MexECON Blog

January PMI Falls to 53.6

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

PMI 1301

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