Brazil Economic Weekly

Transcription

1 Macroeconomic Research Department Macroeconomic Research Department Brazil Economic Weekly March 24 th 2016 Comments on the current labor market conditions Igor Velecico Our publication aims to highlight the similarities and differences among labor market indicators. The major similarity among the three surveys refers to the weakening that began in the second half of In the Monthly Employment Survey (PME), unemployment went from an historic low of 4.5% in June 2014 to 8.1% in February 2016, with unemployment increasing at a rate of around two percentage points per year (for a total of 3.6 points). Meanwhile, the Continuous National Household Sample Survey (PNADc) shows the unemployment rate going from 6.7%, also in June 2014, to 9.9% in December We have, thus, exactly the same pace of increasing unemployment, with two percentage points in annualized terms and a total of 3.2 points. While unemployment measured by both the PNADc and the PME is progressing at the same speed, there is a sharp difference in the declines among the occupations covered by the surveys. Obviously, for unemployment to show similar trends, the economically active population (PEA) captured by the surveys must also differ. That was precisely what happened. The only sector that has, hitherto, shown effectively divergent trends among the surveys is construction. While the data from the General Register of Employed and Unemployed Persons (CAGED) show a continuous decline since 2014 (dampening in recent months), data from PNADc show stable employment in the sector (from 2014 to 2016), and even growth, if we look at the performance since June of last year. A possible explanation, here, could be the worsening employment situation, with a consequent exchange of formal employment for informal employment. However, the data from the PNADc do not yet allow us to confirm this hypothesis. With ample global liquidity and the stabilization of commodity prices, emerging assets may come back on the radar BRAZIL ECONOMIC WEEKLY Estevão Augusto Oller Scripilliti After a very turbulent start to the year, a collection of measures introduced by the main Central Banks, and some governments, has been enough to provide support to emerging assets. With the perception of global liquidity remaining higher, as shown in the chart above, and signs of supply adjustments in certain commodities (oil and some metals), there was recovery in international prices (oil around US$40 and iron ore around US$55). It is important to note that despite the current financial stabilization, global growth will be modest, with indications that there will continue to be slowdown in China, and global trade is expected to remain virtually stagnant. We believe that emerging countries, in general, have made a fair amount of progress in the adjustment of their external accounts since 2013, when a more pronounced currency depreciation process against the dollar began, resulting in higher domestic inflation and contraction of domestic demand. This combination of a more depreciated real exchange rate and contracting domestic demand led to significant external adjustments in some countries (Brazil, Chile, India and Indonesia are some examples). 1

2 Comments on the current labor market conditions Igor Velecico Of the three national employment indicators 1 (PME, Continuous PNAD 2 and CAGED 3 ), the first of them (PME) was discontinued last week. Thus, the only nationwide data will now be the PNADc and the CAGED, which were not necessarily aligned with the data from the PME. This publication aims to highlight the similarities and differences between the indicators and bolster our evaluation of the labor market trends for First, the major similarity among the three surveys refers to the weakening of the labor market that began in the second half of In the Monthly Employment Survey (PME), unemployment went from an historic low of 4.5% in June 2014 to 8.1% in February 2016, with unemployment increasing at a rate of around two percentage points per year (and a total of 3.6 points). Meanwhile, the Continuous National Household Sample Survey (PNADc) shows the unemployment rate going from 6.7%, also in June 2014, to 9.9% in December We have, thus, exactly the same pace of increasing unemployment, with two percentage points in annualized terms and a total of 3.2 points. 14,5 14,0 13,6 12,0 12,1 10,8 10,0 10,3 9,9 9,9 9,5 8,8 9,2 8,4 8,1 8,0 7,5 7,4 6,0 6,4 PNADC (retropolated and forecast) 6,7 PNADC (seasonally adjusted) PME (seasonally adjusted) 4,0 4, ,9 Unemployment rate, measured by the PME and PNADc Source: IBGE Domestic Outlook The CAGED data confirm this trend of rising unemployment. In fact, the following chart shows the inverted net balance (left axis) and the suggested increase, in annualized terms, of the unemployment rate (right axis) - that is, if the level of job creation or elimination continues at that level over the next 12 months. The data reveal a similar story, but one that is clearly not linear: from June 2014 until mid-2015, the CAGED balance was between 0 and -50,000; from then on, the elimination of jobs has accelerated significantly and migrated to the range of -150,000 to -200,000 jobs/month, consistent with an unemployment rate rising between 4% to 5% per year. In other words, the CAGED data suggest that, at least for formal employment, we should expect to see rising unemployment in the coming months. 1 The IBGE s Monthly Employment Survey (PME) covered only six metropolitan regions, but dialogued reasonably well with the aggregated economic data. 2 IBGE National Survey of Households 3 The Ministry of Labor s General Register of Employed and Unemployed Persons 2

