May 2016 PMI; Still in negative territory


Wednesday, June 01, 2016 11:54AM /FBNQuest Research


Main conclusions:

·       Marginal improvement in May headline to 48.2

·       Four sub-indices in negative territory

·       Highest for delivery times

·       Lowest for workforce


We release today the latest reading (no 38) 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. For the non-oil sector, declines in manufacturing, financial Institutions, and real estate dragged the sector down. The manufacturing sector contracted by -7.0% y/y in Q1 compared with growth of 0.4% the previous quarter. 


We have seen six headline readings below the water since our launch three years ago but three of them have occurred this year. Since our index is unweighted, the headline does not reflect the negative reading for the three more “important” sub-indices (output, employment and new orders).


The report is therefore consistent with the GDP and manufacturing numbers for Q1 and the prospect of another poor set of figures in Q2. For new orders and, particularly, employment, the most popular response was “no change”. In contrast, for output it was lower. Output fluctuates more than the other sub-indices, being highly sensitive to shortages of power and fuel. There was a marked increase in delivery times which led to the marginal increase in the headline to 48.2 from 46.5 recorded in April.


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11.   January 2016 Purchasing Managers’ Index is worst reading to date, fx the culprit

12.  Purchasing Managers’ Index reading no 34 is below water, fx to blame

13.  PMI reading no 33: healthy and flattish – Jan 04, 2016

14.  December 2015 PMI is well above water for now – Jan 04, 2016

15.   November 2015; Comfortably above water – Dec 01, 2015

16.  PMI reading no 32: Still above water – Dec 01, 2015

17.   PMI reading no 31: a modest pick-up – Nov 02, 2015

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