Letter IEDI n. 1178—Industry and retail at the forefront
The last quarter of 2022 began with a weakening of the services sector, which had been showing resilience and making an important contribution to economic dynamism until then. It fared worse than the industry and retail trade, which, although growing little, at least stayed in the black.
From Sep'22 to Oct'22, after adjusting for seasonal effects, while retail and the industry registered +0.5% and +0.3%, respectively, real services revenue shrank -0.6%, its first negative rate since Feb'22. As a result, the Central Bank's IBC-Br index, which acts as a proxy for GDP, fell 0.05% and the chances of Q4'22 GDP being more modest than expected went up.
This last result of services may already be reflecting the exhaustion of the positive effects of the resumption of face-to-face activities and the increase in people's mobility and, at the same time, the influences of the low dynamism of other economic sectors.
So much so that the largest falls in Oct'22 were due to services provided to households, with -1.5% in the seasonally adjusted series, and transport, storage and post office (-1.8%), with land transport—more directly related to the general level of economic activity— in the red for the second time.
The industry, in turn, despite back to positive ground after two consecutive months of decline, presented important weaknesses. Firstly, because the variation of only +0.3% signals a scenario closer to stability than to growth. Secondly, because the highs were very concentrated sectorally and regionally.
Of the 26 branches identified by the IBGE, only 7 registered output increases in Oct'22, a minority share of 27% of the total. From a regional point of view, 6 of the 15 industrial parks expanded, representing a minority share of 40% of them.
The most marked expansions were observed in less sectorally diversified industrial parks, such as Pará (+5.2%, with adjustment), much dependent on the performance of extractive activities, and Goiás (+3.0%), where the food sector is predominant. A relevant contribution came from the industry of São Paulo, which varied +0.4%, following a seesaw path of positive months and negative months. All of these parks had setbacks in the previous month.
As for retail trade real sales, there was expansion for the third consecutive time in the series free of seasonal effects. The increase, however, was lower than in the previous month: +0.4% in narrow retail trade and +0.5% in broad retail, which includes the branches of vehicles, auto parts and construction material.
The positive impulse spread through half of its ten segments identified by the IBGE. The highest increases were in furniture and household appliances (+2.5% compared to Sep'22), office, computer and communication equipment and supplies (+2.0%) and other articles for personal and domestic use (+2.0%), branches that were generally underperforming during the current year.
Among the sharpest declines were sales of newspapers, books and stationery (-3.8% against Sep'22), construction material (-3.5%) and textiles, clothing and footwear (-3.4%). The segment of vehicles and auto parts also had a non-negligible decline (-1.7%), after virtual stability in Sep'22 (+0.1%).
Even with signs of exhaustion of services' upward momentum, it was the sector with the best performance in the year to October 2022. With most of the year covered by official statistics, this picture will remain basically the same until the end of the year.
In Jan–Oct'22 (compared to the same period of the previous year), services accumulated an increase of +8.7%, a situation quite different from the industry and broad retail, which recorded losses of 0.8% and 0.5%, respectively.
The service sector is also the one with the best result in relation to the pre-COVID-19-pandemic level of revenue: 10.5% above Feb'20. Retail, in its broad concept, is 0.9% below that level, largely due to vehicle sales. The industry is the sector furthest from recovering pre-pandemic levels: it is 2.1% below Feb'20, mainly due to durable consumer goods.