MCB Bank PMI for November 2015 drops to 63.25

LAHORE: Economic activity in the manufacturing sector expanded in November 2015 at a slightly slower pace than in September 2015, according to company executives surveyed in the MCB Bank Purchasing Managers Index (PMI).

The PMI for the month of November registered a value of 63.25, a minor decline from September’s reading of 64.76. As a rule of thumb, a reading of 50 or above indicates that manufacturing activity and the overall economy expanded.

At present, the risks to the manufacturing sector appear to be finely balanced with large-scale manufacturing (LSM) increasing on a year-on-year basis (3.88% YoY from Jul-Sept 2015 according to Pakistan Bureau of Statistics). An expected increase in credit-uptake with interest rates currently at 42-yer lows will help manufacturers going forward and boost overall economic growth.

However, at the same time, declining commodity prices and stagnating demand in the international market remains a concern for profitability of export production. Between Jul – Oct FY16, exports fell 13.48%YoY in dollar terms, according to the Pakistan Bureau of Statistics.

The November MCB Bank PMI indicates that manufacturing activity continued to grow for the 12th consecutive reading although its pace slowed down as compared to September. New orders increased at a slowing pace in November, registering an index value of 70.6, compared to 75.3 in September while production level dropped 0.3 points to 67.2. With sales and production levels both increasing but at a decreasing rate, finished inventories followed a similar trend from September’s reading of 64.7 to 61.7.

Meanwhile, supplier deliveries were slower at 53.3 as evidenced by a1.1 points increase from the previous reading. A reading of below 50 indicates faster deliveries and a potential cooling down of the economy and vice versa. This highlights that demand continued to increase overall, as a result of which supply times were longer. Employment in the manufacturing sector also continued to grow further, registering a value of 55.6. The prices paid and prices received indices both pointed to an overall increase in price levels at an accelerating pace, which corroborates with Pakistan’s current inflation dynamics. CPI Inflation bottomed out in September at 1.32%, but has since picked up in two consecutive months (October and November) at 1.61% and 2.73% respectively, according to the Pakistan Bureau of Statistics. The readings for both the indices were registered at 60.8 showing an increase of 5.2 points.

Overall, the manufacturing sector still remains on a moderate rate of growth and this indicates an uplift of the general economy. Manufacturing PMI serves as a leading indicator of economic activity as health of the manufacturing sector is typically highly correlated with future GDP levels.

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