MexECON Blog

August Consumer Confidence Rises

Mexico's August consumer confidence index rose a seasonally-adjusted 0.1%, following a revised decline of 0.6% in July and a revised increase of 3.7% in June.  According to the report, from the national statistics agency INEGI, the confidence index has now risen in six of the last eight months.  However, the report showed a wide divergence in the performance of the various subindexes in August.  The subindex on consumers' willingness to buy durable goods jumped 5.9%, for its sixth straight monthly gain.  In addition, the subindex on consumers' view of the country's current economic situation improved by 1.7%, and the subindex on the consumers' view of their own family's current economic situation was up 0.3%.  In contrast, there was a sharp decline in the subindexes on the respondents' future expectations for their own family and for the country as a whole.

Comment:  Coupled with Mexico's stellar economic growth in the second quarter and a continuing decline in unemployment in July, the rise in consumer optimism during August provides more hope that the economy may not be stalling out just yet.  The weak economic data released in late spring and early summer may have simply reflected a moderation in Mexico's economic recovery.  Nevertheless, the Mexican economy still faces serious risks.  Most important, Mexico's recovery to date has come primarily from rapidly rising exports to the United States.  Rising exports have spurred increased industrial activity and hiring, but the other sectors of the Mexican economy are not yet growing fast enough to make the recovery self-sustaining.  (Indeed, Mexico's current good economic growth seems quite limited to the export sector.  We have seen little or no such strength in and around the regions where Terra Nova's portfolio companies operate.)  Therefore, if U.S. inventory rebuilding continues to slow and corporate and consumer demand north of the border do not soon accelerate significantly, the Mexican economic rebound could potentially peter out.  This realization helps explain the diverging performance in the subindexes of today's report, which showed a much better assessment of the current situation than of future expectations.

Patrick Fearon, CFA
Vice President, Fund Management

                             Mexican Consumer Confidence
                     Seasonally Adjusted, January 2003 = 100
                                            Source:  INEGI
Consumer Confidence 1008

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