No Respite for Mexican Industrial Production

Industrial production was weaker in February than in January, 0.3 percent versus 0.5 percent month-over-month, further delaying the expected turnaround in industrial activity during Q1-2014.

Industrial Production Was Weak Again in February

The Mexican industrial production index increased by a less than expected 0.3 percent on a month-over-month basis in February and 0.7 percent year-over-year. Consensus expectations were looking for 0.5 percent and 1.0 percent, respectively. Meanwhile, manufacturing production printed a more than expected gain of 2.3 percent year-over-year rate, versus a consensus estimate of 2.2 percent. The manufacturing production index was revised up from 2.5 percent to 3.0 percent in January and this improvement pushed the year-over-year overall industrial production index from an originally-reported 0.7 percent rate to a revised 0.8 percent rate. 

Outside of the upward revision and stronger-than-expected gain in manufacturing production, the rest of the report was on the weaker side. Petroleum and natural gas production was down 1.3 percent on a yearover-year basis. Metal mining activity was up 6.9 percent in February after  a 7.2 percent rate in January, but total mining production was up by just 0.2 percent after a flat reading in January. Meanwhile, the construction sector, which has been the biggest challenge for Mexican industrial production, came in negative again in February, dropping 2.1 percent after a 3.1 percent decline in January. Having said this, not all was bad news for the construction sector as there are some segments of the construction industry that have started to show some growth. However, the overall construction sector is still pulling down the industrial production index. 

Easter May Help Industrial Production in March

Mexican economic activity will be weak in the first quarter of the year even if we expect the industrial production index to improve in March. However, the reason for the improvement in March has more to do with the Easter holiday effect than with an actual improvement in the economy. That is, while we expect March’s industrial production index to be strong there is a large probability that there will be a pullback in the April reading. The reason for this is that Easter will fall in April this year while it fell in March last year. This means that March had more work days this year compared to March of last year and conversely, April this year will have less work days than April last year. 

If we are wrong and April’s industrial production comes in better than expected then we may change our view on the performance of the Mexican economy this year. However, we doubt that this will be the case and thus are still keeping our less-than-stellar rebound of 2.1 percent growth compared to 1.1 percent growth in 2013. The signs we are seeing is for the Mexican economy to continue improve, but at a slower pace than consensus forecast is expecting.