Recovery in Brazil’s manufacturing sector slows down in June

The rebound in Brazil’s manufacturing sector lost momentum in June. The seasonally adjusted HIS Markit manufacturing PMI dropped to 50.5 in June from May’s 52, indicating towards a third straight month rebound in the health of the sector. However, the pace slowed down from the prior month. The latest figure rounded off a relatively strong quarter for goods producers, with the PMI averaging 50.9 in the second quarter of this year.

New orders and output rose in June, though paces of growth alleviated in both cases. Anecdotal evidence showed that growth was underpinned by rebounding demand conditions. However, panellists’ responses implied that the upturn was curbed by competitive pressures and political issues.

New business from abroad, after having risen in May, stagnated in June. Meanwhile, manufacturing employment shrank. The pace of job losses was marked and the most rapid since March. According to evidence supplied by panel members, job shedding saw cost-cutting initiatives.

June’s data indicated to spare capacity amongst factories, with outstanding business falling in spite of the reduction in headcounts. The drop in backlogs of work was sharp and the most pronounced in three months. Inventories of manufactured goods dropped again, stretching the current period of depletion to 30 months. The rate of reduction stayed marked. Stocks of purchases also dropped and at the fastest pace since February.

One factor leading holdings of inputs to drop was a contraction in buying levels. June’s drop in purchasing activity was just slight; however, it ended a two-month sequence of growth. In the meantime, low inventory levels at vendors reportedly caused an overall rise in suppliers’ delivery times.

Purchasing price inflation accelerated from May’s 16-month low. The main factor reported as having exerted upward pressure on cost burdens was the weak real versus the U.S. dollar. Certain firms passed on part of the additional cost burden by hiking their charges. But excess supply and competitive pressures restricted the degree to which output prices rose. Brazilian manufacturers were strongly positive that output would rise in the year ahead, with sentiment supported by new product launches and export opportunities.

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest