Macro Analysis /

IMEF’s PMI surveys – Modest monthly decline in May, but still in expansion

  • Manufacturing fell to 50.8pts (-1.6pts), dragged by ‘new orders’ and ‘inventories’, partially offset by ‘deliveries’

  • Non-manufacturing also fell, down to 52.5pts (-0.5pts), with all items lower and ‘deliveries’ below 50pts

  • We expect the recovery to continue, albeit at a slower pace given higher risks in the short-term

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

1 June 2022
Published byBanorte
  • IMEF Manufacturing PMI (May, sa): 50.8pts; Banorte: 51.3pts; previous: 52.4pts 

  • IMEF Non-manufacturing PMI (May, sa): 52.5pts; Banorte: 52.3pts; previous: 53.0pts 

  • Both indicators fell, although achieving four consecutive months in expansion territory. Manufacturing was the most impacted, likely affected by a more challenging global backdrop. Meanwhile, non-manufacturing extended the slowdown that began in the previous month 

  • In manufacturing, ‘production’ and ‘deliveries’ were better, with the latter almost erasing its previous drop. The decline was led by ‘new orders’, while ‘employment’ is the only one below the expansion threshold 

  • In non-manufacturing, all components were lower, with most of the weakness centered in ‘new orders’ and ‘production’. In this category, ‘deliveries’ are the only ones under 50pts 

  • These results suggest that the recovery of the economy could continue, although possibly at a slower pace. At the margin, risks are higher, which could affect dynamism

IMEF's PMIs decline, but remain in expansion. Manufacturing fell to 50.8pts, with the previous figure revised slightly down to 52.4pts. Non-manufacturing extended its decline, standing at 52.5pts from 53.0pts, with no adjustments to the previous figure. As such, both remained above the expansion threshold for a fourth consecutive month, suggesting some resilience in the face of a series of challenges. In manufacturing, pressures in industry kept rising. Lockdowns in China have impacted input prices and worsened supply chain bottlenecks. This has caused some companies in certain industries –such as the auto sector– to rethink their production goals for 2022. On a more positive note, US demand remains strong, helped by a positive evolution of employment. On the other hand, savings are starting to fall more meaningfully, while some households may be opting for higher borrowing. Both may well be a sign that consumers are resenting price pressures. In non-manufacturing, lower concerns about contagions have contributed to the abovementioned resilience through the consolidation of mobility. In addition, fundamentals have recovered further (e.g. employment, credit and remittances). However, in our view, the main limitation comes from inflation, with food and energy prices globally staying highly pressured.

Manufacturing declines, erasing recent gains. ‘New orders’ dropped the most, to 51.4pts (-4.0pts). On the contrary, ‘production’ rose to 53.1pts (+0.2pts), modest but quite positive given its recent advance and the factors already described above. ‘Employment’ was lower and is back to contraction territory, at 49.5pts (-0.9pts). This could be reflecting new technical stoppages, especially in the auto sector. Similar to the previous period, components related to logistics remain very volatile, reversing moves seen in April. ‘Deliveries’ recovered and returned to expansion (50.8pts; +1.2pts). On the other hand, ‘inventories’ fell by 1.8pts to 51.3pts, likely reflecting supply problems that industry continues to face.

Non-manufacturing was also weaker, with all components lower. ‘Production’ saw the steepest decline, standing at 53.5pts (-1.2pts), while ‘new orders’ moderated its rate of decline, to 54.9pts (-0.7pts). In our opinion, these losses could be related to base effects and persistent inflationary pressures. In addition, the absence of social programs payments –which were brought forward because of the electoral ban– could be having an effect. Lastly, ‘employment’ fell to 51.5pts (-0.4pts), while ‘deliveries’ edged down to 49.1pts (-0.1pts), with the latter being the only sector below the 50pts threshold for a fourth consecutive month.

The recovery could be compromised in the short-term, with added challenges possibly offsetting for demand dynamism. Although external and local demand keep providing an important boost for both indicators, certain factors could affect performance in the short-term. In manufacturing, pressures from higher input costs are likely to continue in 2Q22 and beyond. The length of the war in Ukraine adds uncertainty about the normalization in the supply of some goods, especially commodities and energy. Meanwhile, weak car sales in the US, China and Europe have led auto companies such as Toyota to cut their global production plans in the short-term (June 2022), also on the back of the semiconductors’ shortage. Domestically, CANACINTRA announced that technical stoppages in the auto industry would continue throughout 2022, since they estimate that the supply of microchips will return to normal until November. Related to this, the Volkswagen plant in Puebla stopped operations temporarily in two production lines during the month of May. This suggests that the manufacturing industry will continue facing limits to production and employment growth, at least in the short-term.

On a positive note, the easing of lockdowns in Shanghai as of June 1st could represent much needed relief for industry, allowing disruptions to decrease and boost local production at the end of the second quarter. In addition, May’s ISM manufacturing in the US surprised positively, being that the headline index rose to 56.1pts from 55.4pts in the previous month, with almost all components higher. Given these two factors, the indicator will likely close 2Q22 above the 50pts threshold.

For non-manufacturing, short-term performance may be limited by price pressures that could extend to June, particularly at the core component. On top of this, additional headwinds may come from Banxico’s tightening cycle. According to our estimate, a faster pace of +75bps is slated for June, with the reference rate closing 2022 at 9.50%. Both factors may impact the demand for non-essential and durable goods. However, remittances should remain as a driver for local consumption. Looking further ahead, services are likely to get an additional boost from the return of social program payments, as well as an increase in tourism-related categories.