In both the United States and Mexico, the figures shown by recent indicators and what is observed in the financial markets are a very different scenario from the perception of most people. Why?
Preliminary GDP figures in the United States indicate that the economy may have grown at a rate of 3.3 percent annualized in the fourth quarter of 2023, which together with the 4.9 percent annualized growth in the third quarter gives us an average of 4.1 percent. annualized percent in the second semester.
In Mexico, the INEGI gave a preliminary estimate of GDP for the fourth quarter with a growth of 2.4 percent annually, a figure that will most likely be revised upwards in the final data that we will know on February 22. With final figures, in October the IGAE grew 3.7 percent annually, and in November we grew 2.7 percent annually. To have 2.4 percent growth for the entire quarter, growth in December would have to drop to just 1 percent annually, which is unlikely.
With our economic indicators Bursametrica (IBAM) estimates a growth of 2.8 percent in the IGAE for December, which would mean that the GDP for the fourth quarter would be 3.0 percent annually, and the GDP for all of 2023 will have grown by 3.3 percent. instead of the preliminary 3.1 percent. This growth range between 3.1 to 3.3 percent annually is much higher than the historical average of the last 35 years, of 2.3 percent annually.
These are surprising results in relation to initial expectations in both countries. Most analysts supported a scenario with a slight recession for 2023 in the United States, given the strong and rapid increase that the Federal Reserve had been making in the target Federal Funds rate, and the geopolitical factors that have been affecting economic activity. A “slight recession” in the United States could cause a more serious recession for Mexico. In the end the results are surprising, it seems that everything is slipping away from both economies, which we call “Teflonomics”.
Inflation remains very high in both economies and refuses to go down. However, consumer spending appears not yet to have been affected by high inflation or the highest rates in decades.
Last Friday the United States Bureau of Labor Statistics again reported impressive job creation data for December, with 353 thousand new positions, with an unemployment rate at 3.7 percent unchanged, and with an increase in hourly remunerations of 4.5 percent annually. These are clear signs that the economy remains overheated. However, stock indices rose rather than fell, and are hitting new all-time highs, including the Mexican Stock Market indices.
Financial markets tend to be good forecasters of the economic environment, although in their movements they overreact to positive and negative events alike. The prices of financial assets reflect the decisions and expectations of millions of people.
Given this euphoria, why do citizen surveys in the US and Mexico give a different perception? Why do Americans disapprove of President Biden’s economic leadership?
Credit card debt in the US is at an all-time high and Americans are taking longer to pay off their debts due to very high interest rates. The figures for past due loans on credit cards have reached the same level as that observed during the Great Recession (2009), according to the Federal Reserve Bank of St. Louis “Share of Americans in Financial Distress Reaches High Levels” (26 December), 2023, JM Sánchez, M. Mori).
The strongest growth driver in the fourth quarter was manufacturing exports, which increased by 6.3% annually, along with Public Expenditure, which grew 3.8% annually. Very different from the “Gross Domestic Income” data, which had a reduction of -0.1% in the quarter.
And the same negative perception occurs with inflation. Inflation in Services and Housing is growing above 5% while Food Inflation is above 7% due to the severe drought that prevailed in the American Agricultural States.
Core Consumer Spending inflation fell to 2.9% annually in December, which has reawakened market expectations of a first reduction in the federal funds rate target by the Federal Open Market Committee this March 20 , which was already openly ruled out by Jerome Powel last week. There are analysts who think that the first reduction will be at the May meeting and others, more skeptical, who see it until the second half of the year.
In the case of Mexico, general inflation has been rising from 4.33% in November to 4.90% in the first half of January. The inflation of the Food and Beverages line is increasing at 7.36% annually while the inflation of Restaurants and Hotels grows at 7.01% annually, in Goods and Services 6.78% and the inflation of Education at 6.52% annually.
In the December Economic Confidence Indicator that Bursametrica calculates with information from the Mexican Institute of Public Accountants, there is an increase in the perception of the current situation but a fall in the perception of the future situation.
The delicate situation that exists in countless cities within the country, where organized crime cartels govern and impose the right to land, and the law of terror, as well as the crisis of insecurity and murders of truck men on the country’s roads are one of the factors that cloud economic results. Add to this the serious lack of medicines, the poor attention of medical services, and the lack of the rule of law in all sectors of society, which makes it difficult to perceive economic achievements.