Despite Slow Growth, Brazil's Labor Market Unstoppable

Dec 19 2013, 8:24pm CST | by

Despite Slow Growth, Brazil's Labor Market Unstoppable
Photo Credit: Forbes Business

Brazil’s labor market continues to power full steam ahead.   November unemployment levels came in at their lowest levels in over 10 years, now at just 4.6%.  Consensus had it at 5%. Despite lackluster GDP growth of around 1%, Brazilian jobs are practically falling from the sky.

Seasonally adjusted unemployment also moved down but at a more modest pace, reaching 5.2% from 5.3% in the previous month and 5.4% from last year’s November report.

Employment creation declined 0.2% monthly, while the number of unemployed people decreased even faster (2.9% monthly). But the lower unemployment rate comes along with a decline in the labor force, which dropped by a small 0.4% monthly from October. The labor participation rate also moved down to 56.8%, from 57.1% in October, so fewer Brazilians are actually in the job market.

Real wages rose 1.8% in November and are up 3.0% annually.  Barclays Capital economist Marcelo Salomon said Thursday that, “the lower growth trend of the real wage bill indicates that consumption should be losing momentum at the end of 2013 and moving into 2014.  We expect the labor market to start showing some slack as we move into 2014.”

But that has been forecast before. The labor market remains on a tear.

“Unemployment is at a record low and inflation is above the central bank’s 4.5 percent target. Following the Fed’s taper announcement yesterday, the Central Bank of Brazil is now under pressure to bolster its credibility and support the currency,” said Bill Adams, senior international economist for PNC Financial Services Group.  ”If it does not, a weaker real and higher prices of imported goods could compound domestic price presses and make inflation even higher in 2014 than in 2013,” he said, adding that despite low GDP numbers, Brazil’s economy may actually be “overheated”. The country’s labor market remains tight, pushing incomes higher, creating more demand, and impacting inflation.  Interest rates will be on the rise next year. “The tightness of the labor market will continue to exert inflationary pressures, most visible in services inflation which is running well over the headline rate of 5.8% as of November,” said Robert Wood, Brazil Analyst for The Economist Intelligence Unit.  “We still expect further rises in the (benchmark) interest rate, two more doses of 25 basis points each at the next two monetary policy committee meetings in early 2014, leaving the benchmark at…10.5%.” The Brazilian iShares (EWZ) are down over 22% year-to-date, making it the worst performing BRIC market. The MSCI Emerging Markets index, by comparison, is off by 8.57% year-to-date. Brazil’s more than samba and FIFA.  They also own some of your favorite brands…

The Foreigners That Own Your Fave Brands

Source: Forbes Business


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