MexECON Blog

January Industrial Production Rises 1.1 Percent

Mexican industrial production rose by a seasonally-adjusted 1.1% in January, erasing part of its revised 2.2% decline in December.  The rise in January stemmed in large part from a strong 3.7% rebound in construction output.  The rise in construction was the strongest in almost four years, though it could not offset the three straight months of construction decreases at the end of 2012.  Separately, Mexican utility output rose 1.1% in January, after two straight months of declines, and manufacturing output edged up 0.1%.  January mining output was flat.  On an unadjusted basis, Mexico's overall industrial production in January was up 1.7% from the same month one year earlier.  The report was released today by INEGI, the official statistics agency.

Comment:  The slight rise in Mexican manufacturing output during January is important, given that the factory sector accounts for the bulk of the country's industrial activity.  The jump in construction, however, may be the more critical indicator for the economy going forward.  Mexican construction activity fell in four of the last six months of 2012, for a total drop of more than 5.0%.  The declines accelerated sharply at the very end of the year, as shown in today's report and in yesterday's data on December fixed investment.  Along with the recent weakness in other parts of Mexico's economy, the declines in construction have made me worried that the country could be slipping into a serious correction.  On the other hand, I have also held out hope that the weakness simply reflected caution ahead of the December inauguration of Mexico's new president and fears about tighter U.S. fiscal policy beginning in January.  Today's report is consistent with the more benign hypothesis.  It suggests Mexican companies may have decided there is nothing about their new president or the U.S. fiscal tightening that should prevent them from building again.  With new bureaucrats now taking office, government agencies may be able to move forward again with road, bridge, and other infrastructure projects.  If Mexican construction continues to rebound, it would help confirm that the country was merely dealing with a momentary soft spot.  However, a couple more months of data will be needed before we know for sure.

Patrick Fearon, CFA
Vice President, Fund Management

Industrial Output 1301

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