PMI Reading No 88: Weaker Yet Above Water


August 3, 2020

By FBNQuest Research                                                                                

Our manufacturing Purchasing Managers’ Index (PMI), the first of its genre in Nigeria, declined gently from 53.9 to 52.8 in July. Our partner, NOI Polls, has compiled the data.

The index can be found in advanced economies such as the ISM’s in the US, larger EMs like China, India and Russia, and some other frontier markets. It is based upon manufacturers’ responses to set questions on core variables in their businesses. In our case, it is not seasonally adjusted. Our highest reading was 68.7 in December 2017 and our lowest 43.3 in May this year.                                                                                               

In our unweighted model (that of the Institute for Supply Management), respondents are asked whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have increased over the previous month, are unchanged or have declined. A headline reading of 50 (ex 100) is neutral, and anything higher points to expansion in the sector.

Our sample of respondents is a representative mix of small, medium-sized and large companies across the six geopolitical zones.

PMIs, unlike the national accounts, are forward-looking indicators with a proven record of moving financial markets in advanced economies and the largest EMs such as China in February and March. There have been some large monthly swings of more than ten points this year due to Covid-19.

Our own index posted a ten-point move in June as Nigeria emerged from its own lockdown. There were expected robust increases for readings for output, new orders and stocks of purchases as the country played catch-up.

The headline weakened a little in July yet remains in positive territory. By way of explanation, it may be significant that: Nigerian manufacturing produces overwhelmingly for the domestic market and so is little affected by the collapse in external demand; and it is dominated by consumer goods firms, many of which produce core elements in the household shopping basket.

Relatively few firms are moving the dial. The most popular response is ‘no change’, which accounts for at least 55 per cent of answers in all five cases.

Before too long, the index should further reflect the impact on the sector of fx shortages. The CBN has not supplied the investors’ and exporters’ (I&E) fx window for four months. Other than the rainy season, the most common reply to our trigger questions this time was that operations had been hit by the poor access to, and high cost of raw materials. These questions arise when a respondent has given the same answer on a sub-index for two months and changes it for the third.

On a 12-month moving average basis, the headline index rose from 51.8 to 52.1 in July.

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