LAHORE - 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, statistics show.

According to the MCB Bank Purchasing Managers Index (PMI), the manufacturing sector expanded at a slower pace in March compared with January and the PMI in March was 65.13pc, down 1.41pc from 66.54pc in January. Purchasing Managers Index (PMI) is a leading economic indicator which is used internationally to monitor the macroeconomic trends and plays an important role in forecasting and monitoring the economic health of the manufacturing sector

The March 2014 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 seethe 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.

One of the food and commodity companies asked about the state of the economy in PMI survey stated that appreciation of the rupee against the dollar 6-7pc will reduce fuel/energy cost and subsequently lower production cost. Nevertheless, the interest rate is assumed to remain unchanged. A textile exporter said exports will decrease due to appreciating rupee. A fertiliser company representative said that interest and inflation will decrease on account of appreciation of the currency.

Further foreign investment is also expected which will result in further appreciation of the rupee. Hence, the interest rate and inflation are expected to decrease.  The inventories index recorded a number of 63.5. The March index shows a drop of 3.5 from 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 suggests decline in cost pressure with prices paid indicator dropping by 9.7 points and prices received by 5.3 points since January’s reading.