Itaú BBA - Itaú Surprise Index LatAm - Broadly stable

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Itaú Surprise Index LatAm - Broadly stable

abril 4, 2016

The index has been able to achieve above-zero readings in the past months.

Our Itaú Surprise Index LatAm registered 0.02 in March, a downtick from February’s 0.09. Colombia and Peru enjoy top positions, reflecting strong industrial production activity in the former and natural resource-oriented growth in the latter. Colombia, Mexico and Chile improved vis-à-vis last month, while Brazil and Peru declined. Altogether, the index has been able to achieve above-zero readings in the past months after a long sequence of disappointments in the last two years.

Our Itaú Surprise Index LatAm 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 good 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 registered -0.03, down from last month’s 0.18. Weak retail and labor market data were the main drivers for the month’s underperformance. Industrial production, on the other hand, came slightly stronger than expected. In January, core retail sales dropped 10.3% yoy when the market expected a contraction of 8.5%. Although some stabilization is observed in consumer confidence recently, levels remain at their all-time lows. The labor market picture also points to further drops in consumption in the next months: 105k formal jobs were destroyed in March, more than twice the destruction predicted by the market (-46k). The nation-wide unemployment rate reached 9.5% in January, slightly worse than market estimates (9.3%). The real wage bill has been on a negative trend, with an even sharper slide registered in January. Effective this edition, IBGE’s nation-wide PNAD unemployment survey will replace the institution’s PME urban unemployment rate, as the nation-wide rate is now IBGE’s official rate. January industrial production came as the only positive surprise, increasing 0.4% in January (the market expected a contraction), however, the hike was offset by February’s sharp decline (-2.5%), which will be accounted for in the next report. Finally, Q4 GDP figures came in line with expectations, marking the fourth consecutive decline in economic activity. Overall, domestic uncertainties are still keeping the Brazilian economy under pressure.

Mexico’s index registered a positive 0.10, up from neutrality last month, driven by positive figures in industrial production, retail sales and investment. January Industrial production increased 1.1% yoy, (market expectations at 0.1%). Retail sales grew 5.2% yoy, topping the median of market estimates 3.8% and the most optimistic forecast as well. Finally, December year-over-year investment recovered from last month, increasing 1.1% (agents were expecting a 1.4% decline). The IGAE (monthly proxy for GDP) came in line with market estimates. Activity indicators eased concerns raised by previous data releases that the economy could be decelerating rapidly.

Chile’s index came at -0.05, showing improvement from February’s -0.29. The index is still being pushed down by last month’s negative surprises, but results in March were marked by positive surprises coming from retail sales and manufacturing. Year-over-year, February retail sales gained 7.4% (market expectations at 3.9%), favored by the pickup in auto sales and the extra day in the month. February manufacturing activity returned to growth, increasing 1.3%, positively surprising the 0.2% growth estimated by consensus. The Imacec, Chile’s activity index, came in line with expectations when looking through our adjusted measure. We see weak confidence and lower copper prices weighing down on activity ahead.

Colombia’s index registered 0.24, up from -0.10 in February. Recent activity indicators show that the economy remains resilient, in spite of lower oil prices. Operations at the expanded Cartagena refinery and the weaker Colombian peso have given momentum to industrial activity, which grew 8.2% yoy, above the 3.5% predicted by consensus. Retail sales grew 2.2% yoy in January, topping consensus (-0.2%). Sales have been affected by some labor market loosening. Despite the labor market worsening, February’s unemployment rate came in better than expected at 10.3% (market: 12.7%). Finally, GDP figures came in line with estimates, growing 3.3% yoy in the last quarter of 2015.

Peru’s index registered 0.24, down from 0.75 in February. The January monthly GDP proxy grew 3.4% (from 6.4% in December), below market expectations (4.5%). Despite the slowdown, activity in the quarter ending in January increased 4.7% yoy. Natural resource sectors continue to pull up economic growth, as metal mining and fishing activities posted double-digit annual growth in the month. The unemployment rate for the quarter ending in February was 6.9%, surprising positively (the market dotted 7.1%). The Peruvian economy remains resilient, boasting the highest projected growth rate by us in 2016 of all LatAm countries under our coverage.

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
Lourenço Paiva


 



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