MexECON Blog

June PMI Falls to 51.9

Mexico's June purchasing managers index (PMI) for the manufacturing sector fell to a seasonally-adjusted 51.9, after revised readings of 52.6 in May and 52.8 in April.  The decline in June reflected decreases in four of the five subindexes.  The heavily-weighted subindex on new orders fell for a third straight month, reaching 54.3, and the subindex on production fell for a second straight month to 53.1.  The subindex on inventories declined to 52.0.  Worst of all, the subindex on supplier deliveries dropped sharply to a five-and-a-half-year low of 45.0.  In contrast, the subindex on employment edged up to 51.4.

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.  Therefore, in spite of the declines over the last two months, the index suggests Mexico's factory sector is still growing fairly broadly again after a weak spot in mid-2013.  Much of the strength can be attributed to a recent rebound in Mexican exports.  Increased sales abroad have helped offset continued weakness in Mexico's domestic demand.  Nevertheless, I would note that the good readings in the overall PMI would look even better if it weren't for the continued slide in the subindex on supplier deliveries.  That subindex is designed so that higher readings reflect slower deliveries by suppliers, as would be associated with periods of high demand and supply bottlenecks.  Lower readings reflect the quicker deliveries that are possible in periods of weaker demand and dissipating bottlenecks.  I have begun to think that the slide in the subindex on supplier deliveries may reflect not weakening demand but structural changes in the Mexican economy.  For example, Mexico's supplier base may be broadening and improving, making it easier for manufacturers to get timely deliveries of key inputs.  If that is the case, the lower readings on the supplier deliveries subindex would reflect the positive impact of a more efficient economy.  However, more research would be needed to confirm this hypothesis.

Patrick Fearon, CFA
Vice President, Fund Management

PMI 1406

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