| | |  Business News | July 2008 
Mexican Economy Feels Pinch as Factories Slow
 Jason Lange - Reuters
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| | (Mark Osborn/No Sweat | | |
El Marques, Mexico - Mexico's economy is feeling the pinch from a sharp downturn in the United States as factories lay off workers, cut shifts and scramble to reduce costs.
At the Flex-N-Gate auto parts plant 110 miles (180 km) north of Mexico City, machine presses were silent on a recent afternoon, with workers given the day off as the company copes with falling orders from the United States.
Managers have slashed the plant's payroll by 15 percent so far this year. Assembly lines that churn out car jacks and tool kits bound for U.S. auto plants now stop in the evening when electricity prices rise.
"We explain to workers that we're struggling and going through a tough situation, but that we'll bounce back," said Jaime Chavez, the plant's finance manager.
Mexico is expected to weather the current U.S. slowdown better than it did past downturns because of higher oil revenues and rising exports to non-U.S. markets.
But recent data suggests growth in Mexico's important industrial sector has slowed substantially, giving good reason to expect the economy to cool this year.
Industrial output grew an average 0.1 percent during March and April from a year earlier, according to calculations by Morgan Stanley based on raw government data.
That is sharply lower than a 3.1 percent average monthly gain over the previous six months. Economists are averaging recent readings because a long holiday fell in March this year instead of April, skewing the numbers for both months.
The weakness in the industrial sector, which makes up nearly 40 percent of Mexico's economy, is already hitting jobs across the country. Manufacturing employment fell 1.2 percent in April from a year earlier.
"Job growth in Mexico has really rolled over," said Gray Newman, a Morgan Stanley economist.
FACTORY TOWNS
Thousands of factories sprang up across Mexico in the mid-1990s after the country signed the North American Free Trade Agreement, or NAFTA, with the United States and Canada. About 80 percent of Mexico's exports go to the United States.
Just across from the border with Texas, Luis Chaires says he has cut overtime hours as orders have slowed at the plastic fiber factory he runs in Piedras Negras.
"We have all been feeling this in a big way," Chaires said, though he added that sales recovered some in June.
This year's slowdown has its roots in the bursting of the U.S. housing bubble last year. U.S. manufacturers, which often buy supplies from Mexican factories, have been struggling with rising costs for energy and commodities.
U.S. manufacturing fell in May for the fourth straight month. In June, auto sales in the United States plunged to a 15-year low, with demand for some models made in Mexico falling sharply.
Citing the U.S. slowdown, Mexico's finance ministry expects economic growth will slow to 2.8 percent this year, down from 3.2 percent in 2007.
The ministry says it's hard to tell when manufacturing will recover because the U.S. slowdown could last longer than expected.
"It would be bold to say that manufacturing has already hit bottom when there is still so much uncertainty abroad," said Miguel Messmacher, the finance ministry's chief economist.
The uncertainty weighs on workers in El Marques, where about 200 plants that crowd an industrial park on the side of an arid hill make everything from circuit boards to glue.
"With the cuts in payroll, it's been a little tense," said Veronica Vazquez, 34, who had just finished an assembly line shift.
(Editing by Dan Grebler) |
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