Mexico: IMEF’s PMI surveys – Mixed results, with mounting risks in manufacturing

  • Both manufacturing (50.3pts) and non-manufacturing (53.2pts) remained in expansion, albeit with a mixed performance
  • Relevant declines were seen in ‘production’ and ‘inventories’ in the former. The other reached a new high since mid-2017
  • We remain optimistic about the recovery, but the report flagged some risks for the manufacturing sector
  • IMEF Manufacturing PMI (April, sa): 50.3pts; Banorte: 50.9pts; consensus: 51.1pts; previous: 51.0pts 

  • IMEF Non-manufacturing PMI (April, sa): 53.2pts; Banorte: 53.0pts; consensus: 53.0pts; previous: 51.9pts 

  • Both indicators remained in expansion territory, despite a mixed performance. Specifically, manufacturing backtracked on some of last month’s gains, with relevant declines in ‘production’ and ‘inventories’, in our view, impacted by supply chain shocks worldwide 

  • Meanwhile, the non-manufacturing was better, reaching a new high since mid-2017. This may be related to a mostly favorable outlook regarding the virus which has allowed for reduced social distancing and increased activity 

  • While we remain optimistic about the recovery, the report does flag risks for the manufacturing sector, possibly resulting in a moderation in the pace of growth. Meanwhile, services should continue to be benefited by further gains in the epidemiological front

Mixed results within IMEF's PMIs. The manufacturing indicator reached 50.3pts, lower by 0.7pts relative to the previous month. Meanwhile, the non-manufacturing indicator stood at 53.2pts, up 1.3pts sequentially. While both metrics remained in expansion territory (above the 50bps threshold), the report suggests some risks for the former, which in our view are related to global factors. However, we believe that an important limit to a more relevant decline may have been some support from abroad, mainly, the US. For the latter, performance seems to be gaining more momentum, with improvements in the epidemiological front being key. In addition, strong remittances and a seemingly more positive outlook domestically might also be weighing on the sector.

Manufacturing lower after some risks may be exacerbating. This indicator reached 50.3pts, with March’s data revised higher to 51.0pts from 50.7pts. In our view, this is likely driven by mounting challenges for producers given supply-chain constraints, which seem to be extending beyond semiconductors. In this context, reports have continued to surface regarding port delays across the world, especially in the US. This may be having a compound effect on activity, impacting the deliveries of raw materials, which in turn delays shipments across the production process. This is evident across sectors, with ‘production’ (-1.9pts) and ‘inventories’ (-1.6pts) taking a relevant hit. Nevertheless, and somewhat strange considering the situation, ‘deliveries’ were higher by 1.4pts. A possible explanation for this is that some of the uptick in production after shocks in February may have been unloaded until this month. However, strength in demand seems to persist, with ‘new orders’ mostly unchanged (+0.1pts). We believe that this is key for the outlook to remain favorable, especially if the domestic sector also gathers momentum. Lastly, ‘employment’ was practically unchanged (-0.1pts), leading us to maintain caution on this front until ‘hard data’ becomes available.

Non-manufacturing keeps improving. This indicator stood at 53.2pts, building up on the 51.9pts seen in March. However, figures for this latter month were revised strongly to the downside, with the first print at 52.8pts. Despite of this, the indicator reached its highest level since August 2017. This is probably tied to a further improvement on the virus, considering that the ‘traffic light indicator’ reached its best levels in the middle of the month. We should note that there was a slight deterioration in the final week in some states, with the next update to be published this upcoming weekend. Despite of the latter, the overall trend of new cases continues to be to the downside, which we believe suggests that concerns might be transitory. On top of this, we identify other positive drivers, including: (1) Higher-than-expected remittances, boosting available income for low-income families; (2) some leftover resources from social programs’ payments which were brought forward to March; and (3) some dynamism as the electoral season starts. Looking at the breakdown, three out of the four components were higher. Among these we highlight ‘production’ (+4.7pts) and ‘new orders’ (+2.5pts), reflecting both higher dynamism and a more positive outlook. On the contrary, performance in ‘employment’ was identical to manufacturing at -0.1pts.

We remain optimistic about the recovery, albeit with some risks becoming more concerning. The report continues to be favorable despite the decline in manufacturing, as both indicators stand above the 50pts benchmark. This signals that the recovery continues. However, the pace in the latter sector could start to come into question, with risks gathering traction. As we elaborated previously, supply chains have become quite stressed, with a mismatch between demand and supply of some components being more evident. While some of these issues were present since before the pandemic –such as is the case for semiconductors–, others have exacerbated as a result of several factors, going from closing factories to changing consumption patterns.

In this context, industry reports suggest that while manufacturers of key components are making some strides in solving the issues, some distortions could persist well into 2H21. As a result, this will probably be a relevant drag for further improvements, despite demand coming back strongly –especially in the US on strong fiscal stimulus–. We will continue to monitor the situation closely, looking for possible adjustments on manufacturing processes and on some possible solutions to shortages.

Turning to the non-manufacturing index, the outlook keeps improving, which we believe is very favorable as we were relatively more downbeat on it at the start of the year. Specifically, the report adds some credence to other hard data which suggests that domestic demand is recovering with some strength, such as the latest trade balance report. In this context, we think that the main driver will continue to be the evolution of the virus and activities that may restart or gather dynamism as a result of the latter. One of these key sectors will be tourism, as it is highly dependent on social interaction, as well as being relatively isolated to the shock on manufacturing (relative to other such as retail and wholesale). However, another pillar will be employment, which so far has given signs of a strong comeback in recent months.

All in all, we expect activity to gather momentum in coming months, benefiting as stimulus from the US permeates further into our country and the vaccination program keeps moving along. We should mention that inoculations for teachers will begin in the middle of May, with the next phase of the program (people between 50 and 59 years old) being announced last week. In this context, we keep forecasting GDP to grow 5.9% in 2021.

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