MacroScope

Brazil set to release long-overdue jobless rate just as election race heats up

Workers at a General Motors vehicle factory listen during a meeting to discuss their reactions to an announcement of plans to put some 1,000 workers on paid leave, in Sao Jose dos CamposBrazil’s unemployment rate has been a mystery for months: a strike in the country’s statistics agency, ironically enough, disrupted its main job market survey. The numbers will finally come out in a few hours, less than two weeks before a tight presidential election, and will help voters understand just how bad the recently-confirmed recession has been.

IBGE’s August unemployment report is important not only because it can tilt Brazil’s election balance in favor of current President Dilma Rousseff or her opponent Marina Silva, but also because it will determine the starting point of the labor market for a much-anticipated adjustment in Brazil’s economic policy. Some kind of shift is expected after the October election regardless of who wins, to keep debt under control and avoid losing the investment grade in coming years.

Looking at market estimates, one can expect anything, apparently. The range of forecasts in a Reuters poll was about three times as wide as in previous months, going from 4.5 percent, near a record low, to 5.8 percent, which would be the highest for August in three years. Either the recession has spared the job market so far, in good news for re-election candidate Rousseff, or it is now a reality for thousands of workers across Latin America’s largest economy.

The median forecast is 4.9 percent, exactly the same rate reported in April. But some signs suggest a small increase is the most likely scenario, which would reinforce the outlook of a gradual but steady deterioration of one of the world’s strongest labor markets just a few years ago.

Although the job market numbers have been held off since April, data on four of the six urban areas surveyed has been released by statistics agency IBGE, including Sao Paulo and Rio de Janeiro, the country’s largest cities.

Say it with confidence: Consumer surveys as a leading indicator of jobs

It turns out people are better employment forecasters than economists. A report from New York Fed economists finds that confidence measures gleaned from consumer surveys are very tightly correlated with the path of U.S. employment.

The paper offers some illustrative charts that make a rather convincing case.

The chart below plots the Present Situation Index against the unemployment rate, whose scale is inverted so that high levels represent strong labor market conditions (low unemployment) and vice versa. One readily apparent feature is that the two series move together very closely throughout the period and, most notably, during all five of the recessions since 1977. It’s hard to tell from inspecting the chart, but the highest correlation (0.89) occurs at a two-month lead; that is, the Present Situation Index is even more strongly correlated with the unemployment rate two months into the future than it is with the concurrent rate.

The next chart looks at the relationship between changes in this index and payroll job growth – both over twelve-month intervals. This measure of employment is based on a different survey than the survey for the unemployment rate, but payroll employment is typically growing when unemployment is declining and vice versa. Once again, it’s very apparent that the two measures move closely together, and again formal analysis reveals that the Present Situation Index tends to foreshadow movements in employment by a couple of months. In particular, twelve-month changes in the index are most highly correlated with twelve-month job growth four months into the future – the correlation is 0.83.

For workers, the long run has arrived in Latin America

The outlook for emerging market economies over the next decade looks more challenging as long-term interest rates start to bottom out in the United States. Here is another complicating factor: ageing populations.

That problem is not as serious as in Japan or Europe, of course. Still, investors probably need to cut down their expectations for economic growth in Latin America over the next years, according to a report by BNP Paribas.

The graphic below shows the declining demographic contribution for economic growth in Latin American countries. The trend is particularly bad in Chile, Venezuela and Brazil:

Why the mediocre U.S. July jobs report was worse than it looked

U.S. economists were generally disappointed with the net gain of 162,000 jobs last month, well below forecasts around 180,000 and market talk of a possible reading above 200,000. The jobless rate did fall to 7.4 percent from 7.6 percent, but labor force participation also resumed its recent descent.

Thomas Lam, chief G3 economist at OSK-DMG/RHB, says the underlying details of the report make employment conditions actually look worse than at first glance. Here’s why:

The most striking aspect of the Jul employment report is that details of the release appear generally weaker than the uninspiring headlines figures.  The nonfarm payrolls print of 162k in Jul, while modestly softer than expectations, was accompanied by narrower gains in private payrolls (the weakest 1-month and 3-month diffusion data since Aug & Sep 2012), and net downward revisions of 26k in prior months (-19k in May and -7k in Jun, confined within private employment).  Moreover, the employment and workweek details from the Jul release imply that real GDP growth in early Q3 2013 might be tracking weaker than the advance Q2 2013 print of 1.7%.

