PMI reading no 45: festive rebound

Our manufacturing Purchasing Managers’ Index (PMI), the first of its kind in Nigeria, shows a strong rebound from 48.8 in November to 60.0. 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, suppliers’ 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 eight negative headline readings since our launch in April 2013 including five in 2016.
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 rebounded in December. Since our index is not seasonally adjusted, we attribute the marked recovery to the traditional pick-up in household demand for the festive season. We had higher headline readings in both 2013 and 2014.

While we think that non-oil GDP in Q4 2016 was positive y/y, having been flat the previous quarter, we are not calling a turnaround in the Nigerian economy. A clear decline for the headline reading in the January report would not come as a surprise.

There has been no dramatic change in the availability and price of fx in the past month. The majority of manufacturing segments have a high import requirement, which over time can be reduced through substitution. For now, there is no ready solution to the impasse. The CBN is making very small amounts of fx available and the authorities are in no hurry to change direction.

Demand is set to benefit from the FGN’s expansionary fiscal stance, particularly from the pick-up in capital releases. Manufacturing, however, will likely be one of the last non-oil sectors to recover on account of the fx constraint.

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