Sri Lanka Purchasing Managers’ Index shows manufacturing upswing in June

July 18, 2016 (LBO) – Sri Lanka’s manufacturing sector showed an upswing in June, after a slowdown in the previous two months, based on the Purchasing Managers’ Index (PMI) released by the Central Bank.

“The Manufacturing PMI recovered to the positive territory in June 2016 registering 55.1 index points, from the contraction observed in the last two months, which is an increase of 7.2 index points from May 2016,” the Central Bank said in a statement.

“This improvement was bolstered by the significant increase observed in Production and New Orders Indices.”

The PMI is one indicator that can be used to assess the economic health of the manufacturing sector. It is typically based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

PMI is calculated as a ‘Diffusion Index,’ where it takes values between 0 and 100. PMI of 50 means the sector remained neutral on month-on-month basis. PMI greater than 50 means the sector is generally expanding on month-on-month basis, while PMI less than 50 suggests sector is generally declining on month-on-month basis.

All the Sub-indices of PMI, apart from Suppliers’ Delivery Time increased compared to the previous month. Overall data points to an expansion where all the sub-indices apart from the Employment Index are above the neutral 50.0 threshold.

The expectations for activities also indicated an improvement for the next three months. On year on-year basis, the PMI index witnesses a marginal drop of 2.4 index points compared to June 2015.

“The Services Sector PMI for June recorded 56.3 index points, compared to 58.1 index points in May 2016, indicating that economic activities continued its expansion, albeit at a slower rate compared to May 2016.”

On year-on-year basis PMI declined by 8.7 index points in June 2016.

“This slowdown in expansion of activities was observed across new businesses, employment, backlogs of work and expectations for activity sub-indices. Business activity sub-index increased marginally in June compared to May 2016. Prices charged decelerated in June compared to month-on-month increase recorded in May 2016.”

According to the Central Bank, sampling was based on a list of large companies located in the Western province obtained from the EPF Department. Samples for Manufacturing and Services activities were selected based on the GDP sectoral share, with a minimum target of 100 responses for each.

The indices take into account several factors such as raw materials purchased and kept in a warehouse to be used for production, the time lag between order placement and delivery by the supplier, and uncompleted orders due to increased flow of business activity.

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