MexECON Blog

Consumer Confidence Drops Sharply

Mexico's July consumer confidence index fell to a seasonally-adjusted 91.2.  In addition, the readings for each of the previous three months were revised sharply downward.  The readings are now 92.9 for June, 91.5 for May, and 91.1 for April.  According to the report, the decline in the index during July reflected weaker readings in all five subindexes.  The subindex on consumers' view of the current situation in the country as a whole dropped all the way to 85.7, reaching its lowest level since January 2014.  The subindex on consumers' future expectations for the country fell to 88.1, its weakest reading since last August.  The subindex on consumers' view of the current situation for their own family edged down to 98.2, while the subindex on their future expectations for their family fell to 98.3.  The subindex on consumers' willingness to buy durable goods fell back to 82.9.

The report was released today 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.  With the dramatic revisions to the last several months, it now looks like confidence has been softening rather than firming.  Consistent with the substantial improvement in the Mexican labor market over the last year, consumers' view of things for their own family and their willingness to buy durable goods have held up relatively well.  The real problem seems to be with consumers' view of things in the broader country.  That is likely fueled in large part by disillusionment with President Peña Nieto, whose ratings in the polls have dropped sharply in the face of an upsurge in crime and allegations of corruption.  In addition, I suspect that consumers are increasingly worried by the continuing decline in Mexican oil production, low global oil prices, softer exports, and a likely hike in U.S. interest rates later this summer.  I remain optimistic that Mexico's non-petroleum exports can rebound again, especially since the peso is so low and U.S. consumers continue to boost their spending at a moderate pace.  I am also optimistic that the Mexican labor market can continue to improve.  I therefore think that the recent softening in Mexican consumer confidence will not necessarily lead to a pullback in consumer spending, at least not yet.

Patrick Fearon, CFA
Portfolio Manager

Consumer Confidence 1507

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