For some time now, it has become more important for businesses at the beginning of every month, to fully understand the state of their environment (Macro). Some companies depend on “fly by night” metrics that can give them a sense of how hot or cold the macro environment is. Astute businesses however depend on proven economic indicators that can accurately predict the state of the business economy in a “real time”.
There are a number of economic indicators that are often used by business to assess, measure, and evaluate the overall state of health of the macroeconomy. According to the Corporate Finance Institute, economic indicators are often collected by a government agency or private business intelligence organization in the form of a census or survey, which is then analyzed further to generate an economic indicator. The collection of this data is important because the economy is a source of systemic risk that can affect the growth of any industry.
In Zambia, the not so popular economic indicator (Central Statistics Inflation metric trumps all), is the Purchasing Managers Index (PMI) gathered by Stanbic Zambia. This is a private sector inspired index that is based on data compiled from monthly replies to questionnaires sent to purchasing executives in approximately 400 private sector companies, which have been carefully selected to accurately represent the true structure of the Zambian economy, including agriculture, construction, industry, services and wholesale and retail. It considers the number of orders being made, manufacturing output, employment, suppliers’ delivery times and stock items purchased.
Due to its stratified nature, the Zambia PMI considers Gross Domestic Product and work force size as critical subgroups. It is the data from this that survey responses that indicates the change are compiled and analysed to study and reflect the change, if any, in the current month compared to the previous month based on data collected mid-month.
Once the PMI has been determine, interpretation is based on whether or not the value is below or above 50. If the PMI is above 50, it implies that there is strong economic activity that points to economic expansion. However, if the PMI is below 50 on the other hand, it implies that there is contraction in economic activity.
Using the Bloomberg Terminal, Financial Insight was able to extra the trend data of the Stanbic PMI over the last year. The following chart shows over the last 12 months, PMI has been recorded at below 50 more than 6 months in the latter calendar months of 2018 to date. Q2 of 2018 saw the biggest activity for the year. The highest PMI was recorded in May 2018 and the lowest in October 2018.
When we extended the study for a period of 5 years, our analysis showed that PMI has averaged 49.3 which is boarder line. Furthermore, PMI was highest in November 2017 with the lowest coincidentally being recorded in November 2015.