Back in October, we wrote about the GDP growth gap between the U.S. and Mexico that opened during the first three quarters of 2013. At the time we argued that the unusual differential stemmed from, first, the contrasting dynamics of the two countries’ construction sectors and, second, the U.S. expansion, which appeared to be benefiting domestic producers at the expense of imports. We argued that these effects would fade over time and that the Mexican economy would strengthen as the U.S. itself accelerated.

But Mexico’s lag has worsened during the past few months. The country’s gross domestic product climbed a meager 0.7 percent quarter-over-quarter, seasonally adjusted annual rate, during the fourth quarter of 2013, compared with 3.2 percent U.S. GDP growth. Although the latter figure will likely suffer downward revisions, the U.S. economy is distinctly outperforming that of Mexico. According to the latest figures, U.S. growth averaged 2.7 percent last year, versus 0.7 percent in Mexico (see chart 1). Moreover, the two economies’ manufacturing cycles, which had been tightly linked during the first several months of 2013, separated toward the end of the year, with Mexican manufacturing shrinking as its U.S. counterpart expanded at a healthy pace. These developments make the earlier explanation look incomplete, although eventual normalization of the U.S.-Mexico link still appears likely.

Mexican industrial production continues to stagnate, in contrast to U.S. industry, which accelerated strongly both at the start of 2013 and again during the fourth quarter (see chart 2). For much of last year, manufacturing in Mexico outperformed overall industry, with the difference mostly reflecting weakness in construction. But manufacturing activity also fell in the fourth quarter, just as construction was stabilizing (see charts 3 and 4). The earlier construction swoon appears related to financial difficulties at Mexico’s main homebuilding companies and to slow project execution in the early days of the new federal administration, a typical pattern. These effects are passing, although Mexico continues to lack the strong input from construction that — even after the mid-2013 rise in longer-term interest rates — has benefited the U.S. economy during the past two years.

Three factors likely account for much of the contrast between recent manufacturing strength in the U.S. and the sector’s stumble in Mexico. First, U.S. exports surged in late 2013, partly in response to firmer international growth. Mexico, with its greater focus on the U.S., did not benefit as much from that improvement. Second, U.S. manufacturers built up inventories aggressively during the second half of 2013, behavior not mirrored in Mexico — and which, in the U.S., seems to have already begun to reverse. Third, the modest acceleration in U.S. final domestic demand that took place in the second half of 2013 did not do much to boost imports. U.S. imports grew very weakly in the fourth quarter relative to overall GDP, continuing a pattern evident since the start of the present expansion (see chart 5). That shift probably owes in part to the completion of the globalization process, with emerging-markets economies no longer benefiting from this tailwind.