Itaú BBA - MEXICO – Private consumption shows weaker momentum in April

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MEXICO – Private consumption shows weaker momentum in April

July 6, 2017

Fundamental determinants of private consumption have turned less supportive

The monthly proxy for private consumption is showing weaker momentum, as real wages fall (due to higher inflation) and other determinants - with the exception of employment  - turn less supportive. Private consumption expanded at a weak 1.4% year-over-year in April, affected by a negative calendar effect, pulling down the three-month moving average growth rate to 2.7% year-over-year (from 3.5% in March). We note that the positive and negative calendar effects of March and April, respectively, given non-overlapping Easter holidays, should largely cancel out each other. At the margin, seasonally-adjusted private consumption grew 0.4% from the previous month, with the quarter-over-quarter annualized growth rate decreasing to 1.1% (from 2.5% qoq/saar in March) which is about one-fifth of the average prints observed in the second half of last year.

Looking at the breakdown, it is evident that the slowdown in the consumption of national goods & services is being partly offset by a strong rebound in the consumption of imported goods (probably associated to the strengthening of the MXN, 12% year-to-date). At the margin, the consumption of national goods & services posted a quarter-over-quarter annualized contraction (-1.3%, from -0.2% qoq/saar in March), with the goods component (-4% qoq/saar, -1.5% previously) decelerating much more than services (2.5% qoq/saar, 2.8% previously). Conversely, the consumption of imported goods grew at a strong 28.5% qoq/saar (24% in March), rebounding from negative growth rates in late 2016 and early 2017.

We expect private consumption to remain weak in the months to come. Real wages have been falling since the beginning of 2017, when inflation spiked. But the real wage bill has only slowed down moderately because robust formal employment (growing at an average pace of 4.3% year-over-year in the first five months of 2017) has prevented this from happening. Nevertheless, in our view, formal employment creation will eventually deteriorate as investment slows down. In fact, gross fixed investment is weakening substantially (-7.2% qoq/saar in April). Moreover, other fundamental determinants of private consumption have also turned less supportive. Given a stronger MXN, remittances converted into pesos grew 8.1% year-over-year in May (significantly below the 29% average growth rate observed in 2016). Seasonally-adjusted consumer confidence fell 0.8% month-over-month in June (to 84.4), with its current level not far from the average of 2009 (80.5) when the Mexican economy was undergoing a deep recession. Consumer credit, however, has only slowed down a bit (to 10.6% year-over-year in May, from 11.2% in April and an average growth rate of 12.3% in 2016), in spite of much higher domestic interest rates.


Alexander Müller



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