Mexico: Activity in manufacturing sector enters into contraction mode
January 2, 2015
In December, the seasonally-adjusted manufacturing indicator elaborated by the Mexican Institute of Finance Executives (IMEF) fell to 49.7 from a revised 52.6 in November (previously reported: 53.0). The result, which caught the markets by surprise as they had expected a reading of 53.5, suggested that manufacturing activity entered into contraction territory as the index fell below the 50-threshold that separates expansion from contraction. In addition, the index fell to the lowest level in five months.
December’s deterioration was broad based. It reflected a sharp decline in new orders, which reached an 11-month low. In addition, employment deteriorated significantly as the sub-indicator fell to the lowest level in over five years. In addition, production level dropped to a 16-month low, while inventories fell to the lowest level in five months. Supply deliveries registered an improvement. The drop in the IMEF manufacturing also followed a decline in the U.S. manufacturing sector. The ISM manufacturing index fell from 58.7 in November to 55.5 in December, the lowest level in six months.
Not discouraging, however, was another gauge that measures Mexico’s manufacturing sector performance. The Purchasing Managers’ Index (PMI) elaborated by HSBC rose from 54.3 in November to 55.3 in December, following the upward trend that began in August 2014. The indicator hit its highest level in two years. According to HSBC, all five sub-components that compose the overall PMI—output, new orders, employment, suppliers’ delivery times and stock of purchases—improved in December, having, “a more positive influence on the headline PMI in December, led by sharp and accelerated expansion of production levels.”
Commenting on December’s PMI, Latin America Chief Economist Andre Loes at HSBC stated:
The December HSBC Mexico Manufacturing PMI survey provides more evidence that the economy is gaining momentum, with firms reporting business activity growing at the fastest pace since December 2012, led by increases in output and new orders..
Author: Ricardo Aceves, Senior Economist