Itaú BBA - MEXICO – Retail sales accelerated significantly in 1Q18

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MEXICO – Retail sales accelerated significantly in 1Q18

May 22, 2018

Stronger real wage bill is boosting retail sales

After a sharp slowdown in 2017 (to annual growth of 1.3%, from 8.7% in 2016) – when the doubling of inflation (to 6.8%, from 3.4%) eroded real wages – retail sales rebounded in 1Q18, driven by a more dynamic real wage bill. Retail sales surprised to the upside, by expanding 1.2% year-over-year in March, above our forecast (-1.5%) and median market expectations (0.1%, as per Bloomberg). According to calendar-adjusted data reported by the statistics institute (INEGI), growth was higher (3.5% year-over-year) – netting out the negative effect of the Easter holidays (i.e.: less business days) – with growth of 1.4% year-over-year in 1Q18 (from a 1.1% contraction in 4Q17). This result actually put an end to a trend of four consecutive quarters of (calendar-adjusted year-over-year) deceleration.  

Sequentially, the momentum of retail sales is significantly stronger. At the margin, seasonally-adjusted retail sales advanced 0.9% month-over-month, lifting quarter-over-quarter annualized growth to 6.3% in 1Q18 (from 2.3% qoq/saar in 4Q17) which is the highest expansion pace recorded in over a year. As we pointed out in previous notes, we expected the sequential growth of retail sales to catch up with the acceleration of the real wage bill (whose quarter-over-quarter annualized growth rate jumped to 8.4% in April, as shown in the chart below, largely due to substantially lower inflation). 

We believe that the annual growth rate of retail sales will increase in 2018 (compared to the previous year). The factors supporting retail sales are robust formal employment – which has grown at an average pace of 4.4% year-over-year in the first four months of 2018 (from an average of 4.3% in 2017) amid positive economic activity surprises –  and the substantial fall of inflation (which has translated into growing real wages, after four consecutive quarters of contraction). On the negative side, however, consumer confidence has weakened year-to-date (although there was some improvement in April) and remittances converted into pesos are less supportive (because of MXN appreciation) although they remain growing robustly in USD terms (and the recent weakening of the MXN will provide a boost).  

Alexander Müller

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