Macro Analysis /

Mexico: Retail sales extend gains in November despite price headwinds

  • Retail sales rose 0.9% m/m (5.4% y/y), likely boosted by stronger fundamentals and the discount season

  • This is evidenced by sector dynamics, noting strong increases in internet sales (8.4% m/m) and appliances (4.9%)

  • Signals for December are good, but uncertainty is high as virus dynamics worsened at the start of 2022

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

26 January 2022
Published byBanorte
  • Retail sales (November): 5.4% y/y; Banorte: 3.1%; consensus: 3.1% (range: 0.4% to 6.1%); previous: 5.3% 

  • In monthly terms, sales grew 0.9%, strong considering relevant gains in the past three months. This upward surprise suggests good results from El Buen Fin (Mexico’s Black Friday), helped by better fundamentals and despite price pressures 

  • Sector performance was favorable. Growth was led by internet sales (8.4% m/m), appliances and computers (4.9%), and supermarket and departmental (4.4%), in our view consistent with both COVID-19 caution and goods perceived as those with the heaviest discounts. Only vehicles and fuels (-1.4%) declined 

  • Signals for December look positive, but uncertainty remains high as COVID-19 dynamics worsened at the start of 2022 and price pressures remain high

Retail sales up 5.4% y/y in November. This was above consensus at 3.1%, which matched our estimate. The period is benefited by a calendar effect, with one more working day in the annual comparison. As such, using seasonally adjusted figures, sales rose 4.2% y/y (previous: 6.3%). Relevant for the sector, fundamentals for consumption kept improving during the month, with an additional uptick in job creation, an improvement in consumer loans and strong remittances –at US$4,665.2 million, despite adverse seasonality–. Moreover, results likely were boosted by discounts from El Buen Fin (Mexico’s Black Friday), which took place during the month. Hence, these factors seem to have been strong enough to outweigh for price pressures, which remain as a key headwind for consumers’ purchasing power.

Sequential growth continues. Retail sales grew 0.9% m/m, accelerating at the margin and positive considering accumulated gains in the past three months. Despite high inflation in some key items, relative scarcity –due to supply constraints– and higher energy costs, consumers seem to have taken advantage of better virus’ dynamics and discounts. These drivers look more evident when analyzing sector dynamics. Specifically, growth was led by internet sales (8.4%), which we believe have gained significant market share in recent years, likely been boosted further by fears about COVID-19, as well as discounts. Appliances and computers picked up 4.9%, with consumers particularly interested in bargains in electronic goods (e.g. TVs, refrigerators, kitchen appliances, etc.). Supermarkets and departmental stores grew 4.4%. The only category that fell was vehicles and fuel (-1.4%), which have been very sluggish and mostly to the downside since June.

Favorable signals for December, but with higher uncertainty ahead. Immediate figures suggest some resilience, which would be positive considering prevailing trends in activity. Specifically, some of the main supports include: (1) Stability in virus conditions, with the ‘traffic light’ indicator showing states in ‘green’ oscillating between 27 and 28, with the rest in ‘yellow’; (2) higher mobility, in part boosted by the holidays; and (3) better fundamentals, highlighting additional employment gains in the period. At the margin, something important is that annual inflation moderated, aided by downward adjustments in fruits and vegetables and LP gas. Although this could free up some resources for higher spending in other fronts, pressures in core goods could offset for this. Related to the latter, although consumer confidence backtracked to 44.5pts, the purchasing power component was stable at 26.4pts. This may well be reflecting also the expectation of a 22% increase to the minimum wage. On timely data, ANTAD sales rebounded strongly, with all-stores up +8.0% y/y in real terms, while same-stores stood at +5.9%, both at their highest since July. Meanwhile, vehicle sales totaled 97.4 thousand units, which implies a 7.9% m/m advance (in-our in-house seasonal adjustment model).

Nevertheless, the outlook for 2022 has clouded, mainly due to more challenging virus conditions. Specifically, we have had a strong increase in cases because of ‘Omicron’, with a total of 750.9 thousand new cases accumulated so far in the month. As such, the ‘traffic light’ indicator has deteriorated (with the last one showing 1 state in ‘red’, 9 in ‘orange’, 10 in ‘yellow’ and 12 in ‘green’), with overall mobility levels adjusting lower (led by public transportation).

Moreover, several press reports state that work absenteeism has increased, resulting in some businesses closing –the most salient being flight cancelations in air transportation– which could dampen activity Nevertheless, considering that advanced data point to less severe strains, it might be that the overall impact is more modest.

All in all, we believe the short-term outlook has become more challenging, especially front-loaded to the first months of the year. Despite of this, it is our take that conditions for the medium-term are more favorable, with fundamentals such as employment, remittances and credit recovering further. In turn, this should help drive the sector in 2022, with the main risk being that high inflation –both abroad and domestically– extends well into the year, affecting both current households’ purchasing power and inflation expectations.