IBGE – the Brazilian Institute of Geography and Statistics – came with good news about domestic labor market. Working population is increasing, unemployment rate dropped and there is a resumption of growth in the real income average. Bottom line: labor market in Brazil is heated.
Unemployment rate was 6.5% in March, close to the lowest level in the historical series, and below market consensus (6.7%).
Income wise, there are signs of accommodation in the increase of nominal wages in the public sector, while the expansion remains firm in the private sector.
Who is hiring? Sectors breakdown
The private sector hired more, while the number for the public sector fell. The working population increased 2.4% (March 2011 versus March 2010). Services to Companies gained the most (4.1%), followed by Other Services (3.9%). The population working in Household Services fell 2.7%, still the worst performance among all sectors.
What to make of it
Aurelio Bicalho, economist at Bank Itau-Unibanco, said that their estimates show that the population employed in the private sector reacts with lags to the slow-down in economic activity. In other words, as widely documented in economic literature, changes in the pace of GDP growth anticipate labor market movements, and not the other way around. That is particularly true for employment in the private sector. Our simulations show that a positive shock in economic activity (we used the output gap in Itaú Unibanco’s monthly GDP) has maximum effect on private sector employment five months later. In the public sector, simulations do not reject that this impact is zero, as shown in the impulse response charts below. In short, says Aurelio in his report: “we maintain our evaluation that the withdrawal of demand stimuli — such as higher interest rates, credit-curbing measures and adjustments in fiscal spending (the latter is already showing some signs of impact) — should contribute for a more balanced expansion in the labor market throughout the year, particularly in the second half, which is the period of greater impact due to lags.”
IBGE’s income indicators resumed growth, following four straight months of weakness. The average real wage rose 0.8% MoM SA, while the real wage bill expanded 0.9%. Analysis of nominal income data suggest a behavior that is similar to the one observed for employment data. The nominal wage for public servants is already showing accommodation, while for private sector employees the upward trend for the nominal income remains firm. That is not surprising, as the effects of a slow-down in economic activity are even more lagging for income than for employment.
Industrial activity – geographic breakdown
The country’s industrial output increased in seven of the 14 regions surveyed by IBGE in March compared to February. The most dramatic results in the period occurred in Bahia (7.0%) and Northeast (6.2%), after losses of 5.8% and 2.2 The previous month.
Positive rates also in the states of: Ceará (2.0%), Rio Grande do Sul (1.9%), Sao Paulo and Espirito Santo (both 1.6%) and Paraná (1.1%).
States which showed decrease in production were the Amazons (-8.9%), Pará (4.6%), Rio de Janeiro (-3.8%), Pernambuco (-2.2%), Santa Catarina (-1.2%), Goiás (-0.6%) and Ontario (-0.1%).