MexECON Blog

October Leading Index Falls to 100

In a preliminary reading, Mexico's October index of leading economic indicators fell to 100.0, after final readings of 100.2 in September and 100.4 in August.  The index has now fallen for six straight months, and it currently stands at its lowest level since the beginning of 2010.  According to the report, from the official statistics agency INEGI, the fall in the index during October reflected lower readings in four of the six subindexes.  The subindex on Mexican stock prices edged down to a two-year low of 99.6, versus 99.7 in September.  The subindex on manufacturing employment fell to 99.9, versus 100.0 in the prior month.  The subindexes on non-petroleum exports and U.S. stock prices also fell slightly, though they each remained above 100.  The subindex on interest rates was stable, while the subindex on the inflation-adjusted exchange rate rose.  The overall index is now down 0.5% from the same month one year earlier.

Comment:  Mexico's leading index is designed so that readings of 100 are consistent with the economy growing at its long-run tendency in the coming months.  Even though the index is now right at 100, however, the fact that it is falling suggests the economy could worsen from mere deceleration to an outright recession.  As this blog has been arguing, recent data show surprising momentum in Mexico's domestic demand, and incoming U.S. data suggest Mexico's predominate export market is still growing, albeit slowly.  Moreover, the steep fall in the value of the peso since mid-summer should help support Mexican exports, while fiscal and monetary policy could be loosened in the run-up to the 2012 presidential elections.  A recession in Mexico is therefore not a foregone conclusion.  Risks remain to the downside, but there is also some chance that the Mexican economy could surprise on the upside.

Patrick Fearon, CFA
Vice President, Fund Management

Leading Index 1110

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