Mexico: Manufacturing indicators in July signal further weakness
August 1, 2016
The latest round of PMIs showed that weakness in Mexico’s manufacturing sector persisted in July. The seasonally-adjusted manufacturing indicator elaborated by the Mexican Institute of Finance Executives (IMEF) fell from a meaningfully revised 49.3 in June (previously reported: 47.5) to 48.9 in July. The index undershot the 49.5 the market had expected and remained below the 50-threshold that separates expansion from contraction.
The details sent mixed signals. Encouraging signs came from new orders, which edged up over the previous month. Supplier deliveries jumped to the highest level in a decade, while inventories dipped to the lowest level in nearly 12 years. Meanwhile, output fell again in July and employment levels are reported to have decreased.
Another gauge that measures performance in Mexico’s manufacturing sector also showed a decrease in July. The Manufacturing Purchasing Managers’ Index (PMI) elaborated by IHS Markit fell to 50.6 from 51.1 in June, remaining just above 50. The July survey highlighted a further slowdown in the manufacturing sector, led mainly by a deceleration in new orders. The weak reading in new orders resulted from a drop in new export sales, which more than offset sustained growth in the domestic market. In addition, manufacturing production stagnated in July and respondents to the survey indicated that soft demand and sluggish production prompted them to be more cautious regarding staff recruitment.
North of the border, the Institute for Supply Management’s (ISM) manufacturing index edged down in July. The indicator fell from 53.2 in June to 52.6, which also fell short of the 53.0 the markets had expected. Despite the moderation, the indicator continued to suggest expansion in the manufacturing sector—it sits above 50.
Author: Ricardo Aceves, Senior Economist