Friday, July 01 2016 9:52AM /FBNQuest Research
· Recovery in June headline to 50.2
· Three sub-indices in negative territory
· Highest for delivery times
· Lowest for workforce
We release today the latest reading (no 39) 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 economic conclusions on the basis of our reports need to be tentative because we are operating in a near statistical void.
In Q1 2016 GDP contracted at constant basic prices by -0.4% y/y, the worst figure since 2011 in the new national accounts. The oil and non-oil sectors contracted by -1.9% y/y and -0.2% y/y respectively. Declines in manufacturing, financial institutions and real estate dragged the non-oil sector down. The manufacturing sector contracted by -7.0% y/y in Q1, compared with growth of 0.4% the previous quarter.
Our latest headline reading shows a pick-up from 48.2 posted the previous month. In our view, the fractionally positive headline reading of 50.2 is still consistent with Q1 manufacturing sector GDP as well as the prospect of another poor set of GDP figures in Q2. The June report marks an improvement in two of the principal sub-indices (workforce and new orders).
We suspect that this was driven by those respondents which have increased their domestic input utilisation. Faced with the challenges of sourcing fx for imports of raw materials and intermediates, some companies have been able to boost their processing of local raw materials. Textiles, food products and cement would come under this category.
20. PMI reading no 30: Just above the water – Oct 02, 2015