PMI reading no 35 is just above neutral


Tuesday, March 01, 2016 10:47 AM /FBNQuest Research

The latest report for our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, shows a recovery from 44.6 in January to 50.6. Our partner, NOI Polls, has compiled the data.

The index is a familiar data 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 a few other frontiers.

It is based upon the responses of manufacturers to set questions on core variables in their businesses. The index should be viewed as a forward-looking sentiment indicator, with the proven ability to move markets.

In the model we have chosen (the ISM’s), 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. A reading of 50 is neutral. We have posted just three negative readings since our launch in April 2013 (July 2013, May 2015 and January 2016).

Our sample is a representative blend of large, medium-sized and small companies.

Two of the five sub-indices were negative in February. The strongest reading was 56 for delivery times.

We link the marked recovery in the output sub-index from 38 in January to 53 to the simultaneous improvement for stocks of purchases from 43 to 52. Access to fx did not improve in the month under survey: far from it. It happened that companies of all sizes had been able to rebuild their inventories, which had been run down at the end of the holiday season.

In these circumstances, we would expect companies to turn to local inputs, where available. Small firms would normally take the lead in this process, given their greater flexibility in production and their greater challenge in accessing fx.

The fact that the employment sub-index was below water for the third successive month tells us that companies do not see a bright near term.

The NBS is due to release the national accounts for Q4 2015 shortly. Manufacturing contracted by -1.8% y/y in Q3, and may have had a better quarter, given the seasonal boost to household demand.  

The two manufacturing PMI reports for February were released in China earlier today. The official index declined from 49.4 in January to 49.0, and the private sector (Caixin) from 48.4 to 48.0.  

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