Mexico: Manufacturing sector takes a hit in April
May 2, 2017
The seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) continued to dive into negative territory in April, reaching a low that was last seen in March 2009. The index fell from 46.0 in March to 45.0 in April, well short of the milder drop to 45.8 that market analysts had expected. The indicator produced by IMEF continues to suggest a sizeable deterioration in manufacturing conditions in Mexico, since it declined further below the 50-point threshold.
Looking at the details, April’s bleak report showed Mexican manufacturers shedding jobs at a much faster pace than in March. Employment’s weak reading reflected a continued contraction in new orders but was at odds with the improvement seen in manufacturing output, which, despite still in contractionary territory in April, rose strongly and neared the 50-point threshold. Inventories also edged up in the same month after hitting an over-ten-year low in March.
An alternative indicator that measures performance in Mexico’s manufacturing sector edged down in April after rising to a five-month high in March. The Manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit dipped from 51.5 in March to 50.7 in April. This leaves the index above the 50-point threshold that separates expansion from contraction in operating conditions in the Mexican manufacturing economy.
The indicator suggests that growth in the Mexican manufacturing economy is struggling to gather momentum. March’s dip was underpinned by softer new order growth and a renewed fall in output, dragged down by subdued client demand. Contrary to the IMEF indicator, manufacturing employment continued to rise according to IHS Markit, albeit at a milder pace. Nonetheless, higher staffing levels did little to alleviate a severe accumulation of backlogs of work, with respondents signaling that scarce availability of raw materials and higher input costs linked to a weakened peso prevented them from working through pending orders. Interestingly enough, however, slower growth and higher prices did not prevent manufacturing firms from becoming more optimistic regarding the year ahead in April.
Author: David Ampudia, Economist