Economics: Risks to Consumption Growth
Internal consumption, which has sustained its perch as the main growth driver of the Mexican economy, continues to expand at an extraordinarily fast pace through the second quarter of 2016, as evidenced by indicators such as the index of private consumption for the first quarter (it grew 4.7% year on year), and accumulated growth during the January-to-May period in the case of retail industry (Antad) and domestic auto sales, which expanded 4.6% and 16.8%, respectively.
When we study the evolution of the private consumption precursors that we regularly draw upon (formal sector wage mass, household remittances, consumer credit issued by commercial banks and income from informal sector sources), we see that none of these have experienced any softening of growth over the course of the second quarter of the year. When we crunch the numbers to reflect regional variations we see substantial consumption growth has been registered in states with relatively small populations but boast a sustained uptrend in buying power that weighs in heavily in national sales upside, such as Guanajuato, Queretaro and Hidalgo, and in states that are major recipients of household remittances like Michoacán, Zacatecas, Tamaulipas and Oaxaca.
However, warning signs have begun to appear that raise questions as to just how long this impressive display of internal market strength can be sustained, the impact that a more adverse international situation could have especially in terms of heightened inflation, the effect of both diminished job growth as Mexican industry continues to slow, and the expected decline in the availability of credit during the second half of the year.
In this week’s issue we analyze the trajectory of the main internal market precursors and consider regional differences.
In other economic news, last week’s inflation report for May showed that the 12-month rate had fallen to 2.60%. While the report marked the lowest level ever recorded since Mexico began releasing such monthly consumer price data in 1970, it was achieved largely on the basis of a 1.81% seasonal reduction in electric power rates. Another contributing factor was a considerable slowing of the extended rise in prices for livestock products, whose 0.90% rate year on year was a considerable improvement over the 7.34% increase recorded for the same month of 2015.
The consumer confidence index for May showed sentiment was 1.2% weaker than in the same month of 2015, when optimism rose 1.4%. In the most recent survey, consumers appeared increasingly negative about how the economy fared in the past year and pessimistic about how both the Mexican economy and their household finances might evolve in the next 12 months.
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