Retailers’ rebound imperiled by Mexico’s worst poverty in 14 years

  • Bloomberg News.
  • Tuesday, July 28, 2015 1:00pm
  • Business

MEXICO CITY – Just as Mexico’s consumer sector begins to emerge from the doldrums of the 2009 recession, a new government report suggests the recovery’s foundation is on shaky ground.

An additional 2 million Mexicans have become poor since 2012, pushing one poverty gauge to a 14-year high, Mexico’s social policy evaluation council said. The data show the challenges faced by President Enrique Pena Nieto to meet campaign promises to lift millions out of poverty and expand the middle class.

The report is also spurring questions about whether first-half consumer spending gains had more to do with government outlays for mid-term elections and a favorable comparison to 2014, when new sales taxes hit shoppers, and less to do with a sustainable recovery. Rallies at companies like Wal-Mart de Mexico SAB and Kimberly Clark de Mexico SAB may not have much fuel left in them.

Rising poverty “poses a risk for all retailers,” said Giselle Mojica, an analyst at Monex Casa de Bolsa. “There could be an impact on formats that target low-income shoppers. With people’s purchasing power falling, they wouldn’t be able to shop there and they’d focus more on informal and roving markets. It’s cheaper there and they can bargain.”

Wal-Mex’s shares plunged the most since August 2012 on July 22 after second-quarter earnings missed analysts’ estimates. JPMorgan Chase &Co. said profit margins will probably narrow as the company lowered prices to reignite store traffic. Wal-Mex rose 1.6 percent to 38.94 pesos at 10:18 a.m. Tuesday in Mexico City.

Coneval, the social policy evaluation council, conducts the poverty study every two years. Based on income alone, poverty climbed to 53 percent from 43 percent in 2006, the highest since 2000.

On a broader metric, taking into account access to basic services such as education, the numbers were lower but still pointing in the wrong direction. In 2014, 46.2 percent of Mexicans, or 55.3 million people, fell below that version of the poverty line, up 44.3 percent from 2008.

Average household income in Mexico dropped 3.5 percent in real terms in 2014 from 2012, according to Coneval. That’s just one sign of stagnant salaries in Mexico, pressuring policy makers in September to announce a committee to study the minimum wage. The group has yet to decide on raising it from 70.10 pesos per day in Mexico City. The rate has plunged 70 percent in the past four decades in inflation-adjusted terms, according to Bank of America.

“My salary is frozen, but prices keep rising,” said Andrea Martinez, who cleans houses for 4,000 pesos ($246) a month and switched last year from shopping at Wal-Mex discount stores to street markets. “It’s more affordable.”

Negative net migration to the U.S. from Mexico is “crowding” the labor market and slow economic growth is hurting chances of accommodating those workers to help curb poverty, said Pia Orrenius, an economist at the Federal Reserve Bank of Dallas.

The number of undocumented Mexicans in the U.S. fell to 5.9 million in 2012 from 6.9 million in 2007, according to the Pew Research Center. That also means fewer workers in the U.S. sending money home to their relatives in Mexico, Orrenius said.

She said growth in anti-poverty efforts are likely to slow by limited government spending because of falling prices for oil, which accounts for about a third of the federal budget.

Consumers’ early gains this year may not be sustainable, said Francisco Guzman, an analyst at Interacciones Casa de Bolsa SA. The increases may have been overstated by political-campaign spending and easy comparisons with 2014, when new taxes took effect, he said.

Mexico defines as poor families whose monthly income is below 2,595 pesos per mouth to feed in cities and 1,659 pesos in villages, and that lack a basic need like education, health or living space.

Alicia Garcia Gonzalez falls in that category. Her husband earns about 2,000 pesos a month working corn fields in a village 138 kilometers (88 miles) northwest of Mexico City for her and her four children, she says. They share one room in her mother- in-law’s adobe home, a space considered insufficient by government standards.

“I no longer buy fruit,” said Garcia, 40, who wore a rhinestone-studded belt and scarf to swaddle her 2-year- old daughter as she shopped at Mexico City’s Lagunilla market. “We eat meat once a month.”

There are several positive signs for Mexico’s consumer industry, according to Grupo Financiero Santander Mexico SAB, thanks to slowing inflation, lower unemployment and a shrinking informal economy.

Retail sales were growing more than 4 percent each month on an annual basis through May, a sign that the industry is improving this year, according to Orrenius of the Dallas Fed. A depreciating peso will also help poor families that receive remittances in dollars, said Interacciones’ Guzman.

That may not be enough to persuade Andrea Martinez to return to the aisles of Wal-Mex’s Bodega Aurrera discount chain near her house. On Saturday, she purchased 200-peso knockoff Adidas high tops for her grandson at a Mexico City street market.

“Ten years ago, 200 pesos a day was a real salary,” said Martinez, who also supports her husband. “Not anymore.”

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.