Itaú BBA - Itaú Activity Surprise Index - Balanced surprises across LatAm

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Itaú Activity Surprise Index - Balanced surprises across LatAm

noviembre 3, 2017

The Brazilian surprise index declined again in October, whereas Mexican data came stronger than expected.

Our Itaú Activity Surprise Index fell to 0.01 in October, coming from 0.12 in September. The Brazilian surprise index declined again in October, as none of the tracked economic indicators registered positive surprises. In fact, both retail activity and industrial production missed analysts’ expectations, but the details herald stronger readings ahead. Similarly, all major activity releases surprised negatively in Colombia, but we believe in an activity recovery in 2H17, owing to lower interest rates, higher real wages and a favorable external environment. On the other hand, Mexican data came stronger than expected, showing activity was robust prior to the earthquakes.

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 fell to 0.11 in October (0.30 in the previous month), with none of the economic indicators tracked by the index registering positive surprises. The largest disappointment came from retail sales for the month of August: the core index (excluding vehicles and construction material) grew 3.6% year-over-year, whereas the consensus projected a 4.4% increase. Nonetheless, we take the weak figures of July and August as only a temporary pause in the retail sales recovery trend. Indeed, the stagnation in these two months may reflect a reversal of the one-off boost provided by withdrawals of inactive accounts held under the employment protection program, FGTS. Industrial production likewise disappointed, growing 4.0% year-over-year in August (mkt: 4.8%). Yet, the breakdown shows a bett er picture, with production of capital goods and durable consumer goods advancing again at the margin. Finally, the nation-wide unemployment rate for the quarter ending in September matched the median forecast of 12.4%, coming from 12.6% in August. The informal sector employment still accounts for the bulk of unemployment rate decline, but we underscore that the formal sector contributed to a slight reduction in the unemployment rate for the second straight month. All in all, despite the hard data slip in October, we retain our vision of a gradual recovery in economic activity.

Mexico's index rose to -0.16 in October, coming from -0.19 in September. At the margin, activity data for August came in stronger than expected. Industrial production fell 0.5% year-over-year in the period, firmer than the 0.8% contraction anticipated by markets. In the breakdown, the strong manufacturing output partly offset the poor performance of the mining (particularly oil production) and construction sectors. Moreover, the IGAE GDP-proxy expanded 2.3% year-over-year, above the median of projections (1.7%, as per Bloomberg). On the other hand, retail sales fell short of expectations, receding 0.2% year-over-year (mkt: +0.5%). Looking ahead, the strength of the US industry will likely boost Mexico’s manufacturing, while robust employment and falling inflation will buoy consumption gro wth. We expect GDP growth of 2.3% in 2017.

Chile's index retraced to 0.01 in October, after reaching an 11-month high in September (0.14). The Imacec GDP-proxy grew 2.4% year-over-year in August, below the Bloomberg market consensus of 2.7%. As in previous releases, mining activity was the main driver of better growth figures, but non-mining activity has shown some consolidation too. The unemployment rate reached 6.7% in the third quarter of the year, above the 6.5% Bloomberg market consensus. Despite the low headline, the informal sector and public servants continue to drive job growth, whereas the formal private sector lacks dynamism. In all, the fragile labor market and the unfavorable composition of employment growth will likely keep the private consumption recovery limited. We forecast growth of 1.7% this year, with a recovery to 2.7% next year.

Colombia's index returned to negative territory in October (-0.04 vs. 0.05 in September). All major activity releases surprised negatively in the month. Retail sales fell 1.2% year-over-year in August, whereas the Bloomberg market consensus expected a 1.2% expansion. Analogously, industrial production contracted 3.1% vis-à-vis August 2016, weaker than the 1% drop anticipated by the market. Finally, the labor market deteriorated further in the 3Q, as the urban unemployment rate increased to 10.5% in September – surpassing the median of analysts’ forecasts (9.8%). Despite the widespread negative surprises, higher real wages (as inflation falls) and lower interest rates, alongside a favorable external environment, will likely help support the economy going forward. We believe an activity recovery in 2H17 will generate growth of 1.6% this year (2.0% in 2016).

Peru's index decreased to -0.23 in October from -0.16 in September, owing to the moving average dynamics. In fact, data at the margin came slightly stronger than anticipated by markets. The monthly GDP proxy expanded 2.3% year-over-year, surpassing the 2.2% growth median projection (Bloomberg survey). Likewise, the unemployment rate for the month of September came in slightly below the median of market expectations (6.4% vs. 6.5%). All in all, growth is accelerating, on the back of higher metal prices and fiscal stimulus. We foresee a 2.9% activity expansion 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.


Eduardo Marza

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