October 2016 PMI - Back into Positive Territory


Tuesday, November 1, 2016 9:07 AM / FBNQuest Research

Main conclusions

•       Pick-up in October headline to 52.9

       Four sub-indices in positive territory

       Highest for delivery times

       Lowest for workforce

We release today the latest reading (no 43) 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 become a core forward indicator for analysts, policymakers and financial market players.   

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 choices of reply: better, unchanged or worse than the previous month.

According to the most used methodology, 50 marks a neutral reading and anything higher suggests that the manufacturing economy is expanding. Readings are released at the very beginning of the new month.

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.

In Q2 2016, GDP contracted at constant basic prices by -2.1% y/y, the worst outturn since 2011 in the new national accounts. The figure was dragged down by a sabotage-driven -17.5% y/y contraction in the oil economy. The non-oil economy shrank by -0.4% y/y, and manufacturing by -3.4% y/y in Q2, compared with -7.0% the previous quarter.  


Our latest headline reading shows a clear improvement from 47.9 to 52.9. We observe that there are no significant upswings in the share of respondents reporting a higher/improved performance across the five sub-indices. The principal trend is a shift from a decline to an unchanged reading.


This would suggest that companies are gradually adjusting to the straitened economic circumstances. The headline reading for this first month in the fourth quarter is consistent with our expectation of flattish GDP in Q4 2016, following our projection of further contraction in Q3 (-1.7% y/y.)


Fx sourcing issues for those companies highly dependent on imported inputs (the majority) continue to bite. Local newswires have reported waiting times of up to six months to gain access to fx at the official rate. The CBN’s directive to commercial banks to allocate 60% of their fx sales to manufacturers has had minimal impact.


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