BRAZIL

Drop in the Unemployment Rate Recent quarterly estimates from the “National Economic Research Group” (PNAD), of IPEA, the governmental “Institute for Applied Economic Research”, verified that the recovery of the Brazilian labor market has been consolidated in the last few months. This August, the occupied population totaled 91.6 million, or a 11.2% higher contingent if compared to the same period of last year.

After the seasonal adjustment it was noted that in August 2021 there happened not only an increase of 1.8% in the occupational base but also the highest increase in the pool since February 2020. As a consequence of this scenario of improvement in the occupied population, the rate of unemployment has dropped from 14.7% down to12.8% in August 2021.

Investment Growth Indicators confirm a 4.4% increase in the “moving quarter” that ended this August, says IPEA in regard to their “Fixed Capital Gross Formation” continuous research study, as a result of an increase of 0.1% between August and July 2021. Comparison of the same periods in 2020 shows an increase of 28.9% in August and a growth of 28.8% in the moving quarter.

In terms of the last 12 months, accumulated investment growth rate raised by 19.6%.

Investments in the Fixed Capital Goods Segment– machines and equipment in general, indicate a 12-month growth rate of 30.2%, despite a drop of 9.9% in the 3rd moving quarter of 2021. National goods production accounted for an increase of 25.2% and imported goods; 39.4%, as compared to the previous 12-month period.

According to IPEA/DIMAC (Macroeconomic Policies and Studies Directorate), Investments in the Civil Construction Segment have experienced a period of six consecutive months of growth, representing a 12.8% in this moving quarter, and a 14.5% growth in the last 12 months.

IT Cost Variation Index methodology introduced by IPEA in January 2013 to measure IT cost evolution in Brazil, considers 8 basic factors: People, Other professional services, Workspace/office rentals, All other operating expenses, Communication, Electrical energy, Depreciation & amortization, Consumption material.

The highest impact in this cost variance was item nº 4 – All other operating expenses, which varied + 5.57%. Thus far, for these last 12 months – from August 2020 to August 2021, cost variation increased by 7.81, as against and official IBGE inflation rate of 9.68% for the same period.

Agribusiness Foreign Trade– The commercial foreign trade balance for this third quarter of 2021 has generated superavit of US$ 10.1 billion. Export commodity prices went up 38.6%, whilst volume decreased by 16.4%, resulting in an increase of 15.8% in total export value.

Commodities were traded with higher prices – keeping the current trend for the main commodity export portfolio comprising of soybean, grains, such as corn, bovine beef, and pork meat, mainly, sugar and coffee.

Key export products for the first semester of 2021 included – coffee, sugar, cotton, and pork meat. Climate changes caused decrease/shortages in crops, involving part of the second 2021 corn crop

The commercialization of all such commodities world-wide– has a direct and significant participation of Brazil, and the decrease in volume of these export items may directly impact future prices, as in the case of The Taplow Group S.A. 45, avenue de la Liberte L-1931 Luxembourg www.taplowgroup.com coffee export. Other products such as pig meat and chicken have increased in the course of this year and China keeps importing pork meat heavily from Brazil, due to their drastic decrease in production of this high protein-content product.

Tacito Bocaiuva | Managing Partner, Brazil | E: tbocaiuva@taplowgroup.com

USA

Supply Chain Issues, Demand, Politics, and Inflation are driving the North American Markets:

Overview The North American economies have been hit by the highest inflation in almost 30 years over the last 10 months.

Perhaps the most interesting aspect is that US Economists are noting a major difference between what consumers are thinking and what they are actually doing. The large financial rating agencies seem to be in relative accord in their views.

Consumer sentiment as measured by several assessments looks fairly depressed– This would seem to indicate a lower level of spending on what are referred to as consumer durables – appliances, residential properties, and vehicles. Consumer spending seems to be growing but the cost of consumer staples and oil-based products is a reasonable worry for most households.

However, recently published surveys appear to suggest consumers seem to be pretty confident about future spending. The dichotomy is very interesting as we still have a worker shortage, and it isn’t due to support from governments or other social programs. Rather, the cost of childcare (and in some cases elder care) as well as the fears of being in close contact with others due to continued fears about Covid and recent variants even amongst the vaccinated seems to influence return to work decision making.

The global issue of supply chain breakdowns is still plaguing almost all economies but is most noticeable in the Americas where we rely on foreign production across the entire spectrum of products and production. As well, the cost of some components – particularly for circuits boards and the like is a major concern.

Consumer prices are rising faster than wages – On November 10th, the US Bureau of Labor Statistics announced that the CPI – consumer price index – increased by 6.2% for the 12 months ending in October which is the biggest jump since 1990. The index, if you do not include food and energy which are very volatile, rose by 4.6% which is the biggest jump since 1991. The jump in October was approximately 9% which largely reflects the cost of higher energy expenses, particularly automotive gasoline and diesel fuel used for trucking appearing in consumer good. The press on the development and efficiency of EVs (Electric Vehicles) continues to point out the risk of production disruption from “chip” shortages as well as electric power production and distribution.

Due to a belief by a large segment of the population that Covid Vaccines are in some way harmful– or at least a large sub-set of US workers either does not believe that Covid is real or that government has the right to mandate vaccination – we are still dealing with a large number of new cases and hospitalizations. There is a theme developing which is that individuals get careless about disease prevention as the number of new cases goes down and then we see spikes during the next 20 days. Often, the reports suggest that some areas are back to the same levels as before the larger number of vaccines was accomplished but not nearly the number of hospitalizations or deaths.

We have a troubling degradation of the normally civil discourse between the major political parties as well – which is making it very difficult for the executive branch of government to move forward with critical infrastructure and other related quality of life improvement investments.

We see the impact on employment continuing for the foreseeable future – i.e., 3 – 6 months. Due to markets continuing to perform well, the likelihood is that consumers, other than at the lowest income levels, will continue to upgrade their purchasing as well as discretionary spending on entertainment and travel. Barring a major geopolitical event, very few of the well know economist seem troubled by the current environment although many are concerned about the continuing inflationary pressures and the uncertainty caused by our political issues. We have not seen a major change in demand for executive and senior professionals as various reports are reporting a larger number of executive levels employees opting for early retirement.

Outcomes to be determined over the next few months– a recent spurt of corporate breakups such as GE has announced along with lesser known but significant businesses across a variety of business types, a growing need for mid-level executive and professionals.

Steve Schrenzel | Managing Partner, USA | E: sschrenzel@taplowes.com