Unemployment indicators in Brazil point to minor softening of conditions

Brazil Unemployment Indicators 2013-07-15Enlarge GraphThe employment indicators published by the Fundacao Getulio Vargas point to a softening of conditions, though the indicator has underestimated drops recently.

The Fundacao Getulio Vargas, FGV, publishes monthly indicators that correlated with the labor market conditions. The indices are assembled from data points extracted from various FGV surveys, including the Consumer Expectations Survey, Industry Survey, and Services Survey.
There are two employment indicators published:

  • The first is the coincident indicator, which correlates well with the unemployment rate and serves as a predictor of the upcoming official value.
  • The second is the leading indicator, which correlates well with the amount of people employed, hence it offers a view slightly further into the future.

Coincident indicator
The coincident indicator this month dropped 2.5% in June when compared versus May’s seasonally adjusted data. The main contributor of the decline were the low middle income class bracket, which dropped 5.2%. The top income class bracket was the second largest decline, at a 2.6% drop.
This indicator has correlated well with the unemployment rate recently and is hinting towards a flat unemployment rate reading of approximately 5.4%.

Brazil Employment Leading Indicators 2013-07-15Enlarge Graph

Leading indicator
The leading indicator this month posted a drop of 1.3%, which contrasts with the 1.8% improvement in May and a continuation of the strong reversal in April. The main contributors cited included business managers satisfaction with the current business conditions and the future expectations, which dropped 3.1% and 3.9%, respectively.
The recent Manufacturing PMI1 and Services PMI1 point to a deteriorating perception of the current situation and this is weighing on managers’ willingness to grow staff numbers.

Outlook

The potential rising unemployment, compounded by rising inflation and sluggish growth, could potentially persuade the Brazilian Central Bank to avoid more near term interest rate hikes. Recent hikes, along with several other factors, have led the Brazilian equities market (EWZ) lower over the past two months.

Read here for other reasons why the Brazilian market has moved lower and why these factors will dissipate in the short-term. The situation is shared with several other BRIC countries (BKF), where growth forecasts were recently cut by the International Monetary Fund after emerging markets disappointed (EEM).

  1. Purchasing Managers Index
  2. Purchasing Managers Index