Why Mexico’s Manufacturing Activity dropped in July 2017

In July 2017, Mexico’s (EWW) manufacturing activity as of July 2017 saw improvement in overall business conditions, though it weakened from the month prior. The manufacturing PMI (purchasing managers’ index) fell to 51.2 in July 2017 from 52.3 in June 2017, according to an IHS Markit report. New work orders and output fell.

Recently, Fitch Ratings upgraded its outlook for Mexico (EEM) from “negative” to “stable” as fears about trade with the United States (SPY) (QQQ) eased. The improvement in trade, foreign exchange, and sovereign debt helped improve growth prospects for the Mexican (VWO) economy in 2017. However, manufacturing activity continues to rise slowly in 2017, with trade uncertainty. The auto manufacturing sector (GM) (F) (FCAU) is seen as the biggest loser in the US-Mexico trade war. The fallout is expected to disrupt the value chain between the two countries.

Mexico has seen continuous overall improvement in its operating conditions in the manufacturing sector since October 2013. In July, manufacturing activity saw marginal improvement, which kept the PMI above the critical level of 50. The slower rise in new orders and output were main reasons for the manufacturing PMI’s slower rise.

Output grew at slower rate in July 2017, easing from June’s eight-month high. Lower client demand and exports subdued activity. New orders increased at a slower rate, down from the 13-month high seen in June 2017. New export orders also decreased marginally, ending 11 months of expansion.

Despite reduced output and new order growth, employment increased at a faster pace in July 2017. Job growth reached a four-month high. Long-term expansion plans and efforts to reduce outstanding orders also attributed to increased employment in July 2017.

The Mexican manufacturing sector is upbeat about the growth for the next 12 months. However, confidence eased from June’s 13-month high. Let’s look at the manufacturing sector in South Korea in our next article.