Mexico: Manufacturing sector activity weakens in October
November 2, 2017
The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) pointed to a continued, although weaker, expansion in the sector, as it eased from 52.9 in September to 52.4 in October. The indicator thus remains above the 50-point threshold that separates expansion from contraction in manufacturing conditions in Mexico, where it has been for five consecutive months. Thus, according to this metric, the earthquakes that devastated the country in early and mid-September have had only limited effects on the manufacturing sector.
Operating conditions turned less expansionary in October as both output and employment growth decelerated from the levels seen in September. However, the pace of growth for new orders remained unchanged from the previous month, signaling persistent healthy demand. Probably as a consequence of slower output and employment growth, suppliers’ delivery times lengthened during the month, while inventories built up at a faster pace than in September.
An alternative indicator that measures the performance of Mexico’s manufacturing sector pointed to a far worse deterioration in operating conditions in the sector in October. The manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit recorded a notable decrease in October, falling to a multi-year low of 49.2 from 52.8 in September. Accordingly, the index is now below the 50-point threshold that separates expansion from contraction in the manufacturing sector.
The Markit report pointed to falling demand, production, stocks of purchases and employment in the manufacturing sector as the driving forces behind this month’s decline in the index. New orders contracted, albeit slightly, with overseas demand stagnating from the previous month. In response to weakening demand, manufacturers scaled down output for the first time in six months. This prompted companies to reduce staffing levels and purchasing activity during the month. Regarding prices, input inflation accelerated in October due to a weaker currency, which drove output prices to grow at the fastest pace in three months.
Commenting on the report, Aashna Dodhia, Economist at IHS Markit, said:
“In light of the recent natural disaster faced by Mexico, the manufacturing sector fell into contraction territory for the first time in over four years […]. Looking ahead, economic uncertainty remained a key area of concern, with business sentiment the weakest since March.”
Author: David Ampudia, Economist