It Gets Ugly in Brazil

The price of corruption.

In a stunning deterioration, the unemployment rate in Brazil spiked to 12.6% in the rolling three-month period through January, a record in the new data series going back to 2012, according to Brazil’s statistical agency IBGE. Up from 11.8% in the three-month period through October. Up from an already terribly high 9.5% a year ago. And more than double the 6.2% in December 2013.

Economists had expected the unemployment rate to rise to 12.4%. After three years of underestimating the political, fiscal, and economic fiasco in Brazil, they’re still underestimating it.

For example, by the end of 2015, the consensus forecast for unemployment by the end of 2016 was 9.1%, according to Focus Economics. On average, economists essentially expected the unemployment rate to remain flat for the year. A huge miss, when in fact the unemployment rate soared by 3.1 percentage points in the four quarters through January.

At the time, they figured that the unemployment rate would drop to 8.8% by the end of 2017. It is now clear that it would take a miracle to accomplish that.

The report also pointed out:

  • The number of unemployed soared by 34.3% year-over-year to 12.9 million persons (Brazil has a total population of 210 million).
  • The number of employed dropped by 1.9% year-over-year, or by 1.7 million to 89.9 million people.

This chart shows the unemployment rates of the three-month rolling periods. Note the brutal jump in January (via Trading Economics, red marks added):

Here are the sectors that shed the most workers compared to the same quarter last year:

  • General industry: -7.4% (-897,000 workers)
  • Construction: -9.6% (-755,000 workers)
  • Agriculture, livestock, forestry, fishing and aquiculture: -4.6% (-434,000 workers)
  • Domestic services: -3.5% (223,000 workers)

Employment rose only in lodging and food services: +8.7% (+393,000 workers). The remaining sectors maintained stable employment.




A special word about the construction industry. It has been deeply embroiled in a horrendous corruption scandal that also involves the state-oil company Petrobras and its contractors, along with the highest levels of government. To get this sorted out, the government stopped large construction projects, such as oil refineries and the São Paulo subway system, contracted out to construction companies that have cropped up at the heart of the scandal, including Odebrecht, OAS, and Camargo Correa. This entailed large-scale layoffs.

Another measure IBGE released today is the “labor underutilization rate” for the fourth quarter. It soared to 22%, up from 21.1% in Q3, and up from 17.3% a year ago. Back in Q3 2014, the rate stood at the low point of 14.8%.

There are now 24.3 million people in this “condition,” as the report put it, a jump of 1.4 million people from Q3 and a jump of 5.8 million people from a year earlier.

But the national averages, as bad as they are, belie the difficulties in some regions, while other regions are far better off. The South Region (the smallest of Brazil’s five regions, bordering Uruguay, Argentina, and Paraguay) sported the lowest labor underutilization rate of 13.4%. The Northeast Region was dogged by a mind-bending underutilization rate of 33%.

Each region has several states, and among the states, the differences are even starker, ranging from Santa Catarina’s labor underutilization rate of 9.4% to Bahia’s 36.2%!

Currency traders had expected for Brazil to start pulling out of its terrible funk, at least economically, on the theory that things can only get so bad, and then they bounce off. But when the data was released today, their disappointment became calculable: the Brazilian real dropped 1.2%. Though the real, at 3.11 to the dollar, has recovered sharply from its low in January 2016 (at 4.1 BRL to the USD), it remains 24% below where it had been in January 2013.

Much of this economic fiasco might have been prevented if pandemic corruption at the highest levels and for the benefit of the richest and most powerful had not siphoned off the lifeblood of the economy. Now regular Brazilians get pay the price.

But they’re also consumers, and they now can longer pull the economy forward. Read…  Brazil Retail Sales Collapse as Inflation and Unemployment Whack Consumers




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  34 comments for “It Gets Ugly in Brazil

  1. Tobias
    Feb 24, 2017 at 10:05 pm

    Do the Brazilians have access to credit cards? That would be an obvious short term solution to their problems that has worked exceedingly well here in the USA.

    Not to belabor another obvious point-

    Why aren’t the Brazilians tapping into their home equity lines? I would imagine housing values are soaring there, as in most places globallly.

    My guess is that the Brazillian central bank is not keeping its interested rates near zero, as is mandated by most civilized countries.

    Seems like all this suffering is completely unecessary.

