PMI Reading No 28: Decline in the Macro Headwinds


Monday, August 03, 2015 9:43 AM / FBN Capital Research

The latest report for our manufacturing Purchasing Managers’ Index (PMI) shows a marked retreat in the headline reading from 56.0 in June to 50.6. Our partner in this exercise, NOI Polls, has compiled the data. The index is a familiar release at the start of the calendar month in developed markets (such as the ISM in the US), the larger emerging markets like India and China, and a few other frontier markets such as Vietnam. It is developing into a core forward indicator for analysts, policymakers and financial market players.   

July 2015; Just above water

Download the manufacturing Purchasing Managers’ Index (PMI) for Nigeria – Aug 03, 2015 HERE

Main Conclusions:

  •       July headline hanging at 50.6
  •       Two of the five sub-indices in positive territory, two neutral
  •       Highest for delivery times
  •       Lowest for workforce

The index is based on the responses of a number of manufacturing companies to set questions on core variables in their businesses. It is unweighted.

In the model we have chosen (the ISM’s), they are asked whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have improved, are unchanged or have declined. They are asked to make allowances for seasonal factors in their responses. A reading of 50 is neutral.

Our sample is a representative blend of large, medium-sized and small companies. Four of the five sub-indices declined in July, and the fifth (delivery times) was unchanged.

There was a marked divergence in responses by company size. Small companies gave generally positive answers, and were particularly bullish on output and new orders. In contrast, the responses from the large and medium sized firms were poorer than the previous month.

Our take is that the operating environment improved in July. Power supplies generally increased and fuel shortages eased. This is welcome for the smaller firms, which do not, for example, have access to their own power generators. They are not burdened by heavy fixed costs, and have the flexibility to trim their prices to protect their market share.

The large and medium sized companies feel the macro challenges disproportionately, being less able to react to squeezed purchasing power.

The national accounts for Q1 2015 revealed a dramatic turnaround for the worse for manufacturing growth, to a contraction of -0.7% y/y from an expansion of 13.5% in Q4 against the background of the macro headwinds (slump in the oil price and in FAAC monies for distribution, and two effective devaluations).  The accounts for Q2 are due in mid-August.

Download the manufacturing Purchasing Managers’ Index (PMI) for Nigeria – Aug 03, 2015 HERE

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