Letter IEDI n. 872–Less momentum
With investment finding it difficult to react consistently —due to low levels of capacity utilization, political uncertainties, inadequate financing conditions and public investment suspensions— economic recovery has been revealing its weaknesses in the course of 2018, aggravated, no doubt, by the truck drivers' strike at the end of May.
After severe declines that month, June secured a compensation of losses for most major sectors of the economy. The industry's 13.1% advance offset May's 11% decline, in the seasonally adjusted series. The same happened with services, whose real sales had fallen 5.5% but grew 6.6% in June.
The exception was retail trade, which, when taken in its broader concept, presented an insufficient performance: +2.5% against -5.1% in May. This was due, however, to only two of its segments —supermarkets, food, beverages and tobacco, and fuels and lubricants— which even prevented real retail sales from coming out of the red (-0.3% vs. May, with adjustment).
Thus, it appears that May events did not cause a derailment of the level of economic activity. The Central Bank's IBC-Br indicator, which acts as a proxy for GDP, registered a 3.3% increase from May to June, after eliminating the seasonal effects. But none of this changes the fact that, since the beginning of the year, economic dynamism, which was never the most vigorous, has waned.
According to the Central Bank's indicator, activity has been losing pace quarter after quarter, contracting once more in April-June 2018 (-1%) in relation to the first three months of the year, seasonally adjusted. In the year-on-year comparison, the figure for Jan-Jun 2018 (+0.9%) was half that of Jul-Dec 2017 (+1.7%), due to the behavior of almost all sectors.
In the industry, output growth declined from 4% to 2.3% from one half-year to the next. This slowdown was observed in three of its four macro-sectors, notably intermediate goods and semi- and non-durable consumer goods, and in the vast majority of regional parks, including São Paulo and Rio de Janeiro. It is worth noting that in four areas the industry registered an output decrease in the first half of 2018, such as Minas Gerais and the Northeast as a whole.
In retail, real sales also grew less in 2018: +5.8% versus +7.6% in the second half of 2017. In this case, however, besides the slowdown being less intense, it was very concentrated in April-June and may be, thus, a fleeting episode. In any case, there are segments that have returned to the red, such as fabrics, clothing and footwear, and fuels and lubricants. Others, in turn, had a marked loss of dynamism, such as furniture and home appliances, and construction material.
Only services avoided deterioration in the first half of the year. This, however, is not a big achievement, as the sector is still in crisis. The decline in its real revenues was -0.9% in the first half of 2018 and -1.6% in the second half of 2017. The worst-off segments were services provided to households, information and communication, and professional, administrative and complementary services. The only considerable rise came from other services, a segment that includes a diverse set of activities.
The still-recessionary picture of services plus the signs that industrial and retail trade's recovery is faltering are already negatively affecting the evolution of employment, which was, even if slowly, beginning to move towards better days. The growth rate of the employed population halved between the last quarter of 2017 (+2.0%) and the second quarter of 2018 (+1.1%), according to PNAD data.
A symbol of this recent loss of momentum is the evolution of employment in the industry, which had been the sector with the largest number of job posts created in the last quarter of 2017, with 527 thousand more people occupied than in the same period of the previous year. In the second quarter of 2018, however, its result was only ¼ of that, that is, 143,000 additional workers..