Our manufacturing Purchasing Managers’ Index (PMI), the first of its kind in Nigeria, shows a strong decline from 60.0 in December to 48.6. 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 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 reading of 50 is neutral. We have posted nine 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.
All five sub-indices retreated in January. The index is roughly where it was in November (48.8). In the intervening period, the traditional pick-up in household demand has come and gone. Each year since our launch, the index has gone into reverse in January.
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. Manufacturing is one of the principal losers from the scarcity of fx, some movement towards import substitution notwithstanding.
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, exceptions including cement. For now, there is no ready solution to the impasse. The CBN continues to make very small amounts of fx available and the latest MPC communique shows 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 due to the scarcity.