Economic activity in the manufacturing sector expanded in July 2014 at a slightly faster pace than in May 2014, say the company executives in the MCB Purchasing Managers Index (PMI).
The MCB PMI reading was registered at 64.26 for the month of July2014. A reading above 50 shows expansion in the manufacturing sector and economy. New Orders and Production Indices reported a value of 73.4 and 68.4, respectively. The Employment Index registered a reading of 55.9, while the Prices Paid and Prices received Indices showed the readings of 59.3 and 62.0, respectively.
What respondents are saying...
Our special question for this month was “Do you feel the current monetary policy decision (July 2014) is in-line with your expectations? And why?”
* “Did not expect the monetary policy to change in the near future since there is a lot of pressure from IMF for the same.” (Food & Commodity)
* “Current monetary policy level seems Ok.” (Food & Commodity)
* “As per business requirement the interest rate should be in a single digit for businesses to grow. To curb the inflation rate government has maintained the interest rate but no improvement in that front can be seen.” (Textile)
* “Yes current monetary policy is in line with our expectations” (Petroleum Products)
* “Current monetary policy saw no change in interest rate which is good in a way for financing purposes. (Sugar Industry)
* “Yes, no change in discount rate is in line with our expectation. (Edible Oil)
* “Status-quo was expected on account of recent inflow of foreign funding and expected funding in future.” (Fertilizer)
* “Due to inflationary pressure and IMF conditions no reduction in policy rate was expected.” (Rubber & Plastic)
* “MPS is in line with our expectations. Govt. has given relaxation in the form of reduction in rate for various re-finance schemes.” (Textile)
* “SBP should have eased the monetary policy to boost overall business activity in the country”. (Textile)
Manufacturing expanded in July as the MCB PMI index registered a reading of 64.26.July 2014 reflects the 4th consecutive reading of growth in the manufacturing sector but at a somewhat faster pace than the previous reading of May. A good reading enhances the attractiveness of an economy. 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.
Another useful figure to remember is 42. If the number falls below 42, over a period of time, it generally indicates contraction in the overall economy and recession could be just around the corner. The index value between 42 and 50 indicates that economic growth is anemic and flat.
Therefore, the July 2014 PMI indicates growth for the 4thmonth in the overall economy and expansion in Pakistan’s manufacturing sector.
New orders: New Orders Index registered a reading of 73.4 in July 2014. This represents growth in the new orders index for the 4thconsecutive reading and at a faster pace than the last value recorded in May 2014.
Production: Production Index registered a value of 68.4 in July 2014 which showed an increase of 1.0compared to the previous reading of 67.4 in May 2014.
Employment: MCB PMI Employment Index registered a reading of 55.9 in July. The MCB PMI survey shows the slowdown in the pace of employment in July 2014 as compared to the previous reading of 57.2 in May 2014.
Supplier deliveries: Companies reported slower delivery but faster than previous month as the index value dropped from 53.3 in May to 52.9 in July 2014for the 4thMCB PMI reading. A number below 50 indicates faster deliveries and cooling down of the economy, while a reading above 50 indicates slower deliveries and growing economy.
Inventories: The Inventories Index recorded a number of 60.4. The July2014 index value shows a drop of 2.2from index value of 62.6 in May. This indicates that respondents have reported a drop in inventory levels in July to meet the higher consumer demand due to Ramazan and Eid.
Prices: In July the MCB Prices Index registered a reading of 59.3 and 62.0in prices paid and prices received respectively. This indicates that companies paid lower prices for the manufacturing materials to their suppliers than they received from the customers thus passing the higher prices paid by the manufacturers in the previous reading (May 2014) to the customers.
The survey’s price indicator suggests easing of the cost pressure that we saw in the previous MCB PMI prices index in May 2014 as prices received index value increased by 3.5 while the prices paid index value decreased by 6.1 in July.
Conclusion: July 2014 MCB PMI indicates a slight up tick in the manufacturing sector which indicates the steady pace in growth. New orders index showed a reading of 73.4with higher number of survey respondents replying increase in new orders.
The new orders index value showed the growth in the index by 2.9 points, after three previous consecutive drops, demonstrating up tick in demand due to Ramazan and Eid. Consequently the inventory levels have also dropped from a previous reading of 62.6 to 60.4 (-2.2) to compensate for the increase in demand as the production level did not increase as much as new orders.
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