Although operating conditions across Brazil’s manufacturing economy continued to strengthen in May, as signaled by a headline seasonally adjusted Brazil Manufacturing Purchasing Managers’ Index reading of 52.4, the rate of improvement slowed for the fourth month running from January’s series record peak (57.8). The PMI is a composite indicator designed to provide a single-figure snapshot of the performance of the manufacturing economy. Underlying the fall in the headline index were weaker expansions in output, new orders, employment and input stocks.
Brazilian manufacturers raised activity levels in response to further gains in new work. Both output and new business rose moderately since April, but at the weakest rates for nine months. Moreover, the expansions were slower than their respective long-run series trends for the first time since August last year. Weighing on total levels of new work was another slight decline in new export orders. Companies stated that an unfavorable exchange rate against the euro, the crisis in the Eurozone and competitive pressures (particularly from China) had resulted in lower external demand. Consequently, data suggested that the domestic market was the primary support of new business growth.
Further job creation was recorded by Brazilian manufacturers in May. Employment levels rose for the ninth consecutive month as companies made efforts to expand capacity and accommodate higher demand. However, the rate of expansion moderated for the third straight month, in line with the slower rise in workloads.
Manufacturers continued to restock in May. Both pre- and post-production inventories rose on the month, although in each case this was at only a marginal rate that was weaker than during April. Anecdotal evidence suggested that stock building reflected good business conditions and higher production requirements.
As demand for inputs rose in May, Brazilian manufacturers noticed another deterioration in vendor performance. Lead times lengthened at a solid and accelerated pace on the month, which panelists also linked to raw material shortages.
Price pressures eased slightly during May, with increases in both input and output prices slowing. However, both measures remained above their long-term trends, with average purchasing costs continuing to increase sharply. Panel members indicated that greater raw material prices drove the latest round of input cost inflation. Meanwhile, charges were lifted to protect profit margins from rising costs.
Commenting on the Brazil Manufacturing PMI survey, Andre Loes, chief economist, Brazil at HSBC, said: “The expansion of the manufacturing economy in Brazil slowed again in May, with HSBC's Manufacturing PMI registering its lowest reading since September 2009 (52.4, compared to 53.8 in April). The output and new orders components fell more markedly than the headline index, while the employment index also showed a sizeable dip. “An important change vis-à-vis April is the slowdown in the growth of prices, both input and output – although, for the input component, the rate of inflation remained strong. The May reading of the manufacturing PMI gives a clearer picture of how the industry is progressing as we advance through Q2. Given the current strength of inflation and indications that the output gap is already into positive territory, both this moderation of growth and the first indications of a deceleration in inflation are very welcome.”