MexECON Blog

July Industrial Output Rises 0.3 Percent

In a new report from INEGI, the national statistics agency, Mexico's July industrial output rose a seasonally-adjusted 0.3%.  The increase was just enough to reverse the revised decline of 0.2% in June, though it was not quite as strong as the 0.4% advance in May.  According to the report, the rise in output during July was quite broad based, with every category showing gains.  For example, output in the key manufacturing sector was up 0.4%, after a slight decline the previous month.  Mexico's overall industrial output has now risen in nine of the last eleven months, and unadjusted production in July was up a healthy 5.4% from the same month one year earlier.

Comment:  Today's report on July output is a bit confusing, as the official data show each category rising more than the headline figure of 0.3%.  This could be a fluke based on the statistical methodology being used, or it could be an error that will be corrected in the future.  Nevertheless, taking the headline figure at face value, it appears that the export-led rebound in the Mexican economy remains intact, even if production growth is starting to moderate.  As has been discussed frequently in this blog, Mexico is in the midst of a huge export boom, led by rising sales of trucks, autos, and auto parts to the United States.  Stronger exports have spurred rising industrial output and prompted increased hiring.  As a result, gross domestic product in the second quarter was up a phenomenal 7.6% year-over-year.  However, rising auto exports are not a very broad foundation on which to build a lasting economic recovery.  The risk is that U.S. inventory rebuilding could continue to slow and U.S. corporate and consumer demand could fail to accelerate.  In that case, Mexican exports and industrial activity could stall out before other sectors of the economy are growing fast enough to take up the slack.  A pullback in the Mexican economy is not certain, but it remains a possibility.

Patrick Fearon, CFA
Vice President, Fund Management

                               Mexican Industrial Production
                             Seasonally Adjusted, 2003 = 100
                                            Source:  INEGI
Industrial Output 1007

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