Mexico factories contract again in August, bracing for difficulties ahead

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MEXICO CITY, Sept 1 (Reuters) - Mexico's manufacturing sector contracted for a second consecutive month in August as weaker demand conditions, inflation and input shortages hindered growth for factories in Latin America's second largest economy, a survey showed on Thursday.

The seasonally adjusted S&P Global Mexico Manufacturing Purchasing Managers' Index (MXPMIM=ECI) was unchanged at 48.5 in August from a month earlier, below 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.

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"August PMI data shed further light on the struggles shared by Mexican manufacturers. Supply problems continue to hinder production capabilities, with firms often reporting shortages of materials and delayed shipments from suppliers," said Joe Hayes, senior economist at S&P Global Market Intelligence.

The latest survey showed evidence of companies moving into retrenchment mode as inventory levels and input purchasing were reduced, signaled steep price pressures, and underscored that business confidence matched July's six-month low.

"Demand conditions are becoming increasingly more challenging, as seen by new orders falling at the fastest rate since the beginning of the year. This partly reflects the high inflation environment, with companies reporting reluctance among their clients due to high price levels," said Hayes.

Mexican annual headline inflation has risen to an over two-decade high of 8.62% on the back of pandemic-related supply chain disruptions and the economic ripple effects of Russia's ongoing war in Ukraine. read more

Hayes warned that firms are bracing for a period of difficulty.

"Inventory levels are being trimmed, and companies are paring back their input purchasing in line with a bleaker outlook for the economy," he said.

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Reporting by Mexico newsroom, Editing by Chizu Nomiyama

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