SOME HOPEFUL ECONOMIC SIGNS AS NUEVO LEON EMPLOYMENT LOSSES

UNCLAS SECTION 01 OF 03 MONTERREY 000176 SIPDIS E.O. 12958: N/A TAGS: ECON ETRD ECIN ELAB MX SUBJECT: SOME HOPEFUL ECONOMIC SIGNS AS NUEVO LEON EMPLOYMENT LOSSES DECLINE MONTERREY 00000176 001.2 OF 003 ¶1. Summary. Although Nuevo Leon has been heavily affected by the U.S. economic recession, the pace of job losses has slowed and exports in most sectors have begun to rebound. The manufacturing sector has suffered the most job losses, and construction has also been hard hit; services and transportation have been less affected. Nuevo Leon's trends are better than the national average, which shows a nationwide loss of 60,000 jobs in April, far better than December 2008 or January 2009, but still worse than February or March. In addition, a Nuevo Leon state agency surveyed 8,000 of the unemployed and found that they tended to be young males who had formal jobs and were only recently unemployed. Although the employment statistics are hopeful, most business leaders do not expect an economic recovery until 2010. End summary. Substantial Employment Losses in Nuevo Leon ¶2. The state of Nuevo Leon its capital Monterrey have heavily benefited from NAFTA by developing export industries focusing on heavy consumer goods such as cars and home appliances, in addition to an emerging service industry. Nuevo Leon has been very successful capturing direct foreign investment, resulting in a per capita income twice the Mexican standard, plus significantly higher educational levels. However, Nuevo Leon's great exporting success has also left it vulnerable to U.S. economic trends. Local economists forecast that although Nuevo Leon was affected earlier than other parts of Mexico, Nuevo Leon could also recover faster following a U.S. economic recovery. Finally, a state economist argued that Nuevo Leon's unemployment statistics were more reliable indicators than other states because Nuevo Leon has a higher percentage of formal employment. ¶3. Nuevo Leon has suffered substantial employment losses, but they have started to slow. The Nuevo Leon Secretary of Economic Development and the Nuevo Leon Council of Labor Relations and Productivity both provided employment studies to econoff. From October 2008 through March 2009 Nuevo Leon suffered 69,255 job losses (measured by the IMSS insurance rolls) or 5.8% of Nuevo Leon's formal employment. The employment losses were most severe in December 2008, when Nuevo Leon lost 32,391 jobs, but slowed in January (-15,859),February (-9,057),and March (-2,585),although they ticked up again in April (-6,915). The hardest hit sectors between October and March were manufacturing which lost 34,114 jobs (9.2% of total employment in the sector),construction lost 17,255 jobs (15.2%),transport shed 3,996 jobs (5.1%) commerce 6,700 jobs (3.1%),and services employment fell by 6,706 jobs (2.4%). ¶4. Nuevo Leon's job losses would have been much more severe except that many manufacturing plants are on reduced hours or shifts, or the plants have closed temporarily. The Nuevo Leon Council of Labor Productivity estimated that 75 companies have reduced work hours for between 2,000 and 20,000 employees, an estimate that strikes us as conservative. John Castany, President of the Nuevo Leon Maquila Association, estimated that 30-40% of their members have reduced hours or plants, including Castany's own enormous Thomas & Betts plant which is idle one day per week. Castany also said that to save jobs the unions, including CROC and CTM, have shown great flexibility permitting reduced hours for all employees. Employers are also loathe to fire employees due to Mexico's very generous severance requirements. ¶5. Nuevo Leon has fared worse than the national average, but better than some border states. Mexico lost an average of 4.1% of its formal employment from October 2008 through March 2009, better than Nuevo Leon. The nationwide job losses did not begin until November, (-59,000),followed by a very tough December (-327,000) and January (-105,000),easing in February (-47,000) and March (+13,000) but with another decline in April (-60,000). Some border states have done worse; from October through March Chihuahua lost 13.6% of employment and Baja California fell 10.2%, since they are even more focused on maquila exports to the U.S. However, the center of the country, emphasizing the national market, has suffered less, as the populous State of Mexico, (right next to Mexico City) lost 4.2% of formal employment, and Jalisco, home of the industrial powerhouse Guadalajara, only shed 2.8% of formal employment. In