PMI reading no 53: a sixth above water

Our manufacturing Purchasing Managers’ Index (PMI), the first of its kind in Nigeria, shows a healthy improvement from 56.3 in July to 58.5. 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 in all economies, and have the proven capacity to move financial markets in developed economies. To reinforce the point, the latest national accounts cover the first quarter (January-March) and the latest PMI the second month of the third.

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 arise 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 August and all were in positive territory. The headline reading has been above 50 since March.

Among the sub-indices, we find employment above water for the third successive month, and a strong reading of 58 for new orders. The adoption of unfashionable multiple currency practices by the CBN has transformed fx availability, squeezed the parallel market premium and boosted imports of manufacturing inputs. Additionally there are tentative signs of an improvement in both confidence and consumption.

The economy is finally emerging from recession. Manufacturing posted positive growth of 1.4% y/y in Q1, the first since Q3 2015. We see a recovery in GDP growth to 1.6% y/y in Q2 2017.

The long holiday weekend allows us to place Nigeria in the context of manufacturing PMI index readings for August elsewhere: 50.4 for Brazil, 51.2 for India, 51.6 and 51.7 for China (Caixin and official), 57.4 for the Eurozone and 58.8 for the US (ISM).

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