Economics: Latest batch of labor market indicators rounds out the 2022 economic outlook
At a time when the economy is stalling – after having failed to produce any growth in the last two quarters of 2021 – and inflation continues to climb, the labor market has been emitting mixed signals. In line with indicators we have previously analyzed that appeared to foreshadow a more anemic economic performance in 2022, the recent batch of labor market indicators that have been released depict an insufficient degree of advances in employment and labor payments alongside signs of obstacles to any reactivation in the coming months.
At the end of last year, we observed a recovery in the number of the people employed. But despite such progress, we continue to witness elevated levels of underemployment as well as hidden unemployment comprising an economically inactive population that is available for work, many of whom are anxious to find a job but are not finding a viable path into the labor market.
Even after we adjust for the effects of the changes made in 2019 to the Federal Labor Law that were designed to discourage companies from outsourcing some of their workforce and instead to encourage incorporating such workers into their formal payrolls, service sector firms continue to report payrolls well below 2019 levels, at the same time as what had been a notable recovery in hiring at factories has since stalled. Overall, employment remains 2.5% below January 2019 levels.
In many instances, the weakness seen on the labor side of the ledger directly reflects the fragility we have been observing in economic activity, including in the service sector, which is experiencing a relative softening in recent months, and in the manufacturing sector, which has been stalling. Indicators released just this past week confirmed this general lethargy as Inegi’s preliminary estimate of fourth quarter GDP came in almost 3pp shy of market consensus and showed zero service growth.
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