Itaú BBA - Itaú Activity Surprise Index - Back to negative

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Itaú Activity Surprise Index - Back to negative

diciembre 1, 2016

The index continues to display volatile behaviour in the last few months.

Our Itaú Activity Surprise Index came in at -0.05 in November, down from 0.02 in October. Results were mixed, with Colombia on the negative end and Peru on the positive end. The index continues to display volatile behaviour in the last few months.

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 scored -0.12 in November, deteriorating from stability in October. In the month, surprises from consumption and production data releases essentially cancelled each other out, as the remaining data, including Q3 GDP, came overall in line with the consensus. The pushback in the index was mainly due to previous months’ effect on the moving average. Q3 GDP fell 0.8%, highlighting the seventh consecutive drop in household consumption (-0.6% qoq sa) and a recoil in investment (-3.1%), after it had interrupted a series of 10 consecutive declines in the previous quarter. September retail sales disappointed, falling 5.9% year-over-year whereas the market was expecting a 5.5% drop. The result is consistent with our expectation that sales will remain weak throughout the year, but looking forward, sales will likely post milder declines at the margin, driven by more modest job destruction.Industrial production increased 0.5% in September (not enough to revert industrial production’s decline in Q3), or -4.8% year-over-year, better than market estimates (-5.1%). We continue to expect an upward trend in industrial production ahead, as production remains below demand.

Mexico’s index registered 0.07 in November, from 0.08 in October. Mexico has been the clear outperformer of the bunch over the past months, managing to deliver positive activity surprises since Q216. Positive surprises in November, albeit weaker than the previous month, emanated from an upshot in consumer confidence in October (reaching 85.0, above the market’s 83.3 estimate), after hitting a 6-year low in September. Confidence nevertheless remains at low levels. Gross fixed investment grew by 1.3% year-over-year in August - above the consensus (0.9%), although it remains weak. To the negative side, the monthly GDP proxy (IGAE) expanded by 1.6% year-over-year – slightly below market expectations (1.7%). The outcome of the U.S. presidential election has weakened Mexico’s economic prospects. We continue to expect a GDP growth rate of 2.1% in 2016, down from 2.5% in 2015, but have trimmed our forecast for 2017 by 0.6 p.p. (to 1.8% from 2.4%), due to higher U.S. treasury yields and uncertainty over protectionism.

Chile’s index registered -0.02, falling from October’s 0.22. Economic activity remained weak in the third quarter of the year, dragged down by investment. The monthly GDP proxy (Imacec) grew 1.4% year-over-year in September, well below the market’s 2.2% estimate. Activity in the month was dragged by the decline in mining, the fifth annual contraction in the last six months. Manufacturing also disappointed significantly, contracting 6.9% year-over-year vis-à-vis market expectations at -0.5%. Conversely, consumption and labor data yielded positive surprises. Retail sales increased 5.1% year over year, near market consensus of 4.7%. The unemployment rate came in below market expectations for the quarter ending in October. In our view, the loosening of the labor market is not being fully captured by the unemployment rate. Overall, low business and consumer confidence as well as subdued copper prices will likely keep growth low.

Colombia’s index marked -0.22, inchingdown from October’s -0.21. The month’s main negative surprise came from retail sales, which continues to slow. Sales dropped 1.3% year over year in September, worse than the market’s -1.0% forecast. Meanwhile, industrial production and the unemployment rate came very close to consensus’ estimates, yielding neutral surprises through our methodology. Overall, activity indicators came in weak in the month of September, resulting in a slowdown in the third quarter of the year. We expect GDP to have grown 1.5% in 3Q16, from 2.0% in 2Q16.

Peru’sindex recorded 0.41 in November, up from 0.21 in October. Year-to-date, Peru ranks first in positive activity surprises. The GDP proxy expanded by 4.1% year-over-year in September – slightly above our forecast and market expectations (both 4%) – which implies a growth rate of 4.5% for 3Q16. Activity is being led by natural resource sectors (mainly metallic mining). October’s unemployment rate came in at 6.2%, lower than market expectations (6.4%). We still expect an acceleration of Peru’s GDP growth, from 3.3% in 2015 to 3.8% in 2016 (and 4.0% in 2017), considering that the outcome of the U.S. presidential elections has a limited net impact in the Peruvian economy.


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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