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.
10. PMI reading no 30: Just above the water – Oct 02, 2015
13. PMI reading no 28: decline in the macro headwinds – Aug 03, 2015
16. PMI reading no 26: below water – Jun 01, 2015