MexECON Blog

February Leading Index Rises to 100.5

Mexico's February index of leading economic indicators rose to 100.5, after revised readings of 100.3 in January, 100.2 in December, and 100.1 in November.  The index now stands at its highest level since last July.  The rise in February reflected increases in three of the six subindexes.  The subindex on non-petroleum exports rose for a third straight month to 100.9, its best level since last summer.  The subindex on interest rates rose to 100.3, its best level since early 2009.  Finally, the subindex on U.S. stock prices jumped to 101.0 from 100.7 in the previous month.  In contrast, the subindexes on manufacturing employment and Mexican stock prices were unchanged, while the subindex on the inflation-adjusted exchange rate fell modestly.  The overall index is now down just 0.4% from the same month one year earlier.  The report was released on Wednesday 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 and rising, as it is now, it points to accelerating growth.  Mexico's economy is now clearly pulling out of the soft spot that it hit in late 2011.  The main risk for Mexico is the possibility that the European debt crisis could worsen again.  That risk has been highlighted this week by the surging yields for Spanish and Italian sovereign debt.  If the debt crisis comes to a head again, international capital flows would likely dry up and confidence could be hammered worldwide.  Another risk for Mexico is that consumer prices could continue to rise rapidly, weighing on consumer spending.  Finally, some observers have argued that the recent improvement in the U.S. labor market is unsustainable as long as growth does not accelerate.  If U.S. demand wanes, Mexican exports and industrial activity would likely soften as well.  Despite these risks, however, it is encouraging to see that Mexico is gaining momentum again.

Patrick Fearon, CFA
Vice President, Fund Management

Leading Index 1202

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