Itaú BBA - Itaú Activity Surprise Index - Stable surprises and slow recovery

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Itaú Activity Surprise Index - Stable surprises and slow recovery

March 3, 2017

Our Itaú Activity Surprise Index decreased to 0.03 in February from 0.14 in January.

Our Itaú Activity Surprise Index decreased to 0.03 in February from 0.14 in January. Mexico and Colombia are the only economies with indexes in positive territory, while Peru’s index showed a significant decline. In Brazil, the surprises were negative for most monitored indicators, pointing to a weak 4Q16. The reality suggests that activity in the region is picking up, but that a recovery will be slow.

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 reached -0.03 in February, a decline from January's 0.11. The negative surprise from retail sales, the weaker than expected result for industrial production, and the unemployment rate were the main factors behind the decline. Retail sales fell by 4.9% in December year-over-year (expectation: -4.6%). In our view, part of the result represents a return of the anticipation of yearend purchases (due to the Black Friday) in November. In the industrial sector, production posted a slight decline at the margin in December (0.1% year-over-year), below market expectations (+0.6%). For the coming months, we expect the cyclical adjustment in inventories to continue, as demand continues to exceed production. Coupled with the ongoing easing of monetary policy, this context indicates an industry growth scenario ahead. Finally, the unemployment rate rose further in January (12.6%) above expectations (12.5%).

Mexico's index fell to 0.27 in February from 0.42 in January, but maintained the positive surprises observed in the past few months. The negative surprise that dragged the index down in February is due to a much lower-than-expected result coming from the consumer confidence index. Expectations pointed to a result of 83.5 for the month, while the actual figure stood at 68.5. The main reasons behind the deterioration in confidence are the recent hike in gasoline prices ("gasolinazo") and the uncertainty about bilateral relations with the US.

Chile's index improved to -0.34, from -0.52 in January, despite the continued disappointment with economic activity. December’s Imacec (monthly activity index) - released in February – came in above expectations, advancing 1.2% year-over-year while the market expected a 1.0% increase, driving the index’s improvement.

Colombia's index reached 0.15, up from January's 0.11. Retail sales and industrial production positively surprised, while the unemployment data came in above expectations. Retail sales increased 6.2% year-over-year, higher than the 4.0% expected by the market. Industrial production increased by 2.2% in the same comparison (market: 1.2%). The negative surprise was due to the unemployment rate (13.4%), which exceeded expectations (12%).

Peru's index sharply deteriorated in February, retreating to -0.51 (vs. -0.36 in the previous month). The monthly economic activity index grew at a pace similar to that expected by the market, but the unemployment rate (7.2%) negatively surprised (forecast: 6.7%).

Find our surprise indexes on Bloomberg:

LatAm: ITMRLAI

Brazil: ITMRBI

Mexico: ITMRMI

Chile: ITMRCHLI

Colombia: ITMRCOLI

Peru: ITMRPI

Find our surprise indexes on Broadcast:

LatAm: ITSLA

Brazil: ITSBR

Mexico: ITSMX

Chile: ITSCH

Colombia: ITSCO

Peru: ITSPR

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
André Matcin


 



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