PMI reading no 37 slumps from 54.4 to 46.5; a dire result

Proshare

Tuesday, May 3, 2016 9:22AM/ FBNQuest Research

The latest report for our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, shows a slump from 54.4 in March to 46.5. 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 five negative headline readings since our launch in April 2013 but two so far this year (January and April).

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

Three of the five sub-indices were negative in April. The strongest reading was 52 for stocks of purchases.

We view the poor April report as an extension of the national accounts for Q4 2015: GDP expanded by 2.8% y/y, the non-oil economy by 3.1% and manufacturing by 0.4%. Further, 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 president is still to sign off the 2016 budget approved by the Senate.

The reading of 42 for output is among the lowest since our launch. Our take, which anecdotal evidence supports, is that shortages of power, fuel and fx all worsened in the month. In these circumstances, we would expect companies to turn to local inputs, where available.

The fact that the employment sub-index was below water for the fifth successive month tells us that respondents do not see a bright near term. They are in no hurry to increase their payrolls, given the mentioned shortages and the untested nature of the FGN’s policies for the economy. (Those for the sector are in need of clarification.)

Over the weekend the Chinese authorities released their manufacturing PMI report for April. The headline reading was narrowly in positive territory at 50.1, compared with 50.2 the previous month.

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