Itaú BBA - Itaú Activity Surprise Index - Mixed signals amid a slow recovery

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Itaú Activity Surprise Index - Mixed signals amid a slow recovery

April 3, 2017

Due to methodology tweaks in Brazilian data, this month’s underperformance should be taken with a grain of salt.

Our Itaú Activity Surprise Index inched down to -0.06 in March from -0.05 in February. Brazil takes another downturn, but methodology changes in some key indicators advise caution in interpreting a deterioration of results. In fact, excluding these modified series, the aggregate index would have jumped to positive. Mexico stood aloft in the positives, while the Andean economies are in the negatives, although Chile and Peru improved from February. Results reaffirm the context of a sluggish pickup in activity.

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 registered -0.23 in March from -0.15 in the previous month. It was widely expected that 4Q16 GDP figures would bode poorly for activity. Indeed, GDP set back 2.5% compared to the same quarter in 2015, which was in line with expectations, leading GDP to contract 3.6% in 2016. The outlook is brighter for 1Q17: industrial production had its first positive year-over-year growth in January since December 2014, rising 1.4%, above market expectations at 1.0%. Data points to a slight increase in production in February (month-over-month). Formal job creation was also positive for the first time in February in twenty-two months, with 36k job openings, topping market estimates at 26k. Onto negative surprises, retail sales set back 7% year-over-year, below market estimates at -4.3%, therefore contributing heavily to the aggregate index’s underperformance. However, a methodology change in this month’s retail survey may have distorted the data, and negative interpretations should be taken with a grain of salt. Similarly, the IBC-Br monthly activity index disappointed expectations, but the underperformance was most likely a product of a change in the historical series, as two indices which compose it underwent methodology changes (retail and services surveys). In conclusion, the outlook for Brazil is brighter than the index might suggest, with improving data on the margin and fundamentals pointing to a recovery, albeit a slow one.

Mexico's index dotted 0.39 in March from 0.28 in February. Activity has been resilient in spite of all the shocks Mexico faces, but we don’t expect the economy to hold up to last year’s growth rate. On the positive side, the monthly proxy for GDP (IGAE) expanded 3.0% year-over-year in January, above market expectations at 1.9%. Consumer confidence also came in higher than expected, rising to 75.7 in March from 68.5, but remains at historically low levels. On the negative side, retail sales began the year on soft footing, growing 4.9% year-over-year in January, undershooting the market’s 5.5% estimate. The resilience of some sectors of the economy, namely services and a pickup of manufacturing, are supporting the economy. Nevertheless, we expect a slowdown in GDP growth to 1.6% in 2017 from 2.3% in 2016 with weaker consumption and investment.

Chile's index was at -0.34 in March, from -0.47 in February. The improvement owes to positive surprises from manufacturing and the monthly activity indicator (Imacec). Manufacturing production declined 1% year-over-year in February, better than the -2.8% expected by the market. The Imacec grew 1.45% in January, above market expectations, but remains weak. As economic growth remains frail, the unemployment rate continues to rise (up to 6.4% in February, coming in worse than market estimates at 6.3%), and the quality of jobs created deteriorated further. Overall, we expect an activity recovery in 2017 to 2.0% from the anticipated 1.5% in 2016; however the risks remain tilted to the downside.

Colombia's index worsened to -0.07 in March from 0.18 in February. All releases in March disappointed expectations: industrial production fell 0.15% year-over-year in January, while consensus was at 1.8%. Retail sales returned to a contraction after a brief pickup, falling 2.2% year-over-year when the market expected 3% growth. The labor market continued to loosen in February, with unemployment registering 11%. Similar to Chile, our expectation of a mild recovery to 2.3% this year from 2% in 2016 carries downside risks.

Peru's index was at -0.16 in March from 0.07 in February. GDP growth began the year on the right foot, boosted by natural resource sectors - monthly GDP rose 4.8% vis-à-vis the market’s 4.5% growth estimate. However, labor market conditions remained weak in February, with higher unemployment and slow employment growth. For 2017, we expect growth at 3.8% supported by higher terms of trade and a gradual recovery in domestic demand.

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
Lourenço Paiva



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