Domestic Consumption Cools Amid Fragile Employment, Weaker Purchasing Power from Remittances, and Food Inflation Heading into 2026
By late 2025, the Mexican economy is showing signs of fatigue in its domestic demand. Formal job creation is slowing, remittances have less impact, and food inflation remains high—a combination that erodes household purchasing power and signals a moderate level of consumption in 2026, despite continued strength in exports. Analysts warn that without a rebound in investment and an improvement in formal employment, the domestic market may continue to lag behind the dynamism of the external sector.
Between January and September, 333,303 new formal jobs were registered with the IMSS, a 26.97% drop compared to the same period in 2024, marking the lowest level for a comparable year since 2009 (excluding 2020). In addition, the number of registered employers has dropped for 17 consecutive months—a pattern associated with recessionary phases—while informality rose to 54.88%, the equivalent of 32 million people. According to experts such as Gabriela Siller from Banco BASE, this combination indicates a labor market with less capacity to absorb the new workforce and more precarious conditions for those entering through informal channels.
Household disposable income is also taking a hit due to the reduced effectiveness of remittances. Although remittance flows from the U.S. remain high, their purchasing power has eroded by around 13% because of persistent food inflation and episodes of peso appreciation, which reduce the value when converted to local currency. According to private sector estimates, real wages have improved, but slower job growth, less impactful remittances, and more cautious consumption have slowed the overall growth in family income, as noted by Alejandro Saldaña, Chief Economist at Bx+.
Private consumption—which accounts for about 48% of GDP—shows signs of stagnation: of the seven months with data available in 2025, four showed month-over-month contractions. High interest rates and a scarcity of credit for consumption and microenterprises have limited demand, alongside weaker consumer confidence due to both local and global uncertainty. While headline inflation has eased from the peaks of 2022, core food inflation remains above Banco de México’s target, making basic purchases more expensive and putting pressure on everyday spending.
On the investment front, after the so-called first wave of nearshoring, gross fixed investment marked eleven consecutive months of negative annual rates through July 2025, accumulating a decline of 7.19%. Public investment in infrastructure fell 33.7% between January and August, the steepest drop on comparable record. Business caution reflects both the upcoming USMCA review set for 2026 and domestic regulatory changes, along with supply constraints—electricity, water, and permits—that either raise costs or delay projects. While manufacturing exports remain supported by U.S. demand, this momentum has yet to translate into a clear increase in new productive capacity or formal employment.
On the fiscal front, adjustments to spending and transfers are shrinking the income buffer for households. By the end of August, spending on subsidies and transfers was down 4.1% year-over-year, and other social supports dropped by more than 60% in the first eight months of the year. Looking ahead to 2026, fiscal consolidation and normalization of spending after major projects add further restrictions to domestic demand, at a time when core inflation has yet to fully converge to its target.
Going forward, performance will depend on several catalysts. A gradual cycle of rate cuts by Banco de México—conditional on inflation continuing to fall—would improve financing conditions, though the passthrough to credit and real activity tends to be slow. The USMCA update in 2026 could reduce uncertainty and enable a “second wave” of nearshoring if matched by regulatory certainty and investment in energy and logistics. The World Cup would provide a temporary boost to services in host cities, but it is unlikely to compensate for weak productive investment on its own.
The risks are significant: a sharper slowdown in the U.S., greater exchange rate volatility, fiscal challenges and the financing needs of state-owned firms, as well as ongoing infrastructure bottlenecks, could continue to dampen investment appetite. To break this inertia, consulted economists agree that it will be necessary to revive both public and private investment, strengthen the rule of law, accelerate formal employment, and boost productivity, especially among micro and small businesses.
In short, Mexico heads into 2026 with a resilient external sector but a fragile internal market. Without a recovery in investment and formal job growth, consumption will remain under pressure, and growth will lean more on exports than on domestic momentum. A focus on regulatory certainty, infrastructure, and competition will be key to making nearshoring and lower interest rates translate into a sustained upturn.
Final observation: Cooling job growth, lower remittance effectiveness, and food inflation point to a year of modest growth in 2026. The outcome will depend on the ability to revive investment, consolidate disinflation without stifling demand, and provide certainty under the USMCA framework. The World Cup boost will be limited; the underlying challenge is to raise productivity and formal employment.
