From Wolf Street, by Wolf Richter,
The price of corruption.
In a stunning deterioration, the unemployment rate in Brazil spiked to 12.6% in the rolling three-month period through January, a record in the new data series going back to 2012, according to Brazil’s statistical agency IBGE. Up from 11.8% in the three-month period through October. Up from an already terribly high 9.5% a year ago. And more than double the 6.2% in December 2013.
Economists had expected the unemployment rate to rise to 12.4%. After three years of underestimating the political, fiscal, and economic fiasco in Brazil, they’re still underestimating it.
For example, by the end of 2015, the consensus forecast for unemployment by the end of 2016 was 9.1%, according to Focus Economics. On average, economists essentially expected the unemployment rate to remain flat for the year. A huge miss, when in fact the unemployment rate soared by 3.1 percentage points in the four quarters through January.
At the time, they figured that the unemployment rate would drop to 8.8% by the end of 2017. It is now clear that it would take a miracle to accomplish that.
The report also pointed out:
- The number of unemployed soared by 34.3% year-over-year to 12.9 million persons (Brazil has a total population of 210 million).
- The number of employed dropped by 1.9% year-over-year, or by 1.7 million to 89.9 million people.
This chart shows the unemployment rates of the three-month rolling periods. Note the brutal jump in January (via Trading Economics, red marks added):
Here are the sectors that shed the most workers compared to the same quarter last year:
- General industry: -7.4% (-897,000 workers)
- Construction: -9.6% (-755,000 workers)
- Agriculture, livestock, forestry, fishing and aquiculture: -4.6% (-434,000 workers)
- Domestic services: -3.5% (223,000 workers)
Employment rose only in lodging and food services: +8.7% (+393,000 workers). The remaining sectors maintained stable employment.
A special word about the construction industry. It has been deeply embroiled in a horrendous corruption scandal that also involves the state-oil company Petrobras and its contractors, along with the highest levels of government. To get this sorted out, the government stopped large construction projects, such as oil refineries and the São Paulo subway system, contracted out to construction companies that have cropped up at the heart of the scandal, including Odebrecht, OAS, and Camargo Correa. This entailed large-scale layoffs.
Another measure IBGE released today is the “labor underutilization rate” for the fourth quarter. It soared to 22%, up from 21.1% in Q3, and up from 17.3% a year ago. Back in Q3 2014, the rate stood at the low point of 14.8%.
There are now 24.3 million people in this “condition,” as the report put it, a jump of 1.4 million people from Q3 and a jump of 5.8 million people from a year earlier.
But the national averages, as bad as they are, belie the difficulties in some regions, while other regions are far better off. The South Region (the smallest of Brazil’s five regions, bordering Uruguay, Argentina, and Paraguay) sported the lowest labor underutilization rate of 13.4%. The Northeast Region was dogged by a mind-bending underutilization rate of 33%.
Each region has several states, and among the states, the differences are even starker, ranging from Santa Catarina’s labor underutilization rate of 9.4% to Bahia’s 36.2%!
Currency traders had expected for Brazil to start pulling out of its terrible funk, at least economically, on the theory that things can only get so bad, and then they bounce off. But when the data was released today, their disappointment became calculable: the Brazilian real dropped 1.2%. Though the real, at 3.11 to the dollar, has recovered sharply from its low in January 2016 (at 4.1 BRL to the USD), it remains 24% below where it had been in January 2013.
Much of this economic fiasco might have been prevented if pandemic corruption at the highest levels and for the benefit of the richest and most powerful had not siphoned off the lifeblood of the economy. Now regular Brazilians get pay the price.