Mexican manufacturing sector loses confidence

Mex IPM Jan 13Enlarge Graph

The latest manufacturing survey in Mexico showed a loss of confidence in the sector. The Mexican IPM (purchasing managers index) is very similar to the well-known ISM (Institute of Supply Management) Index in the US. It samples over 1500 companies across Mexico with the same questions as the ISM, probing sentiments on new orders, production, employment, supplier delivery times and inventories. Unlike the ISM, which has a three point scale (higher, neutral, lower) for each question, the IPM has a five point scale, which gives it more granularity.

The graph above shows the updated index as of January 2013. While the index remains above 50, which implies expansion, the value of 53.6 is 1.21 points lower than the previous month. Investors were awaiting the January data given the flat reading in December; in this case the downfall was surprising. Nonetheless, the value was higher versus January 2012, but that was expected given the recovery of the economy. New orders, production and employment all were lower than December when adjusted seasonally.

Investors in Mexican ETFs, such as EWW and the locally traded NAFTRAC are likely disappointed with the data. EWW dropped to $72 from $74 since the announcement; this is the first clear decrease since the run up from $65 to $75 between mid-November and early February. It may be too early to tell if the economy’s trend has changed, though other macroeconomic indicators, such as industrial production, showed negative data for December. On the bright side, employment increased in December. Investors should keep tight stops on their investments to avoid quick market moves further towards the downside.