December 01, 2020 / 5:45 PM / by FBNQuest Research / Header Image
Our manufacturing Purchasing Managers' Index (PMI), the first of its kind in Nigeria, recovered from 51.3 to 54.6 in November. Our partner, NOI Polls, gathers the data. An index is produced in advanced economies such as by the Institute for Supply Management (ISM) in the US, larger EMs such as Russia, China and India, and an increasing number of 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 to date has been 68.7 in December 2017 and our lowest 43.3 during lockdown in May this year. In our unweighted model (that of the ISM), respondents are asked whether output, employment, new orders, suppliers' delivery times and stocks of purchases have increased over the previous month, are flat or have declined. A reading over 50 (ex 100) indicates expansion for the sector.
PMIs, unlike the national accounts, are forward-looking indicators with a track record of moving financial markets. We have seen some marked swings this year as economies have entered into, and then exited national lockdowns. The official index in China moved up by 16.3 points in March on the lifting of the restrictions.
Our own index rose by 10.3 points in June on the same basis. It may come as a surprise that it did not take a hit of the same magnitude on the start of the lockdown in Nigeria. However, manufacturing produces predominantly for the domestic market, and so has not been knocked off course by the collapse in external demand.
The same is evident from the national accounts for Q3'20. The contraction of the manufacturing sector slowed from -8.8% y/y in Q2 to -1.5%. Its largest segment (food, beverages and tobacco) rebounded by 5.6% y/y, supplying essential goods for local consumers with an element of catch-up to compensate for factory closures during the lockdown. We see a similar trend for the second largest segment, cement, which grew by 12.2% y/y in Q3. (Like our PMI, the national accounts are not seasonally adjusted.)
The headline in November regained the ground lost the previous month due to protests and disruptions in the major cities.
Our surveys include a system of trigger questions, which arise when a respondent has given the same answer on a sub-index for two successive months and then changes it for the third.
On this occasion, respondents pointed to the build-up to the holiday season at the end of the year, the return of their units to full production (after the protests in October), the greater availability of raw materials for the same reason and the reopening of schools as grounds for positive responses. Additionally, some firms responded that they were producing to meet demand in January because they would close their operations over the holiday period and into the New Year. There were healthy increases in the readings for output, new orders and stocks of purchases in November.
The reading for employment declined below neutral (to 49.5%) and is often the weakest. Because GDP per head has not been positive since Q3'15, we cannot be surprised that companies are reluctant to take on additional labour. According to the National Bureau for Statistics, the unemployment rate in Q2'20 was 27.1% and the underemployment rate a further 28.6%.
The most popular response is 'no change'. This accounted for more than half the responses for all five sub-indices. In one case (suppliers' delivery times) it exceeded 90% and in another (employment) 80%.
On a 12-month moving average basis, the headline index slipped marginally from 51.8 to 51.7.