Mexico factories back in growth territory as challenges abound

A worker holds stainless steel wire produced at TIM stainless steel wire factory in Huamantla, in the Mexican state of Tlaxcala October 11, 2013. REUTERS/Tomas Bravo

MEXICO CITY, Oct 3 (Reuters) - Mexico's manufacturing sector inched back into expansion territory in September, following two months of contraction, as goods producers faced a challenging month due to ongoing declines in sales and cashflow concerns, a survey showed on Monday.

The seasonally adjusted S&P Global Mexico Manufacturing Purchasing Managers' Index (MXPMIM=ECI) increased to 50.3 in September, up from 48.5 in August and above the key 50-threshold that separates growth from contraction.

Mexico's factories shrank for more than 2-1/2 years starting in March 2020 due to the economic fallout of the pandemic. The index hit a record low of 35.0 in April 2020 during the height of the country's COVID-19 lockdowns, but then briefly popped back into growth territory in May and June of this year.

The latest survey underscored that "solely" due to job creation and lengthening delivery times, the index was above the 50 mark, while the overall reading for the third quarter of 49.1 was in contraction territory.

"The manufacturing sector was negatively impacted by a triple whammy of demand, supply and financial setbacks in September," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

September data suggested challenging economic conditions globally led to back-to-back declines in international sales at Mexican manufacturers and some of those surveyed mentioned the deferral of orders coming from the United States.

But there was some positive news for Mexican factories.

"Some tentative positives were seen with regards to inflation, business sentiment and employment. Input costs rose at the slowest rate in seven months, curbing output charge inflation," said De Lima.

"Concurrently, hopes of a pick-up in sales amid the football World Cup, advertising and new market niches underpinned job creation," De Lima added.

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