PMI Reading No 42: A Reality Check


Tuesday, October 04, 2016 9:21am / FBNQuest Research

The latest report for our manufacturing Purchasing Managers’ Index (PMI), the first of its kind in Nigeria, shows a fall from 52.2 in August to 47.9. Our partner, NOI Polls, has gathered and compiled the data.

The index update is a familiar data release at the start of the calendar month in developed markets (such as the ISM’s in the US), the larger emerging markets such as China and a few other frontiers. It is based upon the responses of manufacturers to set questions on core variables in their businesses.

PMIs are forward-looking indicators of sentiment, and have the proven capacity to move financial markets.

In the unweighted model of our choice (the ISM’s), respondents are asked  whether output, employment, new orders, delivery times and stocks of purchases have improved on the previous month, are unchanged or have declined. A reading of 50 is neutral. We have posted seven negative headline readings since our launch in April 2013 including four this year.

Our sample is an accurate blend of large, medium-sized and small companies.

We have also added “trigger” questions, which apply when the respondent has the same answer on a sub-index for two successive months and then changes it for the third.

The readings for delivery times and stocks of purchases, which are the secondary sub-indices, and employment drove the decline in the headline.

Following three successive modest upticks in the headline reading, we now have a decline for the third month of the quarter, which acts as a reality check. The economy is in recession although we see a flattish number y/y for GDP in Q4.

The new exchange-rate regime has been in place for three months. Manufacturers will have seen little, if any increase in fx supply. We do not see any sea-change for the better in the months ahead, and are sceptical about talk of a grand sale of state-owned assets (
Good Morning Nigeria, 29 September2016).

Yesterday’s public holiday allows us to report headline manufacturing PMI readings from elsewhere for September: 51.5 from the US (ISM; vs 49.4 in August); 50.4 from China (official; flat); 50.1 from China (Caixin; vs 50.0); 52.6 from the Eurozone (vs 51.7); and 46.0 from Brazil (vs 45.7), its 20th successive month below the water.

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