Brazil unemployment rate: Far from a stabilization point

The June unemployment rate inched up to 6.9%, compared with 4.9% in June of last year. In seasonally adjusted terms, the unemployment rate is higher at 6.4%, from 6.3% in May and 5.4% at the beginning of the year. The rise in the unemployment rate this month was driven by an increase in unemployed people by the same proportion as the decrease in employed people, with the active labor force kept broadly stable.

This means that the movement of people from the non-active labor force to the active one paused during June. This could either mean that the bulk of the adjustment is now over or that people have started to give up looking for jobs. It is believe that, the latter hypothesis is much more likely, given the deteriorating growth outlook and consumer confidence indexes being in the doldrums, which suggests more deterioration in the next few quarters.

"Real wages declined further during June, contracting 2.9% y/y, although marginally improving from the 5.0% drop in the previous month. Coupled with the 0.7% decline in employed people, this led the real wage bill to drop 4.1% y/y. It is important to note that nominal wages increased 6.4% y/y in June, accelerating from the 3.5% growth in May and in contrast to the declining trend since October of last year, when nominal wages increased 10.7%", notes Barclays.

In terms of monetary policy, BCB Director Volpon said this Monday that the current rise in the unemployment rate is only catching up to the growth slowdown of  the past years, when the unemployment rate surprisingly moved down, suggesting that the current labor market deterioration should not come as a surprise. At the same time, by suggesting that it is finally moving according to the growth slowdown, this also means that the Copom expects further deterioration, which should weigh on the balance of risks ahead of next week's meeting, says Barclays.