PMI Reading No 85: Damage From the Lockdown

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Monday, May 04, 2020 / 09:48 AM / By FBNQuest Research / Header Image Credit: Ecographics

                                                                                  

Our manufacturing Purchasing Managers' Index (PMI), the first of its kind in Nigeria, slipped from 47.9 to 45.8 in April. Our partner, NOI Polls, has compiled the data. The index is to be found in advanced economies such as the ISM's in the US, larger EMs like China, India and Brazil, and a few frontier markets. It is based upon manufacturers' responses to set questions on core variables in their businesses. In our case, it is not seasonally adjusted. Our highest reading was 68.7 in December 2017, and our lowest 44.6 in January 2016.


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In our unweighted model (the ISM's), respondents are asked whether output, employment, new orders, suppliers' delivery times and stocks of purchases have increased over the previous month, are unchanged or have declined. A headline reading of 50 (ex 100) is neutral, and anything higher points to expansion.

 

Our sample of respondents is a representative mix of small, medium-sized and large companies across the six geopolitical zones.

 

PMIs are forward-looking indicators with a track record of moving markets in advanced economies and the largest EMs. We have seen some particularly large monthly swings this year as a result of Covid-19 and governments'  responses to it. The official index in China slumped by 14 points in February and then soared by 16 points in March.

 

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The movements in our index have been muted in comparison. The full lockdown in Nigeria was not uniform across the country, and was shorter in duration than in most advanced economies. Also, Nigerian manufacturing broadly produces for the domestic market so the impact of the very challenging external demand conditions has been modest, unlike in China for example.

 

The reading for output of 40.5 was the lowest since January 2017, reflecting the lockdown at some units and very poor access to raw materials across all company sizes. The story for the new orders sub-index was similar. These were the answers to our trigger questions, which arise when a respondent has given the same answer for a sub-index for two successive months and changes it for the third. A broad trend across the sub-indices was the rise in 'unchanged' responses, the lowest of which was 75% of the total for output.

 

In our May report we will be looking out for the pass-through from any restrictions on business and households. To give a crude idea of the impact of a domestic lockdown on manufacturing, we see that the headline PMI reading for the Eurozone in April crashed from 44.5 to 33.6.

 

On a 12-month moving average basis, the headline index retreated from 53.0 to 52.1 in April.


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