Macro Analysis /

IMEF’s PMI surveys–Consolidation in services, with manufacturing inching higher

  • The manufacturing PMI rose to 50.5pts (0.5pts) in November, with an expansion in ‘new orders’ and ‘employment’

  • Non-manufacturing also climbed,up to 53.4pts (1.7pts). Mixed performance inside,with ‘new orders’ standing out (+2.1pts)

  • Results showed that a divergence persists across sectors, with industry at more risk, while services have strengthened

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

2 December 2022
Published byBanorte
  • IMEF Manufacturing PMI (November, sa): 50.5pts; Banorte: 49.5pts; previous: 50.0pts 

  • IMEF Non-manufacturing PMI (November, sa): 53.4pts; Banorte: 52.6pts; previous: 51.7pts 

  • Performance was stronger. Manufacturing inched higher, recovering the loss from the previous month. Services also rose, likely aided by a slight moderation in prices and boosted by key events 

  • In manufacturing, strength centered in ‘new orders’, while ‘production’ fell slightly. Volatility in ‘inventories’ and ‘deliveries’ continues, with the former higher, but the latter taking another step back 

  • Changes in non-manufacturing were mixed, with notable progress in ‘new orders’ and ‘production’, but with ‘employment’ and ‘deliveries’ lower. Despite of this, all categories stood above the 50pts threshold 

  • We believe these results suggest that divergences persist across different sectors. However, industry could be slightly more resilient than we originally thought, while services have strengthened

Both sectors improved, with non-manufacturing outperforming. IMEF’s indicators climbed in November, with manufacturing up to 50.5pts from 50.0pts in the previous month –with the latter figure originally at 50.1pts. Meanwhile, the non-manufacturing was stronger at 53.4pts (previous: 51.7pts, originally at 51.8pts). Both remain in expansion territory. Regarding the former, the result is positive considering additional weakness in US industry, reflected in the same indicator from S&P Global at 47.7pts from 50.4pts, a new low since June 2020. According to the report, this was driven by weakness in both local and external demand. Domestically, some relief may have come from a slight easing in supply pressures –although with challenges persisting in key areas, such as autos–, while some intermediate prices for industry declined recently. On non-manufacturing, the pandemic seems to have been left behind (despite signs of a slight pickup recently). Key events, such as El Buen Fin (Mexico’s Black Friday) and the spillover from increased spending because of the 2022 FIFA World Cup, likely boosted dynamism further. Moreover, an easing in non-core prices, mainly LP gas, could have freed up some household income.

Manufacturing improves slightly. Performance inside was mixed, with only three categories up. The expansion was driven by ‘new orders’ (+0.8pts), with employment inching higher (+0.2pts). ‘Production’ backtracked 0.7pts, as seen in the chart below. As has been since the outset of the pandemic, volatility prevails in logistics, with ‘inventories’ climbing further (+0.3pts), but with ‘deliveries’ again lower (-0.7pts). With this result, the latter stands as the only one in contraction territory (see table below).

Non-manufacturing keeps improving. The index reached its highest level since March 2022. Nevertheless, only two of the four categories improved, these being ‘new orders’ (+2.1pts) and ‘production’ (+1.5pts). In our view, their dynamism was likely driven by the abovementioned factors. Meanwhile, both ‘deliveries’ (-1.4pts) and ‘employment’ (-1.7pts) declined. The reading on the former could be somewhat uncertain, considering that the lag may be because of increased demand. On the latter, we remain more cautious considering the outlook ahead.

Despite a more challenging outlook, activity could remain resilient for longer, especially services. Despite the positive surprise in manufacturing, today’s results support our view of some divergence between industry –mainly manufacturing– and services, with the former affected by headwinds abroad. On the latter, we believe December’s print could continue to benefit from holiday spending and the late stages of the World Cup. As such, our call of a mild contraction in 4Q22 (-0.2% q/q) could be facing some upside risks.

Diving into manufacturing, risks out of China prevail, with lockdowns in key industrial cities continuing after a spike in contagions, with further distortions likely from increased social unrest. In the US, we await the outcome of a possible rail strike as early as December 9, with potentially harsh ramifications on activity and prices in both that country and in Mexico. However, it seems Congress might take actions to avert a crisis. Regarding local conditions, shutdowns in the auto sector could ease, with no news about planned factory halts in December so far. In addition, improvements on input prices could provide some relief to producers, albeit with supply constraints still very much a challenge.

For non-manufacturing, we expect services to maintain momentum, still supported by fundamentals. Remittances have remained high despite some signs of a cooldown in the US labor market, while employment rebounded strongly in October. In addition, interest from foreign and domestic tourism could likely continue, even despite the uncertain outlook. If inflation continues to ease, households could gain some breathing room to consolidate basic spending and possibly expand on discretionary consumption. Lastly, according to recent figures, COVID-19 cases are trending up. While we believe the effect from another wave could be very limited, we remain on the look for its possible fallout.