PMI Reading No 86: A New Low for the Headline

Monday, June 01, 2020 / 10:38 AM / by FBNQuest Research / Header Image Credit: Proshare

Our manufacturing Purchasing Managers' Index (PMI), the first of its genre in Nigeria, slipped from 45.8 to 43.3 in May. Our partner, NOI Polls, has compiled the data. The index can be found in advanced economies such as the ISM's in the US, larger EMs like China, India and Russia, and some other 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 was 68.7 in December 2017 and our lowest is now 43.3, having previously been 44.6 in January 2016.

In our unweighted model (that of the Institute for Supply Management), respondents are asked whether output, employment, new orders, suppliers' delivery times and stocks of purchases have increased over the previous month, are unchanged or have declined. A headline reading of 50 (ex 100) is neutral, and anything higher points to expansion in the sector.

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

PMIs, unlike the national accounts, are forward-looking indicators with a proven record of moving financial markets in advanced economies and the largest EMs. There have been some particularly large monthly swings of more than ten points this year due to Covid-19.

The changes in our index have been subdued in comparison. The full lockdown was uneven across the country, and shorter in duration than in most advanced economies. Also, Nigerian manufacturing broadly produces for the domestic market so has been less buffeted by weak external demand and border closures than G7 economies, for example.

All five sub-indices are now in negative territory, reflecting the higher cost of, and reduced access to raw materials. This in turn is a function of the lockdown and the related decline in fx availability: the CBN has not supplied the Investors' and Exporters (I&E) window since late March.

A very small number of companies reported an improvement in May, notably for new orders and stocks. The prevalent trend, however, was a shift from no change to a deterioration. From our trigger questions we learnt that companies had been further hit by inter-state restrictions. These questions arise when a respondent has given the same answer for a sub-index for two successive months and changes it for the third.

For June we could well see a little more activity due to the easing of restrictions. An improvement in fx access still looks elusive.

On a 12-month moving average basis, the headline index retreated from 52.1 to 51.5 in May.

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