Despite Unemployment Dip, Mexico Stocks Flatline Dimitra DeFotis - Barrons
go to original August 31, 2015

Mexico’s unemployment slipped to 4.3 percent in July from 4.4 percent in June, but the iShares MSCI Mexico Capped ETF is flat today despite a nice jump in the shares of bread and baking company Grupo Bimbo.

The drop in joblessness is “for the wrong reason,” writes William Adams, international economist for PNC Financial Services Group. He writes:

“The seasonally adjusted labor force participation rate, the share of working-aged persons who are either working or seeking work, fell in July to 59.3 percent (among those aged 15 or older) from 59.6 percent in June and 59.8 percent in February 2015. In other words, July’s decline in the unemployment rate obscures substantial slack remaining in Mexico’s labor market.

The Bank of Mexico would like to follow the Federal Reserve in hiking interest rates later this year, but domestic conditions argue against tightening policy now. In addition to the labor market slack evident in today’s employment report, real GDP growth is being held below potential by government spending cuts and weak mining output, and inflation is its weakest since 1969. … There is a significant possibility that Mexico raises rates later or more slowly than the United States in 2015 and 2016.”

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