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Production in Mexico falls for first time in seven months

Staff Writer |
Manufacturing companies in Mexico signalled lower output midway through the second quarter as subdued demand conditions, efficiency losses and the upcoming presidential election affected production.

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Total factory orders continued to rise, supported by external sales, but the upturn was the slowest in the current seven-month period of uninterrupted growth.

Whereas peso depreciation (versus US dollar) translated into greater exports, imported items became costlier to goods producers.

As a result, companies cut back on input purchasing as the rate of cost inflation climbed to a 15-month peak.

Remaining above the no-change mark of 50.0 in May, the seasonally adjusted IHS Markit Mexico Manufacturing PMITM signalled a further upturn in the health of the sector.

Nonetheless, the headline figure was down from 51.6 in April to 51.0, its lowest level in the current seven-month period of improving business conditions.

Order book volumes increased for the seventh straight month in May, though at a slight pace that was the slowest in this sequence.

Where new work had been secured, panellists mentioned expanded client bases and improved demand from abroad.

New export work rose at a broadly similar rate to those seen in the current three-month period of growth.

Survey participants frequently attributed the upturn to peso depreciation.

May saw manufacturing production dip for the first time in seven months, but the rate of reduction was marginal overall.

A combination of subdued sales, efficiency issues and politics resulted in lower output, according to panellists.

With demand growth cooling, firms focused on the completion of unfinished business.

A modest decline in backlogs was noted in May, with some companies suggesting that extra hiring supported the completion of outstanding work.

Indeed more people were placed into jobs, with the rate of employment growth accelerating to the strongest since October 2015.

That said, anecdotal evidence suggested that many filled vacancies were of a temporary nature.

The depreciation of the Mexican peso against the US dollar meant that manufacturers paid more for imported inputs during May.

The overall rate of cost inflation reached a 15-month peak.

To protect margins, goods producers raised their own charges again, albeit moderately.

Input purchasing was postponed due to price hikes, with buying levels falling for the first time since October 2017.

Subsequently, holdings of raw materials and semi-finished items decreased further in May.

Conversely, stocks of finished goods rose, reversing the contraction registered in April.

Finally, survey members indicated that product diversification, projects in the pipeline, planned exhibitions and investments are all likely to drive output growth in the coming 12 months.

However, overall sentiment was subdued by historical standards.


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