MexECON Blog

Industrial Production Falls, But Construction Improves

Mexican industrial production fell in December by a seasonally-adjusted 0.5%, reversing its revised increases of 0.2% in November and 0.3% in October.  The decline in December came as manufacturing output slumped 1.1%, following a 0.9% decrease in the previous month.  Mexican factory production has now fallen in three of the last four months, for its worst performance since autumn 2012.  Mexican mining output also fell in December, by 0.8%, but that came after two months of modest increases.  On a more positive note, December construction output rose 0.2%, building on its 2.3% rise in November.  Utility output jumped 1.3%, for its strongest increase since last summer.

On an unadjusted basis, overall industrial production in December was down 0.3% from the same month one year earlier.  Utility output was up 1.5% year-over-year, and manufacturing output was up 1.1%.  However, December mining output was down 1.3% year-over-year.  In spite of the second straight monthly rise in construction activity, output from that sector was down 2.5% year-over-year.

The report was released today by INEGI, the official statistics agency.

Comment:  Mexican industrial production has been basically flat for more than a year, but a close look at the details shows the story is much more complex than that.  On the one hand, the recent downtrend in manufacturing production calls into question the good readings on the latest purchasing managers indexes.  The downtrend is also somewhat at odds with recent data showing a growing trade surplus.  On the other hand, the second straight rise in construction output during December offers a tantalizing hint that the long freeze in that sector may be coming to an end.  As shown in the second graph below, the rebound in construction comes in part from stronger public works activity.  That is consistent with the government's promise to finally reverse its tight spending over the last year.  Part of the rise also comes from stronger activity in the construction trades.  That increase may be at risk if the renewed downturn in building activity continues, but for the moment, it is encouraging.  A couple of more months of data are necessary to know whether Mexican construction could really be on a sustained recovery, and the ongoing headwinds for residential construction in the country remain strong.  Nevertheless, there seems to be a glimmer of hope that construction will finally become less of a drag on the Mexican economy.

Patrick Fearon, CFA
Vice President, Fund Management

Industrial Production 1312

Industrial Production Detail on Construction 1312

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