    Baffled in Minnesota-

    • Feb 24, 2017 at 11:13 pm

      The Brazilian real is not a reserve currency, so the central bank isn’t quite as privileged as the Fed, the ECB, the BOJ, and the others that are presiding over reserve currencies.

      It has been fighting a vicious bout of inflation, which reached the double digits last year, and it has been trying to prop up the real, which had been plunging, and so QE is out of the question. Instead, it raised its policy rate to 14% (there is no decimal missing) over a year ago. Late last year and this year, with inflation dropping, it began lowering its policy rate, which is now 13% (again, not a typo).

      If the central bank tried to print its way out of trouble, the currency would end up doing what it did in Argentina and Venezuela: collapse. So that’s not a great option.

      • bobby
        Feb 25, 2017 at 9:53 am

        It sounds like a two tiered system, the reserve currency countries vs. the non-reserve currency countries like Brazil, maybe similar to the aristocratics vs. the peasant people where eventually the tables turned and the aristocratics became extinct..

        • Feb 25, 2017 at 10:46 am

          Yes, it is “a two tiered system.”

      • just charge it american style
        Feb 25, 2017 at 3:39 pm

        boy was obviously being sarcastic,maxing out credit cards and racking up dept to buy time (lol) is beyond insanity and desperation either that or he’s a progressive democrat who thinks “credit”is the answer to everything

    • Wolfbay
      Feb 25, 2017 at 1:36 pm

      I hope you’re right that adding even more debt and financial repression and QE are the answer. I wish I could believe it.

    • Al
      Feb 26, 2017 at 5:09 pm

      Credit Card?
      Credit card’s APR is about 486%, so I don’t think it’s a wise option, not even for short term.
      Home equity?
      Homes are overpriced and virtually illiquid now.
      Banks are too scared to get them as collateral and people are too blind to see the coming water.
      The storm is still forming…

  2. Dam Polak
    Feb 25, 2017 at 12:04 am

    So much for emerging BRICS economy. I hope Russia is next and China will follow, India also is corrupt and over bloated with bureaucracy and South Africa doesn’t look much better. Lets see if domino will star falling .
    Right before fall of Great Roman Empire the corruption was at it HIGHEST . So if President Trump is not able to stop it and “drain the swamp”, the: Clinton, Soros, et al foundations , lobbing, big pharma, out of control unions etc. will eventually do USA in. Scared for my children. I emigrated from communist county to a Great Country here 40 years ago ,but I feel like I’m back in my old country, with all the loss of freedom, and spider web of regulations, the s**t is back, so like in old country back to grey economy, cash, and under the table deals, you got to learn from the Big Guys, but my children don’t know how to do it, yet. Not a good time at the end of my journey. Love this country , please resurrect President Regan to help Pr. Trump.

    • DH
      Feb 25, 2017 at 2:25 am

      There’s nothing like hiring a bunch of rich guys and Goldman shills to “help” America at the moment, and this country was already a mess with Reagan. If you’re bringing back a Republican, bring back Eisenhower.

    • Frederick
      Feb 25, 2017 at 4:47 am

      You might be better off back in Poland soon if George Soros has his way in this country It could get very messy At least Poland is a monolithic society I prefer living in Poland than in my native New York to be honest in many respects

    • Paulo
      Feb 25, 2017 at 12:36 pm

      Out of control Unions? yeah rightttttttt. Unions have been desecrated the last 25 years. It is one reaon why the rich are getting richer at the expense of everyone else.

      • Wolfbay
        Feb 25, 2017 at 1:42 pm

        True for unions of private employees but not unions for state and municipal employees. FDR would not let public servants unionize and I agree. I guess they’ll stick it to the tax payers to cover the huge pension shortfalls.

    • huis789
      Feb 26, 2017 at 4:46 pm

      I too emigrated from a communist country and now my adopted homeland to which I have given my body and soul seems to be betraying its old ideals under the combined assault of bankster assets destruction and swarm migration population destruction. Rather grim really. We can’t buy guns here but I am procuring alternative means of defense for my family, given that the government’s view seems to clearly say it all men for themselves. wtf have I been paying the taxes for over the last 30 years?

  3. Davebee
    Feb 25, 2017 at 1:16 am

    Wolf, if you want to see some REAL corruption and REAL unemployment try the last letter in BRICS, South Africa. Corruption here is running at such an extent now that the treasury simply cannot gather enough taxation to keep the ship afloat and unemployment in the local real world, not the BS put out by Stats SA is about 60%!
    All in all we are in hideous national trouble with the major ratings agencies all just waiting to click the mouse for a sovereign downgrade to junk status. Imagine what the South African unemployment rate will be then?
    Sad to say all this unpleasantness was foreseen many year ago in the 1960’s by the previous white government who correctly realized that to hand over power to any Afro-liberation socialista gang of crazies with corruption in their DNA was suicidal. My God, how right they were!

