Consumer confidence is improving... but beware!

The Consumer Confidence Index, published by INEGI, has already a year with a growth trend. As in other analysis I have shared, these are good news, but let’s give it a little context.

The good news started by the end of 2008, beginning of 2009, when people felt that the economic situation at home and in the country was worse than a year before, but they also thought that it would improve in the following 12 months; this means people began to see the light at the end of the tunnel.

Later, by the end of 2009, people began to feel that the economic situation was already better than the previous year, at home as well as in the country; this increased consumer confidence.

However, there is another indicator within the index, that gives a different nuance: when people is asked about the chances to buy durable goods (home appliances, furniture, etc.), they show a lot more cautious attitude. In other words, people has each time more confidence on the economic situation, but not as much as to make big purchases. The result is that, although the positive trend, the confidence index is on its lowest levels of the last 10 years.

How has this confidence affected economic activity? Data shows that retail sales have almost reached the same level they had at the beginning of 2008, but with very uneven results. For example, there are sectors with sales levels superior to 2008:

·         Food, beverages and tobacco

·         Supermarkets and department stores

·         Textile products, dressing accessories and footwear

·         Health-care products

But, on the other hand, there are sectors that are below 2008 levels:

·         Stationery, recreation products and other personal-use products

·         Furniture, household equipment, computers and interior decoration articles: this sector is in the lowest levels of the last 10 years!

·         Hardware articles and glass

·         Motor vehicles, spare parts, fuel and lubricants

To summarize, consumers' reactivation is focused on sectors that cover basic needs (health, food, dressing), but the employment situation (analyzed previously, on http://beammx.blogspot.com/2010/11/employment-in-mexico-improvements-but.html) shows a weak market for durable goods. If your company or employment is on this sector, I suggest one of three ways:

1.       Adapt your offer to make it more affordable (financing, designs to make it cheaper without losing quality, etc.)

2.       Find specific niche markets that may have attractive dynamics

3.       Look outside domestic markets. A possibility is to think about emerging markets, with growth forecasts beyond 5%, and take advantage of trade agreements Mexico may have with them.

Mexico’s GDP forecasts: threats and opportunities, wishes and realities

Mexico is recovering from its worst economic setback in the last 80 years. After a GDP decrease of 6.5% in 2009, the most recent forecasts estimate  a 5% increase for 2010. This forecast has been increased during the 2^nd semester of 2010, and shows the thrust received by exports to the United States.

This growth allows reaching, by the end of 2010 or beginning of 2011, the same GDP that Mexico had on 2008 first quarter (at constant currency); it means that the crises caused the loss of 3 years of economic activity! And regarding GDP per capita, it will recover around 2013 according to World Bank’s statistics.

The economic sectors with more growth in the last year have been commerce, manufacturing, educational services, and lodging, food and beverages services. However, neither has reached 2008 levels.

On the other hand, there are sectors still shrinking in the last year, such as construction, professional, scientific and technical services, and health and social assistance services.

The only sector that did not have any contraction on these two and a half years was information on media, which comprises printed and electronic media.

What are the expectations for 2011? For the World,  as well as for Latin America, projections are that there will be a growth, but slower than 2010. For Mexico, the most recent forecasts are between 3.5% and 3.9%. The forecasts have been decreased during the year, mainly because the expectations for an economy expansion in the United States have been reduced (they are now between 2.3% and 2.6%).

These projections present a scenario with caution and risks for the next year. Mexico will keep a great dependence on United States’ recovery, and the growth rate will make employment and income recoveries something that won’t happen before 2 to 3 years. But there will also be economic sectors with very interesting growth rates, so it will be important to keep a tracking of the environment to identify these opportunities.  

Employment in Mexico: improvements, but still a long way to go

During October we had the official statement that employment is at an all-time high, and obviously, that the jobs lost by the financial crisis were already recovered.

Both facts are true according by the figures given by Social Security (IMSS) and by INEGI’s employment national survey. This situation reflects the economic recovery we have lived on the last quarters.

However, there is a part that is not mentioned: population growth. The rhythm of employment creation is less than the increase of population, and although the employment level of 2007 has been recovered, there are more than 3 million Mexicans that have entered the group of potential workers (14 years or more) on the last two years and a half.

What does this unbalance between new jobs and population growth means? According to INEGI’s figures:

1.       To have 2.5 million Mexicans unemployed

2.       To have more than 5.5 million Mexicans that do not look for job because they think they don’t have a chance! With the waste of talent and social risks this attitude implies.

3.       To have 4 million Mexicans with an occupation, but willing or needing to offer more working hours (sub-employment)

4.       To have almost 13 million working in the informal economy, with all the consequences it implies to national economy.

5.       To have an average of lower income than two years ago (occupied population that earns less than 2 minimum wages passed from 42% to 46% on the last two years and a half).

What are the consequences?

·         A weak domestic market. The economic growth has been mainly by exports to United States, and although retail sales have increased in this year, it has not been enough to recover last year’s fall.

·         Social risks. The famous “demographic bonus” is turning into an important social risk due to the number of young people without employment opportunities.

·         The opportunity to find unemployed talent. Within the unemployed, there are 834,000 mexicans with high school or tertiary education. This is one of the highest concentrations of unemployed people with this profile on the last 10 years.

I don’t mean to be pessimistic. I want to offer a complete view of the risks and opportunities in the labor market, so you can analyze how they will affect your organization.