The nation-wide unemployment rate dropped to 12.4% in June from 12.7% in May, printing below the median of market estimates and our call (both at 12.6%). The unemployment rate is 0.6 p.p. lower than in June 2017. Using our seasonal adjustment, employment remained stable in June vs. the previous quarter and expanded 1.1% yoy. The labor force shrank 0.1% qoq and expanded 0.5% yoy. The participation rate (ratio of the labor force to the working-age population, both seasonally adjusted) has been receding since its November peak of 61.9%. In the latest report, the participation rate reached 61.3%, matching its historical average. Going forward, using models that contemplate the sensitivities of different kinds of occupations to the pace of economic activity and our GDP growth scenario (1.3% in 2018 and 2.0% in 2019), we expect the unemployment rate — under our seasonal adjustment — to remain at 12.3% by YE18 and fall to 12.1% by YE19. Our forecasts for the average unemployment rate are 12.4% in 2018 and 12.2% in 2019.
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A poll conducted by Paraná Pesquisas showed Jair Bolsonaro (PSL) with 24% of voting intentions (from 21% in the previous Paraná Pesquisas poll, in May), Marina Silva (REDE) with 14% (from 12%), Ciro Gomes (PDT) with 11% (from 10%), Geraldo Alckmin with 8% (stable), Álvaro Dias (PODE) with 5% (from 6%), Fernando Haddad (PT) with 3% (stable), as well as 29% of blanks, nulls and undecided voters in the scenario without Lula (PT). When included in polls, the former President leads with 29% of voting intentions.
In another nation-wide poll, conducted by DataPoder360, Jair Bolsonaro (PSL) would also lead the presidential race in a scenario in which Lula does not run. Considering Fernando Haddad runs as the PT’s candidate, Jair Bolsonaro (PSL) leads the race with 20% of voting intentions (from 21% in the previous DataPoder360 poll), followed by Ciro Gomes (PDT) with 13% (from 13%), Geraldo Alckmin (PSDB) with 9% (from 8%), Marina Silva (REDE) with 6% (from 7%), Fernando Haddad (PT) with 5% (from 6%), and Alvaro Dias (PODE) with 4% (from 5%). In this scenario, blanks, nulls and undecided represent 43% of the electorate.
According to ABRAS, supermarket real sales fell 2.4% in June (our seasonal adjustment). The result was distorted by the spike in food prices caused by the truckers’ stoppage in the end of May. Our preliminary forecast for June’s Monthly Survey of Commerce (to be released on August 10th) is a 0.3% mom/sa decrease in core retail sales, extending the 0.6% decline shown in the previous month. Our preliminary forecast for the broad segment, which includes vehicle sales and construction material, is a 1.0% mom/sa increase, partially offsetting a 4.9% decline from the previous month.
Day Ahead: The Central Bank’s Monetary Policy Committee (Copom) will announce the monetary policy rate at the end of the day. With a relatively unchanged balance of risks, we and the consensus believe that the current scenario is consistent with the maintenance of the Selic rate.
The 7.2% unemployment rate came in above both the Bloomberg market consensus and our forecast of 7.0%, partly explained by higher than expected participation rate. Job-growth in the quarter remains was broadly stable from 1Q18, but waged private job growth improved. Self-employment growth also ticked up, while salaried public employment growth slowed as fiscal consolidation advances. The improving private salaried performance provides some confidence over the sustainability of the private consumption improvement. We expect the average unemployment rate for this year to be similar to the 6.7% recorded in 2017. Looking ahead, we expect the consolidation of the activity recovery to translate into improved private job growth, with less dependence on the public front.
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The industrial production index expanded 5.0% year over year in June (3.7% in May). Manufacturing rose 7.2%, exceeding the 4.5% Bloomberg market consensus and our 4.2% expectation. Driving manufacturing in the month was food processing (12.3% yoy), likely in anticipation of higher demand during the national holiday period at the close of 3Q18. Machinery and equipment production continued to grow robustly, consistent with the construction and investment recovery underway. Meanwhile, mining grew 3.4%, moderating as the base of comparison normalizes.
The monetary stimulus and low inflation amid increased confidence will aid the activity recovery this year.However, rising global tensions could impact external demand, hamper copper prices and restrict the growth recovery process. Further labor market unease at the country’s largest copper mine is also a potential risk. Given our still favorable global outlook, we see growth in Chile picking up to 3.8% this year. ** Full Story here.
Mexico’s GDP growth was boosted by positive calendar effect in 2Q18. The flash estimate of GDP growth for 2Q18 came in at 2.7% year-over-year, between our forecast (2.4%) and market expectations (2.8%, as per Bloomberg). The figure incorporates a positive calendar effect from Easter Holidays (April 2018 had 3 more business days). In fact, according to calendar & seasonally-adjusted data reported by the statistics institute (INEGI) GDP growth in 2Q18 was actually 1.6% year-over-year. Within the index all sectors decelerated (adjusting for calendar effects and seasonally adjusted): primary (2.0% year-over-year); industry (0.2% year-over-year) and services (2.4% year-over-year).
We expect GDP growth of 2.3% in 2018 (from 2% last year), as manufacturing exports remain dynamic (benefited by growth in the U.S.) and the labor market (coupled with lower inflation) supports consumption growth. Nevertheless, tight macro policies and uncertainty over trade relations with the U.S. and domestic policy direction will likely curb investment growth. A persistence of the downward trend of oil output is also a downside risk. ** Full Story here.
Fiscal position indicators improved in June, in line with fiscal consolidation plan. Using 12-month rolling figures, primary balance improved to a surplus of MXN 12.9 billion (0.05% of GDP). Likewise, nominal balance posted a lower deficit of MXN 587 billion (2.5% of GDP). On the other hand, Public Sector Borrowing Requirements (PSBR), the broadest measure of Nominal Balance, deteriorated somewhat to a deficit of MXN 625 billion (2.7% of GDP). During the first half of the year, total revenues increased 2.1% year-over-year in real terms, driven by oil revenues (8.7% year-over-year in real terms) – boosted by higher oil prices and a depreciation of the exchange rate, which more than offset the fall in oil output – while tax revenues increased 1.1% year-over-year in real terms. On the spending side, during the first half of 2018, primary expenditure increased 4.9% year-over-year in real terms.
We expect the government to continue with their consolidation plan and reach their target published in the Preliminary Economic Policy Guidelines for 2019: PSBR of 2.5% of GDP, nominal public deficit of 2%, and a primary surplus of 0.8% of GDP. Also, it is expected that these estimates will be sufficient to make the public debt to GDP ratios trend down in the future. However, the 2019 budget, which will be decided by the elected Administration, will be a key event to watch given the extra spending promised by the new Administration and at the same time its commitment to fiscal discipline. ** Full Story here.
Day Ahead: Banxico will publish July’s Expectations Survey at 11:00 AM (SP Time). We do not expect significant changes in inflation and GDP growth expectations, but it is likely that the economists surveyed by Banxico will now have median expectations of a stronger Mexican peso.
Day Ahead: Tax collection for July will see the light at 3:00 PM (SP Time). We and the consensus expect tax collection to increase 32.0% yoy to ARS 313.3 billion in July.
Day Ahead: The statistics institute (INEI) will announce July’s CPI inflation at 2:00 PM (SP Time), which we forecast at 0.48% month-over-month (consensus: 0.35%). Assuming our forecast is correct, headline inflation would increase to 1.71% year-over-year in July – matching consensus’ estimates.