3 CAGED net balance (inverted) Suggested increase of unemployment rate Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec ,0 4,0 3,0 2,0 1,0 0,0-1,0-2,0-3,0-4,0-5,0 CAGED net balance and suggested increase of the unemployment rate Source: MTE Secondly, it is worth highlighting the difference in the employment rate among the surveys. The following chart illustrates the annual variation of the total number of employed persons in the three surveys (we are ignoring for the moment the fact that the PME and PNADc also include informal work). The chart shows that the rates of decline among the CAGED and the PME seem to line up reasonably well, while PNADc shows a much less intense decline in employment. 6,0 5,0 4,0 3,0 2,0 1,0 0,0-1,0 0,5 4,0 2,5-0,1 5,1 1,3-0,7 Caged Continuous PNAD PME 1,9-1,1 Interannual variation of the inventory of employed persons of the three employment surveys -2,0-3,0-3,5-4,0-3, Source: IBGE, MTE Herein lies the first major difference among the surveys: While unemployment measured by both the PNADc and the PME is progressing at the same speed, there is a sharp difference in the declines among the occupations covered by the surveys. Obviously, for unemployment to show similar trends, the economically active population (PEA) captured by the surveys must also differ. That was precisely what happened. The following chart does not illustrate PEA directly, but the participation rate, which remained practically stable in the PNADc and the SEADE (for the metropolitan region of São Paulo), declined significantly in the PME. Domestic Outlook 58,0 56,0 54,0 56,8 PME (E) Seade (E) Pnadc (D) 56,2 54,0 54,1 54,8 57,4 53,7 56,3 57,4 57,8 56,8 56,8 53,0 52,9 52,6 52, ,1 54,0 61,2 55,3 53,7 54,4 60,9 56,3 54,5 61,5 54,5 54,4 61,0 59,0 57,0 55,0 Participation rate of the three employment surveys, seasonally adjusted Source: IBGE, Seade 3

4 We have written several publications about the PEA and PNEA (economically inactive population) trends in the PME survey. We do not want to focus too much on the subject, only to point out that, from the point of view of the PNEA, the diagnosis is that it is the older population (50 and above) who are responsible for the fall in the participation rate since 2013, as shown below years years years years 50 or over Interannual variation (in absolute terms) of the non-economically active population of the PME by age Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan Source: IBGE The next question, naturally, is where does this difference among occupations come from? For this, we have created two tables showing the variation in 2015 (December 2015 versus December 2014) of the employed population by occupation type and industry. The PME indicator* is equivalent to the PME data multiplied by 3.93, the ratio between the average number of employed persons between the PNAD (around 92 million) and the PME (around 23.5 million). 4 Breakdown PNADc (1) PME (2) PME* (3) (1) - (3) Total ,520 1,919 Private sector, formal -1, ,369 1,275 Private sector, informal Public sector Self-employed 1, Employer Other Absolute employment variation (by sector) in 2015, in number of people Source: IBGE Note that the difference is significant and is concentrated in two groups: private sector formal employment, and in the self-employed and employer sub-groups, which are historically anti-cyclical. In the breakdown by sector (shown below), the main difference is between trade and services, which explain more than half of the difference between the two surveys. Domestic Outlook Breakdown PNADc (1) PME (2) PME* (3) (1) - (3) Total ,520 1,919 Industry -1, , Construction Trade Services Public Sector Other Absolute employment variation (by sector) in 2015, in number of people Source: IBGE 4 This is a significant simplification, since there are obviously differences between the metropolitan areas and Brazil as a whole. For example, the share of private-sector employment in the PME portfolio is about 50%, while in PNADc it is 38%. 4