    • Frederick
      Feb 25, 2017 at 4:49 am

      May the Schwartz be with you( Mel Brooke’s)

  4. Sound of the Suburbs
    Feb 25, 2017 at 4:26 am

    Today’s economics experts at work or “clowns” as they are more commonly known.

    2008 – “How did that happen?” the clowns

    The IMF predicted Greek GDP would have recovered by 2015 with austerity.
    By 2015 it was down 27% and still falling.

    The IMF clowns at works.

    • Frederick
      Feb 25, 2017 at 4:51 am

      Is that you Paul Krugman?

  5. prepalaw
    Feb 25, 2017 at 6:35 am

    Wolf, this article is not helpful. I have been involved in business in Brazil for more than 20 years. Everything is purposely inefficient. Bureaucracy rules. Most brazilians earn subsistence wages. New shoes are financed over years, with the creditor getting directly paid by the employer out of the employee’s pre-tax wages.

    I was in Sao Paulo in January 2017. My friend is a labor lawyer for management. Worker’s compensation cases have tripled. Workers on short hours or about to be fired feign work related injuries to get money. No different than in any other part of the world.

    To close a corporation in the US, all that is required is to file a certificate of dissolution with the state office where the business was formed. In Brazil, you can’t do that until you collect proofs from some 8 different government offices, proving that the corporation has: paid all taxes; is not being sued; has no unpaid debts; etc.

    Corruption is a way of life. It is accepted and ingrained into society. Pointless to debate. Nothing in Brazil will ever change.

    Brazil is rich in natural resources. Has hords of people working for little money. Everything is cartelized. You get your niche and protect it. Sounds a little like the USA in 2017.

    Things will get better in Brazil. But the dual fiascos of the Olympics and Petrobras were too much to absorb over the short term

    • Justme
      Feb 25, 2017 at 12:54 pm

      @prepalaw, The “Brazil olympics fiasco” never happened, AFAICT. It existed only in the US media. Kind of like the “Russia/Sochi olympics fiasco”, which was also just in the media. Anytime the olympics take place in a socialist-leaning or country or a friend of an enemy, it is a fiasco according to the US media.

      Now, clearly Brasil has its problems, but one of the bigger problems is that the US corporate media are very keen on making the problems even worse than they are. Probably so Wall St can swoop in and buy Brazilian assets for cheap, because Brazil prefers to collaborate with China rather than the vultures on Wall St,
      and also to make the US look less bad, relatively, than the rest of the world. Propaganda is standard operating procedure when the US and global elite does not get their wishes.

      Is the corruption Brazil worse than the US corruption in Washington, banks, DoJ and Wall St?

      Btw, I am specifically not faulting Wolf for reporting facts. I am blaming @prepalaw for propaganda.

      • prepalaw
        Feb 27, 2017 at 9:45 am

        How many days have you visited Brazil in the last 20 years. How many Brazilians businesses have you been involved in. How many real estate deals have you done there. Compliance with Brazilian tax regulations. Dealing with the Brazilian court system. Dealing with government. I have done all that and much more and know first hand what I am writing about.

      • Maximus Minimus
        Feb 27, 2017 at 12:08 pm

        The Olympic free enterprise is an unmitigated train wreck not created by fake news. It saddles the countries with unpayable debt, and the best they can show for it is a construction of useless facilities which they do not even have money to run.
        From the humor column: the Olympic committee was about to drop wrestling from the Olympics, which is one of the four disciplines in the ancient Olympics.
        Oh well, if they do not mind that their games provide cover for starting wars.
        At least the money and unquestionable prestige in some quarters is good.

    • Bill in Arizona
      Feb 27, 2017 at 1:22 pm

      Prepalaw, no doubt your ground level observations are valid. My contacts tell me there is a large scale, grass-roots effort underway, in the largely European 3 most southern states (Parana, Santa Catarina, Rio Grande do Sul) to seceed from Brazil, and form their own country. See http://www.sullivre.org/ and it’s well-funded and well-organized!

