Itaú BBA - Itaú Activity Surprise Index - Negative surprises in April

Macro Vision

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Itaú Activity Surprise Index - Negative surprises in April

mayo 4, 2018

The Itaú Activity Surprise Index declined to -0.24 in April (from 0.08 in March)

Our Itaú Activity Surprise Index declined to -0.24 in April (from 0.08 in March). Brazil’s component declined to -0.35 due to lower-than-expected prints for retail sales and industrial production, as well as higher-than-expected unemployment rate. Chile’s component declined in April on the back of a still-gradual recovery in non-mining activity and lower-than-expected retail sales. Colombia’s component also declined as activity indicators underwhelmed in spite a low base of comparison. The Mexican index improved at the margin, in spite of NAFTA and the elections. Finally, the Peruvian index increased in April, albeit remaining in negative territory. 


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 -0.35 in April (0.18 in the previous month) amidst weaker growth in early 2018. Negative surprises predominated at the margin, particularly industrial production, retail sales and the labor market releases. Industrial production rose by a disappointing 2.4% year-over-year growth in February, below market expectations (3.9%). Core retail sales also disappointed, by expanding 1.3%, well below market consensus (3.5%). Furthermore, the unemployment rate climbed to 13.1% in March (printing above the median of market estimates, 12.9%) from 12.6% in the quarter ended in February, driven mostly by labor market seasonality. The many labor market indicators (PNAD, CAGED, DIEESE/SEADE, surveys) show a slowdown in employment and real wages, affecting the outlook for household spending this year and reinforcing the downside to the 2018 GDP growth scenario.

Mexico's index increased to -0.11 in April, coming from -0.15 in March. The monthly GDP proxy gained traction in the first months of 2018, on the back of firmer industrial production and robust services sectors. The GDP proxy (IGAE) expanded 2.4% year-over-year in February, above the median market expectations (2%, as per Bloomberg). The monthly gross fixed investment indicator increased 4.1% year-over-year in January, somewhat higher than the 3.5% increase expected by market analysts. In the same vein, after a sharp slowdown in 2017 and a poor beginning of the year, retail sales improved in February by expanding 1.2% year-over-year, above the median of market expectations (0.4%, as per Bloomberg). Overall, our 1.8% GDP growth forecast for 2018 (from 2% in 2017) now has an upward bias, but we will wait for the final 1Q18 data before making a revision. Although the uncertainty over NAFTA is diminishing, the presidential elections can still be a drag on investment; and tight macro policies (both fiscal and monetary) will continue to restrain the growth of domestic demand. However, we also note that tailwinds for activity in 2018 seem to be having a more significant effect than we expected. These tailwinds are: the acceleration of the U.S. economy, which boosts Mexican manufacturing exports; falling inflation (which supports real wages, and might be behind the better momentum of services sectors), and smaller budget cuts (relative to 2017) implying a smaller fiscal  drag.

Chile's index retreated to -0.30 in April from 0.21 in the previous month. Despite surprising the market to the downside, February activity is in line with a firm recovery this year. Mining is the main engine of growth (as it faces a low base of comparison), but non-mining activity continues to recover gradually. In the absence of downside inflationary surprises, the activity outlook is in line with the central bank’s baseline scenario of stable rates throughout the year. The monthly GDP proxy, Imacec, grew 4.0% (3.5% in January), below the 4.5% expected by the market. Retail sales (including cars sales) grew 4.0%, also below the market consensus of 5.1%. Finally, the unemployment rate came in at 6.7%, 0.3 percentage points above that recorded one year ago, and above market expectations of 6.6%. Despite the weaker-than-expected results, we see GDP growth of 3.6% this year, more than doubling the 1.5% posted last year. Low inflation, an expansionary monetary policy along with a recovering labor market will aid a consumption improvement.

Colombia's index declined to 0.08 in April, coming from 0.17 in the previous month. Retail sales expanded 5.0% year-over-year in February, below the 5.7% market consensus. Meanwhile, industrial production grew 1.5% year-over-year, in line with the market consensus (1.6%). The labor market showed mix signals at the beginning of the year. The national unemployment rate moderated to 9.4% in March (from 9.7% one year ago) amid a stable urban unemployment rate (10.6%), which came in below market expectations. Hence, the unemployment rate for 1Q18 was 10.7%, broadly stable from one year ago (10.6%), while the participation rate continues to fall and job creation remains weak. In spite of the mixed indicators in the month, we continue to expect an activity recovery this year. Low inflation and interest rates, high global growth, and elevated oil prices would support a growth pick up to 2.5% (from 1.8% in 2017).

Peru's index recovered to -0.12 in April, coming from -0.30 in March. Activity gained some traction in the first months of 2018, on the back of stronger non-natural resource sectors. The GDP proxy expanded 2.9% year-over-year in February – slightly below the median market expectations (3%, as per Bloomberg) – lifting the three-month moving average growth rate to 2.3% year-over-year (from 2% in January). For us, the surprise was explained by the fall of natural resource sectors (down by 0.9% year-over-year in February) dragged by the plunge of hydrocarbons output (-24.6% year-over-year) – given the temporary breakage of a key natural gas pipeline – and an unexpected contraction of primary manufacturing. We expect GDP growth to accelerate to 4% in 2018 (from 2.5% in 2017), driven by the increase of metal prices and expansive macroeconomic policies (mainly fiscal, but also monetary). An important risk to our outlook, however, is the possibility of a further escalation in the trade policy disputes between the U.S. and China (Peru’s top two trading partners). A trade war could cause metal prices to tumble and, hence, a negative terms of trade shock for Peru. Domestically, regarding risks, we highlight the micro problems in the construction sector (i.e. “Construction Club” investigation) and the fact that labor market data remains poor (with soft growth for employment and real wages). Nevertheless, the acceleration of non-natural resource sectors (more labor-intensive than natural resource sectors) will likely have positive implications for the labor market down the road.

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.


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