RPT-Mexico manufacturing sector shrinks for first time in five months

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MEXICO CITY, Feb 1 (Reuters) - Mexico’s manufacturing sector shrank for the first time in five months in January, as declining sales prompted businesses to trim production and buying levels, resulting in a contraction in stocks, a survey showed on Wednesday.

The S&P Global Mexico Manufacturing Purchasing Managers’ Index fell to a seasonally-adjusted 48.9 in January from 51.3 in December, dipping below the 50 threshold that separates growth from contraction for the first time since August.

“There was a reversal of fortunes for the Mexican manufacturing industry, which slipped back into contraction in January,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

“Companies generally suggested that their clients had excessive stocks which they struggled to sell, meaning they were more reluctant to place new orders. According to goods producers, a challenging economic landscape and price pressures deterred sales at the start of 2023,” she added.

Mexico’s manufacturing sector shrank for over 2-1/2 years from March 2020 due to the economic fallout of the COVID-19 pandemic. The index hit a record low of 35.0 in April 2020 at the height of the country’s pandemic-related lockdowns.

The latest survey pointed to a slight contraction in jobs, as indices of output and new orders slipped below 50. There was, however, a marginal uptick in new export orders.

Meanwhile an index of input prices, which is running at elevated historical levels in Mexico, nevertheless grew at its slowest rate since November 2021. By contrast, a gauge of output prices nudged up to 51.1 from 50.9 a month earlier.

Inflation in Mexico, Latin America’s no. 2 economy, accelerated and was higher than expected in early January, although it is expected to moderate as the year progresses.

A gauge of business optimism weakened for the second month in a row, reaching its lowest level since August 2022 and remaining below the long-run series average, the survey showed.

“Firms were tentatively optimistic that new product releases and advertising could help boost sales and subsequently production volumes over the year, but inflation and input shortage worries dampened business confidence,” De Lima said. (Writing by Dave Graham; Editing by Chizu Nomiyama)