Chile’s Labor Market Defies Slowdown as Jobless Rate Falls

  • Jobless rate reached 6.9% in the three months through August
  • Retail sales grew 0.2%, slowest pace in almost two years

Chile’s jobless rate defied analyst expectations and fell in August, while industrial and manufacturing production both rose more than expected. The economic pick-up may not be all that it seems though, economists said.

The jobless rate slid to 6.9 percent in the three months through August from 7.1 percent the month before, the statistics agency said on its website Friday. A Bloomberg survey of 19 analysts had forecast a rate of 7.3 percent. Industrial production gained 2.8 percent in August from the year earlier, and manufacturing rose 2.4 percent.

“Despite the better than expected August print, the labor market has been gradually easing, and that is the source of concern, for it may remove an important lever of support to private consumption in the quarter ahead,” analysts at Goldman Sachs said in a note to investors.

The drop in unemployment was caused by a jump in the number of self-employed, many of whom are hawking goods on street corners for want of a better job. While the salaried workforce was little changed from a year earlier, the number of self-employed gained 5.5 percent, the statistics institute said. In another indication that the labor market isn’t as strong as it seems, retail sales gained only 0.2 percent in August from the year earlier, the slowest pace in almost two years.

"The negligible growth in retail sales could be a sign of adjustment in consumer behavior in light of a less dynamic labor market," BBVA Chile said in a note to investors. "Despite the lower unemployment rate, alternative indicators such as the rise in self-employed workers show weakness in the labor market."

Chile’s economy is struggling to maintain even the moderate 2 percent growth rate of the past two years as a residential construction boom comes to an end and the labor market weakens. President Michelle Bachelet unveiled plans late yesterday to raise fiscal spending by just 2.7 percent in 2017, the smallest increase in 14 years, further darkening the outlook for domestic demand.

For more on Chile’s long-forecast recovery in growth, click here

Gross domestic product contracted 0.4 percent in the second quarter from the previous three months, the first decline in six years. Any pick-up is unlikely to start before the second or third quarter of next year, said Raphael Bergoeing, an economist at Universidad de Chile, forecasting that companies would eventually push through investment delayed over the past few years.

"The question is not if the economy will start improving, but when it will start improving," he said.

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