MexECON Blog

June Leading Index Falls 0.4 Percent

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
                                         Source:  INEGI
Leading Index 1006

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