PMI Reading No 101: Moving Closer to Neutral


Wednesday, September 01, 2021 / 11:11 AM / by FBNQuest Research / Header Image Credit: Fisdom


Our manufacturing Purchasing Managers' Index (PMI) remained in negative territory in August, improving from 48.0 in July to 49.6. It was the first of its kind in Nigeria and we have now achieved a century of reports. Readings for all five sub-indices posted increases in the month. 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 China, India, and Russia, and a good number of emerging/frontier markets. It is based upon manufacturers' responses to set questions on core variables in their businesses. Our highest reading to date has been 68.7 in December 2017 and our lowest 43.3 during selective lockdown in May 2020. 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 fallen. A headline reading over 50 (ex 100) indicates expansion.


On a 12-month moving average basis, the headline index weakened from 51.5 to 51.3 in August.


PMIs, unlike the national accounts, are forward-looking indicators. Neither in Nigeria is seasonally adjusted. They move markets in advanced economies, which was evident during lockdown and the recovery from it across jurisdictions in H1 '20.


Manufacturing registered 3.5% y/y growth in Q2 '21. We had hoped for a better figure, given that it contracted by -8.8% in the year-earlier period (the quarter of lockdown in Nigeria). The largest segment (food, beverages and tobacco) managed 4.9% growth in Q2.   


The star performer has been cement, which has steadily grown throughout the COVID-19 pandemic other than Q2 '20. Its contribution to manufacturing GDP at current prices has increased to 20.2% of the total in Q2 from 14.8% one year previously. The main inputs for cement production, unlike textiles and footwear for example, are available locally.


Additionally, the FGN has an ambitious agenda for capital spending. It has recently announced the release of NGN1.30trn to ministries, departments and agencies for this purpose. Two large cement producers in our coverage posted sales growth of 8% and 3% q/q in Q2 '21.


The NOI surveys include trigger questions, which are put to respondents when they have given the same answer on a sub-index for two successive months and changed it for the third.  The common positive themes this time are an improvement in demand and a reward for investment in sales and marketing.  We suspect that respondents in some segments are benefiting from their competitors going out of business. Challenges in accessing fx for imports of raw materials have been acute.  


The most popular answer in our surveys is 'no change'. This accounted for more than 50% of responses for all five sub-indices. In one case (employment) its share exceeded 80%. Since the economy has not grown in per head terms for six years, we should not be surprised that our respondents are hesitating before increasing their staff count.   


China's manufacturing PMI (the official series) weakened from 50.4 to 50.1 in August. The sub-index for new orders was below water and the reading for its component, new export orders, fell to 46.7. Since China is the largest importer of crude oil, we hope that this and other alarm bells from its data releases prove to be aberrations.

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Proshare Nigeria Pvt. Ltd.

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