Brazil’s payrolls way below consensus, soft patch ahead?



New jobs for May dropped by over 60% in May versus April

Under normal market conditions, not many economists and analysts would pay attention to payrolls, but given the fragile state of the economy, everyone is trying to guesstimate the next action by the central bank by following specific macroeconomic indicators. In the U.S., weekly jobless claims has become such an indicator as a gauge to measure unemployment, which is used by the Federal Reserve to decide on economic stimulus.

In Brazil, the Brazilian Central Bank has also been weighing the trade offs between spurring growth with lower interest rates and avoiding inflation with higher rates. Recently, the unemployment rate has been ticking up since the year started.

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Nonetheless, the unemployment rate is one of the lowest in Brazilian history, but the recent increase may reflect a loss of traction in the expected recovery. Monthly payrolls are published in Brazil by the Brazilian Labor Ministry. Net new job creation for May was 72,000 jobs, which is down against many comparisons:

  • Less than half the consensus amount
  • Half of the May 2012 figure
  • Just over a third of the jobs in April
  • Slightly over one sixth of April months in seasonally-adjusted terms

The construction sector lost almost 2,000 jobs versus 15,000 a year ago. Industrial sector jobs were down by 25% versus last year and service sector jobs were less than half.

Lower demand forecasts are starting to translate into a slower hiring and more layoffs. The cooling of the labor market does have the benefit that inflation will ease down, which could allow the central bank to be less aggressive in raising the interest rates. As we approach the elections in 2014, a softer job market will become a key issue and we believe upcoming data is likely to show further pains.

Brazil used to be our favorite amongst emerging markets, but that halo quickly faded with the macroeconomic data over the past month. Brazil is clearly entering a Summer slow down as world trade slowed down driven by China. In the meantime we will remain in wait-and-see mode.


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