Letter IEDI n. 865 —Severe but unequal falls
In May 2018, all major sectors of the economy returned to the red as a result of the road freight shutdown in the last weeks of the month. The negative effects, however, were not equally felt. The industry lost the most, registering a decrease in physical output of no less than 10.9% compared to April (seasonally adjusted). Trade fell 4.9%, in its broad concept, and services 3.8%.
As a result, the level of economic activity, which, after a slightly more substantial growth in April, seemed to be leaving behind the first quarter's (Q1) low dynamism, suffered a strong deterioration in May. The Central Bank's IBC-Br indicator, which acts as a proxy for the GDP, illustrates this worsening: it fell 3.3% from April to May.
Surely this result is quite exceptional given its determinants, but it is important to point out that for many activities the effects of the truckers' strike only worsened losses that were already taking place for some time; that is, the atypical events of May are probably not the only cause of the economic downturn. In the industry, this seems to be the case of intermediate goods, declining since Jan/18 in the series with adjustment, except for Apr/18. The same is true for retail trade of office supplies, computer and communication, in which falls have been following rises since Feb/18, and also for information and communication services, in the red since Dec/17, except for March/18.
The striking aspect of May's result, besides the magnitude of the falls, is the asymmetries among economic activities. As mentioned, the largest losses were borne by the industry and none of its macro-sectors came out unscathed. On the contrary, practically all of them registered the most intense drops of the historical series. Compared to April, seasonally adjusted, consumer goods had the worst result (-27.4%), followed by capital goods (-18.3%) and semi-durable and non-durable consumer goods (-12.2%). Intermediate goods fell less (-5.2%), but here the negative sign has been recurrent.
Regionally, the industrial situation was not better either. Of the 15 locations monitored by the IBGE, 14 registered drops, particularly São Paulo (-11.4%) and all the states in the South region, especially Paraná (-18.4%). In all, there were 9 areas with negative double-digit figures, including the Northeast region (-10%), largely due to Bahia (-15%). The only industrial park to expand production in May was Pará's, where the weight of the extractive industry —whose production is transported by railroads— is one of the highest in the country.
Retail trade, if taken in its narrow concept, did not feel the effects of the strike, since its real sales declined only 0.6% compared to April. This result, however, was strongly influenced by the expansion of only one segment —supermarkets, food, beverages and tobacco (+0.6%)— which has a high participation in the sector. This segment's expansion is explained by characteristics like: commercialization of essential goods, extensive sales network and existence of sufficient inventories to meet demand.
The apparent preservation of retail performance in May hides widely spread losses that, in some cases, reached very significant magnitudes. Of the 10 retail segments monitored by the IBGE, 8 presented negative performance in the month. An example is the -14.6% rate registered in sales of vehicles and auto parts, leading retail trade in its broad concept (which also includes construction material) to a 49% fall from April to May, the most severe since Sep/12.
In services, the falls were also widespread, reaching all six segments of the sector plus the special group of tourism activities. The sector's 3.8% contraction was in fact the most intense since the beginning of the series with seasonal adjustment. However, much of this decline was due to only one segment, precisely the protagonist of May's shutdown: transport, its ancillary services and mail, whose contraction reached 9.5% compared to April, due to ground transportation (-15%).