MEXICO CITY, (Reuters) - Mexico's manufacturing sector contracted in March for the third time in five months, underscoring a deterioration in business conditions across the sector and paring back optimism the Mexican economy can pick up steam, a survey showed on Monday.
The IHS Markit Mexico Manufacturing Purchasing Managers' Index slipped to 49.8 in March from 52.6 in February.
A reading above 50 signals expansion in the sector, while a reading below that threshold points to contraction.
The latest reading comes after the sector posted its strongest pace of growth in 13 months in February.
"The return to contraction of the manufacturing industry is a surprise and denotes a reversal to hopes that the Mexican economy can improve on the relatively modest rate of GDP growth in 2018," said IHS Markit economist Pollyanna De Lima, who wrote the report.
"The downturn also caused a dent in confidence among firms in the sector. The concern is that the underlying picture remains one of a segment that continues to struggle in the face of subdued demand, both domestically and externally," she added.
Mexico's economic activity expanded slightly in January after shrinking during the prior month, with economic activity growing 0.2 percent in January compared with the prior month in seasonally adjusted terms, data showed on March 25.
The IHS Markit survey showed that total inflows of new work stagnated and export sales increased at a marginal and slower pace, leading firms to reduce employment, input purchasing and output.
Mexico sends about 80 percent of its exports, which are mostly manufactured goods like cars and televisions, to the United States.
The PMI index is composed of five sub-indexes tracking changes in new orders, output, employment, suppliers' delivery times and stocks of raw materials.
