PMI Reading No 81: Well Above Water

Thursday, January 02,  2020   /03:42 PM  / By FBNQuest Research / Header Image Credit: Proshare

Our manufacturing Purchasing Managers' Index (PMI), the first in Nigeria, picked up in December from 56.4 to 58.3. Our valued 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 Brazil, 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. Our highest reading was 68.7 in December 2017, and our lowest 44.6 in January 2016.

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 in July this year.

Our sample is a representative blend of large, medium-sized and small companies, spread across the six geopolitical zones.

PMIs are forward looking indicators, our latest covering the third month of the fourth quarter. In contrast, the national accounts are historic data: the latest accounts for Q3 show non-oil GDP growth of 1.8% y/y and manufacturing growth of 1.1%.

For December's report, the highest reading across the five sub-indices, was for output. It rose by more than eight points when compared with the previous month. Answers to our trigger questions in November indicated that the end-year festivities resulted in increased production to meet demand. In addition, manufacturers geared towards the beverages segment recorded increased sales during the period.

A trigger question is prompted when a respondent has given the same answer for a sub-index for two successive months, and changes it for the third.

The reading for the employment sub-index decreased by two points to 51 in December. The proportion of no change responses accounted for 92% of the total. Responses to our trigger questions show that some companies experienced resignation of staff that opted to return to school to further their education.

In the months ahead, we will be watching for the impact of the steep rise in lending volumes on the sector. According to the NBS, loans extended by deposit money banks (DMBs) totalled N16.25trn in Q3 2019, compared with N15.13trn the previous quarter. The second largest recipient of loans in Q3 was the manufacturing sector, which accounted for 15.8% of the total.

On a 12-month moving average basis, the headline slowed from 53.6 to 53.5.

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