The US labor market is less dynamic in job creation. Only 114,000 jobs were created in July, below the consensus of analysts, which was 175,000.
According to BBVA’s analysis area, despite the weakness of the US labor market, it is still premature to suggest that it is collapsing.
One of the most worrying data was the increase in the unemployment rate, which stood at 4.3% in July. This is one of the most obvious indicators of an economic recession.
For Mexico, the behavior of job creation and the unemployment rate in the United States are relevant, since they are related to the external income it obtains.
“This lower flow of external financing to Mexico is somehow reflected in a lower availability of income within the country, in the internal market to finance different activities. Hence, the relationship of the United States labor market does have a real impact on economic activity in Mexico,” explains Victor Gomez Ayala, director of data analytics at the Mexican Institute for Competitiveness (IMCO).
He adds that the health of the internal market in the United States contributes to explaining the flows of financing that the country receives via the balance of payments, very clearly in international trade, but also in remittance flows that are strictly related to the economic activity of certain sectors in the United States.
Another factor is the availability of income from international travelers who come from the United States to Mexico.
Gomez Ayala mentions that there are already signs of this slowdown of the United States in Mexico.
What do the indicators say?
Regarding these indicators of external income from Mexico, according to Banxico data, a lower growth in remittances is observed. During the first half of the year, an amount of 31,342 million dollars was recorded, an increase of 3.6% compared to the same period in 2023.
This is a smaller growth when comparing the first half of 2023 with that of 2022, when there was an increase of 9.4%.
Remittances break record: 6,213 million dollars arrive in June
In the case of exports from Mexico to the United States, in the first six months of the year they were 248,385 million dollars, an increase of 3.2% compared to the same period last year.
It is a smaller increase if we compare that same period of 2023 with that of 2022, as it was 5.2%.
Regarding the income of foreign currency from international visitors from January to June 2024, it was 16,267 million dollars, an increase of 6.9% compared to the first six months of last year.
It is also a lower growth when comparing the first half of 2023 with that of 2022, which was 16.8%.
Banxico does not distinguish these incomes by country, Concanaco Servytur points out that seven out of 10 tourists come from the United States.
Where does the US labor weakness come from?
Luis Gonzali, vice president and director of Investments at Franklin Templenton Mexico, says that the weakness that has been seen in the labor market in the United States can come from two places: one, that companies are not hiring. Why? Because their expectations may be that growth will go down.
The other part is that if there are more people offering their work, the number of unemployed will increase. “Not necessarily because the economy is doing badly, but because there are simply more people looking for work.
Gonzali points out that analysts in the United States who follow these numbers are more inclined to think that we are in the second case.
“That is to say, it is not a question of economic weakness, it is not a question of companies not wanting to hire, but rather it is that as a result of migration, which has been very strong, which in fact has been one of the criticisms of (Joe) Biden’s mandate in the last four years, migration has led to an excess of labor in the United States.”
BBVA agrees that supply-side factors have pushed up the unemployment rate, but there are no clear signs of a pronounced slowdown on the demand side.
So the US labor market is still nowhere near suggesting a likely recession.
Source: expansion
