The latest report for our manufacturing Purchasing Managers’ Index (PMI), the first of its kind in Nigeria, shows an improvement from 51.0 in July to 52.2. 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.
PMIs are forward-looking indicators of sentiment, and have the proven capacity to move financial markets. This was evident in sharp sell-offs at the start of the year in China and in July in the UK.
In the unweighted model of our choice (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 is neutral. We have posted six negative headline readings since our launch in April 2013 including three this year.
Our sample is an accurate blend of large, medium-sized and large companies.
We have also added “trigger” questions, which apply when the respondent has the same answer on a sub-index for two successive months and then changes it for the third.
Four of the five sub-indices were positive in July. The highest reading was 59 for delivery times. Those for delivery times and stocks of purchases, which are the secondary sub-indices, drove the rise for the headline in August.
That said, the modest upticks in the headline reading in the past three months (from 48.2 to 52.2) suggest that manufacturing has climbed onto a plateau. In the latest, no change was the preferred answer for all five questions, ranging from 59% on employment to 37% for output.
If we have reached a plateau, then the recent floor came in Q1, when manufacturing GDP contracted by -7.0% y/y. The national accounts for Q2, released yesterday, show slower contraction of -3.4%.
The new flexible exchange-rate regime has been in place for about two months. Manufacturers will have seen little, if any increase in fx supply. However, they appear to account for the largest share of outstanding futures contracts of US$2.8bn (out to August 2017) in the OTC market. This tells us that they are planning ahead for their imports of raw materials. The spot naira rate has some way further southwards to go before the classic correction.