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Mexico: No light at the end of the tunnel

HSBC Mexican Manufacturing PMI  2013-05-02Enlarge Graph

The PMI for April was the lowest since August 2011

The PMI index is useful is gauging the manufacturing activity of a country, which is closely linked to consumer spending and demand forecasts.

Mexico’s manufacturing sector showed a strong decrease in April when compared to March. The index is now at a 21 month low.

Key sub-indices

While the output index was flat versus March, the new orders sub-index continued to slow down. The companies surveyed had higher demand from customers, though at a slower rate than the previous month.

Employment was slightly up and sits now at a five-month high, though it remains below the sub-index average. The acceleration in employment was to keep up with production increases, not really due to expected jumps in demand.

Output prices fell for the first time since the survey started, dropping just below the 50 point line. It seems that producers decreased the prices charged in an attempt to increase customer demand, though it was not too effective. Given the continued increase in input prices, margins were diminished.

Momentum loss

Sergio Martin, HSBC’s Chief Economist in Mexico, said:

“This is the lowest reading since August 2011, suggesting that the loss of momentum in the manufacturing sector will prevail in the coming months.”

In the short-term, Mexico may continue to trade sideways at best. If the U.S. experiences the “sell in May and go away” syndrome, then Mexican equities will fall, as both markets are highly correlated.

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