MexECON Blog

July PMI Rises to 51.2

Mexico's July purchasing managers index for the manufacturing sector edged up to a seasonally-adjusted 51.2, after a revised 51.0 in June.  Despite the small rise, however, the readings for the two months were the weakest since mid-2009, when the Mexican economy was just starting to recover from its latest recession.  The PMI's small rise in July came mostly from a jump in the subindex on new orders.  That subindex rose to 53.6 from 51.6 in the previous month.  The subindex on inventories climbed to 51.0 from 50.6.  In contrast, July's subindex on production fell to a 16-month low of 52.4, while the subindex on employment declined to 51.5 and the subindex on supplier deliveries dropped to 46.0.

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.  At its current level, the index suggests Mexico's factory sector is now growing only narrowly.  Mexico's economic expansion phase is already quite mature, so it is only natural that manufacturing growth should be moderating.  However, the index seems a bit weaker than it should be.  Mexican factories are heavily dependent on exports to the United States, so the strong demand for autos and housing north of the border should be boosting the sector.  One key problem is probably that Mexican factory managers are concerned that the U.S. Federal Reserve will tighten monetary policy prematurely.  There is also significant downside risk if the European debt crisis flares up again or there is some other international crisis. 

Patrick Fearon, CFA
Vice President, Fund Management

PMI 1307

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