Sunday, March 3, 2024

The social perception is different from what the indicators and markets say

In the United States and Mexico, the numbers shown in recent indicators and what is observed in the financial markets are very different scenarios from the perspective of most people. Why?

The preliminary figures of the GDP of the United States show that the economy may have grown at a rate of 3.3 percent annually in the fourth quarter of 2023, which, together with the 4.9 percent annual growth in the third quarter, gives us an average of 4.1 percent. annualized percentage of the second semester.

In Mexico, INEGI gave a preliminary estimate of GDP for the fourth quarter with a growth of 2.4 percent annually, a figure that is likely to be revised upwards in the final data that we will know on February 22. With the final numbers, in October, 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, December’s growth would have to fall to just 1 percent annually, which is unlikely.

With our economic indicators, Bursametrica (IBAM) estimates an increase of 2.8 percent in the IGAE for December, which means that the GDP for the fourth quarter will be 3.0 percent annually and the GDP for all of 2023 will grow by 3.3 percent. instead of the initial 3.1 percent. This growth range between 3.1 and 3.3 percent per year is much higher than the historical average of the last 35 years, which is 2.3 percent per year.

These results are surprising compared to the initial expectations of both countries. Most analysts support a scenario with a small recession for 2023 in the United States due to the strong and rapid increase made by the Federal Reserve in the Federal Funds rate target and the geopolitical factors that affect economic activity. A “smaller recession” in the United States could cause a worse recession for Mexico. In the end, the results are surprising; it seems that everything is lost from both economies, which we call “Teflonomics.”.

Inflation remains very high in both economies and refuses to come down. However, consumer spending does not seem to have been affected by high inflation or the highest rates in decades.

On Friday, the United States Bureau of Labor Statistics reported again the impressive job creation data for December, with 353 thousand new positions, the unemployment rate at 3.7 percent unchanged, and an hourly wage increase of 4.5 percent annually. These are clear signs that the economy remains overheated. However, stock indexes rose instead of falling and hit new all-time highs, including Mexican stock market indexes.

Financial markets tend to be good predictors 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 surveys of citizens in the US and Mexico give different views? Why do Americans disagree with 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 because of the very high interest rates. The numbers for past debts on credit cards have reached the same level as observed during the Great Recession (2009), according to the Federal Reserve Bank of St. Louis, “Share of Americans in Financial Distress Reaches High Levels” (December 26, 2023, JM Sánchez, M. Mori).

The strongest driver of growth in the fourth quarter was manufacturing exports, which rose 6.3% year-on-year, along with public expenditures, which grew 3.8% year-on-year. It is very different from the data on “gross domestic income,” with a decrease of -0.1% in the quarter.

And the same negative outlook occurs with inflation. Services and housing inflation grew by over 5%, while food inflation increased by over 7% due to the severe drought prevailing in the American Agricultural States.

Core consumer spending inflation fell to 2.9% year-on-year in December, reversing market expectations of a first cut in the federal funds rate target by the Federal Open Market Committee on March 20, which was apparently chaired by Jerome. Powell last week. There are analysts who think that the first reduction will happen at the May meeting, and others, more skeptical, see it until the second half of the year.

In the case of Mexico, general inflation increased from 4.33% in November to 4.90% in the first half of January. Inflation in the line of food and beverages increased by 7.36% per year, while inflation in restaurants and hotels grew by 7.01% per year, in goods and services by 6.78%, and in education by 6.52% per year.

In the December Economic Confidence Indicator calculated by Bursametrica using 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 dangerous situation that exists in countless cities within the country, where organized crime cartels rule and enforce the law of the land and the law of terrorism, as well as the crisis of insecurity and killing trucks on the country’s roads, is one of the factors that damage the economic results. Add to this the severe lack of medicines, the poor treatment of medical services, and the lack of rule of law in all sectors of society, which makes it difficult to see economic successes.

World Nation News Desk
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