MexECON Blog

Leading Index Rises in September

Mexico's September index of leading economic indicators rose to 100.1, after spending five straight months at 100.0.  According to the report, the subindex on manufacturing employment rose to 99.3 in September from 99.0 in August.  It had stood at 98.8 in each of the two months before that.  Meanwhile, the September subindex on the inflation-adjusted exchange rate rose slightly to 99.5, and the subindex on U.S. stock prices edged up to 101.3.  In contrast, the September subindex on non-petroleum exports was steady at 99.8 for an eighth straight month.  Even worse, the subindex on interest rates fell to 99.9, and the subindex on Mexican stock prices declined to a fresh four-year low of 99.4.

The report was released Tuesday 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 was in September, it would normally point to the economy entering an expansion phase.  Indeed, recent data from the Ministry of Finance suggests the Mexican economy returned to growth in the third quarter after a decline in the second quarter.  Nevertheless, I believe caution is still warranted.  For one thing, a one-month rise in the leading index is not convincing, especially when the index has been stuck between 100.1 and 100.0 for every month since July 2012.  I would like to see a couple more months of increases and levels significantly above 100 before saying that the index is pointing toward better times ahead.  Even if the economy grew again in the third quarter, it would also be better to wait for the official, detailed figures in late November before trying to evaluate just how strong the growth was and whether it is likely to continue.  For now, the yellow flag remains out for the Mexican economy.

Patrick Fearon, CFA
Vice President, Fund Management

Leading Index 1309

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