Macro Analysis /

Mexico: IMEF’s PMI surveys – Mixed results, with both indicators in expansion

  • The manufacturing PMI rose to 50.1pts (+0.6pts), mainly driven by ‘new orders’ (+2.6pts), and ‘production’ (+1.8pts)

  • Non-manufacturing decelerated for a second month in a row, to 50.1pts (+0.6pts), noting a fall in ‘new orders’ (-1.5pts)

  • These results are consistent with our vision of GDP growth in 3Q22. Going forward, risks are gaining momentum

Juan Carlos Alderete Macal
Juan Carlos Alderete Macal

Director of Economic Research

Francisco Jose Flores Serrano
Francisco Jose Flores Serrano

Senior Economist, Mexico

4 October 2022
Published byBanorte
  • IMEF Manufacturing PMI (September, sa): 50.1pts; Banorte: 49.8pts; previous: 49.5pts 

  • IMEF Non-manufacturing PMI (August, sa): 50.9pts; Banorte: 51.5pts; previous: 51.5pts 

  • Results were mixed, with manufacturing returning to expansion after a decline in the previous month, likely driven by better conditions in the US. On the other hand, services remain above the threshold, but lower once again, possibly due to additional price pressures 

  • In manufacturing, ‘new orders’, ‘production’, and ‘employment’ stand out due to their significant improvement. On the contrary, ‘deliveries’ weakened, consistent with some persistent challenges 

  • In non-manufacturing, moves were tighter, highlighting the fall in ‘new orders’ and with ‘deliveries’ as the only category in contraction territory 

  • We believe that these results are consistent with our expectation of a sequential expansion in GDP in 3Q22. However, going forward, risks are gaining momentum, but with some resiliency across the economy still present

Manufacturing rebounds modestly, with non-manufacturing losing some momentum. Manufacturing rose to 50.1pts, with a marginal upward adjustment to August’s print (by +0.1pts to 49.5pts). Meanwhile, non-manufacturing fell to 50.9pts, with a downward adjustment in the previous figures (by -0.4pts to 51.5pts). Both indicators are in expansion territory, although with different trends and narratives. Overall, the positive adjustment of manufacturing is more relevant due to still challenging local conditions. However, analyzing external conditions, there are positive signs that could favor the sector. In first place, a slight improvement in this same indicator for the US stands out – with the metric from S&P Global standing at 52.0pts from 51.5pts. This happened amid encouraging conditions such as more normalized supply chains and a moderation in cost pressures. Second, and despite a mixed performance in global shipping costs, levels continue to be significantly lower than the average over the last two years. Regarding non-manufacturing, despite the setback in the period, its performance shows signs of resilience, in line with what we expect from services, at least in 3Q22. In addition, the positive trend in consumer fundamentals continues. Employment performed well in the first two months of the quarter, despite possible seasonal distortions. Likewise, domestic activity continues to benefit from the high level of remittances, which we expect to continue. As such, we believe that the slowdown in the indicator is related to the persistent inflationary pressures.

Significant improvement in manufacturing. Although the advance does not compensate for setback of the previous period, it allows it to return to expansion territory. We do not rule out the prevalence of adverse factors such as persistent supply disruptions may be limiting the sector. Three out of the five components are located above the 50pts threshold.

Although ‘new orders’ had the biggest increase (2.5pts), it was slightly below expansion territory at 49.5pts. On the other hand, ‘production’ (50.0pts; +1.8pts) and ‘employment’ (50.8pts; +1.5pts) had a better performance in absolute terms. Regarding logistics categories, volatility continued for ‘deliveries’ with a drop of 3.4pts to 48.2pts. On the other hand, ‘inventories’ moderated their fall (-1.1pts to 51.4pts), remembering that in the previous month they contracted by 5.8pts.

The non-manufacturing sector decelerates for a second month in a row. Despite of the latter, in our view the sector continued to show signs of resilience, in line with our estimates. In this sense, we do not rule out that services may recover their dynamism in the short-term supported by fundamentals and thus maintain the momentum of domestic demand. By sectors, only ‘deliveries’ remained below the expansion threshold, although closing this gap (+0.6pts to 49.8pts). On the contrary, ‘new orders’ had the most relevant decline, by -1.5pts to 51.8pts. Lastly, ‘production’ (51.4pts) and ‘employment’ (51.3pts) had more modest adjustments.

We remain optimistic for both domestic and foreign demand, albeit noting increasing risks. Today’s results are consistent with our vision of dynamism during 3Q22. Although we believe that the balance of risks has worsened on different fronts, the resilience of industry, as well as services, will allow activity to maintain sequential growth in the third quarter. At the local level, we highlight greater stability, except for inflation, which we expect to continue to rise in the remainder of 2022. External factors are, once again, the main source of concern, possibly implying disruptions of a higher magnitude. Fears of a recession in the US, Russian plans to annex Ukrainian territory, and uncertainty in financial markets, are just some of the main risk factors heading into 4Q22.

Regarding manufacturing and in short-term, we will be focusing on the evolution of industrial production in the US, with special interest in the southeast coast given damages of Hurricane Ian. On the other hand, we believe that the fall in energy prices could continue to favor confidence of producers and consumers in that country, which could boost demand for Mexican manufacturing. At the domestic level, the sector is currently benefiting from low transportation costs and stable delivery times from Asian imports –due to excess capacity–, an effect that can be quite useful considering that in this season, inventories tend to increase before the holiday season. In addition, inflationary pressures for manufacturing producers seem to be slowing down since last June. Moving on to the medium-term, some of the positive factors for manufacturing would be: (1) The resolution of the USMCA controversies, which seem to be on a positive track; (2) the strengthening of the project to manufacture semiconductors in Mexico as part of the US ‘CHIPS and science act’; and (3) an increase in FDI as a result of nearshoring efforts, which would have an impact on other sectors of the economy (e.g. construction).

For non-manufacturing, we believe that domestic demand has the capacity to give it some additional boost to GDP towards the end of the year, with non-essential categories being the main drivers. In this context, hotel occupancy at the Mexican Revolution holidays (from November 18th to November 21st) is expected to exceed the level of 65% recorded on the September holiday. In addition to this, sales related to ‘El Buen Fin’ would also be better, where sales of $195 billion are expected. The reactivation of the aforementioned sectors has been quite strong after the fourth wave of COVID-19, with a population that has learned to live with the virus. In this sense, our vision for the dynamism of the sector is already oriented towards the need of families to prioritize the acquisition of services before goods, since in recent years they have had to postpone this type of purchases.