Mexico: Manufacturing sector expands at slower pace in July
August 1, 2017
The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) eased to 51.5 in July from an over-two-year high of 54.5 in June, which nonetheless marked the second-best reading in more than a year and confirmed the upturn in sentiment seen in the previous month. The indicator remains above the 50-point threshold that suggests an expansion in manufacturing conditions in Mexico.
The IMEF report signaled a slower pace of growth in most components of the index. Output, new orders and employment all eased from June’s levels, although none of them crossed the 50-point threshold which would signal a downturn in conditions. These readings suggest that sentiment continues to improve and align well with other indicators that point to sustained momentum heading into the third quarter.
An alternative indicator that measures performance in Mexico’s manufacturing sector also eased in July from June’s one-year-high reading. The Manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit softened from 52.3 in June to 51.2. Despite the decrease, the index still sits above the 50-point threshold that separates expansion from contraction in the manufacturing economy.
The slowdown reflected a softer pace of growth in both output and new orders, with the latter dragged down by the first decline in export sales in a year. However, survey respondents reportedly noted a faster increase in employment through the month, driving the pace of job creation to its quickest since February 2016. As a result of job creation outpacing output growth, backlogs of work continued to decrease in July for a third consecutive month. Firms were largely optimistic about their growth prospects for the next year, and although business confidence eased, it remained well above the levels seen at the start of the year. Regarding prices, cost-push inflation was the softest in more than two years as the negative effects of the weakening of the peso at the outset of the year continued to recede.
Author: David Ampudia, Economist