In a revised estimate, Mexico's July merchandise trade deficit
narrowed to a seasonally-adjusted $382.0 million. The figure
was a bit worse than the initial estimate of $380.9
million, but it was much better than the revised deficits of $867.4
million in June and $772.3 million in May. According to the
report, from the national statistics agency INEGI, Mexican exports
jumped 4.2% in July, after two straight months of declines.
Imports rose just 2.1%, reversing part of a big fall the month
before. On an unadjusted basis, Mexican exports in July were
up a robust 29.5% from the same month one year earlier, while
imports were up 26.5%.
Manufactured goods make up the vast majority of Mexico's
exports, and they were up 32.1% year-over-year in July.
According to the report, the increase came mostly from stronger
foreign sales of metals, industrial equipment, and autos.
Mexican auto exports continued to be the biggest bright spot,
posting a year-over-year rise of 64.3% in July, although that was
not quite as good as some of the growth rates posted earlier in the
year. Petroleum products are the second-most important
category of Mexican exports, and they were up 17.1%
year-over-year in July. In terms of volume, petroleum exports
rose to 1.386 million barrels per day, up 6.0% from July
2009. In terms of price, exported Mexican oil sold for an
average of $68.26 per barrel, up 12.0% from July 2009.
Finally, Mexican agriculture exports in July were up 19.2%
year-over-year. The rise in agricultural exports came in
large part from a 64.8% increase in the value of tomato exports and
a 42.0% rise in the value of cattle exports.
Comment: The narrowing trade
deficit suggests the strong economic growth registered in Mexico
during the second quarter could be carrying over into the third
quarter as well. The narrowing deficit is also a welcome
counterpoint to the weakening in some Mexican economic indicators
during late spring and early summer. Nevertheless, it is
important to remember that Mexico's current export boom has an
uncomfortably narrow base. Triangulating between Mexican and
U.S. trade data, it appears some 38.5% of the total year-over-year
rise in Mexican exports this year has come from higher exports of
trucks, autos, and auto parts. The export category posting
the second-largest contribution - computers and electronic
equipment - accounted for only about 17.8% of the total export
gain. The risk, of course, is that U.S. inventory rebuilding
could continue to slow and U.S. corporate and consumer demand could
fail to accelerate, particularly in the auto sector. That
could lead to overall Mexican exports stalling out before other
sectors of the economy are growing fast enough to take up the
slack. On the positive side, however, it appears that the
U.S. auto fleet is still aging, while U.S. auto inventories have
some room for further rebuilding. Therefore, a slowdown in
Mexico's auto export boom is not necessarily imminent.
Patrick Fearon, CFA
Vice President, Fund Management
Seasonally Adjusted, Million US$