Purchasing Managers’ Index Review
Economy, Opinion

When economists are concerned with the economy and anticipate change in direction, they ought to use one of the indicators called the Purchasing Managers’ Index (PMI) so as to give special scrutiny.

There were signs of encouragement for the Zambian private sector in August. New orders returned to growth, while firms expanded their workforce numbers for the third month running. Although output decreased, anecdotal evidence suggested that this was largely due to a pause in activity during the election period. Meanwhile, there were signs of waning inflationary pressures, with both input costs and selling prices rising at the slowest rates since the first quarter of the year.

Additionally,  as of the month of September, business conditions improved for the first time in five months at the end of the third quarter of the year, helped by an appreciation of the Kwacha. Growth of new orders and employment was sustained, while output neared stabilization. On the price front, both input costs and output charges decreased. Meanwhile, business confidence reached the highest since the onset of the COVID-19 pandemic.

The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI™). Readings above 50.0 signals an improvement in business conditions in the previous month of August, while readings below 50.0 shows a deterioration. The headline PMI ticked up to 49.8 in August from 49.4 in July 2021 and signaled broad stability in business conditions midway through the third quarter.

PMI shows the health of Zambia’s economy, that is to say, it shows whether the economy is expanding or contracting as well as rather stable or not. Therefore, the following are drivers influencing purchasing managers.

Output Index: The rate of decline in business activity in the Zambian private sector continued to soften in September 2021, easing for the third month running to the slowest in the current four-month sequence of reduction. This can also be evidenced from the report of the month of August of the same year. Where output decreased, panelists again linked this to disruption during the election period. On the other hand, some firms reported a rise in activity amid new order growth and an appreciation of the Kwacha.

Similarly, from the month of August a number of respondents indicated that the election period had resulted in lower activity while on the other hand, some companies expanded activity in response to improving new order inflows. With respect to the latest report from the month of September 2021 the agriculture and service sectors posted rises in activity, but reductions were seen in construction, manufacturing and wholesale & retail.

New Orders Index: New orders returned to growth in August this year, thereby ending a three-month sequence of decline. The rate of expansion was thus only marginal and for respondents that secured greater volumes of new orders linked this to improvements in customer demand.

Furthermore, new orders increased for the second month running in September 2021, marking the first back-to-back expansions in new business for over three years. Improving customer numbers and stronger demand were factors leading to the latest rise making new businesses to increase across four of the five broad sectors covered, the exception being services.

Employment Index: Zambian’s companies continued to expand their staffing levels in August 2021 by extending the current sequence of job creation to three months. The pace of growth was modest, but quickened slightly from July. Where employment rose, panelists generally linked this to higher workloads. Four of the five monitored sectors posted increases in staffing levels, the exception being construction. (According to statistics in the August 2021 PMI report).

Zambian companies further continued to respond to higher new orders by expanding their staffing levels again in September of the same year. Employment has now increased in each of the past four months, with the latest rise broadly in line with that seen in August. Sector data indicated that the overall increase in staffing levels was centered on the agriculture and construction categories.

Purchase Price Index: Purchase price as has been the case in each of the past 14 months massively rose in the month of August. With this having been stated, the rate of inflation slowed for the third consecutive month and was the weakest since January. Where purchase costs increased, panelists linked this to higher raw material prices and exchange rate weakness despite a recent appreciation in the Kwacha against the US dollar.

However, September data report pointed to a first reduction in purchase prices for 15 months. Anecdotal evidence suggested that an appreciation of the Kwacha against the US dollar had helped lead to the decrease. As was the case with total input prices, manufacturing was the only sector to see a rise in purchase costs.

Quantity of Purchases Index: The input buying was down marginally, with the vast majority of respondents (87%) leaving purchase volumes unchanged in August. With new business having been subdued in recent months, Zambian companies indicated that they had sufficient inputs and therefore reduced their purchasing activity midway through the third quarter.

Inclusively, purchasing activity decreased for the fourth consecutive month during the September 2021 report, with the pace of reduction the most marked since February. Some firms reported that they had sufficient inputs for current needs, while others suggested that price rises in previous months had deterred them from purchasing.

With the indexes aforementioned, it can be evidenced that the PMI, as used by economists, ought to give special analysis when change in direction within the economy is anticipated. However, the PMI has to be asked the question as to whether it is of fact that it anticipates economic activities for the future or months to come or whether economists are factually accurate when assuming possible trends.

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