Letter IEDI n. 1106—Expansion, except in the industry
At the start of the second half of 2021, retail trade and services continued their recovery trajectories, while the industry fell again. The interruption of the industrial comeback from the beginning of the year tends to harm the performance of the country's overall GDP, due to the numerous links that the sector establishes with other economic activities.
As discussed in Letter IEDI n. 1096 “Industry: a lever of growth”, industrial activity is the one with the greatest capacity to multiply the overall economic dynamism. In Brazil, when manufacturing produces R$1, aggregate economic output increases by R$2.14, that is, the sector’s power to induce growth is much greater than that of retail (1.56) and services (1.46).
For this reason, it would be better if the industry went back to the black. For now, the general industry's output contracted or remained flat in six of the seven months of 2021 with official data already released by the IBGE. In Jul'21, it registered -1.3% compared to the previous month, after the elimination of seasonal effects. As a result of this adverse phase, in Jul'21 output was 5.2% below the level of Dec'20 and 2.1% down in relation to the pre-pandemic mark of Feb'20.
Retail sales, on the other hand, remain above pre-Covid-19 levels, despite some fluctuation in their performance caused by the re-edition of restrictive measures in the months of worsening of the pandemic in the country. In Jul'21, considering its broad concept, which includes sales of vehicles, auto parts and construction material, retail registered +1.1% compared to Jun'21, 3.2% above the pre-pandemic level.
Services revenues, in turn, showed resilience and advanced for the fourth consecutive time, changing +1.1% in relation to the previous month, with seasonal adjustment. It was the last large sector to start showing more consistent signs of recovery, but thanks to improvements in vaccination, it has managed to remain above the pre-pandemic mark in the last three months. In Jul'21 it reached a level 3.9% higher than in Feb'20.
Thus, supported by the positive results of retail trade and services, the Central Bank's IBC-Br indicator, which works as a GDP proxy, registered +0.6% compared to Jun'21, with seasonal adjustment. But as the industry declined more in Jul'21, this indicator signaled a slowdown of the general level of activity, since in Jun'21 the increase had been of +0.92%.
It is also worth drawing attention to the heterogeneity of the results of the branches that make up both the retail sector and the service sector. Although in aggregate both have made progress in Jul'21, few of their branches actually grew in the month.
In services, of the five segments identified by the IBGE, only two were in the black: services provided to households and professional, administrative and complementary services. The latter, however, grew little: only +0.6% compared to Jun'21, seasonally adjusted. It was its lowest positive rate in 2021 and the 'administrative and complementary services' component, which includes the less qualified activities outsourced by companies, dropped again (-0.6%).
In retail, of its ten branches monitored by the IBGE, four remained stable, three lost sales and only three managed to grow: office, computer and communication equipment (+0.6% against Jun'21), clothing and footwear (+2.8%), and other articles for personal and domestic use (+19.1%). These last two, which fared better, had sales influenced by the reduction of restrictive measures and advances in vaccination.
In the industry, in turn, the negative sign was widespread among its branches, reaching 73% of the 26 monitored by the IBGE and two of its four macro-sectors. Among those that grew, capital goods had the best result, which was of only +0.3% compared to Jun'21, with seasonal adjustment. In other words, those who didn't fall were virtually flat.
As for regional industrial parks, the ones in the red were not the majority, reaching 47% of the total. Despite this, the characteristic pattern of 2021 was maintained, with areas of larger and more diversified industries presenting more difficulties to grow. The loss of production in Jul'21 was concentrated in Southeastern states, such as São Paulo (-2.9%) and Rio de Janeiro (-1.4%), and in the South, especially in Rio Grande do Sul (-1.7%). The good news is that at least the industry in the Northeast started to grow again (+3.4%).