Mexico: Manufacturing indicators suggest weakness in June
July 1, 2016
The latest round of PMIs in Mexico showed that the momentum seen in Mexico’s manufacturing sector in previous months faded drastically in June. The seasonally-adjusted manufacturing indicator elaborated by the Mexican Institute of Finance Executive’s (IMEF) plummeted from a revised 51.4 in May (previously reported: 51.9) to 47.5 in June. The result took analysts by surprise since they had expected the index rising to 52.1. With June’s plunge, the indicator shockingly moved to a low last seen three years ago, and since it crossed below the 50-threshold, it indicates contraction in the sector.
The details indicated an equally-drastic deterioration in June. Manufacturing production plunged to a three-year low and new order plummeted to the lowest level since October 2013. Due to a deceleration in production and less orders, manufacturing firms indicated that they stopped hiring and registered the lowest employment figures in four months. Nonetheless, a drop in inventories suggests that still strong domestic demand continues to consume manufactured goods in the country.
Another gauge that measures performance in Mexico’s manufacturing sector showed a less pronounced decrease in June. The Markit Manufacturing Purchasing Managers’ Index (PMI) fell from 53.6 in May to 51.1 in June, remaining just above 50, but falling to the lowest point since October 2013. Markit stated that the main drivers behind June’s result were a drop in production—thus ending over two-and-a-half years of sustained increase—and stagnant exports. Moreover, the survey in June showed that new work eased substantially, reflecting primarily a weaker contribution from export sales. Regarding prices, firms reported a faster increase in input prices in June and related it to the weakening of the currency.
North of the border, an increase in the ISM manufacturing index in June was a positive surprise. The indicator rose from 51.3 in May to 53.2 in June and also came in above the 52.0 the markets had expected. The ISM indicator continued to suggest expansion in the manufacturing sector—it sits above 50. A separate report released by the ISM showed that a majority of manufacturers saw “negligible” impact from Brexit.
Author: Ricardo Aceves, Senior Economist