Mexico: Manufacturing activity strengthens in March
April 2, 2018
The manufacturing sector closed the first quarter on a relatively solid note, with survey-based data pointing to an acceleration in output growth and improved demand levels in March. The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) rose to a nine-month high of 54.0 in March from the revised 53.1 figure recorded in February (previously reported: 52.6). As a result, the index is further above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been for 10 consecutive months.
In line with other indicators that suggest activity in the manufacturing sector bounced back in February and March following a trough in January, the IMEF report showed a broad-based improvement in operating conditions in the sector. Manufacturing output rose at the fastest clip in seven months in March on the heels of accelerating new order growth, which hit a near five-year high in the month. Manufacturers continued to increase their staffing levels, with the rate of employment growth broadly unchanged from February’s pace. Amid rising output requirements, firms likely intensified their purchasing activity, with inventories rising at a faster clip in March over the previous month.
In a similar vein, the manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit showed a faster pace of expansion in manufacturing activity in the month. The index rose from February’s four-month low of 51.6 to 52.4 in March. As a result, the index sits further above the 50-point threshold that separates expansion from contraction in the manufacturing sector.
The headline figure reflected faster output growth in March, which resulted from higher new order growth. In particular, new export orders expanded after contracting in February, with survey participants noting successful expansions into new markets and an upturn in international demand as elements buttressing March’s increase. In a bid to meet higher production requirements, firms hired additional staff members at a faster pace than in February, which allowed manufacturers to work through outstanding work. Some firms, however, stressed that staff hiring was centered around temporary employees. Firms focused on increasing stocks of finished products to meet new orders, while input buying was soft overall amid higher price pressures.
On prices, input cost inflation was the fastest in 10 months, with manufacturers signaling higher prices for raw materials and energy amid a weaker peso and higher oil prices. Firms were for the most part able to pass these costs onto consumers; output inflation was the joint-strongest since mid-2017. Manufacturers’ optimism, however, moderated to a 14-month low on the back of concerns over inflation, financial issues and the upcoming 1 July general election.
Mexico Industrial Production Forecast
According to the FocusEconomics Consensus Forecast panel, industrial production will increase 1.4% in 2018, which is unchanged from last month’s projection. The panel of analysts surveyed this month sees industrial production expanding 2.0% in 2019.
Author: David Ampudia, Economist