MexECON Blog

February Leading Index Falls to 99.9

Mexico's February index of leading economic indicators declined to 99.0, after unrevised readings of 100.0 in January and 100.1 in December.  The index has now fallen for five straight months, leaving it at its lowest level since the end of 2009.  According to the report, the decline in February stemmed entirely from a decrease in the subindex on corporate willingness to invest, a survey-based indicator that replaces the previous subindex on non-petroleum exports beginning with this report.  That subindex declined to 99.2.  In contrast, the subindexes on interest rates and Mexican stock prices were both unchanged at 99.8, and the subindex on U.S. stock prices was unchanged at 100.5.  The subindex on manufacturing employment increased to 100.2, reaching its highest level since early 2013, and the subindex on the inflation-adjusted exchange rate rose to 101.0, for its highest reading since the autumn of 2009.

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

Comment:  Mexico's leading index is designed so that readings of 100 point to 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 slowing and falling farther below its potential.  The new subindex on corporate willingness to invest does not seem to have been the culprit.  After all, the leading index had been weakening well before the introduction of the new subindex this month.  Rather, it appears that much of the problem can be traced to excessive inventories in the United States, which have cooled the demand for Mexican goods and services.  Mexican exports remain relatively high, but they have softened, and it appears that firms have gotten cautious.  Mexican economic growth may take a breather in the coming months, as firms prefer to put off some new investments until it is clear that the Mexican economy can withstand the impact of falling oil prices and reduced government spending, and that the U.S. economy can withstand the impact of the high dollar, continued weakness in Europe and Asia, and the likelihood of rising interest rates this summer.

Patrick Fearon, CFA
Portfolio Manager

Leading Index 1502

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