Itaú BBA - MEXICO – Retail sales lost further momentum

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MEXICO – Retail sales lost further momentum

September 21, 2017

We expect a sequential recovery of retail sales, driven by the rebound of the real wage bill

Retail sales came in weak in July. The retail sales monthly indicator grew a modest 0.4% year-over-year in July, below median market expectations (1%, as per Bloomberg) and our own forecast (1.5%). According to calendar-adjusted data reported by the statistics institute (INEGI), growth was 0.6% year-over-year, with the three-month moving average growth rate decreasing to 1.4% year-over-year (from 2.7% in June). 

At the margin, retail sales are also losing momentum. Seasonally-adjusted retail sales gained 0.3% between June and July, but posted a quarter-over-quarter annualized contraction of 2.9% (down from a 1.1% qoq/saar expansion in June). Notably, quarterly growth is significantly below the rates observed in 2016 (9.4% qoq/saar on average).  

However, we note that Mexico’s retail sales are decoupling from the monthly proxy for private consumption (better correlated with the private consumption component in GDP), which has been improving over the past months. Overall, there is no clear sign that private consumption is weakening. In fact, the monthly proxy for private consumption has been solid both in year-over-year and qoq/saar metrics. 

In any case, a sequential recovery of retail sales should begin in the coming months. Even though the year-over-year growth rate of the real wage bill has continued to slow down – as the fall of real wages has more than offset the strength of formal employment – we note that the real wage bill has rebounded sequentially. In fact, the real wage bill expanded 3.1% qoq/saar in August (from a trough of 0.6% qoq/saar in March), as inflation is moderated at the margin. We believe inflation will show a more significant decrease in coming months, driven by the lagged effects of MXN appreciation. Moreover, the acceleration of the U.S. economy will likely support employment growth in Mexico. An important risk, however, is the proximity of the presidential elections (with the left candidate, Andrés Manuel López Obrador, leading the polls) which could affect private investment (and, consequently, job creation).     



Alexander Müller

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