Panasonic's TV factory in this working-class neighborhood has an unexpected message for the free trade era: Sales are rising and output is up a third, but it is being done with 50 fewer workers than a year ago.

Mexico's plentiful supply of cheap labor was supposed to be its biggest competitive edge under the North American Free Trade Agree-ment. But almost a year after NAFTA's launch, the Panasonic plant reflects the hard truth that free trade has not meant new jobs for Mexican workers."The free trade agreement has generated a flush of trade, but it's not creating jobs," said Andres Penalosa, an economist and opponent of free trade who advises Mexican congressmen.

With 1 million young Mexicans entering the labor force each year, NAFTA has been seen as a way to alleviate social pressures by speeding job growth. The lack of new jobs also could mean no reduction in the flow of illegal immigrants into the United States.

According to the official line, NAFTA is the success story that former President Carlos Salinas de Gortari promised when it took effect last Jan. 1.

Mexican exports to the United States grew 22 percent to $35.7 billion in the first nine months of 1994. The U.S. Commerce Department says exports to Mexico rose 9 percent to $37.5 billion in the same period.

Other less-touted data, however, give a different slant to developments.

After NAFTA took effect, the number of Mexican workers producing goods like TVs and tractors declined 7 percent through August. Meantime, production of such goods rose 9 percent, according to the National Statistics Institute.

The Mexican garment industry has laid off 1 of every 10 workers since January, while the least affected sector, food and beverages, lost three of every 100.

Critics say the problem is that NAFTA opened Mexico to competition too soon, before manufacturers crippled by years of economic crisis and cushioned by import curbs had the chance to retool plants and become more efficient.

The immediate response of businesses big and small has been to replace man with machine.

"Maybe in the Far East wages are low enough to assemble by hand, but here it's still cheaper to bring in machines," said Edgardo Leyva, personnel manager for Panasonic's Chalco factory east of Mexico City.

Machines don't need costly job training, don't quit and don't get paid vacations, he said.

Only a handful of female workers, wearing white lab coats and goggles, inspect row upon row of TV circuit boards being assembled by new whirring robot arms under blue lights. A year ago many of those arms were human.

Panasonic now employs 550 workers, 8 percent less than last year.

Smaller businesses, which some economists consider the engine of job growth, are being hit hard by foreign competition.

"There's much more competition this year than last," said Armando Medina, a small manufacturer of metal furniture in the northern border state of Sonora. "Sam's Club and Price Club (warehouse stores) are bringing in better quality at lower prices."

Medina said he had managed to hold on to his 60 full-time employees but there is no work for 40 contract laborers he used to hire during peak season.