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PMI Reading No 93: A Seasonal High for the Year

Nigeria Economy	956 VIEWS
Nigeria Economy
956 VIEWS

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Monday, January 04, 2021 / 11:18 AM / by FBNQuest Research / Header Image Credit: Ecographics

Our manufacturing Purchasing Managers' Index (PMI), the first in Nigeria, edged up from 54.6 to 55.0 in December. Our partner, NOI Polls, collects 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 Brazil, China and India, and a large 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 '17 and our lowest 43.3 during lockdown in May '20. 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 the proven ability to move financial markets. The Covid-19 pandemic has produced some marked swings 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 for the same reason.

The national accounts for Q3 '20 show that the contraction of manufacturing slowed from -8.8% y/y in Q2 to -1.5%. Its largest segment (food, beverages and tobacco) accounts for almost half total output by the sector and rebounded by 5.6% y/y, supplying essential goods for local consumers. A similar trend is discernible for the second largest segment, cement, which grew by 12.0% y/y in Q3. In contrast, textiles, apparel and footwear contracted by 12.2% y/y in the quarter under the pressure of accessing raw materials (and fx). Like our PMI, the national accounts are not seasonally adjusted.

The headline in December enjoyed a small seasonal boost from the holiday season.

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.

Where their answers became more positive, respondents this time highlighted the seasonal festivities and better weather conditions. We also note the explanation of reduced competition, suggesting that this latest recession has seen corporate casualties. Our hunch is that the competition in question were importers of finished goods unable to access fx at competitive rates. We recall a similar scenario when fx was in short supply and effectively rationed in 2016 and early 2017 (before the CBN's exchange-rate reforms).

The reading for employment declined to 48.5%. Since GDP per head has not been positive since Q3 '15, business has naturally been reluctant to hire 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 leadership of the Manufacturers' Association of Nigeria, interviewed by the local media in the last week of December, sees an unemployment rate of 50% ahead.

The most common response in our surveys is 'no change'. This accounted for more than 60% of responses for all five sub-indices. In one case (employment) it exceeded 90%, and in another (suppliers' delivery times) 80%.

On a 12-month moving average basis, the headline index eased from 51.7 to 51.4.

Looking ahead, we recall that the headline reading in January has declined from the previous 'holiday' month, generally by at least five points, each year since the launch of our index in 2013.