PMI Reading No 89: Marginal Slip, Still Positive


Tuesday, September 01, 2020  /09:30 AM / By FBNQuest Research / Header Image Credit: Ecographics


Our manufacturing Purchasing Managers' Index (PMI), the first of its genre in Nigeria, declined gently from 52.8 to 52.3 in August. 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 43.3 in May this year.


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 large monthly swings of more than ten points this year due to Covid-19.


For August, three of the five sub-indices recorded increases. The marginal upticks seen in output, new orders and stocks of purchases are not surprising. Although demand is relatively stronger, we note that prior to the recent disruptions to consumption patterns due to Covid-19 and going back to Nigeria's last recession, consumer pockets had been squeezed and were yet to be rebuilt.


The output sub-index reading increased from 54 in July to 55.5. The trend was seen primarily in medium-sized companies. Responses to our trigger question for the increase in output were gradual pickup in demand due to the relaxation of lockdown, better access to affordable raw materials and for some, revamped marketing strategies assisted with stimulating demand.


Among the sub-indices, the most popular response by respondents is 'no change', which accounts for at least 55 per cent of answers.


Affordable credit is still a major challenge for manufacturers and for some, it has worsened due to the challenges triggered by the virus. That said, the sector has benefitted from increased lending on the back of the CBN's directives to banks to raise their minimum loan-to-deposit ratio (LDR). At its latest meeting held in July, the monetary policy committee noted that through this directive on LDR, credit allocation increased by N3.3trn over a 12-month period, with manufacturing emerging as major beneficiaries.


On a 12-month moving average basis, the headline index rose from 51.1 to 52.2 in August.


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