Booming Philippine jobs? A Comprehensive Review of the PSA's October Labor Data Exposed a Dark Secret: Surging Non-Labor Force!

 

Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital―Aaron Levenstein, economist, former business Professor, Baruch college 

In this issue 

Booming Philippine jobs? A Comprehensive Review of the PSA's October Labor Data Exposed a Dark Secret: Surging Non-Labor Force! 

I. The Glorious Headlines: October Unemployment Fell to a Multi-Year low of 4.2% or Employment Rose to a Multi-Year High of 95.8% 

II. October’s Unemployment Dropped on a Backdrop of Reduced Labor Force Participation 

III. The Skeleton in the Closet of October’s Employment Data: The Spike of the Non-Labor Force Population! 

IV. Full-Time Jobs Growth Stalled, Retail Jobs in Decline, Mixed Performance for the Rest 

V. The Impact of Slowing Employment Gains on the GDP and Consumer Spending 

Booming Philippine jobs? A Comprehensive Review of the PSA's October Labor Data Exposed a Dark Secret: Surging Non-Labor Force! 

 

Statistical Hocus-Pocus?  Philippine October employment rates soared to 95.8%—a multi-year high—on the surging non-labor force population! 

 

I. The Glorious Headlines: October Unemployment Fell to a Multi-Year low of 4.2% or Employment Rose to a Multi-Year High of 95.8% 

 

Inquirer.net, December 8, 2023: There were fewer unemployed Filipinos recorded in October as the wealth of seasonal jobs created at the onset of the holiday season started absorbing more workers, including the new entrants to the country’s workforce, the Philippine Statistics Authority (PSA) said in a report on Thursday. A nationwide survey of 44,499 households showed there were 2.09 million Filipinos who were either jobless or out of business in October, down from 2.26 million recorded in September, the report added. That was equivalent to an unemployment rate of 4.2 percent slightly down from 4.5 percent in the previous month…The dip in joblessness coincided with a decline in the number of jobseekers in October. Data showed 49.89 million Filipinos formed part of the nation’s labor force, which represents people age 15 years old and above who actively looked for work during a period. That was smaller than the 49.93 million labor force size recorded in September, but bigger than the 49.30 million posted a year ago. This brought the labor force participation rate to 63.9 percent in October, down from 64.1 percent in the previous month. 

 

Since the Philippine labor force survey plays a crucial role in determining consumer spending, income, and inflation, it represents a critical data source for the calculation of the GDP. 

 

So, one way to amplify the GDP is to bolster the employment numbers.  

 

Nonetheless, as a politically sensitive number, there is no guarantee of the accuracy/objectivity/impartiality of the estimates. 

 

Let us begin with the Philippine Statistics Authority’s (PSA) definitions of the data used here. 

 

1. Population 15 Years Old and Over: This refers to number of population 15 years old and over excluding overseas workers. Overseas workers are excluded in the estimation of the size of working population (population aged 15 years and over) since the data on their economic characteristics are not collected because they are not considered part of the labor force in the country. 

2. In the Labor Force or Economically Active Population This refers to persons 15 years old and over who are either employed or unemployed in accordance with the definitions described below.  

3. Employed Employed persons include all those who, during the reference period are 15 years old and over as of their last birthday, and are reported either: a. At work, i.e., those who do any work even for one hour during the reference period for pay or profit, or work without pay on the farm or business enterprise operated by a member of the same household related by blood, marriage, or adoption; or b. With a job but not at work, i.e., those who have a job or business but are not at work because of temporary illness or injury, vacation, or other reasons. Likewise, persons who expect to report for work or to start operation of a farm or business enterprise within two weeks from the date of the enumerator’s visit are considered employed. 

5. Unemployed…Unemployed persons include all those who, during the reference period, are 15 years old and over as of their last birthday, and reported as persons:  a) Without work, i.e., had no job or business during the reference period; b) Currently available for work, i.e., were available and willing to take up work in paid employment or self-employment during the reference period, and/or would be available and willing to take up work in paid employment or self-employment within two weeks after the interview date; and c) Seeking work, i.e., had taken specific steps to look for a job or establish a business during the reference period, or  Not seeking work due to the following reasons: (1) fatigued or believed no work available, i.e., discouraged workers; (2) awaiting results of previous job application; (3) temporary illness or disability; (4) bad weather; and/or (5) waiting for rehire or job recall.  

