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Big Drop in Mexico's Industrial Output

Production in August shrank 2.9% from a year earlier, in the sector's fifth consecutive decline.

October 14, 2003|From Bloomberg News

Mexico's industrial output had its biggest drop in four months in August amid sluggish demand in the U.S. for cars, auto parts and other goods produced by export-assembly factories set up along the border.

Industrial production -- which includes manufacturing, energy, construction and mining -- shrank 2.9% from August 2002 after contracting 1.9% in July, the government said Monday. The decline, the fifth in a row, was bigger than the 1.7% median drop forecast in a Bloomberg News analyst survey.

"Orders haven't been increasing," Antonio Yoon, director of institutional relations for Samsung Corp.'s local unit in Tijuana, said last week at a conference for export-assembly factories in Guadalajara, Mexico. "We're not near the levels we had in 2001."

Samsung and other multinational companies in Latin America's biggest economy want to see a pickup in demand from the U.S. -- which buys about 85% of Mexican exports -- before they increase production, Yoon said.

Monday's output report is the latest evidence that the Mexican economy has yet to benefit from an economic rebound in the U.S.

The export factories, one of the biggest components of industrial output, have shed more than 270,000 workers in the last three years as the U.S. economy slumped and Asian companies, which have lower labor costs, took market share away.

Manufacturing led the decline in total output in August, dropping 4.7%. By contrast, construction, energy and mining all grew in the month, led by a 2.4% rise in construction.

A rebound in the U.S. economy has been driven by the services industry, such as retailers, rather than industries such as car and electronics makers, the biggest buyers of Mexican goods, ING Bank economist Jose Maria de la Torre said.

"U.S. industrial production has started to recover, but in sectors that don't have a great influence in Mexico," De la Torre said.

Still, some Mexican factories have started taking more orders. The Nogales plant for Chamberlain Group Inc., the world's largest manufacturer of door operators, access control products and gate operators, said it saw a pickup in demand in September.

A weakening peso may help Mexican companies boost exports. The peso slid to a record low of 11.35 pesos per dollar last week.

Meanwhile, the Mexican stock market has continued to climb. The IPC index edged up 0.1% Monday to a 52-week high of 7,960.42. It's up 30% since the start of the year.

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