The leading index for Mexico decreased 0.2 percent in March, and the coincident index decreased 0.3 percent, The Conference Board reports today. Taken together, the two composite indexes show that the slowdown in economic activity in Mexico is likely to continue in the coming months.

• The leading index has decreased in five of the last six months and this weakness has been widespread among its components over the same period. The drop in the leading index points to weakening economic activity in the coming months.
• With the decrease in March, the leading index is almost 2 percent below its highest value attained last September. However, this is still above its highest value attained during the recovery after the last recession.
• The coincident index, a measure of current economic activity, has been flat over the past six months. Despite sharp decreases in its production and employment components, strong retail sales has contributed to the relative strength of the coincident index.

LEADING INDICATORS. Three of the six components that make up the leading index decreased in March. The negative contributors to the index - from the largest negative contributor to the smallest - are US refiners' acquisition costs of imported crude oil, stock prices and real exchange rate. The positive contributors to the index -from the largest positive contributor to the smallest - are net insufficient inventories, inverted federal funds rate, and industrial production in construction industries. (For details see data availability section and tables).

With the decrease of 0.2 percent, the leading index now stands at 105.2 (1990=100). This index decreased 0.1 percent in February and 0.2 percent in January. During the six-month span through March, the index decreased 1.8 percent, and all six components decreased (diffusion index, six-month span equals 0.0 percent).

The next release is scheduled for July 3, 2001 at 10:00 A.M. (MEX)

COINCIDENT INDICATORS. Three of the four components that make up the coincident index decreased in March. The negative contributors - in order from largest negative contributor to the smallest - are industrial production, number employed (measured by IMSS beneficiaries), and unemployment rate. The only positive contributor is retail sales. (For details see data availability section and tables).

With the decrease of 0.3 percent in March, the coincident index now stands at 113.4 (1990=100). This index remained steady in February and decreased 0.1 percent in January. During the six-month span through March, the index decreased 0.3 percent, and three of the four components advanced (diffusion index, six-month span equals 62.5 percent).

DATA AVAILABILITY. The data series used to compute the two composite indexes reported in the tables in this release are those available "as of" 10 A.M. (MEX) June 1, 2001. At the time of the release, recent data for several of the series were based on estimates. In the leading index, recent data for industrial production for construction and real exchange rate were based on estimates. In the coincident index, recent data for retail sales was also based on estimates.

Professional Contacts at The Conference Board:
Ataman Ozyildirim: 1-212-339-0399
Mike Fort: 1-212-339-0402

Media Contacts:
Randy Poe: 1-212-339-0234
Frank Tortorici: 1-212-339-0231

Website: http://www.globalindicators.org

THE CYCLICAL INDICATOR APPROACH. The composite indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading and coincident indexes are essentially composite averages of between four and nine individual leading or coincident indicators. (See page 3 for details.) They are constructed to summarize and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component-primarily because they smooth out some of the volatility of individual components.

Historically, the cyclical turning points in the leading index have occurred before those in aggregate economic activity, while the cyclical turning points in the coincident index have occurred at about the same time as those in aggregate economic activity.

A change in direction in a composite index does not signal a cyclical turning point unless the movement is of significant size, duration, and scope. Historical analysis with U.S. data shows recession warnings are best determined by looking for negative growth of about 3.5 percent, coupled with declines in at least half of the components over a six-month span. Further explanations of the cyclical indicator approach and the composite index methodology appear in The Conference Board's Business Cycle Indicators report and Web site: www.globalindicators.org.

Mexico Composite Indexes: Components and Standardization Factors

	Leading Index	Factor
1.	Industrial Production, Construction Component	.0262
2.	Stock Prices	.0168
3.	US Refiners' Acquisition Cost of Domestic and Imported Crude Oil	.0272
4.	Net Insufficient Inventories	.1255
5.	Federal Funds Rate	.0289
6.	Real Exchange Rate	.7754

Coincident Index

1.	Industrial Production	.1086
2.	Retail Sales	.0504
3.	Employment	.1663
4.	Unemployment Rate	.6747

Notes:
The component factors are inversely related to the standard deviation of the month-to-month changes in each component. They are used to equalize the volatility of the contribution from each component and are "normalized" to sum to 1. (Under normal circumstances, updates to the leading and coincident indexes only incorporate revisions to data over the past six months.)

The factors above were calculated using 1985-1999 as the sample period for measuring volatility for the leading index, and 1986-1999 as the sample period for the coincident index. There are additional sample periods as the result of different starting dates for the component data. When one or more components is missing, the other factors are adjusted proportionately to ensure that the total continues to sum to 1. For additional information on the standardization factors and the index methodology visit our Web site: www.globalindicators.org.

To address the problem of lags in available data, those leading and coincident indicators that are not available at the time of publication are estimated using statistical imputation. An autoregressive model is used to estimate each component. The resulting indexes are constructed using real and estimated data, and will be revised as the data unavailable at the time of publication become available. Such revisions are part of the monthly data revisions, now a regular part of the U.S. Business Cycle Indicators program. The main advantage of this procedure is to utilize in the leading index the data, such as stock prices, that are available sooner than other data on "real" aspects of the economy, such as new orders and changes in inventory. Empirical research by The Conference Board suggests there are real gains in adopting this procedure to make all the indicator series as up-to-date as possible.