PMI reading no 43: a marked rebound

Our manufacturing Purchasing Managers’ Index (PMI), the first of its kind in Nigeria, shows a recovery from 47.9 in September to 52.9. 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.

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 seven negative headline readings since our launch in April 2013 including four this year.

Our sample is an accurate blend of large, medium-sized and small 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.

Unusually, all five sub-indices showed an improvement in October. The striking trend for all sub-indices is the shift from a decline to an unchanged reading.

Among the answers to the trigger questions, we note that one respondent reported improved (shorter) delivery times because of orders made in smaller quantities. This reinforces the narrative on squeezed household demand.

This headline reading takes us back roughly to where we were in August (52.2). Subject to the usual caveat about the difficult operating environment, we suggest that the marked shift towards unchanged readings could indicate that companies are adjusting to the additional challenge of fx shortages.

For GDP we see further contraction (of -1.7% y/y) in Q3 2016. The figure could look rather better if the oil economy surprises on the upside. This is a challenging call, given the lack of a single official date source for oil production.

For Q4 we see GDP flattish on a y/y basis. The pick-up in capital releases from the 2016 budget by the FGN should then start to make an impact.

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