Economic activity in the manufacturing sector expanded in March 2014 but at a slower pace than January 2014, say the company executives in the MCB Purchasing Managers Index (PMI).
The MCB PMI reading was registered at 65.13 for the month of March2014. A reading above 50 shows expansion in the manufacturing sector and economy. New Orders and Production Indices reported a value of 71.3 and 69.2 respectively. The Employment Index registered a reading of 60.2. The Prices Paid and Prices received Indices showed the readings of 61.7 and 62.3 respectively.
WHAT RESPONDENTS SAY
Our special question for this month was “Where do you see interest rate and inflation in the remaining year- increase, decrease, no change? And Why”
• “Inflation: Decrease; Interest Rate: Unchanged. Reasons: Appreciation of PKR against USD by 6% to 7% will reduce fuel / energy cost subsequently will lower production cost. Though, interest rate may see reduction in line with lower inflation. Nevertheless, on conservative side interest rate is assumed to remain unchanged.” (Food& Commodity)
• “Decrease due to decreasing trend of USD/ PKR ” (Textile)
• “They are expected to go down in future on account of major economic activities that will start from this year.” (Tobacco)
• “Status-quo is expected on account of recent inflow of foreign funding and expected funding in future.” (Fertilizer)
• “It is expected that interest and inflation will decrease on account of appreciation of PKR vs USD. Further Foreign investment is also expected in coming years which will result in further reduction of USD against PKR hence the interest rate and inflation are expected to decrease.” (Fertilizer)
• ” The indicators clearly show that the rate of interest and inflation will not undergo significant changes (Food & Commodity)
• “Almost all major economic indicators have moved in the desired direction over the past few months. Inflation has come down and it will likely to reduce slightly further. The fiscal authority has been able to borrow long term and rupee has appreciated against the US dollar. Above all, the foreign exchange reserves of SBP have increased noticeably.” (Electrical Machinery)
• “No change in interest rate and inflation.” (Steel industry)
• “No change in interest rate but slight decrease in inflation.” (Steel industry)
New Orders Index registered a reading of 71.3 in March. This represents growth in the new orders index for the 2nd consecutive reading but at slightly slower pace than January.
Production Index registered a value of 69.2 in March. The index value showed no change compared to the previous reading.
MCB PMI Employment Index registered a reading of 60.2 in March compared to January’s value of 59.3.The MCB PMI survey shows the sustained broad based uptick in the employment due to improved economic activity.
Companies reported slow delivery but faster than previous month as the index value dropped from 60.4 in January to 53.9 in March for the 2nd reading of MCB PMI. A reading below 50 indicates faster deliveries and cooling down of the economy, while a reading above 50 indicates slower deliveries and growing economy.
The Inventories Index recorded a number of 63.5. The March index shows a drop of 3.5from index value of 67.0 in January. This indicates that respondents are reporting expanding inventory level but at slower rate than January to meet the consumer demand.
In March the MCB Prices Index registered a reading of 61.7 and 62.3 in prices paid and prices received respectively. This indicates that companies received higher prices for their finished products than the price paid for the manufacturing materials thus increasing their profit margins. The survey’s prices indicator suggest decline in cost pressure with prices paid indicator dropping by 9.7 points and prices received by 5.3 points since January’s reading.
March MCB PMI indicates a slight slowdown in the manufacturing sector but it is still growing at a decent pace. New orders index reading of 71.3 indicates healthy demand in the near future, with higher number of survey respondents replying increase in new orders. Therefore, purchasing managers should look at the inventory levels which dropped from a previous reading of 67 to 63.5 (-3.5) and decide whether they can handle the increase in demand.
Production level remained same as previous reading (69.2) indicating that manufacturers used their inventories during January –March period to meet the new orders. The employment index of 60.2 shows manufacturing industry in Pakistan added more jobs than the lay-offs. The supplier deliveries index dropped 6.5 points which shows slow deliveries but faster than the previous reading in January. This implies ease in supply bottlenecks and a slight slowdown in the economic activity. On the price front we can clearly see the price pressure cooling down as the prices paid index value dropped from 71.4 to 61.7 and price received dropped from 67.6 to 62.3. The survey showed few industries paid lower prices for input materials due to rupee appreciation but hesitated to pass that on to the consumers.