With the recent drop, the index is now below the five year average
Industry confidence surveys are useful in gauging the current sentiment and outlook of managers in the industrial sector of the economy.
In Brazil, the industry confidence index (ICI) is split into two sub-indices, the current situation index (ISA) and the expectations index (IE). Each sub-index is composed of several factors, all of which have values from 0 to 200, where 100 is the neutral point and values above and below imply growth and contraction, respectively.
In the latest survey, both sub-indices dropped
The ISA sub-index dropped 0.7%, which while modest now places it below the five year average
The IE sub-index dropped 0.9%, though still remains above the five year average
Pessimistic sentiment on current outlook
The ISA sub-index shows that there is significant lack of satisfaction with the current situation. The drop was driven by the fall in demand; its factor dropped 1.3% versus the previous month and is now at the 100 point neutral level.
The interesting dynamic is that both the proportion of people reporting stronger demand and those reporting weaker demand increased (people reporting neutral change in demand dropped). This points to a polarization in the recovery, where some companies are seeing growth in demand while others see contraction.
Bleak expectations for the near future
The IE index shows that expectations for the upcoming months remain moderately optimistic, but is getting close to neutral. The drop was driven by the fall in the employment factor, which dropped 2.0% versus the previous month. More companies reported foreseeing a reduction in employment over the next three months.
The data is negative for Brazil, as the industrial sector is quite sensitive to changes in consumer demand; the drop implies a bleak outlook for the overall economy over the next few months.
© 2013 Market Realist, Inc.