Mexican consumer confidence drops sharply in July

August 09, 2004 -- Mexican consumer confidence dropped 3.6 percent in July compared with June as Mexicans became much more pessimistic about their economy's long-term outlook despite the recovery currently under way.

The consumer confidence index fell 4.5 percent compared with July of last year, the national statistics institute said on Tuesday. The index fell to 96.0 points, its lowest level since February.

The unexpected decline shows that, despite a pickup in manufacturing exports to the United States, many Mexicans have yet to feel the effects of the economic recovery in their wallets, analysts said.

"Most of the country is still in bad shape," said Jaime Ascencio, an economist at Bursametrica Management in Mexico City. "Economic indicators show that Mexico is getting better. Life on the street tells another story."

Unemployment in Mexico has remained stubbornly high. Retail sales have shown healthy growth, but they have been driven mostly by expanding credit rather than broad-based prosperity.

Data within the confidence study showed the sharpest declines came in Mexicans' perceptions of how the economy will perform 12 months from now, and in their willingness to buy high-cost household goods like televisions and furniture.

"This shows people are disappointed. They expected things to get better this year, and they just haven't seen it happen," Ascencio said.

Analysts said, however, that the drop in consumer confidence was unlikely to lead to a slowdown in domestic consumption since upper-income families, who drive most economic activity in Mexico, seem to be doing well.

"The economy overall still looks fine," said Rafael de la Fuente, an economist at BNP in New York. "You've got strong retail sales, and unemployment looks OK."

Private economists say Mexico's long-term fate is directly tied to the performance of the U.S. economy, where Mexico sends 90 percent of its exports.

The Conference Board, a U.S.-based private research group, said in mid-July that its leading economic index indicated Mexico's economic recovery might lose steam later this year.