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PMI Reading No 56: Nine Months Above Water

Proshare

Monday, December 04, 2017 / 09:01AM /Proshare Research 


Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, eased in November to 60.1 from 64.8. Our partner, NOI Polls, has gathered and compiled the data. 

The index is found in developed markets (such as the ISM’s in the US), larger emerging markets such as China and a few other frontiers. It is based upon manufacturers’ responses to set questions on core variables in their businesses. In line with best practice, we are releasing our report on the first working day of the month.

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 third quarter (July-September) and the latest PMI the second 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 latest in January this year. 

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

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

All five sub-indices fell in November: the lowest was 53.5 (employment). This was a reality check. The headline reading has been above 50 since March. 

The principal driver has been the CBN’s use of multiple currency practices, which has transformed fx liquidity. Manufacturers, or indeed any users of fx, now have access through the various windows. This is evident from the PMIs but also inflation data and listed company results. 

The positive impact of MCP has gained momentum since July. Weekly turnover on the investors’ and exporters’ window (NAFEX) has risen to about US$1bn. 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 and November reports. 

Manufacturing contracted by -2.9% y/y in Q3 2017. However, we can see the momentum of the improved fx availability in the q/q growth for the two largest sub-sectors: food, beverages and tobacco (0.6%), and textiles, apparel and footwear (7.5%). 

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