Brazil’s jobless rate likely rose in February, labor market weakening to spread into 2016, 2017

The seasonally adjusted labor market data for December 2015 and January 2016 show contrasting developments. The sharp decline in December’s jobless rate to 6.9% from November’s 7.5% basically translates into a lower seasonally adjusted rate of 8.2%, while the sudden increase in the jobless rate in January to 7.6% translates into a lower seasonally adjusted rate of 7.8%.

Apart from these sharp fluctuations, the jobless rate has basically remained the same at around 7.5-7.8% in the past six months. The data looks surprisingly better given the sharp decline in growth numbers.

However, this is partially because of the declining participation rate. Actually, growth in labor force has averaged -0.1% y/y in the past six months as compared with 1.1% y/y in the previous six. Declining employment can better measure labor market deterioration. The pace of the decline in employment has reached 2.7% y/y in past six months as compared with a 0.8% fall in the previous six. There is a larger probability that these trends will intensify in the coming few months, given the state of the economy.

“We expect the unemployment rate to rise to 8.3% in February (8.2% seasonally adjusted) based on a 3.0% yoy fall in employment and a 0.4% yoy contraction in the labour force”, says Societe Generale.

The labor market weakening is likely to spread well into 2016 and 2017. There are very few reasons to be positive about growth of employment in the medium term as long as growth and investment don’t stabilize. The weakening of labor market will subsequently put a lid on consumption and wage growth. While this might help inflation, it is likely to hamper any rebound in growth.