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PMI Reading No 91: In The Shadow of Protests

Nigeria Economy	980 VIEWS
Nigeria Economy
980 VIEWS

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Monday, November 02, 2020 / 09:23 AM / by FBNQuest Research / Header Image Credit: FBNQuest

Our manufacturing Purchasing Managers' Index (PMI), the first of its genre in Nigeria, slipped from 54.8 to 51.3 in October. Our partner, NOI Polls, has gathered 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 during selective lockdown 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.

PMIs, unlike the national accounts, are forward-looking indicators with a proven record of moving financial markets. There have been some very large monthly swings this year due to Covid-19.

The official index in China soared from a record low of 35.7 in February due to lockdown to 52.0 in March on its lifting. Our own index recorded a ten-point move in June to 53.9 as Nigeria exited its own lockdown. It has since moved within a narrow range.

In Nigeria we should remember that manufacturing produces for the domestic market and so is little affected by the collapse in external demand. Also, it is dominated by consumer goods firms, many of which produce core elements in the household shopping basket.

The drivers behind the decline in the headline in October were, of course, the protests in major Nigerian cities and the related blockage of roads, not forgetting the curfews and other restrictions imposed in response. This emerged from our trigger questions: these arise when a respondent has the same answer on a sub-index for two months and changes it for the third.

Not many firms are moving the dial. The most popular response is 'no change', which accounted for at least 60% of answers in all five cases in October and over 80% for two sub-indices (employment and delivery times). Looking ahead, we expect the index to bump along within the present range above water. Household demand has been squeezed since early 2015 (i.e before the last recession), and we see little improvement before 2023 at the earliest.

On a 12-month moving average basis, the headline index slipped marginally from 52.1 to 51.8 in October.

China's official manufacturing PMI eased fractionally to 51.4 in October.