Itaú BBA - MEXICO – Private consumption was robust in 2Q17

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MEXICO – Private consumption was robust in 2Q17

September 6, 2017

Sequential rebound of real wage bill is helping consumption

The national accounts have not disclosed the demand-side breakdown of GDP yet, but the monthly proxy for private consumption indicates that consumption was robust in 2Q17. The monthly proxy for private consumption grew 3.6% year-over-year in June, which implies an expansion of 3.4% year-over-year in 2Q17 (slightly below the 3.5% recorded in 1Q17). However, according to calendar-adjusted data reported by the statistics institute, which takes into account the large (and negative) calendar effect of the Easter holidays (April 2017, March 2016), growth in 2Q17 was actually 4.2% year-over-year (up from 3% in 1Q17).  


At the margin, private consumption gained traction in 2Q17, which might be related to the fact that the seasonally-adjusted real wage bill bottomed out in 1Q17 (and showed a sequential acceleration thereafter). Consistent with robust activity, formal employment has grown at a strong pace throughout 2017, cushioning the slowdown of the real wage bill (dominated by the sharp increase of inflation). In 2Q17, however, seasonally-adjusted annualized inflation began to fall, causing a rebound of the real wage bill (as shown in the second chart). That being said, we note that seasonally-adjusted private consumption grew 0.2% month-over-month in June, taking quarter-over-quarter annualized growth to 3.4% qoq/saar in 2Q17 (from 2.5% in 1Q17). Looking at the breakdown, the consumption of national goods & services picked up to 3.2% qoq/saar in 2Q17 (from -0.1% in 1Q17), with the services component (5.4% qoq/saar, 2.7% previously) performing much better than the goods component (-0.6% qoq/saar, -1.4% previously). Moreover, the consumption of imported goods expanded vigorously (12.9% qoq/saar in 2Q17, 25.5% in 1Q17) probably because of the import substitution effect associated to the Mexican peso’s appreciation (14% year-to-date).


Private consumption improved sequentially in 2Q17, but we do not expect a further improvement in the second half of the year, considering that the fall of inflation at the margin will likely be offset by the weakening of other fundamentals. In fact, higher domestic interest rates are already affecting consumer credit more visibly, and remittances converted into pesos have slowed down substantially. Consumer confidence, nevertheless, has been recovering on a sustained basis, after hitting an all-time low at the beginning of 2017. 


Alexander Müller

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