6. Persons Not in the Labor Force Persons 15 years old and over who are neither employed nor unemployed according to the definitions mentioned. Those not in the labor force are persons who are not looking for work because of reasons such as housekeeping, schooling, and permanent disability. Examples are housewives, students, persons with disability, or retired persons.  

Or, the definitions detail the embedded assumptions of the data set, which serve as our basis for analysis. 

 

II. October’s Unemployment Dropped on a Backdrop of Reduced Labor Force Participation 

Figure 1 

First. The October unemployment/employment rate of 4.2%/95.8% was similar to November 2022 and represented the lowest/highest since at least 2017. (Figure 1 upper window)  

By this assumption, the Philippine economy has been booming even when the 2023 Q2 and Q3 GDP showed a substantial slack in private sector performance. Paradoxical, isn’t it? 

 

Two.  The irony is that, unlike in November 2022, the sharp drop in labor participation boosted the employment rate.  The labor participation rate was 63.9% in October 2023 compared with 67.5% in November 2022. (Figure 1, lower pane) 

 

Labor participation rate = labor force/employable population (15 years and over). 

 

III. The Skeleton in the Closet of October’s Employment Data: The Spike of the Non-Labor Force Population! 

 

Three.  The number of employed people also peaked in November 2022 and has been downhill since.  As such, though the employment rate hit the same levels, the number of employed shed by 1.91 million or a decline of 3.83% from 49.71 million in November 2022 to 47.8 million in October 2023.   

Figure 2 

Four.  The population of 15 years and older (employable persons) grew by 1.6% CAGR from 74.73 million in January 2020 to 78.02 million in October 2023.  (Figure 2, upper graph) 

 

Put another way, since November 2022, the growth in the number of people employed has barely reflected the demographic expansion.  

 

Fifth. Excluding people looking for jobs (labor force), employment to the (employable) population fell to 61.3%—a one-year low!  (Figure 2, lower chart) 

 

Not mentioned in the "Persons not in the labor force" are dependents outside retired individuals, housekeeping, and persons with disability.  How about moochers supported by government welfare, OFW remittances, wealthy relatives or sponsors, and others?  

Non-labor force = labor force - population of employable (15 years and over)

 

This segment is a considerable sector, representing 36% of the employable population last October!   

Its growth spike since November 2022 has resulted in a sharp decline in labor force participation.  

 

Employment rate = number of employed people/labor force. 

 

Therefore, the decline in the labor force magnified the employment rate.  

 

Unemployment rate = number of unemployed people/labor force. 

 

Transfers of some of the unemployed to the non-labor force sector could have contributed to the decrease in the numerator, hence the decrease in the unemployment rate. 

   

Could this signify statistical legerdemain—a shift from the labor force to the non-labor force—intended to boost the headline employment/unemployment performance? 

 

Or has there been an actual boom in the non-labor force?  A boom of dependents?

 

No mainstream experts or even officials have told us this.  Perhaps this represents a taboo in the Overton Window. 

 

Instead, some have used the pretext of "low-quality jobs" or "seasonal workers" to mask the internal decay.  

 

Incredible. 

IV. Full-Time Jobs Growth Stalled, Retail Jobs in Decline, Mixed Performance for the Rest 

 

Figure 3 

 

Sixth. After hitting a peak in July 2023, full-time employment growth has stalled while part-time jobs remained a substantial—30%—segment of the overall employment! (Figure 3, topmost chart) 

 

Seventh.  The country's biggest employer, the agricultural sector, has been rangebound in 2023, while second-ranked the trade sector has been slightly declining.  (Figure 3, middle window) 

 

The worsening employment in the trade sector could signify the erosion of consumer spending conditions. 

 

The second-tier job providers have had mixed performances in 2023 (construction, manufacturing, transportation, public administration, administrative, and hotel and food services). Figure 3 (lowest graph)  

 

Figure 4 

The third-tier employers with significant GDP contributions finance, and real estate saw incremental increases over the last few months of 2023.  Add the information sector to this. (Figure 4, upper graph) 

 

V. The Impact of Slowing Employment Gains on the GDP and Consumer Spending 

 

Last but not least is the employment data's potential impact on the GDP.   

