Macro Analysis /
Global

Mexico: Family remittances – Favorable results extend to February

  • Remittances totaled US$3,910.0 million (+23.3% y/y). The average amount rose, while volumes fell in absolute terms

  • Sequentially, inflows deaccelerated marginally, underpinned by economic and labor market dynamism in the US

  • We stay positive on remittances for 2022, although cautions for 2H22 on high inflation in the US

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

Banorte
1 April 2022
Published by
  • Remittances (February): US$3,910.0 million; Banorte: US$3,919.1mn; consensus: US$3,878.5mn; (range: US$3,766.1mn to US$4,117.6mn) previous: US$3,930.8mn 

  • Inflows keep growing at a double-digit pace (23.3% y/y), underpinned by economic dynamism in the US, which has in turn been reflected in constant employment gains 

  • The average amount sent was US$374.51 (6.7% y/y). Meanwhile, the number of operations stood at 10.4 million (15.6%), affected at the margin by an adverse seasonality 

  • Seasonally adjusted, inflows declined 0.2% m/m, which is not concerning after the +0.9% seen in the previous month. Overall, we believe the longer-term trend still shows favorable dynamics 

  • Remittances will likely maintain a strong pace in the short-term as the US economy has been quite resilient to recent headwinds. Nevertheless, more caution may be granted if the Fed’s hiking cycle is more aggressive than expected, which could hurt dynamism in the second half of the year

Remittances confirm their resiliency in February. The amount stood at US$3,910.0 million, virtually in line with our call, but above consensus. This was below the previous month, albeit recalling that February is typically low as it only has 28 days –except for leap years–. In this sense, inflows grew 23.3% y/y, accelerating at the margin. The evolution of COVID-19 in the US likely helped, with the Omicron wave starting to fade since mid-January, when a maximum of daily cases was reached at almost 1.3 million. Specifically, the economy has been better than expected, in turn reflected in labor market indicators (see below). US PMIs were positive, with manufacturing higher and firmly in expansion (57.3pts), while services accelerated meaningfully (to 56.5pts from 51.2pts). Meanwhile, industrial production and retail sales climbed further in sequential terms. Other figures suggest that demand stayed resilient, allowing companies to pass-on higher costs to consumers. This has fueled inflation and may well be a stronger headwind for the real economy ahead. Nonetheless, at least for now, the economy remained vigorous, keeping us confident about the outlook for inflows despite higher uncertainty.

Volumes lower in absolute terms, but the average amount stays high. The former reached 10.4 million, which is below January’s 10.6 million, not surprising given the abovementioned seasonality. Nevertheless, they grew 15.6% y/y, favorable despite some advantage from a lower base effect. On the other hand, the average amount sent was US$374.51 from US$371.21 previously, positive after two consecutive months moderating. We still think that inflation may affect this measure going forward. On the other hand, wages may help compensate for this, as they are also increasing at a relatively high pace (+5.2% y/y in February and +5.6% in March). We will watch results carefully in the short-term, as we do not rule out an impact from higher gasoline prices in the US, which surged following Russia’s invasion of Ukraine.

Inflows decelerate marginally in sequential terms. Seasonally adjusted, remittances fell 0.2% m/m, quite modest considering the 0.9% expansion in January. In our view, this remains underpinned by economic and labor market dynamism in the US. In this sense, nonfarm payrolls showed 750k new posts in the month, with the unemployment rate dropping to 3.8% from 4.0%, a new post-pandemic low and virtually the same as two years previously. This metric fell about 50bps to 4.4% among Hispanics and Latinos. Going to working-age Mexicans –including ‘natives’, ‘non-native citizens’, and ‘non-citizens’ (legal or illegal)–, total people inched lower by 45,122. Nevertheless, jobs in this group increased by 278.4 thousand, enough for total employees to reach a new historical high of 17.4 million. According to our calculations, this meant that the unemployment rate dipped by 48bps in the period to 5.3%, suggesting that this subgroup is very close to full employment.

We maintain our positive outlook for remittances this year. Today’s favorable results were coupled with the release of March’s labor market data in the US, in which 431k posts were added. The unemployment rate fell again, to 3.6% from 3.8% in the previous month. For Hispanics and Latinos, this metric declined to 4.2%, a new low since October 2019. Although we still need to see the specifics about dynamics among Mexican migrants, these results suggest a further improvement in labor conditions for this subgroup. This is more positive recalling that uncertainty has picked up on the war in Ukraine, with the invasion starting on February 24th. Despite of the imposed sanctions and strong upward reaction in commodity prices since then, the US economy has likely weathered the event mostly unscathed (at least for now). In this sense, both the US PMI manufacturing and services from S&P Global (previously Markit) increased further, with the latter at its highest since July last year.

In other news, we highlight Banxico’s announcement of changes in the rules that govern the electronics payment system for domestic transactions, known as SPEI. Among other measures, the central bank stated that they will: (1) Allow the transfer of resources identifying the beneficiary only with the 10-digits of his/her mobile phone; (2) regulate the indirect participation of financial entities in the system; and (3) strengthen the processing of remittances. We do not rule out that these measures may help broaden the options available for migrants to send their resources back home.

Nevertheless, we believe its greatest benefit will likely be for final recipients, not necessarily in the total amounts sent. Either way, it is our take that these are positive news for handling and dispersing resources.

Despite of this, some issues should be considered going into the second half of the year. Among them, the possible effect of higher inflation on growth and the response from the Fed are the most relevant for the employment outlook among migrants. A very aggressive hiking cycle will likely hit aggregate demand (with some lag), which in turn would cool-off the pace of job and wage gains. Although our view remains that the pace will be lower than market expectations, risks have been decisively on the rise. Moreover, we maintain our GDP growth view in the US at 3.5% in 2022. Overall, we stay positive on remittances, although we are a little more cautious about the trend in the medium term given these potential headwinds.