MONTERREY 00000176 002.2 OF 003 terms of sectors, on an annualized basis through April, there have been 484,852 job losses nationwide, concentrated in the sectors of manufacturing (-423,114) and construction (-114,308), with small losses or even gains in the other sectors. Survey of Nuevo Leon Unemployed ¶6. The unemployed in Nuevo Leon tend to be young males who had a formal job but have only been unemployed for several months. Note. A person is considered unemployed in Mexico if they work less than 15 hours per week. End Note. The Nuevo Leon Council for Labor Relations and Productivity conducted a survey of 8,000 of the unemployed from January through March ¶2009. The survey found that 57% of the unemployed had worked at formal jobs, and 43% had informal employment. In addition, 71% of the surveyed people were men. The respondents were young, between ages 18-25 (32.4%),26-30 (17.1%),31-40 (27.7%),41-50 (16.2%),51-55 (3.8%). 56-60 (2.4%) and very few were more than 60 years old (0.3%). Finally, they had recently lost their jobs. The survey was conducted from January to March 2009; 39% lost their jobs during that time, 20% in December 2008, 15% in November, 13% from August through October, and the rest were long term unemployed, having lost their jobs from January through July 2008 (6%) or prior to January 2008 (8%). Exports Show a Light at the End of the Tunnel? ¶7. Nuevo Leon's export statistics show a free fall through January 2009, but the February numbers show a partial rebound. In general Nuevo Leon's exports to the U.S. increased 9.2% in 2008 compared to 2007, but the annual statistics mask that exports declined 15% in the last quarter compared to 2007. However, monthly exports in February increased from the trough in January, growing from slightly over $600 million USD in January to over $900 million USD in February. Nuevo Leon's automotive exports continued to decline in February, while Nuevo Leon's exports of home appliances, electronics and machinery rebounded to create an overall improvement. ¶8. Nuevo Leon business leaders are pleased that the rates of job loss have slowed, but they do not expect Nuevo Leon to recover until at least 2010, riding on the recovery of the United States economy. Carlos Mortera of the Nuevo Leon Association of Manufacturing Technology did not expect a recovery until 2010 or 2011, with a Nuevo Leon recovery depending on a strengthening U.S. economy. Castany was more pessimistic, predicting that the recovery could take three to five years. In addition, Castany thought that there could be significant increase in layoffs in several months, as employers have reduced hours to hold off on firing employees. However, if orders do not improve, this could force their hand to lay off more employees. ¶9. The H1N1 flu closures appear to have had severe affects for the tourism and business travel industry but little impact on manufacturing. In Monterrey, the tourism and travel industry focuses on business travelers and conventions rather than pure pleasure travel. Monterrey has seen many conventions and business trips cancelled through June, and hotel occupancy is now down from a normal 60% to 20%. Although people are starting to go out to restaurants, it is not clear if visitors will come back in several months. As to manufacturing, David Martinez, an economist for the state of Nuevo Leon, argues that the H1N1 closures, which were two days longer than the normal three day closing for Easter week, cost Nuevo Leon 1% of its manufacturing GDP. Business leaders are more skeptical in private, since many plants had few orders. Moreover, an American Chamber of Commerce official reported that based on reports from border customs brokers and Kansas City Southern railroad, Mexican exports continued at normal levels. Since the H1N1 flu did not cause damage to facilities, Nuevo Leon's manufacturing industry should show no long term impact beyond the May 1-5 closures. ¶10. Comment. Based on our meetings, we expect that Nuevo Leon's economy will continue to decline through the third MONTERREY 00000176 003.2 OF 003 quarter of 2009, after which it will follow, after a lag, a U.S. economic recovery. Although we are still likely to see more layoffs in Nuevo Leon, the worst could be over in terms of employment losses as companies have resorted to reduced shifts to tide them over until the economic recovery. However, Nuevo Leon's economy may not be typical of Mexico as a whole. Nuevo Leon is more oriented toward exports, so the economy in the rest of Mexico may depend more on national consumer demand. End Comment. WILLIAMSON