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Mexico’s unemployment worsened in March

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After a strong decline in February, Mexico’s unemployment climbed back up just above 5%.

Unemployment is a lagging indicator that clearly confirms the health of an economy. Unemployment tends to fall much faster than it recovers, hence sharp drops can sometimes act as coincident indicators to confirm a trend reversal.

Mexico’s unemployment had fallen sharply below the iconical 5% mark during February, but the most recent reading posted a 5.01% in seasonally adjusted terms. Given other negative macroeconomic indicators showing a slowdown, the unemployment figure is a confirmation of the change of fortune for the economy.

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Interestingly enough, the sub-occupation rate actually dropped by almost as much as the increase in unemployment. The sub-occupation rate refers to the percent of employed people in the labor force who have expressed the interest or need to work more. Sub-occupation rate dropped to 7.92% from a previous value of 8.10%.

Mexico’s diverging unemployment and sub-occupation rate

The divergence between both metrics could perhaps mean that managers were more likely to pay extra hours rather than hire a new person, since that gives them more flexibility without committing to a larger workforce that may need to be scaled down if prospects worsen. While this is better than an increase in employment across the board, it signifies that the future outlook seems bleak.

Given the continued negative macroeconomic indicators and the high valuations in the Mexican market (19-20x earnings), Mexico seems a risky bet in the short to medium-term until conditions signal a change in trend.

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