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

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Itaú Activity Surprise Index - Mexico leads the flock

septiembre 1, 2016

The country is consistently delivering positive results, while the South American economies have been disappointing.

Our Itaú Activity Surprise Index registered -0.01 in August, rising from -0.19 in July and hovering around its neutral level in past months. Mexico is the sole country consistently delivering positive results, while the South American economies have been posting disappointing performances. Last week, we released our new Itaú Inflationary Surprise Index (read report here), which compares trends in inflation indicators in LatAm. In addition to analyzing inflationary trends, our Itaú Inflationary Surprise Index report plots movements in inflation and the activity series pertaining this report, providing an analysis of the co-movements between the two.

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 -0.03 in August, close to stability, improving from -0.26 in July. The month netted positive surprises, but Brazil’s negative number was influenced by last month’s disappointing result (owing to poor retail sales data), which brings down the index’s 3-month moving average. GDP data came in line with the expected, contracting 3.8% yoy in the 2nd quarter (market: -3.7%). Despite the contraction, investment rebounded on the demand side, and industrial production picked up on the supply side, both of which have fallen significantly during the recession. Leading indicators point to improving economic activity in the second half, which is expected to be reflected in the 4Q16GDP. June industrial production and retail sales both surprised positively, though retail sales continues to weaken. Despite early signals of an economic rebound, the labor market still bears the drag from the recession. The unemployment rate hit 11.6% (which constitutes 0.2p.p. rise in seasonally-adjusted terms), negatively surprising the market. We expect gradual improvement in activity (namely in the industry), while the labor market and consumption indicators will likely remain weak.

Mexico’s index registered 0.23 in August, up from 0.10 in July. Mexico continues to lead the flock. Retail sales pulled off a strong 9.4% yoy growth, above consensus (7.0%), indicating that private consumption remains strong. Going forward, our baseline scenario for some moderation of consumption, and hence retail sales, remains unchanged. Weak consumer confidence hints to this, as confidence surprised negatively in August. The IGAE (monthly activity index) advanced 2.2%, above consnesus’ 1.9% estimate, contributing positively. Industrial production in June matched forecasts. On the negative spectrum, fixed investment disappointed, growing 0.7% yoy when the market expected a 1.6% growth rate. Looking forward, we expect weaker fixed investment in line with the marginal slowdown of GDP.

Chile’s index registered -0.49, deteriorating from last month (-0.35). July’s disappointing manufacturing output dragged down the index. Manufacturing contracted 4.4% yoy, lower than the market’s -2.6% estimate, owing to low food and beverage production. The unemployment rate reached 7.1% in the quarter ending in July, above market expectations (7.0%). On the positive side, private consumption data improved in July, as retail sales grew 4.6% yoy. We continue to see signs that activity will remain weak in the near-term.

Colombia’s index hit -0.24, up from -0.57 in July. Activity indicators recorded diverging performances. On the one hand industrial production grew 6.6% yoy in June, well above consensus’ 4.5%. Manufacturing growth was led by the strong rise in oil refining and related activities. On the other hand, retail sales declined 0.7% yoy in June, below the 1.5% forecasted by the market. Colombia’s urban unemployment rate picked up in July, rising to 10.4% (mkt: 10.0%), further pushing negative surprises. We expect GDP to slow to 2.3% this year from the 3.1% in 2015, a product of tighter fiscal and monetary policies, less oil-related investment and lower real wages.

Peru’s index recorded -0.24 in August, up from -0.29 in July. Though sequentially improving, the poor performance came from the unemployment rate for July, coming in at 7.1%, well above the market’s 6.8% estimate. This increase in the unemployment rate is partly attributable to the fact that labor participation has been higher than average, but also that employment growth slowed. July’s monthly GDP came in line with expectations. We forecast Peruvian GDP growth of around 3.5%-4.0% in 2016.


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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