PMI reading no 27: more robust across the board


Wednesday, July1, 2015 8:45 AM / FBN Capital Research

The latest report for our manufacturing Purchasing Managers’ Index (PMI) shows a healthy recovery in the headline reading from 49.4 in May to 56.0. 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 India 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.

Four of the five sub-indices posted gains in June, led by output and new orders, in a welcome recovery from the headline reading below the water the previous month (only the second since our launch in April 2013).

There was a marked divergence in responses by company size. Small companies gave generally negative answers whereas the medium sized and particularly the large firms were bullish on output, employment and new orders.

Our take is that the challenges of doing business in Nigeria, notably access to regular supplies of power and fuel, did not improve greatly in June. Small companies are the most vulnerable to these shortages.

The surge in new orders for the larger businesses may be due to an improvement in consumer confidence after the elections. We stress that the new administration has yet to outline its policies for manufacturing.

The national accounts for Q1 2015 revealed a dramatic turnaround for the worse for manufacturing growth, to a contraction of -0.7% y/y from an expansion of 13.5% in Q4 against the background of the macro headwinds (slump in the oil price and in FAAC monies for distribution, and two effective devaluations).

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