Itaú BBA - Itaú Activity Surprise Index - Balanced surprises in January

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Itaú Activity Surprise Index - Balanced surprises in January

February 2, 2018

The Brazilian index turned positive, as virtually all releases published in January came on the stronger side of expectations.

Our Itaú Activity Surprise Index edged closer to neutrality in January (-0.02), coming from -0.24 in December. The Brazilian index went back to positive territory, as virtually all economic releases published in January came on the stronger side of expectations. Similarly, the Chilean component gained ground as the GDP proxy surprise to the upside, amid an acceleration of non-mining activity. The Colombian sub index also rose in the month, as industrial production grew in November, surprising the consensual expectation of a year-over-year contraction.


The Itaú Activity Surprise Index compares trends in economic activity indicators released during the month to what analysts had been expecting for them. It is a GDP-weighted average of separate indexes for Brazil, Mexico, Chile, Colombia and Peru. An above-zero reading means favorable surprises. Below zero means disappointment. The index is a three-month average in order to avoid excess volatility. Surprises in activity often trigger revisions in GDP growth estimates.

Brazil's index rose to 0.08 in January (-0.32 in the previous month). Virtually all economic releases in January came on the stronger side of expectations. Core retail sales (excluding vehicles and construction material) expanded 5.9% year-over-year in November, topping the median of market expectations (3.75%). The breakdown shows widespread strength across segments in November, but those more influenced by store promotions (eg. furniture and appliances, personal items) were particularly robust, reinforcing the importance of the Black Friday in explaining the positive surprise. Similarly, industrial production grew 4.7% year-over-year in December (mkt: 3.8%). The details reveal investment-related segments continue to grow in a manner consistent with a gradual activity recovery. Labor market data also posted positive surprises. The unemployment rate for the quarter ending in December decreased to 11.8%, slightly below the market’s call (11.9%). The contribution provided by informal employment remains relevant but has lost momentum, while gains in formal employment in the private sector have been improving gradually. In the same vein, according to the Labor Ministry, 328.5 thousand formal jobs were closed in December, a better result than the consensual expectation (-416 thousand). It is important to point out that December has a historically high seasonality – always registering negative results. Seasonally-adjusted data point to the creation of 57.6 thousand jobs in December, taking the three-month moving average to +47 thousand (from +22 thousand). This is the strongest result in this metric since 1Q14, the last time formal job creation surpassed the breakeven point to stabilize unemployment rate (approximately 40 thousand/month). Looking ahead, formal jobs will tend to play an increasingly important role in the unemployment decline.

Mexico's index dropped to -0.21 in January, coming from -0.05 in December. Gross fixed investment, which is currently the weakest component of domestic demand, dropped 2.6% in October, surprising the market to the downside (-0.1%). According to calendar-adjusted data reported by the statistics institute (INEGI), the fall was actually sharper (-3.3% year-over-year). At the margin, momentum deteriorated across the board for gross fixed investment components, likely reflecting a larger negative effect of NAFTA and elections uncertainty over investment decisions. Likewise, retail sales contracted 1.5% in November - registering the sharpest year-over-year contraction in over four years. The result disappointed the consensus forecast (-0.9%, as per Bloomberg); falling real wages, slower consumer credit growth, and weaker remittances converted into MXN are the major drivers behind private consumption’s poor performance. Conversely, the IGAE index (GDP proxy) came on the strong side of market expectations, expanding 1.5% year-over-year (mkt: 1.2%). Going forward, we expect GDP growth of 2.1% for both 2017 and 2018. Tight macro policies (fiscal and monetary), Nafta-related uncertainties and the presidential elections are short-term headwinds. On the flipside, we note the fiscal drag will be smaller in 2018 relative to 2017. Moreover, a dynamic U.S. industry, coupled with a competitive real exchange rate, will likely sustain manufacturing exports. Finally, lower inflation and a robust labor market, in our view, will support consumption this year.

