Itaú BBA - Itaú Activity Surprise Index - Chile leads the flock

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Itaú Activity Surprise Index - Chile leads the flock

noviembre 1, 2016

A rebound from Chile was the month’s highlight, while Colombia remains at the tail-end.

Our Itaú Activity Surprise Index came in at 0.01 in October, a recovery from the -0.16 registered in September. All countries improved with respect to the previous month. A rebound from Chile was the month’s highlight, while Colombia remains at the tail-end, influenced by poor data in September. The index displays some volatility in in the last few months, devoid of a clear trend.

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 -0.02 in October, improving from -0.17 in September. Brazil’s surprise index has been displaying a somewhat volatile behavior around the neutral level recently, which is also reflected on the aggregate index. In October, most activity indicators disappointed: August’s retail sales came in at a 5.5% decline year-over-year, worse than the -5.0% expected by by the market. Industrial production for the same month contracted 5.2% yoy, disappointing consensus’ -4.8% estimate. Job creation is still negative, registering -39k in September, worse than expectations (-7k). On the positive side, the unemployment rate for September came in 0.1 p.p. below market estimates, but carries on its upward trend, increasing to 11.9% from 11.7% in seasonally adjusted terms. In the same manner, the IBC-Br index of economic activity pinned a slightly smaller contraction than expected (-2.7% vs. the market’s -2.9% estimate). In all, poor activity data in August and weak September coincident indicators point to a stronger contraction in GDP in Q316. The somewhat jumpy performance in Brazil’s surprise index may be a reflection of short-term volatility in economic data, which is not unusual at the business cycle’s current stage. The fundamentals are still consistent with a gradual recovery of economic activity ahead.

Mexico’s index registered 0.09 in October, up from 0.01 in September. The monthly GDP proxy (IGAE) contributed the most to the positive side, expanding 2.9% yoy in August - surpassing market estimates (at 2.1%). Seasonally/calendar adjusted, however, the number shows more subdued economic activity in August. Looking at the breakdown, we observe that growth continues to be led by services, while industrial activity – mainly oil, manufacturing, and construction – is restrained. Retail sales expanded 8.9% year-over-year in August – above market expectations (5.8%) – which suggests that private consumption remains strong; but we expect sales to lose steam ahead. On the negative side, consumer confidence dropped to a 6-year low in September, coming in below market estimates. Fixed investment contracted by 3.6% yoy in July, below the consensus (-1.5%). Looking ahead, we believe the growth breakdown will change, with more balanced contributions between services and manufacturing. A moderation of private consumption is likely, as the tightening of macroeconomic policies affects consumers.

Chile’s index registered 0.22, improving from September’s -0.04 marking a comeback from poor performances recently, on the back of better-than-expected manufacturing and retail sales data. Retail sales increased 7.4% year over year, well above market consensus at 3.8%. The month was characterized by a significant pick-up in vehicle sales as price reductions and promotions related to stock turnover continued. Manufacturing was up 1.4% in September, exceeding expectations (-2.0%). Positive surprises also came from the unemployment rate and the Imacec index of economic activity. Overall, activity is accelerating at the margin, but we still expect a 1.5% GDP growth for the year (2.3% in 2015).

Colombia’s index marked -0.21, a recovery from -0.86 in September due to better than expected manufacturing, but still negative due to September’s influence on the moving average. Manufacturing recovered in August, following the conclusion of the transportation strike, increasing 9.4% yoy (well above the market’s 3.8%). Strong manufacturing was widespread not only owing to oil refining activities, which came in robust, but also to other categories as well. On the other hand, retail activity remains weak - sales dropped 1.9% year-over-year in August, roughly in line with the -1.2% market consensus. Looking ahead, we expect activity to increase 2.0% this year, from 3.1% in 2015.

Peru’s index recorded 0.11 in October, up from -0.06 in September. Peru’s monthly GDP grew at a high 5.5% year-over-year in August – above market expectations (4.9%) – and consolidating its strong performance during Q316. The narrative is the same: natural resource sectors – led by mining – are growing at a strong pace, with the fishing season providing an extra tailwind. September’s unemployment rate came in at 6.5% – surprising market expectations  positively (at 6.9%) – mainly as a result of a drop in the participation rate, with no visible improvement in employment dynamics. Looking ahead, we forecast GDP growth rates of 3.8% and 4% for 2016 and 2017, respectively.

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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