PMI reading no 36: a welcome recovery


Friday, April 01, 2016 9:09AM /FBNQuest Research

The latest report for our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, shows a recovery from 50.6 in February to 54.4. 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’s 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.

Just one of the five sub-indices (employment) was negative in March. The strongest reading was 61 for output.

We link the marked recovery in the output sub-index from 53 in February in part to a smaller improvement for stocks of purchases. It was limited to    small and medium-sized companies. For the large and more import dependent firms, there was actually a decrease in March. Access to fx did not improve in the month under survey: far from it.

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.

The fact that the employment sub-index was below water for the fourth successive month tells us that respondents do not see a bright near term. They have pushed up production because other factors allowed it but are not rushing to increase their payrolls.

The national accounts for Q4 2015 showed that manufacturing expanded marginally by 0.4% y/y, compared with the contraction of -1.8% y/y in Q3. We caution that the first quarter tends to be the weakest for growth in the year, not least because of delays in the release of funds from the budget for capital spending. The agenda of the current administration is driven by its expansionary budget for 2016, which the Senate last week approved.

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1.       PMI February 2016; Higher stocks, higher output

2.      PMI reading no 35 is just above neutral

3.      January 2016 Purchasing Managers’ Index is worst reading to date, fx the culprit

4.      Purchasing Managers’ Index reading no 34 is below water, fx to blame

5.      PMI reading no 33: healthy and flattish – Jan 04, 2016

6.      December 2015 PMI is well above water for now – Jan 04, 2016

7.  November 2015; Comfortably above water – Dec 01, 2015

8.     PMI reading no 32: Still above water – Dec 01, 2015

9.      PMI reading no 31: a modest pick-up – Nov 02, 2015

10.  PMI reading no 30: Just above the water – Oct 02, 2015

11.   PMI reading no 29: another sign of the times – Sep 01, 2015

12.  August 2015; return to negative territory – Sep 01, 2015

13.  PMI reading no 28: decline in the macro headwinds – Aug 03, 2015

14.  PMI reading no 27: more robust across the board – Jul 01, 2015

15.   July 2015; Back in positive territory – Jul 01, 2015

16.  PMI reading no 26: below water – Jun 01, 2015

17.   PMI reading no 25: good workforce reading – May 04, 2015

18.  April 2015; Comfortably above water – May 04, 2015  

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