Unemployment rate (December; nsa): 3.51%; Banorte: 3.25%; consensus: 3.35% (range: 3.20% to 3.80%); previous: 3.66%
Part-time workers: 10.0% (previous: 10.5%); Participation rate: 59.5% (previous: 59.6%)
Jobs created totaled 455.5 thousand, adding three months to the upside. With this, 4.3 million jobs were added in the year. Therefore, total employed people stood 1.2 million above those in February 2020, used as benchmark to pre-pandemic conditions
The labor force also increased (+380.7 thousand), with unemployed people declining by 74.8 thousand. This explains the reduction in the unemployment rate, albeit recalling that this responds to a significant seasonal pattern
Despite of the latter, the participation rate fell, while the part-time rate extended its downward trend. Outside of the labor force, those catalogued as ‘available for work’ declined, which is also positive
However, seasonally adjusted figures showed a relevant setback, with the unemployment rate at 3.96% from 3.86% in the previous month
Job gains in the informal sector stood at 737.1 thousand, while the formal sector lost 281.5 thousand positions. Therefore, the informality rate rose to 56.5% (previous: 55.6%)
Average hourly wages reached $46.06 (previous: $47.91). This represents +3.9% y/y, partly reflecting wage pressures, albeit modest considering some remaining slack in the market
We believe the recovery of the labor market will continue in coming months, aided by an economic improvement. Nevertheless, risks have been rising, with the most important being the latest wave of contagions
Mixed performance of the labor market in December. Using original figures, the unemployment rate stood at 3.51% (chart below, left), above consensus (3.35%) and our 3.25%. This represents a 15bps decline relative to November, aided by a positive seasonal effect. With seasonally adjusted data, the rate came in at 3.96%, higher than the 3.86% of the previous month and suggesting a deterioration at the margin. Back to original figures, the labor force increased by 380.7 thousand, with 455.5 thousand more employed and 74.8 thousand less unemployed. We believe this is mainly explained by seasonal patterns likely related to the holiday season at the end of the year, instead of an improvement in epidemiological conditions during the month. Hence, we believe limits for additional dynamism persist, with the pandemic still a major hurdle to achieve a better performance in some sectors of the economy. In this sense, industry remains limited by shocks to supply chains, while traffic for some services remains low. This is especially important going forward considering the global uptick in cases.
In this context, the participation rate fell at the margin, standing at 59.5% (previous: 59.6%). This was driven by the fact that people outside of the labor force increased by a similar proportion, adding 334.0 thousand. From these, those classified as ‘available’ declined by 70.7 thousand, while those ‘not available’ increased by 404.8 thousand. Among the former, we see as positive that the largest decrease was in those that ‘are not looking for a job because they do not see chances of finding one’, which reflects a more favorable backdrop at the margin. In this sense, total employees reached 56.9 million, which is 1.2 million higher than in February 2020, before the virus and a new historical high. As in previous releases, to reflect labor market conditions more accurately, we sum those ‘available for work’ not in the labor force both to the unemployed and the labor force. With this, the ‘expanded’ unemployment rate stood at 14.4%, below the 14.6% of the previous month and lowest since the start of the pandemic. In February 2020 it reached 12.2%, pointing to room still left for gains, albeit closing the gap in a relevant manner.
Gains centered in the informal sector. Despite the creation of 455.5 thousand positions, the informal sector added 737.1 thousand, with the formal economy losing 312.9 thousand positions affiliated to IMSS. As a result, the informality rate picked up to 56.5% (previous: 55.6%). By sectors, industry led gains, up by 269.2 thousand jobs. Practically all of these were in construction (+268.1 thousand), with modest losses in manufacturing (-22.2 thousand). Services added only 89.6 thousand. Transportation was positive (+250.2 thousand), but commerce (-177.9 thousand) and restaurants and lodging (-52.1 thousand) lost positions, not ruling out a seasonal effect in them. Lastly, the primary sector added 116.1 thousand. On the other hand, the part-time rate fell to 10.0% from 10.5%, which is favorable and could be reflecting some progress in the pandemic front. The average hourly wage stood at $46.06, lower by $1.86 sequentially and decelerating to +3.9% y/y. We believe this figure is still showing some wage pressures, albeit with a moderation that could be explained by: (1) The fact that most new jobs were in the informal sector; and (2) that there is still some slack in the labor market, lessening some of their impact.
Important short-term risks for the labor market. We believe the trend in the labor market was mostly positive during 4Q21, even with signals of weakness in economic activity. In this respect, the relative resilience of employment conditions in this backdrop is favorable, suggesting that it may have already adapted fully to the pandemic. Nevertheless, we believe additional information is needed to have enough confidence in this statement.
Specifically, we believe short-term risks are on the rise, mainly because of the strong rebound in COVID-19 cases due to the spread of Omicron. Eleven days with daily cases above 20 thousand have been reported so far in January, while new records have been established 7 times. Although distancing measures have been broadly unchanged, some places (such as museums in Mexico City) have closed again. Moreover, given the need of some persons to remain isolated (despite showing milder symptoms), we do not rule out productivity –and even job– losses. Therefore, we will watch closely incoming reports to gauge the impact of the fourth wave. We will also analyze the impact to salaries after the 22% rise in the minimum wage, possibly affecting them to the upside during the rest of the year. We will look especially to the ‘lighthouse effect’, remembering that not all revisions are made in January.
All in all, there are still areas of opportunity despite the recovery already seen in the labor market since the pandemic shock. We believe these conditions will improve throughout 2022. Nevertheless, the pandemic –and its aftermath– will likely keep affecting labor market dynamics. Considering this, we estimate the unemployment rate could fall close to 3.7% (sa) by the end of this year.
[1] Informal employment considers workers not affiliated to the Social Security Institutes (IMSS and ISSSTE) and the armed forces. However, those in the formal economy do pay some form of income tax