Mexico: Manufacturing indicator points to acceleration at the beginning of 2015
February 2, 2016
Business activity in Mexico’s manufacturing sector started the year on a positive note. The seasonally-adjusted manufacturing indicator elaborated by the Mexican Institute of Finance Executive’s (IMEF) rose to 51.5 in January and recovered part of the ground lost in December, when the indicator fell to 50.9. January’s increase also overshot the 51.0 the markets had expected and moved above the 50-threshold that separates expansion from contraction.
The improvement in January mainly resulted from faster manufacturing production, with the indicator rising to the highest level in five months. In addition, new orders increased over the previous month and reached a six-month high in January. Despite the acceleration in activity, manufacturers reported only a mild increase in employment. An increase in new orders and production prompted inventories levels to remain low.
A strong U.S. dollar continued to weigh on the U.S. manufacturing sector at the outset of the year. In January, the manufacturing index, which is elaborated by the Institute of Supply Management (ISM), remained virtually unchanged. It inched up from 48.0 in December to 48.2, indicating that the U.S. manufacturing sector remained in contraction for a fourth consecutive month. A reading above 50 indicates that the manufacturing sector is expanding; below 50 indicates that it is generally contracting.
Another gauge that measures performance in the manufacturing sector—the Markit Manufacturing Purchasing Managers’ Index (PMI)—showed that activity continued to expand in January, although at a slower pace. The PMI edged down from 52.4 in December to 52.2 in January. The indicator continued to signal expansion in the manufacturing sector, but fell to the lowest level since September 2015. According to Markit, January’s result continued to show resilient growth in the sector, helped by a strong increase in new business volumes. Data showed that new business rose at the fastest pace since April 2015. But the moderation observed in January reflected slower growth in manufacturing output growth and, consequently, in employment.
Markit stated that slower growth in output reflects the fact that firms are noting heightened uncertainty regarding the global economy together with a slow reduction in inventory levels, which responded to a subdued rise in output levels at the beginning of 2016.
Author: Ricardo Aceves, Senior Economist