Mexico's January purchasing managers index (PMI) for the
manufacturing sector fell to a seasonally-adjusted 53.6, after
downwardly-revised readings of 54.8 in each of the previous two
months. The decline in January came as the two most important
subindexes fell sharply. The subindex on new orders dropped
to 54.7 from 56.8 in December, while the subindex on production
fell to 56.4 from 57.4. The subindex on employment edged down
to 53.0, and the subindex on supplier deliveries eased to
47.0. Only the subindex on inventories posted a rise in
January. That subindex climbed to 52.8, up from 52.3 in
December. The report was released today by Banco de México
and the official statistics agency INEGI.
Comment: The PMI is designed so
that readings over 50 point to expanding activity. In spite
of the decline in January, the index therefore suggests that
Mexico's factory sector is still growing very broadly. In
fact, the readings for December and November had been at a record
high before the slight downward revisions in today's report.
The strength in Mexican manufacturing stems primarily from a
rebound in exports late in 2012 and continued growth in domestic
consumption. Now that U.S. politicians have found a
workaround for the "fiscal cliff" of sharp tax hikes and spending
cuts that had been scheduled for January 1, it is likely the U.S.
economy will keep growing in the near term and the demand for
Mexican factory goods will keep increasing. Nevertheless,
there are clouds on the horizon. Recent data show Mexico's
construction and mining sectors have hit a soft patch, and
unemployment has rebounded slightly. Mexico would be
vulnerable if U.S. politicians reach a new impasse on fiscal
policy, or if the European debt crisis worsens again.
Finally, Mexican monetary officials have started to sound the alarm
that strong inflows of foreign capital could eventually destabilize
the economy. For the short term, Mexico's economy appears to
be humming along nicely, but the risks should not be ignored.
Patrick Fearon, CFA
Vice President, Fund Management