Itaú Activity Surprise Index – Negative surprises all across LatAm

Itaú Activity Surprise Index – Negative surprises all across LatAm

January 3, 2018


The surprise index fell in December to the lowest reading since July 2012.

Our Itaú Activity Surprise Index fell to –0.29 in December, coming from -0.15 in November. This marks the lowest reading since July 2012. The Brazilian and Colombian components dragged the broad surprise index. Meanwhile, the Mexican index recovered, but still remains in negative territory. The Chilean subindex also stood in the red, even though manufacturing activity and retail sales came in stronger than expected by market analysts. In contrast, Peruvian data releases in December disappointed expectations.

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 dropped to –0.37 in December (-0.13 in the previous month), marking the lowest reading since July 2015. Core retail sales fell 0.9% mom/sa in October, disappointing the median of market expectations (+0.2%). Compared to October 2016, core sales expanded 2.5%, also well below the consensus (5%). The details show widespread weakness across segments: out of ten broad retail components, seven declined during October, so that diffusion is consistent with the headline reading. In turn, industrial production increased 0.2% in October, in line with the median of market expectations. In the breakdown, indicators related to gross fixed capital formation painted a mixed picture in the month, as production of capital goods advanced again (1.1%), but construction material producti on decli ned (-1.2%). Job market releases in December were also soft. According to the national household survey, the unemployment rate declined to 12.0% in the quarter ended in November, matching the median of analysts’ forecasts. However, informal jobs growth is still on the driver’s seat, while formal jobs in the private sector weakened again. According to the Labor Ministry (Caged), formal job closings came in at -12.3 thousand in November, disappointing the consensual expectation of creation of 8 thousand jobs. Finally, GDP grew 1.4% year over year in the 3Q17, virtually in line with the consensus (1.3%). The report showed a solid advance in domestic demand, suggesting the recovery is getting broader, even though it evolves gradually.

Mexico’s index rose to –0.12 in December, coming from -0.22 in November. The IGAE (monthly proxy for GDP) gained 1.5% year over year in October, surpassing the 1.31% median expectation. At the margin, activity gained a modest 0.13%, following a 0.6% contraction. Therefore, the economy is yet to recover fully from the natural disasters that hit Mexico by the end of 3Q17. Similarly, retail sales contracted by just 0.1% year over year in October, whereas the analysts’ consensus had anticipated a 1% drop. On the other hand, industrial production fell 1.1% year-over-year, significantly below median market expectations (expansions of 0.8%). Overall, we expect Mexico’s economic growth to return to levels around 2%, as manufacturing exports recover and the labor market supports consumpt ion, off setting weak investment (affected by uncertainties over trade relations to the U.S. and – to a lesser extent – fiscal consolidation).

Chile’s index oscillated down to –0.27 in December, coming from -0.23 in the previous month. The dip was due to the moving average dynamics, as positive surprises dominated at the margin. Manufacturing production increased 1.9% year over year in November, whereas the Bloomberg market consensus expected a 0.8% contraction. Production of food and machinery boosted activity in the month (3.1pp combined contribution). In the same vein, retail sales grew 3.7% in October, surprising to the upside the median of economists’ forecasts (3.5%). On the other hand, even though the unemployment rate for the quarter ending in November came in line with the consensus (6.5%), the details reaffirm the concerning trend from previous months that shows private salaried job losses. In all, the activity recover y we foresee will likely lead to a recomposition of jobs rather than a large-scale increase in employment.

Colombia’s index dropped to –0.36 in December (0.03 in November), as all major activity releases published in December came on the soft side of expectations. Manufacturing remains feeble as it contracted 0.3% year over year in October (mkt: +0.8%, as per Bloomberg).The overall industrial production appears set to remain a drag to GDP in the final quarter of 2017. Retail sales registered an even larger disappointment: sales contracted 0.6% year over year in October, well below the 1.5% expansion projected by the market. Meanwhile, weak labor market dynamics persist, as the urban unemployment rate increased to 9.6%, a more substantial rise versus the market consensus of 9.2%. The details still indicate limited formal employment growth, consistent with our view that the labor market is weak and poses a risk to a consumption recove ry. Look ing ahead, we project 2.5% activity growth for 2018; this forecast depends in part on an improvement in labor dynamics, especially in urban areas. We note the recent evolvement of the labor market poses a risk to this scenario.

Peru’s index increased to –0.09 in December, from -0.19 in November, owing to the moving average dynamics. At the margin, activity data disappointed. The monthly GDP-proxy expanded 3% year-over-year in October, below median market expectations (3.2%, as per Bloomberg). Nevertheless, Peru’s GDP growth is becoming more balanced, with less impulse from natural resource sectors (mostly supply-driven) and more dynamic non-natural resource sectors (which reflect demand conditions). In turn, labor market data also posted a negative surprise: the unemployment rate printed at 6.6% in November, above the analysts’ consensus (5.9%). Looking ahead, we project growth of 4.2% in 2018 (from 2.9% in 2017). The economy weakened in 1H17, because of El Niño and corruption scandals (that paralyzed large infrastructure investments), but it rec overed i n 2H17. We still see significant tailwinds, such as higher terms of trade and expansionary macroeconomic policies. However, the deterioration of domestic politics in late 2017 poses a negative risk, as it could end up impacting confidence.

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
Eduardo Marza

Fuente: ITAU

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