Brazil industrial index reaches highest level in over 2 years

The headline seasonally adjusted Brazil Manufacturing Purchasing Managers’ Index (PMI) rose slightly in December, hitting its highest level for just over two years. The latest reading signaled a robust improvement in the health of the Brazilian manufacturing economy. Underlying this expansion were faster increases in output and employment, while new order growth remained sharp.

New work received by Brazilian manufacturers expanded at a substantial pace at the end of the final quarter, although growth slowed slightly since November. Anecdotal evidence suggested that better economic conditions had supported demand. Data indicated that growth of total new business was driven by the domestic market, as incoming new work from abroad contracted slightly on the month, which panel members linked to unfavorable exchange rates.

Substantial new order growth led Brazilian manufacturers to expand production during December. Output rose for the sixth time in seven months, and at the fastest rate since October 2007.

Unfinished business and employment both increased during the latest survey period, pointing to the existence of capacity pressures in Brazil’s manufacturing industry. Staffing numbers expanded at a robust rate that was the fastest for 17 months.

Brazilian manufacturers bought more raw materials in December to accommodate higher production levels. However, the substantial rise in buying activity was not sufficient to rebuild diminished inventories, being offset by a sharper rise in output. Consequently, pre-production stocks were unchanged on the month.

Suppliers’ delivery times lengthened at the end of Q4, as demand for raw materials at Brazilian manufacturers strengthened. Data showed that average vendor performance deteriorated only slightly, and at a milder rate than during November.

Both input and output prices increased during December. Input price inflation was robust and little-changed since the previous month. Purchasing costs have risen continuously since September, with firms citing greater raw material expenses. Respondents made particular reference to higher metals and plastics prices during the latest survey period.

Manufacturers were able to raise their charges in December, taking advantage of favorable demand conditions. Factory gate prices increased at a pace that, although moderate, was the strongest for over a year.

Commenting on the Brazil Manufacturing PMI survey, Andre Loes, chief economist for Brazil at HSBC, said: “The Brazilian industrial sector continues to expand at a robust pace. The seasonally adjusted Brazil Manufacturing PMI hit 55.8 in December, up from 55.5 in November – its highest level since November 2007. The output index continued to rise in December responding to improving demand conditions – still mostly focused on the domestic market. High new orders, coupled with an effort to keep more adequate levels of inventories, suggest faster production growth ahead and improved economic conditions at the turn of the year. This is likely to put further pressure on capacity, already noticeable by higher backlogs of work and accelerating rates of employment growth, and suggests increasing inflationary risks ahead, although the output price index still shows pressures are relatively contained at the moment.”