MexECON Blog

May Leading Index Unchanged at 100.2

Mexico's May index of leading economic indicators came in at 100.2, marking the third straight month at that level.  Prior to that, the index had stood at 100.1 for two straight months.  According to the report, the subindex on U.S. stock prices continued its long string of increases in May.  At 101.3, the subindex is now at its highest level since early 2008.  The subindex on non-petroleum exports stood at 99.8 for a second straight month, after dipping to three-year low of 99.7 earlier in the spring.  In contrast, the May subindex on interest rates fell to 100.1, and the subindex on Mexican stock prices declined to 99.8.  The subindexes on manufacturing employment and the inflation-adjusted exchange rate both continued their multi-month declines to come in at just 98.9.

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 above 100 and stable, as it is now, it suggests economic growth is topping out.  The true outlook for Mexico's economy may be even worse than that.  Without the strong increases in U.S. stock prices through May, the leading index actually would have been flat or down in each of the last six months.  The real economy is suffering as exports soften and manufacturing cools.  To make matters worse, a sharp drop in construction during April erased most of the sector's gains since in the start of the year.  Hiring has ground to a halt, consumer optimism has declined, and retail demand has begun to retreat.  The recent acceleration in the U.S. economy and the decline in the peso since May could help buoy Mexico in the coming months.  For now, however, the economy appears to be in a slowing phase that is not yet reflected in the leading index.

Patrick Fearon, CFA
Vice President, Fund Management

Leading Index 1305

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