U.S. minimum wage hike would offer short-term economic stimulus: Chicago Fed

President Barack Obama proposed a hike in the U.S. minimum wage during his State of the Union Address in February. Since then, we haven’t really heard very much about the proposal. That’s too bad for a U.S. economy that could still use a bit of a boost, according to new research.

A paper from the Chicago Fed finds that, while there might be little impact on long-term growth prospects from a higher minimum wage, the measure could add as much as 0.3 percentage point to gross domestic product in the short-run. That’s not insignificant for an economy that expanded at a soft annualized rate of just 1.1 percent over the last two quarters.

This is how the authors summarize their findings:

A federal minimum wage hike would boost the real income and spending of minimum wage households. The impact could be sufficient to offset increasing  consumer prices and declining real spending by most non-minimum-wage households and, therefore, lead to an increase in aggregate household spending. The authors calculate that a $1.75 hike in the hourly federal minimum wage could increase the level of real gross domestic product (GDP) by up to 0.3 percentage points in the near term, but with virtually no effect in the long term.

Broken (record) jobless data: Euro zone unemployment stuck at all-time high

Surprise! Euro zone unemployment was stuck at record high of 12.2 percent in May, with the number of jobless quickly climbing towards 20 million. Still, as accustomed to grim job market headlines from Europe as the world has become, it is worth perusing through the Eurostat release for some of the nuances in the figures.

For one thing, as Matthew Phillips notes, Spain’s unemployment crisis is now officially more dire than Greece’s – and that’s saying something.

Also, the figures remind us just how disparate conditions are across different parts of the currency union. While Spanish and Greek unemployment is hovering just below 27 percent, the jobless rate in Austria, the region’s lowest, is 4.7 percent.

U.S. job market still in need of a jolt

The monthly payrolls report from the U.S. Labor Department will always be the big kahuna of economic releases.  Other, less prominent indicators of the American job market nonetheless can offer additional insight into the employment backdrop.

Take the clumsily-acronymed JOLTS report, which stands for Job Openings and Labor Turnover Survey. It shows the ratio between job openings and job seekers, as well as the rate of new hires. The latter, unfortunately, is not particularly comforting.

The number of job openings at the end of April was 3.8 million, down slightly from the prior month’s 3.9 million.

If not for shrinking labor force, U.S. unemployment would be over 11 percent: UniCredit

The U.S. workforce has been shrinking rapidly in recent years, but a new report from UniCredit highlights just how massive the effect of this trend really is. Economist Harm Bandholz says it amounts to a gaping 3.6 percentage points of U.S. unemployment.

That means the U.S. jobless rate, which dropped to 7.7 percent in February, would actually be around 11.3 percent without the decline in labor force participation. This would put American unemployment a lot closer to the euro zone’s recently reported record high rate of 11.9 percent.

The labor force participation fell further in February to 63.5, matching an August reading that was the lowest since 1981.

Bernanke’s structuralist concession: Fed chief quietly downgrades U.S. economic potential

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For the first time, Federal Reserve Chairman Ben Bernanke has given credence to the idea that America’s long-term economic potential may have been permanently scarred by the turmoil of recent years. In a speech to the Economic Club of New York, Bernanke said:

 The accumulating evidence does appear consistent with the financial crisis and the associated recession having reduced the potential growth rate of our economy somewhat during the past few years. In particular, slower growth of potential output would help explain why the unemployment rate has declined in the face of the relatively modest output gains we have seen during the recovery.

True, Bernanke came nowhere near saying monetary policy was impotent to improve the situation. Indeed, he argued that the weaker potential growth “seems at best a partial explanation of the disappointing pace of the economic recovery.”

Fewer firings do not mean more hirings

Jobless claims fell unexpectedly last week to 361,000. Analysts were particularly heartened by the improvement because the latest figures were finally “clean” of recent seasonal adjustment quirks related to auto factory shutdowns. That’s the good news.

Some lingering cause for hesitation: Eric Green at TD Securities reminds us that recent dips in claims have not necessarily translated into great bursts of new job creation.

Over past periods of this recovery claims at this level have been consistent with (monthly) job growth closer to 200,000. With claims back at these levels, one cannot presume that this will continue to hold given the level of uncertainty and slower growth momentum from which labor demand will lag.