MexECON Blog

October Leading Index Rises to 99.9

Mexico's October index of leading economic indicators rose to 99.9, up from the revised reading of 99.8 in September but equal to the revised readings of 99.9 in both August and July.  According to the report, the rise in the index during October came entirely from small increases in two of the six subindexes.  The subindex on the inflation-adjusted exchange rate edged up to 99.6, and the subindex on U.S. stock prices rose slightly to 101.3.  The subindexes on manufacturing employment, non-petroleum exports, and Mexican stock prices were all unchanged at levels modestly below their readings early in the year.  The subindex on interest rates fell to 99.8, reaching its lowest level in more than two years.

The report was released on Thursday 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 below 100 but rising, as it was in October, it signals the economy is in a recuperation phase.  Indeed, Mexican gross domestic product (GDP) returned to growth in the third quarter after a contraction in the second quarter, and the most recent data suggests some sectors of the economy are continuing to expand.  Nevertheless, it is important to note that the leading index readings for July through September were all revised downward, and the rise in the index in October was only the first increase since January.  I have also been cautioning that some of the GDP growth in the third quarter seems inconsistent with other recent data showing a continued slide in Mexican consumer confidence, retail demand, and wholesale shipments.  Finally, there is still little evidence that the government will follow through with its promises to loosen fiscal policy, and Mexican public works and housing construction remain frozen.  Although the October rise in the leading index provides some evidence that the Mexican economy will keep growing in the coming months, I remain skeptical that it will grow very fast.

Patrick Fearon, CFA
Vice President, Fund Management

Leading Index 1310

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