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PMI Reading No 55: Higher and Higher

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Wednesday, November 01, 2017 9:58AM /FBNQuest Research 

Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, surged in October to 64.8 from the previous month’s 58.5. Our partner, NOI Polls, has gathered and compiled the data.
 

The index is a data release at the start of the calendar month in developed markets (such as the ISM’s in the US), the larger emerging markets such as China and a few other frontiers. It is based upon the responses of manufacturers to set questions on core variables in their businesses.
 

PMIs are forward-looking indicators of sentiment in all economies, and have the proven capacity to move financial markets in developed economies. To reinforce the point, the latest national accounts cover the second quarter (April-June) and the latest PMI the first month of the fourth.
 

In the unweighted model of our choice (the ISM’s), respondents are asked  whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have improved on the previous month, are unchanged or have declined. A headline reading of 50 is neutral. We have posted nine negative readings since our launch in April 2013, the last in January this year.

Our sample is an accurate blend of large, medium-sized and small companies.
 

We have also added “trigger” questions, which arise when the respondent has the same answer on a sub-index for two successive months and then changes it for the third.
 

All five sub-indices picked up in September: the lowest was an impressive 59.5 (employment). The headline reading has been above 50 since March and is now the second highest since we launched.
 

The principal driver has been the use of multiple currency practices (MCP) by the CBN; not in the textbook but they have transformed fx liquidity. Manufacturers, or indeed any users of fx, now have access through the various windows. This transformation can be seen not only in PMIs but also inflation data, listed company results and, on the margins, the national accounts.
 

The positive impact of MCP has gained momentum since July. A more recent boost has been the seasonal rise in demand for the year-end celebrations.  This featured in several responses to trigger questions for the October report.
 

This is, by any criteria, a very strong report. To contain the exuberance, we should stress the seasonality of demand and the trend for a reversal in readings in January. Secondly, a PMI for the services sector could tell a less festive story.
 

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