MexECON Blog

July Leading Index Falls to 99.9

Mexico's July index of leading economic indicators fell to 99.9, after revised readings of 100.0 in June and 100.1 in May.  According to the report, the subindex on manufacturing employment fell for the seventh straight month in July, reaching a four-year low of 98.5.  The subindex on Mexican stock prices fell for a fifth straight month to 99.6.  Other subindexes were stable but remained at or near their lowest levels in at least a year.  Among these, the subindex on interest rates was flat at 100.1, the subindex on non-petroleum exports was unchanged at 99.7, and the subindex on the inflation-adjusted exchange rate was stable at 99.3.  The only subindex to post an increase in July was the one on U.S. stock prices.  That subindex rose to 101.3, its highest level since early 2008.

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 and falling, as it is now, it suggests the economy is slipping toward recession.  If the index continues to weaken in the coming months, it would indicate that the Mexican economy is stumbling badly after its extraordinary expansion of the last several years.  Much of the problem stems from the United States, where pent-up demand and a surge in inventory rebuilding after the recession have given way to muted growth.  Recent reports suggest U.S. activity may finally be reaccelerating, which should help boost Mexican exports again.  That is especially true given Mexico's increased economic competitiveness in recent years.  Nevertheless, it is important to remember that Mexico is also facing domestic headwinds.  Government spending has slowed since the inauguration of the country's new president last December, and a change in housing policy has weighed on construction.  The slowdown in industrial activity and hiring has discouraged consumer spending.  Although the most likely scenario still calls for Mexico to merely settle into a period of slow economic growth, it could indeed slip into recession unless there is a noticeable improvement in both external and internal demand.

Patrick Fearon, CFA
Vice President, Fund Management

Mexico's July index of leading economic indicators fell to 99.9, after revised readings of 100.0 in June and 100.1 in May.  According to the report, the subindex on manufacturing employment fell for the seventh straight month in July, reaching a four-year low of 98.5.  The subindex on Mexican stock prices fell for a fifth straight month to 99.6.  Other subindexes were stable but remained at or near their lowest levels in at least a year.  Among these, the subindex on interest rates was flat at 100.1, the subindex on non-petroleum exports was unchanged at 99.7, and the subindex on the inflation-adjusted exchange rate was stable at 99.3.  The only subindex to post an increase in July was the one on U.S. stock prices.  That subindex rose to 101.3, its highest level since early 2008.
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 and falling, as it is now, it suggests the economy is slipping toward recession.  If the index continues to weaken in the coming months, it would indicate that the Mexican economy is stumbling badly after its extraordinary expansion of the last several years.  Much of the problem stems from the United States, where pent-up demand and a surge in inventory rebuilding after the recession have given way to muted growth.  Recent reports suggest U.S. activity may finally be reaccelerating, which should help boost Mexican exports again.  That is especially true given Mexico's increased economic competitiveness in recent years.  Nevertheless, it is important to remember that Mexico is also facing domestic headwinds.  Government spending has slowed since the inauguration of the country's new president last December, and a change in housing policy has weighed on construction.  The slowdown in industrial activity and hiring has discouraged consumer spending.  Although the most likely scenario still calls for Mexico to merely settle into a period of slow economic growth, it could indeed slip into recession unless there is a noticeable improvement in both external and internal demand.
Patrick Fearon, CFA
Vice President, Fund Management

Leading Index 1307

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