PMI reading no 24: deceptive stability


Wednesday, April 1, 2015 10:00 AM / FBN Capital Research

The latest report for our manufacturing Purchasing Managers’ Index (PMI) shows a small decline in the headline reading from 56.2 in February to 55.2. 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 Brazil and China, and a few other frontier markets such as Vietnam.

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.

We have seen many marked swings since we launched our index in April 2013 but only once has there been a negative headline reading (49.4 in July 2013). Such swings are normal for frontier markets such as Nigeria. The operating environment for business is highly fluid: access to electricity, fuel and credit is uneven, particularly for small companies. We would add the disruption of the just concluded postponed presidential elections.

Our headline reading for March, therefore, is surprising because it marks a second successive modest m/m change. Less surprisingly, it masks some pronounced changes among the sub-indices (notably a sharp rise from 42 to 55 for delivery times, and a fall for employment from 60 to 52). 

The national accounts show manufacturing growth of 13.5% y/y in Q4 2014.      

In terms of trends by company size, the larger firms posted an improvement in output while the smaller enterprises supplied the best responses for delivery times and stocks of purchases. It is difficult therefore to identify the influence of the slide in the oil price. 

For the sixth successive month, the reading for new orders was the highest of the sub-indices, a position shared on this occasion with output.      

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