Mexico: Manufacturing sector recovers lost ground in May
June 1, 2017
The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) showed incipient signs of a turnaround in May. Following months of nearl -uninterrupted decreases fueled by rampant uncertainty regarding the U.S. trade and immigration policies, the index rebounded strongly in May as it reached a four-month high of 47.6, above both April’s multi-year low of 44.5 and market expectations of a milder rebound to 45.5. Nonetheless, the indicator remains below the 50-point threshold, which suggests a deterioration in manufacturing conditions in Mexico.
May’s report showed a remarkable pick-up in job creation as the sub-component swung from 40.5 in April—on a 100-point scale—to 50.5 in May, marking the first expansion in staffing levels since October of last year. Employment’s stronger reading reflected a smaller contraction in new orders and a sizeable increase in inventories, likely suggesting stronger demand in the sector. May’s only bleak point was output, which declined at a faster pace over the previous month in May.
An alternative indicator that measures performance in Mexico’s manufacturing sector also made gains, albeit limited, in May in what was the second-best reading since October of last year. The Manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit climbed from 50.7 in April to 51.2 in May. This leaves the index further above the 50-point threshold that separates expansion from contraction in operating conditions in the manufacturing economy.
Survey participants were reportedly more upbeat in May, with the confidence sub-component at its strongest since April 2016. More than half the panel expect production volumes to increase during the next year, a view that was supported by sustained new orders growth among manufacturing companies. Expectations of higher future production prompted companies to hire workers at a faster pace in May, while production levels returned to growth after having fallen into contractionary territory in April. Buoyed confidence also led firms to intensify their purchasing activity in order to increase stocks of raw materials. Regarding prices, cost-push inflation was strong in May as it rose from April’s over one-year low. Firms, however, were successful in rolling these costs onto customers, with output prices rising at the steepest rate in three months.
Author: David Ampudia, Economist