Mexico's economy stumbles

The Conference Board announced today that the leading index for Mexico declined 5.7 percent and the coincident index decreased 0.2 percent in October.

• The leading index declined sharply in October due to very large drops in oil prices, the real exchange rate, stock prices and the net insufficient inventories component. As a result, the leading index fell 9.3 percent (a -17.8 percent annual rate) during the six-month period ending in October, down significantly from the 3.3 percent rate of increase (a 6.7 percent annual rate) between October 2007 and April 2008. In addition, the weaknesses among the leading indicators have become very widespread in recent months, with none of the components increasing.
• The coincident index, a measure of current economic activity, also fell in October due primarily to a decline in industrial production, although employment, as measured by total IMSS beneficiaries, increased slightly. Since April 2008, the index has declined by 1.2 percent (a -2.3 percent annual rate), well below the 2.9 percent annual rate of growth during the previous six-month period. In addition, weaknesses among the coincident indicators have remained widespread. Meanwhile, real GDP growth slowed to a 1.7 percent average annual rate in the second and third quarters of 2008, well below the 4.3 percent average annual rate of growth for the second half of 2007.
• As a result of three consecutive declines in the leading index, its six-month growth rate has turned sharply negative and is now the largest decline since the 1994-95 downturn. At the same time, the six-month growth rate of the coincident index has gradually slowed and has now remained below zero since August 2008. Taken together, the recent behavior of the composite indexes suggests that economic activity should be weak going forward and that there are increasing risks of further economic weakness in the near term.

LEADING INDICATORS. One of the six components that make up the leading index increased in October. The positive contributor to the index was the industrial production construction component*. The US refiners' acquisition cost of domestic and imported crude oil, the (inverted) real exchange rate, stock prices and net insufficient inventories decreased in October. The (inverted) federal funds rate remained unchanged.

With the 5.7 percent decrease in October, the leading index now stands at 158.1 (1990=100). Based on revised data, this index declined 2.3 percent in September and declined 1.0 percent in August. During the six-month span through October, the index decreased 9.3 percent, with none of the six components increasing (diffusion index, six-month span equals 0.0 percent).

COINCIDENT INDICATORS. One of the three components that make up the coincident index increased in October. The positive contributor is the number of people employed (measured by IMSS beneficiaries). Industrial production and retail sales*declined in October.

With the decrease of 0.2 percent in October, the coincident index now stands at 168.2 (1990=100). Based on revised data, this index decreased 0.2 percent in September and decreased 0.2 percent in August. During the six-month span through October, the index decreased -1.2 percent, with one of the three components increasing (diffusion index, six-month span equals 33.3 percent).