PMI reading no 51: four months above water

Our manufacturing Purchasing Managers’ Index (PMI), the first of its kind in Nigeria, shows another improvement from 54.0 in May to 55.9. Our partner, NOI Polls, has gathered and compiled the data. The index report 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 headline reading of 50 is neutral. We have posted nine negative 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.

Four of the five sub-indices picked up in June and all were in positive territory. The headline reading has been above 50 since March.

Answers to the questions for three of the sub-indices cited an improvement in power supplies. This may prompt skepticism in some quarters although we point out that our respondents are spread across all six geopolitical zones.

Since March the CBN has stepped up its sales of fx to importers, SMEs and retail (for invisibles). Two positive consequences for the sector have been far greater availability of raw materials and naira appreciation on the parallel market. The food and beverages segment has been the main beneficiary.

In our view the economy is emerging from recession. In Q1 2017 its contraction narrowed from -1.7% y/y the previous quarter to -0.5%. Manufacturing posted positive growth of 1.4% y/y, the first since Q3 2015. We see a recovery in GDP growth to 1.6% y/y in Q2 2017.

The official manufacturing PMI report for China in June shows a rise from 51.2 to 51.7. State-owned enterprises have a substantial weighting.

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