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Thread: If the U.S. enters a recession, what happens to the economy of Mexico?

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    Default If the U.S. enters a recession, what happens to the economy of Mexico?

    I was listening to NPR this morning, and turned on the radio in the middle of some comments about how a slowing U.S. economy might harm the economy of Mexico.

    A professor at a Mexican university, possibly from the field of economics, mentioned something interesting. That being the Mexican workers who are sending remittances home, are usually employed in fields where they are most vulnerable to layoffs/firings during an economic slowdown in the U.S.(e.g., construction)

    So if the U.S. economy catches an "economic cold," will the Mexican economy fare in a similar manner, or will it be more like "economic pneumonia" there? Given how dependent the Mexican government has become upon these remittances, I don't really know what might happen in both the short-term and long-term. I can only think of one friend who always talks about weighing the potential positives against the potential negatives re: anything an individual (or a country) chooses to do in life.

    There was also a comment from a Mexican politician who was actually upset so many of Mexico's people have left for the U.S., leaving many Mexican towns almost wiped out, as to population. However, his comment is just a sidenote re: the economic issue.

    I also heard mentioned on the radio today that consumer spending on new clothing has been dropping as people look to pay for their gasoline to get to and from work. Not sure if that might be a tiny indicator of a possible recession arriving in the U.S. by the end of the year or not.

    Anyway, how do you think both the U.S. and Mexican economies will fare if the U.S. economy does enter a recession?
    Last edited by PhaedrusZ; 05-11-2007 at 12:17 PM. Reason: added material

  2. #2
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    Default Re: If the U.S. enters a recession, what happens to the economy of Mexico?

    What's the deal with all this talk I'm hearing lately about "if" there is "going" to be a recession? It's already here. We're already in it. Let's make the switch to the present tense, everyone!

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    Default Re: If the U.S. enters a recession, what happens to the economy of Mexico?

    ^^^ re the recession already being here ... lots of areas are deeply in recession already, while some other areas still enjoy a rose colored view !!!

    As to Mexico, yes this is a very apt analogy that if the US economy catches a cold that the Mexican economy catches pneumonia. Mexico's #1 cash cow is the Catarell oil field, which provides huge amounts of revenue to the Mexican gov't via state owned oil company Pemex. Catarell is experiencing huge declines in the rate of oil production, which is bad news for both Mexico and the US (since this field was a major major source of US oil imports).

    Mexico's #2 cash cow is/was remittances from Mexicans living and working in America. Yesterday I posted a piece in dollar den that essentially draws the same conclusion as your professor ... that Mexicans illegally entering America do so because of the availability of jobs - jobs which are often 'low end' and insecure by US standards, but which pay very well by Mexican standards. So yes, the massive layoffs in the construction industry made a big dent. Second round layoffs i.e. landscaping, remodeling, and other service businesses made an additional dent. Crackdowns by DHS on US corporate employers of illegal aliens, with high profile busts, with actual fines against the US corporations, and with lots of negative publicity have also taken some toll in levels of employment of illegal aliens in downscale manufacturing, food preparation, agriculture etc. have made a third dent. And last but not least, many Mexican-American businesses actually catered to neighborhood customers ... many of whom were here illegally ... and many of whom are now gone ... thus cutting into the profit margin / income available for even established Mexican-American business operators to send money home to relatives in Mexico.

    In Mexico itself, things are not good either. A significant portion of 'good paying' Mexican jobs are related to Maquiladora factories producing components or products for the US market - a US market usually tied to automotive or appliances or other durable goods. As the US home equity extraction engine runs out of gas with housing prices no longer climbing, demand for autos and appliances and durable goods has dropped precipitously ... and with it the demand for products from Maquiladora factories ... and with it 'good paying' Mexican jobs.

    On another tack, the Mexican peso is 'manipulated' to maintain an exchange rate that is closely related to the US dollar. Thus the exact same problem of rising prices for 'world market commodities' like oil and food and raw materials that the US consumer / producer is facing are also being faced by Mexican consumers / producers. The Mexican gov't's hands are sort of tied in regard to letting the Peso 'float' upward which would reduce their apparent price of oil and food and raw materials, but the same upward 'float' would also make Mexican products more expensive for Americans ... which could prompt some US corporations to look for new even lower cost suppliers from Asia instead of continuing to buy from the Mexican Maquiladoras.

    Lastly, one of Mexico's other sources of income is US tourism. However, as more and more Americans find their finances pinched by rising ARM payments, rising state & local taxes, rising energy costs etc. many of those Americans are looking to economize on vacation spending. This often results in dumping plans for flying the family to Cancun in favor of driving the family to some nearby American vacation spot ... which saves the family quite a bit in air fares, but which causes a 100% loss of income to Mexico. And the spotty news coverage of 'civil unrest' in various parts of Mexico over the last election, over corn prices, etc. have caused some Americans to opt out of a Mexican visit even if the cost wasn't really a factor.


    As to dropping retail sales figures in the US, I also posted a piece about this in dollar den. Basically the more 'downscale' the retailer, the worse their sales fell off ! However, some retailers like Saks 5th Avenue are experiencing big GAINS in sales ! This more or less proves the point that inflation is really starting to take a bite out of every American's pocket, but the rich are also seeing inflation of their incomes via the US stock market and/or offshore investments while the incomes of middle / working class Americans remains stagnant (or drops due to elimination of union jobs / outsourcing, with 'replacement' non-union jobs paying much less ).

    IMHO given that dancers are selling a 'luxury' service, or at least a service that is 'non-essential', I would wager that the future of dancing income potential will be closely linked to the retail sales data ... i.e. dancers working at super-upscale clubs that attract the same customers as Saks 5th Avenue will probably see customer spending levels increase, while dancers working at working class clubs are likely to be very disappointed as their customer base eliminates more and more discretionary expense items from their budgets in order to compensate for rising energy prices / rising food prices / increased state & local taxes / rising ARM monthly payments etc.

    ~
    Last edited by Melonie; 05-11-2007 at 06:08 PM.

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