MexECON Blog

November Consumer Confidence Falls to 91.7

Mexico's November consumer confidence index fell to a seasonally-adjusted 91.7, after revised readings of 93.1 in October, 93.5 in September, and 95.6 in August.  The index is now at its lowest level since the end of 2011.  According to the report, released Wednesday by the official statistics agency INEGI, the decline in November reflected decreases in four of the five subindexes.  The biggest decline came in the subindex on consumers' future expectations for the country as a whole.  That subindex dropped to a 43-month low of 92.3.  Almost as bad, the subindex on consumers' views of the current situation for the country declined to a 23-month low of 89.3.  The subindex on consumers' opinion of the current situation for their own family declined much more moderately to 95.2, and the subindex on their future expectations for their family fell only modestly to 99.9.  The subindex on consumers' willingness to buy durable goods jumped to 79.0, but that was not enough to reverse the three straight months of decreases from August to October.

Comment:  Mexico's consumer confidence index is designed so that readings of 100 reflect the level of optimism in 2003.  Mexican unemployment has started to decline gradually again, which should have helped boost optimism, so the drop in the index during November probably reflected concern about a new law that will raise the sales tax for many consumers effective January 1.  That is probably a key reason why many consumers said now is a good time to buy durable goods, before the tax hikes kick in.  In any case, the continuing declines in confidence underscore my concerns about the recent report on Mexico's third-quarter gross domestic product (GDP).  That report showed the economy returning to growth in the third quarter after a decline in the second quarter, with the expansion attributable in large part to increased manufacturing, wholesale trade, and retail trade.  Because of the recent improvement in Mexican exports, the strengthening of the manufacturing sector is entirely believable.  However, the continuing slide in the confidence index and other reports showing a continued fall in wholesale and retail sales make it difficult to understand how the commercial sector could have contributed much to growth in the period.  I would not be surprised to see the third-quarter growth figure eventually revised downward.  I also believe that falling optimism and weakening retail demand will continue to be a significant headwind for the Mexican economy, along with tight government spending and a frozen construction sector.  While the economy does seem to be growing again, the expansion may not accelerate as quickly as some analysts are expecting.

Patrick Fearon, CFA
Vice President, Fund Management

Consumer Confidence 1311

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