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Mexican consumer confidence rebound sparks hope

Consumer Confidence MexEnlarge GraphConsumer confidence is an important economic indicator for the health of an economy. Gauging the health of the consumer sector is therefore key for investors trying to understand how market will move next. Key tools for this purpose are consumer confidence surveys; these aim to quantify consumer sentiment by asking questions comparing the current state of the economy versus the previous year. Despite their qualitative nature, answers are assigned a score in order to come up with an index that can be compared to previous periods.

In Mexico, the Mexican Institute for Statistics and Geography (INEGI) publishes several surveys, including a consumer confidence survey. This survey quantifies the consumer’s perception of the economy and it is an important gauge of the Mexican consumer sector. If consumers are doubtful about the economy, they are likely to save rather than spend, potentially delaying a recovery. If on the other hand consumers are optimistic, then they will spend more and hopefully jumpstart the economy.

The October 2012 values for the Mexican consumer confidence survey showed a significant improvement, going back to the highs of Q2 2012 when the Mexican economy started to accelerate its growth. It may be too early to tell, but at least this is a positive point amidst other leading economic indicators implying a slowdown. The bottom line in the graph above shows the survey question on likelihood of buying durable goods, which portrays more sharply the consumer’s conviction in the economy.  This one shows even a larger jump, possibly indicating a change in consumer attitudes.

This survey is a key data point for investors in the iShares MSCI Mexico Index Fund (EWW) or the locally traded iShares NAFTRAC (MEX:NAFTRAC), who may have gotten overly pessimistic based upon other data. It may also impact an overall trend for investors looking at emerging markets through the Vanguard Emerging Market Fund (EEM), the iShares Emerging Market Fund (VWO), and the iShares S&P Latin America Fund (ILF). While consumer confidence on its own may not be enough to rule out a slowdown, it may offer some hope that it may not be as severe.