Economics: November data points to trouble ahead

MEXICO - Report 07 Dec 2020 by Mauricio González and Francisco González

There were a few positive tidbits from last month’s economic news, and in general indicators tended to ease off their historical lows from earlier in the year, but they remain very weak. A sequential increase in the leading indicator for September pushed the index barely back into expansion range, and just this past week the October reading reached a reading of 100.5 points. But while an easing of the contraction in manufacturing employment contributed to those improvements, the overall labor market data as of the third quarter confirmed the precarious state of the labor market overall. Two indicators of the deteriorated state of many household economies were the considerable rise in the population that is economically inactive but willing to work and a strong increase in the number of people who in recent months were pushed into the ranks of the underemployed. The toll that both these developments are taking on family finances is apparent in consumers' continuing to scale back their spending. Private consumption extended its fall in August, the eighth consecutive month in which such consumption contracted outright and the fifth in which it suffered a double-digit drop.

Such data bodes ill for the prospects of economic recovery, with many consumers left with considerably less to spend, and others simply becoming more cautious in the current climate. Another major recovery hurdle is the extent to which business owners are disinclined to invest in their own productive enterprises. While August’s drop year on year in gross fixed capital formation was less than half the percentage plunge of April and May, it was still substantial enough to confirm the likelihood that investment will remain very weak at least through the balance of the current year. At the same time, major obstacles are being erected to a reactivation of the labor market with the government’s insistence to date on pushing through Congress major restrictions on outsourcing without first reaching any understanding with the private sector.

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