Brazil job creation beats all forecasts days before election

Latin America’s biggest economy created more jobs than expected in August, handing President Luiz Inácio Lula da Silva an upbeat economic data point just days before voters head to the polls.

Brazil generated 165,827 formal jobs last month, higher than all estimates in a Bloomberg survey of analysts where the median forecast expected 106,900 new positions for August. Services and construction accounted for most of the hiring, according to government data released Tuesday.

Brazil’s labour market has remained quit resilient even as the broader economy loses steam, with low unemployment and firm wages providing Lula with a relatively favourable backdrop heading into the first round. Still, the broader economic picture is less reassuring. 

Growth is losing momentum and inflation accelerated more than expected in early September, complicating the incumbent’s effort to persuade voters that their finances are improving despite government measures aimed at cushioning households from high borrowing costs and rising oil prices.

Those conflicting signals are also complicating the central bank’s next move. Policymakers led by Gabriel Galípolo cut the Selic rate for a fifth consecutive meeting in September, to 13.75 percent, but offered little guidance on what comes next, reiterating that the pace and size of any further easing will depend on incoming data.

Now the election itself is becoming another variable. Brazilians vote October 4 in a tight race between Lula and conservative challenger Flávio Bolsonaro, and investors are watching not just who wins, but how markets – particularly the real – respond. A sharp post-election sell-off could reduce the central bank’s room to keep cutting, while a benign reaction could leave the door open to further easing.