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
The report was released today by INEGI, the official statistics
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