Brazil’s private sector economy contracts further in June

Brazil’s private sector economy contracted further in June as manufacturers joined their services counterparts in recording contracting activity. The seasonally adjusted IHS Services Business Activity Index for Brazil dropped to 47 in June from May’s 49.5, emphasizing the most rapid reduction in output since November 2017. The downturn was attributed to subdued demand, truckers’ strikes and market uncertainty. The worst hit sub-sector was Transport & Storage, while Finance & Insurance was the only segment to record growth.

Even if new business placed with service providers continued to expand, the upturn eased to the slowest in the current six-month sequence of growth and was marginal. Anecdotal evidence implied that sales had been secured in line with new offerings and marketing efforts, but that growth was dampened by a country-wide truckers’ protest.

Factory orders dropped strongly in June, ending a 15-month sequence of growth and countering growth of services new work. Thus, private sector sales fell for the first time in one year. In all, service providers project higher output in the coming 12 months. Optimism reflected predictions of better market conditions after the presidential elections. Moreover, restructuring plans, new offerings and advertising campaigns were among the reasons supporting sentiment. In spite of rebounding from May’s 26-month low, the level of positive confidence remained subdued by historical standards. By comparison, manufacturer’s sentiment softened to an eight-month low.

Input costs at services companies continued to increase at the end of the second quarter, with the pace of inflation picking up to a 17-month peak. Survey respondents recorded higher prices paid for food, fuel and energy. The steepest rise in cost burdens was seen in Transport & Storage, as has been the case for nearly one year. Across the manufacturing industry, purchasing prices rose to the greatest extent in almost ten years.

To restrain overall expenses, Brazilian service providers lowered payroll numbers further. The latest fall in headcounts was the 40th in as several months, though moderate compared to those seen at the peak of job cuts in 2016. With manufacturing jobs showing a renewed fall, employment throughout the private sector as whole remained in contraction territory. After having offered discounts midway through the second quarter, services firms increased their selling prices in June. The pace of charge inflation was modest, but the quickest since February 2016. Goods producers likewise hiked their charges, with inflation at a 28-month high.

Outstanding business at services companies fell in June, marking a 35-month sequence of depletion. The rate of reduction was marked, but moderated to the slowest in three months. On the contrary, work-in-hand at manufacturers at the sharpest rise in the survey history as blockages led to longer delivery times among vendors and shortages of inputs at goods producers.

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