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

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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

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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

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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