PMI Reading No 84: Fall on Global Headwinds


Friday, April 03, 2020 / 09:41 AM  / By FBNQuest Research / Header Image Credit: Proshare


Our manufacturing Purchasing Managers' Index (PMI), the first of its kind in Nigeria, slipped from 51.7 to 47.9 in March. Our partner, NOI Polls, has compiled the data. The index is to be found in advanced economies such as the ISM's in the US, larger EMs like China, India and Russia, and a few frontier markets. It is based upon manufacturers' responses to set questions on core variables in their businesses. In our case, it is not seasonally adjusted. Our highest reading was 68.7 in December 2017, and our lowest 44.6 in January 2016.


In our unweighted model (the ISM's), respondents are asked whether output, employment, new orders, suppliers' delivery times and stocks of purchases have increased over the previous month, are unchanged or have declined. A headline reading of 50 (ex 100) is neutral, and anything higher points to expansion. Our previous sub-neutral/negative reading was 49.5 in July 2019.


Our sample of respondents is a representative blend of small, medium-sized and large companies across the six geopolitical zones.


PMIs are forward-looking indicators with a track record of moving markets in advanced economies and the largest EMs. The official manufacturing PMI in China crashed from 50.0 to a record low of 35.7 in February under the impact of coronavirus. As workers returned to their homes after the holiday for the Lunar New Year and factories started to resume production, so the headline recovered to 52.0 in March. In both cases, the index was the most timely data release to inform markets.


Nigerian manufacturing is dominated by consumer goods industries. The index therefore peaks in December for the holiday season and invariably slumps in January.


The index can go either way in March. In this case, the negative drivers would have been the spread of the coronavirus internationally and the crashing of the oil price. Answers to our trigger questions cite the virus as helping to explain worse output, new orders and stocks of purchases. These questions arise when a respondent has given the same answer for a sub-index for two successive months and changes it for the third.


In March the impact of the virus would have been mostly imported (such as reduced supplies of inputs from China and elsewhere). To give a very rough idea of the impact of a domestic lockdown on manufacturing, we see that the headline PMI readings in March tumbled from 49.2 to 44.5 for the Eurozone, 48.0 to 45.4 for Germany and 48.7 to 40.3 for Italy. The restrictions in Italy were the longest and the deepest in the Eurozone in March.


On a 12-month moving average basis, the headline index retreated from 53.8 to 53.0 in March.


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