Friday, July 01 2016 9:35AM /FBNQuest Research
The latest report for our manufacturing Purchasing Managers’ Index (PMI), the first of its kind in Nigeria, shows a small improvement from 48.2 in May to 50.2. Our partner, NOI Polls, has gathered and compiled the data.
The index update 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. It is a forward-looking indicator, with proven market-moving potential.
In the unweighted model we have employed (the ISM’s), respondents are asked whether output, employment, new orders, delivery times and stocks of purchases have improved on the previous month, are unchanged or have declined. A reading of 50 in neutral. We have posted six negative headline readings since our launch in April 2013 including three this year alone.
Our sample is an accurate blend of large, medium-sized and small firms.
Three of the five sub-indices were negative in June. The highest reading was 57.5 for delivery times.
Our latest reading demonstrates the current fluidity in the sector, which we can see in the reclassification of the size of respondents. Those which have fallen down the ladder outnumber the climbers by almost two to one. Some readers might be surprised that any have climbed in this climate. The explanation could lie in a shift towards greater use of domestic inputs.
We have also introduced “trigger” questions which apply when the respondent has the same answer on a sub-index for two successive months and then makes a change for the third.
Manufacturing contracted by -7.0% y/y in Q1 2016, which is often the weakest of the year for the economy as a whole. For the sector (but not the economy), we would not expect much change in Q2.
The liberalisation of the exchange-rate regime with effect from 20 June came too late to have an impact on the index in June. Indeed we do not see much impact for some months ahead.
The new system has to bed down so that both the CBN and market players become familiar and comfortable with the experiment. At that point, we should see a pick-up in autonomous flows into the market and therefore a greater supply of fx for importers in manufacturing and other sectors.
The reading for employment strengthened from 40.5 to 48.0 in June. We note, however, that it remained below water for the seventh successive month, which is perhaps the best commentary on the sector’s condition.
1. Manufacturing PMI Rises to 45.8% in May from 43.7% in April 2016 - CBN
20. PMI reading no 30: Just above the water – Oct 02, 2015