Chile's index increased to 0.08 in January, coming from -0.28 in the previous month. The Imacec (monthly proxy for GDP) grew 3.2% year over year in November (2.9% in October), above the 2.5% Bloomberg market consensus. For the first month since June, mining did not lead activity: the non-mining component of the index grew 3.2% - the highest growth rate since February 2016. In fact, commercial activity was robust in November, registering growth of 5.65% year-over-year (mkt: 3.6%). Looking ahead, activity growth will easily double the 1.5% estimated for 2017 in 2018. Higher global growth, improved private sentiment and expansionary monetary policy will all boost the recovery.

Colombia's index rose to -0.02 in January (-0.37 in December). November’s industrial production grew for the first time since July, topping the market’s expectation of a year-over-year drop (0.3% vs -1.1%). Despite the positive surprise, manufacturing activity will likely drag 2017 GDP, with a year-to-date contraction of 0.7%. Likewise, the unemployment rate came in well below expectations in December (9.8% vs 10.4%). However, the result is due to lower participation and rural employment growth, and thus continues to reflect labor market weakness. Overall, the average unemployment rate for 2017 was 9.4%, up from 9.2% in 2016 as the labor market loosened amid the growth slowdown. In the same period, participation in the labor force fell from 67.5% to 67.1%, another sign of deteriorating labor dynamics. All in all, the labor market weakness means our growth recovery scenario is not exempt of risks. We see an activity pick-up to 2.5% this year, aided by higher real wages (as inflation falls), low interest rates and a favorable external environment.

Peru's index fell to -0.32 in January, coming from -0.05 in December. The GDP proxy expanded 1.8% year-over-year in November, undershooting median market expectations (2.8%, as per Bloomberg). The delay of the fishing season (the beginning of which was postponed to January 2018, from November 2017) dragged down the index. Fishing output fell by 45.6% year-over-year in November (from a 12.4% contraction in October). As an upshot, primary manufacturing (which accounts for ¼ of total manufacturing and is sensitive to fishing output) plunged by 17.1% year-over-year. The unemployment rate posted 6.5% in December, below median market expectations (6.8%). Given available information, we estimate GDP grew 2.3% in 2017, below our previous forecast of 2.7%, but still see a pick up to 4% this year.

Find our surprise indexes on Bloomberg:


Brazil: ITMRBI

Mexico: ITMRMI


Colombia: ITMRCOLI


Find our surprise indexes on Broadcast:


Brazil: ITSBR

Mexico: ITSMX

Chile: ITSCH

Colombia: ITSCO


Methodology Note

Our Itaú Surprise Index LatAm compares trends in economic activity indicators to what analysts had been expecting for them each month. The index considers the month that each indicator is released. Previously, the index was built considering the month that each indicator referred to. For instance, February’s industrial production released on March will be incorporated to March’s surprise index (before: February’s index).

The index is a GDP-weighted average of separate indexes for Brazil, Mexico, Chile, Colombia and Peru. An above-zero reading means good surprises. Below zero means disappointment. The index is a three-month average in order to avoid excess volatility.

We build the surprise index for each country using all activity indicators for which consensus estimates are normally provided in the Bloomberg survey. The weight of each indicator in the index depends on its importance for the economy. For example, GDP numbers enjoy a higher weight than consumer confidence and PMIs.

We use the deviation of the actual print from the consensus estimate (surprise), subtract the result from the historical average deviation and then divide the result by the standard deviation of the surprise. This methodology provides a better sense of how important was the surprise in each month.

The weight of each country in the aggregated LatAm Surprise Index depends on the size of its GDP. Brazil has the highest weight, followed by Mexico.

It’s worth noting that, due to revisions in the economic indicators and as lagged results are published (example: GDP), the surprise indexes may be revised.

Indicators on which the index is built:

Brazil: Caged Payrolls, Unemployment Rate, Exports, Imports, Retail Sales, Industrial Production, GDP, IBC-Br monthly GDP.

Mexico: Manufacturing PMI, Service PMI, Consumer Confidence, Investment, Industrial Production, Retail Sales, IGAE monthly GDP.

Chile: Manufacturing Production, Retail Sales, Unemployment Rate, Imacec monthly GDP.

Colombia: GDP, Industrial Production, Retail Sales, Unemployment Rate.

Peru: Monthly GDP, Unemployment Rate.


Luka Barbosa
Eduardo Marza

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