Brazilian manufacturing sector stagnates in May, IHS manufacturing PMI index falls to 50.2

Brazilian manufacturing industry’s operating conditions rebounded just marginally in May in the midst of weaker output growth, a renewed fall in sales and job shedding. The IHS Markit Brazil Manufacturing PMI index dropped for the third straight month in May to 50.2 from April’s 51.2. This is the lowest in the current 11-month stretch of improving business conditions. The health of the capital goods sub-sector strengthened to a lesser extent, while intermediate goods recorded contraction for the first time in almost two years. Consumer goods saw a stronger rebound in operating conditions compared to April.

Aggregate manufacturing output grew for the 11th consecutive month, though marginally and at the softest rate since last October. Survey members stated that the upturn was curbed by uncertainty in market, high unemployment, political issues and soft underlying demand. Although factor orders dropped, the contraction interrupted a ten-month spell of growth. Softness from the domestic and international markets, with exports down for the sixth month in succession.

Companies resumed job shedding, with employment falling for the first time in 2019 so far. Surveyed companies attributed cost consciousness, economic uncertainty and soft demand to the decline in payroll numbers. Fall in backlogs was the most rapid since February 2018.

Lower output needs led companies to decrease their input purchasing. Purchasing levels fell for the first time since last October. Subsequently, stocks of purchases rose at the slowest rate in the current four-month period of accumulation.

In the meantime, real softness continued to translate into greater cost burdens faced by producers. Input price inflation reached a seven-month high in May. Therefore, factory gate charges were hiked to the greatest extent since October 2018 as companies sought to protect margins.

Firms kept a positive view towards growth prospects; however, sentiment eased to the lowest in over one-and-a-half years. Concerns regarding trade and economic uncertainty were among the factors dragging confidence.