Mexico: Manufacturing sector reverses July's slowdown in August
September 1, 2017
The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) leaped from 51.8 in July to 54.0 in August, marking the second-best reading in nearly three years. The indicator now sits further above the 50-point threshold that separates expansion from contraction in manufacturing conditions in Mexico, where it has been for three consecutive months.
The August IMEF headline figure reflected a broad-based improvement in all of the index’s sub-categories. Manufacturing capacity came under additional pressure in August, with the pace of growth in both output and new orders accelerating from the previous month. This prompted manufacturers to increase their staffing levels as well as intensify their purchasing activities.
An alternative indicator that measures the performance of Mexico’s manufacturing sector also rose in August after having eased in the previous month. The Manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit jumped back to 52.2 in August from July’s 51.2, marking the second-strongest print in more than a year and coming in just below June’s 52.3. Accordingly, the index now sits above the 50-point threshold that separates expansion from contraction in the manufacturing sector.
The Markit report confirmed the improved health of manufacturing. Following July’s slowdown, the sector regained momentum as both output and new orders recorded stronger rates of growth. New orders growth benefitted from an upswing in new export orders, which had dipped slightly in July. Higher volumes of production led to a notable increase in purchasing activity, causing pre-production inventories to accumulate at the fastest clip since May 2016.
On the back of higher output and demand, firms intensified their hiring, which nonetheless did not prevent backlogs of work from accumulating for the first time in four months. Regarding prices, input costs rose at the slowest pace in over three years in August as firms continued to benefit from a more favorable exchange rate against the USD. Against this backdrop, sentiment strengthened further among manufacturers, with a majority expecting output volumes to expand next year.
Author: David Ampudia, Economist