Brazil’s manufacturing sector slows down to three-month low in July

Brazil’s manufacturing sector witnessed deceleration in output and new business in July. The seasonally adjusted IHS Markit Brazil Manufacturing PMI dropped to a four-month low of 50 in July from June’s 50.5. A level of 50 indicates no change in the health of the sector.

The new orders index, which is the largest subcomponent of the PMI, signalled the joint-slowest upturn in incoming new work in the current five-month sequence of increase. Where growth was reported, companies mentioned improved demand domestically and externally.

New export orders were up in succession in July, but output rose just a bit and at the slowest pace since April. Weaker increases in production were seen in the consumer and intermediate goods categories, while capital goods output recovered from June’s downturn.

Part of the upturn in sales was fulfilled through the depletion of manufacturers’ existing stocks. Inventories of finished goods have dropped in each month since January 2015, with July’s contraction marked and similar to June.

Stocks of purchases also dropped in July; however, the rate of reduction weakened since the preceding survey period. The downturn in holdings of raw materials and semi-finished items reflected another drop in purchasing activity. Buying levels dropped for the second consecutive month, though just slightly. Despite this, suppliers’ delivery times continued to rise.

Staffing levels continued to drop, with job losses broad based throughout the consumer, intermediate and investment goods categories. However, the overall pace of reduction was moderate and slower than in June. Concurrently, backlogs of work dropped at a slower rate. Average input costs rose further amidst reports of a weaker currency driving prices for imported items higher. However, the pace of inflation was at a two-year low.

Prices charged by Brazil’s manufacturers for their finished goods dropped in July for the first time in nearly three years. Anecdotal evidence implied that competitive pressures and attempts to boost demand encouraged them to give discounts.

Manufacturers expressed optimism about growth prospects with expectations of better economic conditions, new product lines and projects in the pipeline supporting sentiment. The level of confidence was strong in the context of historical survey data, but dropped since June.

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