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The real wage bill is supporting private consumption.
2023/08/18 | Julio Ruiz

Retail sales rose by 5.9% yoy in June (from 2.6% in May), above market expectations of 3.0% (as per Bloomberg) and our forecast 3.3%. The calendar adjusted quarterly annual rate of industrial production rose to 4.1% in 2Q23 (from 5.3% in 1Q23). At the margin, retail sales also expanded at a strong pace in June (2.3% mom/sa), with momentum also improving (qoq/saar at 4.6% in 2Q23, from 0.3% in 1Q23). Also using calendar adjusted figures, the real wage bill, the key determinant of private consumption, rose by a solid quarterly annual rate of 9.4% yoy 2Q23 (up from 7.1% in 1Q23), with formal employment growing 3.9% (from 3.6%), while nominal wages increased 11.3% (practically unchanged from 1Q23). The real wage bill is also supported by lower inflation. Real consumption credit from commercial banks continues to expand at a strong pace (11.7% yoy in 2Q23), while remittances converted to pesos fell by 4.2% yoy, dragged by the appreciated currency. 

Our take: Private consumption is likely to slow in 2H23 after solid growth in the first half of the year. We expect the economy to grow by 3.0% this year, unchanged from 2022, and then slow to 1.3% in 2024. An expected slowdown in the U.S. economy will curb activity during the rest of the year amid a tight monetary policy stance.