5 Trade and services appear again as discrepancies among the indicators when looking at the PNADc and CAGED data (again, we note that we are comparing formal and informal employment in PNADc with the formal employment in CAGED). The following two charts illustrate the inventory of jobs in the two surveys. Given that the CAGED data are census-based, and the PNADc are effectively national, we can infer that the difference between the surveys should mainly be due to informal employment. In this case, in both sectors there has been a greater resistance in the informal sector with regard to eliminating jobs. 108,0 106,0 104,0 PNADc Caged 103,5 104,4 104,4 103,2 106,1 104,8 Employment inventory in the trade sector: PNADc and CAGED 102,0 102,8 100,0 101,0 98,0 97,5 96,0 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Source: IBGE, MTE Employment inventory in the services sector: PNADc and CAGED 110,0 105,0 PNADc Caged 107,4 104,7 108,2 105,0 105,3 101,1 103,8 102,5 100,0 97,3 Source: IBGE, MTE 95,0 Feb-12 Apr-12 Jun-12 96,3 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 One possible explanation could be that, because they are informal jobs, the employment adjustments would come more in the form of price (with salary adjustments below inflation) than quantity (eliminated jobs), which is a qualitatively better adjustment in relation to adjustments based solely on quantity. However, PNADc data from January regarding nominal income show a nominal increase of about 10% for formal private sector employees, and a nominal increase of about 12% for informal private sector employees, which decreases the probability that this hypothesis is correct. The only sector that has, hitherto, shown effectively divergent trends among the surveys is construction. While the data from the General Register of Employed and Unemployed Persons (CAGED) show a continuous decline since 2014 (dampening in recent months), data from PNADc show stable employment in the sector (from 2014 to 2016), and even growth, if we look at the performance since June of last year. A possible explanation here could be the worsening employment situation, with an exchange of formal employment for informal employment. However, the data from the PNADc do not yet allow us to confirm this hypothesis. Domestic Outlook 110,0 105,0 100,0 95,0 90,0 85,0 80,0 75,0 Feb-12 PNADc 105,2 105,2 Caged 98,1 99,4 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct ,4 99,4 100,8 91,4 94,5 79,3 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Employment inventory in the construction sector: PNADc and CAGED Source: IBGE, MTE 5

6 In short, the aggregate labor market indicators have unanimously pointed to high unemployment, with a decline in the number of persons employed. The PME (discontinued by the IBGE) and CAGED data point to the elimination of about 3.5% of the employment inventory, while the PNADc shows a softer decline. This difference was due mainly to the strength of informal employment in the trade and services sectors, and may also be being helped by a worsening of the labor market in the construction industry. For 2016, we expect the unemployment rate, measured by the PNADc, to reach approximately 13% at the end of the year, with an average of 11.8% for the period. 14,0 13,6 14,5 PNADC (retropolated and forecast) PNADC (seasonally adjusted) 12,9 Unemployment rate, measured by the PNADc 12,0 12,1 10,0 8,0 8,8 8,4 10,3 10,8 9,5 7,5 9,9 6,4 6,7 6, Source: IBGE Domestic Outlook 6

