Mexico: Manufacturing sector expands in June
July 3, 2017
The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) marked a turning point in operating conditions among manufacturers. Following months of downbeat readings fueled by rampant uncertainty regarding the U.S. trade and immigration policies, the index soared in June to an over-one-year high of 54.1, notably above last month’s 48.5 print. As a result, the indicator is now above the 50-point threshold for the first time since October 2016, which suggests an expansion in manufacturing conditions in Mexico.
The report showed a broad-based improvement in operating conditions in the sector. Output leaped from 49.4 in May—on a 100-point scale—to 56.5 in June, while new orders rose from 46.1 to 54.5. Firms met the increase in production and demand by increasing their staffing levels, while inventories accumulated at the fastest pace in five years as a result of frantic purchasing activity.
An alternative indicator that measures performance in Mexico’s manufacturing sector also made gains in June in what was the best reading since May of last year. The Manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit rose from 51.2 in May to 52.3 in June. This leaves the index further above the 50-point threshold that separates expansion from contraction in operating conditions in the manufacturing economy.
June’s survey confirmed a more upbeat outlook for the manufacturing sector. Production growth was the quickest since October of last year, with survey respondents reportedly stressing improved domestic demand and, on a bleaker note, softer demand from abroad. With new order growth also speeding up, firms resorted to increased hiring in June, with the pace of job creation being the strongest in just over a year. Increased staffing levels and a reported boost to operating capacity prompted backlogs of work to decrease at the quickest speed since October. Regarding inflation—the biggest headache for Mexican policymakers—June’s numbers were encouraging, with input prices rising at one of the weakest rates since late-2015. All in all, improving conditions fueled widespread optimism among business for a second consecutive month.
Author: David Ampudia, Economist