Mexican retail sales trending up, but likely slowed sequentially in Q2

Mexican retail sales growth until April this year has trended up mostly on base effects. With the forecast of 5.0% yoy growth in May, average retail sales growth this year stands at 5.1% yoy.

The strong base effect from Q1 could well ensure that sales growth on a seasonally-adjusted basis actually slowed sequentially in Q2. Surely this presents downside risks to the near-term consumption and growth forecasts.

The correlation between retail sales and overall consumption growth is quite weak. The key to stronger growth in consumption remains further improvements in the labour market.

Not only it is still operating below full-employment level, but also the unemployment rate actually rose in Q2 as industrial growth struggled. 

"Labour market has to improve substantially to boost wage growth and consumer confidence meaningfully. As a result, it is likely that consumption will take time to improve substantially", says Societe Generale.