January 2, 2019

PMI reading no 69: well above water

Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, picked up in December from 58.9 to 60.2. 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 Brazil, 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, and traditionally released on the first working day of the new month. They can move financial markets in developed economies.
  • 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 now posted twelve negative readings since our launch in April 2013 including three this year.
  • Our sample is an accurate blend of large, medium-sized and small companies, based across the country.
  • Four of the five sub-indices improved, and all ended in positive territory. The proportion of unchanged responses declined for three of the five sub-indices.
  • The employment reading rose considerably to 55 from 51.5 in November.  Given that there has been no significant change in the country’s business climate, we suspect that companies took on additional short-term contracted labour to meet up with increased demand.
  • The national accounts for Q3 2018 show that manufacturing grew by 1.9%, compared with 0.7% y/y in Q2. The growth of its largest segment (food, beverages and tobacco) was 2.9% y/y, a pickup from 0.6% recorded in the previous quarter. Among its larger segments, the best performer was cement (8.1% y/y), which we attribute to public infrastructure spending, real and anticipated.
  • The exercise includes questions triggered when a respondent has given the same answer for a sub-index for two successive quarters and then changes it for the third. The most common explanation in this report is the boost in demand due to seasonal effects (end-year celebrations). Additionally, activities geared towards electioneering have contributed to boosting cash in circulation.
  • Structural issues continue to stifle the growth and expansion of Nigerian manufacturing firms. These challenges limit manufacturers’ ability to produce standard products profitably. We understand that the FGN has earmarked N42bn to complete ongoing Special Economic Zone Projects across the geopolitical zones to drive manufacturing and export activities.