August 2017 Purchasing Managers' Index: Six Months In Positive Territory


Tuesday, September 05, 2017  10:06 AM / FBNCapital Research

·      Considerable increase in August to 58.5 for headline

All five sub-indices in positive territory

Highest for delivery times

·      Lowest for workforce

FBN Capital released today the latest reading (No 53) of our manufacturing Purchasing Managers’ Index (PMI) for Nigeria, which takes the temperature of the sector. Our PMI was the first in Nigeria. It has developed into a core forward indicator.

A PMI is a simple exercise. A selection of companies is asked their view each month on core variables in their business. The respondent, who is characteristically the purchasing manager in a larger firm, has three possible replies: better, unchanged or worse than the previous month. According to the standard methodology, 50 marks a neutral reading and anything higher suggests that the manufacturing economy is expanding.

Obvious conclusions should be drawn from the fact that this latest headline reading is the sixth in a row in positive territory (above water). Readings are released at the very beginning of the new month, subject to public holidays.

In our case, the five variables are output, employment, new orders, delivery times from suppliers and stocks of purchases. They have equal weightings in our index. Our reports cover a representative sample of the sector with large, medium-sized and small firms. Any broad economic conclusions on the basis of our reports need to be tentative because we are operating in a near statistical void.

The national accounts, unlike a PMI, are a historical indicator. The latest series (for Q1 2017) shows a fifth successive, albeit smaller, contraction, of -0.5% y/y. The shrinking of oil GDP again slowed, while remaining double-digit (-11.6% y/y), and non-oil GDP returned to positive territory (of 0.7% y/y).

Manufacturing achieved growth of 1.4% y/y, compared with contraction of -2.5% the previous quarter. Food, beverages and tobacco, the largest segment, put in a good performance.  

August’s PMI reading shows another improvement in the headline from 56.3 recorded in July to 58.5. The CBN’s stepped up fx interventions have had a positive effect on the manufacturing sector: this is evident from the better readings for output as a result of the improved access to fx, and from some of the answers to our trigger questions. Furthermore, there has been improved utilisation of local substitutes for inputs by manufacturers (particularly in the food and beverages segment).   

Although demand remains generally soft, consumer confidence has somewhat picked up relative to previous months through to the first quarter of the year. Logistics issues still persist, and have been accentuated by the rainy season. However, we expect the weather conditions to ease by November.

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