MexECON Blog

November Leading Index Falls to 99.9

In a preliminary estimate, Mexico's November index of leading economic indicators fell to 99.9, down from 100.0 in October.  The index has now fallen for six straight months, and it stands at its lowest level since December 2009.  According to the report, from the official statistics agency INEGI, the decline during November came exclusively from lower readings in two of the six subindexes.  The subindex on manufacturing employment fell to 99.6, marking its seventh straight monthly decline, and the subindex on non-petroleum exports fell to 100.5, for its fifth straight decline.  The subindexes on U.S. stock prices, Mexican stock prices, and interest rates were all stable.  The subindex on the inflation-adjusted exchange rate rose modestly.  The overall index is now down 0.9% 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.  When the index is below 100 and falling, as it is now, it points to an impending recession.  Nevertheless, it is important to remember that the index is only slightly below the 100 level.  It is still too early to know if a recession is really in the cards.  Because of continuing economic growth and even some signs of acceleration in the United States, the country's main export market, there is a decent chance that Mexico's economy will keep growing.  Besides, the steep drop in the value of the peso since last summer should help buoy exports, as suggested by the rise in the subindex on the exchange rate.  Domestic demand in Mexico also continues to increase.  A recent drop in fixed investment bears watching, but that could be offset by looser fiscal and monetary policy in the run-up to the 2012 presidential election.  In sum, economic risks in Mexico are weighted to the downside, but there is also a good chance the economy could surprise to the upside.

Patrick Fearon, CFA
Vice President, Fund Management

Leading Index 1111

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