Nigeria PMI - Headline Readings Diverge Amidst Contraction


Tuesday, December 06, 2016 8:55 AM/ Vetiva Research

November’s Purchasing Managers’ Index (PMI) readings indicated economic contraction over the month as Manufacturing and Non-Manufacturing PMI registered 46.0 and 42.8 respectively.

Digging deeper however, the two indexes diverged a bit as the Manufacturing PMI reading is the highest since January (47.2) whilst non-Manufacturing deteriorated more sharply compared to the change recorded in October. This implies that the non-manufacturing economy has now fared worse than the manufacturing economy for the 3rd successivemonth.

Manufacturing showing some signs of life
The reduced contraction in the manufacturing economy was primarily driven by flatter declines in the major sub-Indices. Specifically, New Orders PMI registered 45.1 (highest since January: 46.2), Production Level PMI registered 46.9 (highest since May: 47.9), and Raw Materials PMI registered 46.1 (highest since March: 47.1).

These three represent a combined weight of 75% of the Manufacturing PMI. The relatively stronger performance of the manufacturing economy is underscored by three sub-sectors (out of sixteen) recording readings above 50 in November, the most since May.

These were led by the Cement subsector (57.4) which rebounded from three consecutive contractions on the back of jumps in production levels (66.1) and new orders (57.1).

Non-Manufacturing sinks further
The deterioration in Non-Manufacturing PMI can be traced to acceleration in the slowdown in New Orders, Employment Levels and Inventories (Business Activity contracted at the same pace as in October).

Meanwhile, just two out of eighteen sub-sectors expanded in November – Agriculture and Finance & Insurance. Notably, this was the first expansion in Finance & Insurance since January and indicates a relatively decent close to the year for a sector that already recorded 2.64% real GDP growth in the 3rd quarter of the year

Key feature: Bleak view of labour market
Perception of employment continues to deteriorate across the economy as it recorded the worst performance of all sub-indices in both Manufacturing PMI (40.6) and Non-Manufacturing PMI (40.2).

In fact, Plastic & Rubber Products was the only Manufacturing sub-sector to record an improvement in Employment Levels (54.2) whilst Agriculture was the only Non-Manufacturing sub-sector to record an improvement in Employment Levels (51.6).

There are clear signs that the recession is squeezing the labour market and creating greater unemployment even as we await labour statistics for Q3’16.

No meaningful change expected in December
Even after we factor in extra consumer spending during the festive season which usually supports aggregate demand, this year’s trend points toward another sub-50 reading in December as underlying economic fundamentals remain weak.

The business climate is in a dire condition going into 2017 and fiscal support is needed to prop up the economy.

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