Business conditions in the Brazilian manufacturing economy worsened in October for the first time since June 2006. The headline seasonally adjusted Banco Real Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of the performance of the manufacturing sector – posted 45.7, pointing to a marked deterioration that was the fastest in the survey history. The PMI was driven down by accelerated declines in output and new orders, as well as falls in employment and stocks of purchases.

 

Demand levels dropped in October as the fallout from the global economic and credit crises spread, affecting markets worldwide. The resulting impact on incoming new work to Brazilian manufacturers, from both domestic and foreign clients, was a faster decline. Total new orders fell at a series-record pace.

 

Production also contracted at the steepest rate in the survey history during October, despite considerable inroads into backlogs of existing contracts. Outstanding business fell at the fastest pace in the survey’s 33-month history as declines in new orders freed up more spare capacity.

 

Job-shedding was recorded during the latest survey period for the first time since August 2006, and at a series-record pace. Respondents stated that weak demand conditions had created the need to rationalize company resources, and staff numbers were streamlined accordingly. Several firms also noted that workers were released to allow the further mechanization of production.

 

Adding to the gloom were accelerations in both input and output price inflation, to the quickest rates since July. Increased raw material prices caused input costs to rise, with knock-on effects on manufacturers’ charges. Panel members stated that they put their prices up in an effort to protect profit margins from being eroded.

 

Lower production requirements, alongside increased input prices, led Brazilian manufacturers to sharply reduce their input buying activities in October, and purchasing fell at a survey-record pace. Partly due to fewer purchases, but also reflecting decisions to implement stock reduction policies, holdings of pre-production goods were depleted for the first time since July.

 

As demand for inputs slackened, the rate of deterioration in average vendor performance eased. Lead-times were reported to have lengthened moderately.