Monday, January 04, 2016 11:13 AM / FBNQuest Research
The latest report for our manufacturing Purchasing Managers’ Index (PMI) shows a very small decline from 54.4 in November to 54.2. 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 such as China and India, and a few other frontier markets like Vietnam.
It is based on the responses of a number of manufacturing companies to set questions on core variables in their businesses. The index should be viewed as a forward-looking sentiment indicator, with the potential to move financial markets.
In the model we have chosen (the ISM’s), the 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. They are asked to make allowances for seasonal factors in their responses.
A reading of 50 is neutral. Since our launch in April 2013, we have had just two negative headline readings (below 50, and indicating that the manufacturing sector is contracting).
Our sample is a representative blend of large, medium-sized and small companies.
Four of the five sub-indices were positive in December, and only employment posted a reading below neutral.
The picture by size showed better readings for small operations, a little worse for large companies and much worse for the medium-sized firms.
Anecdotal evidence and media accounts suggest that manufacturers are having increasing difficulty in accessing fx for imported inputs and, in some cases, anticipating the day when they will have to close down operations and lay off their workers.
This narrative is borne out in our December report by the weaker readings for output and employment as well as the worse responses from large and medium-sized companies, which are more dependent on imported inputs than the small firms.
This narrative would improve in the unlikely event of a rapid recovery in the oil price. The FGN argues that radical economic reforms are overdue, and is resisting pleas for support from import hungry manufacturers.
Manufacturing GDP contracted by -1.8% y/y in Q3, compared with -3.8% the previous quarter. For Q4 we see an improvement on the basis of the seasonal pick-up in household demand.
5. PMI reading no 30: Just above the water – Oct 02, 2015
8. PMI reading no 28: decline in the macro headwinds – Aug 03, 2015
11. PMI reading no 26: below water – Jun 01, 2015