Brazil’s manufacturing economy contracted further during June as new orders, employment and inventories continued to fall. However, there was a return to very marginal growth of production over the month, amid some reports of a stabilization of market conditions.
The seasonally adjusted Banco Santander Purchasing Managers’ Index (PMI) posted 48.1 in June. That was the highest reading for nine months, and signaled only a modest deterioration of operating conditions since the previous month. However, by rising only 0.3 points from 47.8 in May, the rate of sector recovery signaled by the PMI since the end of the first quarter stalled somewhat in June.
Latest data indicated a stabilization of output during June following nine successive months of contraction. Production was marginally higher than in May, which some companies attributed to improved sales. There was also evidence that market demand was showing some underlying improvement following the steep deterioration seen earlier in 2009.
Total new business was nonetheless down for a tenth successive month during June (albeit marginally). Weakness was principally centered on the export market, with foreign demand remaining muted. Although falling at the slowest rate since last September, new export business continued to decrease markedly in June (extending the current period of decline to 17 successive months).
A further steep reduction in average output charges was signaled in June as strong competition and falling input costs led to discounting. Companies reported that a reduction in the price of steel had played a key role in driving down average input costs during the latest survey period.
Brazilian manufacturers continued to run down stocks of finished goods in June, and at the second-fastest rate in the survey history. Preproduction inventories fell at the fastest rate in 3.5 years of data collection, reflective of decreased new order levels and efforts to improve cash flow. Lower purchasing activity was also cited as a factor leading to the utilization of existing stock. June’s data showed that input buying fell at a marked and slightly steeper pace. This in turn reduced pressure on suppliers, with average lead times improving for an eighth successive month.
Finally, manufacturers chose to reduce the size of their payrolls at the end of Q2 for a ninth consecutive month, albeit at the slowest rate since last October. Cost-reduction initiatives and the non-replacement of leavers were reported.
