According to the INE’s labor market survey, the unemployment rate came in at 8% during the January quarter, in line with our call, but below with the Bloomberg markets consensus of 8.2%. The unemployment rate implies a 0.4pp fall over twelve months (in line with the adjustment in 4Q24). The participation rate came in at 62.1%, in line with the 2024 January rate, while employment increased by 1.3% YoY (0.9% in 4Q24), driven by healthcare (5.7% YoY), public administration (7.2%) and transportation (5.7%). The informality rate reached 26.3%, below the 2018-2019 average (28.3%). At the margin, employment levels rose 0.7% in January quarter, unwinding the 0.4% drop in 4Q.24. The seasonally adjusted unemployment rate reached 8.3% in January, down 0.2pp from 4Q24 (8.9% cycle peak in the las November quarter) and to the lowest rate since 2Q24.
Data from the Labor Directorate has shown a decline in layoffs based on firms’ needs, suggesting most of the adjustments in the formal market have already taken place. Separately, unemployment insurance beneficiaries have stabilized at similar levels from last year, even declining at the margin. Labor demand proxies remain well below pre-pandemic levels but have shown signs of improvement.
Our take: With signs that investment will gradually recover in 2025, led by mining, the spillover effects into the rest of the economy may boost private sentiment and support a gradual improvement in labor market dynamics. The wave of consumer-tourism will likely sustain retail dynamics. We expect a new minimum wage adjustment plan to be submitted to Congress in April. The previous adjustments significantly raised labor costs. We expect the unemployment rate to average 8.5% in 2025, with risks tilted to the downside. With the unemployment rate hovering around NAIRU levels, and inflation still beyond target, we expect the central bank to hold the policy rate at 5% for the remainder of the year. The INE will publish labor market data for the quarter ending in February on March 31.
