Mexico's July purchasing managers index (PMI) for the
manufacturing sector fell to a seasonally-adjusted 51.6, compared
with revised readings of 51.8 in June, 52.5 in May, and 52.7 in
April. The index is now at its lowest level since last
October. According to the report, the decline in July stemmed
entirely from the heavily-weighted subindex on new orders.
That subindex fell for a fourth straight month, reaching a
nine-month low of 52.8. In contrast, the July subindex on
supplier deliveries rose to 45.9, while the subindex on employment
edged up to 51.7. The July subindex on inventories rose 53.3,
and the subindex on production rose to 53.4.
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 several months, the index
suggests Mexico's factory sector is still growing. Mexican
manufacturing activity clearly got a boost earlier this year when
exports started to rebound. The recent strengthening in U.S.
demand suggests exports will continue to buoy factory
activity. Nevertheless, the three straight declines in the
overall PMI and the four straight declines in the subindex on new
orders should serve as a reminder that Mexico is still facing some
significant headwinds. In particular, several aspects of
domestic demand remain weak. That will likely limit how much
the overall Mexican economy can accelerate in the coming
Patrick Fearon, CFA
Vice President, Fund Management