MexECON Blog

Consumer Confidence Retreats Sharply

Mexico's July consumer confidence index fell sharply to a seasonally-adjusted 88.1, snapping a streak of five straight increases.  With the big decline in July, the index is now at its lowest level since February.  According to the report, the fall in July was very broad based, with decreases in all five subindexes.  The subindex on consumers' future expectations for the country as a whole plunged to 87.9, for its worst reading since late 2009.  The subindex on consumers' view of the current situation for the country fell to 86.8.  The subindex on consumers' future expectations for their own family declined to 95.7, while the subindex on their view of the current situation for their own family dropped to 92.9.  The subindex on consumers' willingness to buy durable goods edged down to 76.4.

The report was released Tuesday by INEGI, the official statistics agency.

Comment:  Mexico's consumer confidence index is designed so that readings of 100 reflect the level of optimism in 2003.  Consumers have clearly been adjusting to the new sales taxes that took effect in January, but there have been signs that the rebound in optimism was likely to be limited.  Without doubt, the pullback in July stemmed partly from continued softness in Mexico's labor market.  It probably also reflected a recent reacceleration in consumer price inflation, renewed turbulence in the global financial markets, and the legislative progress of President Peña Nieto's reform program, which many Mexicans oppose.  The president's plan to open the Mexican energy industry to private investment is particularly problematic for many Mexicans, and as it comes closer to final passage, it should be no wonder that many consumers are taking a dim view of the country's future.  I still believe that stronger exports will give a boost to the overall economy in the near term, but the weak confidence report serves as a reminder that the improvement will be limited by the ongoing softness in the consumer sector and some other aspects of domestic demand.

Patrick Fearon, CFA
Vice President, Fund Management

Consumer Confidence 1407

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