Volume 44, Number 173,
April-June 2013
From Recession to Recovery:
Production and Employment in Mexico and The State of Mexico
Pablo Mejía, Sandra Ochoa and Miguel Ángel Díaz
CLASSICAL ECONOMIC CYCLES: ASPECTS OF THE METHODOLOGY

This text analyzes the magnitude of losses and recovery of production and employment in Mexico and The State of Mexico, as well as a series of variables that may have acted as transmission mechanisms during the recent us economic cycle. The classical economic cycle approach introduced by Artis et al. (1997) is therefore used, which highlights the features of the two regimes or phases of the cycle: expansion and recession.10

According to this approach, a recession is defined as a period of decline in economic activity that follows the highest absolute value of the variable used (called the peak) and expansion as the lapse of time during which there is an increase in productive activity following its lowest value (called the valley). Because the economy moves from an expansion to a recession or vice versa between peaks and valleys, these values are called turning points.11 Once these have been identified, it is possible to measure the duration and amplitude of the cycle and its corresponding regimes or phases. Duration refers to the number of months to complete a cycle and may be measured by time lapsed between two successive peaks or valleys.12 Amplitude measures the magnitude of the drop (increase) in the absolute level of the variable during the recession (expansion). For a visual analysis of the behavior of variables during the phases of the cycle, figures are used to measure the rate of cumulative percentage growth with respect to the peak that marks the beginning of the Great Recession on the vertical axis, as well as the time period that transpires starting from that point on the horizontal axis: period 0 corresponds to the date of the peak.13 Because this may vary, the series that appear in the figures end in different periods, although the sample includes the last data point from 2010 in all cases. To clarify the interpretation, some additional comments are provided for the first figures.

FROM THE GREAT RECESSION TO RECOVERY: EFFECTS ON PRODUCTION AND EMPLOYMENT

The effects of the Great Recession and the us recovery that followed were not only rapidly transmitted in a magnified fashion to the Mexican economy, but were also manifested in different ways depending on the region and sector. Different indicators were used to quantify these effects on the economies of Mexico and The State of Mexico.14 First, the real gdp is used as the most aggregate measure of production to characterize the phases of the us cycle and from there, evaluate its effects on the Mexican cycle (represented by the corresponding gdp). Analogously, as a more specific measure to capture the dynamics of the economic cycle as a function of external shocks, the monthly manufacturing production index was included, which is also available for the State of Mexico. Secondly, to compare how production and employment reacted in the national and state economies, the Quarterly Indicator of State Economic Activity (itaee, in Spanish) and the number of workers enrolled in the Mexican Social Security Institute (imss) were used,15 respectively. In both cases, the total values and those for the secondary and tertiary sectors were taken. Employment was in turn broken down into temporary and permanent. The analysis period goes from 2007 to the last month or quarter of 2010, although the sample analyzed in each case varies slightly as a function of the start date of the specific “recession.”

Effects on National and State Production

The classical cycles approach was used to date the start of the specific recession (peak) and subsequent expansion (valley) in each of the analyzed variables, allowing for the measurement of the duration and magnitude of both regimes in each case. The results for gdp and manufacturing production are shown in Table 1 and in panels (a) and (b) of Figure 1.16 Information in Table 1 shows that the recession, as measured by gdp, began two quarters earlier in Mexico than in the us, and that it lasted an additional quarter in Mexico (four versus three). The increased sensitivity of us and Mexican manufacturing production meant that losses began 5 and 2 months before the nber declared that the previous expansion period had ended,17 while the us manufacturing recession was longer (23 months) than in Mexico (16 months). At the same time, the State of Mexico manufacturing recession started later (not until the fifth month of 2008) and was the shortest of the three (14 months). Its end was perfectly synchronized with the end of the us recession.

10 This approach supports the analysis of the National Bureau of Economic Research (nber), a private non-profit institution that seeks to define the regimes of us economic cycles. The main advantage of the methodology used by Artis et al. (1997) is that it precisely reproduces the turning points of us cycles determined by the nber. To learn more about the study of this approach, see the references cited in Artis et al. (1997).

11 According to the Artis et al. (1997) methodology, in order to eliminate the effects of erratic fluctuations of small magnitude and duration, anomalous observations are excluded and the resulting series is moderated with a moving average of 7 months. The turning points are identified in the corrected series and in the moderated one: if the two agree, the definitive points are given dates in the original series.

12 Analogous definitions can be applied to expansion and recession.

13 This approach is essentially the same as the one used by the nber, although the latter indexes the behavior of the variable by equating its peak value with 100.

14 Analysis of economic cycles at the regional level is nascent in Mexico, largely due to the lack of statistical information of high frequency. This document makes use of available information. The quarterly and monthly data is noted as 2009.ii and 2009.07, respectively.

15 This variable may be considered as a measure of formal employment in the private sector and in this sense is a reasonably good reflection of the cyclical behavior of total employment. However, it excludes employment in public institutions and informal employment. In principal, it should be expected that the former has less pronounced cyclical behavior, while the latter has more pronounced cyclical behavior during times of recession.

16 gdp data for the us was taken from the web site of the Bureau of Economic Analysis (bea, www.bea.org). Mexican data was taken from the National Institute of Geography and Statistics (inegi, www.inegi.org.mx), and employment data from the imss (www.imss.gob.mx). Seasonal effects were removed from all series using EViews 6.0 and the X-12 arima method, when necessary.

17 The nber declared that the expansion that began at the beginning of the last decade ended in December 2007, marking the start of what would be called the Great Recession, which ended in June 2009 (see the report at www.nber.org).

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 193, April-June 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Moritz Cruz. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: June 27th, 2018.
The opinions expressed by authors do not necessarily reflect those of the editor of the publication.
Permission to reproduce all or part of the published texts is granted provided the source is cited in full including the web address.
Credits | Contact

The online journal Problemas del Desarrollo. Revista Latinoamericana de Economía corresponds to the printed edition of the same title with ISSN 0301-7036