MexECON Blog

May PMI Falls to 52.6

Mexico's May purchasing managers index (PMI) for manufacturing fell to a seasonally-adjusted 52.6, down from revised readings of 53.3 in April and 53.0 in March.  With the decline in May, the index is now at its lowest level since last October.  According to the report, from Banco de México and the national statistics agency INEGI, the poor performance in May came entirely from sharp declines in the heavily-weighted subindexes on new orders and production.  The subindex on new orders fell to 53.6 from 55.3 in April, while the subindex on production fell to 54.0 from 55.8.  The subindexes on employment, inventories, and supplier deliveries all posted gains.

Comment:  The PMI is designed so that readings over 50 point to expanding activity, so even with the decline in May, today's report suggests Mexico's factory sector is continuing to grow broadly.  Nevertheless, there is plenty of reason to be cautious.  Post-recession inventory rebuilding appears to have been largely completed across the globe, high debt has forced governments in key developed countries to ratchet back spending, and rising commodity prices have prompted several important central banks to start hiking interest rates.  At the same time, high unemployment is weighing on consumer demand in many developed countries, even as excess housing supplies and weak financial systems have prevented investment from playing its traditional role as a supercharger for the economic rebound.  In a word, the global economic recovery seems to be entering at least a temporary soft spot.  That helps explain why PMI readings from around the world this week showed manufacturing growth is slowing in virtually all regions.  It also helps explain why Mexican exports have recently softened.  For now, it looks like Mexican manufacturing will merely slow instead of decline, but that could change if the world economy slows more abruptly than currently expected.

Patrick Fearon, CFA
Vice President, Fund Management

                                           Mexico's Manufacturing PMI
                                  Seasonally Adjusted, >50 = Expansion
                                    Source:  Banco de México and INEGI
PMI 1105

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