 

One, employment rates appear to be peaking in the face of the slowing headline GDP.  (Figure 4, lower chart) 

 

Figure 5

Two, the decline in "real" consumer spending per capita GDP since Q1 2021 has contradicted the rising employment rates. Or the increase in employment hasn't added to the purchasing capacity of the labor force.  (Figure 5, topmost diagram)   

Why has the population been gaining jobs but losing their spending power?  Sure, inflation represents a critical factor.  But why wouldn't businesses and employment suffer from it, too?

Three, the recent plunge in the labor force—due to the surge of non-labor force—could compound the plight of the struggling consumers burdened by inflation. (Figure 5, middle pane) 

 

Too many moochers?  Will they further worsen the nation’s dissaving? 

 

In sum, the October headline employment data likely represents a statistical charade.   

 

It disguised the recent surge in the non-labor force sector that diminished the labor force participation rate.   In turn, the decline in the labor force magnified the employment rate growth.  

 

In any case, slowing universal commercial bank loan growth has coincided with the peak and the current downturn in nominal employment growth.  This should translate to a decaying feedback loop in consumer demand, investment, and employment, which should result in higher credit risks. (Figure 5, lowest chart)  

 

Good luck to those who bought the PSA's employment data as a bullish signal.  

  

Escalating Systemic Risk: As Cash Reserves Plummeted, San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION!

 

In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could― Rudiger Dornbusch 

In this issue 

 

Escalating Systemic Risk: As Cash Reserves Plummeted, San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION! 

I. The Public’s Blind Spot: San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION!  

II. San Miguel’s Worsening Liquidity Crunch! 

III. SMC’s Debt-in, Debt-out Dynamics: Mounting Signs of Hyman Minsky’s Ponzi Finance Dynamic in Motion 

IV. SMC’s Escalating Fragility: Intensifying Concentration and Counterparty Risks 

 

Escalating Systemic Risk: As Cash Reserves Plummeted, San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION! 

 

The public seems unaware that the published debt of one of the Philippines' largest listed firms, San Miguel, has skyrocketed into the stratosphere! Why this represents a systemic risk.

 

I. The Public’s Blind Spot: San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION!

Figure 1 

It was a surprise that this tweet on San Miguel's [PSE: SMC] debt had an explosive reach, interactions, and responses, given my tiny X (formerly Twitter) account (few followers).  

 

Except for comparing its nominal growth with SMC's free float market capitalization and my conclusion, "This won't end well," the tweet was mainly about facts and barely an analysis.   The Fintweet world seems astounded by the "new" information.   If my conjectures are accurate, this only exposed the public's blind spots on the escalating systemic fragilities.    

 

Why has the public been sucker punched?

 

SMC has openly published their debt conditions not only in their 17Q and 17As but, more importantly, in their "analyst briefing presentations."  

Yet, there have been barely any mentions of these in social media or discussions of the consensus experts.   Mainstream news has signified an echo chamber of corporate press releases fixating on the top and bottom lines (in percentages).   

 

Other than these, a deafening silence. Possible reasons: Selective attention? The Principal-Agent Problem? Shaping the Overton Window? 

 

II. San Miguel’s Worsening Liquidity Crunch! 

 

San Miguel reported a Php 31.187 billion net income in the three quarters of 2023.  That's 141% or Php 18.242 billion improvement from a year ago.   

 

Compared to the PSEi 30 peers, SMC generated the most income in % and pesos in Q3 2023, resulting in the second-best income growth in the last three quarters after JGS.  

Figure 2 

Interestingly, despite the so-called profit boom, SMC borrowed a whopping Php 68.2 billion in Q3 to send its debt level to a mind-boggling Php 1.405 TRILLION!  T-R-I-L-L-I-O-N!  (Figure 1, upper window) Of course, this hasn't been a strange dynamic to us. 

 

SMC has increased the pace of its quarterly borrowing growth in pesos.  It has borrowed over Php 50 billion in the last 5 of the six quarters!  

 

And yes, the 9M aggregate debt growth of Php 153.02 billion represents around 62% of SMC's free market float as of November 17th. 

 

Strikingly, Q3 borrowing exceeded the firm's 9M GROSS profits of Php 62.875 billion!  

 

And despite the profits and the borrowing, SMC's cash reserves plummeted by 18.7% or by Php 60.984 billion! 

