According to the INE’s labor market survey, the unemployment rate fell to 8.7% in 3Q24, below both the Bloomberg markets consensus and our 8.9% call. The unemployment rate implies a 0.2pp fall over twelve months (-0.1pp in previous months). The participation rate increased 0.8pp YoY (to 61.7%; +1.3pp during 1H24), while employment rose by 2.4% YoY (3.3% in 1H24), boosted by commerce (2.7% YoY), education (5.3%), as well as accommodation and food services (5.4%). After a period of recovering job levels, construction fell 0.3% YoY. The informality rate rose to 27%, up by 0.3pp YoY, yet below the 2018-2019 average (28.3%). At the margin, employment levels fell 0.2% from 2Q24, resulting in the seasonally adjusted unemployment rate reaching 8.6% in 3Q24, up 0.2pp from 2Q (8.9% cycle peak in the las November quarter). Compared to the August quarter, employment ticked up, lifted by formal posts.
Administrative records from the Labor Directorate (available here) have shown a decline in layoffs based on firms’ needs, signaling that the bulk of the adjustment in the formal labor force might have unfolded. Nevertheless, the double-digit drop in the BCCh’s labor demand proxy in 3Q suggests that a job recovery scenario is not yet in the cards.
Our take: Even though the unemployment rate should fall in the coming months, reflecting seasonal patterns, we expect the labor market to continue to show slack. The unemployment rate has averaged 8.6% so far this year (8.7% during the same period of 2023), reflecting a still weak labor market. Flow dynamics suggest job creation should remain subdued, as labor demand is weak. Separately, as mentioned above, administrative records on job destruction may point to the completion of the adjustment in formal posts. In this context, a more meaningful improvement in private consumption may be mitigated, in addition to the effect on household budgets from rising electricity prices. Meanwhile, downbeat business is consolidating a soft investment scenario. A loose labor market, coupled with anchored two-year inflation expectations, and weak commercial lending will support the central bank's strategy of gradually lowering the policy rate to neutral over the coming quarters. We expect a 25bp cut to 5% in December.
