Purchasing Managers' Index reading no 34 is below water, fx to blame


 Monday, February 01, 2016 08:50 AM / FBNQuest Research

The latest report for our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, shows an unprecedented steep fall from 54.2 in December to 44.6. 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), the 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 in their responses. A reading of 50 is neutral. This is only the third negative reading since our launch in April 2013, indicating that the manufacturing sector is contracting.

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

Four of the five sub-indices were negative in January, and only delivery times posted a reading above neutral.

The huge decline in the output sub-index from 55 in December to just 38 was felt across all company sizes. Our argument is that diminishing supplies of fx are mostly to blame, and these pressures will remain for the foreseeable future (whether or not the authorities opt for a devaluation).

This explanation is consistent with anecdotal evidence and media accounts that manufacturers are having increasing difficulty in accessing fx for imported inputs.

For new orders the reading fell by six points to 47. However, there was curiously an improvement for the larger companies (with 200 or more employees). Our take is that some businesses may be transferring orders to the larger firms in the belief that they are now better placed to fulfil them.

There is one mitigating factor behind the very sharp decline in the manufacturing PMI in January. Those for November and December were underpinned by seasonal household demand.

For the same reason we may well see manufacturing GDP for Q4 2015 ahead of some expectations. It contracted by -1.8% y/y in Q3.

Related News


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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