MexECON Blog

August Leading Index Falls to 100.1

Mexico's August index of leading economic indicators fell to 100.1, after revised readings of 100.2 in July, 100.3 in June, and 100.4 in May.  According to the report, the subindex on manufacturing employment fell to 99.3 in August, marking its sixth straight decline and bringing it to its lowest level since mid-2009.  The subindex on non-petroleum exports fell to 100.2, marking its fourth straight decrease and leaving it at its lowest level since mid-2010.  The subindex on the inflation-adjusted exchange rate edged down to 99.8, but that followed several months of relative stability.  On a more positive note, the August subindexes on Mexican stock prices and interest rates were unchanged, and the subindex on U.S. stock prices rose modestly.  The report was released today by INEGI, the official statistics agency.

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 above 100 but falling, as it is now, it points to slowing growth.  Nevertheless, the decline in the index during August is not particularly alarming.  More recent data suggests the Mexican economy may have regained its footing in late summer and early autumn.  For example, the September purchasing managers' index for manufacturing showed accelerating output and stronger factory hiring.  In addition, it now appears the U.S. economy is doing better than in the summer, and the European debt crisis seems to have eased, at least temporarily.  Taken together, these developments suggest Mexican economic growth is merely moderating.  The economy will probably not weaken sharply unless there is a drastic deterioration in external trends, or if the current acceleration in Mexican inflation starts to have a bigger impact on domestic demand.

Patrick Fearon, CFA
Vice President, Fund Management

Leading Index 1208

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