 

As a result, current liabilities of Php 450 billion soared past cash reserves of Php 265 billion, which extrapolates to the widest deficit (Php 184.9 billion) ever!  (Figure 1, lower graph)

 

In short, like Metro Pacific, underneath the consensus talking points, SMC has been plagued by a developing liquidity crunch.   

 

III. SMC’s Debt-in, Debt-out Dynamics: Mounting Signs of Hyman Minsky’s Ponzi Finance Dynamic in Motion 

Figure 3 

 

SMC's interest expenses have recently soared, even as it dipped in Q3. 

 

Its quarterly share of gross margins has been on an uptrend since 2016. (Figure 3, topmost pane)

  

To be sure, BSP's recent rate hikes have worsened SMC's onus exhibited by the rising interest expense.  

 

But it isn't interest rates alone.  Rising debt levels are the biggest contributor to SMC's mounting debt burden. (Figure 3, middle and lower charts)

Figure 4 

 

SMC's FX exposure represents about half of its debt liabilities. (Figure 4, upper chart)

 

From SMC's Q3 17Q: "The increase in interest expense and other financing charges was mainly due to higher average loan balance of SMC and Petron coupled with higher interest rates."  

 

Though the net income (before interest and tax) bounce has lifted SMC's Interest Coverage Ratio (ICR) above the 1.5% threshold, the above numbers show why "EBIT" could be erroneous, and thus, the dubiety of the higher ICR. (Figure 4, lower graph)

 

Remember, Php 450 billion of 9M SMC's debt is due for payment within a year (current), while "net cash flows provided by operating activities accounted" for Php 142.450 billion during this "profit boom."  Aside from the current borrowing to bridge the current gap, if cash flows sink further, wouldn't this require even more borrowing? 

 

To be more precise, to survive, SMC requires continuous borrowings to fund this ever-widening gap, or it may eventually be required to sell its assets soon!  

 

And this dynamic, as we have repeatedly been pointing out, represents Hyman Minsky's "Ponzi finance." 

 

For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts. (Minsky, 1992) 

 

That is to say, the prospect of the BSP's lowering of interest rates will do little to ease or mitigate SMC's intensifying cash-flow stream predicament.  

 

IV. SMC’s Escalating Fragility: Intensifying Concentration and Counterparty Risks

 

And that's not all. 

 

It's also about escalating CONCENTRATION and CONTAGION risks. 

 

SMC accounted for 24% and 25% of the PSEi 30's 9M and Q3 gross revenues, 19.3% of 9M cash reserve, and 26.8% gross debt.   

 

SMC's 9M net debt growth of Php 153.019 billion signified the dominant majority or 71.82% of the PSEi 30's Php 213.07 trillion net debt growth!  Amazing.  

 

Figure 5

Here’s the kicker: SMC's Php 1.405 TRILLION debt represents a stunning 4.71% share of the BSP's Total Financial Resources at Php 29.855 trillion—which is at an ALL-TIME HIGH! (Figure 5)

 

Expressly, aside from the government, the financial system has vastly increased its exposure to SMC, which comes at the expense of more productive firms and which translates to savings/capital consumption. 

 

And the financial system's record exposure to SMC also raises systemic fragility.  That is to say, it is not only a problem of SMC but also a COUNTERPARTY risk.   

 

So, in addition to the expanded risks to SMC’s equity and bondholders, as Hyman Minsky theorized, other creditors, suppliers, employees, and the daisy chain or lattice network of firms doing business with SMC (directly and indirectly) may suffer from a creditor's "sudden stop."  

 

That being said, the buildup of SMC’s risks represents a non-linear, non-proportional, and asymmetrical feedback loop.  

 

Aside from political entrepreneurship, the BSP's easy money regime has fostered and nurtured SMC's privileged financial status, which increasingly depended on the expansion and recycling of credit.  As such, SMC has transformed into a "too big to fail" firm.   

 

When crunch time arrives, will the BSP (and) or Bureau of Treasury bailout SMC?  Or, will these agencies finance a bailout of it by a consortium of firms? 

 

How will these impact the economy and the capital markets? 

Stay tuned. 

 

____ 

References 

 

San Miguel Corporation, SEC Form 17Q, Management Discussion and Analysis; Edge.PSE.com.ph, P.8, Table p.18; November 15, 2023 

 

Hyman P. Minsky The Financial Instability Hypothesis The Jerome Levy Economics Institute of Bard College May 1992