PMI Reading No 76: Again Below Water


Thursday, August 01,  2019  02:15PM / by FBNQuest Research


Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, sank a little further below water in July to 49.5 from 49.9. Our partner, NOI Polls, has gathered and compiled the data. The index is found in developed markets (such as the ISM’s in the US), larger emerging markets such as China, India and Russia, and a few frontiers. It is based upon manufacturers’ responses to set questions on core variables in their businesses. In our case, it is not seasonally adjusted.                                              

In our unweighted model (the ISM’s), respondents are asked  whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have improved on the previous month, are unchanged or have declined. A headline reading of 50 is neutral. We have posted 14 negative readings since our launch in April 2013, the most recent being this latest.

Our sample is a representative blend of large, medium-sized and small companies, based across the country. Two sub-indices declined in July, with a sharp fall for output. Three closed in positive territory.

The prevalent trend in July was the increase in unchanged responses for all sub-indices. The proportion was above 50% in all cases, and topped 80% for employment and delivery times.

This increase in unchanged responses meant less trigger questions, which arise when a respondent has given the same answer for a sub-index for two successive months, and changes it for the third. A common theme among the trigger answers was the reference to the rainy season. (to explain lower output and longer delivery times).

Since the readings for employment and new orders were marginally better in July, we assume that the decline in output was caused in good measure by operational factors. One consumer goods company noted that the population  was using alternative food sources (such as yams) rather, we assume, than buying its own products. 

Manufacturing has not performed well as a whole since 2014, and is still struggling with household demand pressures. The Q2 2019 results from listed consumer goods companies confirm that the economic recovery is slow.

We therefore look forward to the implementation of the increased national minimum wage of N30,000 per month as a boost to domestic consumption. It is unclear at this point when the new wage will be paid and by whom.

On a 12-month moving average basis, the headline reading was marginally firmer in July, at 54.2.

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