7 With ample global liquidity and the stabilization of commodity prices, emerging assets may come back on the radar Estevão Augusto Oller Scripilliti After a very turbulent start to the year, a collection of measures introduced by the main Central Banks, and some governments, has been enough to provide support to emerging assets. This set of reactions to the financial stress of the beginning of the year included: European Central Bank (ECB) - 20 billion increase in monthly asset purchases, providing more liquidity to banks via TLTRO, permission to purchase corporate bonds for quantitative easing; US Federal Reserve (Fed) - Reduction of the forecast increase in interest rates. Between December and March, there was a decrease in forecasts of: 50bps for 2016, 40bps for 2017 and 20bps for the long term; China - Government measures to reduce concern about the performance of the economy and financial markets. Increased interventions in the foreign exchange market, signaling of reforms in sectors with an oversupply of commodities, intensified fiscal stimulus, further reforms for the health of the financial system. Capital outflow seems to have been interrupted; Oil Producers - Coordination (effort) in order to stabilize the overall production level and prevent further price declines and subsequent financial risks. These measures over the past few weeks have created a stabilizing environment for global markets and emerging markets. Short-term (2-year) European yields, for example, are near their lowest historical levels, even though local activity continues to gradually improve, which shows the current success of the ECB s policy. In the United States, a revision of the interest rate expectations by the members of the Fed, announced last week, even with activity growing moderately and with core inflation gradually rising, has generated a recovery of the implicit inflation in securities. We can say that there has been a mini reflation trend among assets. Global Outlook 1,85 1,75 1,65 1,55 1,45 1,35 1,25 1,15 1,05 0,95 0,85 0,75 0,65 0,55 1,52 1,31 1,77 1,31 1,60 1,36 1,53 1,29 1,39 1,09 05/24/13 06/24/13 07/24/13 08/24/13 09/24/13 10/24/13 11/24/13 12/24/13 01/24/14 02/24/14 03/24/14 04/24/14 05/24/14 06/24/14 07/24/14 08/24/14 09/24/14 10/24/14 11/24/14 12/24/14 01/24/15 02/24/15 03/24/15 04/24/15 05/24/15 06/24/15 07/24/15 08/24/15 09/24/15 10/24/15 11/24/15 12/24/15 01/24/16 02/24/16 03/24/16 With this perception of global liquidity remaining high, as shown in the previous chart, and with signs of supply adjustments in certain commodities (oil and 1,19 0,89 1,18 0,93 1,30 1,12 0,84 0,77 0,63 5-year aggregated interest rates of developed countries Source: IMF, Bloomberg some metals), there was a recovery in international prices (with a barrel of oil around US$40 and ton of iron ore around US$55). Importantly, despite the current 7

8 financial stabilization, global growth will continue to be modest, with a continuing slowdown of the Chinese economy and global trade expected to remain nearly stagnant. And emerging assets in this environment? It is important to decouple the outlook for the different assets of emerging economies: foreign exchange, interest and the financial markets. We believe that emerging countries, in general, have made a fair amount of progress in the adjustment of their external accounts since 2013, when a more pronounced currency depreciation process against the dollar began, resulting in higher domestic inflation and contraction of domestic demand. This combination of a more depreciated real exchange rate and contracting domestic demand led to significant external adjustments in some countries (Brazil, Chile, India and Indonesia are some examples), as shown in the following chart. 4,0% 2,0% 0,0% 1,8% 2,7% 0,2% Annual evolution of current account balance (% of GDP) -0,4% -2,0% -4,0% -2,0% -1,2% -2,9% -3,4% -1,1% -1,9% -2,2% -6,0% -8,0% -4,4% -7,0% -5,2% -5,8% -6,2% -7,9% -10,0% -9,7% -12,0% Argentina Brazil Chile China Colombia India Indonesia Mexico Peru South Africa Turkey Source: IMF Since 2013, when the dollar began appreciating against emerging currencies, there was median reduction of 2% of GDP in the current account deficit of a number of emerging countries. Thus, we can say that these countries are exposed to more moderate external vulnerability today, which implies a more contained risk of pronounced currency depreciations. Of course there is a differentiation among countries, as shown in the chart above. Thus, in countries where there was this adjustment of the current account deficit, it is likely that the calmer global environment for the dollar, reinforced with a more gradualist posture by the Fed, will attract a temporary portfolio flow, prone to stability or a slight appreciation of these currencies in the coming months. With the prospect of a stable exchange rate (or moderate appreciation), combined with the presence a significant output gap (with the economy growing below potential), the tendency is for inflation to cool in the coming months. These disinflationary forces will produce a likely decompression of interest in countries with more adjusted current accounts and, in some cases, the possibility of monetary easing by the local Central Banks. On Thursday (03/24), there was announcement of falling interest rates for lending in Turkey, for example, and it is likely that other emerging economies will follow this path in the coming months. This movement could help with a very gradual recovery in domestic demand among emerging economies at the end of Global Outlook 58,0 56,0 54,0 52,0 50,0 48,0 46,0 44,0 42,0 40,0 38,0 56,9 53,2 56,5 56,3 40,4 55,2 52,9 Nov-04 Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 54,7 52,8 51,6 50,0 51,2 51,5 49,9 49,4 Industrial PMI in emerging economies Source: Bloomberg 8

