MexECON Blog

May Leading Index Rises to 100.1

Mexico's May index of leading economic indicators rose to 100.1, after revised readings of 100.0 in April and 99.9 in March.  The index is now at its highest level in more than a year.  According to the report, the rise in May reflected modest increases in three of the six subindexes.  The May subindex on U.S. stock prices increased to a six-year high of 101.1, while the subindex on Mexico's non-petroleum exports rose to an eight-month high of 99.8.  The subindex on manufacturing employment increased to 99.4, marking its highest level since May 2013.  In contrast, the subindex on the inflation-adjusted exchange rate was steady at 99.8, and the subindex on Mexican stock prices was unchanged at 99.5.  The subindex on interest rates edged down to 99.7.

The report was released today 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.  When the index is above 100 and rising, as it is now, it suggests the economy is expanding and gathering strength.  That is consistent with the most recent data out of Mexico.  Most important, Mexican exports have finally accelerated again after a period of relative stagnation.  An apparent rebound in U.S. economic growth suggests exports will continue to make gains in the months ahead.  Banco de México also unexpectedly slashed interest rates in early June, which could give a boost to the economy.  Finally, Mexican consumers seem to be adjusting to the increased sales taxes that took effect in January.  A report Friday showed consumer confidence gained for a fifth straight month in June.  Nevertheless, I suspect that soft domestic demand will continue to keep a lid on Mexican economic growth in the near term.  Year-over-year growth in gross domestic product (GDP) seems unlikely to rise much beyond the country's long-term average of 2.5%.  Reaching growth significantly above that rate would probably require not only continued strength in exports, but also a meaningful jump in hiring, stronger consumer spending, and a recovery in residential construction and public works spending.

Patrick Fearon, CFA
Vice President, Fund Management

Leading Index 1405

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