Mexican manufacturing production falls in May, PMI index falls to 51

Mexican manufacturing firms hinted at lower output midway through the second quarter as weak demand conditions, efficiency losses and the upcoming presidential election impacted production. The seasonally adjusted IHS Markit Mexico manufacturing PMI hinted at a further upturn in the sector’s health. However, the headline figure dropped to 51 in May from 51.6 in April, its lowest level in the current seven-month period of rebounding business conditions.

Order book volumes rose for the seventh straight month in May, though at a slight rate that was the slowest in this sequence. Where new work has been secured, panellists mentioned expanded client bases and rebounded demand from abroad. New export work rose at a widely similar pace to those seen in the current three-month period of growth. Survey participants frequently linked the upturn to peso depreciation.

May witnessed manufacturing production dip for the first time in seven months; however, the pace of reduction was marginal overall. A combination of weak sales, efficiency issues and politics resulted in lower output, according to panellists. With demand growth easing, companies focused on the completion of unfinished business. A modest fall in backlogs was noted in May, with some firms implying that extra hiring underpinned the completion of outstanding work.

Indeed more people were placed into jobs, with the pace of employment growth accelerating to the most solid since October 2015. However, anecdotal evidence implied that many filled vacancies were of a temporary nature. The weakening of Mexican peso against the U.S. dollar signified that manufacturers paid more for imported inputs during May. The overall pace of cost inflation reached a 15-month peak.

Input purchasing was postponed because of prices rises, with purchasing levels dropping for the first time since October 2017. Subsequently, holdings of raw materials and semi-finished items decreased further in May. On the contrary, 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 expected to drive output growth in the coming 12 months. But overall sentiment was weakened by historical standards.

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