PMI Reading No 105: Weaker Yet Above Water


Tuesday, January 04, 2022 / 09:32 AM / by FBNQuest Research / Header Image Credit: Ecographics


Our manufacturing Purchasing Managers' Index (PMI) fell from 57.4 to 55.9 in December. It was the first of its kind in Nigeria. Our partner, NOI Polls, collects the data. The decrease was mirrored across three of the five sub-indices. Only one sub-index (workforce) recorded an increase. An index is produced in advanced economies such as by the Institute for Supply Management (ISM) in the US, larger EMs such as China, India and Russia, and a large number of emerging/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 to date has been 68.7 in December '17 and our lowest 43.3 during lockdown in May '20. In our unweighted model (that of the ISM), respondents are asked whether output, employment, new orders, suppliers' delivery times and stocks of purchases have increased over the previous month, are flat or have fallen. A reading over 50 (ex 100) denotes expansion for the sector.


On a 12-month moving average basis, the headline index rose from 51.0 in November to 51.1.


The latest national accounts (for Q3 '21) shows GDP grew by 4.0% y/y, after a 5.0% growth in Q2, and compared with a -3.6% contraction the previous year. Manufacturing posted a 4.3% y/y growth in Q3. Its largest segment (food, beverages, and tobacco) expanded by 6.1% y/y while its second-largest (textile, apparel, and footwear) grew by 1.0% y/y.


PMIs, unlike the national accounts, are forward-looking indicators. Neither in Nigeria is seasonally adjusted. PMIs move markets in advanced economies, which was evident during lockdown and the recovery in H1 '20.


The trend is usually a further increase in headline rate for December due to a seasonal boost in demand resulting from year-end festivities. We attribute last month's decline to increased uncertainty among manufacturers on the back of the fast-spreading omicron variant of COVID-19 which was first reported to the WHO in late November. Supply-side constraints were apparent as well.


The NOI surveys include trigger questions, which are put to respondents when they have given the same answer on a sub-index for two successive months and changed it for the third.  Themes in this report include, increase in cost of raw materials, decline in demand, and fx difficulties.


The reading for new orders, the most forward-looking of the five sub-indices, declined from 62.0 to 60.5 last month, supported mainly by medium-sized firms.


The most common answer in our surveys is 'no change'. This accounted for more than 50% of responses for all five sub-indices. In two cases (employment and suppliers' delivery times) its share exceeded 80%.


China's official manufacturing PMI rose marginally to 50.3 last month from 50.1 in November. On the other hand, preliminary estimates show that the IHS Markit manufacturing PMI for the US fell to 57.8 in December from 58.3 in November, reflecting uncertainties associated with the pandemic.

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