Itaú BBA - Itaú Activity Surprise Index - Firmer activity in Mexico, mixed surprises elsewhere

Macro Vision

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Itaú Activity Surprise Index - Firmer activity in Mexico, mixed surprises elsewhere

agosto 2, 2017

Mexico’s index turned positive, as the slowdown has proved more gradual than the market had anticipated.

Our Itaú Activity Surprise Index moderated to 0.12 in July (from 0.16 in June). Mexico’s index went back to positive territory, as the slowdown has proved more gradual than the market had anticipated. In Chile, data releases registered mixed surprises, whereas in Colombia all indicators came on the soft side of expectations. The Brazilian index remains positive, with the unemployment rate printing below expectations once more.

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 declined to 0.20 in July, coming from 0.38 in the previous month. Retail sales for the month of May came in at 2.4% year-over-year, below the median forecast of 3%. Likewise, the official GDP proxy (IBC-Br) grew 1.40% year-over-year in May, while the market had expected a 2.50% figure. On the flipside, labor market data registered positive surprises once more: the unemployment rate decreased to 13% in June (mkt: 13.3%). Nevertheless, the lower joblessness rate was driven by gains in informal jobs in the private sector and self-employment. The data reinforces the transformation in employment composition which led us to reassess the path for unemployment (see “Macro Vision: Unemployment approaching a peak in Brazil”), in which unemployment stability is ensured by gains in employment excluding formal jobs.

Mexico's index oscillated upwardly to 0.07 in July, coming from -0.06 in June. Industrial production expanded 1% year-over-year in May, well above market expectations (0.3%). Likewise, the monthly GDP proxy IGAE grew 3.06% year over year in May (mkt: 2.7%), following an upwardly-revised 0.57% contraction in April. Despite the positive annual surprises, the data suggests the Mexican economy is losing momentum, albeit at a more-gradual-than-expected pace. All-in, there are upside risks to our 2% growth forecast for 2017.

Chile's index inched up to -0.21 in July, coming from -0.22 in June. The largest positive surprise came from private consumption: retail sales grew 5.6% year-over-year in May, well above the most optimistic expectation (median: 3.0%). On the other hand, the Imacec GDP proxy for the month of May advanced 1.3% year-over-year, disappointing the consensual expectation of 1.7% growth. Looking ahead, firming growth in China and recovering copper prices, together with loose monetary policy and low inflation, will support the economy. We expect growth of 1.6% this year, stable from 2016.

Colombia's index recovered a tad to -0.12 in July from -0.28 in June, owing to the moving average effect. At the margin, all economic indicators underlying the index registered negative surprises in July. The highlight was the urban unemployment rate for the month of June, which came in at 10.8% - above the median of analysts’ forecasts (10.4%). We expect the labor market to remain weak in coming months, thus providing limited support to consumption.

Peru's index rose to 0.27 in July, coming from -0.14 in May. The GDP proxy posted a pick up in May, registering 3.4% year-over-year growth (mkt: 3.1% %, as per Bloomberg). However, the surprise was largely explained by the outstanding performance of fishing output (+280% year-over-year) and its positive spillovers to primary manufacturing sectors. Overall, we still expect Peru’s 2017 GDP growth to slow down to 2.9%, on the back of temporary shocks.

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
Eduardo Marza



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