As usual, DANE released the results of the leading indicators for the month of May. The Economic Tracking Indicator registered a timid growth of 0.6%, which contrasts with the results of industry and commerce, which decreased 3.4% and 5.1%, respectively. Services once again led the economy’s growth and construction registered a recovery compared to the rest of the year. In this summary we analyze the main leading indicators and detail the reasons for the growth recorded in the period. In May, the Economic Tracking Indicator (ISE) registered a growth of 0.6% compared to the same period of the previous year (see Graph). This result represents a recovery with respect to April, which registered a contraction of 0.8%.
The activities that most contributed to the growth were public administration, health, education and artistic activities with 0.6pp, followed by real estate activities with 0.2pp and primary activities with 0.2pp. As for artistic activities, their growth is due to the good performance of online gambling and betting, motivated by the greater number of sporting events that took place in the period. In addition, health and education activities grew due to greater hospitalization services provided and an increase in the number of students enrolled, respectively.
On the other hand, primary activities recorded a favorable performance, where coal and oil production have been boosted. In the case of real estate activities, their dynamics responds to a better performance of the increase in the real estate stock, derived from higher deliveries by the construction sector. In the case of financial activities, which are the next line of contribution, their performance stands out due to the good performance of insurance and intermediation activities, a sector that, despite high interest rates, continues to grow. In addition, the construction sector performed well. Buildings grew due to the increase in the number of apartments in strata 4 and 5 and in destinations such as warehouses and stores. On the other hand, the negative news comes from commerce and tourism. With a contribution of -0.5pp, they were the worst performing sector. This was mainly due to the weakening of demand that has affected merchandise lines such as new vehicles, auto parts and clothing. In addition, the transportation and lodging sector continues to register timid growth that fails to offset the poor performance of commerce. To this, we can add the behavior of manufacturing which, mainly due to the dynamics of spinning and paper and cardboard manufacturing, registers a decrease. Finally, when comparing the sectors with their pre-pandemic levels, it can be observed that, with the exception of primary activities, the rest of the economy surpassed the records of February 2020.
Retail
In May 2023, real retail sales declined 5.1% and employed personnel grew 3.5% relative to the same month in 2022. While the magnitude of the decline is not as steep as in previous months, it is already the fourth consecutive month in which trade activity contracted, causing the 12-month change in retail sales to move ever closer to 0. May retail sales are 12.3% above 2019 average records. For May, all departments presented a contraction in the annual variation of real retail sales excluding fuels and lubricants, with Bogota (-2.3pp), Antioquia (-0.9pp), Cundinamarca (-0.9pp) and Valle del Cauca (-0.9pp) pushing the indicator down the most. In May, retail sales were 12.3% above average records for 2019. That record shows a recovery from previous months and shows that the slowdown in trade has slowed its pace, in line with the rest of the economy.
The economic activities that most pulled down the total variation of trade sales in the month of May were Motor vehicles and motorcycles for household use, between these 2 branches explained 72.5% of the contraction in the annual variation of retail trade sales in May 2023, Although vehicle prices have begun to fall, the reduction has not yet translated into higher consumer demand. In contrast, Motor Vehicle Fuels with a 0.2pp share and an annual change of 1.3%, Alcoholic Beverages and Cigarettes with a 0.2pp share and an annual change of 10.5%, Non-alcoholic Beverages with a 0.2pp share and an annual change of 16.9% were the merchandise lines with the largest positive share of the change in May. This may mean that productivity levels may be decreasing as more labor is needed for fewer sales, or that labor dynamics have not yet captured the reduction in merchants’ income during these months of contraction.
Manufacturing Industry
The real production of the manufacturing industry contracted by 3.4% in its annual variation in May 2023. This figure leads to a negative year-to-date change of 2.3% for the industry’s real production.
The good performance during 2022 as a base and the reduction in demand to pull manufacturing production, due to the loss of household purchasing power, explain the negative figures. This is in line with our forecasts of a slowdown in the Colombian economy during 2023. In addition, May 2023 also shows a 0.1% drop in the number of jobs, which reinforces the lag in the recovery of manufacturing employment in the post-pandemic period. Comparing May 2023 to an average month in 2019, real output is 14.6% higher, while employment is only 0.6% higher than the number of jobs in an average month in 2019. Now, the 12-month variation allows for smoothing the changes in production and decreases noise particular to a specific month. With this in mind, the manufacturing industry still presents a positive real variation of 2.6%.
Conclusions
The growth of the ISE contrasts with the contraction registered in April (0.8%), which surprised analysts. On this occasion, the economy was able to find in artistic and entertainment activities and public administration, education and health a boost to counteract the decreases in commerce and industry. On the other hand, it is worth noting that the construction sector is the bearer of good news. Progress in residential construction increased in May. This gives an important boost to the sector, which is a great generator of employment for the economy. In terms of negative contributions, commerce contracted due to the lower dynamics of new vehicle sales, together with the weakening of demand. Likewise, industry suffered the rigors of the loss of household purchasing power. For example, activities such as spinning and weaving reduced their production due to the decrease in orders from the main warehouses.
In addition, the loss of dynamism in commerce affected the manufacture of paper and cardboard used for packaging goods. Even though the economy managed to get out of negative territory in May, the quarter remains in the red. Key sectors such as industry and commerce, which are an important thermometer of demand, have been registering decreases and compromise the average performance of the economy in the coming months.
Sources:
- Comento Económico ANIF
- DANE
- Investigaciones Económicas Bancolombia, julio 2023
