Mexico: Manufacturing PMIs send mixed signals in January
February 1, 2018
Operating conditions in the manufacturing sector were less upbeat in January, despite strong U.S. factory output and resilient manufacturing export data. The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) eased to 51.2 in January from 52.1 in December, marking the weakest figure since May. That said, the index remains above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has now been for eight consecutive months.
The dip in the headline figure reflected much weaker growth in new orders, which eased from December’s three-year high. Sluggish growth in new demand also dragged on production requirements, with manufacturing output growth easing markedly from the previous month in January. Firms continued to draw from existing inventories at the same pace than in the previous month, which suggests purchasing activity growth moderated amid weaker input requirements. A second consecutive decline in staffing levels also dragged on the headline figure, although the pace at which employers dismissed workers moderated from the previous month.
The January IMEF report, however, was at odds with an alternative indicator that gauges the performance of the manufacturing sector. The manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit rose to a four-month high of 52.6 in January from 51.7 in December. As a result, the index now sits further above the 50-point threshold that separates expansion from contraction in the manufacturing sector.
The IHS Markit PMI report showed improvements across all major components in the index. New orders grew at a faster clip from the previous month in January, with survey respondents linking stronger new business to the launching of new products and solid underlying demand. Buoyant demand in turn encouraged firms to accelerate output growth to its strongest pace in the current three-month sequence of expansion. Most of the additional output, however, was stored in manufacturers’ warehouses, with growth in stocks of finished goods at a nearly seven-year high. Stronger demand and output prompted firms to increase their staffing levels, with employment growth at its highest in five months. Regarding prices, input costs rose markedly as a weak peso continued to fuel import inflation, but firms were able to pass most of these costs onto customers.
On the outlook for the manufacturing sector this year, Pollyanna De Lima, Principal Economist at IHS Markit, comments:
“Forward-looking indicators such as employment, quantities of purchases and stocks suggest that the sector has the potential to remain on an upward path as the year progresses, but the outlook is nevertheless clouded by the upcoming elections and contractionary policies aimed at reducing inflation and the fiscal deficit.”
Author: David Ampudia, Economist