities to shoulder some of the labor costs for business. The unemployment rate increased 0.8pp over one year to reach 7.8%, above the Bloomberg market consensus of 7.5% and our 7.3% call. In the Santiago Metropolitan area, the country’s economic hub, the labor market loosening was even more evident with the unemployment rate up 1.2pp to 8.6%. As was the case with earlier data, the number of inactive individuals that would potentially be participating in the labor force (i.e. inactive individuals who would take a job upon an offer) continues to accelerate hinting that the unemployment rate rise could sharpen further ahead.

Independent laborers are those primarily driving the labor market loosening. Slower employment growth amid an accelerating labor force explains the unemployment widening. Employment grew 1.7% yoy in the quarter, slowing from 1.9% in 4Q19, and further below the 3.3% gain in 3Q19 when the labor market was evolving favorably just prior to the protests. The labor force increased 2.6% yoy (1.8% in 4Q19) as participation ticked up 0.3pp over twelve months to 63.1% (0.2pp fall in 4Q19). While salaried job growth was upbeat (growing 3.3% yoy compared to 2.7% in 4Q19), self-employment gains slowed to 0.4% yoy (3.1% in 4Q19) and total independent employment fell 1.3% yoy (0.6% uptick in 4Q19). Job growth was led by professional activities, retail, administrative and health services, while notable job destructors came from the education sector, agriculture and manufacturing. While construction continues to support job growth, the halt to operations at the back-end of March combined with still downbeat private sentiment suggest it would likely lead to job shedding ahead.

As economic conditions deteriorate, significant labor market loosening is expected ahead. We expect an increase from the 7.2% average unemployment rate recorded last year to 9.0% this year. The anticipated loosening is in line with our call of the central bank lowering the policy rate by 50bps later today to 0.5% in its bid to prevent the latest shocks resulting in persistent economic effects.

Miguel Ricaurte
Vittorio Peretti


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