MexECON Blog

Leading Index Falls Yet Again

Mexico's March index of leading economic indicators declined to 99.9, after revised readings of 100.0 in February and 100.1 in January.  The index has now fallen for six straight months, and it stands at its lowest level since December 2009.  According to the report, the decline in March came entirely from a big pullback in the subindex on corporate willingness to invest.  That subindex fell for a sixth straight month, reaching 98.9.  The subindex on Mexican stock prices was unchanged at 99.7, and the subindex on U.S. stock prices was flat at 100.4.  In contrast, the March subindex on interest rates edged up to 99.9.  The subindex on manufacturing employment rose to 100.7 in March, and the subindex on the inflation-adjusted exchange rate jumped to 101.2, its highest level since the summer 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 that the economy is slowing and falling farther below its potential.  I suspect the main problem is the recent industrial slowdown in the United States.  As the U.S. dollar surges, low oil prices prompt cutbacks in energy investment, and inventories rise, firms north of the border have started to retrench.  They are simply not ordering as much from Mexico as they had been previously, even with the low peso.  In addition, the Mexican government has cut its budget in response to lower oil revenues, and the recovery in Mexico's housing sector seems to be losing steam.  And of course, many Mexicans are also holding their breath to see how they will be impacted when U.S. interest rates start to rise, probably by late summer.  It therefore looks like the Mexican economy is going to be taking a breather in the near term.

Patrick Fearon, CFA
Portfolio Manager

Leading Index 1503

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