PMI Reading No 71: Election-driven Drift


Friday, March 01, 2019.  09:47AM/  FBNQuest Research


Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, declined in February from 51.5 to 50.4. Our partner, NOI Polls, has gathered and compiled the data. The index is found in developed markets (such as the ISM’s in the US), larger emerging markets such as China, India and Russia, and a few frontiers. 

It is based upon manufacturers’ responses to set questions on core variables in their businesses. In our case, it is not seasonally adjusted.                                                                                                                  

PMIs, unlike the national accounts, are forward-looking indicators of sentiment. According to the textbook, they should be released on the first working day of the new month. 

In the unweighted model of our choice (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. A headline reading of 50 is neutral. We have posted twelve negative readings since our launch in April 2013, the latest in July 2018. 

Our sample is an accurate blend of large, medium-sized and small companies, based across the country. Three sub-indices declined in February, and all three closed in negative territory. 

Since it is not seasonally adjusted, the index tends to soar in December for the holiday season, crash in January once the festivities have ended and then stage a recovery of sorts for February. 

In common with February 2015, the third stage of this sequence did not materialize this year. The reason emerges from questions triggered when a respondent for our survey has given the same answer for a sub-index for two successive quarters and then changes it for the third. Respondents cited the negative impact of the elections on demand in their explanations of their changed responses for output, new orders and stocks of purchases. 

Demand outside the holiday season remains soft. Household budgets have to be rebuilt: the new minimum wage, whenever introduced, will help the process. 

Manufacturing GDP growth picked up from 1.9% to 2.4% y/y in Q4 2018. The improvement, however, owed much to the 33.6% y/y growth posted by the unpredictable oil refining segment. For the largest segment (food, beverages and tobacco), growth was just 2.2% y/y. 

On a 12-month moving average basis, the headline reading peaked at 58.7 in March 2018 and has since weakened each month to the current 53.7.


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