In a report today from INEGI, the national statistics agency,
Mexico's index of leading economic indicators fell 0.4% in
June. That marked a third straight decline in the index,
after a revised fall of 0.4% in May and a decrease of 0.6% in
April. It was the first time the index had fallen for three
straight months since the depths of the recession in late 2008 and
early 2009. According to the report, the decline in the index
during June stemmed from lower readings in three subindexes.
Those subindexes reflected declining export prices for Mexican
crude oil, falling construction activity, and lower
inflation-adjusted stock prices. In contrast, the subindex on
the inflation-adjusted exchange rate provided a positive
contribution. The subindexes on interbank interest rates and
hours worked in manufacturing were virtually unchanged.
Comment: The third straight
decline in the leading index is a negative sign for the Mexican
economy, although more recent data suggest the index may be
pointing more toward a slowdown in the economic recovery than an
outright decline in activity. Not only did the country post
an extraordinarily strong growth rate in second-quarter GDP (up
7.6% year-over-year), but figures for July showed a rebound in
international trade and lower unemployment, while figures for
August showed a rise in consumer confidence.
Nevertheless, the Mexican economic recovery is fragile. To
date, the recovery has stemmed primarily from increased exports,
which have boosted industrial activity and spurred hiring.
Even more disturbing, data suggest that almost 40% of the increase
in Mexican exports in the first half of 2010 came solely from
trucks, autos, and auto parts. This is not a very broad base
on which to build a lasting economic recovery. To reiterate
what has already been said frequently on this blog: If U.S.
inventory rebuilding continues to slow and corporate and consumer
demand north of the border do not soon accelerate, Mexico's exports
could peter out before other sectors of the economy are growing
fast enough to take up the slack.
Patrick Fearon, CFA
Vice President, Fund Management
Mexico's Index of Leading Economic Indicators
Seasonally Adjusted, 2003 = 100