MexECON Blog

August Leading Index Falls to 100.97

Mexico's national statistics agency, INEGI, today released a new version of its indexes of coincident and leading economic indicators.  According to the agency, the new indexes are designed to better reflect where the Mexican economy is in terms of its growth cycle, utilizing a methodology championed by the Organization for Economic Cooperation and Development (OECD).  In the chart below, the figures in parentheses indicate how many months ahead the leading index called the peak or trough of the economic cycle.  Although INEGI does not say that the new indexes are seasonally adjusted, they are based on a number of seasonally-adjusted economic series.  A review of how the new indexes and the old indexes have moved recently suggests they are not directly comparable.

The new version of Mexico's index of leading economic indicators came in at 100.97 in August, down slightly from its July reading of 101.04 and its June reading of 101.10.  The new index hit what appears to be its cycle peak of 101.15 in May.  According to INEGI, the August reading points to the Mexican economy decelerating in the coming months.  The August reading was driven primarily by the subindexes on manufacturing employment, the inflation-adjusted exchange rate, and inflation-adjusted interest rates, all of which are indicating future deceleration.  The subindex on inflation-adjusted stock prices hangs between the recessionary and recovery phases, while the subindexes on non-petroleum exports and U.S. stock prices point to expansion.

Comment:  INEGI's new leading index will take some getting used to, and time will tell whether it will be a useful tool to gauge where the Mexican economy is going.  Nevertheless, INEGI's characterization of the economy as being in a deceleration phase rings true.  The strong economic growth registered earlier this year was clearly unsustainable, especially if U.S. economic growth continues to slow.  Besides, some recent economic data out of Mexico suggest the current recovery is moderating.  In September, for example, year-over-year export growth slowed, and unemployment ticked up slightly.  Nevertheless, there are no signs that the Mexican economy is necessarily going to stall out or go into retreat in the near term.

Patrick Fearon, CFA
Vice President, Fund Management

                                   Mexico's Index of Leading Economic Indicators
                                        Based on Seasonally-Adjusted Subindexes
                                                     Long-Run Tendency = 100
                                                                    Source:  INEGI
Leading Index 1008

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