November 20, 2020/Proshare
By CSL Research
According to the Purchasing Managers Index (PMI) data released by the Central Bank of Nigeria (CBN) for the month of November, activity levels in the manufacturing and non-manufacturing sectors strengthened with manufacturing PMI breaking into expansion territory while non-manufacturing PMI readings remained below water. Specifically, the manufacturing PMI expanded to 50.2 in November from 49.4 in October as the sector continues to show remarkable recovery from the lows of June 2020. The non-manufacturing PMI continued to show strength, expanding to 47.6 in November from 46.8 in October, indicating slowing contraction in the sector.
Across the key indices in the manufacturing PMI, save for New orders (-0.7) which recorded some deterioration, the remaining four indices in the manufacturing sector improved in November; Raw materials/WIP Inventory (+2.3), Supplier delivery time (+0.4), Production level (+1.7) and Employment level (+1.3). We think the deterioration in New orders reflects pressure on consumer income and consequently demand which remains a long term concern for us. Furthermore, we note that while Employment level and Raw material inventories improved in November, they remain below the 50-point mark which reflects sustained weakness in labour employment and FX illiquidity challenge which continues to weigh on raw materials importation. The data further revealed that, of the 14 surveyed subsectors in the manufacturing sector, six (same as October) reported growth while eight (same as October) contracted.
For non-manufacturing PMI, performance of key metrics was mixed as two recorded improvement while others declined. Across all the indices; Business Activity (+1.8) & Employment level (+2.5) improved while Level of new orders (-0.9) and Non-manufacturing inventory level (-0.2) weakened. We note that Business activity metric climbed above 50-point expansion mark which indicates many non-manufacturing businesses are finally opening up activities in time for the festive period. That said, we think the discretionary nature of some of the services of businesses within this sector (reflected in the weakness in new orders) as well as covid-19 restrictions on businesses like recreation & entertainment will continue to drag the sector in the short to medium term.