Mexican industrial production rose by a seasonally-adjusted 0.5%
in October, for its strongest increase since February.
However, the rise was not enough to reverse the revised 0.7%
decline in September. According to the report, the increase
in October came as output from the manufacturing sector jumped
1.0%, essentially erasing its 1.0% decline in September.
Mining output rose 0.7% in October, posting its third
straight increase. In contrast, October utility production
fell 0.1%. Even worse, October construction output declined
0.9%, after a fall of 1.1% in the previous month. Mexican
construction activity has now declined in nine of the last twelve
On an unadjusted basis, overall industrial production in October
was up just 0.1% from the same month one year earlier.
Manufacturing output was up a healthy 3.5% year-over-year,
while the mining and utility sectors both boosted production by
0.5%. The main outlier was the construction sector, where
output was down 7.4% year-over-year.
The report was released today by INEGI, the official statistics
Comment: Mexican industrial production
dipped in early 2013, but it has now at least stabilized and may
even be trending very gradually upward again. However, the
story is not quite as simple as the overall trend may suggest.
Manufacturers suffered a short and shallow pullback in late
2012 and early 2013, responding to softer exports to the United
States. With the apparent reacceleration in U.S. growth in
recent months, Mexican manufacturing output is now growing again.
Output from Mexico's mining and utility sectors has been
roughly stable over the last couple of years. As shown in the
second graph below, the main problem has been construction.
That sector has been devastated by shifting housing support
policies and tight government spending over the last year and a
half. Building construction and public works activity have
both fallen by approximately 10.0% from their most recent cycle
peak. I have seen no evidence that the trends will be
reversed anytime soon. While the Mexican economy did return
to growth in the third quarter after a decline in the second
quarter, the continuing problems in construction and in consumer
demand make me pessimistic that growth can soon accelerate as some
Patrick Fearon, CFA
Vice President, Fund Management