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MCB has recently released the second installment of its bimonthly Purchasing Manager Index (PMI). A good gauge for the manufacturing sector activity, the PMI for March showed a healthy reading, albeit a slightly lower than in January, the first time this exercise took place. M. Ramzan, MCBs Group Head, Treasury and Forex told BR Research that manufacturing activity has been almost the same and positive as January.
For the uninitiated, PMI measures a variety of manufacturing sub-indices (see illustration). MCB contacted 200 odd manufacturing managers across the country to respond to each of those sub-indices as either increased, decreased or no change. Simply put, had all the respondents said they experienced an increase in production during March, PMI series index would show a reading of 100. In case of decrease in production, rating would be zero. Rating would be 50 in case of
o change.
"The magic number for the PMI is 50. A reading of 50 or higher generally indicates that the manufacturing is expanding. If manufacturing is expanding, the general economy should be doing likewise. As such, it is considered a good indicator of future GDP levels," explains the MCB PMI methodology.
The weighted average PMI for March was reported to be 65.13, which is 1.41 percentage point lower than January. The lower rating is in part attributed to the sub-index of supplier deliveries, which fastened in time and hence decreased in rating compared to January. If supply bottlenecks remain the same, any increase in delivery times is possibly a sign of a growing economy in Pakistans context whereas faster deliveries may suggest economic slowdown.
The prices paid and prices received sub-indices also had lower ratings. The prices paid sub-index drastically went down in March, presumably due to rupee-appreciation-led decline in input costs. However, as 15 percent of respondents reported lower prices paid to their suppliers, comparatively lower, 13.2 percent of respondents reported a decrease in price received from consumers--implying not all manufacturers had passed on rupee appreciation benefit to consumers.
Note that the prices received index is higher than prices paid index for the period--it was the opposite in January. That could signify improving profit margins for the manufacturing concerns as they get better price for their finished goods compared to the cost of their raw materials.
The "finished inventories" sub-index expanded during the period, but, at a slower pace than that of January. MCB attributes it to manufacturers using up previous inventories to meet some of new orders as production remained the same.
The two most important sub-indices,
ew orders and production received the highest ratings among all. Even though the
ew orders rating dropped by 0.7 percentage points over January, it still depicts "healthy demand" at 71.3. About 55.7 percent of respondents reported increase in new orders, 31.1 percent said no change, while only 13.2 percent reported a decline.
The production sub-index remained unchanged at 69.2. Compared to 6.6 percent of the respondents who reported a decrease in production, a dominant 44.9 percent reported increase in output. The high new orders and production activity correspond to a 0.9 percentage point improvement in the employment sub-index. About 21.6 percent respondents reported fresh hiring, while only 1.2 percent reported furlough.
The March PMI snapshot reflects a growing manufacturing sector, as all sub-indices are well above 50. With persistent new orders and increasing production, the index shows that the sector is seemingly hiring more people to keep up with the demand. Meanwhile, manufacturing profits are apparently improving. There is optimism, too, as most of the businesses expect lower inflation and constant interest rates in remainder of the year.
One hopes the sectors optimism will be supported by the government through adequate energy supplies and improved law and order to drive manufacturing-led growth in the future.


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PURCHASING MANAGER INDEX (PMI) - MARCH, 2014
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Series index % points
Index March January Change Direction Trend*
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PMI (overall) 65.13 66.54 -1.41 Growing 2
New orders 71.3 72 -0.7 Growing 2
Production 69.2 69.2 0 Growing 2
Employment 60.2 59.3 0.9 Growing 2
Supplier deliveries 53.9 60.4 -6.5 Slower 2
Inventories 63.5 67 -3.5 Expanding 2
Prices paid 61.7 71.4 -9.7 Increasing 2
Prices received 62.3 67.6 -5.3 Increasing 2
Overall economy Growing 2
Manufacturing sector Growing 2
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Source: MCB PMI, March 2014
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* = Trend is an index direction in months
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