PMI Reading No 87: Back in Positive Territory

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Wednesday, July 01, 2020 / 09:12 AM / by FBNQuest Research / Header Image Credit: Ecographics


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Our manufacturing Purchasing Managers' Index (PMI), the first of its genre in Nigeria, surged from 43.3 to 53.9 in June. Our partner, NOI Polls, has compiled the data. The index can be found in advanced economies such as the ISM's in the US, larger EMs like China, India and Russia, and some other 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 was 43.3 recorded in May 2020.


In our unweighted model (that of the Institute for Supply Management), 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 in the sector.

 

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

 

PMIs, unlike the national accounts, are forward-looking indicators with a proven record of moving financial markets in advanced economies and the largest EMs. There have been some particularly large monthly swings of more than ten points this year due to Covid-19.

 

The changes in our index have been subdued in comparison. The full lockdown was uneven across the country, and shorter in duration than in most advanced economies. Also, Nigerian manufacturing broadly produces for the domestic market so has been less buffeted by weak external demand.

 

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All of the five sub-indices recorded increases. The surge in the headline reading can be largely attributed to the phased easing of lockdowns and controls on movement restrictions across the country (curfews were relaxed in June, allowing businesses to increase their operational hours). We note that demand has picked up. However, consumer confidence remains subdued.

 

The decline in fx availability remains a negative for the manufacturing sector. The CBN has not supplied the Investors' and Exporters (I&E) window since late March. As at end-June, the fx rate in the Investors' and Exporters' (I&E) window was N387.3.

 

Three of the five sub-indices were above 50, including output. Prominent among the responses to our trigger question for the increase in output are better access to raw materials as well as visible pickup in demand, due to the partial easing of lockdowns and the relaxation of curfews.

 

The employment sub-index recorded a marginal increase. That said, the current macroeconomic environment remains hazy and is unlikely to encourage aggressive business expansion.

 

On a 12-month moving average basis, the headline index rose marginally from 51.5 to 51.8 in June.

 

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