The Brazilian manufacturing industry’s output eased in December. The seasonally adjusted IHS Markit Brazil Manufacturing PMI’s index dropped to 50.2 from November’s 52.9, indicating towards the weakest improvement in business conditions in the current five-month period of growth. Capital goods acted as the main drag in the headline figure, recording the first deterioration for a year in the midst of strong contractions in sales and production. Growth was sustained in the consumer and intermediate goods categories, where both output and new work expanded in December.

Aggregate manufacturing output grew for the fifth consecutive month, albeit at the softest pace in this period. Some firms implied that higher sales stimulated production, but others lowered output because of weaker demand for their goods. Total new business expanded fractionally in December, with the upturn the softest in the current seven-month run of growth. The rise was, partially, curbed by lower sales to international markets. New export orders dropped at the steepest pace since early-2009. Anecdotal evidence pointed to soft demand from clients in Latin America, particularly Argentina and Chile.

The lack of new projects led goods producers to focus on the completion of their outstanding business. Backlogs shrank at a sharp pace that was the most rapid since mid-year. Spare capacity, in turn, prevented firms from creating jobs in the month. Employment in manufacturing dropped for the first time since July, albeit slightly.

Input stocks fell to the greatest degree in one-and-a-half years. Inventories of finished goods dropped at the most rapid pace in two years. Elsewhere, there was a more rapid rise in cost burdens, with a few panellists blaming the rise on real depreciation. However, data showed a lack of pricing power among goods producers as selling charges rose at a slight rate that was the slowest since August. Businesses foresee better times ahead, with optimism improving to an 11-month high.