Brazil manufacturing PMI slips to series-low 40.0

The Brazilian manufacturing economy continued to suffer from the effects of the global financial and economic downturn in December. Output, new orders, employment and purchases all contracted at series-record rates as confidence and demand fell sharply. Meanwhile, input price inflation remained robust, despite easing for the second month running, supported by unfavorable exchange rate movements.

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 economy – dropped to a new low of 40.0 in December, pointing to a sharp deterioration in the health of the sector. The PMI has now registered below the no-change mark of 50.0 for three consecutive months.

Respondents continued to report falling new order levels in December. Incoming new work to the sector contracted sharply as demand for Brazilian manufactures softened both at home and abroad, particularly in the automotive industry. Output declined considerably as a result, while substantial inroads into backlogs prevented an even steeper fall in production.

Both employment and purchasing activity suffered as a result of the continued declines in output and new orders. Manufacturers cut jobs at a substantial pace, and input buying activity fell at the sharpest rate in the survey history.

Despite efforts by many firms to reduce costs by implementing stock-depletion policies, post- and pre-production inventories rose during the latest survey period, driven by sharply declining sales and production levels respectively.

Falling demand for inputs relieved pressure on suppliers in December and resulted in a series-record improvement of average vendor performance.

Input price inflation remained robust in the Brazilian manufacturing economy during December, although it eased to the slowest since November 2007. Inflation was predominantly attributed to a weaker real, which raised the costs of imported raw materials.

Manufacturers were generally unable to pass on the input cost rises to customers in December, as demand for their goods had weakened considerably. To remain competitive, firms reduced their charges at a moderate pace. Average output prices fell for the first time since July 2007.