Mexico: IMEF index falls to over three-year low in December
December 1, 2016
Business activity in the manufacturing sector weakened further in December, reflecting the impact that the U.S. election result had on businesses toward the end of the year. The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Finance Executives (IMEF) fell from a revised 48.8 in November (previously reported: 49.4) to 47.7 in December. The indicator fell to the lowest level since mid-2013 and further below the 50-threshold that separates contraction from expansion. The Institute reported that the Mexican economy ended 2016 with great uncertainty, due to expectations of the policies that President-elect Donald Trump will adopt after taking office on 20 January.
Details were equally discouraging almost across the board. New orders fell to a low last seen in mid-2013 and employment levels plunged to a multi-year low. Moreover, the forward-looking new orders-inventories ratio ticked up in December, but this was due to inventories falling at a more rapid pace than orders. The only silver lining of December’s report was the increase in manufacturing production, which jumped to a seven-month high.
Another indicator that measures performance in Mexico’s manufacturing sector also fell to a multi-year low in December. The Manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit fell from 51.1 in November to 50.2, thereby remaining just marginally above the 50-threshold. December’s result—a three-year low—largely reflected anemic growth in new orders, which resulted in slower job creation and a decline in manufacturing production—the first time that output has dropped since August. In terms of prices, the weak exchange rate of the peso against the U.S. dollar continued to push up input prices, which in turn placed pressure on goods producers’ margins.
Although the PMIs are not sentiment indicators, they clearly suggest evidence of a potential disruption from the U.S. presidential election result. Adding to the bad news for the Mexican manufacturing sector, carmaker Ford Motor Company stated that it will cancel plans to invest USD 1.6 billion in a new plant in Mexico and instead invest USD 700 million to expand its Michigan plant to develop a new generation of hybrid, electric and autonomous vehicles. Ford attributed its decision in part to a more pro-business environment in the U.S. in light of policies proposed by the new president. Positive news have in fact come from the U.S., where the manufacturing index elaborated by the Institute of Supply Management (ISM) jumped to a two-year high of 54.7 in December and the composition of the report signals improving trends in the manufacturing sector.
Author: Ricardo Aceves, Senior Economist