Brazilian manufacturing activity rebounds further in August

Brazilian manufacturing economy’s health rebounded further in August as producers responded to greater inflows of new work by increasing output. The seasonally adjusted IHS manufacturing PMI index rose to 51.1 in August, a four-month high, from 50.5 in July. This indicates towards strengthening operating conditions throughout the sector.

The headline figure was driven by rapid rises in new work and output. The former showed the most rapid rise since April, with survey members attributing higher sales to new collections, expanded client bases and improved demand. The upturn was underpinned by gains in new work from external markets. Production rose a bit, though to the greatest degree in four months.

Consumer goods producers performed better than intermediate goods firms on both fronts, sales and output, while the capital goods sub-sector continued to be in contraction territory. In spite of the uptick in order books, manufacturing firms reported lower input buying and job cuts midway through the third quarter, both of which had increased in July. Anecdotal evidence indicated to attempts to curtail outlays amidst steep rises in cost burdens.

Indeed, input cost inflation rose to the highest rate since July 2008. Panellists reported rising prices for a wide range of raw materials, but often attributed this to a depreciation of the Brazilian real against the U.S. dollar. Inflationary pressures gathered strength in the intermediate and capital goods categories, while a marginal deceleration was seen at consumer goods producers.

Factory gate prices rose in the midst of attempts to protect margins. In spite of easing in August, the pace of inflation was among the strongest in the past two-and-a-half years and well above its long-run average. In the meantime, manufacturers’ stocks of both inputs and output were lower compared to July.

Survey participants stated that efficiency improvements and attempts to deliver purchased goods on time led to a further reduction in outstanding business. Meanwhile, there was a further fall in vendor performance, which panellists have linked to low stock levels and logistic issues at distributors.

Hopes of better economic conditions, investment intentions, product diversification and forecasts of greater sales supported positive sentiment about the 12-month outlook for output. Optimism was at a four-month high in August.