Mexican June manufacturing sector sees strongest performance since May 2016

Mexico saw a sustained rebound in manufacturing conditions after the soft patch seen in the first quarter of 2017. The seasonally adjusted IHS Markit manufacturing PMI rose to 52.3 in June from May’s print of 51.2. This signalled the most robust improvement in operating conditions for 13 months.

The rise in the headline figure was mainly driven by faster growth of new orders, output and employment in June. Manufacturing production rose for the second straight month, with the pact of growth accelerating to its sharpest since October 2016. Survey respondents’ reports cited rebounding client demand, attempts to rebuild inventories and the launch of new products.

Mirroring the trend for overall business conditions, latest data showed the sharpest upturn in new order volumes since May 2016. The strong rise in new work was greatly due to sales to domestic clients, as export order volumes grew at the most subdued pace for three months in June. Manufacturers saw that underlying demand conditions has rebounded, while there were also reports that new products and greater investment spending had underpinned new order intakes.

Staffing levels rose again in June that continued with the upward trend witnessed in each month since August 2014. Furthermore, the pace of job creation was the most marked for just over one year. Higher employment levels partially reflected attempts to stimulate operating capacity and expectations of sustained output growth in the second half of 2017. Higher payroll figures and improved productivity resulted in the fastest drop in backlogs of work since October 2016.

About half of all survey respondents expect a rise in output levels in the next 12 months, against just 4 percent that anticipate a reduction. Therefore, the latest survey showed that business optimism stayed much stronger than the near five-year low seen at the beginning of 2017. A few firms commented on homes of a rebound in export sales, along with capital investment plans and new marketing initiatives.

Also, there was positive news in terms of cost pressures in June, with overall input prices rising at one of the slowest rates since the end of 2015. While some manufacturers showed that exchange rate factors had pushed up their cost burdens, survey respondents noted that inflationary pressures had lost intensity in June. Sower rises in raw material costs also added to a moderation in factory gate price inflation from the three-month peak seen in May.

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