9 Finally, with regard to the performance of the stock markets, we are increasingly cautious with regard to potential gains, mainly due to the lingering uncertainties regarding the pace of growth of the Chinese economy, with implications for commodities prices. Moreover, the economic recovery in emerging economies will tend to be quite gradual, given the decline in potential GDP, with the drop in investments in recent years, which will hamper any quick recovery of profitability and valuation for companies. Global Outlook 9

10 Bradesco Macroeconomic Forecast Bradesco Macroeconomic Forescast * 2017* DOMESTIC ACTIVITY, INFLATION AND INTEREST RATES GDP (%) Agriculture (%) Industry (%) Services (%) Private consumption (%) Government consumption (%) Investment (%) Exports of goods and services (%) Imports of goods and services (%) GDP (R$ billion - current prices) 2,720 3,109 3,333 3,885 4,373 4,805 5,316 5,687 6,120 6,384 6,908 GDP (US$ billion) 1,396 1,695 1,668 2,207 2,611 2,459 2,463 2,416 1,837 1,612 1,681 Population (million) Per Capita GDP (US$ - current prices) 7,281 8,716 8,469 11,083 13,229 12,343 12,255 11,919 8,985 7,822 8,097 Industrial Production - IBGE (%) Unemployment Rate - IBGE (%) Retail Sales - (%) CPI - IPCA - IBGE (%) CPI - FIPE (%) WPI - IGP-M - FGV (%) Nominal Interest Rates - Selic target (end of period - %) Nominal Interest Rates - Selic target (12-month - %) ,82 10,81 10,81 10,81 Real Interest Rates - Selic (12-month - %) ,25 4,54 4,54 4,54 EXTERNAL ACCOUNTS AND FX Trade Balance (US$ billion) Exports (US$ billion) Imports (US$ billion) Trade flow (exports + imports) (% of GDP) Deficit of Services and Income (US$ billion) Current Account Deficit (US$ billions) Current Account Deficit (% of GDP) Foreign Direct Investment (US$ billions) FX - end of period (R$ / US$) FX - yearly average (R$ / US$) Nominal FX devaluation (YoY - %) Nominal FX devaluation (average - %) International Reserves (US$ billion) Total Medium and Long term External Debt (US$ billion) FISCAL ACCOUNTS Primary Surplus (R$ billions) Primary Surplus (% of GDP) Public Sector Nominal Balance (% of GDP) Gross Public Debt (domestic and external) (R$ billion) 1,542 1,740 1,973 2,011 2,243 2,583 2,748 3,252 4,049 4,719 5,462 Gross Public Debt (domestic and external) (% of GDP) As of March 24 th (*) Forecast. na = not available. Source: Official figures Production and forecasts(*): BRADESCO 10

11 Team Octavio de Barros - Macroeconomic Research Director Marcelo Cirne de Toledo Global economics: Fabiana D Atri / Felipe Wajskop França / Thomas Henrique Schreurs Pires / Ellen Regina Steter Brazil: Igor Velecico / Estevão Augusto Oller Scripilliti/ Andréa Bastos Damico / Myriã Tatiany Neves Bast / Daniela Cunha de Lima / Ariana Stephanie Zerbinatti Brazilian sectors: Regina Helena Couto Silva / Priscila Pacheco Trigo Proprietary survey: Leandro Câmara Negrão / Ana Maria Bonomi Barufi Internships: Gabriel Marcondes dos Santos / Wesley Paixão Bachiega / Carlos Henrique Gomes de Brito Team - BRADESCO does not accept responsibility for any actions/decisions that may be taken based on the information provided in its publications and projections. All the data and opinions contained in these information bulletins is carefully checked and drawn up by fully qualified professionals, but it should not be used, under any hypothesis, as the basis, support, guidance or norm for any document, valuations, judgments or decision taking, whether of a formal or informal nature. Therefore, we emphasize that all the consequences and responsibility for using any data or analysis contained in this publication is assumed exclusively by the user, exempting BRADESCO from all responsibility for any actions resulting from the usage of this material. We all point out that access to this information implies acceptance in full of this term of responsibility and usage. The reproduction of the content in this report (partially or in full) is strictly forbidden except if authorized by BRADESCO or if the sources (the name of the authors, publication and BRADESCO) are strictly mentioned. 11