Monday, February 01, 2016 09:55 AM / FBNQuest Research
· Brutal decline in the headline to 44.6
· Four sub-indices in negative territory
· Highest for delivery times
· Lowest for output
We release today the latest reading (no 34) of our manufacturing Purchasing Managers’ Index (PMI) for Nigeria, which takes the temperature of the sector. Our PMI was the first in Nigeria. It has become a core forward indicator for analysts, policymakers and financial market players.
A PMI is a simple exercise. A selection of companies is asked their view each month on core variables in their business. The respondent, who is characteristically the purchasing manager in a larger firm, has three choices of reply: better, unchanged or worse than the previous month. According to the most used methodology, 50 marks a neutral reading and anything higher suggests that the manufacturing economy is expanding. Readings are released at the very beginning of the new month.
In our case, the five variables are output, employment, new orders, delivery times from suppliers and stocks of purchases. They have equal weightings in our index. Our reports cover a representative sample of the sector with large, medium-sized and small firms. Any broad conclusions about the economy on the basis of our reports need to be tentative because we are operating in a near void: there are few data series on sectoral trends.
GDP growth in Q3 2015 picked up from 2.4% y/y to 2.8%. The improvement, however, was driven by the oil sector, which posted growth of 1.1% y/y (after contraction of -6.8% the previous quarter). The manufacturing sector contracted by -1.8% y/y, compared with -3.8% in Q2. The sector represented 9.3% of constant price GDP in Q3, and its largest segment is food, beverages and tobacco.
Our latest headline reading shows an unprecedented decline from 54.2. Those for the three previous months were comfortably in positive territory due to the seasonal pick-up in demand for the festivities in December.
Now that the season has ended, the challenge of accessing fx has driven the index sharply downwards. The reading for output of just 38, as that for the headline, is the worst since the launch of our index in April 2013. Looking a little ahead, we expect further poor readings because we do not see any substantive remedy for the fx shortage. Supplies have plummeted due to the slide in the oil price while demand for fx has eased (rather than crashed) because of Nigeria’s huge appetite for imports.
7. PMI reading no 30: Just above the water – Oct 02, 2015
10. PMI reading no 28: decline in the macro headwinds – Aug 03, 2015
13. PMI reading no 26: below water – Jun 01, 2015