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

The PMI for the month of September registered a value of 64. 76, a minor decline from July’s reading of 65. 69. 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 (4.67% YoY in July 2015 according to Pakistan Bureau of Statistics) but at a very sluggish pace.

Access to cheaper raw materials in the local market on account of declining inflation, which hit its 12-year low in September at 1.32% and an expected increase in credit-uptake with interest rates at 42-year lows will help manufacturers and boost overall economic growth.

At the same time, however, declining commodity prices and stagnating demand in the international market has squelched the penchant for and profitability of export production, with exports falling as much as much 14% YoY in the first quarter of this fiscal year according to the Pakistan Bureau of Statistics.

The September MCB Bank PMI indicates that manufacturing activity continued to grow although its pace slowed down as compared to July. New orders increased at a slowing pace in September, registering an index value of 75.3, compared to 76.3 in July while Production Level dropped 3.1 points to 67.5. While both sales and production levels dropped, inventories expanded at an increasing rate from July’s reading of 59.4 to 64.7, suggesting an overall increase in build-up of inventories. Meanwhile, supplier deliveries were slower at 52.2, but at a much faster pace than in July 2015, as evidenced by the 0.6 points drop.

A reading of below 50 indicates faster deliveries and a potential cooling down of the economy and vice versa. This again highlights that demand may have slowed down, as a result of which supply times were smaller. Employment in the manufacturing sector also continued to grow further, registering a value of 55.0. The Prices Paid and Prices Received indices both pointed to an overall increase in price levels but at a decelerating pace which corroborates with Pakistan’s current inflation dynamics. The readings for both were registered at 55.6 registering declines of 3.6 points and 10.5 points respectively.

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 the future GDP levels.

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