LAHORE -  Economic activity in the manufacturing sector expanded in October 2016 (which covers Aug-Sept 2016 period) at a slower pace than in August (covering Jun-Jul 2016 period).

The PMI for the month of October registered a value of 63.51, a decrease from August’s reading of 64.67. As a rule of thumb, a reading of 50 or above indicates that manufacturing activity and the overall economy expanded.

According to company executives surveyed in the MCB Bank Purchasing Managers Index (PMI), the manufacturing sector has got to off to a good start, increasing on a year-on-year basis by 2.62% YoY in July FY17. With improvements in energy availability and lower input prices, supply conditions for manufacturing firms have also improved. On the downside, however, declining exports continue to weigh in on growth prospects. Pakistan’s exports declined by 9.08%, in dollar terms from July – Sept FY17 when compared with the corresponding period of the previous fiscal year.

The October MCB Bank PMI indicates that manufacturing activity continued to grow for the 17th consecutive reading but at a much slower pace compared to August. New orders increased at a slower pace, registering an index value of 73.89, compared to 74.72 in August. Meanwhile, the Production Indexdecreased0.83 points to 68.06.Inventory levels decreased by3.06 points to 56.66 (previously registered at 59.72). Therefore, new orders and production grew at a slower pace than before while manufacturers increased inventories at a slower pace which reflects slightly slower pace of growth in demand.

Supplier deliveries were slow at 53.33 compared to an index value of 54.44 in August. A reading of below 50 indicates faster deliveries and a potential cooling down of the economy and vice versa. Employment in the manufacturing sector also grew at a slower pace, registering a value of 53.33 from an earlier value of 54.44.

The Prices Paid and Prices Received indices both pointed to an overall increase in price levels (with index values above 50 for both) which corroborates with Pakistan’s current inflation dynamics. CPI Inflation has experienced a reversal since bottoming out in September 2015 at 1.32% YoY and currently stands at 3.88% YoY for the month of September 2016. Prices Paid Index stood at 61.11, unchanged from August which indicates that prices paid increased at a stable rate. YoY WPI Inflation was registered at 3.4% YoY in September, almost unchanged from 3.5% YoY in August. The Prices Received index decreased 1.67 points to 66.39.

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.