Brazil Further Declines in Both Output and New Orders in July

August 03, 2012 /

July data signalled a further deterioration in manufacturing business conditions in Brazil, with survey respondents largely citing weak client demand.

Both output and new orders fell for the fourth month running, albeit at slightly weaker rates than those registered in June, and firms reduced their workforces to the greatest extent in three years. Inflationary pressures meanwhile
eased over the month, with the rate of input price inflation having slowed to a four-month low.

After adjusting for seasonal variation, the HSBC Brazil Purchasing Managers’ Index™ (PMI™) posted below the 50.0 no-change mark for the fourth consecutive month in July. At 48.7, up only slightly from 48.5 in June, the PMI was the second-lowest in eight months and signalled a modest deterioration in manufacturing business conditions.

Brazilian manufacturers received a lower volume of new work in July, continuing the trend that has been registered in each month since April. Firms that reported a reduction in new orders (approximately 15%) generally linked this to weak client demand. New export orders also fell over the month, as exporters were affected by unfavourable exchange rates.

Overall, total new orders fell modestly in July, albeit at a slightly weaker rate than that reported for June.
Reflective of lower new order requirements, monitored companies reduced their output further during July. Although the rate of decline was only modest, production nonetheless fell at the second-strongest pace in nine months.

Backlogs of work meanwhile declined further in July, and stocks of finished goods were depleted at the fastest pace since March. Suppliers’ delivery times lengthened for the seventh consecutive month in July. Panellists generally
commented on transportation delays. The latest deterioration in vendor performance was only marginal, however, with the corresponding index only slightly below the neutral threshold.

Employment in Brazil’s manufacturing sector declined for the fourth successive month in July. Approximately 8% of panellists reduced their headcounts from June, with lower new work intakes often cited. Moreover, the latest round of job losses was the strongest in three years.

Firms reported a further increase in input costs during the latest survey period, with raw materials such as food and steel particularly mentioned as having increased in price. However, the rate of input price inflation nonetheless slowed to the weakest in four months.

Andre Loes, Chief Economist, Brazil at HSBC said: “The HSBC Manufacturing PMI stabilized in July, rising from 48.5 last month to 48.7. On the whole, the headline index and its key components remained below the 50 threshold, suggesting that the industrial sector in Brazil continued to contract in July. But at least this decline in economic activity appears to be losing momentum, with the very modest rise in the headline PMI index being led by improvements in both the output and new orders indices.”

 

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