Mexican manufacturing sector continues to rebound in December

Manufacturing sector of Mexico continued to rebound from October’s earthquake-related contraction in December. The headline seasonally adjusted IHS Markit Mexico Manufacturing PMI index dropped to 51.7 in December from 52.4 in November. This hinted at a modest improvement in the overall health of the goods producing sector. But the PMI reading continued to be lower than the long-run average. The overall upturn in manufacturing sector conditions was led by an increase in new orders. Although easing from the prior month, the pace of growth was strong. Survey respondents linked the rise in new orders to a rebound in market demand. Furthermore, growth in order books was reportedly underpinned by solid international demand for Mexican goods. New export sales rose for the second month running, although at a moderate rate.

Amidst reports of improved underlying demand conditions, manufacturing output increased again in December. However, the pace of growth decelerated from the previous month and was marginal. Nonetheless, sustained rises in output and new orders resulted in manufacturers to hike their payroll numbers further. But the pace of job creation eased a bit since November.

Input price inflation weakened from the previous month; however remained sharp overall. A general rise in market prices for raw materials amidst current weakness had reportedly raised input costs. Therefore manufacturers continued to hike their average selling prices. But solid competition limited their ability to fully pass on higher cost burdens to clients. In line with the trend for output, companies increased their purchasing activity in December. However, the pace of growth eased to a marginal rate. Greater input buying contributed to the joint-fastest rise in stocks of inputs since May 2016.

Greater demand for inputs resulted in increased pressure on supply chains. However, average delivery times for purchased items increased only slightly overall. Latest data emphasized that sentiment towards the 12-month business outlook softened to an 11-month low at the end 2017. Optimistic forecasts were generally attributed to expected improvements in demand alongside company expansion plans.

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