Mexico: Manufacturing sector maintains expansion mode in February
March 1, 2016
Following a positive start to the year, Mexico’s manufacturing sector maintained a healthy pace of growth in February. The seasonally-adjusted manufacturing indicator elaborated by the Mexican Institute of Finance Executive’s (IMEF) remained broadly unchanged in February, edging down from 51.6 in January to 51.3. February’s result was also broadly in line with the 51.2 the market had expected and remained above the 50-threshold that distinguishes between expansion from contraction in the sector.
The mild drop, albeit still positive, reflected a slight decrease in new orders and a mild slowdown in production levels. As work and output was reduced over the previous month, firms reported a decrease in employment in February. Due to lower demand domestically and abroad—especially from the U.S. manufacturing sector—inventories increased substantially in February compared to the levels seen in January.
A strong U.S. dollar and a rout in Wall Street continued to weigh on the U.S. manufacturing sector at the outset of the year. The manufacturing index, which is elaborated by the Institute of Supply Management (ISM), rose from 48.2 in January to 49.5 in February. Although the index increased notably over the previous month, it continued to indicate that the U.S. manufacturing sector remained in contraction mode—a reading above 50 indicates that the manufacturing sector is expanding; below 50 indicates that it is generally contracting.
Meanwhile, the Markit Manufacturing Purchasing Managers’ Index (PMI), which is another closely-watched gauge that measures performance in Mexico’s manufacturing sector, showed that activity continued to expand in February. The PMI rose from 52.2 in January to 53.1 in February, which marked a nine-month high. As in the aforementioned indicators, 50 is the threshold that separates expansion from contraction in business activity.
According to Markit, February’s result continued to show resilient growth in the sector, helped by a strong increase in new orders, production levels and employment. Markit explained that the current weakness in the peso against the U.S. dollar has supported exports of manufactured goods, although demand from abroad was lower than the levels observed in January. Moreover, firms reported that the depreciation of the peso has pushed input costs, which continued to exert pressure on their operating margins. Markit concluded that, “growth momentum picked up across Mexico’s manufacturing sector during February, driven by the fastest upturn in new order volumes for just under a year. Improving business conditions reflected sustained rises in both domestic demand and export sales. Overall, the latest survey highlights a resilient Mexican manufacturing sector performance in the face of global economic uncertainty and heightened concerns about the U.S. recovery in particular.”
Author: Ricardo Aceves, Senior Economist