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Brazil manufacturing sector goes into reverse

Staff Writer | July 5, 2018
Truck drivers’ protests impacted on the performance of Brazil’s manufacturing industry during June.
Brazil trade balance
Brazil   Input cost inflation climbed to its second-highest mark
Fewer orders were received by businesses, leading to job shedding.

Blockages prevented the delivery of inputs, which in turn hampered production.

At the same time, input cost inflation climbed to its second-highest mark in the survey history, driving output charge inflation to a 28-month high.

The seasonally adjusted IHS Markit Brazil Manufacturing Purchasing Managers’ Index (PMI ) posted in contraction territory, below 50.0, for the first time since March 2017.

Down from 50.7 in May to 49.8 in June, the headline figure was consistent with a marginal deterioration in the health of the sector.

Manufacturing output dipped in June, thereby ending a 15-month period of uninterrupted growth.

Moreover, the rate of reduction was solid.

According to panel members, the downturn reflected falling new work and shortages of inputs for use in the production process.

As was the case for output, order book volumes declined for the first time since February 2017, with demand reportedly curbed by the disruption caused by truckers’ protests.

Meanwhile, foreign demand for Brazilian goods improved, with new export sales expanding at the quickest pace since last November.

Survey members suggested that new work had been secured from externally-based clients in line with BRL/USD depreciation.

Shortages of materials at goods producers caused an increase in outstanding business.

The rise ended a 32-month period of backlog depletion, and was the steepest in the 12-year survey history.

Indeed, inventories of both inputs and finished items were down from levels recorded in May.

The steeper fall was noted for the former.

Scarcity of some items, and strong demand for them, reportedly led suppliers to upwardly-adjust list prices.

As a result, input cost inflation climbed to its second-highest rate since data first became available in February 2006.

Companies passed on to their clients part of the additional cost burden by charging more for their goods in June.

Moreover, the rate of output price inflation picked up to the strongest since February 2016.

Blockages also translated into a further deterioration in delivery times.

Vendor performance worsened to the greatest extent in the history of the survey.

Cost-reduction initiatives and fewer sales led some manufacturers to lower payroll numbers at the end of the second quarter.

Although modest, June’s job shedding ended an eight-month sequence of employment growth.