  6. pete
    Feb 25, 2017 at 6:55 am

    So much energy and natural wealth sapped by corruption and misguided leadership!!! Cardoso was awesome, Lulu acceptable, but Dilma was weak, stupid and corrupt…you can’t have that troika of incompetent skills at the top. I do think though, Brazil is turning around…at the expense of course of the people at the bottom…PJS

  7. james wordsworth
    Feb 25, 2017 at 10:22 am

    On the positive side … if the statistics are correct Brazil has made a huge improvement in its population growth rate. In 2005 they were still at a 1.4% growth rate and a fertility rate of 2.25. Now it is down to 0.8% and 1.8. Within the next few years Brazil will encounter the demographic tail winds that come with a slowing population growth rate. Less money needing to be spent on education (or the same amount of money going for fewer kids) and fewer restless young people (crime rate). In the last 30 years Brazil’s pop was up almost 60%. For the next 30 it will only go up by about 12% (on projections). This is similar to the demographic tail winds China received from its one child policy.

    Still LOTS of problems but a little hope.

  8. OutLookingIn
    Feb 25, 2017 at 12:09 pm

    It starts on the fringe.
    Economic and social fabric begins to fray and unravel. Corruption rules.
    At first the weak and over extended, deeply indebted, begin to fall.
    As the periphery collapses ever closer to the center.
    The core becomes unstable and is wobbling.
    It will not hold. The center will not hold.
    Coming soon to a community near you.

    • Feb 25, 2017 at 7:40 pm

      That spells “Opportunity”. I own EWZ & I plan to hold it. It serves as a hedge against the Reserve Fiat Currencies IMO. It very possibly might go down before going back up agin though. If Petrobras alone recovers, it will pay off “bigly”.

  9. andy
    Feb 25, 2017 at 1:33 pm

    As unemployment goes up the Brazilian ETF doubled in the last 12 months. Petrobras tripled. As always, I sold calls in both 11 months too soon.

  10. Kreditanstalt
    Feb 25, 2017 at 4:33 pm

    It’s a “statistic”. It can be made to indicate anything…whatever its creator wishes.

    Who needs these numbers? Just look around you…

  11. Dam Polak
    Feb 26, 2017 at 12:36 am

    OutLookingIn I agree. If history is any lesson that how French Revolution started. When middle class is pauperized and decimated and poor people or lower class is homeless and hungry, there is nothing to loose except take it to the street. History is great teacher. Give it time.
    The interesting thing is the social unrest is like avalanche, non linear , rather geometric series or logarithmic if there is enough poverty and disenfranchise. I think you are right the periphery is staring to collapse.
    I can see this in my medical community. Wondering how long before it reaches the center. Interesting times.

    • OutLookingIn
      Feb 26, 2017 at 1:16 am

      Yes, we are cursed to live in “interesting” times.
      Having to witness the ostentatiousness with which the so-called one percent is flaunting their wealth, has fueled the rise of anger and extremism within the remainder of the population. Who have seen their earnings stagnate – or worse, get laid off.
      We may take a clue from these elite’s, as they have their bolt holes ready and private jets, ocean going luxury yachts, with crews on a moments standby. New Zealand has shown a rapid upswing in the sale of large farm properties, where private airstrips have been and are being constructed. The fuse has been lit, it’s length cannot be determined.

  12. Stanley
    Feb 26, 2017 at 10:08 am

    Could it also be that Brazil shows true figures compared to the Western model of total deceit?

  13. sirr
    Feb 26, 2017 at 11:56 am

    As always thanks for the note, Wolf.

    For a succinct, more in-depth politco-economic analysis of the this situation, check out:

    “The Brazilian Crisis: Corruption, Neoliberalism, and the Primary Sector”

    https://monthlyreview.org/2017/02/01/the-brazilian-crisis/

    • Al
      Feb 26, 2017 at 5:27 pm

      Very bias article, factual incorrectness is the norm.
      Not even close to a truth analysis of the brazilian scene these last years.
      Read it as I leftist trying to cover his wounds and mistakes.
      It’s an acceptable article for “An Independent Socialist Magazine”, not more.

  14. Thunderstruck
    Feb 27, 2017 at 11:55 am

    Well, to look on the bright side – it will be much more pleasant at the Walt Disney World Resorts this month and next. No huge crowds of loud and boisterous Brazilian teens running rampant round the parks and at the hotels.

    Apparently they need to hire the same experts we utilize at the BLS. They could really improve those statistics with only a few hires!

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