Mexico: Manufacturing PMIs again send mixed signals in February
In line with healthy growth in manufacturing exports and robust U.S. factory output, manufacturing conditions were notably more upbeat in February. The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) rose to a six-month high of 52.6 in February from the eight-month low of 51.5 recorded in January. Following February’s increase, the index is now further above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has now been for nine consecutive months.
The solid headline print reflected improved readings in all but one of the indicator’s sub-components. New order growth was at its strongest since August 2012 and markedly above January’s level. Solid demand for manufactured goods induced firms to increase production levels, with output rising at the fastest rate in four months. In line with increased capacity constraints, firms took on additional staff following two months of declines in employment. Firms likely intensified purchasing activity in light of strong input requirements, causing inventories to rise in the month.
The manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit showed, however, a weaker pace of expansion in manufacturing activity in the month. The index eased from a four-month high of 52.6 in January to 51.6 in February, the weakest print since last October. That said, the index still sits above the 50-point threshold that separates expansion from contraction in the manufacturing sector.
As per the IHS Markit report, manufacturing conditions moderated on the back of slower order log growth. In particular, export orders contracted for the first time in seven months, which contrasted resilient domestic demand. Weaker demand saw firms reducing output requirements from the previous month, which also caused employment growth to moderate in February. Reduced pressure on existing capacity and a slower intake of new workers allowed firms to work through existing orders, with backlogs of work declining for the first time since October. That said, businesses were more optimistic regarding manufacturing output in the next twelve months, which in part vindicated an acceleration in purchasing activity ahead of new demand to a six-month high.
Regarding prices, Gabriella Dickens, Economist at IHS Markit, commented:
“Higher prices for key inputs and currency volatility led purchasing prices to increase again in February. However, rates of both input and output price inflation eased in February. IHS Markit forecasts that cost pressures will ease through 2018 as tighter monetary and fiscal policies, including the recent interest rate hikes, will help combat inflation.”