The rise and fall of Large Scale Manufacturing (LSM) index is quite intriguing this fiscal year. According to data released by Pakistan Bureau of Statistics, LSM grew by 5.7 percent in the four months ending October 2013. That makes it the highest 4-month growth since the LSM index was rebased a few years ago: Yet flipping the data around shows something very interesting.

Although LSM had the highest-ever index reading of 111.88 points in October, on a month-on-month basis, the index dropped by 0.7 percent, its first month-on-month fall in October since FY10.

Historically, LSM index tends to see continuous month-on-month declines till November-with the exception of one upward tick in October. This fiscal year, however, September-that has always seen a month-on-month decline since the re-basing of LSM index-saw a humongous monthly jump of 3.1 percent that had led to a LSM growth of 8.37 percent in the first quarter. Quite incidentally, it was the same period in which GDP grew by 5 percent.

The LSM break-up shows that textile sector, which has the biggest weight of about 21 percent in the LSM index, grew by 2.2 percent in 4M FY14 as against a decline of 0.26 percent in the same period of last year.

Growth also came from second biggest weighted sector of food, beverages and tobacco-and petroleum products, iron and steel, fertiliser and electronics sectors. The decliners included automobile, wood, rubber and engineering sectors.

If historical trends are any guide, growth in LSM can be expected to pick up at the end of second quarter. The additional impetus should be coming from improved power supply, which already helped LSM grow in the four months ending October. The onset of GSP+ should also trigger improved production in textile sector. The key to watch, however, will be the impact of private credit off take in the wake of higher interest rates.

DISCLAIMER: This research article has been taken from Business Recorder. Original link has been mentioned here:
http://www.brecorder.com/br-research/44:miscellaneous/4010:lsm-on-the-way-up/